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                                                                   EXHIBIT 10.18

                               DEPARTMENT 56, INC.
                          ANNUAL CASH INCENTIVE PROGRAM

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1.       PURPOSE

         The purpose of the Annual Cash Incentive Program is to enhance
Department 56, Inc.'s ability to attract, motivate, reward and retain employees,
to strengthen their commitment to the success of the Company and to align their
interests with those of the Company's stockholders by providing additional
compensation to designated employees of the Company based on the achievement of
performance objectives. To this end, the Annual Cash Incentive Program provides
a means of annually rewarding participants largely based on the performance of
the Company and, to a much lesser degree, based on exceptional instances of
personal performance.

2.       DEFINITIONS

         (a) "Award" shall mean the cash incentive award earned by a Participant
under the Program for any Performance Period.

         (b) "Base Salary" shall mean the Participant's annual base salary,
based on the Company's latest payroll action/salary adjustment form in effect
for the Participant during the Performance Period to which such form relates.
Annual base salary (1) does not include (i) Awards under the Program, (ii)
profit sharing, 401(k) "match", or other long-term incentive awards, (iii)
imputed or actual income from stock option exercises or such programs as life
insurance or (iv) nonrecurring earnings such as moving expenses, and (2) is
based on salary earnings before reductions for such items as contributions under
Section 401(k) of the Internal Revenue Code of 1986, as amended, and
Company-sponsored deferred compensation arrangements.

         (c)      "Board" shall mean the Board of Directors of the Company.

         (d) "Business Program", for any Performance Period, shall mean the
Company's final financial plan for such Performance Period, submitted to and
approved by the Board before the earlier of (1) the ninety-first day of such
Performance Period or (2) the end of the first quarter of such Performance
Period.

         (e)      "Change of Control" shall mean the occurrence during the term
of the Program of:

                   (i) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any 'Person'
(as the term person is used for purposes of Section 13(d) or 14(d) of the
Exchange Act), immediately after which such Person has 'Beneficial Ownership'
(within the meaning of Rule 13d-3 promulgated
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under the Exchange Act) of fifty-one percent (51%) or more of the combined
voting power of the Company's then outstanding Voting Securities; provided,
however, in determining whether a Change of Control has occurred, Voting
Securities which are acquired in a 'Non-Control Acquisition' (as hereinafter
defined) shall not constitute an acquisition which would cause a Change of
Control. A 'Non-Control Acquisition' shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this definition, a 'Subsidiary'),
(ii) the Company or its Subsidiaries, or (iii) any Person in connection with a
'Non-Control Transaction' (as hereinafter defined);

                  (ii) The individuals who, as of May 16, 1997, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however, that if the election,
or nomination for election by the Company's common stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Program, be considered as a member
of the Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened 'Election Contest' (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or

                  (iii) Approval by stockholders of the Company of:

                           (1)      A merger, consolidation or reorganization
with or into the Company or in which securities of the Company are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" is a merger, consolidation or
reorganization with or into the Company or in which securities of the Company
are issued where

                                    (A)     the stockholders of the Company,
immediately before such merger, consolidation or reorganization, own, directly
or indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting power of the
outstanding voting securities of the corporation resulting from such merger or
consolidation or reorganization (the "Surviving Corporation") in substantially
the same proportion as their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,

                                    (B)     the individuals who were members of
the Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially owning a majority of the
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Voting Securities of the Surviving Corporation,

                                    (C)     no Person other than (1) the
Company, (2) any Subsidiary, (3) any employee benefit plan (or any trust forming
a part thereof) maintained immediately prior to such merger, consolidation or
reorganization by the Company or any Subsidiary, or (4) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of fifty-one percent (51%) or more of the then outstanding Voting
Securities owns, directly or indirectly fifty-one percent (51%) or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities;

                           (2)      A complete liquidation or dissolution of
the Company; or

                           (3)      The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).

                  Notwithstanding the foregoing, a Change of Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change of Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change of Control shall occur.

         (f)      "Company" shall mean Department 56, Inc., its successors and
assigns.

