CAPITALIZATION
our Common Stock

        The following table sets forthIn the case of any recapitalization, reclassification or change of our common stock (other than changes resulting from a subdivision or combination), a consolidation, merger or combination involving us, a sale, lease or other transfer to a third party of our consolidated assets substantially as an entirety, or any statutory share exchange, in each case as a result of which our common stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or any combination thereof), then, at the effective time of the transaction, the right to convert a Note will be changed into a right to convert it into the kind and amount of shares or stock, other securities or other property or assets (including cash equivalents and our capitalization asor any combination thereof) that a Noteholder of September 30, 2005:

•

on an actual basis; and



•

on an as adjusted basis, reflecting (i) the sale by usa number of 1,500,000 shares of common stock equal to the applicable conversion rate prior to such transaction would have owned or been entitled to receive upon such transaction. In the event holders of our common stock have the opportunity to elect the form of consideration to be received in such transaction, the reference property will be the weighted average of the forms and amount of consideration received by the holders of our common stock that affirmatively make an election. This provision does not limit the rights of the Noteholders in the event of a fundamental change, including our obligation in certain cases to increase the conversion rate by the additional number of shares in connection with a conversion of the Notes.

        If we elect to settle all or any portion of our conversion obligation in cash or if we irrevocably elect to make a cash payment of principal upon conversion, Noteholders will receive in connection with any conversion:

 cash in an amount equal to the portion of our conversion obligation that we have elected to settle with cash (or up to the aggregate principal amount of Notes to be converted if we have irrevocably elected net share settlement upon conversion); and




 in lieu of the shares of our common stock otherwise deliverable, if any, reference property.




        If we elect to settle any conversion in whole or in part by delivering cash in respect of our conversion obligation or if we irrevocably elect to make a cash payment of principal upon conversion, the amount of cash and any reference property a Noteholder receives will be based on the daily conversion value amounts of reference property and the applicable conversion rate, as described above.

Fundamental Change Requires Us to Repurchase Notes at the Option of the Noteholder

        If a fundamental change occurs at any time prior to maturity of the Notes, each Noteholder will have the right to require us to repurchase some or all of that Noteholder’s Notes on a repurchase date that is not less than 20 nor more than 35 business days after the date of our notice of the fundamental change. We will repurchase such Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest (including liquated damages, if any) to but excluding the fundamental change repurchase date, unless such fundamental change repurchase date falls after a record date and on or prior to the corresponding interest payment date, in which case we will pay the full amount of accrued and unpaid interest (including liquated damages, if any) payable on such interest payment date to the Noteholder of record at the close of business on the corresponding record date. Notes will be repurchased only in integral multiples of $1,000 of principal amount (or the entire principal amount of the Notes held by the Noteholder).

        Within 15 calendar days after the occurrence of a fundamental change, we are required to give notice to all Noteholders of the occurrence of the fundamental change and of their resulting repurchase right and the fundamental change repurchase date. We must also deliver a copy of our notice to the trustee. To exercise the repurchase right, a Noteholder must deliver, on or before the fundamental change repurchase date specified in our notice, written notice to the trustee of the Noteholder’s exercise of its repurchase right, together with the Notes, including necessary endorsements, if certificated, with respect to which the right is being exercised.

        Noteholders may withdraw any written repurchase notice by delivering a written notice of withdrawal to the paying agent prior to the close of business on the repurchase date. The withdrawal notice must state:

 the principal amount of the withdrawn Notes;




 if certificated Notes have been issued, the certificate number of the withdrawn Notes (or, if a Noteholder’s Notes are not certificated, such withdrawal notice must comply with appropriate DTC procedures); and




33

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 the principal amount, if any, that remains subject to the repurchase notice.




        Payment of the repurchase price for a Note for which a repurchase notice has been delivered and not withdrawn is conditioned upon book-entry transfer or delivery of the Note, together with necessary endorsements, to the paying agent at its corporate trust office in the Borough of Manhattan, The City of New York, or any other office of the paying agent, at any time after delivery of the repurchase notice. Payment of the repurchase price for the Note will be made promptly following the later of the fundamental change repurchase date and the time of book-entry transfer or delivery of the Note. If the paying agent holds money sufficient to pay the repurchase price of the Note on the repurchase date, then, immediately after the repurchase date:

 the Note will cease to be outstanding;




 interest will cease to accrue; and




 all other rights of the Noteholder will terminate, other than the right to receive the repurchase price upon delivery of the Note.




        This will be the case whether or not book-entry transfer of the Note has been made or the Note has been delivered to the paying agent.

        A “fundamental change” will be deemed to have occurred upon a change of control or a termination of trading.

        A “change of control” will be deemed to have occurred at such time after the original issuance of the Notes when the following has occurred:

        (1)        a “person” or “group” within the meaning of Section13(d) of the Exchange Act other than us, our subsidiaries or our or their employee benefit plans, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of our common stock representing more than 50% of the voting power of our common stock entitled to vote generally in the election of directors;

        (2)        consummation of any transaction or event (whether by means of a liquidation, share exchange, tender offer, consolidation, recapitalization, reclassification, merger of us or any sale, lease or other transfer of 90% or more of our consolidated assets) or a series of related transactions or events pursuant to which our common stock is exchanged for, converted into or constitutes the right to receive cash, securities or other property; or

        (3)        continuing directors (as defined below in this offeringsection) cease to constitute at an assumed public offering priceleast a majority of $        per share, after deductingour board of directors.

        “Continuing director” means a director who either was a member of our board of directors on June 27, 2006 or who becomes a member of our board of directors subsequent to that date and whose appointment, election or nomination for election by our shareholders is duly approved by a majority of the underwriting discounts and commissions and estimated offering expenses payablecontinuing directors on our board of directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by us on behalf of the board of directors in which such individual is named as nominee for director.

        The beneficial owner shall be determined in accordance with Rule 13d-3 promulgated by the SEC under the Exchange Act. The term “person” includes any syndicate or group which would be deemed to be a “person” under Section13(d)(3) of the Exchange Act.

        A “termination of trading” will be deemed to have occurred if our common stock (or other common stock into which the Notes are then convertible) is neither listed for trading on the New York Stock Exchange nor approved for trading on the NASDAQ Global Market.

        Rule 13e-4 under the Exchange Act, as amended, requires the dissemination of certain information to security holders if an issuer tender offer occurs and (ii)may apply if the repaymentrepurchase option becomes available to Noteholders. We will comply with this rule to the extent applicable at that time. We may, to the extent permitted by applicable law, at any time purchase the Notes in the open market or by tender at any price or by private agreement. Any Note so purchased by us may, to the extent permitted by applicable law, be reissued or resold or may be surrendered to the trustee for cancellation. Any Notes surrendered to the trustee may not be reissued or resold and will be canceled promptly.

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        The foregoing provisions would not necessarily protect Noteholders if highly leveraged or other transactions involving us occur that may adversely affect Noteholders. Our ability to repurchase Notes upon the occurrence of indebtedness outstandinga fundamental change is subject to important limitations. Under certain circumstances, a fundamental change will constitute an event of default under the Credit Facility, thereby potentially limiting the financial resources we have to satisfy any cash obligations in respect of the Notes and also resulting in an event of default with respect to the Notes. In addition, any future credit agreements or other agreements relating to our indebtedness may contain provisions prohibiting repurchase of the Notes under certain circumstances, or expressly prohibit our repurchase of the Notes upon a fundamental change or may provide that a fundamental change constitutes an event of default under that agreement. If a fundamental change occurs at a time when we are prohibited from repurchasing Notes, we could seek the proceedsconsent of our lenders to repurchase the Notes or attempt to refinance this offering.

        You should read this tableIf we do not obtain consent, we would not be permitted to repurchase the Notes. Our failure to repurchase tendered Notes would constitute an event of default under the indenture, which might constitute a default under the terms of our other indebtedness. No Notes may be repurchased by us at the option of the Noteholders upon a fundamental change if the principal amount of the Notes has been accelerated, and such acceleration has not been rescinded, on or prior to such date.

        The fundamental change repurchase feature of the Notes may in conjunctioncertain circumstances make it more difficult or discourage a takeover of our company. The fundamental change repurchase feature, however, is not the result of our knowledge of any specific effort to accumulate shares of our common stock, to obtain control of us by means of a merger, tender offer solicitation or otherwise, or by management to adopt a series of anti-takeover provisions. Instead, the fundamental change repurchase feature is a standard term contained in securities similar to the Notes, is limited to specified transactions and may not include other events that might adversely affect our financial condition or results of operations.

Consolidation, Merger and Sale of Assets

        We may, without the consent of the Noteholders, consolidate with, merge into or sell, lease or otherwise transfer in one transaction or a series of related transactions the consolidated assets of ours and our subsidiaries substantially as an entirety to any corporation, limited liability company, partnership or trust organized under the laws of the United States or any of its political subdivisions provided that:

        Under any consolidation, merger, sale, lease or other transfer of Proceeds," "Selected Consolidated Financial Data"our assets as described in the preceding paragraph, the successor company will be our successor and "Management's Discussionshall succeed to, and Analysisbe substituted for, and may exercise every right and power of, Financial Condition and Results of Operations" and with our consolidated financial statements and related notes included elsewhere in this prospectus.

(1)

As of September 30, 2005, we had $87.2 million of indebtedness outstanding and $0.4 million of letters of credit issuedLifetime Brands,Inc. under the Credit Facility,indenture. If we are still in existence after the transaction, we will be released from our obligations and $12.4 million as available borrowings thereunder.

covenants under the indenture and the Notes.

SELECTED CONSOLIDATED FINANCIAL DATA
Events of Default

        The table appearing below sets forth Each of the following constitutes an event of default under the indenture:

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        “Significant subsidiary” has the meaning set forth in the definition thereof in RegulationS-X under the Securities Act.

        If an event of default specified in the seventh bullet point above occurs and is continuing, then the principal of all the Notes and the interest thereon shall automatically become immediately due and payable. If an event of default shall occur and be continuing, other than an event of default specified in the seventh bullet point above, the trustee or the Noteholders of at least 25% in aggregate principal amount of the Notes then outstanding may declare the Notes due and payable at their principal amount together with accrued interest, and thereupon the trustee may, at its discretion, proceed to protect and enforce the rights of the Noteholders by appropriate judicial proceedings. Such declaration may be rescinded and annulled with the written consent of the Noteholders of a majority in aggregate principal amount of the Notes then outstanding on behalf of all Noteholders, subject to the Condensed Consolidated Financial Statements beginning on page F-30.

        For the nine months ended September 30, 2005, we generated net sales of $183.5 million, which represented growth of 51.2% over the corresponding period in the previous year. Excluding approximately $29.0 million in net sales attributable to the Pfaltzgraff businesses that we acquired in July 2005, net sales for the first nine months of 2005 increased approximately 27% to $154.5 million. The Salton business we acquired on September 19, 2005 did not have any sales from the date of acquisition through September 30, 2005 and the expenses incurred during the period were not material to our results of operations.

        For the year ended December 31, 2004, we generated net sales of $189.5 million, which represented growth of 18.1% over the previous year. The combined net sales in 2004 for the Gemco Ware, Inc. ("Gemco"), :USE® and Excel businesses were approximately $14.3 million compared to $0.6 million in 2003. Excluding the impact of these acquisitions, net sales for 2004 were approximately $175.2 million, a 9.6% growth over 2003. The 9.6% increase in sales was primarily attributable to the continuing growth in demand for KitchenAid® branded products and higher Outlet Store sales, offset by lower sales in 2004 of our S'mores Maker™. Net sales for the Outlet Stores in 2004 were $15.9 million compared to $11.0 million in 2003. The sales growth for the Outlet Stores was principally attributable to our assuming responsibility for an additional 20%provisions of the floor space in each store, effective October 1, 2003.

        Our gross profit margin is subject to fluctuation due primarily to product mix and, in some instances, customer mix. In 2004 our gross profit margin declined as a substantial portion of our sales growth came from sales of KitchenAid® branded products, which generate lower margins due to the added cost of royalties, and increased sales of other product lines, including Gemco® functional glassware and Excel products, that generate lower gross profit margins.

        Our operating profit margin declined in 2004 due to three factors: (i) the $14.3 million in sales for the recently acquired Gemco, :USE and Excel businesses generated a small operating loss in 2004, (ii) the distribution of our products through our outlet stores generated higher sales and a larger operating loss in 2004 compared to 2003 and (iii) added personnel costs incurred in 2004 to expand the product design group, the overseas sourcing department and our sales and marketing departments to accommodate future growth. In addition, we incurred in excess of $900,000 of direct expenses in 2004 related to Sarbanes-Oxley compliance work.

Seasonality

        Our business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters. In 2004, 2003 and 2002, net sales for the third and fourth quarters accounted for 63%, 66% and 61% of total annual net sales, respectively. Moreover, operating profits earned in the third and fourth quarters accounted for 92%, 97% and 100% of total annual operating

profits, respectively. Inventory levels increase primarily in the June through October time period in anticipation of the pre-holiday shipping season.indenture.

        The acquisitionNoteholders of Pfaltzgraff will significantly increasea majority in aggregate principal amount of Notes at the portiontime outstanding through their written consent, or the Noteholders of our salesa majority in aggregate principal amount of Notes then outstanding represented at a meeting at which a quorum is present by a written resolution, may waive any existing default or event of default and operating profits that are generated duringits consequences except any default or event of default:

        Noteholders of 2006, as compareda majority in aggregate principal amount of the Notes then outstanding through their written consent, or the Noteholders of a majority in aggregate principal amount of the Notes then outstanding represented at a meeting at which a quorum is present by a written resolution, may direct on behalf of all Noteholders the time, method and place of conducting any proceeding for any remedy available to the first and second quarterstrustee or exercising any trust or power conferred upon the trustee, subject to the provisions of 2005.

Critical Accounting Policies and Estimates

        Management's Discussion and Analysisthe indenture. The indenture contains a provision entitling the trustee, subject to the duty of Financial Condition and Results of Operations includesthe trustee during a discussion on the unaudited condensed consolidated financial statements which have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information anddefault to act with the instructionsrequired standard of care, to Form 10-Q and Article 10be indemnified by the Noteholders before proceeding to exercise any right or power under the indenture at the request of Regulation S-X.such Noteholders. The preparationrights of these financial statements requires managementNoteholders to make estimates and assumptions that affectpursue remedies with respect to the reported amounts of assets and liabilitiesindenture and the 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. On an on-going basis, management evaluates its estimates and judgments based on historical experience and on various other factors thatNotes are believedsubject to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We believe that the following discussion addresses our most critical accounting policies.

        Merchandise inventories, consisting principally of finished goods, are priced under the lower-of-cost (first-in, first-out basis) or market method. Our management periodically reviews and analyzes inventory based on a number of factors including, but not limited to, future product demand for items and estimated profitabilityadditional requirements set forth in the indenture.

        The indenture provides that the trustee shall, within 90 calendar days of merchandise.

