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]