<PAGE>


                AGREEMENT FOR SHARE-DENOMINATED PERFORMANCE UNITS
            UNDER THE DEPARTMENT 56, INC. 199{7} STOCK INCENTIVE PLAN

<TABLE>
<S>                                                      <C>
    Grantee: ____________________                           Performance Cycle:________________
    Number of PSPs Granted:______                           Target EPS at Performance Cycle End: $_____

    Minimum Number of PSPs that may be earned:           0% of number set forth above as granted
    Threshold Number of PSPs that may be earned:         25% of number set forth above as granted
    Target Number of PSPs that may be earned:            100% of number set forth above as granted
    Maximum Number of PSPs that may be earned:           150% of number set forth above as granted
</TABLE>

1. GENERAL. Pursuant to Section 10.2 of the Company's 199{7} Stock Incentive
Plan (the "Plan") and subject to the terms of this Agreement and the Plan, the
Company hereby grants to the Grantee the number of Share-denominated Performance
Units ("PSPs") set forth above as granted (the "Grant"). The number of PSPs
granted and which may be ultimately vested and earned is subject to adjustment
for recapitalizations and other events as provided in Section {13} 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 AND DISTRIBUTION OF PSPS.

     2.1  VESTING AND EARNING. 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 PSPs 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 PSPs covered by the Grant depending upon the extent
          to which Target EPS at Performance Cycle End (the "Target EPS") 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 Company's diluted earnings per Common Share reported in its
          audited financial statements for the last year of the Performance
          Cycle. (By way of illustration: if the reported amount of diluted
          earnings per Common Share for the last fiscal year of the Performance
          Cycle equals 100% of the Target EPS, then 100% of the number of PSPs
          set forth above as granted shall be earned and fully vested in the
          Grantee).

     2.2  DISTRIBUTION OF VESTED AND EARNED GRANT. Distribution of the Grantee's
          vested and earned PSPs as determined in Section 2.1 hereof shall be
          made as soon as practicable following the determination of earning and
          vesting made in accordance with Section 2.1 hereof. Distribution shall
          be made in the form of Common Shares, cash or a combination of Common
          Shares, as determined in the sole discretion of the Committee.

     2.3  VALUATION OF VESTED AND EARNED GRANT. . For purposes hereof, to the
          extent it is paid in cash, the "value" of a vested Grant is equal to
          the same extent in the total number of PSPs earned and vested,
          multiplied by the average fair market value of a Common Share. The
          "average fair market value" shall be determined by totalling the fair
          market value of a Common Share on each of the last 20 business days
          including and immediately preceding the last day of the Performance
          Cycle, and dividing such total by the number 20, with the resulting
          figure being the average fair market value. The "fair market value" of
          the Common Share, as such term is used herein, is the highest closing
          price of a Common Share on the New York Stock Exchange (or other
          established stock exchange, where applicable) on the applicable
          date(s) or, if no sale of a Common Share has occurred on such exchange
          on an applicable date, on the next preceding date on which there was
          such a sale. In the event the Common Shares are not listed on the New
          York Stock Exchange (or any other established stock exchange) as of an
          applicable date for valuation, the "fair market value" is the mean
          between the "bid" and "asked" prices quoted by a recognized market
          maker in the Common Shares on such date. For purposes hereof, to the
          extent it is paid in Common Shares, the "value" of a vested Grant is
          equal to the same extent in the total number of PSPs earned and
          vested.

     2.4  WAIVER OF REQUIREMENTS. Notwithstanding any provisions hereof or of
          the Plan to the contrary, the requirements for vesting and
          distribution of PSPs may be waived, in whole or part, if it is
          determined unanimously by the Committee and by two-thirds vote of the
          members of the Board that waiver of such requirements and distribution
          of PSPs, and the resulting additional compensation to the Grantee,
          would be in the best interest of the Company.


<PAGE>


     2.5  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 PSPs shall vest and be distributed to
          the Grantee distributed on the following bases 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
               PSPs hereunder determined as follows:

               A.   First, the Company shall be deemed to have achieved the
                    greater of (x) the Target EPS and (y) if the Change in
                    Control occurs after the first quarter of the Performance
                    Cycle, the diluted earnings per Common Share most recently
                    projected by the Company prior to the Change in Control for
                    the last year of the Performance Cycle (or, if no such
                    projection exists, such projection for the next preceding
                    year for which such a projection exists, but in the event no
                    such earlier projection exists, the diluted earnings per
                    Common Share at Performance Cycle End projected by assuming
                    achievement for the remainder of the Performance Cycle of a
                    compound annual growth rate in diluted earnings per Common
                    Share equal to the rate by which diluted earnings per Common
                    Share for the fiscal year ended immediately preceding the
                    date of the Change of Control varied from the prior fiscal
                    year), 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 PSPs as determined in
               Paragraph (i) hereof shall be made as soon as practicable after
               the first occurrence of a Change in Control. Such distribution
               shall be in Common Stock, cash or a mix in the manner provided by
               Section 2.2 hereof and shall be valued as provided in Section 2.3
               hereof. Upon the making of any such distribution, this Grant and
               the underlying PSPs shall be deemed canceled and of no further
               force and effect.

3. CERTAIN RESTRICTIONS.

     3.1 NON-TRANSFERABILITY. This Grant and the underlying PSPs 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 PSPs;
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 empoyment, or disability, the Grantee may become vested
in a number of PSPs hereunder, the number being determined as follows: A. First,
the number of PSPs 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. The Grantee shall not be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any Common Shares
which may be paid upon any vesting of the Grant until such Common Shares are
actually paid to him or her. The designation and crediting of PSPs to the
Grantee before any are earned and paid in Common Shares is solely for the
Company's accounting purposes.


<PAGE>

4. SPECIFIC PERFORMANCE. 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.

5. WITHHOLDING. Prior to the issuance of any Common 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 PSPs by having
the Company withhold a sufficent number of Common Shares otherwise payable in
respect of the earned and vested PSPs. 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 he
has reviewed the Plan and this Agreement and understands his rights and
obligations thereunder and hereunder. The Grantee also acknowledges that he has
been provided with such information concerning the Company, the Plan and this
Agreement as he and his advisors have requested.


DEPARTMENT 56, INC.



By:
    ---------------------------------------      -------------------------------
                                                 Grantee: