U.S. Securities and Exchange Commission
            Washington, D.C. 20549
            Form 10-KSB

            Check the appropriate box:
            [ X ]  Annual report under Section 13 or 15(d) of the
            Securities Exchange Act of 1934
                     [Fee Required]
                     For the fiscal year ended     June 30, 1997   .
            [    ]  Transition report under Section 13 or 15(d) of the
            Exchange Act
                     [No Fee Required]
                     For the transition period from _______________ to
            _______________.
            Commission file number   1-12580  .

            THE VERMONT TEDDY BEAR CO., INC.
            (Exact name of small business issuer as specified in its
            charter)

            New York                      03-0291679
                               (State or other jurisdiction
            (I.R.S. Employer
                               of incorporation or organization)
            Identification No.)

            2236 Shelburne Road, Post Office Box 965
            Shelburne, Vermont 05482
            (802) 985-3001
            (Address of principal executive offices)

            Securities registered under Section 12(b) of the Exchange
            Act:
            Title of each class                     Name of each
            exchange on which registered
            Common Stock, par value $.05 per share       NASDAQ National
            Market System

            Securities registered under Section 12(g) of the Exchange
            Act:
            Common Stock, per value $.05 per share
            (Title of class)
<PAGE>






            Check whether the issuer (1) filed all reports required to
            be filed by Section 13 or 15(d) of the Exchange Act during
            the past 12 months (or for such shorter period that the
            registrant was required to file such reports), and (2) has
            been subject to such filing requirements for the past 90
            days.  Yes  X ;  No    .

            Check if there is no disclosure of delinquent filers in
            response to Item 405 of Regulation S-B contained in this
            form, and no disclosure will be contained, to the best of
            registrant's knowledge, in definitive proxy or information
            statements incorporated by reference in Part III of this
            Form 10-KSB or any amendment to this Form 10-KSB. [ ]

            The issuer's revenues for its most recent fiscal year ended
            June 30, 1997 were $16,489,483.

            The aggregate market value of the voting stock held by non-
            affiliates of the issuer, based on the average high and low
            prices of such stock on August 1, 1997, as reported on
            NASDAQ, was $8,082,422.

            As of August 1, 1997, there were 5,172,750 shares of
            the issuer's common stock issued and 5,160,750 shares
            outstanding.

            Documents Incorporated By Reference

            The following documents, in whole or in part, are
            specifically incorporated by reference in the indicated part
            of this Annual Report on Form 10-KSB:

            Proxy Statement for 1997 Annual Meeting of the issuer's
            stockholders: Part III, Items 9, 10, 11 and 12.

            Transitional Small Business Disclosure Format (check
            one): Yes      ; No   X  .

            The Vermont Teddy Bear Co., Inc.
            1997 Form 10-KSB Annual Report


            Table of Contents

                                                                   Page

            Item 1.        Description of Business
                    3

            Item 2.        Description of Property
                    8

            Item 3.   Legal Proceedings
<PAGE>





            9

            Item 4.   Submission of Matters to a Vote of Security
            Holders                                         9

            Item 5.        Market for Common Equity and Related
            Stockholder Matters                           
            9

            Item 6.        Management's Discussion and Analysis or Plan
            of Operation
            11

            Item 7.        Financial Statements
                   14

            Item 8.        Changes In and Disagreements With Accountants
                      on Accounting and Financial Disclosure
                   14

            Item 9.        Directors, Executive Officers, Promoters and
            Control Persons; Compliance With Section
            16(a) of the Exchange Act
                   15

            Item 10.  Executive Compensation
            15

            Item 11.  Security Ownership of Certain Beneficial Owners
                      and Management                                 15

            Item 12.  Certain Relationships and Related Transactions
                        15

            Item 13.  Exhibits and Reports on Form 8-K
                   15

            Signatures                                                    
            20

            Index to Financial Statements
            21

            Item 1.  Description of Business

                 Founded in 1981 and incorporated in 1984, The Vermont
            Teddy Bear Co., Inc. (the "Company"), with its principal
            offices located at 2236 Shelburne Road, Shelburne, Vermont,
            is a designer, manufacturer, and direct marketer of teddy
            bears and related products.


                 Principal Distribution Methods
<PAGE>





                 The Company uses a variety of channels to market its
            products, of which the largest is its Bear-Gram delivery
            service, comprising 70.0 percent of net revenues for the
            fiscal year ended June 30, 1997.  Other principal avenues of
            distribution include Company-owned retail stores, direct
            mail catalogs, and licensing and wholesale agreements.  The
            Company's sales are heavily seasonal, with Valentine's Day,
            Christmas, and Mother's Day as the Company's largest sales
            seasons, respectively.

                                      Primary Distribution Methods
                                      for the twelve months ended June
            30,
                                      1997           1996           1995
                 Bear-Grams*              70.0%          75.8%
                 78.7%
                 Retail Operations        17.7%          12.9%
            9.2%
                 Direct Mail              10.9%            7.2%
            8.8%
                 Other Distribution         1.4%           4.1%
            3.3%
                      * Excludes Bear-Gram revenues from retail
            operations.

                 Bear-Grams are personalized teddy bears that are
            delivered directly to recipients for special occasions such
            as birthdays, anniversaries, weddings, and new births, as
            well as holidays such as Valentine's Day, Christmas, and
            Mother's Day.  Orders for Bear-Grams are generally placed by
            calling a toll-free telephone number (1-800-829-BEAR) and
            speaking with Company sales representatives, called Bear
            Counselors.  The Company offers teddy bears in a variety of
            sizes and colors, as well as approximately 100 different
            teddy bear outfits to further personalize the Bear-Gram.
            Orders placed by 4:00 pm can be shipped the same day;
            packages are delivered primarily via United Parcel Service
            by next-day air, second-day air, or ground delivery service.

                 The Bear-Gram has been the most significant factor in
            the historical growth of the Company.  Although Bear-Grams
            were introduced on a small scale in 1985, the Company's
            marketing effort throughout the 1980's focused primarily on
            wholesaling teddy bears to specialty stores and direct
            retail through its own outlets.  Shortly before Valentine's
            Day in 1990, the Company introduced radio advertising of its
            Bear-Gram product on radio station WHTZ ("Z-100") in New
            York City, positioning the Bear-Gram as a novel gift for
            Valentine's Day and offering listeners a toll-free number
            for customers to order from the Company's facility in
            Vermont.  This test proved to be successful, and the Bear-
            Gram concept was expanded to other major radio markets
            across the country.  Primarily through Bear-Gram sales, the
            Company increased its net revenues from approximately
<PAGE>





            $351,000 in 1989 (the year prior to the initial New York
            City Bear-Gram campaign) to a peak of $20,561,000 in 1994.
            Total revenues were $16,489,000 for the twelve months ended
            June 30, 1997.

                 Since 1990, the Company has expanded its Bear-Gram
            radio marketing strategy beyond New York City, to include
            other metropolitan areas and syndicated radio programs
            carried by stations across the United States.  During the
            twelve-month period ended June 30, 1997, the Company
            regularly placed advertising on a total of 50 radio stations
            in ten of the twenty largest market areas in the United
            States, as well as on one syndicated network.  For
            Valentine's Day, the Company's peak Bear-Gram sales season,
            the Company advertised on 105 radio stations in eleven
            different markets, as well as on one syndicated network.

            The following table shows the Company's largest markets
            and most frequent reasons given by customers for purchasing
            the Company's Bear-Grams:

                                Percentage of Bear-Grams for the
                                twelve months ended June 30,
                                 1997           1996           1995
            Markets
                 New York City  40.8%          35.5%          38.6%
                 Boston              13.2%            9.5%
            9.5%
                 Philadelphia        11.6%            8.9%
            7.3%
                 Chicago          8.9%           7.3%           8.5%
                 Los Angeles           5.8%           4.0%
            3.8%

            Reasons for Purchases
                 Valentine's Day     22.1%          20.8%          19.2%
                 Birthdays      11.6%          13.4%          15.0%
                 New Births          10.3%          12.8%
            9.9%
                 Get Wells        9.7%         12.0%          10.4%
                 Christmas        5.6%           8.6%         10.4%

                 Included in Bear-Gram revenues are sales from the
            Company's internet website, www.vtbear.com.  More than
            195,000 "hits" were recorded during the twelve months ended
            June 30, 1997, its first full year of operation.  Radio
            advertisements are frequently tagged with a reference to the
            web site, which, in turn, provides visual support for the
            radio advertising.  The Company has achieved initial success
            with on-line ordering, which began in April 1997.

                 In the year ahead, the Company plans to develop a small
            number of new radio markets, including Minneapolis, Dallas,
            and Milwaukee, examine opportunities to consolidate radio
<PAGE>





            advertising buys through annual contracts with major
            stations, and further develop and promote its internet
            website.

                 In an effort to diversify the Company's distribution
            channels, the Company has placed a greater emphasis on other
            forms of marketing, including Company-owned retail stores.
                 In aggregate, retail stores were second only to Bear-
            Grams in their contribution to sales in the fiscal year
            ended June 30, 1997, at 17.7 percent of net revenues.  The
            Company actively promotes family tours of its teddy bear
            factory and store in Shelburne, located ten miles south of
            Burlington, Vermont, which drew over 129,000 visitors in the
            twelve-month period ended June 30, 1997, and has drawn more
            than 261,000 visitors since moving to its current factory in
            July 1995.  In an effort to make a visit to the factory more
            entertaining and draw additional traffic, the Company has
            implemented the Make A Friend For Life bear assembly area,
            where visitors can participate in the creation of their own
            teddy bear.

                 In July 1996, the Company opened a second retail store,
            located on Route 16 in North Conway, New Hampshire.  The
            Company chose the North Conway location because of the
            summer, foliage, and ski-season traffic passing through the
            area.  Given the retail environment of North Conway, the
            Company sells a mix of full-price and discount/close-out
            items.  In November 1997, the Company opened its third
            retail store on Madison Avenue in New York City, between
            54th and 55th streets.  The New York store benefits from New
            York Bear-Gram radio advertising, and is located in an area
            that receives a blend of business and tourist traffic.  In
            August 1997, the Company opened its fourth location in
            Freeport, Maine, in the former Bartol Library on Main
            Street, which is proximate to L.L. Bean and other retailers.
            The Company intends to judiciously examine other store
            locations in the year ahead as financial resources permit.

            The Company also generates revenues from direct mail
            initiatives.  For the fiscal year ended June 30, 1997,
            direct mail accounted for 10.9 percent of net revenues.  The
            Company introduced its first catalog for Christmas of 1992,
            and has accumulated an in-house mailing list in excess of
            1,400,000 names.  During the twelve months ended June 30,
            1997, more than 63 million circulated pages were mailed to
            prospective customers.  The Company intends to decrease the
            number of circulated pages in the year ahead, primarily
            through a reduction in the renting and exchanging of
            additional names from other catalogs, which have not
            historically responded as well as the Company's in-house
            mailing list.


                 Competitive Business Conditions
<PAGE>






                 The Company competes with a number of companies that
            sell teddy bears in the United States, including, but not
            limited to, Steiff of Germany, Dakin, North American Bear,
            and Gund.  The Company also competes with a number of
            sellers of flowers, balloons, candy, cakes, and other gift
            items, which can be ordered by phone for special occasions
            and delivered by express service in a manner similar to
            Bear-Grams.  Many of these competitors have greater
            financial, sales, and marketing resources than the Company.

            On occasion, the Company has also become aware of
            competitors, seeking to market the sale of teddy bears in a
            manner similar to Bear-Grams, as evidenced by the marketing
            of "Pooh-Grams" by certain subsidiaries of Disney
            Enterprises, Inc., which began in late 1996.  On May 16,
            1997, The Vermont Teddy Bear Co., Inc. filed suit, seeking
            injunctive relief and unspecified damages for infringement
            of its Bear-Gram trademark.  On September 9, 1997, the two
            companies entered into an agreement to resolve their
            dispute, whereby Disney will continue to offer its Pooh-Gram
            products and services but will voluntarily limit its use of
            the Pooh-Gram mark in certain advertising.  Vermont Teddy
            Bear, in turn, will be allowed to offer certain Winnie The
            Pooh merchandise for sale in its mail order catalog but will
            not offer such merchandise in conjunction with its Bear-Gram
            program.

            There are no material barriers to entry into this
            market, and accordingly, there can be no assurance that
            other companies will not seek to compete directly with the
            Company.  Other companies that manufacture or source their
            product off-shore may be able to sell comparable products at
            retail prices below those currently offered by the Company.


                 Principal Products

                 From its inception, the Company's focus has been to
            design and manufacture the best teddy bears made in America,
            using quality American materials and labor. The Company
            believes that, apart from its own manufactured product, most
            of the teddy bears sold in the United States are
            manufactured in foreign countries, and that the Company is
            the largest manufacturer of teddy bears made in the United
            States.  The Company has sought to respond to customer
            demand for American-made products by manufacturing its bears
            in the United States using American materials, with the
            exception of mohair and a "super plush" fabric on its
            premium bears, which are obtained from European suppliers.
            The Company produces many different sizes of bears, ranging
            from 11" to 72" tall, in six standard colors.  Virtually all
            of the Company's teddy bears have moveable joints, a feature
            associated with traditional, high-quality teddy bears.
<PAGE>





            Additionally, approximately 100 different bear outfits are
            manufactured, including ballerina bears, birthday bears,
            bride and groom bears, business bears, nurse bears, and
            sports bears.  A percentage of the outfits are outsourced to
            overseas contractors.  The Company intends to monitor this
            process carefully and examine the benefits and drawbacks of
            overseas outfit manufacturing.

                 In addition to its own manufactured product, the
            Company sells items related to teddy bears, as well as
            merchandise from other manufacturers featuring the logo of
            The Vermont Teddy Bear Company.  Items such as apparel,
            jewelry, and ornaments are available primarily in the
            Company's retail stores and to a lesser extent through its
            direct mail catalog.  The Company also sells stuffed toys
            that have been manufactured by other companies, such as Gund
            and Steiff of Germany.  The Company believes that these
            product strategies will continue in the future, as the
            Company actively re-positions itself to merchandise all
            things related to teddy bears, including products from other
            stuffed toy manufacturers.


                 Sources and Availability of Materials, Supplies, and
            Production

                 Raw materials for the Company's bears and outfits are
            obtained from several domestic suppliers.  The Company
            presently purchases certain of its raw materials from single
            suppliers, but believes that alternate sources of supply are
            available at competitive prices, should conditions warrant.
            Fabric for all teddy bears is cut at the Company's Shelburne
            factory, prior to sewing.  Sewing of bear parts (arms, legs,
            bodies, and heads) is done by employees, as well as by
            homeworkers and subcontractors.  Once individual parts are
            sewn, they are returned to the factory for mechanical
            stuffing.  The bears are assembled by attaching the stuffed
            parts to the bears with plastic joints, hand-stuffing the
            bodies, and hand-stitching the backs.  The Company also
            produces outfits for the bears, which are then "dressed" to
            meet customer requests.


            Patents, Trademarks, and Licenses

            The Company's name in combination with its original
            logo is a registered trademark in the United States.  In
            addition, the Company also owns the registered trademarks in
            the United States for "The Vermont Teddy Bear Company,"
            "Bear-Gram" and "Teddy Bear-Gram."  The Company also owns
            the registered service marks "Bear Counselor," "Vermont
            Bear-Gram" and "Racer Ted," and has applications pending to
            register the Company's second and third Company logos,
            "Vermont Baby Bear," "Vermont Bear-Gram," "Make-A-Friend-
<PAGE>





            For-Life," "The Great American Teddy Bear," "All-American
            Teddy Bear," "Beau and Beebee," "Bear Bottoms," and "The
            Acme Moving Picture Group" and "Acme Cartoon Company."  The
            Company also uses the trade names "Vermont Teddy Wear" and
            "Wilderness Bear."

            The Company has continuously used the mark "Bear-Gram"
            since April 1985.  Its initial application to register that
            mark, filed June 13, 1990, was rejected by the United States
            Patent and Trademark Office due, among other things to prior
            registration of the mark "Bear-A-Grams," which was issued to
            another company on June 7, 1988.  Accordingly, the Company
            reapplied to register "Bear-Gram."  The Official Notice of
            Registration from the United States Patent and Trademark
            Office for the mark "Bear-Gram" was approved on, and is
            dated, November 5, 1996.

            The Company also claims copyright, service mark or
            trademark protection for its teddy bear designs, its
            marketing slogans, and its advertising copy and promotional
            literature.


                 Employees

                 As of June 30, 1997, the Company employed 169
            individuals, of whom 88 persons were employed in production-
            related functions, 58 persons were employed in sales and
            marketing positions, and 23 were employed in general and
            administrative positions.  No employees are members of a
            union, and the Company believes it enjoys favorable
            relations with all employees.

                 The Company supplements its regular in-house work force
            with homeworkers who perform production functions at their
            homes.  The level of outsourced work fluctuates with Company
            production targets; at June 30, 1997, there were fifteen
            homeworkers producing product for the Company.  Homeworkers
            are treated by the Company as independent contractors for
            all purposes, except for withholding of federal employment
            taxes.  As independent contractors, homeworkers are free to
            accept or reject work offered by the Company.  This working
            relationship allows the Company to adapt to fluctuations in
            production requirements.


            Item 2.  Description of Property

                 In July 1995, in an effort to consolidate the Company's
            disparate locations and improve manufacturing flow, the
            Company moved its principal offices, along with its retail
            store, manufacturing, sales, and fulfillment operations to
            its newly-constructed 62,000 square foot building, located
            on a 57-acre site along U.S. Route 7 in Shelburne, Vermont.
<PAGE>





            The new site is two miles south of the Company's former
            location, and ten miles south of Burlington, Vermont.  The
            Company purchased the site for approximately $817,000, and
            the cost of improving the site and constructing the new
            facility totaled approximately $7.1 million.  On September
            26, 1995, the Company entered into a $3.5 million commercial
            loan with the Vermont National Bank, secured by a first
            mortgage on the new facility, as well as general business
            assets.  Repayment of the mortgage loan was based on a
            thirty-year fixed principal payment schedule, with a balloon
            payment due on September 26, 1997.

            On July 18, 1997, the Company completed a
            sale-leaseback transaction, involving its factory
            headquarters and a portion of its property located in
            Shelburne, Vermont.  This financing replaced the Company's
            mortgage loan agreement with the Vermont National Bank.  The
            Company received approximately $5.9 million in cash, of
            which approximately $3.3 million was used to pay off the
            existing mortgage with the Vermont National Bank.  The
            balance, approximately $2.6 million, was used for general
            working capital purposes, to pay down a $600,000 balance on
            the Company's line of credit (which was retired as the
            result of the termination of the original mortgage loan),
            and transaction costs associated with the sale-leaseback.
            The lease obligation, secured by the business assets of the
            Company, is payable on a twenty-year amortization schedule
            through July 2017.

            The Company has a three-year lease on 10,000 square
            feet of inventory space at a separate location in Shelburne,
            Vermont, one mile north of the factory, for $14,000
            annually.  The Company also has entered into the following
            lease agreements for its retail stores:

                                Square         Annual    Lease
                 Lease
            Location                           Footage   Rent
                 Length         Expiration
            North Conway, NH         6,000          $  48,204 5 years
            6/28/2001
            New York City, NY        2,600          $300,000  10 years
                 10/23/2006
            Freeport, ME             6,000          $240,000  10 years
            9/1/2007

            The annual rent listed in the table above is for fiscal
            year 1998 only.  The annual rent for the Company's North
            Conway, New Hampshire location will increase to $49,608,
            effective June 28, 1998, to $51,012, effective June 28,
            1999, and to $52,416, effective June 28, 2000.  The annual
            rent for the Company's New York City, New York location will
            increase to $330,000, effective January 1, 2000,  and to
            $363,000, effective January 1, 2003.  The annual rent for
<PAGE>





            the Company's Freeport, Maine location will increase to
            $252,000, effective September 1, 2001, and to $264,000,
            effective September 1, 2004.  These figures are the cash
            payments due to the respective lessors, which may differ
            from the actual amount expensed for accounting purposes in
            any given fiscal year.

                 The Company intends to sublet 3,000 square feet of its
            retail space in Freeport, Maine for use by one or more other
            retailers.  The Company has entered into a sublease
            agreement to sublet 1,684 square feet, and intends to sublet
            the remaining 1,316 square feet to an additional retailer.


            Item 3.  Legal Proceedings

                 The Company is not a party to any material legal
            proceedings except for the following:

                 The Company filed a lawsuit against The Walt Disney
            Catalog, Inc., Disney Enterprises, Inc., and the Disney
            Store, Inc. ("Defendants"), entitled The Vermont Teddy Bear
            Co., Inc. v. The Walt Disney Catalog, Inc., Disney
            Enterprises, Inc., and the Disney Store, Inc. on May 16,
            1997, in the United States District Court for the Eastern
            District of Virginia, Civil Action No. 97-762-A, alleging
            trademark and trade dress infringement and unfair
            competition in connection with the Company's service marks
            Bear-Gram, Vermont Bear-Gram, and the Company's logo.  On
            September 9, 1997, the parties entered into a binding
            settlement agreement, providing for certain assurances that
            the Defendants will adequately distinguish their trademarks
            and service marks from those of the Company and limit their
            use of the Pooh-Gram mark in certain advertising.  The
            Company remains committed to preserving and strengthening
            its trademarks and servicemarks.


            Item 4.  Submission of Matters to a Vote of Security Holders

                 There was no matter submitted to a vote of security
            holders during the fourth quarter of the fiscal year covered
            by this report.


            Item 5.  Market for Common Equity and Related Stockholder
            Matters

                 Market Information

                 At the time of the initial public offering of 1,172,500
            shares of the Company's Common Stock in November, 1993, the
            Company's Common Stock had been approved for quotation on
            NASDAQ and the Pacific Stock Exchange under the symbols
<PAGE>





            "BEAR" and "VTB," respectively.  To date, NASDAQ has been
            the principal market for the exchange of the freely tradable
            shares of the Company's Common Stock.  On July 31, 1996, the
            Company voluntarily de-listed from the Pacific Stock
            Exchange as a result of minimal trading volume. Between July
            1, 1995 and June 30, 1997, the high and low sales prices for
            a share of the Company's Common Stock as quoted on NASDAQ
            were as follows:

            Quarter Ended       High           Low     
            June 30, 1997            $ 1.88         $ 1.00
            March 31, 1997      $ 2.88         $ 1.38
            December 31, 1996        $ 3.25         $ 2.25
            September 31, 1996       $ 3.38         $ 2.13
            June 30, 1996            $ 3.63         $ 2.38
            March 31, 1996      $ 3.75         $ 2.75
            December 31, 1995        $ 5.13         $ 3.13
            September 30, 1995       $ 6.25         $ 3.25


                 Description of Securities

                 Immediately prior to the Company's initial public
            offering, there were 4,000,000 shares of the Company's
            Common Stock outstanding, held of record by nine
            shareholders.  As a result of this 1,000,000 share initial
            public offering and the Underwriters' purchase of an
            additional 172,500 shares to cover over-allotments in
            connection therewith, there were 5,172,500 shares of the
            Company's Common Stock outstanding immediately following the
            offering.  On March 8, 1995, the Company purchased 12,000
            common shares in the open market, and continues to hold
            these shares as treasury stock.  On March 1, 1996, 250
            shares of the Company's Common Stock were issued pursuant to
            the exercise of an employee Incentive Stock Option.  As a
            result of these activities, there were 5,160,750 shares of
            the Company's Common Stock outstanding, held of record by
            1,380 shareholders as of June 30, 1996.

                 There are 90 shares of non-voting Series A Preferred
            Stock, held of record by one shareholder, with a liquidation
            value of $10,000 per share, and a cumulative dividend at a
            rate of eight percent per annum.  There has been no change
            in the number of Series A preferred shares, and the original
            shareholder remains the sole shareholder of Series A
            Preferred Stock.

                 On July 12, 1996, the Company privately placed $550,000
            of Series B convertible Preferred Stock.  The 204,912 Series
            B preferred shares, held of record by twelve shareholders,
            are not entitled to any dividends or voting rights, but each
            share was originally convertible into one share of the
            Company's Common Stock at any time on or after July 12,
            1997.  On July 18, 1997, as the result of a warrant granted
<PAGE>





            in conjunction with the sale-leaseback transaction, the
            anti-dilution provisions of the Series B agreement were
            activated, and each share of Series B Preferred Stock is now
            convertible into 1.85 shares of Common Stock.  Common shares
            issued as the result of the conversion of the Series B
            Preferred Stock shall be considered "restricted securities"
            and shall be subject to certain registration rights.  On
            liquidation, dissolution, or winding up of the Company,
            holders of Series B Preferred Stock are entitled to be paid
            on a pari passu basis with any holders of Series A Preferred
            Stock.


                 Dividends

                 The Company has never paid cash dividends on any shares
            of its Common Stock, and the Company's Board of Directors
            intends to continue this policy for the foreseeable future.
            Earnings, if any, will be used to finance the development
            and expansion of the Company's business.  The Company's
            ability to pay dividends on its Common Stock is limited by
            the preferences of the outstanding Preferred Stock of the
            Company as well as certain indebtedness, and may be further
            limited by the terms of Preferred Stock issued or other
            indebtedness incurred by the Company in the future.  Future
            dividend policy will depend upon the Company's earnings,
            capital requirements, financial condition and other factors
            considered relevant by the Company's Board of Directors.
            The Series A Preferred Stock is entitled to receive
            cumulative dividends of eight percent per annum, which are
            payable before any dividend may be paid upon, or set apart
            for, the Common Stock outstanding.  The Series B Preferred
            Stock is not entitled to receive dividends.


            Item 6.  Management's Discussion and Analysis or Plan of
            Operation

            The following discussion and analysis provides information
            that the Company's management believes is relevant to an
            assessment and understanding of the Company's results of
            operations and financial condition.  The discussion should
            be read in conjunction with the financial statements and
            footnotes that appear elsewhere in this report, as well as
            the 10-KSB filing for the fiscal year ending June 30, 1996.
            This report contains forward-looking statements within the
            meaning of the Private Securities Litigation Reform Act of
            1995, Section 27A of the Securities Act of 1993 and Section
            21E of the Securities Exchange Act of 1934.  The words
            "believe," "expect," "anticipate," "intend," "estimate," and
            other expressions that are predictions of or indicate future
            events and trends and that do not relate to historical
            matters identify forward-looking statements.  Such
            statements involve risks and uncertainties that could cause
<PAGE>





            actual results to differ materially from those set forth in
            such forward-looking statements.  The Company undertakes no
            obligation to publicly update or revise any forward-looking
            statement, whether as a result of new information, future
            events or otherwise.


            Results of Operations

                 Comparison of Fiscal Year 1997 and Fiscal Year 1996

                 Net revenues for the fiscal year ended June 30, 1997
            totaled $16,489,000, a decrease of $551,000 from net
            revenues of $17,040,000 for the fiscal year ended June 30,
            1996.  By business segment, direct mail revenues increased
            $578,000 as the number of circulated pages during the year
            was more than quadruple the number of circulated pages in
            the prior fiscal year. Retail store net revenues improved by
            $722,000, with the addition of new retail locations in North
            Conway, New Hampshire and New York, New York providing
            additional sources of revenue.  Licensing revenues increased
            $43,000.  Wholesale revenues dropped $516,000, as the
            Company did not make any appearances on the QVC television
            network in the current twelve-month period, as it had had in
            the comparable twelve-month period of the prior fiscal year.
            Radio Bear-Gram revenues decreased $1,378,000.

                 Gross margin decreased by $310,000 to $9,421,000 for
            the fiscal year ended June 30, 1997, from $9,731,000 for the
            fiscal year ended June 30, 1996.  As a percentage of net
            revenues, gross margin remained constant at 57.1 percent.

                 Selling expenses totaled $7,961,000, or 48.3 percent of
            net revenues, for the fiscal year ended June 30, 1997, an
            increase from $6,287,000, or 36.9 percent of net revenues,
            for the comparable period ending June 30, 1996.  This
            $1,674,000 increase was attributable primarily to additional
            costs associated with larger catalog circulation, higher
            costs for handling telephone traffic at Valentine's Day, and
            operating costs related to the Company's two new retail
            stores, which were not in operation during the prior fiscal
            year.

                 General and administrative expenses were $2,938,000 for
            the fiscal year ended June 30, 1997, compared to $2,955,000
            for the twelve-month period ended June 30, 1996.  As a
            percentage of net revenues, general and administrative
            expenses were 17.8 percent for the fiscal year ended June
            30, 1997, compared to 17.3 percent for the fiscal year ended
            June 30, 1996.

                 As a result of the foregoing factors, the net loss to
            Common Stockholders for the fiscal year ended June 30, 1997
            was $1,974,000, compared to a net income to Common
<PAGE>





            Stockholders of $152,000 for the twelve months ended June
            30, 1996.  By an agreement dated April 12, 1996, the sole
            holder of the Series A Preferred Stock waived her right to
            receive $72,000 in dividends, which would have accumulated
            and accrued during the fiscal year ended June 30, 1996, as
            well as $54,000 worth of dividends accrued in the nine
            months ended June 30, 1995, in exchange for a five-year
            warrant to purchase 43,826 shares of Common Stock at an
            exercise price of $2.875 per share.  Preferred Stock
            dividends totaling $72,000 were declared during the twelve-
            month period ended June 30, 1997, and have been accrued.


