EXHIBIT 10.2

 

AGREEMENT FOR PERFORMANCE SHARES
UNDER THE DEPARTMENT 56, INC. 2004 STOCK INCENTIVE PLAN

 

Grantee:

 

 

 

Performance Cycle:

 

Number of Performance Shares Granted:

 

 

 

 

Minimum Number of Performance Shares that may be earned:

 

 

 % of number set forth above as granted

Threshold Number of Performance Shares that may be earned:

 

 

 % of number set forth above as granted

Target Number of Performance Shares that may be earned:

 

 

 % of number set forth above as granted

Maximum Number of Performance Shares that may be earned:

 

 

 % of number set forth above as granted

 

 

 

Target Cumulative Operating Cash Flow at Performance Cycle End: $            (in
thousands)

Threshold Cumulative Operating Cash Flow at Performance Cycle End:
$            (in thousands)

 

1.                                       General.  Pursuant to Section 8 of the
Company’s 2004 Stock Incentive Plan (the “Plan”) and subject to the terms of
this Agreement and the Plan, the Company hereby grants to the Grantee an Other
Stock-Based Award (the “Grant”) in the form of shares of Common Stock subject to
the terms, conditions and limitations provided herein and in the Plan (each such
share of Common Stock being a “Performance Share”).  The number of Performance
Shares granted and which may be ultimately vested and earned is subject to
adjustment for recapitalizations and other events as provided in Section 10 of
the Plan.  Except as otherwise defined herein, capitalized terms used in this
Agreement shall have the same definitions as set forth in the Plan.  For
purposes of this Agreement, (a) the term “person” shall mean an individual, a
corporation, a partnership, an association, a trust, a sole proprietorship, a
limited liability company, or any other entity or organization, including a
government or governmental agency, instrumentality, authority, commission or
court, (b) the term “Affiliate” of the Company shall mean any person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Company and (b) the term
“control” shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of any person,
whether through the ownership of equity interests, by contract or otherwise.

 

2.                                       Vesting of Performance Shares.

 

2.1                                 Vesting and Earning.

 

(a) Subject to the provisions of this Agreement, the Plan and the specifications
for the Grant adopted by the Committee (e.g., vesting percentage formula, and
threshold, target and maximum number of Performance Shares that may be earned by
the Grantee under this Grant), as of the last day of the Performance Cycle shown
above (the “Performance Cycle”),  the Grantee may earn and become vested in a
specific percentage of the Performance Shares covered by the Grant depending
upon the extent to which Target Cumulative Operating Cash Flow at Performance
Cycle End (the “Target Cumulative Operating Cash Flow”) as shown above is met as
of such date. The determination as to what extent such performance objective is
met shall be made with reference to the sum of the Company’s fiscal year-end
“Operating Cash Flow” (as defined below)  for each of the fiscal years included
in the Performance Cycle (such sum being “Actual Cumulative Operating Cash Flow
at Performance Cycle End”).

 

(b) The number of Performance Shares actually earned and vested under this Grant
shall be as follows:

• If Actual Cumulative Operating Cash Flow at Performance Cycle End equals or
exceeds Target Cumulative Operating Cash Flow at Performance Cycle End, then the
Target Number of Performance Shares shall have been earned by and vested in the
Grantee.

• If Actual Cumulative Operating Cash Flow at Performance Cycle End equals
Threshold Cumulative Operating Cash Flow at Performance Cycle End, then the
Threshold Number of Performance Shares shall have been earned by and vested in
the Grantee.

• If Actual Cumulative Operating Cash Flow at Performance Cycle End exceeds
Threshold Cumulative Operating Cash Flow at Performance Cycle End but is less
than Target Cumulative Operating Cash Flow at Performance Cycle End, then the
number of Performance Shares determined by straightline interpolation between
the Threshold Number of Performance Shares and the Target Number of Performance
Shares shall then have been earned by and vested in the

 

--------------------------------------------------------------------------------

 

Grantee. (Example: if Actual Cumulative Operating Cash Flow at Performance Cycle
End is exactly at the midpoint between Threshold Cumulative Operating Cash Flow
at Performance Cycle End and Target Cumulative Operating Cash Flow at
Performance Cycle End, then the number of Performance Shares earned by and
vested in the Grantee shall equal the sum of (x) the Threshold Number of
Performance Shares and (y) one-half of ((i) the Target Number of Performance
Shares minus (ii) the Threshold Number of Performance Shares).)