        We sell products wholesale to retailers and distributors and retail directthe occurrence of a default, give to the consumer through our outlet stores,registered Noteholders notice of all uncured defaults known to it, but the Internet and our catalog operations. Wholesale sales are recognizedtrustee shall be protected in withholding such notice if it, in good faith, determines that the withholding of such notice is in the best interest of such registered Noteholders, except in

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the case of a default in the payment of the principal of, or premium, if any, or interest on, any of the Notes when title passes to anddue or in the risks and rewardspayment of ownership have transferred to the customer. Outlet store sales are recognized at the time of sale while Internet and catalog sales are recognized upon shipment to the customer. Shipping and handling fees that are billed to customers in sales transactions are recorded in net sales.any conversion or repurchase obligation.

        We are required to estimatefurnish annually to the collectibilitytrustee a statement as to the fulfillment of our accounts receivable. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

        Effective January 1, 2002, we adopted Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. Accordingly, we ceased amortizing goodwill effective January 1, 2002. For the year ended December 31, 2004, we completed our annual assessment and based upon such assessment, no impairment to the carrying value of goodwill was identified.

        Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that a long-lived asset shall be tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Based upon such review, no impairment to the carrying value of any long-lived asset has been identified at September 30, 2005.

        In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, "Share Based Payment: an Amendment to FASB Statements 123 and 95." This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. In April 2005, the SEC deferred the implementation of SFAS No. 123R. As a result, we plan to adopt SFAS No 123R effective January 1, 2006. We are currently evaluating the impact of this statement on our financial statements.

Results of Operations

        The following table sets forth our income statement data as a percentage of net sales for the periods indicated below.

Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004

        Net Sales.    Net sales for the nine months ended September 30, 2005 were $183.5 million, an increase of $62.1 million, or 51.2%, as compared to the nine months ended September 30, 2004. Net sales for the nine months ended September 30, 2005 for the Excel business that was purchased in July 2004 and the Pfaltzgraff business that was purchased in July 2005 were $6.6 million and $29.0 million, respectively. Excluding net sales attributable to these acquired businesses, net sales for the nine months ended September 30, 2005 totaled $147.9 million, a 24.8% increase over the $118.5 million of net sales recorded for the comparable 2004 period excluding net sales of Excel of $2.9 million.

        Net sales for our wholesale segment increased to $154.2 million for the nine months ended September 30, 2005 compared to net sales of $111.6 million for the comparable 2004 period. Excluding wholesale net sales of Pfaltzgraff and Excel of $11.1 million and $6.6 million, respectively, for the nine months ended September 30, 2005, net sales were $136.5 million, an increase of 25.6% over the 2004 period net sales of $108.7 million excluding net sales of Excel of $2.9 million. This increase was primarily attributable to significantly higher sales of cutlery products, particularly our newly introduced lines of KitchenAid® branded cutlery along with higher sales of Farberware® cutlery, and solid growth in sales of KitchenAid® and Farberware® branded kitchen tools and gadgets and Roshco® and KitchenAid® bakeware.

        Net sales for our direct-to-consumer segment increased to $29.3 million for the nine months ended September 30, 2005 compared to net sales of $9.8 million for the comparable 2004 period. The increase was due primarily to the acquisition of the Pfaltzgraff outlet stores, Internet and catalog operations which had sales of $17.9 million for the nine months ended September 30, 2005.

        Cost of Sales.    Cost of sales for the nine months ended September 30, 2005 was $105.0 million, an increase of 47.0% over the comparable 2004 period. Cost of sales as a percentage of net sales was

57.2% for the nine months ended September 30, 2005 compared to 58.8% for the nine months ended September 30, 2004, the result of a higher proportion of sales in the 2005 period coming from the direct-to-consumer segment where gross profit margins are higher than the wholesale segment.

        Cost of sales as a percentage of sales for the wholesale segment improved to 59.5% for the nine months ended September 30, 2005, compared to 59.7% for the nine months ended September 30, 2004. The improvement in gross profit margin was primarily attributable to product mix.

        Cost of sales as a percentage of net sales in the direct-to-consumer segment improved to 45.1% for the nine months ended September 30, 2005 compared to 48.8% for the nine months ended September 30, 2004. The improvement in gross profit margin was attributable to the acquisition of the Pfaltzgraff direct-to-consumer business that included Internet and catalog operations that generated higher margins than our outlet store operations.

        Distribution Expenses.    Distribution expenses for the nine months ended September 30, 2005 were $22.2 million, an increase of $5.8 million or 35.1% from the comparable 2004 period. Distribution expenses as a percentage of net sales was 12.1% for the nine months ended September 30, 2005 compared to 13.5% for nine months ended September 30, 2004. This improvement primarily reflects the benefit of labor savings and efficiencies generated by our largest distribution center in Robbinsville, New Jersey.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the nine months ended September 30, 2005 were $43.9 million, an increase of $16.0 million or 57.4% over the comparable 2004 period. Selling, general and administrative expenses for the nine months ended September 30, 2005 for the Pfaltzgraff business that was acquired in July 2005 were $10.8 million. Excluding expenses for the Pfaltzgraff business, selling, general and administrative expenses were $33.1 million, an 18.6% increase over selling, general and administrative expenses for the nine months ended September 30, 2004.

        As a percentage of net sales, selling, general and administrative expenses for the nine months ended September 30, 2005 were 23.9%, as compared to 23.0% for the nine months ended September 30, 2004. The increase in the percentage relationship of selling, general and administrative expenses to net sales is due to a higher proportion of sales during the 2005 period coming from the direct-to-consumer segment where such expenses are considerably higher than the wholesale segment.

        Income From Operations.    Income from operations for the nine months ended September 30, 2005 was $12.5 million, an increase of 119.0%, or $6.8 million, over the comparable 2004 period. Income from operations for the nine months ended September 30, 2005 for Pfaltzgraff was $0.7 million. Excluding income from operations for Pfaltzgraff, income from operations was $11.8 million, a 107.0% increase over income from operations for the 2004 period.

        We measure operating income by segment excluding certain unallocated corporate expenses. Unallocated corporate expenses for the nine months ended September 30, 2005 and 2004 were $4.7 million and $3.5 million, respectively.

        Income from operations for the wholesale segment for the nine months ended September 30, 2005 was $18.2 million, an increase of 67.8%, or $7.4 million, over the comparable 2004 period. The Pfaltzgraff wholesale business had $0.4 million of income from operations for the period July 11, 2005 (acquisition date) to September 30, 2005. Excluding Pfaltzgraff, income from operations for the wholesale segment was $17.8 million, a 63.3% increase over income from operations for the 2004 period.

        The loss from operations for the direct-to-consumer segment for the nine months ended September 30, 2005 was $1.0 million compared to a loss of $1.7 million for the comparable 2004 period. The Pfaltzgraff direct-to-consumer business generated $0.3 million of income from operations

for the nine months ended September 30, 2005. Excluding the income from operations for the Pfaltzgraff business, the loss from operations for the direct-to-consumer segment was $1.3 million for the 2005 period.

        Interest Expense.    Interest expense for the nine months ended September 30, 2005 was $1.4 million compared with $0.5 million for the nine months ended September 30, 2005. The increase in interest expense is due to an increase in borrowings outstandingobligations under the Credit Facility, the proceeds of which were used primarily to fund the acquisitions of Pfaltzgraff and Salton, and an increase in interest rates.

        Income Taxes.    Income tax expense for the nine months ended September 30, 2005 was $4.2 million as compared to $2.1 million in the comparable 2004 period. The increase in income tax expense is primarily related to the growth in income before taxes from 2004 to 2005. Our marginal income tax rate decreased to approximately 38.0% in 2005 compared to 39.8% in 2004 due to lower state apportionment factors.

Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003

        Net Sales.    Net sales in 2004 were $189.5 million, an increase of approximately $29.1 million, or 18.1% higher than 2003. The combined net sales in 2004 for the Gemco and :USE businesses acquired in the fourth quarter of 2003 and the Excel business that was acquired in July 2004, totaled approximately $14.3 million compared to $0.6 million in 2003. The Outlet Stores sales were $15.9 million in 2004 compared to $11.0 million in 2003. Excluding the net sales attributable to the Gemco, :USE, and Excel businesses and the Outlet Stores, net sales totaled approximately $159.2 million, a 7.0% increase over 2003's sales of $148.7 million. The increase in sales was primarily attributable to increased sales of KitchenAid® branded products in our kitchenware, bakeware and cutlery product lines and, to a lesser extent, higher sales of our pantryware products. These sales increases in 2004 were offset primarily by lower sales of our S'mores Maker™. Sales of Farberware® and Cuisinart® branded cutlery and Roshco® branded bakeware also declined in 2004.

        The Outlet Stores sales increased to $15.9 million compared to $11.0 million in 2003. The Outlet Stores sales growth was principally attributable to our assuming responsibility for 70% of the space in each store, effective October 1, 2003, compared to 50% of the space in prior periods. The Outlet Stores had an operating loss of $1.3 million in 2004, compared to an operating loss of $1.0 million in 2003.

        Cost of Sales.    Cost of sales for 2004 was $111.5 million, an increase of approximately $18.6 million, or 20.0% higher than 2003. Cost of sales as a percentage of net sales increased to 58.9% in 2004 from 57.9% in 2003, primarily as a result of higher sales of KitchenAid® branded products which generate lower margins due to the added costs of royalties and an increase in sales of other products that carry lower gross profit margins, including Gemco® functional glassware products and Excel products.

        Distribution Expenses.    Distribution expenses, which primarily consist of warehousing expenses, handling costs of products sold and freight-out expenses, were $22.8 million for 2004 as compared to $21.0 million for 2003.indenture. In 2003 these expenses included relocation charges, duplicate rent and other costs associated with our move into the Robbinsville, New Jersey distribution facility amounting to $0.7 million. No such expenses were incurred in 2004. Excluding these moving related costs, distribution expenses were 12.3% higher in 2004 as compared to 2003. However, as a percentage of net sales, distribution expenses, excluding the aforementioned relocation charges, were 12.0% in 2004 as compared to 12.7% in 2003. This improved relationship reflects primarily the benefits of labor savings and efficiencies generated by our main distribution center in Robbinsville, New Jersey.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for 2004 were $40.3 million, an increase of $8.5 million, or 26.8%, from 2003. The increase in selling, general and administrative expenses was primarily attributable to the following: increased Outlet Store operating expenses, resulting from our being responsible for 70% of the space and expenses of each store for the last three months of 2003 and all of 2004 compared to 50% of the space and expenses of each store for the first nine months of 2003; additional operating expenses of the :USE, Gemco and Excel businesses recently acquired; the higher personnel costs associated with planned personnel increases in the product design group, the overseas sourcing department and sales and marketing departments and expenses related to Sarbanes-Oxley compliance work.

        Interest Expense.    Interest expense for 2004 was $0.8 million, an increase of $0.1 million, or 15.3%, from 2003.

        Income Taxes.    Income taxes for each of 2004 and 2003 were $5.6 million. Income taxes as a percentage of income before taxes remained consistent from year-to-year at approximately 40%.

Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002

        Net Sales.    Net sales in 2003 were $160.4 million, an increase of approximately $29.1 million, or 22.2% higher than 2002. The increase in sales volume was attributable primarily to increased shipments of KitchenAid® branded kitchen tools and gadgets and bakeware, our newly designed S'mores Maker™ and Kamenstein pantryware products. The Outlet Stores sales increased to $11.0 million compared to $10.3 million in 2002. We became responsible for 70% of the space and expenses in each store, effective October 1, 2003, compared to 50% of the space and expenses in prior periods. The Outlet Stores had an operating loss of $1.0 million in 2003, compared to an operating loss of $0.1 million in 2002.

        Cost of Sales.    Cost of sales for 2003 was $92.9 million, an increase of approximately $19.8 million, or 27.0% more than 2002. Cost of sales as a percentage of net sales increased to 57.9% in 2003 from 55.7% in 2002, due primarily to higher sales of licensed branded products which generate lower margins due to the added costs of royalties and a higher cost of sales-to-net sales relationship for Kamenstein products in 2003. In addition, the amount of direct import sales increased in 2003. These sales relate to products shipped directly from contract manufacturers to our retail customers and therefore carry lower gross profit margins as the pricing of such sales recognizes that we do not incur any warehousing or distribution costs.

        Distribution Expenses.    Distribution expenses, which primarily consist of warehousing expenses, handling costs of products sold and freight-out expenses, were $21.0 million for 2003 as compared to $22.2 million for 2002. These expenses included relocation charges, duplicate rent and other costs associated with our move into our Robbinsville, New Jersey distribution facility amounting to $0.7 million in 2003 and $2.2 million in 2002. Excluding these moving related costs, distribution expenses were 1.2% higher in 2003 as compared to 2002 due to higher depreciation expense related to capital expenditures for the new automated distribution system and related equipment, offset by lower payroll costs. As a percentage of net sales, distribution expenses, excluding the aforementioned relocation charges, were 12.7% in 2003 as compared to 15.3% in 2002. This improved relationship reflects the benefits of labor savings generated by the new systems in our Robbinsville, New Jersey distribution facility.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for 2003 were $31.8 million, an increase of $2.8 million, or 9.8%, from 2002. The increase in selling, general and administrative expenses was primarily attributable to increased personnel costs, including planned personnel additions in the sales and product design departments, increased commission expense related to the higher sales volume and higher consulting fees.

        Interest Expense.    Interest expense for 2003 was $0.7 million, a decrease of $0.3 million, or 27.9%, from 2002. The decrease was attributable to a decrease in the average level of borrowings outstanding during 2003 under the Credit Facility.

        Income Taxes.    Income taxes for 2003 were $5.6 million, an increase of $3.2 million or 131.6%, from 2002. The increase in income taxes was directly related to the increase in income before taxes from 2002 to 2003. Income taxes as a percentage of income before taxes remained consistent from year-to-year at approximately 40%.

Liquidity and Capital Resources

        Our principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings available under the Credit Facility. Our primary uses of funds consist of capital expenditures, acquisitions, funding for working capital increases, payments of principal and interest on our debt and payment of cash dividends.

        At September 30, 2005, the Company had cash and cash equivalents of $0.1 million compared to $1.7 million at December 31, 2004.

        Operations for the nine-month period ended September 30, 2005 after adjustment for non-cash items, provided cash of approximately $18.6 million. During the period, other changes in operating assets and liabilities used cash of approximately $29.7 million. This resulted in net cash used by operating activities of approximately $11.1 million.

        Investing activities for the nine-month period ended September 30, 2005 used cash of approximately $51.8 million for purchases of property and equipment and for the Pfaltzgraff and Salton acquisitions.

        Financing activities for the nine-month period ended September 30, 2005 provided cash of approximately $61.2 million. The amount includes (i) net proceeds from short-term borrowings of $62.8 million, (ii) proceeds from the exercise of stock options of $0.7 million, (iii) payment of capital lease obligations of $0.2 million and (iv) cash dividends paid of approximately $2.1 million.

        Capital expenditures were $4.8 million for the nine months ended September 30, 2005, $2.9 million for the year ended December 31, 2004 and $2.2 million for the year ended December 31, 2003. Total planned capital expenditures for 2005 are estimated at $6.5 million. In 2006, our planned capital expenditures are estimated at $12.0 million, including $4.0 million in expected costs related to the proposed expansion of our corporate headquarters and showroom in Westbury, New York. These expenditures are expected to be funded from current operations, cash and cash equivalents and, if necessary, borrowings under the Credit Facility.

        In October 2005, the Board of Directors of the Company declared a regular quarterly cash dividend of $0.0625 per share to stockholders of record on November 4, 2005, to be paid on November 18, 2005.

        We acquired the business and certain assets of Pfaltzgraff in July 2005 for a total purchase price of approximately $38.1 million and certain components of the business and related assets of Salton, Inc. in September 2005 for a total purchase price of approximately $14.0 million subject to post closing adjustments. The acquisitions were funded by borrowings under the Credit Facility.

        As of December 31, 2004, our contractual obligations were as follows (in thousands of dollars):

        In July 2005, we amended our $50 million secured credit facility to increase the size of the facility to $100 million and to extend its maturity to July 2010. Borrowings under the Credit Facility are secured by all of our assets. Under the terms of the Credit Facility, we are required to satisfy certain financial covenants, including limitations on indebtednessfile with the trustee a written notice of the occurrence of any default or event of default within five business days of our becoming aware of the occurrence of any default or event of default.

Modification, Waiver and saleMeetings

        The indenture contains provisions for convening meetings of assets; a minimum fixed charge ratio; a maximum leverage ratio and maintenance of a minimum net worth. At September 30, 2005, we were in compliance with these covenants. Borrowings under the Credit Facility have different interest rate options that are based on an alternate base rate, the LIBOR rate and the lender's cost of funds rate, plus in each case a margin based on a leverage ratio. As of September 30, 2005, we had $0.4 million of letters of credit and trade acceptances outstanding and $82.2 million of short-term borrowings and a $5.0 million term loan under our Credit Facility, and as a result, the availability under the Credit Facility was $12.4 million. The $5.0 million long-term loan is non-amortizing, bears interest at 5.07% and matures in August 2009. Interest rates on short-term borrowings at September 30, 2005 ranged from 4.0%Noteholders to 6.4%.

        Products are sold to retailers primarily on 30-day credit terms, and to distributors primarily on 60-day credit terms.

        We believe that our cash and cash equivalents, internally generated funds and our existing credit arrangements will be sufficient to finance our operations for at least the next twelve months.consider matters affecting their interests.

        The results of our operations for the periods discussed have not been significantly affected by inflation or foreign currency fluctuation. We negotiate all of our purchase orders with our foreign manufacturers in United States dollars. Thus, the cost of our purchase orders is generally not subject to change after the time the order is placed. However, the weakening of the United States dollar against local currencies could lead certain manufacturers to increase their United States dollar prices for products. We believe we would be able to compensate for any such price increase.

Seasonality

        Our business and working capital needs are highly seasonal, with a significant majority of our sales occurring in the third and fourth quarters. In 2004, 2003 and 2002, net sales for the third and fourth quarters combined accounted for approximately 63%, 66% and 61% of total annual net sales, respectively, and operating profit earned in the third and fourth quarters combined accounted for approximately 92%, 97% and 100% of total annual profits, respectively. Our inventory levels increase primarily in the June through October time period in anticipation of the pre-holiday shipping season. The following table sets forth selected unaudited quarterly statement of operations information for the first three quarters of 2005, as well as for all of 2004 and 2003. The unaudited quarterly information includes all normal recurring information. Because of the seasonality of our business and other factors,

results for any interim period are not necessarily indicative of the results that may be achieved for the full fiscal year.

Market Risk

        Market risk represents the risk of loss that may impact our consolidated financial position, results of operations or cash flows. We are exposed to market risk associated with changes in interest rates. The Credit Facility bears interest at variable rates and, therefore, we are subject to increases and decreases in interest expense resulting from fluctuations in interest rates. There have been no changes in interest rates that would have a material impact on our consolidated financial position, results of operations or cash flows for the year ended December 31, 2004.

BUSINESS

Overview

        We are a leading designer, developer and marketer of a broad range of nationally branded consumer products used in the home. We market our products under some of the most well-respected and widely-recognized brand names in the U.S. housewares industry including three of the four most recognized brands in the "Kitchen Tool, Cutlery and Gadgets" product category according to the HFN Brand Survey for 2005. We primarily target moderate to premium price points through every major level of trade. We generally market several lines within each of our product categories, often under more than one brand. At the heart of our company is a strong culture of innovation and new product development. We expect to develop or redesign over 700 products in 2005 and over 800 products in 2006. We have been sourcing our products in Asia for over 40 years; we currently source our products from approximately 125 suppliers located primarily in China. In June 2005, we changed our name from Lifetime Hoan Corporation to Lifetime Brands, Inc. to better reflect our business.

        Our five main product categories are: (1) Kitchenware (which includes kitchen tools and gadgets, barbecue accessories and functional glassware), (2) Tabletop (which includes dinnerware, crystal, flatware, glassware, serveware, tabletop accessories and barware), (3) Cutlery and Cutting Boards, (4) Bakeware (which includes bakeware and fondues) and (5) Pantryware and Spices (which includes pantryware, spices and spice racks). Our principal brands and their respective product categories include:

        We also sell and market our products under the following brands and trademarks which we own or license: Atlantis (Tabletop), Baker's Advantage® (Bakeware), Block® (Tabletop), CasaModa™ (Tabletop), Cuisine de France® (Cutlery and Cutting Boards), DBK™ Daniel Boulud Kitchen (Cutlery and Cutting Boards, Bakeware, Pantryware and Spices), Gemco® (Tabletop), Hershey®'s (Bakeware), Hoan® (Kitchenware), Joseph Abboud Environments® (Tabletop), Kamenstein® (Pantryware and Spices), Kathy Ireland Home® (Tabletop), NapaStyle™ (Tabletop), Nautica® (Tabletop), Retroneu® (Tabletop), Roshco® (Bakeware), Sasaki® (Tabletop), Stiffel® (Tabletop) and Weir in Your Kitchen™ (Bakeware). In addition, we sell and market products in the Bath Hardware and Accessories product category under our :USE® and Gemco® brands and we sell and market products in the Cookware product category under the DBK™ Daniel Boulud Kitchen brand.

        We continuously innovate and introduce hundreds of new products across all of our product categories and brands each year. The substantial majority of our products are designed and developed in-house by our design and development team, which consists of 55 professional artists, designers and engineers. Utilizing the latest available design tools, technology and materials, we work closely with our suppliers to enable efficient and timely manufacturing of our products.

        We sell our products to a diverse nationwide customer base including mass merchants (such as Wal-Mart and Target), specialty stores (such as Bed Bath & Beyond and Linens 'n Things), national chains (such as JC Penney, Kohl's and Sears), department stores (such as Bloomingdale's, Macy's and Saks), warehouse clubs (such as Costco, BJ's Wholesale Club and Sam's Club), home centers (such as Lowe's and The Home Depot), supermarkets (such as Stop & Shop and Kroger) and off-price retailers (such as Marshalls, T.J. Maxx and Ross Stores), as well as through other channels of distribution.

Wal-Mart Stores, Inc.indenture (including Sam's Club), which accounted for 24% of our net sales in 2004, is our single largest customer.

        We also sell our products directly to the consumer through our own mail order catalogs, outlet stores and the Internet. We have 119 outlet stores in 35 states operating under the Farberware® or Pfaltzgraff® brands.

        Our 21 most important retail customers are each serviced by an in-house team that includes representatives from our sales, marketing, merchandising and product development departments. We generally collaborate with our retail customers and in many instances produce specific versions of our product lines with exclusive designs and packaging for their stores, which are appropriately priced for their respective customer bases.

        Our six primary distribution centers are strategically located near the ports of entry for our products on the East and West Coasts and afford us nationwide distribution capabilities. Our largest distribution center is a modern facility located in Robbinsville, New Jersey. We also operate two additional distribution facilities located in York, Pennsylvania which were acquired in connection with the Pfaltzgraff acquisition and a distribution facility located in Winchendon, Massachusetts. In addition, we utilize two facilities located in California, which are both operated for us by a third-party logistics provider.