                 Liquidity and Capital Resources

                 As of June 30, 1997, the Company's cash position
            decreased to $442,000, from $1,122,000 at June 30, 1996.  Of
            the $442,000, $365,000 is classified as restricted cash;
            there was also $365,000 of restricted cash at June 30, 1996.
            The largest component of the restricted cash was $300,000
            restricted by a debt service reserve, which was required as
            part of the Company's loan agreement with the Vermont
            National Bank.  Operating losses and an increase in
            inventory more than offset borrowings of short-term debt and
            increases in accounts payable.

                 Inventory levels of materials and finished goods and
            work-in-process totaled $3,302,000 at June 30, 1997,
            compared to $1,975,000 at June 30, 1996.  The increase is
            primarily the result of merchandise purchased for resale for
            the Company's catalog and retail stores, as well as the
            stocking of its off-site retail locations.  Accounts payable
            totaled $2,563,000 at June 30, 1997, compared to $1,354,000
            at June 30, 1996.  This increase reflects purchases of
            inventoried items and an increase in radio advertising for
            the Mother's Day holiday.

                 On October 10, 1997, the Company received a binding
            commitment letter from Green Mountain Capital L.P., whereby
            it agreed to lend the Company up to $200,000 in the form of
            a five-year term loan.  The loan would bear interest at 12
            percent per annum, would be repayable in monthly
            installments over the five-year term, and would be secured
            by a security interest in the Company's real and personal
            property.  In conjunction with the issuance of the notes,
            Green Mountain Capital will receive warrants to purchase
            100,000 shares of Common Stock, at an exercise price of
            $1.00 per share, subject to certain anti-dilution
            provisions.  (The prior warrants granted to Green Mountain
            Capital to purchase 20,000 shares at $3.375 will be canceled
            upon the issuance of this new note.)  The right to exercise
            these warrants begins two years from the date of the loan,
            and expires the earlier of five years after the full
            repayment of the loan and existing notes or seven years from
<PAGE>





            the date of the loan.

            On July 18, 1997, the Company completed a
            sale-leaseback transaction, involving its factory
            headquarters and a portion of its property located in
            Shelburne, Vermont.  This financing replaced the Company's
            mortgage and line of credit agreement with the Vermont
            National Bank.  The Company received approximately $5.9
            million in cash, of which approximately $3.3 million was
            used to pay off the existing mortgage with the Vermont
            National Bank.  The balance, approximately $2.6 million, was
            used for general working capital purposes, to pay down a
            $600,000 balance on the Company's line of credit (which was
            retired as the result of the termination of the original
            mortgage loan), and transaction costs of $591,000 associated
            with the sale-leaseback. The lease obligation, secured by
            the business assets of the Company, is payable on a
            twenty-year amortization schedule through July 2017.

                 On July 12, 1996, the Company privately placed $550,000
            of Series B convertible Preferred Stock.  The 204,912 Series
            B preferred shares, held of record by twelve shareholders,
            are not entitled to any dividends or voting rights, but each
            share is convertible into one share of the Company's Common
            Stock at any time on or after July 12, 1997.  Accompanying
            the issuance of the Preferred Stock were warrants to
            purchase 204,912 shares of the Company's Common at a price
            of $2.434 per share, exercisable between July 12, 1997 and
            July 12, 1999, subject to certain anti-dilution provisions
            (see footnote 9).  In addition, finder's warrants for 10,245
            common shares were issued with the same terms and
            conditions.  On July 18, 1997, as the result of a warrant
            granted in conjunction with the sale-leaseback transaction,
            the anti-dilution provisions of the Series B Preferred Stock
            agreement were activated.  Each share of Series B Preferred
            Stock is now convertible into 1.85 shares of Common Stock.
            Common shares issued as the result of the conversion of the
            Series B Preferred Stock and/or the exercise of the warrant
            shall be considered "restricted securities" and shall be
            subject to certain registration rights.  On liquidation,
            dissolution, or winding up of the Company, holders of Series
            B Preferred Stock are entitled to be paid on a pari passu
            basis with any holders of Series A Preferred Stock.

                 On December 26, 1995, Green Mountain Capital L.P.
            agreed to lend the company up to $500,000 in the form of
            five-year term notes.  As of June 30, 1997, the entire
            $500,000 had been borrowed.  The notes bear interest at 12
            percent per annum, are repaid in monthly installments
            through December 26, 2000, and are secured by a subordinated
            security interest in the Company's personal property.  In
            conjunction with the issuance of the notes, Green Mountain
            Capital received warrants to purchase 20,000 shares of
            Common Stock, at an exercise price of $3.375 per share.  The
<PAGE>





            right to exercise these warrants begins December 26, 1997,
            and expires the earlier of December 26, 2002 or five years
            after full repayment of the loan.  In the event that the
            Company borrows more funds from Green Mountain Capital under
            the October 10, 1997 binding commitment letter, the
            aforementioned warrants to purchase 20,000 shares of Common
            stock will be canceled.

                 The Company is operating without a working capital line
            of credit facility, effective July 18, 1997.  As such, the
            Company's ability to fund its operations over the short-term
            is dependent upon its success in achieving its business plan
            for fiscal 1998 or obtaining additional financing.  If the
            Company is unsuccessful in achieving its business plan or
            obtaining additional financing, its short-term liquidity may
            be adversely impacted, which could require a curtailment of
            certain business activities that, in turn, could have a
            material adverse effect on the Company's business.


            Item 7.  Financial Statements

                 The list of financial statements set forth under the
            caption "Index to Financial Statements" on page 24 below is
            incorporated herein by reference.


            Item 8.  Changes In and Disagreements With Accountants on
                           Accounting and Financial Disclosure

                 Not applicable.


            Item 9.  Directors, Executive Officers, Promoters and
            Control Persons;
                           Compliance With Section 16(a) of the Exchange
            Act

                 Information concerning the directors and executive
            officers of the Company, their terms of office, the periods
            during which they have served, their personal business
            experiences is included in the Company's definitive Proxy
            Statement for its 1997 Annual Meeting and is specifically
            incorporated herein by reference.


            Item 10.   Executive Compensation

                 Information regarding compensation of the Company's
            directors and officers is included in the Company's
            definitive Proxy Statement for its 1997 Annual Meeting and
            is specifically incorporated herein by reference.
<PAGE>





            Item 11.  Security Ownership of Certain Beneficial Owners
            and Management

                 Information with respect to the beneficial ownership of
            the outstanding shares of the Company's Common Stock by (i)
            all persons owning of record, or beneficially to the
            knowledge of the Company, more than five percent of the
            outstanding shares, (ii) each director and executive officer
            of the Company individually, and (iii) all directors and
            officers of the Company as a group, is included in the
            Company's definitive Proxy Statement for its 1997 Annual
            Meeting and is specifically incorporated herein by
            reference.


            Item 12.  Certain Relationships and Related Transactions

                 Information regarding certain relationships and
            transactions between the Company and its directors,
            director-nominees, executive officers, and the family
            members of these individuals is included in the Company's
            definitive Proxy Statement for its 1997 Annual Meeting and
            is specifically incorporated herein by reference.


            Item 13.  Exhibits and Reports on Form 8-K

            Exhibits

            3.3  Restated Certificate of Incorporation of the Company
            (filed with the Securities
                 and Exchange Commission as exhibit 3.3 to the Company's
            1996 Annual
                 Report on Form 10-KSB (File No. 33-69898) and
            incorporated herein by
                 reference).

            3.4  Amended  and Restated By-Laws of the Company (filed
            with the
                 Securities and Exchange Commission as exhibit 3.4 to
            the Company's 10-
                 QSB for the quarter ended December 31, 1996 and
            incorporated herein by
                 reference).

            4.1  Representative's Warrant issued to Barington Capital
            Group, L.P. upon
                 the consummation of the initial public offering of the
            Company's Common
                 Stock in November 1993 (filed with the Securities and
            Exchange Commission
                 as exhibit 4.1 to the Company's 1993 Annual Report on
            Form 10-KSB (File No.
                 33-69898) and incorporated herein by reference).
<PAGE>






            4.2  Form of Common Stock Certificate (filed with the
            Securities and Exchange
                 Commission as exhibit 4.2 to the Company's Registration
            Statement on Form
                 SB-2 (File No. 33-69898) and incorporated herein by
            reference).

            4.3  Form of Warrant, issued in connection with the private
            placement of 204,912
                 shares of the Company's Series B Convertible Preferred
            Stock (filed with the
                 Securities and Exchange Commission as exhibit 4.3 to
            the Company's 1996
                 Annual Report on Form 10-KSB (File No. 33-69898) and
            incorporated herein
                 by reference).

            4.4  Form of Subscription Agreement issued in connection
            with the private
                 placement of 204,912 shares of the Company's Series B
            Convertible
                 Preferred Stock (filed with the Securities and Exchange
            Commission as exhibit
                 4.4 to the Company's 1996 Annual Report on Form 10-KSB
            (File No. 33-69898)
                 and incorporated herein by reference).

            4.5  Waiver of Joan H. Martin, dated April 12, 1996, issued
            in connection with
                 waiver of accrued dividends on Series A Preferred Stock
            (filed with the
                 Securities and Exchange Commission as exhibit 4.5 to
            the Company's 1996
                 Annual Report on Form 10-KSB (File No. 33-69898) and
            incorporated herein
                 by reference).

            4.6  Warrant to purchase 43,826.087 shares of the Company's
            Common Stock,
                 dated April 12, 1996, issued in connection with Joan H.
            Martin's waiver of
                 accrued dividends on Series A Preferred Stock (filed
            with the Securities and
                 Exchange Commission as exhibit 4.6 to the Company's
            1996 Annual Report
                 on Form 10-KSB (File No. 33-69898) and incorporated
            herein by reference).

            4.7  Stock Purchase Warrant Agreement, dated July 10, 1997,
            between the
                 Company and    URSA (VT) QRS-30, Inc., in conjunction
            with the sale-leaseback
                 of the Company's headquarters in Shelburne, Vermont
<PAGE>





            (filed herein).

            10.2 Stock warrants issued to Edmund H. Shea, Jr. IRA, Allan
            Lyons and William
                 Maines in connection with the bridge financing prior to
            the initial public
                 offering of the Company's Common Stock in November 1993
            (a form of which
                 was filed with the Securities and Exchange Commission
            as exhibit 10.2 to the
                 Company's Registration Statement on Form SB-2 (File No.
            33-69898) and
                 incorporated herein by reference).

            10.10     Incentive Stock Option Plan adopted by the Company
            on August 16, 1993, with
                 form of Incentive Stock Option Agreement (filed with
            the Securities and
                 Exchange Commission as exhibit 10.10 to the Company's
            Registration
                 Statement on Form SB-2 (File No. 33-69898) and
            incorporated herein by
                 reference).

            10.11     Securities Purchase Agreement, dated June 10, 1987
            between the Company
                 and VTB Investment Group and Joan Hixon Martin (filed
            with the Securities
                 and Exchange Commission as exhibit 10.11 to the
            Company's Registration
                 Statement on Form SB-2 (File No. 33- 69898) and
            incorporated herein by
                 reference).

            10.12     Agreement, dated as of June 19, 1995, between the
            Company and John N.
                 Sortino, providing the terms of Mr. Sortino's
            separation agreement with the
                 Company (filed with the Securities and Exchange
            Commission as exhibit 10.12
                 to the Company's 10-KSB for the transition period ended
            June 30, 1995 and
                 incorporated herein by reference).

            10.13     Employment Agreement and Loan Arrangement, dated
            July 31, 1995, between
                 the Company and R. Patrick Burns providing the terms of
            Mr. Burns'
                 employment with the Company as Chief Executive Officer
            (filed with the
                 Securities and Exchange Commission as exhibit 10.13 to
            the Company's 10-
                 KSB for the transition period ended June 30, 1995 and
            incorporated herein by
<PAGE>





                 reference).

            10.14     Employment Agreement, dated November 1, 1993,
            between the Company and
                 Spencer C. Putnam (filed with the Securities and
            Exchange Commission as
                 exhibit 10.14 to the Company's Registration Statement
            on Form SB-2 (File No.
                 33-69898) and incorporated herein by reference).

            10.17     Commitment Letter issued by Vermont National Bank,
            Burlington, Vermont,
                 dated September 18, 1995, in connection with a
            Commercial Mortgage Loan
                 and a Line of Credit Loan (filed with the Securities
            and Exchange Commission
                 as exhibit 10.17 to the Company's 10-KSB for the
            transition period ended June
                 30, 1995 and incorporated herein by reference).

            10.18     Loan Agreement, dated September 26, 1995, between
            the Company and
                 Vermont National Bank regarding $3,500,000 Term Loan
            and $1,000,000 Line
                 of Credit Loan (filed with the Securities and Exchange
            Commission as exhibit
                 10.18 to the Company's 10-KSB for the transition period
            ended June 30, 1995
                 and incorporated herein by reference).

            10.19     Commercial Term Note, dated September 26, 1995,
            issued in connection with
                 the $3,500,000 Term Loan of Vermont National Bank
            (filed with the Securities
                 and Exchange Commission as exhibit 10.19 to the
            Company's 10-KSB for the
                 transition period ended June 30, 1995 and incorporated
            herein by reference).

            10.20     Commercial Time Note, dated September 26, 1995,
            issued in connection with
                 the $1,000,000 Line of Credit Loan of Vermont National
            Bank (filed with the
                 Securities and Exchange Commission as exhibit 10.20 to
            the Company's 10-
                 KSB for the transition period ended June 30, 1995 and
            incorporated herein by
                 reference).

            10.24     Amended 1993 Incentive Stock Option Plan of the
            Company, amended as of
                 November 28, 1995 (filed with the Securities and
            Exchange Commission as
                 exhibit 10.24 to the Company's 10-QSB for the quarter
<PAGE>





            ended March 31,
                 1995 and incorporated herein by reference).

            10.25     Loan Agreement, dated December 26, 1995, between
            Green Mountain Capital,
                 L.P. and the Company in connection with a $500,000 Term
            Loan (filed with the
                 Securities and Exchange Commission as exhibit 10.25 to
            the Company's 10-
                 QSB for the quarter ended December 31, 1995 and
            incorporated herein by
                 reference).

            10.26     Convertible Note, dated December 26, 1995, in the
            principal amount of
                 $200,000, issued in connection with the $500,000 Term
            Loan of Green
                 Mountain Capital (filed with the Securities and
            Exchange Commission as
                 exhibit 10.26 to the Company's 10-QSB for the quarter
            ended December 31,
                 1995 and incorporated herein by reference).

            10.27     Stock Purchase Warrant Agreement, dated December
            26, 1995, in connection
                 with the $500,000 Term Loan of Green Mountain Capital
            (filed with the
                 Securities and Exchange Commission as exhibit 10.27 to
            the Company's 10-
                 QSB for the quarter ended December 31, 1995 and
            incorporated herein by
                 reference).

            10.28     Employment and Loan Agreements, dated June 30,
            1996, between the
                 Company and R. Patrick Burns (filed with the Securities
            and Exchange
                 Commission as exhibit 10.28 to the Company's 1996
            Annual Report on Form
                 10-KSB (File No. 33-69898) and incorporated herein by
            reference).

            10.29     Employment Agreement, dated July 1, 1996, between
            the Company and
                 Elisabeth B. Robert (filed with the Securities and
            Exchange
                 Commission as exhibit 10.29 to the Company's 1996
            Annual Report on Form
                 10-KSB (File No. 33-69898) and incorporated herein by
            reference).

            10.30     Amended 1993 Incentive Stock Option Plan of the
            Company, amended as of
                 November 22, 1996 (filed with the Securities and
<PAGE>





            Exchange Commission as
                 exhibit 10.30 to the Company's 10-QSB for the quarter
            ended December 31,
                 1996 and incorporated herein by reference).

            10.31     Non-Employee Directors Stock Option Plan adopted
            by the Company on
                 November 22, 1996 (filed with the Securities and
            Exchange Commission as
                 exhibit 10.31 to the Company's 10-QSB for the quarter
            ended December 31,
                 1996 and incorporated herein by reference).

            10.32     Employment Agreement, dated as of July 1, 1996,
            between the Company and
                 Spencer C. Putnam (filed with the Securities and
            Exchange Commission as
                 exhibit 10.32 to the Company's 10-QSB for the quarter
            ended December 31,
                 1996 and incorporated herein by reference).

            10.33     Convertible Note, dated November 19, 1996, in the
            principal amount of
                 $300,000, issued in connection with the $500,000 Term
            Loan of Green
                 Mountain Capital (filed with the Securities and
            Exchange Commission as
                 exhibit 10.33 to the Company's 10-QSB for the quarter
            ended December 31,
                 1996 and incorporated herein by reference).

            10.34     Lease Agreement, dated October 24, 1996, in
            connection with the Company's
                 lease of 600 square feet at 538 Madison Avenue in New
            York, New York (filed
                 herein).

            10.35     Consulting Agreement, dated December 31, 1996,
            between the Company and
                 Venture Management Group, Inc., regarding the provision
            of consulting
                 services to the Company (filed herein).

            10.36     Lease Agreement, dated January 17, 1997, in
            connection with the Company's
                 lease of 6,000 square feet at 55 Main Street in
            Freeport, Maine (filed herein).

            10.37     Lease Agreement, dated July 10, between the
            Company and URSA (VT)
                 QRS-30, Inc., regarding the sale-leaseback of the
            Company's headquarters in
                 Shelburne, Vermont (filed herein).
<PAGE>





            10.38     Binding commitment letter, dated October 10, 1997,
            from Green Mountain
                 Capital LP, in connection with a $200,000 term loan
            (filed herein).

            23.1 Consent of Arthur Andersen, LLP, dated October 14, 1997
            (filed herein)

            24   Power of Attorney (filed with the Securities and
            Exchange Commission as
                 exhibit 24 to the Company's Registration Statement on
            Form SB-2 (File No.
                 33-69898) and incorporated herein by reference.


            Reports on Form 8-K

            There were no reports filed on Form 8-K during the fourth
            quarter of 1997.






















            Signatures

            Pursuant to the requirements of Section 13 or 15(d) of the
            Securities Exchange Act of 1934, the Company has duly caused
            this report to be signed on its behalf by the undersigned,
            thereunto duly authorized.


                                THE VERMONT TEDDY BEAR CO., INC.

            Dated:  October 14, 1997 By:  /s/ Elisabeth B. Robert
            ,
                                     Elisabeth B. Robert, President
<PAGE>







                 Pursuant to the requirements of the Securities Exchange
            Act of 1934, this report has been signed below by the
            following persons on behalf of the Company and in the
            capacities and on the date indicated.


            Dated:  October 13, 1997 By:  /s/ Jason Bacon,
                                     Jason Bacon, Director

            Dated:  October 10, 1997 By:  /s/ R. Patrick Burns,
                                     R. Patrick Burns, Director

            Dated:  October 10, 1997 By:  /s/ David W. Garrett,
                                     David W. Garrett, Director

            Dated:  October 10, 1997 By:  /s/ Fred Marks,
                                     Fred Marks, Director and Chairman
                                     of the Board

            Dated:  October  9, 1997 By:  /s/ Joan H. Martin,
                                     Joan H. Martin, Director

            Dated:  October 10, 1997 By:  /s/ Spencer C. Putnam
                                     Spencer C. Putnam, Director, Vice
                                     President and Secretary

            Dated:  October 10, 1997 By:  /s/ Elisabeth B. Robert
                                     Elisabeth B. Robert, Director
                                     President, Treasurer, Chief
                                     Executive Officer and Chief
                                     Financial Officer

            The Vermont Teddy Bear Co., Inc.
            1997 Form 10-KSB Annual Report


            Index To Financial Statements

                                                                   Page

            Independent Auditor's Report
            22

            Balance Sheets as of June 30, 1997 and 1996
                   23

            Statements of Operations for the years ended June 30, 1997
            and 1996                                                 24

            Statements of Stockholders' Equity for the years ended June
            30,
            1997 and 1996                                            25
<PAGE>






            Statements of Cash Flows for the years ended June 30, 1997
            and
            1996                                                     26

            Notes to Financial Statements
            27


























            Report of Independent Public Accountants


            To the Stockholders and Board of Directors of
            The Vermont Teddy Bear Co., Inc.:


            We have audited the accompanying balance sheets of The
            Vermont Teddy Bear Co., Inc. (a New York corporation) as of
            June 30, 1997 and 1996, and the related statements of
            operations, stockholders' equity and cash flows for the
            years then ended.  These financial statements are the
            responsibility of the Company's management.  Our
            responsibility is to express an opinion on these financial
            statements based on our audits.

            We conducted our audits in accordance with generally
            accepted auditing standards.  Those standards require that
            we plan and perform the audit to obtain reasonable assurance
            about whether the financial statements are free of material
            misstatement.  An audit includes examining, on a test basis,
<PAGE>





            evidence supporting the amounts and disclosures in the
            financial statements.  An audit also includes assessing the
            accounting principles used and significant estimates made by
            management, as well as evaluating the overall financial
            statement presentation.  We believe that our audits provide
            a reasonable basis for our opinion.

            In our opinion, the financial statements referred to above
            present fairly, in all material respects, the financial
            position of The Vermont Teddy Bear Co., Inc. as of June 30,
            1997 and 1996, and the results of its operations and its
            cash flows for the years then ended, in conformity with
            generally accepted accounting principles.


                                               ARTHUR ANDERSEN LLP


            Boston, Massachusetts
            September 10, 1997
            (Except with respect to the matter discussed in
            Note  11, as to which the date is October 10, 1997.)

            The Vermont Teddy Bear Co., Inc.
                        Balance Sheets
                        June 30, 1997 and 1996


            1997
                        1996
                                          ASSETS
                        Current Assets:
                        Cash and cash equivalents (includes

            restricted cash of $365,000)            $   441,573    $
                        1,121,500
                        Accounts receivable, trade
            46,304
                        131,550
                        Inventories
            3,302,313
                        1,974,731
                        Prepaid expenses and other current assets
            386,947
                        277,502
                        Deferred income taxes
            259,016
                        240,585
                                                                  ------
            -----    ---
                        --------
                             Total Current Assets
            4,436,153
                        3,745,868
<PAGE>





                        Property and equipment, net
            9,845,935
                        10,300,318
                        Deposits and other assets
            272,348
                        98,086
                        Note receivable
            95,000
                        95,000
                                                                 -------
            -----    ---
                        --------
                             Total Assets                        $
            14,649,436
                        $14,239,272

            ============
                        ===========


                                          LIABILITIES AND STOCKHOLDERS'
            EQUITY


                        Current Liabilities:
                        Line of credit                           $
            550,000    $
                        -
                        Current portion of:
                         Long-term debt
            3,443,096
                        187,095
                          Capital lease obligations
            103,759
                        104,146
                        Accounts payable
            2,562,536
                        1,353,698
                        Accrued expenses
            657,347
                        449,048
                        Income taxes payable
            -
                        37,365
                                                                   -----
            -----    ---
                        -------
                             Total Current Liabilities
            7,316,738
                        2,131,352

                        Long-term debt,net of current portion
            372,999
                        3,505,812
<PAGE>





                        Capital lease obligations,
                          net of current portion
            209,054
                        312,814
                        Other liabilities
            -
                        84,430
                        Deferred income taxes
            259,016
                        240,585
                                                                  ------
            -----    ---
                        -------
                             Total Liabilities                    $
            8,157,807   $
                        6,274,993

                        Stockholders' Equity:
                        Preferred stock, $.05 par value:
                          Authorized 1,000,000 Series A;          $
            900,000   $
                        900,000
                          issued and outstanding, 90 shares.
                          Authorized 375,000 Series B;
                          issued and outstanding, 204,912 shares.
            10,245
                        -
                        Common stock, $.05 par value:
                          Authorized 20,000,000 shares;
                          issued 5,172,750 shares,
                          outstanding 5,160,750 shares
            258,638
                        258,638
                        Additional paid-in capital
            10,565,482
                        10,074,595
                        Treasury stock, at cost, 12,000 shares
            (106,824)
                        (106,824)
                        Accumulated deficit
            (5,135,912)
                        (3,162,130)
                                                                  ------
            -----    ---
                        -------
                             Total Stockholders' Equity           $
            6,491,629   $
                        7,964,279

                             Total Liabilities and
                                 Stockholders' Equity
            $14,649,436
                        $14,239,272
<PAGE>





            ==========
                        ==========

                        The accompanying notes are an integral part of
            these
                        financial statements.


                        The Vermont Teddy Bear Co., Inc.
                        Statements of Operations
                        For the Years Ended June 30, 1997 and 1996


            1997
                        1996

                        Net Revenues
            $16,489,482
                        $17,039,618
                        Cost of Goods Sold
            7,068,549
                        7,309,038
                                                                   -----
            ------
                        -----------    Gross Profit
                        9,420,933        9,730,580

                        Selling, General and Administrative Expenses:

                             Selling Expenses
            7,961,003
                        6,287,208
                             General and Administrative Expenses
            2,938,251
                        2,954,601
                                                                   -----
            ------
                        -----------

            10,899,254
                        9,241,809
                             Operating Income (Loss)
            (1,478,321)
                        488,771
                        Interest Income
            53,267
                        41,092
                        Interest Expense
            (464,765)
                        (441,146)
                        Other Income (Expense)
            (11,963)
                        63,236
                                                                   -----
<PAGE>





            ------
                        -----------
                             Income (Loss) Before Income Taxes
            (1,901,782)
                        151,953
                        Income Tax Provision
            -
                                  -
                                                                   -----
            ------
                        -----------
                             Net Income (Loss)
            (1,901,782)
                        151,953
                        Preferred Stock Dividends
            (72,000)
                                  -
                                                                   -----
            ------
                        -----------
                        Net Income (Loss) -- Common Stockholders
            $(1,973,782)
                        $   151,953

            ===========
                        ===========

                        Net Income (Loss) Per Common Share         $
            (0.38)
                        $      0.03

                        Weighted Average Number of Common
                             Shares Outstanding
            5,160,750
                        5,160,583

            ===========
                        ===========

                        The accompanying notes are an integral part of
            these
                        financial statements.

            The Vermont Teddy Bear Co., Inc.
            Statements of Stockholders' Equity
            For the Years Ended June 30, 1997 and 1996



                                          Preferred Stock     Preferred
            Stock
                                             Series "A"          Series
            "B"
                                          Shares    Amount    Shares
<PAGE>





            Amount

            Balance at June 30, 1995          90 $ 900,000         - $
            -
            Issuance of Stock                    -         -         -
            -
            Net Income                         -         -         -
            -
                                         ------- ---------   ------- ---
            ------
            Balance at June 30, 1996          90 $ 900,000         - $
            -
            Issuance of Stock                    -         -   204,912
                 10,245
            Net Loss                         -         -         -
            -
            Preferred Stock Dividends          -         -         -
            -
                                         ------- ---------   ------- ---
            ------
            Balance at June 30, 1997          90 $ 900,000   204,912 $
            10,245
                                         ======= =========   =======
            =========



            Additional
                                            Common Stock           Paid-
            In
                                           Shares     Amount
            Capital

            Balance at June 30, 1995    5,172,500 $  258,625
            $10,073,842
            Issuance of Stock                 250         13
            753
            Net Income                          -          -
            -
                                        --------- ----------   ---------
            --
            Balance at June 30, 1996    5,172,750 $  258,638
            $10,074,595
            Issuance of Stock                     -          -
            490,887
            Net Loss                            -          -
            -
            Preferred Stock Dividends           -          -
            -
                                        --------- ----------   ---------
            --
            Balance at June 30, 1997    5,172,750 $  258,638
            $10,565,482
                                        ========= ==========
<PAGE>





            ===========



            Total
                                          Treasury   Accumulated
            Stockholders'
                                             Stock       Deficit
            Equity
            Balance at June 30, 1995   $  (106,824)  $(3,314,083)  $
            7,811,560
            Issuance of Stock                    -             -
            766
            Net Income                           -       151,953
            151,953
                                       -----------   -----------   -----
            ------
            Balance at June 30, 1996   $  (106,824)  $(3,162,130)  $
            7,964,279
            Issuance of Stock                    -             -
            501,132
            Net Loss                          -    (1,901,782)
            (1,901,782)
            Preferred Stock Dividends            -       (72,000)
            (72,000)
                                       -----------   -----------   -----
            ------
            Balance at June 30, 1997   $  (106,824)  $(5,135,912)   $
            6,491,629
                                       ===========   ===========
            ===========


            The Vermont Teddy Bear Co., Inc.S
            Statements of Cash Flows
            For the Years Ended June 30, 1997 and 1996

            1997            1996
            Cash Flows From Operating Activities:
            Net income (loss)                                  $
            (1,901,782)    $   151,953
            Adjustments to reconcile net income (loss) to net cash
             provided by (used for) operating activities:
                 Depreciation and amortization
            943,163         818,024
                 Loss on sale/disposal of fixed assets
            20,797           4,610
                 Changes in assets and liabilities:
                   Accounts receivable, trade
            85,246          (8,871)
                   Inventories
            (1,327,582)      1,067,753
                   Prepaid and other current assets
            (109,445)        (64,266)
<PAGE>





                   Deposits and other assets
            (174,262)          4,590
                   Accounts payable
            1,208,838      (1,159,770)
                   Accrued expenses and other liabilities
            51,869        (531,390)
                   Income taxes payable
            (37,365)        (53,524)
                                                                  ------
            ----     -----------
            Net cash provided by (used for) operating activities
            (1,240,523)        229,109

            Cash Flows From Investing Activities:
              Acquisition of property and equipment
            (509,577)       (605,970)
              Proceeds from sale of fixed assets
            -          40,455
              Note receivable
            -          95,000
                                                                 -------
            ----    -----------
            Net cash used for investing activities
            (509,577)       (470,515)

            Cash Flows From Financing Activities:
              Borrowings of short-term debt
            2,069,143       1,616,572
              Borrowings of long-term debt
            357,104       3,724,150
              Payments of short-term debt
            (1,519,143)     (4,771,602)
              Payments of long-term debt
            (233,916)       (156,397)
              Principal payments on capital lease obligations
            (104,147)       (121,445)
              Issuance of common stock, exercise of stock option
            -             766
              Issuance of preferred stock
            501,132               -
                                                                 -------
            ---     ------------
            Net cash provided by financing activities
            1,070,173         292,044

            Net Increase (Decrease) in Cash and Cash Equivalents
            (679,927)         50,638

            Cash and Cash Equivalents, Beginning of Period
            1,121,500       1,070,862

            Cash and Cash Equivalents, End of Period            $
            441,573     $ 1,121,500
<PAGE>





            Supplemental Disclosures of Cash Flow Information:

            Cash paid for interest                              $
            462,707     $   473,154

            Cash paid for taxes                                 $
            2,218     $     2,890

            Non-cash financing, capital lease                   $
            -     $    64,223


            The accompanying notes are an integral part of these
            financial statements.