• If Actual Cumulative Operating Cash Flow at Performance Cycle End is less than
Threshold Cumulative Operating Cash Flow at Performance Cycle End, then none of
the Performance Shares shall have been earned by or vested in the Grantee.

 

(c) For these purposes, the term “Operating Cash Flow” shall mean “Net cash
provided by operating activities” at fiscal year-end as reported in the
Company’s audited consolidated statements of cash flows (subject to any
adjustments for nonrecurring items as provided by the Committee’s Policy on the
Impact of Nonrecurring Items on Incentive Payments). Since acquisitions are part
of the Company’s business strategy, for these purposes any acquisition’s
Operating Cash Flow is included in the determination of Cumulative Operating
Cash Flow at Performance Cycle End only if the acquisition transaction is
consummated prior to the beginning of the last fiscal year of the Performance
Cycle and then, if such test is met, only to the extent that such acquisition
generated Operating Cash Flow during the subsequent fiscal year(s) covered by
the Performance Cycle.

 

2.2         Forfeiture of Unearned Grant. As soon as practicable following the
determination of earning and vesting made in accordance with Section 2.1 hereof,
all Performance Shares not so determined to have been earned by and vested in
the Grantee shall be forfeited and transferred back to the Company.

 

2.3         Effect of Change in Control.  Notwithstanding anything contained in
this Agreement to the contrary and unless otherwise provided in the Plan or
another agreement between the Company and the Grantee, in the event of a Change
in Control all Performance Shares shall vest in the Grantee on the following
basis and subject to the following conditions:

 

(i)                                     If a Change in Control occurs prior to
the last day of the Performance Cycle, the Grantee shall become vested in a
number of Performance Shares hereunder determined as follows:

 

A.           First, the Company shall be deemed to have achieved (x) the Target
Cumulative Operating Cash Flow at Performance Cycle End or (y) if the Change in
Control occurs after the first quarter of the Performance Cycle, the Target
Cumulative Operating Cash Flow at Performance Cycle End most recently projected
by the Company prior to the Change in Control, in each case adjusted to exclude
(1) all legal, accounting, investment banking and other costs and expenses
incurred or projected by the Company in connection with, or in opposition to,
the events resulting in the Change in Control and (2) the projected effect of
the Change in Control upon such measurements.

 

B.             Next, the result obtained in Clause (A) of this Paragraph (i) is
multiplied by a fraction, the numerator of which is the number of months of the
Grantee’s continuous employment within the Performance Cycle prior to the Change
in Control and the denominator of which is the number of months within the
entire Performance Cycle.

 

(ii)                                  Distribution of the Grantee’s vested
Performance Shares as determined in Paragraph (i) hereof shall be made as soon
as practicable after the first occurrence of a Change in Control. Upon the
making of any such distribution, this Grant and the underlying Performance
Shares shall be deemed canceled and of no further force and effect.

 

3.                                       Certain Restrictions.

 

3.1                                 Non-transferability.  Until such time (the
“Lapse Date”) as the Grantee is determined in accordance with Section 2. 1
hereof to have earned and become vested in any Performance Shares covered by
this Grant, the Grantee shall not be entitled to transfer, sell, pledge,
hypothecate or assign any Performance Shares (collectively, the “Transfer
Restrictions”).  This Grant and the underlying Performance Shares shall not be
transferable by the Grantee otherwise than by will or the laws of descent and
distribution, or to his or her guardian, executor, administrator or other legal
representative (each a “Legal Representative”) (all

 

--------------------------------------------------------------------------------

 

references herein to “Grantee” being deemed to include the Grantee’s Legal
Representative, if any, unless the context otherwise requires). The terms of
such Grant shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the Grantee. The Grantee may
designate in writing on forms prescribed by and filed with the Company a
beneficiary or beneficiaries to receive any benefits payable after his or her
death, and may at any time amend or revoke such designation. If no beneficiary
designation is in effect at the time of the Grantee’s death, payments under this
Agreement, if any, shall be made to his or her Legal Representative.