        For the year ended December 31, 2004, we generated net sales of $189.5 million, which represented growth of 18.1% over the previous year. For the nine months ended September 30, 2005, we generated net sales of $183.5 million, which represented growth of 51.2% over the corresponding period in the previous year. Excluding approximately $29 million in net sales attributable to the Pfaltzgraff businesses that we acquired in July 2005, net sales for the first nine months of 2005 increased approximately 27% to $154.5 million. Our business and working capital needs are highly seasonal, with a significant majority of our sales occurring in the third and fourth quarters. In 2004, 2003 and 2002, net sales for the third and fourth quarters combined accounted for approximately 63%, 66% and 61% of total annual net sales, respectively, and operating profit earned in the third and fourth quarters combined accounted for approximately 92%, 97% and 100% of total annual profits, respectively.

        With the recent addition of retail outlet store, Internet and mail-order catalog businesses from Pfaltzgraff, we have determined that we now operate in two reportable segments—wholesale and direct-to-consumer. The wholesale segment is comprised of our business that designs, markets and distributes household products to retailers and distributors. The direct-to-consumer segment is comprised of our business that sells household products directly to the consumer through our retail outlet stores, the Internet and our mail-order catalogs. We have segmented our operations in a manner that reflects how management reviews and evaluates the results of our operations. While both segments distribute similar products, the segments are distinct due to their different types of customers and the different methods used to sell, market and distribute the products in each segment.

        Additional information regarding our "Business Segment" performance is discussed under "—Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004" above and is included in Note F of the Notes to the Condensed Consolidated Financial Statements beginning on page F-30.

        We have assembled a seasoned management team with experience and talent in the housewares and consumer products industries. Our management team is focused on growing our business by capitalizing on the reputation of our well-respected and widely-recognized brands, our strengths in product design and innovation, our product sourcing experience and expertise and our long-term retail customer and supplier relationships.

Our Industry

        According to the International Housewares Association, or IHA, the Housewares segment in the U.S. housewares industry, in which we directly compete, generated retail revenue of approximately $10.0 billion in 2004, however, we do not currently offer products in all categories included in the Housewares segment. The U.S. housewares industry is highly fragmented. We estimate there are approximately 2,200 companies in the housewares industry, of which approximately 1,700 are member companies of the IHA. The three largest distribution channels in the U.S. housewares industry are Discount Stores/Supercenters, Department Stores and Specialty Stores.

        According to the IHA, the Housewares segment of the U.S. housewares industry has grown 18.6% from 1999 to 2004, including an increase of 4.7% from 2003 to 2004. However, growth of individual product categories varies and some new categories have experienced even higher growth, such as silicone bakeware, which, according to HomeWorld, an industry publication, grew at an estimated average annual rate of 53.7% between 2000 and 2003.

        According to HomeWorld, the list below shows total 2004 retail sales in the United States for those product categories in which we currently compete and for which data is available:

•

Kitchen Tools and Gadgets: $922.0 million



•

Tabletop: $1,911.1 million



•

Cutlery: $368.7 million



•

Bakeware: $733.5 million

        We believe that brands play an increasingly important role in consumers' purchasing decisions in the Housewares segment. The perceived value of a brand may result in a greater willingness on the part of a consumer to purchase a product at a higher price. We believe that many consumers in our categories make purchasing decisions based primarily on the perceived value of the brand.

        We believe that growth in our product categories of the U.S. housewares industry will be driven primarily by the following factors:

•

new household formations in the United States;



•

increasing consumer focus on the home, food preparation and at-home entertaining;



•

strong consumer preference for branded consumer products; and



•

greater overall retail sales of consumer products.

        We believe that we are well positioned to capitalize on these trends. We have recognizable brands, a portfolio of innovative products and a sophisticated and scalable distribution system, which we believe are important factors to our ability to grow in the future.

Competitive Strengths

        We believe that the following key competitive strengths, among others, will contribute to our continued success:

        Broad Portfolio of Powerful Brands.    Our products are marketed under some of the most well-respected and well-recognized brand names in our industry, which enables us to differentiate our product lines from lesser known brands and commodity items in the eyes of both our retail customers and consumers. According to the HFN Brand Survey for 2005, KitchenAid®, Farberware®, Cuisinart® and Hoffritz® ranked #1, #2, #4 and #14, respectively, in their "Kitchen Tool, Cutlery and Gadgets" category. The use of these brands together with our recently acquired brands, including Atlantis, Block®, Calvin Klein®, DBK™ Daniel Boulud Kitchen, Joseph Abboud Environments®, Kathy Ireland Home®, NapaStyle™, Nautica®, Pfaltzgraff®, Retroneu®, Sasaki®, Stiffel® and Weir In Your Kitchen™, as well as our other well respected brands, including Roshco®, Baker's Advantage®, Kamenstein®, CasaModa™, Hoan®, Gemco® and :USE®, enables us to differentiate our product lines

from lesser-known brands and commodity items in the eyes of both our retail customers and consumers. We also provide a broad range of products and product lines within each brand and each product category, primarily targeting moderate to premium price points. We believe that our broad portfolio of brands and the use of sub-brands to differentiate product lines within each brand effectively address the needs of our diverse retail customer base.

        Proven Track Record of Innovation and New Product Introductions.    Our strategy is to constantly innovate and to introduce hundreds of new products across all of our brands each year. Our strong in-house product design and development capabilities allow us to continuously expand and refresh our product offerings according to our customers' preferences. The substantial majority of our products are designed and developed in-house by our design and development team, which consists of 55 professional artists, designers and engineers. Utilizing the latest available design tools, technology and materials, we work closely with our suppliers to enable efficient and timely manufacturing of our products. In addition to styling and designing numerous products within each of our categories and each of our brands, our design and development team invents products with entirely new functionalities. We also utilize our design and development capabilities to help our suppliers achieve manufacturing efficiencies and to introduce new manufacturing technologies. In addition, our in-house design capabilities lower product development costs and shorten the "time-to-market" of new products.

        We expect to develop or redesign over 700 products in 2005 and over 800 products in 2006. The invention of new products has occurred throughout our history. For example, we invented the knife block, the knife carousel, the silicone gripper, the cookie slider and the patent pending PerfectTear® Paper Towel Holder, the first paper towel holder designed with an internal ratchet mechanism to allow paper towels to be removed easily with one hand, one sheet at a time.

        Established Sourcing Expertise.    We have been sourcing products in Asia for over 40 years and we currently have two sourcing offices staffed by our employees in China. Our personnel's significant sourcing expertise allows us to determine where to source our products for the best prices and quality. By not investing in manufacturing facilities, we are able to minimize our fixed costs and concentrate on efficiently managing our suppliers' variable costs of production. We believe that we have and will continue to maintain strong relationships with our key suppliers, thereby affording us priority status and access to timely and quality production.

        Strong Relationships with Retail Customers.    We sell our products to a diverse nationwide retail customer base including mass merchants, specialty stores, national chains, department stores, warehouse clubs, home centers, supermarkets and off-price retailers, as well as through other channels of distribution, and through our Farberware® and Pfaltzgraff® outlet stores. Our 21 most important retail customers are each serviced by an in-house team that includes representatives from our sales, marketing, merchandising and product development departments. Category experts from each of our divisions support these teams. Some major customers provide us with real-time information on their sales and in-stock inventory positions of our products, which enables us to refine the product mix in order to increase the sales of our products. We generally collaborate with our retail customers and in many instances produce specific versions of our product lines with exclusive designs and packaging for their stores, which are appropriately priced for their respective customer bases.