            The Vermont Teddy Bear Co., Inc.
            Notes to Financial Statements
            June 30, 1997


            (1)  Summary of Significant Accounting Policies

                 Description of Business

                 The Vermont Teddy Bear Co., Inc. (the Company), which
            was
            incorporated under the laws of the State of New York in
            1984, is a designer, manufacturer and direct marketer of
            Vermont-made teddy bears and related products.  Principal
            geographic markets include New York, Philadelphia, Chicago
            and Boston.  The Company's sales are heavily seasonal, with
            Valentine's Day, Christmas and Mother's Day as the Company's
            largest sales seasons.

                 Use of Estimates

                 The preparation of financial statements in conformity
            with
            generally accepted accounting principles requires management
            to make estimates and assumptions that affect the reported
            amounts of assets and liabilities and disclosure of
            contingent assets and liabilities at the date of the
            financial statements and the reported amounts of revenues
            and expenses during the reporting period.  Actual results
            could differ from those estimates.

                 Cash and Cash Equivalents

                 All highly liquid investments with initial maturities
            of
            three months or less are considered cash equivalents.  At
            June 30, 1997 and 1996, approximately $365,000 of the
            Company's cash was restricted (Note 5).
<PAGE>





                 Inventories

                 Inventories are stated at the lower of cost or market
            using
            the first-in, first-out method.

                 Property and Equipment

                 Property and equipment are stated at cost, less
            accumulated
            depreciation.  Equipment acquired under capital leases is
            stated at the lower of the present value of future minimum
            lease payments or fair value at the inception of the lease.

                 Depreciation, including amortization of assets covered
            by
            capital leases, is calculated using both the straight-line
            and accelerated methods over the estimated useful lives of
            the assets, as follows:

            Building
                 39 years
            Equipment
                 5-7
            years
            Furniture and
            fixtures
                 3-7
            years
            Vehicles
                 5 years

                 Amortization of leasehold improvements is provided over
            their estimated useful lives or the remaining lease term,
            whichever is shorter.  Renewals and improvements that extend
            the useful lives of the assets are capitalized.
            Expenditures for maintenance and repairs are charged to
            expense as incurred.

                 Income Taxes

                 Deferred tax assets and liabilities are determined
            based on
            the difference between the financial statement and tax bases
            of assets and liabilities using enacted tax rates in effect
            for the year in which the differences are expected to
            reverse.

                 Net Earnings per Share

                 The Company currently calculates earnings per common
            share
            under Accounting principles Board Opinion (APB) No. 15,
            "Earnings Per Share."  The income or loss per common share
<PAGE>





            was computed by dividing the net income or loss by the
            weighted average number of shares of common stock
            outstanding during the year.

                 Advertising

                 The Company expenses the production costs of radio and
            print
            advertising the first time the advertising takes place.
            Direct-response advertising is capitalized and amortized
            over its expected period of future benefits.

                 Direct-response advertising consists primarily of
            catalogs
            for the Company's products.  The capitalized costs are
            amortized over the four-month period following the initial
            mailing of the catalog.

                 At June 30, 1997 and June 30, 1996, capitalized
            advertising
            costs of approximately $15,000 and $50,000, respectively,
            consisted primarily of unamortized direct-response catalogs.
            Advertising expenses were $4,847,000 and $4,336,000 for the
            twelve months ended June 30, 1997 and 1996, respectively.

                 Impairment of Long-Lived Assets

            The Company accounts for long-lived assets in accordance
            with SFAS No. 121, "Accounting for Impairment of Long-Lived
            Assets and for Long-Lived Assets to be Disposed Of."  The
            Company continually reviews its long-lived assets for events
            or changes in circumstances that might indicate the carrying
            amount of the assets may not be recoverable.  The Company
            assesses the recoverability of assets by determining whether
            the depreciation of such assets over their remaining lives
            can be recovered through projected undiscounted cash flows.
            The amount of impairment, if any, is measured based on
            projected discounted future cash flows using a discount rate
            reflecting the Company's average cost of funds.  At June 30,
            1997, no such impairment of assets was indicated.


                 Fair Value of Financial Instruments

                 In accordance with the requirements of Statement of
            Financial Accounting Standards (SFAS) No. 107, Disclosures
            About Fair Value of Financial Instruments, the Company has
            determined the estimated fair value of its financial
            instruments using appropriate market information and
            valuation methodologies.  Considerable judgment is required
            to develop the estimates of fair value; thus, the estimates
            are not necessarily indicative of the amounts that could be
            realized in a current market exchange.  The Company's
            financial instruments consist of cash, accounts receivable,
<PAGE>





            accounts payable and bank debt.  The carrying value of these
            assets and liabilities is a reasonable estimate of their
            fair market value at June 30, 1997 and 1996.

                 Recently Issued Accounting Standard

            In February 1997, the Financial Accounting Standards Board
            issued Statement of Financial Accounting Standards (SFAS)
            No. 128, "Earnings Per Share," which establishes standards
            for computing and presenting earnings per share for entities
            with publicly held common stock or potential common stock.
            This statement is effective for the fiscal years ending
            after December 15, 1997, and early adoption is not
            permitted.  When adopted, the statement will require
            restatement of prior years' earnings per share.  The Company
            will adopt this statement for its fiscal year ending June
            30, 1998.  Under the provisions of SFAS No. 128, the pro
            forma basic earnings per common share for 1997 would have
            been ($.38).  For fiscal year 1996 there would be no
            material change.


                 (2)  Inventories

                 Inventories consist of the following at June 30, 1997
            and
            1996:


            1997
            1996



            Raw materials
            $    565,267
            $    645,763
            Work-in-process
                 109,838
                 28,711
            Finished goods
                 2,627,208
                 1,300,257




            $    3,302,313
            $    1,974,731


            (3)  Property and Equipment
<PAGE>





                 Property and equipment consist of the following at June
            30,
            1997 and 1996:


            1997
            1996



            Land and land
            improvements
            $    1,398,528
            $    1,398,528
            Building
                 6,668,134
                 6,668,134
            Equipment
                 3,654,005
                 3,456,837
            Furniture and fixtures
                 374,769
                 291,250
            Vehicles
                 122,159
                 122,159
            Leasehold improvements
                 200,296
                 15,136

                 12,417,891
                 11,952,044
            Less-Accumulated
            depreciation and
            amortization

                 2,571,956

                 1,651,726




            $    9,845,935
            $    10,300,318




                 Depreciation and amortization expense for the years
            ended
            June 30, 1997, and 1996 was $943,163 and $818,024,
            respectively.
<PAGE>






            (4)  Related Party Transactions

                 On June 19, 1995, John N. Sortino resigned as the Chief
            Executive Officer and President of the Company.  The Company
            entered into a separation agreement with Mr. Sortino on
            June 19, 1995.  Under the separation agreement, Mr. Sortino
            is entitled to receive (1) cash compensation of $100,000 in
            calendar 1995 (including compensation totaling $40,430
            already paid to Mr. Sortino as Chief Executive Officer of
            the Company), $120,000 in calendar 1996 and $150,000 in
            calendar 1997; (2) a bonus of $100,000; (3) the forgiveness
            of amounts outstanding to the Company, which include
            approximately $128,000 in principal and $64,000 in accrued
            interest; and (4) health insurance benefits generally
            available to employees of the Company.  The Company accrued
            and expensed the entire amount due to Mr. Sortino under this
            agreement during the six-month period ended June 30, 1995
            and will not seek any services from him in the future.  The
            total accrued severance as of June 30, 1997 and 1996 was
            approximately $75,000 and $205,000, respectively.  The
            current amounts have been included as components of accrued
            expenses in the accompanying balance sheets.

                 As of June 30, 1996, R. Patrick Burns, President of the
            Company, signed a new agreement with the Company providing
            for continued employment through June 30, 2000.  In addition
            to cash compensation and stock options, the Company also
            increased the amount available to be lent to Mr. Burns to
            $116,818, and revised the forgiveness schedule on the loan
            agreement such that all outstanding amounts and related
            interested charges will be forgiven on July 29, 2000,
            provided that Mr. Burns would remain continuously employed
            by the Company until that date.  As of June 30, 1997, the
            Company has reserved for all loans due from Mr. Burns.

                 On December 31, 1996, the Company entered into a
            consulting
            agreement with Venture Management Group, Inc.  The President
            of Venture Management Group, Inc. currently serves as a
            member of the Company's Board of Directors.  The terms of
            this agreement commenced on January 1, 1997 and will
            terminate on December 31, 2006, unless earlier terminated in
            accordance with this agreement.  In consideration of the
            consulting services to be provided, the Company will pay
            fees of $65,000 per year, payable monthly, plus expenses and
            disbursements reasonably incurred in the performance of
            services under the agreement.  In the event that the Company
            defaults in its obligations under this agreement, or if a
            change in control of the Company occurs during the term of
            the agreement, Venture Management Group, Inc. may, at its
            sole option, declare the entire compensation under this
            contract to be immediately due and payable.
<PAGE>






            (5)  Indebtedness

            The Company is operating without a working capital line of
            credit facility, effective July 18, 1997.  As such, the
            Company's ability to fund its operations over the short-term
            is dependent upon its success in achieving its business plan
            for fiscal 1998 or obtaining additional financing.  If the
            Company is unsuccessful in achieving its business plan or
            obtaining additional financing, its short-term liquidity may
            be adversely impacted, which could require a curtailment of
            certain business activities that, in turn, could have a
            material adverse effect on the Company's business.

            As of June 30, 1997, the Company had a $1,000,000 revolving
            line of credit from a bank.  On July 18, the line of credit
            agreement was terminated pursuant to the sale-leaseback
            financing discussed below.  The line of credit, established
            September 26, 1995, bears interest at a variable rate of 2%
            above the prime rate, is secured by all assets of the
            Company and has a one-year maturity.  Outstanding borrowings
            under the line were $550,000 at June 30, 1997.  In addition,
            on September 26, 1995, the Company entered into a
            $3.5 million commercial mortgage loan, secured by a first
            mortgage on the Company's Shelburne, Vermont, facility as
            well as certain business assets.  The proceeds of the
            mortgage loan were used primarily to repay an outstanding
            construction loan.  The mortgage loan bears interest at a
            variable rate of 2% above the prime rate.  Payments under
            the loan are based on a 30-year amortization and are due in
            monthly installments through September 1997 when the
            outstanding balance will become due.  The terms of the
            agreement also require the Company to maintain $300,000 in a
            restricted cash account.

            In July 1997, the Company entered into a sale-leaseback
            transaction which replaced the Company's existing mortgage
            loan and line of credit, which were due in September 1997.
            See footnote 11 for additional information.

                 On December 26, 1995, Green Mountain Capital L.P.
            entered
            into an agreement with the Company to lend up to $500,000 in
            the form of five-year term notes.  As of June 30, 1997, the
            entire $500,000 had been borrowed.  The notes bear interest
            at 12% per annum and are repayable in monthly installments
            through December 2000.  The notes are secured by a
            subordinated security interest in the Company's personal
            property.   A commitment fee on any undrawn portion of the
            facility of 2% per annum is due monthly.  In conjunction
            with the issuance of the notes, Green Mountain Capital
            received warrants to purchase 20,000 shares of Common Stock
            at an exercise price of $3.375 per share.  The right to
            exercise these warrants begins December 26, 1997 and expires
<PAGE>





            the earlier of December 26, 2002 or five years after full
            repayment of the loan.  As of June 30, 1997, the entire
            $500,000 had been borrowed, and $397,142 was outstanding as
            of that date.  As of June 30, 1996, $200,000 had been
            borrowed, and $180,000 was outstanding as of that date.

                 The Company's long-term debt consists of the following
            at
            June 30, 1997 and 1996:


            1997
            1996
            Variable rate (10.25% at June 30,
            1997) Vermont National Bank building
            loan (see detailed discussion above)


            $    3,294,450


            $    3,411,114



            12.0% Green Mountain Capital L.P. note
            payable (see detailed discussion
            above)

                 397,142

                 180,000



            7.0% Job Development Authority notes,
            due in monthly installments through
            April 1999, secured by inventory,
            equipment and trade accounts
            receivable


                 27,012


                 41,205



            7.9% Note payable to bank, due in
            monthly installments through
            December 1997, secured by a vehicle
<PAGE>





                 1,427


                 4,119



            9.0% Note payable to Vermont National
            Bank, due in monthly installments
            through December 2001, secured by a
            vehicle


                 17,988


            22,187



            7.5% Note payable to North Creek
            Partners, due in monthly installments
            through March 2007

                 53,274

                 -



            9.8% Note payable to financing
            services, due in monthly installments
            through December 1999, secured by a
            vehicle


                 23,234


                 30,768



            13% Unsecured note payable to bank,
            due in monthly installments through
            February 1998

                 1,568

                 3,514

                 3,816,095
                 3,692,907
<PAGE>







            Less-Current installments
                 3,443,096
                 187,095



            Long-term debt, excluding current
            installments
            $    372,999
            $    3,505,812

                 Certain debt agreements contain covenants that require
            the
            Company to, among other things, restrict certain activities,
            meet certain performance targets, and periodically submit
            financial information.  The Company was in compliance with
            the covenants, had refinanced the obligations (see footnote
            11), or obtained waivers for all covenants for the year
            ended June 30, 1997.

                 Scheduled future maturities of debt including the
            Company's
            mortgage loan for the next five years are as follows:

            Period Ending
            June 30,

            1998
            $    3,443,096
            1999
                 144,291
            2000
                 129,916
            2001
            65,194
            2002
                 6,017
            Thereafter
                 27,581



            $    3,816,095


                 As of June 30, 1997 and 1996, the Company had
            outstanding
            letters of credit of $0 and $49,505, respectively.


            (6)  Preferred Stock
<PAGE>





            Series A

                 The Company has issued 90 shares, $.05 par value, of
            Series
            A Cumulative Preferred Stock to one individual.  The Series
            A stockholder is entitled to accrued dividends on the stated
            values of the shares at a rate of 8% per annum.  The
            dividends accrue regardless of whether dividends have been
            declared, profits exist, or funds are legally available for
            payment.  Dividends are payable quarterly, in arrears.  As
            of June 30, 1996, the Series A stockholder had agreed to
            waive any claims on accrued dividends in exchange for a five
            year warrant to purchase 43,826 shares of the Company's
            Common Stock at a price of $2.875 per share.  The warrant
            agreement contains certain anti-dilution provisions (see
            footnote 9).  For the fiscal year ended June 30, 1997,
            $72,000 of dividends were accrued.  The Series A Preferred
            Stock carries a liquidation preference value equal to the
            stated value per share plus all accrued and unpaid
            dividends.  The stated value is equal to $10,000 per share.

            Series B

            The Company has issued 204,912 shares, $.05 par value, of
            Series B Convertible Preferred Stock to twelve individuals.
            Series B stockholders are not entitled to any dividends or
            voting rights, but each share was originally convertible
            into one share of the Company's Common Stock at any time on
            or after July 14, 1997, subject to certain anti-dilution
            rights.  On July 18, 1997, as the result of a warrant
            granted in conjunction with the Company's sale- leaseback
            transaction (see footnote 11), the anti-dilution provisions
            of the Series B agreement were activated, and each share of
            Series B Preferred Stock is currently convertible into 1.85
            shares of Common Stock.  Accompanying the issuance of the
            Series B Convertible Preferred Stock were warrants to
            purchase 204,912 shares of the Company's Common Stock at an
            exercise price of $2.434 per share, exercisable between July
            12, 1997 and July 12, 1999.  In addition, finder's warrants
            for 10,245 share of Common Stock were issued with the same
            terms and conditions.  The warrants have certain anti-
            dilution provisions (see footnote 9.)


                 (7)  Commitments and Contingencies

                 Leases

                 During fiscal 1996, the Company relocated its
            operations to
            its newly constructed facility in Shelburne, Vermont.  The
            Company leases additional warehouse space in Shelburne,
            Vermont, for additional inventory storage under a lease that
            expires on June 30, 1999.  On May 30, 1996, the Company
<PAGE>





            entered into a five-year operating lease for a retail
            location in North Conway, New Hampshire.  On October, 24,
            1996, the Company entered into a ten-year operating lease
            for a retail location in New York, New York.  On January 17,
            1997, the Company entered into a ten-year operating lease
            for a retail location in Freeport, Maine.  In addition, the
            Company leases various equipment under noncancelable capital
            lease agreements which expire through 2001 and have interest
            rates from 8.69% to 10.12%.  Capital leases and
            noncancelable operating leases at June 30, 1997 require the
            following annual minimum lease payments:


            Capital
            Leases
            Operatin
            g Leases



            1998
            $    131,071
            $    548,204
            1999
                 127,655
                 589,608
            2000
                 97,058
                 611,012
            2001
            4,827
            622,416
            2002
            -
            580,000
            Thereafter
                 -
                 2,900,000



            Total minimum lease payments
                 360,611
            $    5,851,240



            Less-Amounts representing
            interest
                 47,798
<PAGE>





            Present value of lease
            payments
                 312,813




            Less-Current installments
                 103,759




            Long-term portion
            $    209,054





                 The original cost and net book value of equipment under
            capital leases at June 30, 1997 and 1996 was $505,698 and
            $231,161, and $505,698 and $331,903, respectively.  Rental
            expense under operating leases for the years ended June 30,
            1997 and 1996 was $321,924 and $106,550, respectively.

                 Contingencies

                 The Company is involved in various legal proceedings
            that,
            in the opinion of management, will not result in a material
            adverse effect on its financial condition or results of
            operations.


            (8)  Income Taxes

                 The provision for income taxes for the years ended June
            30,
            1997 and 1996 was comprised of the following:



            Year
            Ended
            June 30,
            1997

            Year
            Ended
            June 30,
            1996

            Current-
<PAGE>








                 Federal
                 $    -
            $    -

                 State
                      -
                 -


                      -
                 -

            Deferred-



                 Federal
                      -
                 -

                 State
                      -
                 -


                      -
                 -





                 Income tax provision
            (benefit)
                 $    -
            $    -


                 The components of the net deferred tax asset as of June
            30,
            1997 and 1996 are presented below:


            1997
            1996
            Deferred tax assets-


                 Vacation accrual
            $    45,916
            $    20,868
<PAGE>





                 Net operating loss
            carryforwards
                 1,649,969
                 920,395
                 Inventories
                 48,892
                 48,892
                 Severance accrual
                 30,000
                 81,772
                 Contribution
            carryforwards
                 49,456
                 47,966
            Deferred rent
            27,843
            -
                 Other
                 53,292
                 53,869
                 Valuation allowance
                 (1,646,352)
                 (933,177)



                 Total deferred tax
            assets
                 259,016
                 240,585



            Deferred tax
            liabilities-


                 Property and equipment
                 (259,016)
                 (240,585)



                 Net deferred tax asset
            $    -
            $    -

                 Based on the Company's recent losses, a valuation
            allowance
            has been provided to fully reserve the net deferred tax
            assets.  If the Company is able to achieve sufficient
            profitability to realize all or a portion of its deferred
            tax assets, the valuation allowance will be reduced through
            a credit to income in future periods.
<PAGE>






                 The provision for income taxes varies from the amounts
            computed by applying the U.S. federal income tax rate of 34%
            as follows for the years ended June 30, 1997 and 1996:


            Year
            Ended
            June 3
            0,
            1997
            Year
            Ended
            June 3
            0,
            1996





            Computed expected tax expense
            (benefit)

            34.0%
                 34.0%

            Increase (reduction) resulting
            from-



                 Tax-exempt interest income

            -

            -

                 Valuation allowance for deferred
            tax assets

            (34.0)

                 (34.0)

                 State taxes, net of federal
            benefits

            -

            -

                 Meals
<PAGE>





            -
             
            -

                 Penalties and other

            -

            -





                 Income tax provision (benefit)
              
            -%

            -%



                 At June 30, 1997, the Company has federal income tax
            net
            operating loss (NOL) carryforwards of approximately
            $4,240,000.  The NOL carryforwards expire in varying amounts
            through 2012.  In addition, as a result of the change in tax
            reporting year-end to June 30, 1995, certain amounts of the
            NOL carryforwards (approximately $1,700,000) are available
            for use ratably over a six-year period beginning June 30,
            1996.  The Tax Reform Act of 1986 included certain
            provisions relating to changes in stock ownership that, if
            triggered, could result in future annual limitations on the
            utilization of the NOLs.

            (9)  Capital Stock

                 1993 Incentive Stock Option Plan

                 On August 16, 1993, the stockholders approved a 1993
            incentive stock option plan ("1993 Plan"), which provided
            for the granting of 200,000 stock options to employees.
            Options granted may be either incentive stock options within
            the meaning of Section 422 of the Internal Revenue Code, or
            non-qualified options.  Options under the 1993 Plan vest
            ratably over a five-year period.  The stock options expire
            ten years after the date they are granted.  At various
            intervals, the stockholders of the Company have ratified
            changes to the 1993 Plan, which have increased the number of
            shares available under the plan to 2,000,000.


              Number
            of
<PAGE>





            Shares

            Exercise
                 Price
            Range



            Outstanding, December 31,
            1995
                      151,000
            $6.50--
            $12.00
                 Granted

            1,324,95
            6
                 $2.63--$3.06
                 Exercised
                      (250)
                 $3.06
                 Canceled

                 (673,05
            0)
                 $3.00--$12.00



            Outstanding, June 30, 1996
                      802,656
                 $2.63--$6.50
                 Granted

            2,135,27
            9
            $1.00--
            $3.13
                 Exercised
                      -
            -
                 Canceled
            (1,490,9
            16)
                 $1.00--$3.13



            Outstanding, June 30, 1997

            1,447,01
            9
                $1.00-
            -$6.50
<PAGE>






            On June 3, 1997, the Company offered to grant options with
            an exercise price of $1.00 per share (the fair market value
            of the Company's Common Stock on that date) in exchange for
            the surrender of all outstanding qualified employee
            incentive stock options at that date.  The repriced options
            had original exercise prices ranging from $1.50 and $3.13
            per share.

                 As of June 30, 1997, options to purchase 255,989 shares
            of
            the Company's Common Stock were exercisable under the 1993
            Plan, and options to purchase 552,981 shares of the
            Company's Common Stock were available for grant under the
            1993 Plan.

                 Non-Employee Director Stock Option Plan

            On November 22, 1996, the stockholders approved the Non-
            Employee Director Stock Option Plan ("NEDSO Plan"), which
            provides for the granting of 400,000 shares of the Common
            Stock of the Company in exchange for their participation as
            a Director of the Company.  Pursuant to the NEDSO Plan, each
            participating Director will receive an option to purchase
            2,000 shares of Common Stock as an annual retainer.  The
            Chairman of the Board of Directors, if eligible, is also
            entitled to receive an additional annual retainer to
            purchase 8,000 shares of the Company's Common Stock.  In
            addition to the annual retainer options, each participating
            director shall receive an option to purchase 1,500 shares of
            Common Stock for actual attendance at each regular or
            special meeting of the Board of Directors and an option to
            purchase 1,000 shares of Common Stock for actual attendance
            at a meeting of a committee of the Board of Directors.  All
            options have an exercise price equal to the fair market
            value of the Common Stock on the date of grant, vest
            immediately, and are exercisable for a period of ten years.


              Number
            of
            Shares

            Exercise
                 Price
            Range



            Outstanding, June 30, 1996
                      -
                 -
                 Granted
<PAGE>





            19,500
            $1.31--
            $2.75
                 Exercised
                      -
            -
                 Canceled

            -
                 -



            Outstanding, June 30, 1997

            19,500
                $1.31-
            -$2.75

            As of June 30, 1997, options to purchase 19,500 shares of
            the Company's Common Stock were exercisable under the NEDSO
            Plan, and options to purchase 380,500 shares of the
            Company's Common Stock were available for grant under the
            NEDSO Plan.

            Other Stock Options

            At the Company's 1996 Annual Meeting, the Stockholders of
            the Company approved two separate grants of non-qualified
            options to purchase 30,000 shares of Common Stock each to
            two Directors of the Company.  The options have an exercise
            price of $2.75 per share, being the fair market value on the
            date of grant, vest immediately, and are exercisable for a
            period of ten years.

                 Warrants

                 At June 30, 1997, there were several warrants
            outstanding
            for shares of the Company's Common Stock. Substantially all
            of the warrant agreements contain certain anti-dilution
            provisions which, if triggered, can result in additional
            shares being available to the warrant holder and/or a
            reduction in the exercise price for each share.  Certain
            anti-dilution provisions were triggered in fiscal 1997 as
            the result of the issuance of warrants and employee stock
            options.  The following table summarizes the Company's
            outstanding warrants at June 30, 1997 and 1996, inclusive of
            the effects of anti-dilution provisions:

                 June 30, 1996
                 June 30, 1997

                 Warrant   Exercise  Expiration     Warrant   Exercise
<PAGE>





                 Expiration
            Shares         Price          Date      Shares         Price
                      Date
              60,000  $  6.500      8/3/1998     75,374  $  5.174
            8/3/1998
            115,000     15.500  11/23/1998     123,377     14.448
                 11/23/1998
                8,000     3.375 12/26/2002       20,000      3.375
                 12/26/2002
              43,826      2.875   4/12/2001      50,795      2.480   
            4/12/2001
                                               523,692       1.000
            7/2/2000



                  (10)     Stock-Based Compensation Plans

                 The Company's employee stock option plan, the 1993
            Incentive
            Stock Option Plan (the "1993 Plan") was approved by
            stockholders on August 16, 1993.   Under the 1993 Plan, the
            Option Committee of the Board of Directors is authorized to
            grant both non-qualified and incentive stock options to
            full-time employees of the Company only, including officers
            of the Company.  The Committee will determine the provisions
            and terms of any stock option grant.  No option may
            terminate later than ten years from the date the option is
            granted.  The Committee may provide for termination of the
            option in the case of termination of employment with the
            Company or any other reason.  No stock option can be
            transferred except by will or by the laws of descent and
            distribution.  The 1993 Plan terminates on August 16, 2003,
            however, the 1993 Plan may be terminated earlier by decision
            of the Board.  The Board may amend the 1993 Plan; however,
            any amendment that would (1) materially increase the
            benefits accruing to participants under the 1993 Plan, (2)
            materially increase the number of securities that may be
            issued under the 1993 Plan, or (3) materially modify the
            requirements of eligibility for participation in the 1993
            Plan must be approved by the Stockholders of the Company.

                 The Company accounts for these plans under APB Opinion
            No.
            25, under which no compensation cost has been recognized.
            Had compensation cost for the 1993 Plan been determined
            consistent with FASB Statement No. 123, the Company's net
            income and earnings per share would have been reduced to the
            following pro forma amounts:

                                                          1997
                 1996
<PAGE>





                 Net Income (Loss)   As Reported         ($ 1,973,782)

            $    151,953
                                     Pro Forma      (   2,397,585)
            23,222
            Primary EPS         As Reported              ($.38)
                  $.03
                                     Pro Forma           ($.46)
                  $.00


                 Because the Statement 123 method of accounting has not
            been
            applied to options granted prior to July 1, 1995, the
            resulting pro forma compensation cost may not be
            representative of that to be expected in future years.  The
            Company may grant options for up to 2,000,000 shares under
            the 1993 Plan.  The option exercise price equals the stock's
            market price on date of grant.  Options under the Plan fully
            vest after two to four years, and all expire after ten
            years.  A summary of the status of the Company's stock
            option plan for fiscal year 1997 is presented in the table
            below:

                                                         Average

                                                    Exercise
                                          Shares         Price
                 Outstanding, June 30, 1996             802,656    $3.10
                 Granted                   2,135,279     $1.60
                 Exercised                               -           -
                 Canceled                 (1,490,916)    $2.93
                 Outstanding, June 30, 1997          1,447,019     $1.06
                 Exercisable at end of year             255,989    $1.37
                 Weighted average fair value
                      of options granted               $0.74

            1,428,119 of the 1,447,019 options outstanding at June 30,
            1997 have an exercise price of $1.00 per share and a
            weighted average remaining contractual life of 8.6 years.
            237,090 of these options are exercisable; their weighted
            average exercise price is $1.00 per share.  The remaining
            18,900 options have an exercise price of $6.50 per share and
            a weighted average remaining contractual life of 6.3 years.
            All of these options are exercisable.  The fair value of
            each option grant is estimated on the date of grant using
            the Black-Scholes option pricing model with the weighted
            assumptions of a 6.5 percent risk-free interest rate and a
            34 percent expected volatility.


                 (11) Subsequent Events

                 Governance
<PAGE>






                 On October 10, 1997 the Company appointed Elisabeth B.
            Robert to the position of President of The Vermont Teddy
            Bear Company.  Ms. Robert had previously served as the
            Company's Chief Financial Officer since September,1995. Ms.
            Robert will be assuming the title of President from R.
            Patrick Burns, who will be stepping down from that position.
            Mr. Burns will remain active as a consultant to Vermont
            Teddy Bear and will also continue as a member of the
            Company's Board of Directors.

                 Financing

            On October 10, 1997, the Company received a binding
            commitment letter from Green Mountain Capital L.P., whereby
            it agreed to lend the Company up to $200,000 in the form of
            a five-year term loan.  The loan would bear interest at 12
            percent per annum, would be repayable in monthly
            installments over the five-year term, and would be secured
            by a security interest in the Company's real and personal
            property.  In conjunction with the issuance of the notes,
            Green Mountain Capital will receive warrants to purchase
            100,000 shares of Common Stock, at an exercise price of
            $1.00 per share, subject to certain anti-dilution
            provisions.  (The prior warrants granted to Green Mountain
            Capital to purchase 20,000 shares at $3.375 will be canceled
            upon the issuance of this new note.)  The right to exercise
            these warrants begins two years from the date of the loan,
            and expires the earlier of five years after the full
            repayment of the loan and existing notes or seven years from
            the date of the loan.

            On July 18, 1997, the Company completed a sale-leaseback
            transaction, involving its factory headquarters and a
            portion of its property located in Shelburne, Vermont.  This
            financing replaced the Company's mortgage and line of credit
            agreement with the Vermont National Bank.  The Company
            received approximately $5.9 million in cash, of which
            approximately $3.3 million was used to pay off the existing
            mortgage with the Vermont National Bank.  The balance,
            approximately $2.6 million, was used for general working
            capital purposes, to pay down a $600,000 balance on the
            Company's line of credit (which was retired as the result of
            the termination of the original mortgage loan), and
            transaction costs of $591,000 associated with the sale-
            leaseback. The lease obligation, secured by the business
            assets of the Company, is payable on a twenty-year
            amortization schedule through July 2017.


                 Consent of Independent Public Accountants

            As independent public accountants, we hereby consent to the
            incorporation by reference of our reports, dated September
<PAGE>





            10, 1997 (except with respect to the matter discussed in
            Note 11, as to which the date is October 10, 1997) and
            August 30, 1996, included in The Vermont Teddy Bear Co.,
            Inc.'s Annual Report on Form 10-KSB for the years ended
            June 30, 1997 and 1996 into the Company's previously filed
            Registration Statement on Form S-8 No. 33-84586 (filed on
            September 26, 1995).



                 Arthur Andersen LLP



            Boston, Massachusetts
            October 14, 1997


            EXHIBIT 4.7


            THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON
            THE
            EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
            SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT
            NOR
            ANY SUCH SHARES MAY BE TRANSFERRED IN THE ABSENCE OF SUCH
            REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.



            WARRANT

            To Purchase Common Stock of

            THE VERMONT TEDDY BEAR CO., INC.


            THIS IS TO CERTIFY that URSA (VT) QRS 12-30, Inc. ("QRS:12-
            30")
            or registered assigns, is entitled upon the due exercise
            hereof
            at any time during the Exercise Period (as hereinafter
            defined)
            to purchase 150,000 shares of Common Stock (subject to
            adjustment
            as provided herein) of The Vermont Teddy Bear Co., Inc., a
            New
            York corporation, at the Exercise Price (as hereinafter
            defined)
            (such Exercise Price and the number of shares of Common
            Stock
            purchasable hereunder being subject to adjustment as
            provided
<PAGE>





            herein), and to exercise the other rights, powers and
            privileges
            hereinafter provided, all on the terms and subject to the
            conditions hereinafter set forth.




            ARTICLE I
            DEFINITIONS

            The terms defined in this ARTICLE I, whenever used in this
            Warrant, shall have the respective meanings hereinafter
            specified.

            "Affiliate" of any Person means a Person which directly or
            indirectly through one or more intermediaries controls, or
            is
            controlled by, or is under common control with, the Company.
            The
            term "control," as used with respect to any Person, means
            the
            possession, directly or indirectly, of the power to direct
            or
            cause the direction of the management and policies of such
            Person, whether through the ownership of voting securities,
            by
            contract or otherwise.

            "Assignment" means the form of Assignment appearing at the
            end of
            this Warrant.

            "Cashless Exercise Ratio" means a fraction, the numerator of
            which is the difference between the Current Market Price per
            share of Common Stock on the date of the exercise of this
            Warrant
            and the Exercise Price and the denominator of which is the
            Current Market Price per share of Common Stock on the date
            of the
            exercise of this Warrant.

            "Closing Date" means July __, 1997.

            "Commission" means the Securities and Exchange Commission or
            any
            other Federal agency from time to time administering the
            Securities Act.

            "Common Stock" means shares of the Company's Common Stock,
            $0.05
            par value, any stock into which such stock shall have been
            changed or any stock resulting from any reclassification of
            such
<PAGE>





            stock and any class of capital stock of the Company now or
            hereafter authorized having the right to share in
            distributions
            either of earnings or assets of the Company without limit as
            to
            amount or percentage.

            "Company" means The Vermont Teddy Bear Co., Inc., a New York
            corporation, and any successor corporation.

            "Convertible Securities" means evidences of indebtedness,
            shares
            of stock or other securities which are convertible into or
            exchangeable for, with or without payment of additional
            consideration, additional shares of Common Stock, either
            immediately or upon the arrival of a specified date or the
            happening of a specified event.


            "Current Market Price" as of any date herein specified as to
            any
            security means the average of the daily closing prices for
            the
            thirty (30) consecutive trading days commencing forty-five
            (45)
            trading days before the day in question.  The closing price
            for
            each day shall be (i) the closing price of any such security
            in
            the over-the-counter market as shown by the National
            Association
            of Securities Dealers, Inc. Automated Quotation System, or
            any
            similar system of automated dissemination of quotations of
            securities prices then in common use, if so quoted, as
            reported
            by any member firm of the New York Stock Exchange selected
            by the
            Company, or (ii) if not quoted as described in clause (i),
            the
            mean between the high bid and low asked quotations for any
            such
            security as reported by the National Quotation Bureau
            Incorporated or any similar successor organization, as
            reported
            by any member firm of the New York Stock Exchange selected
            by the
            Company, or (iii) if any such security is listed or admitted
            for
            trading on any national securities exchange, the last sale
            price
            of any such security, regular way, or the mean of the
            closing bid
            and asked prices thereof if no such sale occurred, in each
<PAGE>





            case
            as officially reported on the principal securities exchange
            on
            which any such security is listed.  If any such security is
            quoted on a national securities or central market system in
            lieu
            of a market or quotation system described above, the closing
            price shall be determined in the manner set forth in clause
            (ii)
            of the preceding sentence if bid and asked quotations are
            reported but actual transactions are not, and in the manner
            set
            forth in clause (iii) of the preceding sentence if actual
            transactions are reported.

            "Default Rate" shall mean the rate of interest specified in
            Paragraph 7(a)(iv) of the Lease.

            "Event of Default" means (a) the breach of any warranty, or
            the
            inaccuracy of any representation, made by the Company
            herein,
            (b) the failure by the Company to comply with any covenant
            contained herein or (c) an Event of Default (as such term is
            defined in the Lease).

            "Exercise Period" means (subject to the provisions of
            Section 8.12 below) the period commencing on the Closing
            Date and
            ending on July __, 2004.

            "Exercise Price" means the average closing price of the
            Common
            Stock as quoted on NASDAQ for the thirty (30) day period
            commencing fifteen (15) days prior to the Closing Date and
            ending
            on the fifteenth (15th) day following the Closing Date, as
            such
            price may be adjusted pursuant to ARTICLE IV.  Promptly
            following
            the end of such thirty (30) day period the Holder and the
            Company
            shall execute a document that shall state the numerical
            Exercise
            Price.

            "Fair Value" means the fair value of the appropriate
            security,
            property, assets, business or entity as determined by an
            opinion
            of an independent investment banking firm or firms in
            accordance
            with the following procedure:  In the case of any event
            which
<PAGE>





            gives rise to a requirement to determine "Fair Value"
            pursuant to
            the provisions hereof, whether in connection with an
            adjustment
            to the Exercise Price or otherwise, the Company shall be
            responsible for initiating the process by which Fair Value
            shall
            be determined as promptly as practicable following such
            event,
            and if the procedures contemplated in connection with
            obtaining
            such opinion have not been complied with fully, then any
            such
            determination of Fair Value for any purpose of this Warrant
            (and
            any such resulting adjustment to the Exercise Price) shall
            be
            deemed to be preliminary and subject to adjustment pending
            full
            compliance with such procedures.  The Company and the holder
            of
            this Warrant or Issued Warrant Shares (who, if more than
            one,
            shall agree among themselves by a two-thirds majority) shall
            each
            retain a separate independent investment banking firm (which
            firm, in either case, may be the independent investment
            banking
            firm regularly retained by the Company or any of such
            holders);
            provided, that the holder may, at its opinion, elect to rely
            on
            the firm retained by the Company in lieu or retaining its
            own
            firm.  Such firms shall determine the fair value of the
            security,
            property, assets, business or entity, as the case may be, in
            question and deliver their opinion in writing to the Company
            and
            to such holder.  If such firms cannot jointly make such
            determination (or in the event that the holder has elected
            to
            rely upon the firm retained by the Company and disagrees
            with the
            determination made by such firm), then, unless otherwise
            directed
            by agreement of the Company and a two-thirds majority of
            such
            holders, such firms (or firm), in their (or its) sole
            discretion,
            shall choose another independent investment banking firm of
            the
            Company or such holders, which firm shall make such
            determination
<PAGE>





            and render such an opinion.  In either case the
            determination so
            made shall be conclusive and binding on the Company and such
            holders.  The fees and expenses of any such determination
            made by
            the independent investment banking firm selected by such
            independent banking firms (or firm) shall be borne by the
            Company.

            "Initial Holder" means QRS:12-30.

            "Issuable Warrant Shares" means the number of shares of
            Common
            Stock issuable from time to time upon exercise of this
            Warrant.

            "Issued Warrant Shares" means any shares of Common Stock
            issued
            pursuant to this Warrant.

            "Lease" means the Lease Agreement, dated as of the Closing
            Date,
            between the Initial Holder and the Company, as the same may
            be
            amended from time to time in accordance with the terms
            thereof.

            "Notice of Exercise" means the form of Notice of Exercise
            appearing at the end of this Warrant.

            "Opinion of Counsel" means the opinion of counsel
            experienced in
            Securities Act or bank regulatory matters, as the case may
            be,
            chosen by the holder of this Warrant or the holder of Issued
            Warrant Shares, which counsel may be counsel to such holder.

            "Other Securities" means any stock and other securities of
            the
            Company (other than Common Stock, Convertible Securities or
            Stock
            Purchase Rights) or any other Person which shall become
            subject
            to issue or sale upon the conversion or exchange of any
            stock or
            other securities of the Company.

            "Person" means any unincorporated organization, association,
            corporation, individual, sole proprietorship, partnership,
            joint
            venture, trust institution, entity, party or government
            (including any instrumentality, division, agency, body or
            department thereof).
<PAGE>





            "Piggy-Back Shares" has the meaning set forth in Section
            5.3.

            "Preferred Stock" means shares of the Company's Preferred
            Stock,
            no par value.

            "Securities Act" means the Securities Act of 1933, as
            amended, or
            any successor Federal statute and the rules and regulations
            of
            the Commission promulgated thereunder, all as the same shall
            be
            in effect from time to time.

            "Series A Preferred Stock" means shares of the Company's
            Series A
            Preferred Stock, $.05 par value.

            "Series B Preferred Stock" means shares of the Company's
            Series B
            Preferred Stock, $.05 par value.

            "Stock Purchase Rights" means any warrants, options or other
            rights to subscribe for, purchase or otherwise acquire any
            shares
            of Common Stock or any Convertible Securities.

            "Subsidiary" means any corporation or association (a) more
            than
            fifty percent (50%) (by number of votes) of the Voting Stock
            of
            which is at the time owned by the Company or by one or more
            Subsidiaries or by the Company and one or more Subsidiaries,
            or
            any other business entity in which the Company or one or
            more
            Subsidiaries or the Company and one or more Subsidiaries
            owns
            more than a fifty percent (50%) interest either in the
            profits or
            capital of such business entity or (b) whose net earnings,
            or
            portions thereof, are consolidated with the net earnings of
            the
            Company and are recorded on the books of the Company for
            financial reporting purposes in accordance with generally
            accepted accounting principles.

            "Voting Stock" means securities of any class or series of a
            corporation or association the holders of which are
            ordinarily,
            in the absence of contingencies, entitled to participate in
            the
<PAGE>





            election of a majority of the directors or persons
            performing
            similar functions of such corporation or association.

            "Warrant" means the warrant dated as of Closing Date issued
            to
            the Initial Holder and all warrants issued upon the partial
            exercise, transfer or division of or in substitution for any
            Warrant.

            "Warrant Shares" means the Issuable Warrant Shares plus the
            Issued Warrant Shares, but only during such time as
            certificates
            representing such shares of this Warrant are required to
            bear the
            legend contained in Section 5.8 hereof.

            Whenever used in this Warrant, any noun or pronoun shall be
            deemed to include both the singular and plural and to cover
            all
            genders, and the words "herein", "hereof", and "hereunder"
            and
            words of similar import shall refer to this instrument as a
            whole, including any amendments hereto.


            ARTICLE II
            EXERCISE OF WARRANT

            2.1 Right to Exercise; Notice.  On the terms and
            subject to the conditions of this ARTICLE II, the holder
            hereof
            shall have the right, at its option, to exercise this
            Warrant in
            whole or in part at any time during the Exercise Period by
            delivery to the Company of a Notice of Exercise duly
            executed by
            such holder specifying the number of shares of Common Stock
            to be
            purchased.

            2.2 Manner of Exercise; Issuance of Common Stock.  To
            exercise this Warrant, the holder hereof shall (i) deliver
            to the
            Company (a) a Notice of Exercise duly executed by the holder
            hereof specifying the number of shares of Common Stock to be
            purchased, (b) an amount equal to the aggregate Exercise
            Price
            for all shares of Common Stock as to which this Warrant is
            then
            being exercised and (c) this Warrant or (ii) in connection
            with
            the exercise of this Warrant without the payment of the
            Exercise
<PAGE>





            Price, deliver to the Company (a) a Notice of Exercise duly
            executed by the holder hereof specifying the number of
            shares of
            Common Stock for which this Warrant is being exercised and
            the
            number of shares of Common Stock deliverable upon such
            exercise,
            which shall equal the product of (x) the number of shares of
            Common Stock for which this Warrant is being exercised and
            (y) the Cashless Exercise Ratio and (b) this Warrant.  At
            the
            option of the holder hereof, if this Warrant is being
            exercised
            in the manner described in clause (i) of the immediately
            preceding sentence, payment of the Exercise Price shall be
            made
            by (a) wire transfer of funds to an account in a bank
            located in
            the United States designated by the Company for such
            purpose,
            (b) certified or official bank check payable to the order of
            the
            Company and drawn on a member of the New York Clearing House
            or
            (c) by any combination of such methods.

            Upon receipt of the required deliveries, the
            Company shall, as promptly as practicable, and in any event
            within five (5) days thereafter, cause to be issued and
            delivered
            to the holder hereof (or its nominee) or, subject to ARTICLE
            V,
            the transferee designated in the Notice of Exercise, a
            certificate or certificates representing shares of Common
            Stock
            equal in the aggregate to the number of shares of Common
            Stock
            specified in the Notice of Exercise (but not exceeding the
            maximum number of shares issuable upon exercise of this
            Warrant).
            Such certificates shall be registered in the name of the
            holder
            hereof (or its nominee) or in the name of such transferee,
            as the
            case may be.

            If this Warrant is exercised in part, the Company
            shall, at the time of delivery of such certificate or
            certificates, unless the Exercise Period has expired, issue
            and
            deliver to the holder hereof or, subject to ARTICLE V, the
            transferee so designated in the Notice of Exercise a new
            warrant
            evidencing the right of the holder hereof or such transferee
<PAGE>





            to
            purchase the aggregate number of shares of Common Stock for
            which
            this Warrant shall not have been exercised, and this Warrant
            shall be canceled.

            2.3 Effectiveness of Exercise.  Unless otherwise
            requested by the holder hereof, this Warrant shall be deemed
            to
            have been exercised and such certificate or certificates
            shall be
            deemed to have been issued, and the holder or transferee so
            designated in the Notice of Exercise shall be deemed to have
            become a holder of record of such shares for all purposes,
            as of
            the close of business on the date the Notice of Exercise,
            together with payment of the Exercise Price and this
            Warrant, is
            received by the Company.

            2.4 Fractional Shares.  The Company shall not issue
            fractional shares of Common Stock or scrip representing
            fractional shares of Common Stock upon any exercise of this
            Warrant.  As to any fractional share of Common Stock which
            the
            holder hereof would otherwise be entitled to purchase from
            the
            Company upon such exercise, the Company shall purchase from
            the
            holder such fractional share at a price equal to an amount
            calculated by multiplying such fractional share (calculated
            to
            the nearest .001 of a share) by the Current Market Price
            calculated as of the date of the Notice of Exercise.
            Payment of
            such amount shall be made at the time of delivery of any
            certificate or certificates deliverable upon such exercise
            in
            cash or by check payable to the order of the holder hereof
            or,
            subject to ARTICLE V, the transferee designated in the
            Notice of
            Exercise, as the case may be.

            2.5 Continued Validity.  A holder of shares of Common
            Stock issued upon the exercise of this Warrant, in whole or
            in
            part, shall continue to be entitled to all rights to which a
            holder of this Warrant is entitled pursuant to the
            provisions of
            this Warrant, except such rights as their terms apply solely
            to
            the holder of a Warrant.  The Company will, at the time of
            any
<PAGE>





            exercise of this Warrant, upon the request of the holder of
            the
            shares of Common Stock issued upon the exercise hereof,
            acknowledge in writing, in a form reasonably satisfactory to
            such
            holder, its continuing obligation to afford to such holder
            all
            rights to which such holder shall continue to be entitled
            after
            such exercise in accordance with the provisions of this
            Warrant;
            provided, however, that if such holder shall fail to make
            any
            such request, such failure shall not affect the continuing
            obligation of the Company to afford to such holder all such
            rights.

            ARTICLE III
            REGISTRATION, TRANSFER AND EXCHANGE

            3.1 Maintenance of Registration Books.  The Company
            shall keep at its principal office in Shelburne, Vermont, a
            register in which, subject to such reasonable regulations as
            it
            may prescribe, the Company shall provide for the
            registration,
            transfer and exchange of this Warrant.  The Company shall
            not at
            any time except upon the dissolution, liquidation or winding
            up
            of the Company, close such register so as to result in
            preventing
            or delaying the exercise or transfer of this Warrant.

            3.2 Transfer and Exchange.  Upon surrender for
            registration or transfer of this Warrant at such office, the
            Company shall execute and deliver, subject to ARTICLE V, in
            the
            name of the designated transferee or transferees, one or
            more new
            Warrants representing the right to purchase a like aggregate
            number of shares of Common Stock.  At the option of the
            holder
            hereof, this Warrant may be exchanged for other Warrants
            representing the right to purchase a like aggregate number
            of
            shares of Common Stock upon surrender of this Warrant at
            such
            office.  Whenever this Warrant is so surrendered for
            exchange,
            the Company shall execute and deliver the Warrants which the
            holder making the exchange is entitled to receive.

            Every Warrant presented or surrendered for
<PAGE>





            registration of transfer or exchange shall be accompanied by
            an
            Assignment duly executed by the holder thereof or its
            attorney
            duly authorized in writing.

            All Warrants issued upon any registration of
            transfer or exchange of Warrants shall be the valid
            obligations
            of the Company, evidencing the same rights, and entitled to
            the
            same benefits, as the Warrants surrendered upon such
            registration
            of transfer or exchange.

            3.3 Replacement.  Upon receipt of evidence reasonably
            satisfactory to the Company of the loss, theft, destruction
            or
            mutilation of this Warrant and (a) in the case of any such
            loss,
            theft or destruction upon delivery of indemnity reasonably
            satisfactory to the Company in form and amount or (b) in the
            case
            of any such mutilation, upon surrender of such Warrant for
            cancellation at the principal office of the Company, the
            Company,
            at its expense, will execute and deliver, in lieu thereof, a
            new
            Warrant.

            3.4 Ownership.  The Company and any agent of the
            Company may treat the Person in whose name this Warrant is
            registered on the register kept at the principal office of
            the
            Company as the owner and holder thereof for all purposes,
            notwithstanding any notice to the contrary, except that, if
            and
            when this Warrant is properly assigned in blank, the Company
            may
            (but shall not be obligated to) treat the bearer thereof as
            the
            owner of this Warrant for all purposes, notwithstanding any
            notice to the contrary.  This Warrant, if properly assigned,
            may
            be exercised by a new holder without first having a new
            Warrant
            issued.

            ARTICLE IV
            ANTIDILUTION PROVISIONS

            4.1 Adjustment of Number of Shares Purchasable.  Upon
            any adjustment of the Exercise Price as provided in Section
            4.2,
<PAGE>





            the holder hereof shall thereafter be entitled to purchase,
            at
            the Exercise Price resulting from such adjustment, the
            number of
            shares of Common Stock (calculated to the nearest 1/1OOth of
            a
            share) obtained by multiplying the Exercise Price in effect
            immediately prior to such adjustment by the number of shares
            of
            Common Stock purchasable hereunder immediately prior to such
            adjustment and dividing the product thereof by the Exercise
            Price
            resulting from such adjustment.  It is the intent of the
            Company
            that, after giving effect to any exercise of this Warrant,
            the
            holder hereof would be the owner of (or have the right to
            acquire
            pursuant hereto) an aggregate of a minimum of
            150,000/5,172,750
            percent (2.90655%) the Common Stock outstanding on a fully
            diluted basis.

            4.2 Adjustment of Exercise Price.  The Exercise Price
            shall be subject to adjustment from time to time as
            hereinafter
            set forth.

            (a) Stock Dividends, Subdivisions and Combinations. In
            the event that the Company subsequent to the Closing Date
            shall:

            (i) declare a dividend upon, or make any
            distribution in respect of, any of its stock, payable in
            Common
            Stock, Convertible Securities or Stock Purchase Rights, or

            (ii) subdivide its outstanding shares of Common
            Stock into a larger number of shares of Common Stock, or

            (iii) combine its outstanding shares of Common
            Stock into a smaller number of shares of Common Stock,

            then the Exercise Price shall be adjusted to that price
            determined by multiplying the Exercise Price per share of
            Common
            Stock immediately prior to such event by a fraction (A) the
            numerator of which shall be the total number of outstanding
            shares of Common Stock of the Company immediately prior to
            such
            event, and (B) the denominator of which shall be the total
            number
            of outstanding shares of Common Stock of the Company
            immediately
<PAGE>





            after such event, treating as outstanding all shares of
            Common
            Stock issuable upon conversions or exchanges of such
            Convertible
            Securities and exercises of such Stock Purchase Rights.

            (b) Issuance of Additional Shares of Common Stock. In
            case the Company shall issue or sell any shares of Common
            Stock
            after the Closing Date for a consideration less than the
            then
            Current Market Price, the Exercise Price upon each such
            issuance
            or sale shall be adjusted as follows:
            by dividing (A) an amount equal to the sum of (1) the number
            of
            shares of Common Stock outstanding immediately prior to such
            issue or sale multiplied by the then existing Current Market
            Price plus (2) the aggregate consideration, if any, received
            by
            the Company upon such issue or sale, by (B) the total number
            of
            shares of Common Stock outstanding immediately after such
            issue
            or sale;

            The provisions of this Subsection (b) shall not apply
            to any additional shares of Common Stock which are
            distributed to
            holders of Common Stock pursuant to a stock dividend or
            subdivision for which an adjustment is provided for under
            Subsection (a) of this Section 4.2.  No adjustment of the
            Exercise Price shall be made under this Subsection upon the
            issuance of any additional shares of Common Stock which are
            issued pursuant to the exercise of any Stock Purchase Rights
            or
            pursuant to the conversion or exchange of any Convertible
            Securities to the extent that such adjustment shall
            previously
            have been made upon the issuance of such Stock Purchase
            Rights or
            Convertible Securities pursuant to Subsection (a), (c) or
            (d) of
            this Section 4.2.

            (c) Issuance of Stock Purchase Rights.  In case the
            Company shall issue or sell any Stock Purchase Rights and
            the
            consideration per share at which additional shares of Common
            Stock may at any time thereafter be issuable upon exercise
            thereof (or, in the case of Stock Purchase Rights
            exercisable for
            the purchase of Convertible Securities, upon the subsequent
            conversion or exchange of such Convertible Securities) shall
<PAGE>





            be
            less than the then Current Market Price, the Exercise Price
            shall
            be adjusted as provided in subsection (b) of this Section
            4.2 on
            the basis that (1) the maximum number of additional shares
            of
            Common Stock issuable upon exercise of such Stock Purchase
            Rights
            (or upon conversion or exchange of such Convertible
            Securities
            following such exercise) shall be deemed to have been issued
            as
            of the date of the determination of the Current Market
            Price, and
            (2) the aggregate consideration received for such additional
            shares of Common Stock shall be deemed to be the minimum
            consideration received and receivable by the Company in
            connection with the issuance and exercise of such Stock
            Purchase
            Rights (or upon conversion or exchange of such Convertible
            Securities).

            (d) Issuance of Convertible Securities.  In case the
            Company shall issue or sell any Convertible Securities and
            the
            consideration per share for such shares of Convertible
            Securities
            shall be less than the then Current Market Price, the
            Exercise
            Price shall be adjusted as provided in Subsection (b) of
            this
            Section 4.2 on the basis that (1) the maximum number of
            additional shares of Common Stock necessary to effect the
            conversion or exchange of all such Convertible Securities
            shall
            be deemed to have been issued as of the date for the then
            Current
            Market Price, and (2) the aggregate consideration received
            for
            such additional shares of Common Stock shall be deemed to be
            equal to the minimum consideration received and receivable
            by the
            Company in connection with the issuance and exercise of such
            Convertible Securities. No adjustment of the Exercise Price
            shall
            be made under this Subsection upon the issuance of any
            Convertible Securities which are issued pursuant to the
            exercise
            of any Stock Purchase Rights, if an adjustment shall
            previously
            have been made upon the issuance of such Stock Purchase
            Rights
            pursuant to Subsection (c) of this Section 4.2.
<PAGE>






            (e) Minimum Adjustment. In the event any adjustment of
            the Exercise Price pursuant to this Section 4.2 shall result
            in
            an adjustment of less than one cent ($.01) per share of
            Common
            Stock, no such adjustment shall be made, but any such lesser
            adjustment shall be carried forward and shall be made at the
            time
            and together with the next subsequent adjustment which
            together
            with any adjustments so carried forward, shall amount to one
            cent
            ($.01) or more per share of Common Stock; provided, however,
            that
            upon any adjustment of the Exercise Price resulting from (i)
            the
            declaration of a dividend upon, or the making of any
            distribution
            in respect of, any stock of the Company payable in Common
            Stock
            or Convertible Securities or (ii) the reclassification by
            subdivision, combination or otherwise, of the Common Stock
            into a
            greater or smaller number of shares, the foregoing figure of
            one
            cent ($.01) per share (or such figure last adjusted) shall
            be
            proportionately adjusted; provided, further, upon the
            exercise of
            this Warrant, the Company shall make all necessary
            adjustments
            (to the nearest .001 of a cent) not theretofore made to the
            Exercise Price up to and including the date upon which this
            Warrant is exercised.

            (f) Readjustment of Exercise Price. In the event
            (i) the purchase price payable for any Stock Purchase Rights
            or
            Convertible Securities referred to in Subsection (c) or (d)
            above, (ii) the additional consideration, if any, payable
            upon
            exercise of such Stock Purchase Rights or upon the
            conversion or
            exchange of such Convertible Securities or (iii) the rate at
            which any Convertible Securities above are convertible into
            or
            exchangeable for additional shares of Common Stock shall
            change,
            the Exercise Price in effect at the time of such event shall
            forthwith be readjusted to the Exercise Price which would
            have
            been in effect at such time had such Stock Purchase Rights
            or
<PAGE>





            Convertible Securities provided for such changed purchase
            price,
            additional consideration or conversion rate, as the case may
            be,
            at the time initially granted, issued or sold.  On the
            expiration
            of any such Stock Purchase Rights not exercised or of any
            such
            right to convert or exchange under such Convertible
            Securities
            not exercised, the Exercise Price then in effect hereunder
            shall
            forthwith be increased to the Exercise Price which would
            have
            been in effect at the time of such expiration or termination
            had
            such Stock Purchase Rights or Convertible Securities never
            been
            issued.  No readjustment of the Exercise Price pursuant to
            this
            Subsection (f) shall have the effect of increasing the
            Exercise
            Price by an amount in excess of the adjustment originally
            made to
            the Exercise Price in respect of the issue, sale or grant of
            the
            applicable Stock Purchase Rights or Convertible Securities.

            (g) Reorganization, Reclassification or
            Recapitalization of Company.  In case of any capital
            reorganization or reclassification or recapitalization of
            the
            capital stock of the Company (other than in the cases
            referred to
            in Subsection (a) of this Section 4.2), or in case of the
            consolidation or merger of the Company with or into another
            corporation, or in case of the sale or transfer of the
            property
            of the Company as an entirety or substantially as an
            entirety,
            there shall thereafter be deliverable upon the exercise of
            this
            Warrant or any portion thereof (in lieu of or in addition to
            the
            number of shares of Common Stock theretofore deliverable, as
            appropriate) the number of shares of stock or other
            securities or
            property to which the holder of the number of shares of
            Common
            Stock which would otherwise have been deliverable upon the
            exercise of this Warrant or any portion thereof at the time
            would
            have been entitled upon such capital reorganization or
            reclassification of capital stock, consolidation, merger or
<PAGE>





            sale,
            and at the same aggregate Exercise Price.

            Prior to and as a condition of the consummation of
            any transaction described in the preceding sentence, the
            Company
            shall make equitable, written adjustments in the application
            of
            the provisions herein set forth satisfactory to the holders
            of
            Warrants with respect to the rights and interests of holders
            of
            Warrants so that the provisions set forth herein shall
            thereafter
            be applicable, as nearly as possible in relation to any
            shares of
            stock or Other Securities or other property thereafter
            deliverable upon exercise of this Warrant.  Any such
            adjustment
            shall be made by and set forth in a supplemental agreement
            between the Company and/or the successor entity, as
            applicable,
            which agreement shall bind each such entity, shall be
            accompanied
            by an Opinion of Counsel as to the enforceability of such
            agreement.

            (h) Dilution in Case of Other Securities.  In case any
            Other Securities shall be issued or sold or shall become
            subject
            to issuance or sale upon the conversion or exchange of any
            stock
            (or other securities) of the Company (or any issuer of Other
            Securities or any other Person referred to in Subsection
            (g)) or
            becomes subject to subscription, purchase or other
            acquisition
            pursuant to any options or rights issued or granted by the
            Company (or by any such other issuer or Person) for a
            consideration such as to dilute, within the standards
            established
            in the other provisions of this ARTICLE IV, the purchase
            rights
            granted by this Warrant, then, and in each such case, the
            computations, adjustments and readjustments provided for in
            this
            ARTICLE IV with respect to the Exercise Price shall be made
            as
            nearly as possible in the manner so provided and applied to
            determine the amount of Other Securities from time to time
            receivable upon the exercise of this Warrant, so as to
            protect
            the holders of the Warrant against the effect of such
            dilution.
<PAGE>






            (i) Other Dilutive Events.  In case any event shall
            occur as to which the other provisions of this ARTICLE IV
            are not
            strictly applicable but the failure to make any adjustment
            would
            not fairly protect the purchase rights represented by this
            Warrant in accordance with the essential intent and
            principles
            hereof, then, in each such case, the Company shall appoint a
            firm
            of independent public accountants of recognized national
            standing
            (which may be the regular auditors of the Company), which
            shall
            give their opinion as to the adjustment, if any, on a basis
            consistent with the essential intent and principles
            established
            in this ARTICLE IV, necessary to preserve, without dilution,
            the
            purchase rights represented by this Warrant.  Upon receipt
            of
            such opinion, the Company will promptly mail a copy thereof
            to
            the holder of this Warrant and shall make the adjustments
            described therein.

            (j) Determination of Consideration.  For purposes of
            this ARTICLE IV, the consideration received or receivable by
            the
            Company for the issuance, sale, grant or assumption of
            additional
            shares of Common Stock, Stock Purchase Rights or Convertible
            Securities, irrespective of the accounting treatment of such
            consideration, shall be valued as follows:

            (1) Cash Payment.  In the case of cash, the net
            amount received by the Company after deduction of any
            accrued
            interest, dividends or any expenses paid or incurred or any
            underwriting commissions or concessions paid or allowed by
            the
            Company.

            (2) Securities or Other Property. In the case of
            securities or other property, at the lesser of (i) the
            Current
            Market Price of the security for which such consideration
            was
            received, and (ii) the Fair Value of such consideration (in
            both
            cases as of the date immediately preceding the issuance,
            sale or
            grant in question).
<PAGE>






            (3) Allocation Related to Common Stock.  In the
            event additional shares of Common Stock are issued or sold
            together with other securities or other assets of the
            Company for
            a consideration which covers both, the consideration
            received
            (computed as provided in (1) and (2) above) shall be
            allocable to
            such additional shares of Common Stock as determined in good
            faith by the Board of Directors of the Company.

            (4) Allocation Related to Stock Purchase Rights
            and Convertible Securities.  In case any Stock Purchase
            Rights or
            Convertible Securities shall be issued or sold together with
            other securities or other assets of the Company, together
            comprising one integral transaction in which no specific
            consideration is allocated to the Stock Purchase Rights or
            Convertible Securities, such Stock Purchase Rights or
            Convertible
            Securities shall be deemed to have been issued without
            consideration.

            (5) Dividends in Securities.  In case the Company
            shall declare a dividend or make any other distribution upon
            any
            stock of the Company (other than Common Stock) payable in
            either
            case in Common Stock, Convertible Securities or Stock
            Purchase
            Rights, such Common Stock, Convertible Securities or Stock
            Purchase Rights, as the case may be, issuable in payment of
            such
            dividend or distribution shall be deemed to have been issued
            or
            sold without consideration.

            (6) Stock Purchase Rights and Convertible
            Securities.  The consideration for which shares of Common
            Stock
            shall be deemed to be issued upon the issuance of any Stock
            Purchase Rights or Convertible Securities shall be
            determined by
            dividing (i) the total consideration, if any, received or
            receivable by the Company as consideration for the granting
            of
            such Stock Purchase Rights or the issuance of such
            Convertible
            Securities, plus the minimum aggregate amount of additional
            consideration payable to the Company upon the exercise of
            such
            Stock Purchase Rights, or, in the case of such Convertible
            Securities, the minimum aggregate amount of additional
<PAGE>





            consideration, if any, payable upon the conversion or
            exchange
            thereof, in each case after deducting any accrued interest,
            dividends, or any expenses paid or incurred or any
            underwriting
            commissions or concessions paid or allowed by the Company by
            (ii) the maximum number of shares of Common Stock issuable
            upon
            the exercise of such Stock Purchase Rights or upon the
            conversion
            or exchange of all such Convertible Securities.

            (7) Merger, Consolidation or Sale of Assets.  In
            case any shares of Common Stock or Convertible Securities or
            any
            Stock Purchase Rights shall be issued in connection with any
            merger or consolidation in which the Company is the
            surviving
            corporation, the amount of consideration therefor shall be
            deemed
            to be the Fair Value of such portion of the assets and
            business
            of the non-surviving corporation as shall be attributable to
            such
            Common Stock, Convertible Securities or Stock Purchase
            Rights, as
            the case may be.  In the event of any merger or
            consolidation of
            the Company in which the Company is not the surviving
            corporation
            or in the event of any sale of all or substantially all of
            the
            assets of the Company for stock or other securities of any
            corporation, the Company shall be deemed to have issued a
            number
            of shares of its Common Stock for stock or securities of the
            other corporation computed on the basis of the actual
            exchange
            ratio on which the transaction was predicated and for a
            consideration equal to the Fair Value on the date of such
            transaction of such stock or securities of the other
            corporation,
            and if any such calculation results in adjustment of the
            Exercise
            Price, the determination of this number of shares of Common
            Stock
            issuable upon exercise of this Warrant immediately prior to
            such
            merger, consolidation or sale, for the purposes of
            Subsection (g)
            above, shall be made after giving effect to such adjustment
            of
            the Exercise Price.
<PAGE>





            (k) Record Date.  In case the Company shall take a
            record of the holders of the Common Stock for the purpose of
            entitling them (i) to receive a dividend or other
            distribution
            payable in Common Stock or in Convertible Securities or (ii)
            to
            subscribe for or purchase Common Stock or Convertible
            Securities,
            then all references in this ARTICLE IV to the date of the
            issue
            or sale of the shares of Common Stock deemed to have been
            issued
            or sold upon the declaration of such dividend or the making
            of
            such other distribution or the date of the granting of such
            right
            of subscription or purchase, as the case may be, shall be
            deemed
            to be references to such record date.

            (l) Shares Outstanding.  The number of shares of Common
            Stock deemed to be outstanding at any given time shall not
            include (i) shares of Common Stock in the treasury of the
            Company
            or any wholly-owned Subsidiary and (ii) any of the Issuable
            Warrant Shares or the Issued Warrant Shares.

            (m) Maximum Exercise Price.  At no time shall the
            Exercise Price per share of Common Stock exceed the amount
            set
            forth in the first paragraph of the Preamble of this Warrant
            except as provided in Subsection (a) or (g) of this Section
            4.2.

            (n) Application. Except as otherwise provided herein,
            all Subsections of this Section 4.2 are intended to operate
            independently of one another.  If an event occurs that
            requires
            the application of more than one Subsection, all applicable
            Subsections shall be given independent effect.

            (o) No Adjustments under Certain Circumstances.
            Anything herein to the contrary notwithstanding, the Company
            shall not be required to make any adjustment of the Exercise
            Price in the case of:

            (i) the issuance of shares of Common Stock upon
            the exercise in whole or part of this Warrant; or

            (ii) the issuance of shares of Common Stock
            pursuant to a rights offering in which the holder hereof
            elects
            to participate under the provisions of Section 4.3; or
<PAGE>





            (iii) the issuance of shares of common stock
            pursuant to the Company's Incentive Stock Option Plan or its
            Non-Employee Directors Stock Option Plan, or any successor
            plan
            thereto or replacement thereof; or

            (iv) the issuance of shares of common stock upon
            conversion of any of the shares of the Company's Series B
            Convertible Preferred Stock issued and outstanding as of the
            date
            of this Warrant; or

            (v) the issuance of shares of common stock
            pursuant to any other Stock Purchase Right issued and
            outstanding
            as of the date of this Warrant.

            4.3 Rights Offering. In the event the Company shall
            effect an offering of Common Stock pro rata among its
            stockholders, the holder hereof shall be entitled, at its
            option,
            to elect to participate in each and every such offering as
            if
            this Warrant had been exercised and such were, at the time
            of any
            such rights offering, then a holder of that number of shares
            of
            Common Stock to which such holder is then entitled on the
            exercise hereof.

            4.4  Certificates and Notices.

            (a)  Adjustments to Exercise Price.  Upon any
            adjustment under this ARTICLE IV of the number of shares of
            Common Stock purchasable upon exercise of this Warrant or of
            the
            Exercise Price, a certificate, signed (i) by the President
            or a
            Vice President and by the Treasurer or an Assistant
            Treasurer or
            the Secretary or an Assistant Secretary of the Company, or
            (ii) by any independent firm of certified public accountants
            of
            recognized national standing selected by, and at the expense
            of,
            the Company, setting forth in reasonable detail the events
            requiring the adjustment and the method by which such
            adjustment
            was calculated, shall be mailed to the holder of this
            Warrant
            specifying the adjusted Exercise Price and the number of
            shares
            of Common Stock purchasable upon exercise of such holder's
            Warrant after giving effect to such adjustment.
<PAGE>






            The certificate of any independent firm of certified
            public accountants of recognized national standing selected
            by
            the Board of Directors of the Company shall be conclusive
            evidence of the correctness of any computation made under
            ARTICLE IV, absent manifest error.

            (b) Extraordinary Corporate Events.  In case the
            Company after the date hereof shall propose to (i) pay any
            dividend payable in stock to the holders of shares of Common
            Stock or to make any other distribution to the holders of
            shares
            of Common Stock, (ii) offer to the holders of shares of
            Common
            Stock rights to subscribe for or purchase any additional
            shares
            of any class of stock or any other rights or options or
            (iii) effect any reclassification of the Common Stock (other
            than
            a reclassification involving merely the subdivision or
            combination of outstanding shares of Common Stock), or any
            capital reorganization or any consolidation or merger (other
            than
            a merger in which no distribution of securities or other
            property
            is to be made to holders of shares of Common Stock), or any
            sale,
            transfer or other disposition of its property, assets and
            business as an entirety or substantially as an entirety, or
            the
            liquidation, dissolution or winding up of the Company, then,
            in
            each such case, the Company shall mail to the holder of this
            Warrant notice of such proposed action, which shall specify
            the
            date on which the stock transfer books of the Company shall
            close, or a record shall be taken, for determining the
            holders of
            Common Stock entitled to receive such stock dividends or
            other
            distribution or such rights or options, or the date on which
            such
            reclassification, reorganization, consolidation, merger,
            sale,
            transfer, other disposition, liquidation, dissolution or
            winding
            up shall take place or commence, as the case may be, and the
            date
            as of which it is expected that holders of Common Stock of
            record
            shall be entitled to receive securities or other property
            deliverable upon such action, if any such date is to be
            fixed.
<PAGE>





            Such notice shall be mailed in the case of any action
            covered by
            clause (i) or (ii) above at least ten (10) days prior to the
            record date for determining holders of Common Stock for
            purposes
            of receiving such payment or offer, or in the case of any
            action
            covered by clause (iii) above at least thirty (30) days
            prior to
            the date upon which such action takes place and twenty (20)
            days
            prior to any record date to determine holders of Common
            Stock
            entitled to receive such securities or other property.

            (c) Effect of Failure. Failure to file any certificate
            or notice or to mail any notice, or any defect in any
            certificate
            or notice pursuant to this Section 4.4 shall not affect the
            legality or validity of the adjustment of the Exercise Price
            or
            the number of shares purchasable upon exercise of this
            Warrant,
            or any transaction giving rise thereto.

            ARTICLE V
            RESTRICTIONS ON TRANSFER

            Neither this Warrant nor any Issued Warrant Shares
            shall be transferable except (a) to an Affiliate of the
            holder
            hereof, (b) to a successor corporation to the holder hereof
            as a
            result of a merger or consolidation with, or sale of all or
            substantially all of the assets of, the holder hereof, (c)
            as is
            or may be required by the holder hereof to comply with any
            Federal or state law or any rule or regulation of any
            governmental or public body or authority, or (d) on thirty
            (30)
            days prior written notice to the Company for a period of
            ninety
            (90) days immediately following the date of such notice, to
            any
            other Person.

            Any notice given by the holder hereof or of any
            Issued Warrant Shares pursuant to Subsection (d) of the
            first
            paragraph of this ARTICLE V shall contain (i) the name and
            address of the proposed bona fide purchaser, (ii) the
            proposed
            purchase price for this Warrant or portion hereof or Issued
            Warrant Shares proposed to be sold, (iii) the portion of
<PAGE>





            this
            Warrant or the number of Issued Warrant Shares proposed to
            be
            sold and (iv) a brief description of such proposed transfer.

            The conditions contained in the following sections
            of this ARTICLE V are intended to ensure compliance with the
            Securities Act in respect of the transfer of this Warrant or
            Issued Warrant Shares.  Reference in this ARTICLE V to
            Issued
            Warrant Shares includes Issued Warrant Shares theretofore
            issued
            upon the exercise of this Warrant or otherwise which are
            then
            evidenced by certificates required to bear the legend set
            forth
            in Section 5.8.

            5.1 Notice of Proposed Transfer; Registration Not
            Required.  The holder hereof or the holder of any Issued
            Warrant
            Shares bearing the legend set forth in Section 5.8, by
            acceptance
            hereof or thereof, agrees to give written notice to the
            Company,
            prior to any transfer of this Warrant (other than transfers
            referred to in Subsection (d) of the first paragraph of this
            ARTICLE V), such Issued Warrant Shares or any portion hereof
            or
            thereof, of its intention to make such transfer as required
            by
            the preamble of this ARTICLE V.

            Such holder shall request an Opinion of Counsel
            (which shall be rendered by counsel reasonably acceptable to
            the
            Company) that the proposed transfer may be effected without
            registration or qualification under any Federal or state
            securities or blue sky law.  Counsel shall, as promptly as
            practicable, notify the Company and the holder of such
            opinion of
            the terms and conditions, if any, to be observed in such
            transfer, whereupon the holder shall be entitled to transfer
            this
            Warrant or such Issued Warrant Shares (or portion thereof)
            in
            accordance with the terms of the notice delivered to the
            Company.
            In the event this Warrant shall be exercised as an incident
            to
            such transfer, such exercise shall relate back and for all
            purposes of this Warrant be deemed to have occurred as of
            the
            date of such notice regardless of delays incurred by reason
<PAGE>





            of
            the provisions of this ARTICLE V which may result in the
            actual
            exercise on any later date.

            5.2 [Intentionally Omitted]

            5.3 Incidental Registration and Qualification.  If the
            Company proposes to register any of its securities under the
            Securities Act on its behalf or on behalf of any of its
            security
            holders on any registration form (otherwise than for the
            registration of securities to be offered and sold pursuant
            to
            (a) an employee benefit plan, (b) a dividend or interest
            reinvestment plan, (c) other similar plans or
            (d) reclassifications of securities, mergers, consolidations
            and
            acquisitions of assets) permitting a secondary offering or
            distribution of Issued Warrant Shares, not less than ninety
            (90)
            days prior to each such registration the Company shall give
            to
            the holder hereof and the holders of Issued Warrant Shares
            bearing the legend required by Section 5.8 hereof written
            notice
            of such proposal which shall describe in detail the proposed
            registration and distribution (including those jurisdictions
            where registration or qualification under the securities or
            blue
            sky laws is intended) and, upon the written request of the
            holder
            hereof or a holder of such Issued Warrant Shares furnished
            within
            thirty (30) days after the date of any such notice, proceed
            to
            include in such registration all of the Warrant Shares
            ("Piggy-Back Shares") subject to the limitation contained in
            the
            next paragraph.  The holder hereof or any holder of such
            Issued
            Warrant Shares shall in its request describe briefly the
            proposed
            disposition of such shares of Common Stock.  The Company
            will in
            each instance use its best efforts to cause all such Piggy-
            Back
            Shares to be registered under the Securities Act and
            qualified
            under the securities or blue sky laws of any jurisdiction
            requested by a prospective seller, all to the extent
            necessary to
            permit the sale or other disposition thereof in the manner
            stated
<PAGE>





            in such request by a prospective seller of the securities so
            registered.

            If the managing underwriter selected by the
            Company (if such distribution is a primary offering) or the
            security holders (if such security holders are exercising
            demand
            registration rights) to manage the distribution of the
            shares of
            Common Stock being registered advises the Company in writing
            that, in its opinion, the inclusion of the Piggy-Back Shares
            with
            the securities being registered by the Company and/or other
            prospective sellers would materially adversely affect the
            distribution of all such securities, then (a) if such
            distribution is a primary offering on behalf of the Company,
            the
            Company shall first be entitled to have all of the shares
            proposed to be sold by it and any holders of Series B
            Preferred
            Stock shall be entitled to have all shares proposed to be
            sold by
            them upon conversion of the Series B Preferred Stock or
            exercise
            of a warrant issued in connection with the Series B
            Preferred
            Stock included in such distribution before any shares
            (including
            Piggy-Back Shares) proposed to be sold by any other
            prospective
            sellers are included in such distribution and any shares in
            excess of such numbers of shares proposed to be sold by the
            Company which are permitted by such managing underwriter to
            be
            included in such distribution shall be allocated among such
            other
            prospective sellers in such proportion as the number of
            shares
            proposed to be sold by each such prospective seller bears to
            the
            aggregate number of shares of Common Stock proposed to be
            sold by
            all such other prospective sellers; and (b) if such
            distribution
            is initiated pursuant to the exercise of demand registration
            rights granted by the Company to any of its security
            holders, the
            Company and each prospective seller may sell that proportion
            of
            the shares of Common Stock to be sold in the proposed
            distribution which the number of shares of Common Stock
            proposed
            to be sold by such prospective seller bears to the aggregate
            number of shares of Common Stock proposed to be sold by all
<PAGE>





            prospective sellers (including the Company).  In the event
            that
            some or all of the Piggy-Back Shares proposed to be sold by
            prospective sellers are not included in such distribution,
            the
            Company shall use its best efforts to effect and maintain
            any
            such registration or qualification under the Securities Act
            and
            the securities or blue sky laws of any jurisdiction as may
            be
            necessary to permit such prospective seller to make its
            proposed
            offering and sale following the end of a period not to
            exceed
            ninety (90) days after the effective date of such
            registration
            and shall pay all expenses related thereto in accordance
            with
            Section 5.6.

            The holder hereof and any holder of Issued Warrant
            Shares who has requested shares of Common Stock to be
            included in
            a registration pursuant to this Section 5.3, by acceptance
            hereof
            or thereof, agrees to (a) the selection by the Company or
            such
            other security holders of an underwriter to manage such
            registration and (b) execute an underwriting agreement with
            such
            underwriter that is (i) reasonably satisfactory to such
            holder
            and (ii) in customary form.

            Nothing in this Section 5.3 shall be deemed to
            require the Company to proceed with any primary registration
            of
            its securities after giving the notice as provided herein;
            provided, however, that the Company shall pay all expenses
            incurred pursuant to such notice (in accordance with
            Section 5.6.)

            5.4  Registration and Qualification Procedures.
            Whenever the Company is required by the provisions of
            Section 5.3
            to use its best efforts to effect the registration of any of
            its
            securities under the Securities Act, the Company will, as
            expeditiously as is possible:

            (a) prepare and file with the Commission a registration
            statement with respect to such securities in connection with
            which the Company will give the sellers, their underwriters,
<PAGE>





            if
            any, their respective counsel and accountants the
            opportunity to
            participate in the preparation of such registration
            statement,
            each prospectus included therein or filed with the
            Commission,
            and each amendment thereof or supplement thereto, and will
            give
            each of them access to its books and records and such
            opportunities to discuss the business of the Company with
            its
            officers and the independent public accountants who have
            certified its financial statements as shall be necessary, in
            the
            opinion of such sellers' and such underwriters' respective
            counsel, to conduct a reasonable investigation within the
            meaning
            of the Securities Act;

            (b) prepare and file with the Commission such
            amendments and supplements to such registration statement
            and the
            prospectus used in connection therewith as may be necessary
            to
            keep such registration statement effective and the
            prospectus
            current and to comply with the provisions of the Securities
            Act
            with respect to the sale of all securities covered by such
            registration statement whenever the seller of such
            securities
            shall desire to sell the same; provided, however, that the
            Company shall have no obligation to file an amendment or
            supplement at its own expense more than nine (9) months
            after the
            effective date of such registration statement;

            (c) furnish to each seller such numbers of copies of
            preliminary prospectuses and prospectuses and each
            supplement or
            amendment thereto and any other documents as each seller may
            reasonably request in order to facilitate the sale or other
            disposition of the securities owned by such seller in
            conformity
            with (i) the requirements of the Securities Act and (ii) the
            seller's proposed method of distribution;

            (d) register or qualify the securities covered by such
            registration statement under the securities or blue sky laws
            of
            such jurisdictions within the United States as each seller
            shall
            request, and do such other reasonable acts and things as may
<PAGE>





            be
            required of it to enable each seller to consummate the sale
            or
            other disposition in such jurisdictions of the securities
            owned
            by such seller; provided, however, that the Company shall
            not be
            required to (i) qualify as a foreign corporation or consent
            to a
            general and unlimited service of process in any such
            jurisdiction, or (ii) qualify as a dealer in securities;
            (e) furnish, at the request of any seller on the date
            such securities are delivered to the underwriters for sale
            pursuant to such registration or, if such securities are not
            being sold through underwriters, on the date the
            registration
            statement with respect to such securities becomes effective,
            (i) an opinion, dated such date, of counsel representing the
            Company for the purposes of such registration, addressed to
            the
            underwriters, if any, and to the seller making such request,
            covering such legal matters with respect to the registration
            in
            respect of which such opinion is being given as the seller
            of
            such securities may reasonably request and are customarily
            included in such opinions and (ii) letters, dated,
            respectively,
            (1) the effective date of the registration statement and (2)
            the
            date such securities are delivered to the underwriters, if
            any,
            for sale pursuant to such registration, from a firm of
            independent certified public accountants of recognized
            national
            standing selected by the Company, addressed to the
            underwriters,
            if any, and to the seller making such request, covering such
            financial, statistical and accounting matters with respect
            to the
            registration in respect of which such letters are being
            given as
            the seller of such securities may reasonably request and are
            customarily included in such letters;

            (f) otherwise use its best efforts to comply with all
            applicable rules and regulations of the Commission, and make
            available to its security holders as soon as reasonably
            practicable, but not later than sixteen (16) months after
            the
            effective date of the registration statement, an earnings
            statement covering a period of at least twelve (12) months
            beginning after the effective date of the registration
            statement,
<PAGE>





            which earnings statement shall satisfy the provisions of
            Section 11(a) of the Securities Act;

            (g) enter into and perform an underwriting agreement
            with the managing underwriter, if any, selected as provided
            in
            Section 5.3, containing customary (i) terms of offer and
            sale of
            the securities, payment provisions, underwriting discounts
            and
            commissions, and (ii) representations, warranties,
            covenants,
            indemnities, terms and conditions; the sellers may, at their
            option, require that any or all of the representations and
            warranties by, and the other agreements on the part of, the
            Company to and for the benefit of such underwriters shall
            also be
            made to and for the benefit of such sellers and that any or
            all
            of the conditions precedent to the obligations of such
            underwriters under such underwriting agreement be conditions
            precedent to the obligations of such sellers; such sellers
            shall
            not be required to make any representations or warranties to
            or
            agreements with the Company or the underwriters other than
            representations, warranties or agreements regarding such
            seller
            and such seller's intended method of distribution and any
            other
            representation required by law;

            (h) notify each seller at any time when a prospectus
            relating to the registration is required to be delivered
            under
            the Securities Act, upon discovery that, or upon the
            happening of
            any event as a result of which, the prospectus included in
            such
            registration statement, as then in effect, includes an
            untrue
            statement of a material fact or omits to state any material
            fact
            required to be stated therein or necessary to make the
            statements
            therein not misleading in the light of the circumstances
            under
            which they were made, at the request of any such seller
            promptly
            prepare and furnish to such seller a reasonable number of
            copies
            of a supplement to or an amendment of such prospectus as may
            be
            necessary so that, as thereafter delivered to the purchasers
<PAGE>





            of
            such securities, such prospectus shall not include an untrue
            statement of a material fact or omit to state a material
            fact
            required to be stated therein or necessary to make the
            statements
            therein not misleading in the light of the circumstances
            under
            which they were made; and

            (i)  keep each seller advised in writing as to the
            initiation and progress of any registration under Section
            5.3.

            5.5  Holdback Agreement.  The Company agrees not to
            effect any public sale or distribution of its equity
            securities
            or securities convertible into or exchangeable or
            exercisable for
            any of such securities during the seven (7) days prior to or
            ninety (90) days after any underwritten registration
            pursuant to
            Section 5.3 has become effective, except as part of such
            underwritten registration and except pursuant to
            registrations on
            Form S-8 or S-4 or any successor or similar forms thereto,
            and to
            cause each Person who purchases its equity securities or any
            securities convertible into or exchangeable or exercisable
            for
            any of such securities at any time after the date of this
            Warrant
            (other than in a public offering) to agree not to effect any
            such
            public sale or distribution of such securities, during such
            period.

            5.6  Allocation of Expenses.  If the Company is
            required by the provisions of Section 5.3 to use its best
            efforts
            to effect the registration or qualification under the
            Securities
            Act or any state securities or blue sky laws of any of the
            Warrant Shares, the Company shall pay all expenses (i) other
            than
            the fees and expenses set forth in clauses (1) and (2) of
            the
            proviso set forth below, which expenses shall include,
            without
            limitation, (a) all expenses incident to filing with the
            National
            Association of Securities Dealers, Inc., (b) registration
            fees,
            (c) printing expenses, (d) accounting and legal fees and
<PAGE>





            expenses, (e) expenses of any special audits incident to or
            required by any such registration or qualification, (f)
            premiums
            for insurance in such amount, if any, deemed appropriate by
            the
            managing underwriter and (g) expenses of complying with the
            securities or blue sky laws of any jurisdictions in
            connection
            with registration or qualification; provided, however, that
            the
            following fees and expenses shall be treated as set forth
            above
            and (x) and (y) below: (1) any discounts or commissions to
            any
            underwriter attributable to securities being sold by or on
            behalf
            of Persons other than the Company; (2) any stock transfer
            taxes
            incurred in respect of the Warrant Shares sold by the
            sellers;
            (3) the reasonable legal fees of any holder of this Warrant
            or
            shares issued or issuable hereunder; provided further, that
            in
            any required registration pursuant to Section 5.3 hereof,
            the
            incremental expenses of the nature set forth in clauses
            (ii)(a)
            through (g) above (including those set forth in clauses (1),
            (2)
            and (3) above) attributable to the inclusion of Piggy-Back
            Shares
            shall be borne pro rata by the holders of Warrant Shares
            whose
            Warrant Shares are included therein in proportion to their
            respective numbers of Warrant Shares included therein.