 

3.2                                 Employment Termination.  Except as may be
agreed between the Committee and the Grantee or otherwise provided in the Plan
or another agreement between the Company and the Grantee, if the Grantee shall
no longer be employed by the Company or any of its Subsidiaries for any reason
whatsoever prior to the end of the Performance Cycle (“Terminated” or a
“Termination”), the Grantee shall forfeit any right or entitlement to or in the
Grant and the underlying Performance Shares; provided, however, that if the
Termination occurs six (6) months or more after the date this Grant was made but
prior to the last day of the Performance Cycle due to the occurrence of the
Grantee’s death, approved retirement, other approved separation from employment,
or disability, the Grantee may become vested in a number of Performance Shares
hereunder, the number being determined as follows: A. First, the number of
Performance Shares which would have vested in the Grantee as of the last day of
the Performance Cycle had the Grantee remained employed throughout such
Performance Cycle shall be calculated upon completion of the Performance Cycle
in accordance with Section 2.1 hereof. B. Next, the result obtained in Clause
(A) of this Section 3.2 shall be multiplied by a fraction, the numerator of
which is the number of months of such Grantee’s continuous employment within the
Performance Cycle prior to Termination, and the denominator of which is the
number of months within the entire Performance Cycle.

 

3.3                                 Shareholder Rights. Except as otherwise
provided in this Agreement, the Grantee shall be entitled, at all times on and
after the Grant Date, to exercise all rights of a shareholder with respect to
the Performance Shares (whether or not the Transfer Restrictions thereon shall
have lapsed), other than with respect to those Performance Shares which have
been forfeited pursuant to Section 2.2 hereof, including the right to vote the
Performance Shares and the right, subject to Section 3.4 hereof, to receive
dividends thereon.

 

3.4                                 Dividends. All dividends declared and paid
by the Company on Performance Shares shall be deferred in their distribution to
the Grantee until the lapsing of the Transfer Restrictions pursuant to Sections
2.2 and 3.1.  The deferred dividends shall be held by the Company for the
account of the Grantee until the Lapse Date, at which time the dividends, with
no interest thereon, shall be paid to the Grantee or her/his estate, as the case
may be.  To the proportion of any forfeiture of the Performance Shares pursuant
to Section 2.2, any deferred dividends shall also be forfeited to the Company.

 

4.                                       Specific Performance; Governing Law. 
The parties hereto acknowledge that there will be no adequate remedy at law for
a violation of any of the provisions of this Agreement and that, in addition to
any other remedies which may be available, all of the provisions of this
Agreement shall be specifically enforceable in accordance with their respective
terms. This Agreement shall be interpreted under the laws of the State of New
York (except with respect to matters of employment law, which shall be
interpreted under the laws of the State of Minnesota), entirely independent of
the forum in which the Agreement or any part of it may come up for construction,
interpretation or enforcement.

 

5.                                       Withholding.  Upon the vesting of any
Performance Shares to the Grantee hereunder, the Grantee shall remit to the
Company the full amount of any applicable Withholding Taxes.  The Company shall
have the right to deduct from any distribution of cash to the Grantee any amount
necessary in satisfaction of any applicable Withholding Taxes. The Committee may
permit a Grantee to elect to satisfy Withholding Taxes relating to the earning
and vesting of Performance Shares by having the Company withhold a sufficent
number of Common Shares otherwise payable in respect of the earned and vested
Performance Shares. Any Common Shares so withheld by the Company shall be valued
at their per share “fair market value,” which shall mean for the purposes of
this Section the closing composite transactions listing on the date the
Witholding Tax is determined (or such other meaning as the Committee may
hereafter adopt).

