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                                SUBSIDIARIES GUARANTEE


                    GUARANTEE dated as of December 30, 1997 made by the
          undersigned parties hereto, (the "Subsidiaries" or the
          "Guarantors"), in favor of THE CHASE MANHATTAN BANK, as agent
          (the "Agent") for the lenders (the "Banks") parties to the
          Amended and Restated Credit Agreement dated as of February 17,
          1995 (the "Credit Agreement") among D 56, Inc., a Minnesota
          corporation (the "Company"), the Agent, the Banks and the co-
          agents named therein.


                                W I T N E S S E T H :


                    WHEREAS, pursuant to the Credit Agreement, the Banks
          have severally agreed to make loans to, the Issuing Bank has
          agreed to issue certain letters of credit for the account of, and
          the Accepting Bank has agreed to create certain acceptances for,
          the Company upon the terms and subject to the conditions set
          forth therein; and

                    WHEREAS, it is a condition precedent to the
          effectiveness of the Third Amendment dated as of December 16,
          1997 (the "Third Amendment") to the Credit Agreement that each
          Guarantor shall have executed and delivered this Guarantee to the
          Agent for the ratable benefit of the Banks;

                    NOW, THEREFORE, in consideration of the premises and to
          induce the Agent and the Banks to consent to the Third Amendment
          and to induce the Banks to make their respective loans to, the
          Issuing Bank to issue certain letters of credit for the account
          of, and the Accepting Bank to create certain acceptances for, the
          Company under the Credit Agreement, each Guarantor hereby agrees
          with the Agent, for the ratable benefit of the Banks, as follows:

                    1.   Defined Terms.  Unless otherwise defined herein,
          terms which are defined in the Credit Agreement and used herein
          are so used as so defined and as used herein the following terms
          shall have the following meanings:

                    "Guarantee":  this Guarantee, as amended, supplemented
               or otherwise modified from time to time.

                    "Material Adverse Effect":  a material adverse effect
               on the business, financial condition, assets, liabilities,
               net assets, properties, results of operations, value or
               prospects of Holding and its Subsidiaries taken as a whole
               or the Company and its Subsidiaries taken as a whole.

                    "Obligations":  the unpaid principal of and interest on
               (including, without limitation, interest accruing after the
               maturity of the Loans, the Acceptances and reimbursement
               obligations in connection with the Letters of Credit, and
               interest accruing after the filing of any petition in

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               bankruptcy, or the commencement of any insolvency,
               reorganization or like proceeding, relating to the Company,
               whether or not a claim for post-filing or post-petition
               interest is allowed in such proceeding) the Notes, all
               obligations and liabilities of the Company with respect to
               the Letters of Credit, all Acceptance Obligations and all
               other obligations and liabilities of the Company to the
               Agent or the Banks, whether direct or indirect, absolute or
               contingent, due or to become due, now existing or hereafter
               incurred, which may arise under, out of, or in connection
               with, this Agreement, the Notes, the other Credit Documents,
               any Letter of Credit or L/C Application, any Acceptance, any
               agreements between the Company and any Bank relating to
               interest rate, currency or similar swap and hedging
               arrangements or any other document made, delivered or given
               in connection therewith, whether on account of principal,
               interest, reimbursement obligations, fees, indemnities,
               costs, expenses (including, without limitation, all fees and
               disbursements of counsel to the Agent or any Bank) or
               otherwise.

                    2.   Guarantee.  Each Guarantor hereby unconditionally
          and irrevocably guarantees to the Agent, for the ratable benefit
          of the Banks, the prompt and complete payment and performance by
          the Company when due (whether at the stated maturity, by
          acceleration or otherwise) of the Obligations.  Such Guarantor
          further agrees to pay any and all expenses (including, without
          limitation, all fees and disbursements of counsel) which may be
          paid or incurred by the Agent and the Banks in enforcing, or
          obtaining advice of counsel in respect of, any of their rights
          under this Guarantee.  This Guarantee constitutes a guarantee of
          payment when due and not of collection, and such Guarantor
          specifically agrees that it shall not be necessary or required
          that the Agent or any Bank exercise any right, assert any claim
          or demand or enforce any remedy whatsoever against the Company
          (or any other Person) before or as a condition to the obligations
          of such Guarantor hereunder.  This Guarantee shall remain in full
          force and effect until the Obligations are paid in full, no
          Letters of Credit or Acceptance Obligations are outstanding and
          the Commitments are terminated, notwithstanding that from time to
          time prior thereto the Company may be free from any Obligations.