            5.7  Indemnification.  In connection with any
            registration or qualification of securities under Section
            5.3,
            the Company agrees to indemnify the holder hereof and the
            holders
            of any Issued Warrant Shares and each underwriter thereof,
            including each person, if any, who controls the holder or
            such
            stockholder or underwriter within the meaning of Section 15
            of
            the Securities Act, against all losses, claims, damages,
            liabilities and expenses (including reasonable costs of
            investigation) caused by any untrue, or alleged untrue,
            statement
            of a material fact contained in any registration statement,
            preliminary prospectus, prospectus or notification or
            offering
<PAGE>





            circular (as amended or supplemented if the Company shall
            have
            furnished any amendments or supplements thereto) or caused
            by any
            omission, or alleged omission, to state therein a material
            fact
            required to be stated therein or necessary to make the
            statements
            therein not misleading, except insofar as such losses,
            claims,
            damages, liabilities or expenses are caused by any untrue
            statement or alleged untrue statement or omission or alleged
            omission based upon information furnished in writing to the
            Company by the holder or any such stockholder or underwriter
            expressly for use therein.  The Company and each officer,
            director and controlling person of the Company shall be
            indemnified by the holder of this Warrant and by the holders
            of
            any Issued Warrant Shares for all such losses, claims,
            damages,
            liabilities and expenses (including the costs of reasonable
            investigation) caused by any such untrue, or alleged untrue,
            statement or any such omission or alleged omission, based
            upon
            information furnished in writing to the Company by the
            holder
            hereof or any such stockholder expressly for use therein.

            Promptly upon receipt by a party indemnified under
            this Section 5.7 of notice of the commencement of any action
            against such indemnified party in respect of which indemnity
            or
            reimbursement may be sought against any indemnifying party
            under
            this Section 5.7, such indemnified party shall notify the
            indemnifying party in writing of the commencement of such
            action,
            but the failure so to notify the indemnifying party shall
            not
            relieve it of any liability which it may have to any
            indemnified
            party otherwise than under this Section 5.7 unless such
            failure
            shall materially adversely affect the defense of such
            action.  In
            case notice of commencement of any such action shall be
            given to
            the indemnifying party as above provided, the indemnifying
            party
            shall be entitled to participate in and, to the extent it
            may
            wish, jointly with any other indemnifying party similarly
            notified, to assume the defense of such action at its own
            expense, with counsel chosen by it and satisfactory to such
<PAGE>





            indemnified party.  The indemnified party shall have the
            right to
            employ separate counsel in any such action and participate
            in the
            defense thereof, but the fees and expenses of such counsel
            (other
            than reasonable costs of investigation) shall be paid by the
            indemnified party unless (a) the indemnifying party agrees
            to pay
            the same, (b) the indemnifying party fails to assume the
            defense
            of such action with counsel reasonably satisfactory to the
            indemnified party or (c) the named parties to any such
            action
            (including any impleaded parties) have been advised by such
            counsel that representation of such indemnified party and
            the
            indemnifying party by the same counsel would be
            inappropriate
            under applicable standards of professional conduct (in which
            case
            the indemnifying party shall not have the right to assume
            the
            defense of such action on behalf of such indemnified party).
            No
            indemnifying party shall be liable for any settlement
            entered
            into without its consent.

            If the indemnification provided for in this
            Section is unavailable or insufficient to hold harmless an
            indemnified party in respect of any losses, claims, damages,
            liabilities, expenses or actions in respect thereof referred
            to
            herein, then each indemnifying party shall in lieu of
            indemnifying such indemnified party as a result of such
            losses,
            claims, damages, liabilities, expenses or actions in such
            proportion as is appropriate to reflect the relative fault
            of the
            Company, on the one hand, and the sellers of such Common
            Stock,
            on the other, in connection with the statements or omissions
            which resulted in such losses, claims, damages, liabilities,
            expenses or actions as well as any other relevant equitable
            considerations, including the failure to give the notice
            required
            hereunder.  The relative fault shall be determined by
            reference
            to, among other things, whether the untrue or alleged untrue
            statement of a material fact relates to information supplied
            by
            the Company, on the one hand, or the sellers of such Common
            Stock, on the other hand, and the parties' relative intent,
<PAGE>





            knowledge, access to information and opportunity to correct
            or
            prevent such statement or omission.  The Company and the
            holder
            hereof agree that it would not be just and equitable if
            contribution pursuant to this Section were determined by pro
            rata
            allocation (even if all of the sellers of such Common Stock
            were
            treated as one entity for such purpose) or by any other
            method of
            allocation which did not take account of the equitable
            considerations referred to above.  The amount paid or
            payable by
            an indemnified party as a result of the losses, claims,
            damages,
            liabilities or actions in respect thereof referred to above
            shall
            be deemed to include any legal or other expenses reasonably
            incurred by such indemnified party in connection with
            investigating or defending any such action or claim.
            Notwithstanding the contribution provisions of this Section
            5.7,
            in no event shall the amount contributed by any seller of
            Common
            Stock exceed the aggregate gross offering proceeds received
            by
            such seller from the sale of Common Stock to which such
            contribution claim relates.  No person guilty of fraudulent
            misrepresentations (within the meaning of Section 11(f) of
            the
            Securities Act) shall be entitled to contribution from any
            person
            who is not guilty of such fraudulent misrepresentation.

            Each holder of this Warrant and each holder of
            Issued Warrant Shares bearing the legend required by Section
            5.8,
            by acceptance hereof or thereof, as the case may be, agrees
            to
            the indemnification and contribution provisions of this
            Section 5.7.

            5.8  Legend on Warrants and Certificates.  Each Warrant
            shall bear a legend in substantially the following form:

            "This Warrant and any shares of Common Stock issuable
            upon the exercise of this Warrant have not been
            registered under the Securities Act of 1933, as
            amended, and neither this Warrant nor any such shares
            may be transferred in the absence of such registration
            or any exemption therefrom under such Act."

            Warrant Shares which are issued upon the exercise
<PAGE>





            in whole or in part of this Warrant or otherwise, or are
            thereafter transferred, in either case under such
            circumstances
            that no registration under the Securities Act is required,
            shall
            bear on the face thereof the following legend:

            "The shares represented by this certificate have not
            been registered under the Securities Act of 1933, as
            amended, and any transfer thereof is subject to the
            conditions specified in the Warrant dated as of July
            10, 1997, originally issued by The Vermont Teddy Bear
            Co., Inc. (the "Company") to URSA (VT) QRS 12-30, Inc.
            to purchase shares of Common Stock, $.05 par value, of
            the Company. A copy of the form of such Warrant is on
            file with the Secretary of the Company at 2236
            Shelburne Road, Shelburne, Vermont  05482, and will be
            furnished without charge by the Company to the holder
            of this certificate upon written request to the
            Secretary of the Company at such address."

            5.9  Termination of Restrictions.  The restrictions
            imposed under this ARTICLE V upon the transferability of
            this
            Warrant, or of Issuable Warrant Shares or Issued Warrant
            Shares,
            shall cease when (a) a registration statement covering such
            Issuable Warrant Shares or Issued Warrant Shares becomes
            effective under the Securities Act or (b) the Company
            receives an
            Opinion of Counsel that such restrictions are no longer
            required
            in order to ensure compliance with the Securities Act.  When
            such
            restrictions terminate, the Company shall, or shall instruct
            its
            transfer agent and registrar to, issue new certificates in
            the
            name of the holder not bearing the legends required under
            Section 5.8.

            5.10 Supplying Information.  The Company, the holder
            hereof and each holder of Issued Warrant Shares shall
            cooperate
            with each other in supplying such information as may be
            necessary
            for any of such parties to complete and file any information
            reporting forms presently or hereafter required by the
            Commission
            or any commissioner or other authority administering the
            blue sky
            or securities laws of any jurisdiction where shares of
            Common
            Stock are proposed to be sold pursuant to Section 5.3.
<PAGE>






            5.11 Liquidated Damages.  In the event the Company
            fails to comply with any provision of Section 5.3 or 5.4,
            upon
            written request of the holder of this Warrant or any holder
            of
            Issued Warrant Shares entitled to the benefits of this
            ARTICLE V,
            the Company shall promptly obtain an opinion of an
            independent
            investment banking firm reasonably satisfactory to such
            holder
            estimating the net proceeds which such Person would have
            received
            (after deducting underwriting commissions and discounts and
            any
            other expenses that would have been solely attributable to
            the
            registration or qualification of such shares of Common
            Stock)
            upon the sale of shares of Common Stock proposed to be sold
            pursuant to such registration or qualification.  Such
            opinion of
            an independent investment banking firm shall be (a)
            delivered in
            writing to the Company, with a copy to such person, within
            seven
            (7) days after the date of the request of such person to the
            Company and (b) conclusive and binding on the Company and
            such
            Person.

            Within thirty (30) days of receipt by the Company
            of such estimate, the Company shall pay to such Person an
            amount
            equal to (a) such estimated net proceeds minus (b) in the
            case of
            Warrants or portions thereof that have not been exercised,
            the
            aggregate Exercise Price payable upon the exercise of such
            Warrants.  Payment of such amount shall be made by a
            certified or
            official bank check payable to the order of such person and
            drawn
            on a member of the New York Clearing House.  Upon payment to
            such
            Person of such liquidated damages, such Person shall assign
            to
            the Company this Warrant and the Issued Warrant Shares
            proposed
            to be sold pursuant to the registration or qualification in
            question without any representation or warranty (other than
            that
            the holder has not taken any action which would impair its
<PAGE>





            ownership of or right to transfer to the Company the Warrant
            or
            such shares of Common Stock).  If less than all of the
            Issued
            Warrant Shares were proposed to be sold pursuant to the
            registration or qualification in question, the Company shall
            cancel this Warrant and issue in the name of, and deliver
            to, the
            holder, pursuant to Section 2.2, a new Warrant for the
            shares of
            Issuable Warrant Shares not required to be assigned to the
            Company pursuant to the provisions of the preceding
            sentence.
            The Company agrees that the amount of actual damages that
            would
            be sustained by the holder as a result of the failure of the
            Company to comply with any provisions of Section 5.3 or 5.4
            is
            not capable of ascertainment on any other basis.

            ARTICLE VI
            REPRESENTATIONS AND WARRANTIES
            OF THE COMPANY

            The Company hereby represents and warrants to the
            Initial Holder and each subsequent holder of this Warrant
            that as
            of the Closing Date:

            6.1 Organization and Capitalization of the Company.
            The Company is a corporation duly organized, validly
            existing and
            in good standing under the laws of the State of New York.
            The
            authorized capital of the Company consists of twenty million
            (20,000,000) shares of Common Stock, ninety (90) shares of
            Series
            A Preferred Stock, three hundred seventy-five thousand
            (375,000)
            shares of Series B Preferred Stock and six hundred twenty-
            four
            nine hundred ten (624,910) shares of undesignated preferred
            stock.  As of the date hereof, there are 5,172,750 shares of
            Common Stock issued and outstanding, ninety (90) shares of
            Series
            A Preferred Stock issued and outstanding and two hundred
            four
            thousand nine hundred twelve (204,912) shares of Series B
            Preferred Stock issued and outstanding, and twelve thousand
            (12,000) shares of the Company's capital stock are held in
            its
            treasury.  No unissued shares of Common Stock are reserved
            for
            any purpose other than for issuance upon the exercise of
<PAGE>





            this
            Warrant with the exception of two million (2,000,000) shares
            of
            common stock reserved for issuance pursuant  to options
            granted
            under the Company's Incentive Stock Option Plan and four
            hundred
            thousand (400,000) shares of common stock reserved for
            issuance
            pursuant to options granted under the Company's 1996 Non-
            Employee
            Directors' Stock Option Plan.  The Company has not issued or
            agreed to issue any Stock Purchase Rights, other than
            pursuant to
            this Warrant, or Convertible Securities, and there are no
            preemptive rights in effect with respect to the issuance of
            any
            shares of Common Stock, except as listed in Schedule 6.1.
            All
            the outstanding shares of the Company's capital stock have
            been
            validly issued without violation of any preemptive or
            similar
            rights and are fully paid and nonassessable.

            6.2 Authority.  The Company has full corporate power
            and authority to execute and deliver this Warrant and to
            perform
            all of its obligations hereunder, and the execution,
            delivery and
            performance hereof have been duly authorized by all
            necessary
            corporate action on its part.  This Warrant has been duly
            executed on behalf of the Company and constitutes the legal,
            valid and binding obligation of the Company enforceable in
            accordance with its terms.

            6.3 No Legal Bar.  Neither the execution, delivery or
            performance of this Warrant will (a) conflict with or result
            in a
            violation of the certificate of incorporation or Bylaws of
            the
            Company, (b) conflict with or result in a violation of any
            law,
            statute, regulation, order or decree applicable to the
            Company or
            any Affiliate, (c) require any consent or authorization or
            filing
            with, or other act by or in respect of, any governmental
            authority, or (d) result in a breach of, constitute a
            default
            under or constitute an event creating rights of
            acceleration,
            termination or cancellation under any mortgage, lease,
<PAGE>





            contract,
            franchise, instrument or other agreement to which the
            Company is
            a party or by which it is bound, other than applicable
            restrictions contained in any of such documents relating to
            indebtedness of the Company.


            ARTICLE VII
            VARIOUS COVENANTS OF THE COMPANY

            7.1 No Impairment or Amendment.  The Company shall not
            by any action including, without limitation, amending its
            certificate of incorporation, any reorganization, transfer
            of
            assets, consolidation, merger, dissolution, issue or sale of
            securities or any other voluntary action, avoid or seek to
            avoid
            the observance or performance of any of the terms of this
            Warrant, but will at all times in good faith assist in the
            carrying out of all such terms and in the taking of all such
            action as may be necessary or appropriate to protect the
            rights
            of the holder hereof against impairment.  Without limiting
            the
            generality of the foregoing, the Company will (a) not
            increase
            the par value of any shares of Common Stock issuable upon
            the
            exercise of this Warrant above the amount payable therefor
            upon
            such exercise, (b) take all such action as may be necessary
            or
            appropriate in order that the Company may validly issue
            fully
            paid and nonassessable shares of Common Stock upon the
            exercise
            of this Warrant, (c) obtain all such authorizations,
            exemptions
            or consents from any public regulatory body having
            jurisdiction
            thereof as may be necessary to enable the Company to perform
            its
            obligations under this Warrant, and (d) not undertake any
            reverse
            stock split, combination, reorganization or other
            reclassification of the capital stock which would have the
            effect
            of making this Warrant exercisable for less than
            150,000/5,172,750 percent (2.90655%) of the outstanding
            shares of
            Common Stock.

            Upon the request of the holder hereof the Company
<PAGE>





            will at any time during the period this Warrant is
            outstanding
            acknowledge in writing, in form satisfactory to such holder,
            the
            continued validity of this Warrant and the Company's
            obligations
            hereunder.

            7.2 Reservation of Common Stock.  The Company will at
            all times reserve and keep available, solely for issuance,
            sale
            and delivery upon the exercise of this Warrant a number of
            shares
            of Common Stock equal to the number of shares of Common
            Stock
            issuable upon the exercise of this Warrant.  All such shares
            of
            Common Stock shall be duly authorized and, when issued upon
            exercise of this Warrant, shall be validly issued and fully
            paid
            and non-assessable with no liability on the part of the
            holders
            thereof.

            7.3 Listing on Securities Exchange.  If the Company
            shall list any shares of Common Stock on any securities
            exchange
            it will, at its expense, list thereon, maintain and increase
            when
            necessary such listing of, all Issued Warrant Shares so long
            as
            any shares of Common Stock shall be so listed.  The Company
            will
            also so list on each securities exchange, and will maintain
            such
            listing of, any other securities which the holder of this
            Warrant
            shall be entitled to receive upon the exercise thereof if at
            the
            time any securities of the same class shall be listed on
            such
            securities exchange by the Company.

            7.4 Availability of Information.  The Company will
            cooperate with the holder hereof and of Issued Warrant
            Shares in
            supplying such information as may be necessary for such
            holder to
            complete and file any information reporting forms presently
            or
            hereafter required by the Commission as a condition to the
            availability of an exemption from the Securities Act for the
            sale
            of this Warrant or such Issued Warrant Shares.
<PAGE>






            7.5 Indemnification.  If the Company fails to make when
            due any payments provided for in this Warrant, the Company
            shall
            pay to the holder hereof (a) interest at the Default Rate on
            any
            amounts due and owing to such holder and (b) such further
            amounts
            as shall be sufficient to cover any costs and expenses
            including,
            but not limited to, reasonable attorneys' fees and expenses
            incurred by such holder in collecting any amounts due
            hereunder.

            The Company shall indemnify, save and hold
            harmless the holder hereof from and against any and all
            liability, loss, cost, damage, reasonable attorneys' and
            accountants' fees and expenses, court costs and all other
            out-of-pocket expenses (excluding consequential damages)
            incurred
            in connection with or arising from an Event of Default.

            7.6 Certain Expenses.  The Company shall pay all
            expenses in connection with, and all taxes (other than stock
            transfer taxes) and other governmental charges that may be
            imposed in respect of, the issue, sale and delivery of (a)
            this
            Warrant, (b) the Issuable Warrant Shares, or (c) the Issued
            Warrant Shares.


            ARTICLE VIII
            MISCELLANEOUS

            8.1 Nonwaiver.  No course of dealing or any delay or
            failure to exercise any right, power or remedy hereunder on
            the
            part of the holder hereof shall operate as a waiver of or
            otherwise prejudice such holder's rights, powers or
            remedies.

            8.2 Holder Not a Stockholder.  Prior to the exercise of
            this Warrant as hereinbefore provided, the holder hereof
            shall
            not be entitled to any of the rights of a stockholder of the
            Company including, without limitation, the right as a
            stockholder
            to (a) vote on or consent to any proposed action of the
            Company
            or (b) receive (i) dividends or any other distributions made
            to
            stockholders, (ii) notice of or attend any meetings of
            stockholders of the Company (except as provided in ARTICLE
            IV) or
<PAGE>





            (iii) notice of any other proceedings of the Company (except
            as
            provided in ARTICLE IV).

            8.3 Notices.  Any notice, demand or delivery to be made
            pursuant to the provisions of this Warrant shall be
            sufficiently
            given or made if sent by first class mail, postage prepaid,
            addressed to (a) the holder of this Warrant or Issued
            Warrant
            Shares at its last known address appearing on the books of
            the
            Company maintained for such purpose or (b) the Company at
            its
            principal office at 2236 Shelburne Road, Shelburne, Vermont
            05482.  The holder of this Warrant and the Company may each
            designate a different address by notice to the other
            pursuant to
            this Section 8.3.

            8.4 Like Tenor.  All Warrants shall at all times be
            identical, except as to the Preamble.

            8.5 Remedies.  The Company stipulates that the remedies
            at law of the holder of this Warrant or of Issued Warrant
            Shares
            in the event of any default or threatened default by the
            Company
            in the performance of or compliance with any of the terms of
            this
            Warrant are not and will not be adequate and that, to the
            fullest
            extent permitted by law, such terms may be specifically
            enforced
            by a decree for the specific performance of any agreement
            contained herein or by an injunction against a violation of
            any
            of the terms hereof or otherwise.

            8.6 Successors and Assigns.  This Warrant and the
            rights evidenced hereby shall inure to the benefit of and be
            binding upon the successors and assigns of the Company, the
            holder hereof and the holders of Issued Warrant Shares, to
            the
            extent provided herein, and shall be enforceable by any such
            holder.

            8.7 Modification and Severability.  If, in any action
            before any court or agency legally empowered to enforce any
            provision contained herein, any provision hereof is found to
            be
            unenforceable, then such provision shall be deemed modified
            to
            the extent necessary to make it enforceable by such court or
<PAGE>





            agency.  If any such provision is not durable as set forth
            in the
            preceding sentence, the unenforceability of such provision
            shall
            not affect the other provisions of this Agreement, but this
            Agreement shall be construed as if such unenforceable
            provision
            had never been contained herein.

            8.8 Integration.  This Warrant replaces all prior
            agreements, supersedes all prior negotiations and
            constitutes the
            entire agreement of the parties with respect to the
            transactions
            contemplated herein.

            8.9 Amendment.  This Warrant may not be modified or
            amended except by written agreement of the Company and the
            holder
            hereof.

            8.10 Headings.  The headings of the Articles and
            Sections of this Warrant are for the convenience of
            reference
            only and shall not, for any purpose, be deemed a part of
            this
            Warrant.

            8.11 Governing Law.  This Warrant shall be governed by
            the laws of the State of New York.

            Dated as of July __, 1997.

            WITNESS:       THE VERMONT TEDDY BEAR CO., INC.



            ________________________
                 By:_____________________________
            Title:Senior Vice President and                  Chief
            Financial Officer




            NOTICE OF EXERCISE FORM

            (To be executed only upon partial or full
            exercise of the within Warrant)

            The undersigned registered holder of the within Warrant
            irrevocably exercises the within Warrant for and purchases
            ____
            shares of Common Stock of The Vermont Teddy Bear Co., Inc.
<PAGE>





            and
            herewith makes payment therefor in the amount of $     , all
            at
            the price and on the terms and conditions specified in the
            within
            Warrant, and requests that a certificate (or _____
            certificates
            in denominations of           shares) for the shares of
            Common
            Stock of The Vermont Teddy Bear Co., Inc. hereby purchased
            be
            issued in the name of and delivered to (choose one) (a) the
            undersigned or (b)                , whose address is
            and, if such shares of Common Stock shall not include all
            the
            shares of Common Stock issuable as provided in the within
            Warrant, that a new Warrant of like tenor for the number of
            shares of Common Stock of The Vermont Teddy Bear Co., Inc.
            not
            being purchased hereunder be issued in the name of and
            delivered
            to (choose one) (a) the undersigned or
            (b)________________________, whose address is
            ___________________________________________________.


            Dated:                   ,

            Signature Guaranteed:              By:

            (Signature of Registered
            Holder)

            ------------------------------
            By:
            [Title:]

            NOTICE:   The signature to this Notice of Exercise must
            correspond with the name as written upon the face of
            the within Warrant in every particular, without
            alteration or enlargement or any change whatever.

            The signature to this Notice of Exercise must be
            guaranteed by a commercial bank or trust company in the
            United States or a member firm of the New York Stock
            Exchange.


            ASSIGNMENT FORM

            (To be executed only upon the assignment
            of the within Warrant)

            FOR VALUE RECEIVED, the undersigned registered holder of the
<PAGE>





            within Warrant hereby sells, assigns and transfers unto
                                    , whose address is
            ________________________________ all of the rights of the
            undersigned under the within Warrant, with respect to
            shares of Common Stock of The Vermont Teddy Bear Co., Inc.
            (the
            "Company") and, if such shares of Common Stock shall not
            include
            all the shares of Common Stock issuable as provided in the
            within
            Warrant, that a new Warrant of like tenor for the number of
            shares of Common Stock of The Vermont Teddy Bear Co., Inc.
            not
            being transferred hereunder be issued in the name of and
            delivered to the undersigned, and does hereby irrevocably
            constitute and appoint                Attorney to register
            such
            transfer on the books of the Company maintained for the
            purpose,
            with full power of substitution in the premises.

            Dated:                   ,

            Signature Guaranteed:              By:

            (Signature of Registered
            Holder)

            -----------------------------
            By:
            [Title:]


            NOTICE:   The signature to this Assignment must correspond
            with
            the name as written upon the face of the within Warrant
            in every particular, without alteration or enlargement
            or any change whatever.

            The signature to this Assignment must be guaranteed by
            a commercial bank or trust company in the United States
            or a member firm of the New York Stock Exchange.

            EXHIBIT 10.34

            STANDARD FORM OF STORE LEASE
            The Real Estate Board of New York, Inc.

            Agreement of Lease, made of this _________ day of October,
            1996, between 538 Madison Realty Company, a New York limited
            partnership with offices c/o Siegel Consultants, 50 School
            Lane,
            Huntington, New York, party of the first part, hereinafter
            referred to as OWNER, and The Vermont Teddy Bear Co., Inc.,
<PAGE>





            New
            York corporation with offices at 2336 Shelburne Road, #5,
            Shelburne, Vermont, party of the second part, hereinafter
            referred to as TENANT,

            Witnesseth:    Owner hereby leases to Tenant and Tenant
            hereby hires from Owner the Street retail space (which
            excludes
            the office lobby and elevator) and Lower Level (which shall
            not
            include the electric room and a four foot corridor from the
            sidewalk trap door to the electric room) (See Plan annexed
            hereto
            as Exhibit A), in the building known as 538 Madison Avenue,
            in
            the Borough of Manhattan, City of New York, for the term of
            ten
            (10) years, (or until such term shall sooner cease and
            expire as
            hereinafter provided) to commence on the ______ day of _____
            October, nineteen hundred and ninety-six, and to end on the
            ______ day of _______________ two thousand and six, both
            dates
            inclusive, at an annual rental rate of _________.  See
            Article
            40.

            which Tenant agrees to pay in lawful money of the United
            States
            which shall be legal tender in payment of all debts and
            dues,
            public and private, at the time of payment, in equal monthly
            installments in advance on the first day of each month
            during
            said term, at the office of Owner or such other place as
            Owner
            may designate, without any set off or deduction whatsoever,
            except that Tenant shall pay the first _________ monthly
            installment(s) on the execution hereof (unless this lease be
            a
            renewal).

            In the event that, at the commencement of the term of this
            lease, or thereafter, Tenant shall be in default in the
            payment
            of rent to Owner pursuant to the terms of another lease with
            Owner or with Owner's predecessor in interest, Owner may at
            Owner's option and without notice to Tenant add the amount
            of
            such arrears to any monthly installment of rent payable
            hereunder
            and the same shall be payable to Owner as additional rent.

            The parties hereto, for themselves, their heirs,
<PAGE>





            distributees, executors, administrators, legal
            representatives,
            successors and assigns, hereby covenant as follows:

            Rent:          1.   Tenant shall pay the rent as above and
            as hereinafter provided.
            Occupancy:     2.   Tenant shall use and occupy demised
            premises
            for the retail sale of products manufactured by
            and labeled under The Vermont Teddy Bear Company
            name, and other brand name products in positioning
            The Vermont Teddy Bear Company as a teddy bear
            "category killer."


            and for no other purpose.  Tenant shall at all times conduct
            its
            business in a high grade and reputable manner, shall not
            violate
            Article 37 hereof, and shall keep show windows and signs in
            a
            neat and clean condition.

            Alterations:        3.  Tenant shall make no changes in or
            to the
            demised premises of any nature without Owner's prior written
            consent.  Subject to the prior written consent of Owner, and
            to
            the provisions of this article.  Tenant, at Tenant's
            expense, may
            make alterations, installations, additions or improvements
            which
            are non-structural and which do not affect utility services
            or
            plumbing and electrical lines, in or to the interior of the
            demised premises by using contractors or mechanics first
            approved
            in each instance by Owner.  Tenant shall, before making any
            alterations, additions, installations or improvements, at
            its
            expense, obtain all permits, approvals and certificates
            required
            by any governmental or quasi-governmental bodies and (upon
            completion) certificates of final approval thereof and shall
            deliver promptly duplicates of all such permits, approvals
            and
            certificates to Owner and Tenant agrees to carry and will
            cause
            Tenant's contractors and sub-contractors to carry such
            workman's
            compensation, general liability, personal and property
            damage
            insurance as Owner may require.  If any mechanic's lien is
            filed
<PAGE>





            against the demised premises, or the building of which the
            same
            forms a part, for work claimed to have done for, or
            materials
            furnished to, Tenant, whether or not done pursuant to this
            article, the same shall be discharged by Tenant within 30
            days
            thereafter, at Tenant's expense, by payment or filing the
            bond
            required by law.  All fixtures and all paneling, partitions,
            railings and like installations, installed in the premises
            at any
            time, either by Tenant or by Owner on Tenant's behalf,
            shall,
            upon installation, become the property of Owner and shall
            remain
            upon and be surrendered with the demised premises unless
            Owner,
            by notice to Tenant no later than twenty days prior to the
            date
            fixed as the termination of this lease, elects to relinquish
            Owner's rights thereto and to have them removed by Tenant,
            in
            which event, the same shall be removed from the premises by
            Tenant prior to the expiration of the lease, at Tenant's
            expense.
            Nothing in this article shall be construed to give Owner
            title to
            or to prevent Tenant's removal of trade fixtures, moveable
            office
            furniture and equipment, but upon removal of any such from
            the
            premises or upon removal of other installation as may be
            required
            by Owner, Tenant shall immediately and at its expense,
            repair and
            restore the premises to the condition existing prior to
            installation and repair any damage to the demised premises
            or the
            building due to such removal.  All property permitted or
            required
            to be removed by Tenant at the end of the term remaining in
            the
            premises after Tenant's removal shall be deemed abandoned
            and
            may, at the election of Owner, either be retained as Owner's
            property or may be removed from the premises by Owner at
            Tenant's
            expense.

            Repairs:       4.  Owner shall maintain and repair the
            public
            portions of the building, both exterior and interior, except
            that
<PAGE>





            if Owner allows Tenant to erect on the outside of the
            building a
            sign or signs, or a hoist, lift or sidewalk elevator for the
            exclusive use of Tenant.  Tenant shall maintain such
            exterior
            installations in good appearance and shall cause the same to
            be
            operated in a good and workmanlike manner and shall make all
            repairs thereto necessary to keep same in good order and
            condition, at Tenant's own cost and expense, and shall cause
            the
            same to be covered by the insurance provided for hereafter
            in
            Article 8.  Tenant shall, throughout the term of this lease,
            take
            good care of the demised premises and the fixtures and
            appurtenances therein, and the sidewalks adjacent thereto,
            and at
            its sole cost and expense, make all non-structural repairs
            thereto as and when needed to preserve them in good working
            order
            and condition, reasonable wear and tear, obsolescence and
            damage
            from the elements, fire or other casualty, excepted.  If the
            demised premises be or become infested with vermin, Tenant
            shall
            at Tenant's expense, cause the same to be exterminated from
            time
            to time to the satisfaction of Owner.  Except as
            specifically
            provided in Article 9 or elsewhere in this lease provided
            Owner
            uses reasonable efforts, if possible, to perform its
            repairs,
            alterations, additions or improvements in a manner that
            minimizes
            (a) disruption of Tenant's business operations or (b) an
            affect
            on the access to and visibility of the Premises.  There
            shall be
            no allowance to the Tenant for the diminution of rental
            value and
            no liability on the part of Owner by reason of
            inconvenience,
            annoyance or injury to business arising from Owner, making
            or to
            make any repairs, alterations, additions or improvements in
            or to
            any portion of the building including the erection or
            operation
            of any crane, derrick or sidewalk shed, or in or to the
            demised
            premises or the fixtures, appurtenances or equipment
            thereof.  It
<PAGE>





            is specifically agreed that Tenant shall be not entitled to
            any
            set off or reduction of rent by reason of any failure of
            Owner to
            comply with the covenants of this or any other article of
            this
            lease.  Tenant agrees that Tenant's sole remedy at law in
            such
            instance will be by way of an action for damages for breach
            of
            contract.  The provisions of this Article 4 with respect to
            the
            making of repairs shall not apply in the case of fire or
            other
            Casualty which are dealt with in Article 9 hereof.

            Window Cleaning:         5.  Tenant will not clean nor
            require,
            permit, suffer or allow any window in the demised premises
            to be
            cleaned from the outside in violation of Section 202 of the
            New
            York State Labor Law or any other applicable law or of the
            Rules
            of the Board of Standards and Appeals, or of any other Board
            or
            body having or asserting jurisdiction.

            Requirements of
            Law, Fire Insurance:     6.  Prior to the commencement of
            the
            lease term, if Tenant is then in possession, and at all
            times
            thereafter, Tenant, at Tenant's sole cost and expense, shall
            promptly comply with all present and future laws, orders and
            regulations of all state, federal, municipal and local
            governments, departments, commissions and boards and any
            direction of any public officer pursuant to law, and all
            orders,
            rules and regulations of the New York Board of Fire
            Underwriters
            or the Insurance Services Office, or any similar body which
            shall
            impose any violation, order or duty upon Owner or Tenant
            with
            respect to the demised premises, and with respect to the
            portion
            of the sidewalk adjacent to the premises, if the premises
            are on
            the street level, whether or not arising out of Tenant's use
            or
            manner of use thereof, or with respect to the building if
            arising
            out of Tenant's use or manner of use of the premises or the
<PAGE>





            building (including the use permitted under the lease).
            Except
            as provided in Article 29 hereof, nothing herein shall
            require
            Tenant to make structural repairs or alterations unless
            Tenant
            has by its manner of use of the demised premises or method
            of
            operation therein, violated any such laws, ordinances,
            orders,
            rules, regulations or requirements with respect thereto.
            Tenant
            shall not do or permit any act or thing to be done in or to
            the
            demised premises which is contrary to law, or which will
            invalidate or be in conflict with public liability, fire or
            other
            policies of insurance any time carried by or for the benefit
            of
            Owner.  Tenant shall pay all costs, expenses, fines,
            penalties or
            damages, which may be imposed upon Owner by reason of
            Tenant's
            failure to comply with the provisions of this article.  If
            the
            fire insurance rate shall, at the beginning of the lease or
            at
            any time thereafter be higher than it otherwise would be,
            then
            Tenant shall reimburse Owner, as additional rent hereunder,
            for
            that portion of all fire insurance premiums thereafter, be
            higher
            than it otherwise would be, then Tenant shall reimburse
            Owner, as
            additional rent hereunder, for that portion of all fire
            insurance
            premiums thereafter paid by Owner which shall have been
            charged
            because of such failure by Tenant, to comply with the terms
            of
            this article.  If the fire insurance rate shall, at the
            beginning
            of the lease or at any time thereafter, be higher than it
            otherwise would be, then Tenant shall reimburse Owner, as
            additional rent hereunder, for that portion of all fire
            insurance
            premiums thereafter paid by Owner which shall have been
            charged
            because of such failure by Tenant, to comply with the terms
            of
            this article.  In any action or proceeding wherein Owner and
            Tenant are parties, a schedule or "make-up" of rate for the
            building or demised premises issued by a body making fire
<PAGE>





            insurance rates applicable to said premises shall be
            conclusive
            evidence of the facts therein stated and of the several
            items and
            charges in the fire insurance rate then applicable to said
            premises.

            Subordination: 7.  This lease is subject and subordinate to
            all
            ground or underlying leases and to all mortgages which may
            now or
            hereafter affect such leases or the real property of which
            demised premises are a part and to all renewals,
            modifications,
            consolidations, replacements and extensions of any such
            underlying leases and mortgages.  This clause shall be self-
            operative and no further instrument of subordination shall
            be
            required by any ground or underlying lessor or by any
            mortgagee,
            affecting any lease or the real property of which the
            demised
            premises are a part.  In confirmation of such subordination.
            Tenant shall from time to time execute promptly any
            certificate
            that Owner may request. Owner agrees to make a request to
            any
            future mortgagee to provide Tenant with a non-disturbance
            and
            attornment agreement in the Bank's customary form.

            Tenant's Liability
            Insurance Property
            Loss, Damage,
            Indemnity:          8.  Owner or its agents shall not be
            liable
            for any damage to property of Tenant or of others entrusted
            to
            employees of the building, nor for loss of or damage to any
            property of Tenant by theft or otherwise, nor for any injury
            or
            damage to persons or property resulting from any cause of
            whatsoever nature, unless caused by or due to the negligence
            of
            owner, its agents, servants or employees.  Owner or its
            agents
            will not be liable for any such damage caused by other
            tenants or
            persons in, upon or about said building or caused by
            operations
            in construction of any private, public or quasi public work.
            Tenant agrees, at Tenant's sole cost and expense, to
            maintain
            general public liability insurance in standard form in favor
<PAGE>





            of
            Owner and Tenant against claims for bodily injury or death
            or
            property damage occurring in or upon the demised premises,
            effective from the date Tenant enters into possession and
            during
            the term of this lease.  Such insurance shall be in an
            amount and
            with carriers acceptable to the Owner.  Such policy or
            policies
            shall be delivered to the Owner.  On Tenant's default in
            obtaining or delivering any such policy or policies or
            failure to
            pay the charges for any such policy or policies  and charge
            the
            Tenant as additional rent therefor.  Tenant shall indemnify
            and
            save harmless Owner against and from all liabilities,
            obligations, damages, penalties, claims, costs and expenses
            for
            which Owner shall not be reimbursed by insurance, including
            reasonable attorneys fees, paid, suffered or incurred as a
            result
            of any breach by Tenant, Tenant's agent, contractors,
            employees,
            invitees, or licensees, of any covenant on condition of this
            lease, or the carelessness negligence or improper conduct of
            the
            Tenant, Tenant's agents, contractors, employees, invitees or
            licensees.  Tenant's subtenant, and any agent, contractor,
            employee, invitee or licensee of any subtenant.  In case any
            action or proceeding is brought against Owner by reason of
            any
            such claim, Tenant, upon written notice from Owner, will, at
            Tenant's expense, resist or defend such action or proceeding
            by
            counsel approved by Owner in writing, such approval not to
            be
            unreasonably withheld.

            Destruction,
            Fire, and
            Other Casualty:     9.  (a) If the demised premises or any
            part
            thereof shall be damaged by fire or other casualty, Tenant
            shall
            give immediate notice thereof to Owner and this lease shall
            continue in full force and effect except as hereinafter set
            forth.  (b) If the demised premises are partially damaged or
            rendered partially unusable by fire or other casualty, the
            damages thereto shall be repaired by and at the expense of
            Owner
            and the rent and other items of additional rent, until such
            repair shall be substantially completed, shall be
<PAGE>





            apportioned
            from the day following the casualty according to the part of
            the
            premises which is usable.  (c) If the demised premises are
            totally damaged or rendered wholly unusable by fire or other
            casualty, then the rent and other items of additional rent
            as
            hereinafter expressly provided shall be proportionately paid
            up
            to the time of the casualty and thenceforth shall cease
            until the
            date when the premises shall have been repaired and restored
            by
            Owner (or sooner reoccupied in part by Tenant then rent
            shall be
            apportioned as provided in subsection (b) above), subject to
            Owner's right to elect not to restore the same as
            hereinafter
            provided.  (d) If the demised premises are rendered wholly
            unusable or (whether or not the demised premises are damaged
            in
            whole or in part) if the building shall be so damaged that
            Owner
            shall decide to demolish it or to rebuild it, then, in any
            of
            such events.  Owner may elect to terminate this lease by
            written
            notice to Tenant given within 90 days after such fire or
            casualty
            or 30 days after adjustment of the insurance claim for such
            fire
            or casualty, whichever is sooner, specifying a date for the
            expiration of the lease, which date shall not be more than
            60
            days after the giving of such notice, and upon the date
            specified
            in such notice the term of this lease shall expire as fully
            and
            completely as if such date were the date set forth above for
            the
            termination of this lease and Tenant shall forthwith quit,
            surrender and vacate the premises without prejudice however,
            to
            Owner's rights and remedies against Tenant under the lease
            provisions in effect prior to such termination, and any rent
            owing shall be paid up to such date and any payments of rent
            made
            by Tenant which were on account of any period subsequent to
            such
            date shall be returned to Tenant.  Unless Owner shall serve
            a
            termination notice as provided for herein, Owner shall make
            the
            repairs and restorations under the conditions of (b) and (c)
<PAGE>





            hereof, with all reasonable expedition subject to delays due
            to
            adjustment of insurance claims, labor troubles and causes
            beyond
            Owner's control.  After any such casualty, Tenant shall
            cooperate
            with Owner's restoration by removing from the premises as
            promptly as reasonably possible, all of Tenant's salvageable
            inventory and movable equipment, furniture, and other
            property.
            Tenant's liability for rent shall resume five (5) days after
            written notice from Owner that the premises are
            substantially
            ready for Tenant's occupancy.  (e) Nothing contained herein
            above
            shall relieve Tenant from liability that may exist as a
            result of
            damage from fire or other casualty.  Notwithstanding the
            foregoing, including Owner's obligation to restore under
            subparagraph (b) above, each party shall look first to any
            insurance in its favor before making any claim against the
            other
            party for recovery for loss or damage resulting from fire or
            other casualty, and to the extent that such insurance is in
            force
            and collectible and to the extent permitted by law, Owner
            and
            Tenant each hereby releases and waives all right of recovery
            with
            respect to subparagraphs (b), (d), and (e) above, against
            the
            other or any one claiming through or under each of them by
            way of
            subrogation or otherwise.  The release and waiver herein
            referred
            to shall be deemed to include any loss or damage to the
            demised
            premises and/or to any personal property, equipment, trade
            fixtures, goods and merchandise located therein.  The
            foregoing
            release and waiver shall be in force only if both releasors'
            insurance policies contain a clause providing that such a
            release
            or waiver shall not invalidate the insurance.  Tenant
            acknowledges that Owner will not carry insurance on Tenant's
            furniture and/or furnishings or any fixtures or equipment,
            improvements, or appurtenances removable by Tenant and
            agrees
            that owner will not be obligated to repair any damage
            thereto or
            replace the same.  (f) Tenant hereby waives the provisions
            of
            Section 227 of the Real Property Law and agrees that the
            provisions of this article shall govern and control in lieu
<PAGE>





            thereof.

            Eminent
            Domain:   10.  If the whole or any part of the demised
            premises
            shall be acquired or condemned by Eminent Domain for any
            public
            or quasi public use or purpose, then and in that event, the
            term
            of this lease shall cease and terminate from the date of
            title
            vesting in such proceeding and Tenant shall have no claim
            for the
            value of any unexpired term of said lease.  Tenant shall
            have the
            right to make an independent claim to the condemning
            authority
            for the value of Tenant's moving expenses and personal
            property,
            trade fixtures and equipment, provided Tenant is entitled
            pursuant to the terms of the lease to remove such property,
            trade
            fixtures and equipment at the end of the term and provided
            further such claim does not reduce Owner's award.

            Assignment,
            Mortgage, Etc.:     11.  Tenant, for itself, its heirs,
            distributees, executors, administrators, legal
            representatives,
            successors and assigns expressly covenants that it shall not
            assign, mortgage or encumber this agreement, nor underlet,
            or
            suffer or permit the demised premises or any part thereof to
            be
            used by others, without the prior written consent of Owner
            in
            each instance.  If this lease be assigned, or if the demised
            premises or any part thereof be underlet or occupied by
            anybody
            other than Tenant, Owner may, after default by Tenant,
            collect
            rent from the assignee, under-tenant or occupant, and apply
            the
            net amount collected to the rent herein reserved, but no
            such
            assignment, underletting, occupancy or collection shall be
            deemed
            a waiver of the covenant, or the acceptance of the assignee,
            under-tenant or occupant as tenant, or a release of Tenant
            from
            the further performance by Tenant of covenants on the part
            of
            Tenant herein contained.  The consent by Owner to an
            assignment
<PAGE>





            or underletting shall not in any wise be construed to
            relieve
            Tenant from obtaining the express consent in writing of
            Owner to
            any further assignment or underletting.

            Electric
            Current:  12.  Rates and conditions in respect to
            submetering or
            rent inclusion, as the case may be, to be added in RIDER
            attached
            hereto.  Tenant covenants and agrees that at all times its
            use of
            electric current shall not exceed the capacity of existing
            feeders to the building or the risers or wiring installation
            and
            Tenant may not use any electrical equipment which, in
            Owner's
            opinion, reasonably exercised, will overload such
            installations
            or interfere with the use thereof by other tenants of the
            building.  The change at any time of the character of
            electric
            service shall in no wise make Owner liable or responsible to
            Tenant, for any loss, damages or expenses which Tenant may
            sustain.

            Access to
            Premises: 13.  Owner or Owner's agents shall have the right
            (but
            shall not be obligated) to enter the demised premises in any
            emergency at any time, and, at other reasonable times and
            (except
            for emergencies) after reasonable notice to examine the same
            and
            to make such repairs, replacements and improvements as Owner
            may
            deem necessary and reasonably desirable to any portion of
            the
            building or which Owner may elect to perform, in the
            premises,
            following Tenant's failure to make repairs or perform any
            work
            which Tenant is obligated to perform under this lease, or
            for the
            purpose of complying with laws, regulations or other
            directions
            of governmental authorities.  Tenant shall permit Owner to
            sue
            and maintain and replace pipes and conduits in and through
            the
            demised premises and to erect new pipes and conduits
            therein,
            provided they are concealed within the walls, floors and
<PAGE>





            ceiling,
            wherever practicable.  Owner may, during the progress of any
            work
            in the demised premises, take all necessary materials and
            equipment into said premises without the same constituting
            an
            eviction nor shall the Tenant be entitled to any abatement
            of
            rent while such work is in progress nor to any damages by
            reason
            of loss or interruption of business or otherwise provided
            Owner
            uses reasonable efforts, if possible, to perform its
            repairs,
            alterations, additions or improvements in a manner that
            minimizes
            (a) disruption of Tenant's business operations or (b) an
            affect
            on the access to and visibility of the Premises.  Throughout
            the
            term hereof Owner shall have the right to enter the demised
            premises at reasonable hours on reasonable notice for the
            purpose
            of showing the same to prospective purchasers or mortgagees
            of
            the building, and during the last six months of the term for
            the
            purpose of showing the same to prospective tenants and may,
            during said six months period, place upon the demised
            premises
            the usual notice "To Let" and "For Sale" which notices
            Tenant
            shall permit to remain thereon without molestation.  If
            Tenant is
            not present to open and permit an entry into the demised
            premises, Owner or Owner's agents may enter the same
            whenever
            such entry may be necessary or permissible by master key or
            forcibly and provided reasonably care is exercised to
            safeguard
            Tenant's property, such entry shall not render Owner or its
            agents liable therefor, nor in any event shall the
            obligations of
            Tenant hereunder be affected.  If during the last month of
            term
            Tenant shall have removed all or substantially all of
            Tenant's
            property therefrom, Owner may immediately enter, alter,
            renovate
            or redecorate the demised premises without limitation or
            abatement of rent, or incurring liability to Tenant for any
            compensation and such act shall have no effect on this lease
            or
            Tenant's obligations hereunder.  Owner shall have the right
<PAGE>





            at
            any time, without the same constituting an eviction and
            without
            incurring liability to Tenant therefor to change the
            arrangement
            and/or location of public entrances, passageways, doors,
            doorways, corridors, elevators, stairs, toilets, or other
            public
            parts of the building and to change the name, number or
            designation by which the building may be known provided
            Owner
            uses reasonable efforts, if possible, to perform its
            repairs,
            alterations, additions or improvements in a manner that
            minimizes
            (a) disruption of Tenant's business operations or (b) an
            affect
            on the access to and visibility of the Premises.

            Vault,
            Vault Space, Area:  14.  No vaults, vault space or area,
            whether
            or not enclosed or covered, not within the property line of
            the
            building is leased hereunder, anything contained in or
            indicated
            on any sketch, blueprint or plan, or anything contained
            elsewhere
            in this lease to the contrary notwithstanding.  Owner makes
            no
            representation as to the location of the property line of
            the
            building.  All vaults and vault space and all such areas not
            within the property line of the building, which tenant may
            be
            permitted to use and/or occupy, is to be used and/or
            occupied
            under a revocable license, and if any such license be
            revoked, or
            if the amount of such space or area be diminished or
            required by
            any federal, state or municipal authority or public utility,
            Owner shall not be subject to any liability nor shall Tenant
            be
            entitled to any compensation or diminution or abatement of
            rent,
            nor shall such revocation, diminution or requisition be
            deemed
            constructive or actual eviction.  Any tax, fee or charge of
            municipal authorities for such vault or area shall be paid
            by
            Tenant.

            Occupancy:          15.  Tenant will not at any time use or
<PAGE>





            occupy the demised premises in violation of Articles 2 or 37
            hereof, or of the certificate of occupancy issued for the
            building of which the demised premises are a part.  Tenant
            has
            inspected the premises and accepts them as is, subject to
            the
            riders annexed hereto with respect to Owner's work, if any.
            In
            any event, Owner makes no representation as to the condition
            of
            the premises and Tenant agrees to accept the same subject to
            violations whether or not of record.

            Bankruptcy:         16.  (a) Anything elsewhere in this
            lease to
            the contrary notwithstanding, this lease may be canceled by
            Landlord by the sending of a written notice to Tenant within
            a
            reasonable time after the happening of any one or more of
            the
            following events: The (1) filing by Tenant of a voluntary
            petition in bankruptcy or under the laws of any state naming
            Tenant as the debtor or (2) the filing of an involuntary
            petition
            in bankruptcy naming Tenant as the debtor which petition is
            not
            dismissed within sixty (60) days; or (3) the making by
            Tenant of
            an assignment or any other arrangement for the benefit of
            creditors under any state statute.  Neither Tenant nor any
            person
            claiming through or under Tenant, or by reason of any
            statute or
            order of court, shall thereafter be entitled to possession
            of the
            premises demised but shall forthwith quit and surrender the
            premises.  If this lease shall be assigned in accordance
            with its
            terms, the provisions of this Article 16 shall be applicable
            only
            to the party then owning Tenant's interest in this lease.

            (b)  It is stipulated and agreed that in the event of the
            termination of this lease pursuant to (a) hereof, Owner
            shall
            forthwith, notwithstanding any other provisions of this
            lease to
            the contrary, be entitled to recover from Tenant as and for
            liquidated damages an amount equal to the difference between
            the
            rent reserved hereunder for the unexpired portion of the
            term
            demised and the fair and reasonable rental value of the
            demised
<PAGE>





            premises for the same period.  In the computation of such
            damages
            the difference between any installment of rent becoming due
            hereunder after the date of termination and the fair and
            reasonable rental value of the demises premises for the
            period
            for which such installment was payable shall be discounted
            to the
            date of termination at the rate of four percent (4%) per
            annum.
            If such premises or any part thereof be re-let by the Owner
            for
            the unexpired term of said lease, or any part thereof,
            before
            presentation of proof of such liquidated damages to any
            court,
            commission or tribunal, the amount of rent reserved upon
            such re-
            letting shall be deemed to be the fair and reasonable rental
            value for the part or the whole of the premises to re-let
            during
            the term of the re-letting.  Nothing herein contained shall
            limit
            or prejudice the right of the Owner to prove for and obtain
            as
            liquidated damages by reason of such termination, an amount
            equal
            to the maximum allowed by any statute or rule of law in
            effect at
            the time when, and governing the proceedings in which, such
            damages are to be proved, whether or not such amount be
            greater,
            equal to, or less than the amount of the difference referred
            to
            above.

            Default:  17.  (1) If Tenant defaults in fulfilling any of
            the
            covenants of this lease other than the covenants for the
            payment
            of rent or additional rent; or if the demised premises
            become
            vacant or deserted; or if any execution or attachment shall
            be
            issued against Tenant or any of Tenant's property whereupon
            the
            demised premises shall be taken or occupied by someone other
            than
            Tenant; or if this lease be rejected under Section 365 of
            Title
            11 of the U.S. Code (Bankruptcy Code); or a Tenant shall
            fail to
            move into or take possession of the premises within thirty
            (30)
<PAGE>





            days after the commencement of the term of this lease, of
            which
            fact Owner shall be the sole judge; then, in any one or more
            of
            such events, upon Owner serving a written fifteen (15) days
            notice upon Tenant specifying the nature of said default and
            upon
            the expiration of said fifteen (15) days, if Tenant shall
            have
            failed to comply with or remedy such default, or if the said
            default or omission complained of shall be of a nature that
            the
            same cannot be completely cured or remedied within said
            fifteen
            (15) day period and if Tenant shall not have diligently
            commenced
            curing such reasonable diligence and in good faith proceed
            to
            remedy or cure such default, then Owner may serve a written
            five
            (5) days notice of cancellation of this lease upon Tenant,
            and
            upon the expiration of said five (5) days, this lease and
            the
            term thereunder shall end and expire as fully and completely
            as
            if the expiration of such five (5) day period were the day
            herein
            definitely fixed for the end and expiration of this lease
            and the
            term thereof and Tenant shall then quit and surrender the
            demised
            premises to Owner but Tenant shall remain liable as
            hereinafter
            provided.
            (2)  If the notice provided for in (1) hereof shall have
            been given, and the term shall expire as aforesaid; of if
            Tenant
            shall make default in the payment of the rent reserved
            herein or
            any item of additional rent herein mentioned or any part of
            either or in making any other payment herein required; then
            and
            in any of such events Owner may without notice, re-enter the
            demised premises, and dispossess Tenant by summary
            proceedings or
            otherwise, and the legal representative of Tenant or other
            occupant of demised premises and remove their effects and
            hold
            the premises as if this lease had not been made, and Tenant
            hereby waives the service of notice of intention to re-enter
            or
            to institute legal proceedings to that end.
<PAGE>





            Remedies of Owner and
            Waiver of Redemption:    18.  In case of any such default,
            re-
            entry, expiration and/or dispossess by summary proceedings
            or
            otherwise, (a) the rent, and additional rent, shall become
            due
            thereupon and be paid up to the time of such re-entry,
            dispossess
            and/or expiration.  (b) Owner may re-let the premises or any
            part
            or parts thereof, either in the name of Owner or otherwise,
            for a
            term or terms, which may at Owner's option be less than or
            exceed
            the period which would otherwise have constituted the
            balance of
            the term of this lease and may grant concessions or free
            rent or
            charge a higher rental than that in this lease, and/or (c)
            Tenant
            or the legal representatives of Tenant shall also pay Owner
            as
            liquidated damages for the failure of Tenant to observe and
            perform said Tenant's covenants herein contained any
            deficiency
            between the rent hereby reeved and/or covenanted to be paid
            and
            the net amount, if any, of the rents collected on account of
            the
            subsequent lease or leases of the demised premises for each
            month
            of the period which would otherwise have constituted the
            balance
            of the term of this lease.  The failure of Owner to re-let
            the
            premises or any part or parts thereof shall not release or
            affect
            Tenant's liability for damages.  In computing such
            liquidated
            damages there shall be added to the said deficiency such
            expenses
            as Owner may incur in connection with the re-letting, such
            as
            reasonable legal expenses, reasonable attorneys' fees,
            brokerage,
            advertising and for keeping the demised premises in good
            order or
            for preparing the same for re-letting.  Any such liquidated
            damages shall be paid in monthly installments by Tenant on
            the
            rent day specified in this lease.  Owner, in putting the
            demised
            premises in good order or preparing the same for re-rental
<PAGE>





            may,
            at Owner's option, make such alterations, repairs,
            replacement,
            and/or decorations in the demised premises as Owner, in
            Owner's
            reasonable judgment, considers advisable and necessary for
            the
            purpose of re-letting the demised premises, and the making
            of
            such alterations, repairs, replacements, and/or decorations
            shall
            not operate or be construed to release Tenant from
            liability.
            Owner shall in no event be liable in any way whatsoever for
            failure to re-let the demised premises, or in the event that
            the
            demised premises are re-let, for failure to collect the rent
            thereof under such re-letting, and in no event shall Tenant
            be
            entitled to receive any excess, if any, of such net rent
            collected over the sums payable by Tenant to Owner
            hereunder.  In
            the event of a breach or threatened breach by Tenant or any
            of
            the covenants or provisions hereof.  Owner shall have the
            right
            of injunction and the right to invoke any remedy allowed at
            law
            or in equity as if re-entry, summary proceedings and other
            remedies were not herein provided for.  Mention in this
            lease of
            any particular remedy, shall not preclude Owner from any
            other
            remedy, in law or in equity.  Tenant hereby expressly waives
            any
            and all rights of redemption granted by or under any present
            or
            future laws.
            Fees and
            Expenses:      19.  If Tenant shall default in the
            observance or
            performance of any term or covenant on Tenant's part to be
            observed or performed under or by virtue of any of the terms
            or
            provisions in any article of this lease, after notice if
            required
            and upon expiration of any applicable grace period if any,
            (except in an emergency), then, unless otherwise provided
            elsewhere in this lease, Owner may immediately or at any
            time
            thereafter and without notice perform the obligation of
            Tenant
            thereunder, and if Owner, in connection therewith or in
            connection with any default by Tenant in the covenant to pay
<PAGE>





            rent
            hereunder, makes any reasonable expenditures or incurs any
            obligations for the payment of money, including but not
            limited
            to reasonable attorneys' fees, in instituting, prosecuting
            or
            fending any actions or proceeding and prevails in any such
            action
            or proceeding, such sums so paid or obligations incurred
            with
            interest and costs shall be deemed to be additional rent
            hereunder and shall be paid by Tenant to Owner within ten
            (10)
            days of rendition of any bill or statement to Tenant
            therefor,
            and if Tenant's lease term shall have expired at the time of
            making of such expenditures or incurring of such
            obligations,
            such sums shall be recoverable by Owner as damages.

            No Representations
            by Owner:           20.  Neither Owner nor Owner's agent
            have
            made any representations or promises with respect to the
            physical
            condition of the building, the land upon which it is erected
            or
            the demised premises, the rents, leases, expenses of
            operation,
            or any other matter or thing affecting or related to the
            premises
            except as herein expressly set forth and no rights,
            easements or
            licenses are acquired by Tenant by implication or otherwise
            except as expressly set forth in the provisions of this
            lease.
            Tenant has inspected the building and the demised premises
            and is
            thoroughly acquainted with their condition, and agrees to
            take
            the same "as is," except for Owner's work described in
            Exhibit B,
            and acknowledges that the taking of possession of the
            demised
            premises by Tenant shall be conclusive evidence that the
            said
            premises and the building of which the same form a part were
            in
            good and satisfactory condition at the time such possession
            was
            so taken, except as to latent defects.  As understandings
            and
            agreements heretofore made between the parties hereto are
            merged
<PAGE>





            in this contract, which alone fully and completely expresses
            the
            agreement between Owner and Tenant and any executory
            agreement
            hereafter made shall be ineffective to change, modify,
            discharge
            or effect an abandonment of it in whole or in part, unless
            such
            executory agreement is in writing and signed by the party
            against
            whom enforcement of the change, modification, discharge or
            abandonment is sought.