 

6.                                       Acknowledgment.  The Grantee hereby
acknowledges prior receipt of a copy of the Plan and agrees to be bound by all
the terms and provisions thereof as the same may be amended from time to time. 
The Grantee hereby acknowledges that s/hehas reviewed the Plan and this
Agreement and understands his or her rights and obligations thereunder and
hereunder.  The Grantee also acknowledges that s/hehas been provided with such
information concerning the Company, the Plan and this Agreement as s/he and his
or her advisors have requested.

 

--------------------------------------------------------------------------------

 

7.                                       Share Issuance, Etc.

 

7.1                                 Certificates (or an “electronic “book entry”
on the books of the Company’s stock transfer agent) representing the Performance
Shares shall be issued and held by the Company (or its stock transfer agent) in
escrow (together with any stock transfer powers which the Company may request of
Grantee) and shall remain in the custody of the Company (or its stock transfer
agent) until (i) their delivery to the Grantee or his/her estate as set forth in
Section 7.2 hereof, or (ii) their forfeiture and transfer to the Company as set
forth in Section 2.2 hereof. The appointment of an independent escrow agent
shall not be required.

 

7.2                                 (a)                                  Subject
to paragraph (b) of this Section 7.2, certificates (or an electronic “book
entry”) representing those Performance Shares in respect of which the Transfer
Restrictions have lapsed pursuant to Section 3.1 hereof shall be delivered to
the Grantee as soon as practicable following the Lapse Date, subject to the
application of Section 5 above.

 

(b)                                 Certificates (or an electronic “book entry”)
representing those Performance Shares in respect of which the Transfer
Restrictions have lapsed pursuant to Section 3.1(b) upon the Grantee’s death
shall be delivered to the executors or administrators of the Grantee’s estate as
soon as practicable following the Lapse Date and the Company’s receipt of
notification of the Grantee’s death, accompanied by an official death
certificate, subject to the application of Section 5 above.

 

(c)                                  The Grantee, or the Legal Representative,
as the case may be, may receive, hold, sell or otherwise dispose of those
Performance Shares delivered to him or her pursuant to paragraphs (a) or (b) of
this Section 7.2 free and clear of the Transfer Restrictions, but subject to
compliance with all federal and state securities laws.

 

7.3                                 (a)                                  Each
stock certificate issued pursuant to Section 7.1 shall bear a legend in
substantially the following form:

This certificate and the shares of stock represented hereby are subject to the
terms and conditions applicable to an Other Share-Based Award contained in the
2004 Stock Incentive Plan (the “Plan”) and a Performance Share Agreement (the
“Agreement”) between the Company and the registered owner of the shares
represented hereby. Release from such terms and conditions shall be made only in
accordance with the provisions of the Plan(s) and the Agreement, copies of which
are on file in the office of the Secretary of the Company.

 

(b)                                 As soon as practicable following a Lapse
Date, the Company shall issue a new certificate (or electronic “book entry”) for
shares of the Restricted Stock which have become non-forfeitable in relation to
such Lapse Date (subject to section 5 above), which new certificate (or
electronic “book entry”) shall not bear the legend set forth in paragraph (a) of
this Section 7.3 and shall be delivered in accordance with Section 7.2 hereof.

 

8.                                       Adjustments Upon Change in
Capitalization.  If, by operation of Section 10 of the Plan, the Grantee shall
be entitled to new, additional or different shares of stock or securities of the
Company or any successor corporation or entity or other property, such new,
additional or different shares or other property shall thereupon be subject to
all of the conditions and restrictions which were applicable to the Performance
Shares immediately prior to the event and/or transaction that gave rise to the
operation of Section 10 of the Plan

 

9.                                       Prohibition Against Certain Activities.

 

9.1                                 Restricted Activities. The Grantee
understands that the Company is granting to the Grantee the Performance Shares
to reward the Grantee for the Grantee’s future efforts and loyalty to the
Company and its Affiliates by giving the Grantee the opportunity to participate
in the equity of the Company.  Accordingly, the Grantee agrees that: (a) s/he
will not at any time during his/her employment with the Company or any
Affiliate, or after any Termination, directly or indirectly disclose or furnish
to any other person or use for his/her own or any other person’s account any
confidential or proprietary knowledge or

 

--------------------------------------------------------------------------------

 

any other information which is not a matter of public knowledge obtained during
the entire course of his/her employment with, or other performance of services
for, the Company or any Affiliate or any predecessor of any of the foregoing, no
matter from where or in what manner the Grantee may have acquired such knowledge
or information, and s/he shall retain all such knowledge and information in
trust for the benefit of the Company, its Affiliates and the successors and
assigns of any of them; (b) if s/he is Terminated, s/he will not for two years
following the Termination directly or indirectly solicit for employment,
including without limitation recommending to any subsequent employer the
solicitation for employment of, any person who at the time of the solicitation
is employed by the Company or any Affiliate  (a “Dept. 56 Employee”) (it being
understood that, if the Grantee becomes affiliated with another person (the
“Successor”) and the Successor solicits for employment a Dept. 56 Employee, it
shall not constitute a solicitation hereunder if the Grantee does not solicit,
recommend to the Successor, or otherwise bring to the attention of the
Successor, the Dept. 56 Employee); and (c) s/he will not at any time during
his/her employment or after any Termination publish any statement or make any
statement (under circumstances reasonably likely to become public or that s/he
might reasonably expect to become public) critical of the Company or any
Affiliate, or in any way adversely affecting or otherwise maligning the business
or reputation of the Company or any of its Affiliates or any of their respective
officers, directors or employees (any activity described in clause (a), (b) or
(c) of this sentence being herein referred to as a “Prohibited Activity”).  In
addition, accordingly, the Grantee agrees that s/he will not at any time during
his/her employment with the Company or any Affiliate or the twelve (12) months
thereafter (including any period following Termination during or in respect of
which s/he is receiving any severance payment) engage in any Competitive
Activity (as defined below) anywhere in the world (including, without
limitation, anywhere in the United States of America, the United Kingdom, Hong
Kong, China or Taiwan).

 

The term “Competitive Activity” shall mean engaging in any of the following
activities:  (a) directly or indirectly through one or more intermediaries
controlling any Competitor (as defined below) or owning any equity or debt
interests in any Competitor (other than equity or debt interests which are
publicly traded and do not exceed 2% of the particular class of interests
outstanding); (b) directly or indirectly soliciting, diverting, taking away,
appropriating or otherwise interfering with any of the employees or customers of
the Company or any Affiliate; or (c) employment by (including serving as an
officer or director of), or providing consulting or other services to, any
Competitor.  The term “Competitor” means any person who derives significant
revenues, income or reputational gain from producing, selling, designing,
dealing or otherwise conducting commercial activity in, with or pertaining to,
miniature decorative or collectible buildings or coordinated “village”
accessories, figurines or general decorative giftware products.

 

9.2                                 Right to Terminate; Disgorgement.  The
Grantee understands that the Company is granting to the Grantee the Performance
Shares to reward the Grantee for the Grantee’s future efforts and loyalty to the
Company and its Affiliates by giving the Grantee the opportunity to participate
in the equity of the Company.  Accordingly, if the Grantee: (a) engages in any
Prohibited Activity; (b) engages in any Competitive Activity; or (c) is
convicted of a crime against the Company or any Affiliate, then, in addition to
any other rights and remedies available to the Company, the Company shall be
entitled, in its sole discretion and irrespective whether a Lapse Date has
occurred, to require upon written demand the forfeiture of (and the Grantee
shall be obligated upon such written demand to repay) the Performance Shares to
the Company (including any net cash proceeds from the sale of any Performance
Shares effected by the Grantee).

 

 

DEPARTMENT 56, INC.

 

 

By:

 

 

 

 

 

 

Grantee: [Name]

 

--------------------------------------------------------------------------------