                    Each Guarantor agrees that whenever, at any time, or
          from time to time, it shall make any payment to the Agent or any
          Bank on account of its liability hereunder, it will notify the
          Agent or such Bank in writing that such payment is made under
          this Guarantee for such purpose.  No payment or payments made by
          the Company or any other Person or received or collected by the
          Agent or any Bank from the Company or any other Person by virtue
          of any action or proceeding or any set-off or appropriation or
          application, at any time or from time to time, in reduction of or
          in payment of the Obligations shall be deemed to modify, reduce,
          release or otherwise affect the liability of such Guarantor
          hereunder which shall, notwithstanding any such payment or
          payments, remain liable for the amount of the Obligations until
          the Obligations are paid in full and the Commitments are

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          terminated.

                    Anything herein or in any of the Credit Documents to
          the contrary notwithstanding, the maximum liability of each
          Guarantor hereunder and under the other Credit Documents shall in
          no event exceed the amount which can be guaranteed by such
          Guarantor under applicable federal and state laws relating to the
          insolvency of debtors.

                    3.   Right of Setoff.  Upon the occurrence and during
          the continuance of any Event of Default specified in the Credit
          Agreement, the Agent and each Bank are hereby irrevocably
          authorized at any time and from time to time without notice to
          each Guarantor, any such notice being hereby waived by such
          Guarantor, to set off and appropriate and apply any and all
          deposits (general or special, time or demand, provisional or
          final), in any currency, and any other credits, indebtedness or
          claims, in any currency, in each case whether direct or indirect,
          absolute or contingent, matured or unmatured, at any time held or
          owing by the Agent or such Bank to or for the credit or the
          account of such Guarantor, or any part thereof in such amounts as
          the Agent or such Bank may elect, on account of the liabilities
          of such Guarantor hereunder and claims of every nature and
          description of the Agent or such Bank against such Guarantor, in
          any currency, whether arising hereunder, under the Credit
          Agreement, the Notes, any other Credit Document, any Letter of
          Credit, any Acceptance or otherwise, as the Agent or such Bank
          may elect, whether or not the Agent or such Bank has made any
          demand for payment and although such liabilities and claims may
          be contingent or unmatured.  The Agent and each Bank shall notify
          such Guarantor against which setoff has been made promptly of any
          such setoff made by it and the application made by it of the
          proceeds thereof, provided that the failure to give such notice
          shall not affect the validity of such setoff and application.
          The rights of the Agent and each Bank under this paragraph are in
          addition to other rights and remedies (including, without
          limitation, other rights of setoff) which the Agent and such Bank
          may have.

                    4.   Subrogation, etc..  Notwithstanding any payment or
          payments made by the Guarantor hereunder or any set-off or
          application of funds of the Guarantor by any Bank, the Guarantor
          shall not exercise any of the rights of the Agent or any Bank
          which the Guarantor may acquire by way of subrogation, by any
          payment made hereunder, by reason of such set-off or application
          of funds or otherwise, against the Company or any collateral
          security or guarantee or right of offset held by any Bank for the
          payment of the Obligations, and the Guarantor shall not seek or
          be entitled to seek any contribution or reimbursement from the
          Company in respect of payments made by the Guarantor hereunder,
          until all amounts owing to the Agent and the Banks by the Company
          on account of the Obligations are paid in full, no Letters of
          Credit are outstanding and the Commitments are terminated.  If
          any amount shall be paid to the Guarantor on account of such
          subrogation rights at any time when all of the Obligations shall
          not have been paid in full, any Letter of Credit shall be

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          outstanding or the Commitments shall not have been terminated,
          such amount shall be held by the Guarantor in trust for the Agent
          and the Banks, segregated from other funds of the Guarantor, and
          shall, forthwith upon receipt by the Guarantor, be turned over to
          the Agent in the exact form received by the Guarantor (duly
          indorsed by the Guarantor to the Agent, if required), to be
          applied against the Obligations, whether matured or unmatured, in
          such order as required by the applicable Credit Documents.

                    5.   Amendments, etc. with Respect to the Obligations.
          Each Guarantor shall remain obligated hereunder notwithstanding
          that, without any reservation of rights against such Guarantor,
          and without notice to or further assent by such Guarantor, any
          demand for payment of any of the Obligations made by the Agent or
          any Bank may be rescinded by the Agent or such Bank, and any of
          the Obligations continued, and the Obligations, or the liability
          of any other Person upon or for any part thereof, or any
          collateral security or guarantee therefor or right of offset with
          respect thereto, may, from time to time, in whole or in part, be
          renewed, extended, amended, modified, accelerated, compromised,
          waived, surrendered or released by the Agent or any Bank, and the
          Credit Agreement, any Note, any other Credit Document, any Letter
          of Credit, any Acceptance and any other documents executed and
          delivered in connection therewith may be amended, modified,
          supplemented or terminated, in whole or in part, as the Banks (or
          the Required Banks, as the case may be) may deem advisable from
          time to time, and any collateral security, guarantee or right of
          offset at any time held by the Agent or any Bank for the payment
          of the Obligations may be sold, exchanged, waived, surrendered or
          released.  Neither the Agent nor any Bank shall have any
          obligation to protect, secure, perfect or insure any Lien at any
          time held by it as security for the Obligations or for this
          Guarantee or any property subject thereto.

                    6.   Guarantee Absolute and Unconditional.  Each
          Guarantor waives any and all notice of the creation, renewal,
          extension or accrual of any of the Obligations and notice of or
          proof of reliance by the Agent or any Bank upon this Guarantee or
          acceptance of this Guarantee; the Obligations, and any of them,
          shall conclusively be deemed to have been created, contracted or
          incurred in reliance upon this Guarantee; and all dealings
          between the Company or any Guarantor, on the one hand, and the
          Agent or the Banks, on the other, shall likewise be conclusively
          presumed to have been had or consummated in reliance upon this
          Guarantee.  Such Guarantor waives diligence, presentment,
          protest, demand for payment and notice of default or nonpayment
          to or upon the Company or such Guarantor with respect to the
          Obligations.  This Guarantee shall be construed as a continuing,
          absolute and unconditional guarantee of payment without regard to
          (a) the validity or enforceability of the Credit Agreement, any
          Note, any other Credit Document, any Letter of Credit, any
          Acceptance, any of the Obligations or any collateral security
          therefor or guarantee or right of offset with respect thereto at
          any time or from time to time held by the Agent or any Bank, (b)
          any defense, setoff or counterclaim (other than a defense of
          payment or performance) which may at any time be available to or

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          be asserted by the Company against the Agent or any Bank, or (c)
          any other circumstance whatsoever (with or without notice to or
          knowledge of the Company or such Guarantor) which constitutes, or
          might be construed to constitute, an equitable or legal discharge
          of the Company for the Obligations, or of such Guarantor under
          this Guarantee, in bankruptcy or in any other instance.  When the
          Agent is pursuing its rights and remedies hereunder against such
          Guarantor, the Agent or any Bank may, but shall be under no
          obligation to, pursue such rights and remedies as it may have
          against the Company or any other Person or against any collateral
          security or guarantee for the Obligations or any right of offset
          with respect thereto, and any failure by the Agent or any Bank,
          or any release of the Company or any such other Person or of any
          such collateral security, guarantee or right of offset, shall not
          relieve any such Guarantor of any liability hereunder, and shall
          not impair or affect the rights and remedies, whether express,
          implied or available as a matter of law, of the Agent and the
          Banks against such Guarantor.

                    7.   Reinstatement.  This Guarantee shall continue to
          be effective, or be reinstated, as the case may be, if at any
          time payment, or any part thereof, of any of the Obligations is
          rescinded or must otherwise be restored or returned by the Agent
          or any Bank, upon the insolvency, bankruptcy, dissolution,
          liquidation or reorganization of the Company or any Guarantor or
          upon or as a result of the appointment of a receiver, intervenor
          or conservator of, or trustee or similar officer for, the Company
          or any Guarantor or any substantial part of its property, or
          otherwise, all as though such payments had not been made.

                    8.   Payments.  Each Guarantor hereby agrees that the
          Obligations will be paid to the Agent without setoff or
          counterclaim in U.S. Dollars and immediately available funds at
          the office of the Agent located at 270 Park Avenue, New York, New
          York 10017.

                    9.   Representations and Warranties.  Each Guarantor
          hereby represents and warrants that:

                    (a)  it is a corporation duly organized, validly
               existing and in good standing under the laws of the State of
               Minnesota and has the corporate power and authority and the
               legal right to own and operate its property, to lease the
               property it operates and to conduct the business in which it
               is currently engaged, except to the extent that the failure
               to possess such corporate power and authority and such legal
               right would not, in the aggregate, have a Material Adverse
               Effect;

                    (b)  it has the corporate power and authority and the
               legal right to execute and deliver, and to perform its
               obligations under, this Guarantee and has taken all
               necessary corporate action to authorize its execution,
               delivery and performance of this Guarantee;

                    (c)  this Guarantee constitutes a legal, valid and

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               binding obligation of such Guarantor enforceable in
               accordance with its terms, except as enforceability may be
               limited by bankruptcy, insolvency, reorganization,
               moratorium or similar laws affecting the enforcement of
               creditors' rights generally and by general principles of
               equity (regardless of whether enforcement is sought in a
               proceeding in equity or at law);

                    (d)  the execution, delivery and performance of this
               Guarantee will not violate any provision of any Requirement
               of Law or Contractual Obligation of such Guarantor and will
               not result in or require the creation or imposition of any
               Lien on any of the properties or revenues of such Guarantor
               pursuant to any Requirement of Law or Contractual Obligation
               of such Guarantor;

                    (e)  no consent or authorization of, filing with, or
               other act by or in respect of, any arbitrator or
               Governmental Authority and no consent of any other Person
               (including, without limitation, any stockholder or creditor
               of such Guarantor) is required in connection with the
               execution, delivery, performance, validity or enforceability
               of this Guarantee;

                    (f)  no litigation, investigation or proceeding of or
               before any arbitrator or Governmental Authority is pending
               or, to the knowledge of such Guarantor, threatened by or
               against such Guarantor or against any of its properties or
               revenues (i) with respect to this Guarantee or (ii) which
               would have a Material Adverse Effect;

                    (g)  it has good record and marketable title in fee
               simple to or valid leasehold interests in all its material
               real property, and good title to all its other material
               property, and none of such property is subject to any Lien
               of any nature whatsoever; and

                    (h)  it has filed or caused to be filed or has timely
               requested an extension to file or has received an approved
               extension to file all tax returns required to be filed by
               it, and has paid all taxes due on said returns or extension
               requests or on any assessments made against it (other than
               those being contested in good faith by appropriate
               proceedings for which reserves in conformity with GAAP have
               been provided on its books), except any such filings or
               taxes, fees or other charges, the making or payment of
               which, or the failure to make or pay, would not have a
               Material Adverse Affect.

                    Each Guarantor agrees that the foregoing
          representations and warranties shall be deemed to have been made
          by it on each Borrowing Date by the Company under the Credit
          Agreement on and as of such Borrowing Date as though made
          hereunder on and as of such Borrowing Date.

                    10.  Severability.  Any provision of this Guarantee

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          which is prohibited or unenforceable in any jurisdiction shall,
          as to such jurisdiction, be ineffective to the extent of such
          prohibition or unenforceability without invalidating the
          remaining provisions hereof, and any such prohibition or
          unenforceability in any jurisdiction shall not invalidate or
          render unenforceable such provision in any other jurisdiction.

                    11.  Paragraph Headings.  The paragraph headings used
          in this Guarantee are for convenience of reference only and are
          not to affect the construction hereof or be taken into
          consideration in the interpretation hereof.

                    12.  No Waiver; Cumulative Remedies.  Neither the Agent
          nor any Bank shall by any act (except by a written instrument
          pursuant to paragraph 13 hereof), delay, indulgence, omission or
          otherwise be deemed to have waived any right or remedy hereunder
          or to have acquiesced in any Default or Event of Default or in
          any breach of any of the covenants, terms, or conditions hereof.
          No failure to exercise, nor any delay in exercising, on the part
          of the Agent or any Bank, any right, power or privilege hereunder
          shall operate as a waiver thereof.  No single or partial exercise
          of any right, power or privilege hereunder shall preclude any
          other or further exercise thereof or the exercise of any other
          right, power or privilege.  A waiver by the Agent or any Bank or
          any right or remedy hereunder on any one occasion shall not be
          construed as a bar to any right or remedy which the Agent or such
          Bank would otherwise have on any future occasion.  The rights and
          remedies herein provided are cumulative, may be exercised singly
          or concurrently and are not exclusive of any rights or remedies
          provided by law.

                    13.  Waivers and Amendments; Successors and Assigns;
          Governing Law.  None of the terms or provisions of this Guarantee
          may be waived, amended, supplemented or otherwise modified except
          by a written instrument executed by each Guarantor and the Agent,
          provided that any provision of this Guarantee may be waived by
          the Agent in a letter or agreement executed by the Agent or by
          telex or facsimile transmission from the Agent.  This Guarantee
          shall be binding upon the successors and assigns of the such
          Guarantor and shall inure to the benefit of the Agent and the
          Bank and their successors and assigns.  THIS GUARANTEE SHALL BE
          GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
          THE LAWS OF THE STATE OF NEW YORK.

                    14.  Notices.  All notices, requests and demands to or
          upon any Guarantor or the Agent or any Bank to be effective shall
          be in writing or by telecopy or telex and, unless otherwise
          expressly provided herein, shall be deemed to have been duly
          given or made when delivered by hand, or, in the case of mail,
          three Business Days after deposit in the postal system, first
          class postage prepaid, or, in the case of telecopy notice, when
          sent, confirmation of receipt received, or, in the case of telex
          or facsimile notices, when sent, answerback received, addressed,
          in the case of the Agent or any Bank, at the address provided for
          such party in subsection 11.2 of the Credit Agreement or, in the
          case of such Guarantor, at the addresses provided on the

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          signature page hereto, as the case may be.

                    15.  Authority of Agent.  Each Guarantor acknowledges
          that the rights and responsibilities of the Agent under this
          Guarantee with respect to any action taken by the Agent or the
          exercise or non-exercise by the Agent of any option, right,
          request, judgment or other right or remedy provided for herein or
          resulting or arising out of this Guarantee shall, as between the
          Agent or the Banks, be governed by the Credit Agreement and by
          such other agreements with respect thereto as may exist from time
          to time among them, but, as between the Agent and such Guarantor,
          the Agent shall be conclusively presumed to be acting as agent
          for the Banks with full and valid authority so to act or refrain
          from acting, and such Guarantor shall not be under any
          obligation, or entitlement, to make any inquiry respecting such
          authority.

                    16.  Integration; Acknowledgements.  Each Guarantor
          hereby confirms its agreement with subsections 11.9 and 11.12 of
          the Credit Agreement.

                    17.  SUBMISSION TO JURISDICTION; WAIVERS.  (a)  EACH
          GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY:

                      (i)  SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
               ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND EACH
               OTHER CREDIT DOCUMENT TO WHICH IT IS A PARTY OR, OR FOR
               RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
               THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE
               COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED
               STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
               APPELLATE COURTS FROM ANY THEREOF;

                     (ii)  CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY
               BE BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT
               MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
               PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
               PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES
               NOT TO PLEAD OR CLAIM THE SAME;

                    (iii)  AGREES THAT SERVICE OR PROCESS IN ANY SUCH
               ACTION OR PROCEEDING MAY BE AFFECTED BY MAILING A COPY
               THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
               SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO
               SUCH GUARANTOR AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE
               BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE
               BEEN NOTIFIED PURSUANT TO PARAGRAPH 14; AND

                     (iv)  AGREES THAT NOTHING HEREIN SHALL AFFECT THE
               RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER
               PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY
               OTHER JURISDICTION.


                    (b)  EACH OF THE AGENT, EACH BANK AND EACH GUARANTOR
          UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR

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          PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE.

                    IN WITNESS WHEREOF, the undersigned has caused this
          Guarantee to be duly executed and delivered as of the date first
          above written.


                                   DEPARTMENT 56 RETAIL, INC.
                                   By:  /s/ TIMOTHY J. SCHUGEL
                                      Title: Vice President

                                   Address:
                                   1 Village Place
                                   6436 City West Parkway
                                   Eden Prairie, Minnesota 55344
                                   Attention: Chief Financial Officer


                                   DEPARTMENT 56 SALES, INC.
                                   By: /s/ TIMOTHY J. SCHUGEL
                                     Title: Vice President


                                   Address:
                                   1 Village Place
                                   6436 City West Parkway
                                   Eden Prairie, Minnesota 55344
                                   Attention: Chief Financial Officer