         (g) "Company Operating Income": for any period, the net income from
operations of (1) the Company and its Subsidiaries on a consolidated basis
determined in accordance with GAAP, or (2) any portion (or combination of
portions) of the Company's business as calculated in a manner consistent with
the Company's internal reporting for such period, in either case as determined
by the Management HR Committee in its discretion.

         (h) "Compensation Committee" shall mean the Compensation Committee of
the Board.

         (i) "Current Year EPS", for any period, shall mean the fully diluted
earnings per share goal for the Company and its Subsidiaries for such period
determined in accordance with GAAP on a consolidated basis.
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         (j) "Current Year EPS Target", for any Performance Period, shall mean
the Current Year EPS goal for the Company and its Subsidiaries (with such
adjustments as the Compensation Committee may in its discretion authorize for
any one or more officer Participants) (i) as reflected as EPS in the Business
Program or (ii) if such Performance Period is not a fiscal year, as established
by the Compensation Committee.

         (k) "Current Year Operating Income Target", for any Performance Period,
shall mean the Company Operating Income goal for such Performance Period as
established by the Management HR Committee.

         (l) "Current Year Financial Target Earned", for any Performance Period,
shall mean (1) with respect to any non-officer Participant, the bonus payout
percentage based on the achievement of Current Year Operating Income Target (and
based on the achievement of Current Year EPS Target for any non-officer
participant designated by the Management HR Committee) as determined by the
Management HR Committee (or the Board in lieu thereof), and (2) with respect to
any officer Participant, the bonus payout percentage based on the achievement of
Current Year EPS Target as determined by the Compensation Committee (or the
Board in lieu thereof).

         (m)      "Disability" shall mean permanent disability, as provided in
the Company's long-term disability plan.

         (n)      "Effective Date" shall mean the date that the Program is
adopted by the Board.

         (o)      "Employee" shall mean any person (including an officer)
employed by the Company or any of its Subsidiaries on a full-time basis except
for any (i) commissioned sales representative, (ii) non-exempt employee or
seasonal or temporary worker, (iii) employee represented in his or her
employment relationship by a collective bargaining unit or other labor union,
guild or association, (iv) employee of the Company's retail operations who does
not office in its Minneapolis-St. Paul metropolitan area headquarters office
building or (v) employee principally in a non-managerial position in any
operation of the Company or any Subsidiary located outside the United States of
America.

         (p)      "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

         (q)      "GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.

         (r)      "Key Employee" shall mean any Employee so designated by the
Management HR Committee.

         (s)      "Management HR Committee" shall mean a committee composed of
the
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Company's Chief Executive Officer and the Company's senior human resources
officer.

         (t)      "Participant", for any Performance Period, shall mean an
Employee who is eligible to participate in the Program for such Performance
Period as provided in Section 3 of the Program.

         (u)      "Performance Period" shall mean the fiscal year of the Company
or any other period designated by the Compensation Committee with respect to
which an Award is earned.

         (v)      "Program" shall mean this Department 56, Inc. Annual Cash
Incentive Program, as from time to time amended and in effect.

         (w)      "Retirement" shall mean retirement at or after age 65 or early
retirement with the prior written approval of the Company.

         (x)      "Subsidiary" shall mean a corporation as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, with the
Company being treated as the employer corporation for purposes of this
definition.

         (y)      "Target Award Percentage" for any Participant with respect to
any Performance Period, shall mean the percentage of the Participant's Base
Salary that the Participant would earn as an Award for that Performance Period
if each of the Current Year Financial Target Earned for that Performance Period
is 100%, and shall be as set forth on a schedule adopted by the Compensation
Committee with respect to officers who are Participants and as set forth on a
schedule adopted by the Management HR Committee with respect to all other
Participants, based on the Participant's responsibility level or the position or
positions held during the Performance Period; PROVIDED, HOWEVER, that if any
Participant held more than one position during the Performance Period, then the
Compensation Committee or Management HR Committee, as applicable, may designate
different Target Award Percentages with respect to each position and the Award
will be pro-rated to reflect the number of days during which such Participant
had each Target Award Percentage.

3.       ELIGIBILITY

         Participation in the Program for a Performance Period shall be limited
to those Employees who are eligible to participate as provided in this Section
3. To be eligible to participate in the Program in any Performance Period, an
Employee shall have had a least three months active tenure during such
Performance Period and be actively employed by the Company on the Award payment
date. The Compensation Committee or Management HR Committee may approve, in
accordance with Sections 7 and 8 of this Program, exceptions for special
circumstances.
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         Employees shall participate in only one annual cash or sales incentive
program for any specific period in time. For example, an individual may not
participate in both the Program and the Company's sales commission or sales
incentive program at the same time. An individual may participate in two
programs sequentially during any Performance Period because of promotion or
reassignment, provided that participation in each such program is pro-rated
based on the number of days he or she participated in each program.

         If an Employee becomes a Participant during a Performance Period, such
Participant's Award will be pro-rated based on the number of days that he or she
is a Participant.

4.       ADMINISTRATION

         The administration of the Program shall be consistent with the purpose
and the terms of the Program. The Program shall be administered by the
Compensation Committee with respect to officers and by the Management HR
Committee with respect to all other Participants. Each member of the
Compensation Committee shall be an "outside director" within the meaning of
Treasury Regulations proposed under Section 162(m) of the Internal Revenue Code
of 1986, as amended. The Compensation Committee and the Management HR Committee,
as the case may be, shall have full authority to establish the rules and
regulations relating to the Program, to interpret the Program and those rules
and regulations, to decide the facts in any case arising under the Program, to
reduce or eliminate any Participant's Award that would otherwise be payable
pursuant to the terms of the Program in the event the Participant has
demonstrated job performance below Company expectations or otherwise in such
committee's discretion, and to make all other determinations and to take all
other actions necessary or appropriate for the proper administration of the
Program, including the delegation of such authority or power, where appropriate;
PROVIDED, HOWEVER, that only the Compensation Committee shall have authority to
amend or terminate the Program. In addition, the Management HR Committee shall
have, with respect to non-officer Employees, full authority to select such
Participants in the Program and to determine each such Participant's Target
Award Percentage. Moreover, with respect to Participants who are not officers or
Key Employees, the Management HR Committee shall have full authority to grant
Awards in such amounts as it may determine in any event that (i) no Awards to
such Participants would otherwise be payable pursuant to Section 5 of this
Program or (ii) Awards to such Participants of lesser amounts would otherwise be
payable pursuant to Section 5 of this Program. The Compensation Committee's and
the Management HR Committee's administration of the Program, including all such
rules and regulations, interpretations, selections, determinations, approvals,
decisions, delegations, amendments, terminations and other actions, shall be
final and binding on the Company, the Subsidiaries, their respective
stockholders and all employees of the Company and the Subsidiaries, including
the Participants and their respective beneficiaries. No member of the
Compensation Committee or the Management HR Committee shall be liable for any
action, failure to act,
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determination or interpretation made in good faith with respect to the Program
or any transaction hereunder, except for liability arising from his or her own
willful misfeasance, gross negligence or reckless disregard of his or her
duties. The Company hereby agrees to indemnify each member of the Compensation
Committee and each member of the Management HR Committee for all costs and
expenses and, to the extent permitted by applicable law, any liability incurred
in connection with defending against, responding to, negotiating for the
settlement of or otherwise dealing with any claim, cause of action or dispute of
any kind arising in connection with any actions in administering the Program or
in authorizing or denying authorization to any transaction hereunder.

5.       DETERMINATION OF DEFINED AWARDS

         Prior to, or as soon as practicable following, the commencement of each
Performance Period, the Management HR Committee with respect to all non-officer
Participants shall then determine each such Participant's Target Award
Percentage. The Company shall then prepare schedules, which will be treated as
part of the Program for that Performance Period, setting forth (x) the
Participants during that Performance Period, (y) each Participant's Target Award
Percentage for that Performance Period and (z) the Current Year EPS Target and
the Current Year Operating Income Target for that Performance Period. The
Company shall notify each Participant of his or her Target Award Percentage and
the Current Year EPS Target and the Current Year Operating Income Target for the
Performance Period, as applicable. In addition to, and without limiting the
generality of the foregoing, the Company's officers shall also participate in
the Program for every Performance Period in accordance with Section 3 hereof,
and the Target Award Percentage of each officer shall be as set forth on a
schedule adopted by the Compensation Committee.