        National Distribution Capability.    Our six primary distribution centers in New Jersey, Pennsylvania, Massachusetts and California are strategically located near the ports of entry for our products on the East and West Coasts and afford us nationwide distribution capabilities. Our largest distribution center is a modern facility located in Robbinsville, New Jersey. We also operate two additional distribution facilities located in York, Pennsylvania which were acquired in connection with the Pfaltzgraff acquisition and a distribution facility located in Winchendon, Massachusetts. In addition, we utilize two facilities located in California, which are both operated for us by a third-party logistics provider.

        Scalability and Ability to Integrate New Businesses.    We believe that our centralized design, sourcing, marketing, distribution, finance and administration structure allows us to expand our business organically and to acquire new businesses which can benefit from such centralization. Our largest distribution center in Robbinsville, New Jersey is a modern facility that enables us to satisfy the current "just-in-time" delivery requirements of our retail customers, as well as potentially more stringent requirements that may be imposed upon us in the future.

        Experienced and Incentivized Management Team.    We believe our management team, which includes executives with significant experience in the U.S. housewares and consumer products industries (an average of approximately 25 years for our executive officers), provides us with a competitive advantage. After giving effect to this offering, our executive officers will beneficially own approximately 19.8% of our common stock on a fully diluted basis.

Strategy

        Our primary objective is to be the leading supplier in each of the product categories in which we compete. We believe this objective would enable us to negotiate even more effectively with our key customers on product placement and pricing, which in turn would help us increase our revenues and improve our margins due to manufacturing economies of scale. Key elements of our strategy include:

        Increase Sales of Premium Brands.    We focus on increasing our revenue from brands, such as Farberware® and KitchenAid®, that are highly recognized and valued by both retail customers and consumers. We believe that the Farberware® brand is one of the most widely-recognized and well-regarded housewares brands in the United States and that KitchenAid® is one of the leading premium housewares brands. Recently, we introduced an upscale line of Farberware commercial gadgets, new lines of Farberware® barbeque tools and boxed food preparation items, a premium line of Farberware® Industrial tools and gadgets, and a line of over 50 new Farberware® Innovations many of which are potentially patentable innovations that will be placed into the Farberware® lines of kitchenware. We have achieved growth in the sale of products under the KitchenAid® brand by adding additional categories as well as new products within existing categories since we entered into a licensing agreement with Whirlpool Corporation to produce kitchen gadgets under its premium KitchenAid® brand. In 2004, we introduced new lines of KitchenAid® cutlery and cutting boards that initially comprised 45 SKUs and in 2005, we added a new sinkware line and continued to expand our lines of kitchen tools and gadgets, cutlery and cutting boards. We offer consumers a broad spectrum of products across different price points, providing the opportunity for them to trade up to branded products and then to higher-end product lines within our well-recognized brand names.

        Continue to Introduce New Innovative Products.    We use our design capabilities to continuously introduce new products and to refresh our product assortment. We practice "disruptive technology" by creating innovative products, packaging, displays and marketing programs that force our competitors to follow. For example, we recently introduced KitchenAid® silicone bakeware. Silicone bakeware had not been previously marketed in the United States under a well-known consumer brand. Also, in 2003, we introduced the innovative patent pending PerfectTear® paper towel holder in 5 designs and in 4 materials and finishes. In addition, we have the capability to create entirely new products with different functionalities. We track design innovations in the broader consumer products market and, when appropriate, apply these concepts to our product lines.

        Expand Product Categories.    We intend to continue expanding our product categories beyond our current categories. We plan to do this both through acquisitions of existing businesses, as in the recent Pfaltzgraff and Salton acquisitions, and by introducing products in new categories under our existing brands as we have done with the recently introduced KitchenAid® line of sinkware.

        Increase Customer Penetration.    We sell our products to most major retailers in the United States. We work together with our major retail customers to broaden the range of products purchased by each

customer within our existing product categories and to sell new categories of products to each customer.

        Improve Operating Margins.    Managing our variable costs is the principal factor that allows us to improve our operating margins. We use design initiatives to lower supplier production costs and, where appropriate, to take advantage of lower cost raw materials. Because we are not invested in fixed manufacturing facilities, we can seek the highest quality suppliers with the lowest cost. In addition, our internal product design capabilities enable us, when appropriate, to alter the design of a product to accommodate less expensive materials while maintaining the look and quality of our products. Our scale of operations enables our suppliers to purchase raw materials in large quantities at relatively low costs. We also seek to improve our margins by reducing distribution costs through efficiencies in our distribution system and customer collaboration. We develop new product lines and redesign our products to encourage consumers to trade up to higher price points, which may result in higher margins; however, we are generally unable to increase prices of existing products.

        Pursue Selective Acquisition Opportunities.    We have historically grown and expect to continue to grow by acquiring brands and businesses that allow us to expand our existing product categories or provide new opportunities in the market for home products and that can benefit from the use of our brands and our centralized design, marketing, sourcing and distribution capabilities.

Acquisitions and Dispositions

        Since 1995 we have made eight acquisitions that expanded our product offerings, allowed us to enter new product categories or added another strong brand. In 1995, we acquired the Hoffritz® trademarks and brand name which we use on various cutlery, kitchenware, bakeware and barware products. In 1998, we acquired the stock of Roshco, Inc., a Chicago-based bakeware and baking-related products company, which introduced us to the bakeware category. In September 2000, we acquired substantially all of the assets of M. Kamenstein, Inc., a 107-year old housewares company, whose products included pantryware, tea kettles, spices and spice racks, and home organization accessories. In late 2003, we made two additional acquisitions, :USE and Gemco, that introduced us to two new product categories: bath accessories and functional glassware products. In July 2004, we completed the acquisition of Excel, which provided us with two new product categories: tabletop and cookware. In July 2005, we completed the acquisition of Pfaltzgraff, one of America's leading designers and marketers of dinnerware and tabletop accessories for the home. In September 2005, we completed the acquisition of certain assets and business of Salton which provided us with additional brands and licenses in the tabletop category. With the addition of the Excel business and assets, the Pfaltzgraff business and assets and the Salton business and assets in the tabletop category we have established a formidable presence in a category in which we did not previously market.

        Salton Acquisition    On September 19, 2005, we completed the acquisition of certain tabletop assets and the related business from Salton. The assets include Salton's Block® and Sasaki® brands, licenses to market Calvin Klein® and NapaStyle™ tabletop products and distribution of upscale crystal products under the Atlantis brand. In addition, we entered into a license agreement with Salton to market tabletop products under the Stiffel® brand. The purchase price was approximately $14.0 million.

        Pfaltzgraff Acquisition.    On July 11, 2005, we completed the acquisition of the business and certain assets of Pfaltzgraff. Its products are broadly distributed through retail chains and sold through company-operated outlet stores as well as through the Internet and our catalog operations. The purchase price for the acquisition was approximately $38.1 million.

        Excel Acquisition.    On July 23, 2004, we completed the acquisition of the business and substantially all of the assets of Excel, which designed, marketed and distributed a diversified line of high quality cutlery, tabletop, cookware and barware products under well-recognized premium brand names, including Sabatier®, Farberware®, Joseph Abboud Environments® and DBK™ Daniel Boulud Kitchen,

all of which are licensed, and Retroneu®, which is owned. The Excel acquisition broadened our portfolio of brands, expanded our customer base to include additional higher-end retailers and specialty stores and added flatware, dinnerware, drinkware and cookware to the product categories we offer. The purchase price for the acquisition was approximately $7.1 million.

        Gemco Ware Acquisition.    In November 2003, we acquired certain assets of Gemco Ware, Inc., a 50-year old supplier of functional glassware products for storing and dispensing food and condiments, a new product category for us at the time.

        :USE Acquisition.    In October 2003, we acquired the business and certain assets of the :USE®—Tools for Civilization Division of DX Design Express, Inc. which focused on creating high-end contemporary lifestyle products for the home, including decorative hardware, mirrors and lighting for the bath, as well as decorative window accessories. We are required to pay the seller contingent royalties of a minimum of $300,000 ($100,000 in each of the years 2005-2007) and up to a maximum of $1,500,000 ($500,000 in each of the years 2005-2007), based upon a percentage of the net sales of the :USE® product line.

        Prestige Companies Disposition.    In September 1999, we acquired 51% of the capital stock of Prestige Italiana, Spa, and Prestige Haushaltswaren GmbH for approximately $1.3 million in cash. Effective September 27, 2002, we sold our interest in Prestige Italiana, Spa, and, together with its minority interest shareholder, caused Prestige Haushaltswaren GmbH to sell all of its receivables and inventory to a European housewares distributor. As a result we received approximately $1.0 million in cash. The sale resulted in a net loss of approximately $811,000 which included the write-off of goodwill of approximately $540,000. For 2001 and 2002, we have reclassified our financial statements to classify the operations of the Prestige Companies as discontinued operations. The Prestige Companies marketed and distributed kitchen tools, gadgets, cutlery and bakeware under the Prestige® trade name primarily in Italy and Germany.

Licenses

        We use the Farberware® brand name pursuant to a 200 year royalty-free license and we license the KitchenAid® and Cuisinart® brand names from Whirlpool Corporation and Conair Corporation, respectively. In February 2004, we entered into a license agreement with Hershey Foods Corporation, and in July 2004, we acquired license agreements for the Sabatier®, Joseph Abboud Environments® and DBK™ Daniel Boulud Kitchen brand names and an additional license for Farberware® dinnerware, flatware, plastic beverage, plastic giftware and plastic serviceware not covered by our existing Farberware® license. We have also acquired license agreements for the Nautica® and Weir in Your Kitchen™ brands upon completion of the acquisition of business and assets from Pfaltzgraff in July 2005 and with Calvin Klein® and NapaStyle™ in connection with the acquisition of business and assets from Salton in September 2005. In addition, we entered into a license agreement with Salton to market tabletop products under the Stiffel® brand.

        Farberware Agreement.    In 1996, we entered into an agreement to acquire certain assets of Farberware, Inc. Under the terms of the acquisition agreement we acquired a 200 year, royalty-free, exclusive right to use the Farberware® name in connection with product lines covered by then existing license agreements between us and Farberware®, which included kitchen cutlery products (excluding flatware) and kitchen tools such as spatulas, barbecue forks and kitchen "gadgets" (but excluding appliances), plus a limited number of certain additional products. We also acquired 50 Farberware® retail outlet stores pursuant to the acquisition agreement. Upon the acquisition of Excel, we obtained an additional Farberware® license for dinnerware, flatware, plastic beverage and plastic giftware/serviceware which was recently extended for four years beginning on July 1, 2005 and extending through June 30, 2009.

        KitchenAid Agreement.    On September 29, 2000, we entered into a licensing agreement with Whirlpool Corporation. This agreement allows us to design, manufacture and market an extensive range of kitchen utensils, barbecue items and pantryware products under the KitchenAid® brand name. Shipments of products by us under the KitchenAid® name began in the second quarter of 2001. On January 1, 2002, the licensing agreement between us and Whirlpool Corporation was amended, expanding the covered products to include bakeware and baking related products. A second amendment to the licensing agreement was entered into effective August 1, 2003, which extended the term of the agreement through December 31, 2007 and further expanded the covered products to include kitchen cutlery. A third amendment to the licensing agreement entered into effective August 1, 2005, extended the term of the agreement through December 31, 2009 and further expanded the covered products to include sinkware, pantryware and spices.

        Cuisinart Agreement.    On March 19, 2002, we entered into a licensing agreement with Conair Corporation. This agreement allows us to design, manufacture and market a wide variety of kitchen cutlery products under the Cuisinart® brand name. On April 8, 2004, our licensing agreement with Conair Corporation was amended, expanding the covered products to include cutting board products. The license for kitchen cutlery products expires on June 30, 2006 and the license for cutting board products expires on June 30, 2007. Each license renews automatically for successive one year terms provided the agreement is not earlier terminated by either party and certain minimum royalty requirements are met. Shipments of products by us under the Cuisinart® name began in the fourth quarter of 2002.

        Hershey's Agreement.    On February 20, 2004, we entered into a licensing agreement with Hershey Foods Corporation. This agreement allows us to design, manufacture and market S'mores Maker™ and Fondues under the Hershey®'s brand name. The licensing agreement expires February 28, 2006 and may be renewed for one year at our option provided certain minimum royalty requirements are met. Shipment of products under the Hershey®'s name began in the second half of 2004.

        Sabatier Agreement.    On July 23, 2004, we acquired from Excel a licensing agreement with Rousellon Freres to utilize the Sabatier® brand name for cutlery as well as flatware, serveware, bakeware and dinnerware line extensions. The licensing agreement was extended for twenty years until December 31, 2023 and may be automatically renewed for two ten year terms.

        DBK Daniel Boulud Kitchen Agreements.    We also acquired from Excel on July 23, 2004, three licensing and endorsement agreements with Dinex Licensing (amended in September 2004) to utilize the DBK™ Daniel Boulud Kitchen brands for cutlery and holloware (expires September 30, 2007), cookware, kitchen gadgets, bakeware and barware (expires September 30, 2007), and flatware, drinkware and vases (expires June 30, 2008). We also negotiated a separate license for spices that expires on March 31, 2008. DBK™ Daniel Boulud Kitchen cutlery, cookware and utensils are the inspiration of 4-star Chef Daniel Boulud. The licenses renew automatically for successive one year terms provided the agreements are not earlier terminated by either party and certain minimum royalty requirements are met.

        Joseph Abboud Environments Agreement.    Another license agreement acquired from Excel on July 23, 2004 is with JA Apparel Corp. for the Joseph Abboud Environments® brand for flatware, dinnerware, glassware, textile tableware and giftware products. Distribution is limited to approved upscale retailers. The license extends to December 31, 2007 (which may be renewed with the consent of JA Apparel Corp.) for the period January 1, 2008 through December 31, 2010).

        Nautica Agreement.    On July 11, 2005, we acquired from Pfaltzgraff a licensing agreement with Nautica Apparel Inc. to utilize the Nautica® brand name for dinnerware. The license extends to December 31, 2005.

        Weir In Your Kitchen Agreement.    On July 11, 2005, we acquired from Pfaltzgraff a licensing agreement with Joanne Weir to utilize the Weir In Your Kitchen™ brand for bakeware. The license extends to January 2010 and will be automatically renewed for one additional five-year term commencing February 2010 provided that the agreement is not terminated earlier by either party and certain minimum royalty requirements are met.

        Calvin Klein Agreement.    On September 19, 2005, we acquired from Salton a licensing agreement with Calvin Klein, Inc. to utilize the Calvin Klein® brand name for tabletop products, including dinnerware, flatware, glassware and crystal. The license extends to December 31, 2010 provided that certain minimum royalty requirements are met.

        NapaStyle Agreement.    We also acquired from Salton on September 19, 2005, a licensing agreement with NapaStyle LLC to utilize the NapaStyle™ brand to market tabletop products, including glassware, dinnerware and tabletop accessories. The license extends to December 31, 2020 provided that the agreement is not terminated earlier by either party and certain minimum royalty requirements are met.

        Stiffel Agreement.    Upon completion of the Salton asset acquisition, we entered into a license agreement with Salton in September 2005 to market tabletop products under the Stiffel® brand. The license extends to September 19, 2008 and may be renewed 90 days or more before expiration at our option provided that we are in compliance with all of the terms and conditions of the agreement.

        Royalties.    Our license agreements requireNotes) may be modified or amended by us and the trustee, without the consent of the Noteholder, for the purposes of, among other things: