Document:

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                   DEPARTMENT 56, INC. STOCK OPTION AGREEMENT
                FOR OPTIONS UNDER THE 199{7} STOCK INCENTIVE PLAN

       Optionee:                                       Date:
       Number of Shares subject to the Option:         Exercise Price per Share:

1.    GENERAL.

      1.1 The Company hereby grants to the Optionee, subject to the terms of
this Agreement and the Company's 199{7} Stock Incentive Plan (the "Plan"), the
right and option (the "Option") to purchase, at the Exercise Price, the number
of Shares set forth above. The number of Shares and the Exercise Price are
subject to adjustment as provided in Section {13} of the Plan, which is made a
part hereof as if fully set forth herein. 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.

      1.2 This Option is not intended to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code.

      1.3 The Option shall be exercisable to the extent and in the manner
provided herein for a period of 10 years from the date hereof (the "Exercise
Term"); PROVIDED, HOWEVER, that the Option may be earlier terminated as provided
in Section 4 or 5 hereof.

2.    EXERCISABILITY OF OPTIONS.

      2.1 VESTING. Subject to the provisions of this Agreement and the Plan, the
Option shall become exercisable cumulatively with respect to one-third of the
total number of Shares which may be purchased pursuant to the Option on each of
the first, second and third anniversary hereof.

      2.2 TIMING OF EXERCISE. The Optionee or the guardian, executor,
administrator or other legal representative (each a "Legal Representative") of
the Optionee (all references herein to "Optionee" being deemed to include the
Optionee's Legal Representative, if any, unless the context otherwise requires)
may exercise the Option, in whole or in part, at any time or from time to time,
but only to the extent the Option is exercisable at such time.

      2.3 EFFECT OF CHANGE IN CONTROL. Notwithstanding anything contained in
this Agreement to the contrary, in the event of a Change in Control, the Option
shall become immediately and fully exercisable.

3.    MANNER OF EXERCISE AND PAYMENT.

      3.1 Subject to the terms and conditions of this Agreement and the Plan,
the Option may be exercised by delivery of written notice, in person or by mail,
to the Secretary of the Company, at the Company's principal executive office (or
such other address as the Company may from time to time notify the Optionee in
writing). Such notice shall state that the Optionee is electing to exercise the
Option and the number of Shares in respect of which the Option is being
exercised and shall be signed by the Optionee or, where applicable, by his Legal
Representative. The Company may require proof satisfactory to it as to the right
of the Legal Representative to exercise the Option.

      3.2 The notice of exercise described in Section 3.1 hereof shall be
accompanied by the full purchase price for the Shares in respect of which the
Option is being exercised, such purchase price to be paid by check. Not less
than 100 Shares may be purchased at any one time upon an exercise of the Option,
unless the number of Shares so purchased constitutes the total number of Shares
then purchasable under the Option.

      3.3 The Optionee shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any Shares subject to the Option
until the conditions in Section 7.3 of the Plan have been satisfied.

4.    CERTAIN RESTRICTIONS.

      4.1 NON-TRANSFERABILITY. The Option shall not be transferable by the
Optionee otherwise than by will or the laws of descent and distribution, and an
Option may be exercised during the lifetime of such Optionee only by the
Optionee or his or her Legal Representative. The terms of such Option shall be
final, binding and conclusive upon the beneficiaries, executors, administrators,
heirs and successors of the Optionee.

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      4.2 EMPLOYMENT TERMINATION. (a) Except as may be agreed between the
Committee and the Optionee, if the Optionee shall no longer be employed by the
Company or any of its Subsidiaries, or, if the Option was granted by reason of
the Optionee serving as a director of the Company or any of its Subsidiaries,
the Optionee shall cease to serve as a director of the Company or any of its
Subsidiaries, for any reason whatsoever ("Terminated" or a "Termination"),
irrespective of whether the Optionee receives, in connection with the
Termination, any severance or other payment from the Company or any of its
Subsidiaries under any employment agreement or otherwise, the Option, to the
extent it is not exercisable pursuant to Section 2.1 or 2.3 hereof at the date
of such Termination, shall terminate and shall be of no further force and effect
from and after the date of such Termination (the "Termination Date").

      (b) If any portion of the Option is exercisable pursuant to Section 2.1 or
2.3 hereof on the Termination Date, the Terminated Optionee may exercise the
Option, to the extent the Option was exercisable on the Termination Date, at any
time on or before the earliest of --

                  (i) three (3) months after the Optionee's Termination if he or
                  she is terminated for Cause ("Cause" shall exist if: (x) the
                  Optionee is convicted of, or pleads NOLO CONTENDERE to, any
                  felony which has materially and adversely impacted the
                  Company's financial condition or reputation, or (ii) the
                  Optionee has engaged in conduct that constitutes willful gross
                  neglect or willful gross misconduct in carrying out his or her
                  duties which has materially and adversely impacted the
                  Company's financial condition or reputation);

                  (ii) forty-eight (48) months after the Optionee's date of
                  death;

                  (iii) twelve (12) months after the Optionee's Termination
                  before his or her attainment of age sixty (60) if his or her
                  service is Terminated for any reason other than death or
                  Cause; or

                  (iv) the last day of the Exercise Term -

PROVIDED, HOWEVER, that if the Optionee dies within the period following
Termination during which the Option is exercisable as set forth above and has
not fully exercised the Option prior to death, then the Legal Representative may
exercise the Option, to the extent the Option was exercisable on the Termination
Date, at any time within forty-eight (48) months after the Legal Representative
is appointed (but in no event after the expiration of the Exercise Term).

5.    PROHIBITION AGAINST CERTAIN ACTIVITIES.

      5.1 OPTIONEE'S FOREBEARANCE. The Optionee understands that the Company is
granting to the Optionee an option to purchase Shares hereunder to reward the
Optionee for the Optionee's future efforts and loyalty to the Company and its
Affiliates by giving the Optionee the opportunity to participate in the
potential future appreciation of the Company. Accordingly, the Optionee agrees
that (a) he will not at any time during his employment with the Company or any
Affiliate thereof, or after any Termination, directly or indirectly disclose or
furnish to any other person or use for his 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 course of his employment with, or
other performance of services for, the Company or any Affiliate thereof or any
predecessor of any of the foregoing, no matter from where or in what manner the
Optionee may have acquired such knowledge or information, and 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 he is
Terminated, he will not for three 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 thereof
(a "Dept. 56 Employee") (it being understood that, if the Optionee 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 Optionee does not solicit, recommend to the Successor, or otherwise bring
to the attention of the Successor, the Dept. 56 Employee), and (c) he will not
at any time during his employment or after any Termination publish any statement
or make any statement (under circumstances reasonably likely to become public or
that he might reasonably expect to become public) critical of the Company or any
Affiliate thereof, 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 Optionee agrees that he will not at
any time during his employment with the Company or any Affiliate thereof or the
one year thereafter (including any period following Termination during or in
respect of which he is receiving any severance payment) engage in any
Competitive Activity (as hereinafter defined) anywhere in the world (including,
without limitation, anywhere in the United States of America, the United
Kingdom, Hong Kong, The Peoples' Republic of China or the Republic of China
(Taiwan)).

      The term "Competitive Activity" shall mean engaging in any of the
following activities: (i) directly or indirectly through one or more
intermediaries (X) controlling any Competitor (as hereinafter defined) or (Y)
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), (ii) directly or indirectly soliciting, diverting,
taking away, appropriating or otherwise interfering with any of the employees,
customers or suppliers of the Company or any Affiliate thereof, or (iii)
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 that competes either directly or indirectly with any of the businesses
conducted or products developed (including, without limitation, miniature
ceramic or porcelain buildings and figurines) by the Company or any of its
Affiliates at any time or from time to time during the period

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of the Optionee's employment with the Company or any of its Affiliates.

      5.2 RIGHT TO TERMINATE OPTION. The Optionee understands that the Company
is granting to the Optionee an option to purchase Shares hereunder to reward the
Optionee for the Optionee's future efforts and loyalty to the Company and its
affiliates by giving the Optionee the opportunity to participate in the
potential future appreciation of the Company. Accordingly, if the Optionee (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, at its option, to terminate the Option, which shall then be
of no further force and effect.

6.    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.

7.    WITHHOLDING. Prior to the issuance of any Shares to the Optionee
hereunder, the Optionee 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 Optionee any amount necessary in satisfaction of
any applicable Withholding Taxes.

8.    ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
agreement, and supersede all prior agreements and understandings, oral and
written, between the parties hereto with respect to the subject matter hereof.

9.    ACKNOWLEDGMENT. The Optionee 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 Optionee hereby acknowledges that
he has reviewed the Plan and this Agreement and understands his rights and
obligations thereunder and hereunder. The Optionee 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: ____________________________________     ___________________________________
                                             Optionee:<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.

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     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.

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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:

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