         Generally, a Participant earns an Award for a Performance Period based
on (i) the Company's achievement of the Current Year EPS Target and/or the
Current Year Operating Income Target applicable to such Participant (the
"Applicable Measure") , and (ii) as further described in Section 6 below, his or
her achievement of extraordinary personal quality performance. Awards pursuant
to this Section 5 will only be earned if achievement of the Applicable Measure
is 90% or higher for such Performance Period.

         Awards shall be earned by Participants in accordance with the following
formula:

                                                     Current
                                                     Year
Target                                               Financial
Award                      Base                      Target
Percentage          x      Salary           x        Earned
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6.       DETERMINATION OF DISCRETIONARY AWARDS

         There shall be a pool (generally not exceeding one hundred thousand
dollars) created each fiscal year Performance Period from which Awards may be
granted to any Participant solely in respect of such Participant's personal job
performance and without regard to the determination of defined Awards or
achievement of financial targets contemplated by Section 5 above; PROVIDED,
HOWEVER, that no such pool shall be created for a Performance Period unless the
Business Program for such Performance Period assumes and reflects the expense
effect of full utilization of the pool.

         The Compensation Committee (with respect to any Participant) and the
Management HR Committee (with respect to any non-officer Participant) shall each
have the authority to grant and pay Awards from any pool described in the
preceding paragraph at such times and in such amounts as such committee, in its
sole discretion, shall determine. Notwithstanding the proviso contained in the
preceding paragraph, there shall be no obligation of either the Compensation
Committee or the Management HR Committee to grant any Awards (or to continue or
repeat the granting of any Awards) to any Participant or Participants pursuant
to this Section 6.

         Discretionary bonus pool amounts not utilized in a Performance Period
shall not be carried over or accumulated with any discretionary bonus pool
amounts permitted in any subsequent Performance Periods.

7.       CHANGES TO TARGET AWARD PERCENTAGES

         The Compensation Committee, with respect to officers who are
Participants, and the Management HR Committee, with respect to all other
Participants, may at any time prior to the final determination of Awards change
the Target Award Percentage of any Participant or assign a different Target
Award Percentage to a Participant to reflect any change in the Participant's
responsibility level or position during the course of the Performance Period.

         The Compensation Committee, with respect to officers who are
Participants, and the Management HR Committee, with respect to all other
Participants, may at any time prior to the final determination of Awards change
the Current Year EPS Target and/or the Current Year Operating Income Target (as
the case may be) to reflect extraordinary events, accounting changes or a
corporate transaction, such as a merger, consolidation, separation,
reorganization or partial or complete liquidation.

8.       PAYMENT OF DEFINED AWARDS

         As soon as practicable after the close of a Performance Period (but not
before the Audit Committee of the Board has approved the corresponding audited
financial statements if such Performance Period is a fiscal year), the
Compensation Committee, with respect to officers who are Participants, and the
Management HR Committee, with respect
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to all other Participants, shall confirm the calculation of each Participant's
Award pursuant to Section 5. Subject to the provisions of Section 9 of the
Program, each Award to the extent earned pursuant to Section 5 shall be paid in
a single lump sum cash payment, as soon as practicable after the close of the
Performance Period, but no later than 120 days after the close of the
Performance Period.

         If a Change of Control occurs, the Company shall, within 60 days
thereafter, pay to each Participant in the Program immediately prior to the
Change of Control (regardless of whether the Participant remains employed after
the Change of Control) an Award under Section 5 which is calculated assuming
that Current Year EPS Target and Current Year Operating Income Target for such
Performance Period are fully (100%) achieved, and such Award shall be prorated
to the date of the Change of Control based on the number of days that have
elapsed during the Performance Period through the date of the Change of Control.

9.       LIMITATIONS ON RIGHTS TO PAYMENT OF AWARDS

         No Participant shall have any right to receive payment of an Award
under Section 5 or Section 6 of the Program for a Performance Period unless the
Participant remains in the employ of the Company through the payment date of the
Award for such Performance Period, except as provided in the last paragraph of
Section 8 of the Program. However, if the Participant has active service with
the Company or the Subsidiary for at least three months during any Performance
Period, but, prior to payment of the Award for such Performance Period, a
Participant's employment with the Company terminates due to the Participant's
death, Disability or Retirement, the Participant (or, in the event of the
Participant's death, the Participant's estate, beneficiary or beneficiaries as
determined under Section 10 of the Program) shall remain eligible to receive any
earned Award, which in the case of any Award under Section 5 shall be prorated
to a portion based on the number of days that the Participant was actively
employed by the Company or a Subsidiary and performed services for it during
such Performance Period.

10.      DESIGNATION OF BENEFICIARY

         A Participant may designate a beneficiary or beneficiaries who, in the
event of the Participant's death prior to full payment of any Award hereunder,
shall receive payment of any Award due under the Program. Such designation shall
be made by the Participant on a form prescribed by the Management HR Committee.
The Participant may, at any time, change or revoke such designation. A
beneficiary designation, or revocation of a prior beneficiary designation, will
be effective only if it is made in writing on a form provided by the Company,
signed by the Participant and received by the Secretary of the Company. If the
Participant does not designate a beneficiary or the beneficiary dies prior to
receiving any payment of an Awards, Awards payable under the Program shall be
paid to the Participant's estate.
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11.      AMENDMENTS

         The Compensation Committee may at any time amend (in whole or in part)
this Program. No such amendment which adversely affects any Participant's rights
to or interest in an Award earned prior to the date of the amendment shall be
effective unless the Participant shall have agreed thereto.



12.      TERMINATION

         The Compensation Committee may terminate this Program (in whole or in
part) at any time. In the case of such termination of the Program, the following
provisions of this Section 12 shall apply notwithstanding any other provisions
of the Program to the contrary:

                  (i) The Compensation Committee shall promulgate administrative
rules applicable to Program termination, pursuant to which each affected
Participant shall receive, with respect to each Performance Period which has
commenced on or prior to the effective date of the Program termination (the
"Termination Date") and for which the Award under Section 5 has not yet been
paid, the amount equal to the amount his or her Award under Section 5 would have
been had the Program not been terminated (prorated for the Performance Period in
which the Termination Date occurred), subject to reduction in the discretion of
the Compensation Committee.

                  (ii)Each Award payable under this Section 12 shall be paid as
soon as practicable, but in no event later than 120 days after the end of the
fiscal year in which the Termination Date occurs.

13.      MISCELLANEOUS PROVISIONS

         (a) This Program is not a contract between the Company and the
Employees or the Participants. Neither the establishment of this Program, nor
any action taken hereunder, shall be construed as giving any Employee or any
Participant any right to be retained in the employ of the Company. The Company
is under no obligation to continue the Program.

         (b) A Participant's right and interest under the Program may not be
assigned or transferred, except as provided in Section 10 of the Program, and
any attempted assignment or transfer shall be null and void and shall
extinguish, in the Company's sole discretion, the Company's obligation under the
Program to pay Awards with respect to the Participant.

         (c) The Program shall be unfunded. The Company shall not be required to
establish any special or separate fund, or to make any other segregation of
assets, to
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assure payment of Awards.

         (d) The Company shall have the right to deduct from Awards paid any
interest thereon, any taxes or other amounts required by law to be withheld.

         (e) Nothing contained in the Program shall limit or affect in any
manner or degree the normal and usual powers of management, exercised by the
officers and the Board or committees thereof, to change the duties or the
character of employment of any employee of the Company or to remove the
individual from the employment of the Company at any time, all of which rights
and powers are expressly reserved.