            End of Term:   21.  Upon the expiration or other termination
            of
            the term of this lease, Tenant shall quit and surrender to
            Owner
            the demised premises, broom clean, in good order and
            condition,
            ordinary wear excepted, and Tenant shall remove all its
            property.
            Tenant's obligation to observe or perform this covenant
            shall
            survive the expiration or other termination of this lease.
            If
            the last day of the term of this lease or any renewal
            thereof,
            falls on Sunday, this lease shall expire at noon on the
            preceding
            Saturday unless it be a legal holiday in which case it shall
            expire at noon on the preceding business day.

            Quiet Enjoyment:    22.  Owner covenants and agrees with
            Tenant
            that upon Tenant paying the rent and additional rent and
            conditions, on Tenant's part to be observed and performed,
            Tenant
            may peaceably and quietly enjoy the premises hereby demised,
            subject, nevertheless, to the terms and conditions of this
            lease
            including, but not limited to, Article 33 hereof and to the
            ground leases, underlying leases and mortgages hereinbefore
            mentioned.

            Failure to
            Give Possession:    23.  If Owner is unable to give
            possession of
            the demised premises on the date of the commencement of the
            term
            hereof, because of the holding-over or retention of
            possession of
            any tenant, undertenant or occupants, or if the premises are
            located in a building being constructed, because such
            building
<PAGE>





            has not been sufficiently completed to make the premises
            ready
            for occupancy or because of the fact that certificate of
            occupancy has not been procured or for any other reason,
            Owner
            shall not be subject to any liability for failure to give
            possession on said date and the validity of the lease shall
            not
            be impaired under such circumstances, nor shall the same be
            construed in any wise to extend the term of this lease, but
            the
            rent payable hereunder shall be abated (provided Tenant is
            not
            responsible for the inability to obtain possession or
            complete
            construction) until after Owner shall have given Tenant
            written
            notice that the Owner is able to deliver possession in the
            condition required by this lease.  If permission is given to
            Tenant to enter into the possession of the demised premises
            or to
            occupy premises other than the demised premises prior to the
            date
            specified as the commencement of the term of this lease,
            Tenant
            covenants and agrees that such possession and/or occupancy
            shall
            be deemed to be under all the terms, covenants, conditions
            and
            provisions of this lease except the obligation to pay the
            fixed
            annual rent set forth in page one of this lease.  The
            provisions
            of this article are intended to constitute "an express
            provision
            to the contrary" within the meaning of Section 223-a of the
            New
            York Real Property Law.

            No Waiver:          24.  The failure of Owner to seek
            redress for
            violation of, or to insist upon the strict performance of
            any
            covenant or condition of this lease or of any of the Rules
            or
            Regulations set forth or hereafter adopted by Owner, shall
            not
            prevent a subsequent act which would have originally
            constituted
            a violation from having all the force and effect of an
            original
            violation.  The receipt by Owner of rent and/or additional
            rent
            with knowledge of the breach of any covenant of this lease
<PAGE>





            shall
            not be deemed a waiver of such breach and no provision of
            this
            lease shall be deemed to have been waived by Owner unless
            such
            waiver be in writing signed by Owner.  No payment by Tenant
            or
            receipt by Owner of a lesser amount than the monthly rent
            herein
            stipulated shall be deemed to be other than on account of
            the
            earliest stipulated rent, nor shall any endorsement or
            statement
            of any check or any letter accompanying any check or payment
            as
            rent be deemed an accord and satisfaction, and owner may
            accept
            such check or payment without prejudice to Owner's right to
            recover the balance of such rent or pursue any other remedy
            in
            this lease provided.  No act or thing done by Owner or
            Owners
            agents during the term hereby demised shall be deemed in
            acceptance of a surrender of said premises and no agreement
            to
            accept such surrender shall be valid unless in writing
            signed by
            Owner.  No employee of Owner or Owner's agent shall have any
            power to accept the keys of said premises prior to the
            termination of the lease and the delivery of keys to any
            such
            agent or employee shall not operate as a termination of the
            lease
            or a surrender of the premises.

            Waiver of
            Trial by Jury: 25.  It is mutually agreed by and between
            Owner
            and Tenant that the respective parties hereto shall and they
            hereby do waive trial by jury in any action, proceeding or
            counterclaim brought by either of the parties hereto against
            the
            other (except for personal injury or property damage) on any
            matters whatsoever arising out of or in any way connected
            with
            this lease, the relationship of Owner and Tenant.  Tenant's
            use
            of or occupancy of said premises, and any emergency
            statutory or
            any other statutory remedy.  It is further mutually agreed
            that
            in the event Owner commences any proceeding or action for
            possession including a summary proceeding for possession of
            the
<PAGE>





            premises, Tenant will not interpose any counterclaim of
            whatever
            nature or description in any such proceeding, including a
            counterclaim under Article 4 except for statutory mandatory
            counterclaims.

            Inability to
            Perform:       26.  This lease and the obligation of Tenant
            to
            pay rent hereunder and perform all of the other covenants
            and
            agreements hereunder on part of Tenant to be performed shall
            in
            no wise be affected, impaired or excused because Owner is
            unable
            to fulfill any of its obligations under this lease or to
            supply
            or is delayed in supplying any service expressly or
            impliedly to
            be supplied or is unable to make, or is delayed in making
            any
            repair, additions, alterations or decorations or is unable
            to
            supply or is delayed in supplying any equipment, fixtures or
            other materials if Owner is prevented or delayed from so
            doing by
            reason of strike or labor troubles, government preemption or
            restrictions or by reason of any rule, order or regulation
            of any
            department or subdivision thereof of any government agency
            or by
            reason of the conditions of which have been or are affected,
            either directly or indirectly, by war or other emergency, or
            when, in the judgment of Owner, temporary interruption of
            such
            services is necessary by reason of accident, mechanical
            breakdown, or to make repairs, alteration or improvements.

            Bills and
            Notices:       27.  [Deleted.]

            Water
            Charges:       28.  If Tenant requires, uses or consumes
            water
            for any purpose in addition to ordinary lavatory purposes
            (of
            which fact Tenant constitutes Owner to be the sole judge)
            Owner
            may install a water meter and thereby ensure Tenant's water
            consumption for all purposes.  Tenant shall pay Owner for
            the
            cost of the meter and the cost of the installation thereof
            and
            throughout the duration of Tenant's occupancy Tenant shall
<PAGE>





            keep
            said meter and installation equipment in good working order
            and
            repair at Tenant's own cost and expense.  Tenant agrees to
            pay
            for water consumed, as shown on said meter as and when bills
            are
            rendered.  Tenant covenants and agrees to pay the sewer
            rent,
            charge or any other tax, rent, levy or charge which now or
            hereafter is assessed, imposed or a lien upon the demised
            premises or the realty of which they are part pursuant too
            law,
            order or regulation made or issued in connection with the
            use,
            consumption, maintenance or supply of water, water system or
            sewage or sewage connection or system.  The bill rendered by
            Owner shall be payable by Tenant as additional rent.  If the
            building or the demised premises or any part thereof be
            supplied
            with water through a meter through which water is also
            supplied
            to other premises Tenant shall pay to Owner as additional
            rent, a
            pro-rata share on the first day of each month of the total
            meter
            charges, as Tenant's portion.  Independently of and in
            addition
            to any of the remedies reserved to Owner hereinabove or
            elsewhere
            in this lease, Owner may sue for and collect any monies to
            be
            paid by Tenant or paid by Owner for any of the reasons or
            purposes hereinabove set forth.

            Sprinklers:         29.  Anything elsewhere in this lease to
            the
            contrary notwithstanding, if the New York Board of Fire
            Underwriters or the Insurance Services Office or any bureau,
            department or official of the federal, state or city
            government
            require or recommend the installation of a sprinkler system
            or
            that any changes, modifications, alterations, or additional
            sprinkler heads or other equipment be made or supplied in an
            existing sprinkler system by reason of Tenant's business, or
            the
            location of partitions, trade fixtures, or other contents of
            the
            demised premises, or for any other reason, or if any such
            sprinkler system installation, changes, modifications,
            alterations, additional sprinkler heads or other such
            equipment,
            become necessary to prevent the imposition of a penalty or
<PAGE>





            charge
            against the full allowance for a sprinkler system in the
            fire
            insurance rate set by any said Exchange or by any fire
            insurance
            company, Tenant shall, at Tenant's expense, promptly make
            such
            sprinkler system installations, changes, modifications,
            alterations, and supply additional sprinkler heads or other
            equipment as required whether the work involved shall be
            structural or nonstructural in nature.  Tenant shall pay a
            pro-
            rata share to Owner as additional rent the sum of
            $______________
            on the first day of each month during the term of this lease
            as
            Tenant's portion of the contract price for sprinkler
            supervisory
            service.

            Elevators,
            Heat,
            Cleaning:      30.  Tenant shall at Tenant's expense keep
            demised
            premises clean and in order, to the satisfaction to Owner,
            and if
            demised premises are situated on the street floor, Tenant
            shall,
            at Tenant's own expense, make all repairs and replacements
            to the
            sidewalks and curbs adjacent thereto, and keep said
            sidewalks and
            curbs free from snow, ice, dirt and rubbish.  Tenant shall
            pay to
            Owner the cost of removal of any of Tenant's refuse and
            rubbish
            from the building.  Bills for the same shall be rendered by
            Owner
            to tenant at such times as Owner may elect and shall be due
            and
            payable when rendered, and the amount of such bills shall be
            deemed to be, and be paid as, additional rent.  Tenant
            shall,
            however, have the option of independently contracting for
            the
            removal of any of Tenant's refuse and rubbish from the
            building.
            Bills for the same shall be rendered by Owner to Tenant at
            such
            times as Owner may elect and shall be due and payable when
            rendered, and the amount of such bills shall be deemed to
            be, and
            be paid as, additional rent.  Tenant shall, however, have
            the
<PAGE>





            option of independently contracting for the removal of such
            rubbish and refuse in the event that Tenant does not wish to
            have
            same done by employees of Owner.  Under such circumstances,
            however, the removal of such refuse and rubbish by others
            shall
            be subject to such rules and regulations as, in the judgment
            of
            Owner, are necessary for the proper operation of the
            building.

            Security: 31.  Tenant has deposited with Owner the sum of
            $150,000 as security for the faithful performance and
            observance
            by Tenant of the terms, provisions and conditions of this
            lease:
            it is agreed that in the event Tenant defaults in respect of
            any
            of the terms, provisions and conditions of this lease
            including,
            but not limited to, the payment of rent and additional rent,
            Owner may use, apply or retain the whole or any part of the
            security so deposited to the extent required for the payment
            of
            any rent and additional rent or any other sum as to which
            Tenant
            is in default or for any sum which Owner may expend or may
            be
            required to expend by reason of Tenant's default in respect
            of
            any of the terms, covenants and conditions of this lease,
            including but not limited to, any damages or deficiency in
            the
            reletting of the premises, whether such damages or
            deficiency
            accrued before or after summary proceedings or other re-
            entry by
            Owner.  In the event that Tenant shall fully and faithfully
            comply with all of the terms, provisions, covenants and
            conditions of this lease, plus accrued interest if any,
            pursuant
            to Article 65, the security shall be returned to Tenant
            after the
            date fixed as the end of the Lease and after delivery of
            entire
            possession of the demised premises to Owner.  In the event
            of a
            sale of the land and building or leasing of the building, of
            which the demised premises form a part, Owner shall have the
            right to transfer the security to the vendee or lessee and
            Owner
            shall thereupon be released by Tenant from all liability for
            the
            return of such security, and Tenant agrees to look to the
<PAGE>





            new
            Owner solely for the return of said security; and it is
            agreed
            that the provisions hereof shall apply to every transfer or
            assignment made of the security to a new Owner.  Tenant
            further
            covenants that it will not assign or encumber or attempt to
            assign or encumber the monies deposited herein as security
            and
            that neither Owner nor its successors or assigns shall be
            bound
            by any such assignment, encumbrance, attempted assignment or
            attempted encumbrance.

            Captions       32.  The Captions are inserted only as a
            matter of
            convenience and for reference and in no way define, limit or
            describe the scope of this lease nor the intent of any
            provision
            thereof.

            Definitions:        33.  The term "Owner" as used in this
            lease
            means only the Owner, or the mortgagee in possession, for
            the
            time being of the land and building (or the Owner of a lease
            of
            the building or of the land and building) of which the
            demised
            premises form a part, so that in the event of any sale or
            sales
            of said land and building or of said lease, or in the event
            of a
            lease of said building, or of the land and building, the
            said
            Owner shall be and hereby is entirely freed and relieved of
            all
            covenants and obligations of Owner hereunder, and it shall
            be
            deemed and construed without further agreement between the
            parties of their successors in interest, or between the
            parties
            and the purchaser, at any such sale, or the said lessee of
            the
            building, or of the land and building, that the purchaser or
            the
            lessee of the building has assumed and agreed to carry out
            any
            and all covenants and obligations of Owner hereunder.  The
            words
            "re-enter" and "re-entry" as used in this lease are not
            restricted to their technical legal meaning.  The term
            "business
            days" as used in this lease shall exclude Saturdays, Sundays
<PAGE>





            and
            all days designated as holidays by the applicable building
            service union employees service contract or by the
            applicable
            Operating Engineers contract with respect to HVAC service.
            Wherever it is expressly provided in this lease that consent
            shall not be unreasonably withheld, such consent shall not
            be
            unreasonably delayed.

            Adjacent
            Excavation-
            Shoring:       34.  If an excavation shall be made upon land
            adjacent to the demised premises, or shall be authorized to
            be
            made, Tenant shall afford to the person causing or
            authorized to
            cause such excavation, license to enter upon the demised
            premises
            for the purpose of doing such work as said person shall deem
            necessary to preserve the wall or the building of which
            demised
            premises form a part from injury or damage and to support
            the
            same by proper foundations without any claim for damages or
            indemnity against Owner, or diminution or abatement of rent
            provided Owner uses reasonable efforts, if possible, to
            perform
            its repairs, alterations, additions or improvements in a
            manner
            that minimizes (a) disruption of Tenant's business
            operations or
            (b) an affect on the access to and visibility of the
            Premises.

            Rules
            and Regulations:    35.  Tenant and Tenant's servants,
            employees,
            agents, visitors, and licensees shall observe faithfully,
            and
            comply strictly with the Rules and Regulations and such
            other and
            further reasonable Rules and Regulations as Owner or Owners
            agents may from time to time adopt.  Notice of any
            additional
            rules or regulations shall be given in such manner as Owner
            may
            elect.  In case Tenant disputes the reasonableness of any
            additional Rule or regulation hereafter made or adopted by
            Owner
            or Owner's agents, the parties hereto agree to submit the
            question of the reasonableness of such Rule or Regulation
            for
            decision of the New York office of the American Arbitration
<PAGE>





            Association, whose examination shall be final and conclusive
            upon
            the parties hereto.  The right to dispute the reasonableness
            of
            any additional Rule or Regulation upon Tenant's part shall
            be
            deemed waived unless the same shall be asserted by service
            of a
            notice, in writing upon Owner within fifteen (15) days after
            the
            giving of notice thereof.  Nothing in this lease contained
            shall
            be construed to impose upon Owner any duty or obligation to
            enforce the Rule and Regulations or terms, covenants or
            conditions in any other lease, as against any other tenant
            and
            Owner shall not be liable to Tenant for violation of the
            same by
            any other tenant, its servants, employees, agents, visitors
            or
            licensees.

            Glass:              36.  Owner shall replace, at the expense
            of
            Tenant, any and all plate and other glass damaged or broken
            from
            any cause whatsoever in and about the demised premises.
            Owner
            may insure, and keep insured, at Tenant's expense, all plate
            and
            other glass in the demised premises for and in the name of
            Owner.
            Bills for the premiums therefor shall be rendered by Owner
            to
            Tenant at such times as Owner may elect, and shall be due
            from,
            and payable by, Tenant when rendered, and the amount thereof
            shall be deemed to be, and be paid as, additional rent.

            Pornographic
            Uses Prohibited:    37.       Tenant agrees that the value
            of the
            demised premises and the reputation of the Owner will be
            seriously injured if the premises are used for any obscene
            or
            pornographic purposes of any sort of commercial sex
            establishment.  Tenant agrees that Tenant will not bring or
            permit any obscene or pornographic material on the premises
            , and
            shall not permit or conduct any obscene, nude, or semi-nude
            live
            performances on the premises, nor permit use of the premises
            for
            nude modeling, rap sessions, or as a so-called rubber good
<PAGE>





            shop,
            or as a sex club of any sort, or as a "massage parlor."
            Tenant
            agrees further that Tenant will not permit any of these uses
            by
            any sublessee or assignee of the premises.  This Article
            shall
            directly bind any successors in interest to the Tenant.
            Tenant
            agrees that if at any time Tenant violates any of the
            provisions
            of this article, such violation shall be deemed a breach of
            a
            substantial obligation of the terms of this lease and
            objectionable conduct.  Pornographic materials is defined
            for the
            purposes of this Article as any written or pictorial manner
            with
            prurient appeal or any objects of instrument that are
            primarily
            concerned with lewd and prurient sexual activity.  Obscene
            material is defined here as it is in Penal law  235.00.

            Estoppel
            Certificate:        38.  Tenant, at any time, and from time
            to
            time, upon at least 10 days prior notice by Owner, shall
            execute,
            acknowledge and deliver to owner, and/or to any other
            person,
            firm, or corporation specified by Owner, a statement
            certifying
            that this lease is unmodified and in full force and effect
            (or,
            if there have been modifications, that the same is in full
            force
            and effect as modified and stating the modifications),
            stating
            the dates which the rent and additional rent have been paid,
            and
            stating whether or not there exists any defaults by Owner
            under
            this lease, and, if so, specifying each such default.

            Successors
            and Assigns:        39.  The covenants, conditions and
            agreements
            contained in this lease shall bind and inure to the benefit
            of
            Owner and Tenant and their respective heirs, distributees,
            executors, administrators, successors, and except as
            otherwise
            provided in this lease, their assigns.  Tenant shall look
            only to
<PAGE>





            Owner's estate and interest in the land and building for the
            satisfaction of Tenant's remedies for the collection of a
            judgment (or other judicial process) against Owner in the
            event
            of any default by Owner hereunder, and no other property or
            assets of such Owner (or any partner, member, officer or
            director
            thereof, disclosed or undisclosed), shall be subject to
            levy,
            execution or other enforcement procedure for the
            satisfaction of
            Tenant's remedies under or with respect to this lease, the
            relationship of Owner and Tenant hereunder, or Tenant's use
            and
            occupancy of the demised premises.


            IN WITNESS WHEREOF, Owner and Tenant have respectively
            signed and
            sealed this lease as of the day and year first above
            written.

            Witness for Owner:                 538 MADISON REALTY
            COMPANY


            _________________________
                 By:____________________________________


            Witness for Tenant:                VERMONT TEDDY BEAR CO.,
            INC.


            _________________________
                 By:____________________________________

                 ACKNOWLEDGEMENTS

            CORPORATE OWNER
            STATE OF _______________
            COUNTY OF _____________

            On this _____ day of _____________, 19__, before me
            personally came _____________________ to me known, who being
            by
            me duly sworn, did depose and say that he resided in
            _________________________; that he is the
            ______________________
            of ________________________ the corporation described in and
            which executed the foregoing instrument, as OWNER; the he
            knows
            the seal of said corporation; the seal affixed to said
            instrument
<PAGE>





            is such corporate seal; that it was so affixed by order of
            the
            Board of Directors of said corporation, and that he signed
            his
            name thereto by like order.

            ___________________________________
            ___

            CORPORATE TENANT
            STATE OF _______________
            COUNTY OF _____________

            On this _____ day of _____________, 19__, before me
            personaly came _____________________ to me known, who being
            by me
            duly sworn, did depose and say that he resided in
            _________________________; that he is the
            ______________________
            of ________________________ the corporation described in and
            which executed the foregoing instrument, as TENANT; the he
            knows
            the seal of said corporation; the seal affixed to said
            instrument
            is such corporate seal; that it was so affixed by order of
            the
            Board of Directors of said corporation, and that he signed
            his
            name thereto by like order.

            ___________________________________
            ___________

            INDIVIDUAL OWNER
            STATE OF _______________
            COUNTY OF _____________

            On this _____ day of _____________, 19__, before me
            personally came _____________________ to be known and known
            to me
            to be the individual described in and who, as OWNER,
            executed the
            foregoing instrument and acknowledged to me that
            _____________________________ he executed the same.

            ___________________________________
            ___________

            INDIVIDUAL TENANT
            STATE OF _______________
            COUNTY OF _____________

            On this _____ day of _____________, 19__, before me
            personally came _____________________ to be known and known
<PAGE>





            to me
            to be the individual described in and who, as TENANT,
            executed
            the foregoing instrument and acknoweldged to me that
            _____________________________ he executed the same.

            ___________________________________
            ___________


                 INDEX TO RIDER

            ARTICLE   PAGE
            40.  Basic Rent     1
            41.  Real Estate Taxes, Operating Expenses   1
            42.  Taxes on Personalty 2
            43.  Alterations    3
            44.  Repairs   5
            45.  Maintenance    5
            46.  Landlord's Obligation re Compliance     5
            47.  Modification of the Lease for Mortgagee 6
            48.  Insurance 6
            49.  Indemnification     8
            50.  Waiver of Subrogation    9
            51.  Assignment and Subletting     9
            52.  Access to Premises  12
            53.  Use of Premises     12
            54.  Tenant's Use and Compliance with Laws and Insurance
                 12
            55.  Quality of Building 12
            56.  Vending Machines    13
            57.  Three Proceedings and Grace Period 13
            58.  Late Charges   13
            59.  No Representations  14
            60.  Provisions re Surrender  14
            61.  Holdover  15
            62.  Notice    15
            63.  HVAC 16
            64.  Utilities 16
            65.  Security  17
            66.  Definition of Owner and Landlord   17
            67.  Plate Glass    17
            68.  Estoppel  17
            69.  Limitation of Landlord Liability   18
            70.  Tenant Occupying Other Space  19
            71.  Landlord's Right to Make Changes in the Building  19
            72.  Lease Not Binding Until Signed     19
            73.  Rider Controls 19
            ARTICLE   PAGE
            74.  Signs     19
            75.  Broker    20
            76.  Landlord's Right to Cancel    20
            77.  Security Gate  23
            78.  Tenant's Work; Access to Landlord  23
<PAGE>





            79.  Landlord's Right to Recapture Space     23
            80.  Four Foot Corridor  23
            81.  Method of Payment   23























            40.  Basic Rent.  Tenant shall pay to Landlord a basic rent
            ("Basic Rent") per annum as follows:
            Year 1              $300,000
            Year 2              $300,000
            Year 3              $300,000
            Year 4              $330,000
            Year 5              $330,000
            Year 6              $330,000
            Year 7              $363,000
            Year 8              $363,000
            Year 9              $363,000
            Year 10             $363,000

            Notwithstanding the foregoing, Basic Rent shall not commence
            until January 1, 1997.  Tenant shall be liable for all other
            obligations under this Lease.  Tenant shall be entitled to
            take
            possession of the Premises as of the date of execution and
            delivery of this Lease by both parties.
            41.  Real Estate Taxes, Operating Expenses.  Tenant
            covenants and agrees to pay as additional rent, without set-
            off
            or deduction 50% of any and all increases in Real Estate
            Taxes,
            as hereinafter defined, above those for the 1997-1998 fiscal
            tax
            year (hereinafter referred to as the "Base Tax Year")
            imposed on
<PAGE>





            the land and Building (which for purposes of this Article
            are
            known as the "Taxable Premises") with respect to every
            calendar
            year or part thereof during the term of this Lease, whether
            any
            such increase results from a higher tax rate or an increase
            in
            the assessed valuation of the property, or both.  If the
            Real
            Estate Taxes for the Base Tax Year are finally reduced as
            the
            result of tax reduction or other proceeding to reduce the
            assess
            valuation of the Taxable Premises, the parties agree that
            such
            Base Tax Year, as reduced, shall be the Base Tax Year for
            the
            purposes of all computations hereunder.  "Real Estate Taxes"
            shall be defined as including the following items:  (a) real
            estate taxes imposed on the Taxable Premises and (b)
            assessments
            levied, assessed or imposed against such Taxable Premises.
            If
            due to a change in the method of taxation any franchise,
            income,
            profit, or other tax, however designated, shall be levied
            against
            Landlord's interest in the property in whole or in part or
            the
            rents or profits therefrom for or in lieu of any tax which
            would
            otherwise constitute Real Estate Taxes, such taxes shall be
            included in the term "Real Estate Taxes" for purposes
            hereof. All
            such payment shall be appropriately pro-rated for any
            partial
            calendar years in which the terms of this Lease shall
            commence or
            expire. A copy of the Tax Bill of the City of New York shall
            be
            sufficient evidence of the amount of Real Estate Taxes.
            Tenant
            shall pay the amount due within 30 days of receipt of notice
            from
            Landlord.
            Only Landlord shall be eligible to institute tax reduction
            or other proceedings to reduce the assessed valuation of the
            Taxable Premises. Should Landlord be successful in any such
            reduction proceedings and obtain a rebate for periods during
            which Tenant has paid its share of increases, and provided
            that
            Tenant is not in default under this Lease, Landlord shall,
            after
<PAGE>





            deducting its expenses, including, without limitation,
            attorneys'
            fees and disbursements in connection therewith, shall at
            Landlord's option either (a) promptly return to Tenant its
            percentage of such rebate after Landlord has received such
            proceeds or (b) credit Tenant with such amount against the
            forthcoming monthly Basic Rent(s). Tenant may not obtain any
            portion of the benefits which may accrue to Landlord from
            any
            reduction in Real Estate Taxes for any year below those
            imposed
            in the Base Tax Year.
            Landlord's failure during the Lease term to prepare and
            deliver any of the foregoing tax bills, statements or bills,
            or
            Landlord's failure to make a demand, shall not in any way
            waive
            or cause Landlord to forfeit or surrender its rights to
            collect
            any of the foregoing items of additional rent which may
            become
            due during the term of this Lease. Tenant's liability for
            the
            amounts due under this Article shall survive the expiration
            of
            the term. In no event shall any rent adjustment hereunder
            result
            in a decrease in the Basic Rent.
            42.   Taxes on Personalty.    Tenant shall be liable for all
            taxes levied against personal property and trade fixtures
            placed
            by Tenant in or about the Premises, including but not
            limited to
            shelves, counters, wall safes, partitions, fixtures,
            machinery,
            refrigeration and heating, ventilating and air-conditioning
            equipment, or as a result of any alterations or improvements
            made
            to the Premises by Tenant, and if Landlord pays the taxes
            based
            on such increased assessment, Tenant, with thirty (30) days
            notice, shall repay to Landlord as additional rent the taxes
            so
            paid by Landlord.
            43.  Alterations.   Supplementing Article 3
            (a) No alterations or additions shall at any time be made to
            the Premises by Tenant without Landlord's prior written
            consent
            except for decorative work in the nature of wallpaper,
            paint,
            interior carpentry, and the like ("Decorative Work"). For
            all
            alterations other than Decorative Work, including but not
            limited
<PAGE>





            to plumbing and electric, Tenant must submit detailed plans
            to
            Landlord for its approval. Landlord shall not unreasonably
            withhold or delay its consent to non-structural alterations
            and
            plumbing provided the alterations to the plumbing systems do
            not
            adversely affect the remainder of the Building. Tenant shall
            pay
            for Landlord's expenses including reasonable architects and
            attorneys fees in connection with any request for approval.
            If
            Landlord shall give its consent, all work, repairs and
            alterations made by Tenant shall be done in a good
            workmanlike
            manner which shall be in keeping with the high quality of
            the
            Building and shall be in compliance with any applicable
            governmental rules and regulations and the cost thereof
            shall be
            paid by Tenant, so that the Premises shall at all times be
            free
            of liens for labor and materials supplied or claimed to have
            been
            supplied to the Premises. Tenant shall obtain completion
            and/or
            surety bonds or letter of credit(s) in amounts and in form
            acceptable to Landlord. Tenant and its contractors and sub-
            contractors shall carry workman's compensation insurance and
            general liability, theft, personalty and property damage
            insurance as detailed in Article 48. Any alterations, with
            the
            exception of trade fixtures and personalty removable without
            damage to the Premises, shall immediately become the
            property of
            Landlord, subject only to the use of same by Tenant during
            the
            term of this Lease, or any renewal thereof. All contractors
            and
            sub-contractors shall be union contractors.
            (b) Tenant shall indemnify, defend and save harmless
            Landlord from and against any and all costs, expenses,
            claims,
            losses, damages, fines or penalties, including reasonable
            counsel
            fees and disbursements, because of or due to Tenant's
            failure to
            comply with the provisions of subparagraph (a) of this
            Article
            43, and Tenant shall not call upon Landlord for any
            disbursement
            or outlay of money whatsoever in connection with such work,
            and
            hereby expressly releases and discharges Landlord of and
<PAGE>





            from any
            liability or responsibility whatsoever in connection
            therewith.
            (c) Nothing contained in this Lease shall authorize Tenant
            to do any act which may create or be the foundation for any
            lien,
            mortgage or other encumbrance upon the reversion or other
            estate
            of Landlord, or of any interest of Landlord in the Premises,
            or
            upon or in the Building or improvements thereon; it being
            agreed
            that should Tenant cause any alterations, changes,
            additions,
            improvements or repairs to be made to the Premises, or cause
            materials to be furnished or labor to be performed therein
            or
            thereon, neither Landlord nor the Premises shall, under any
            circumstances, be liable for the payment of any expense
            incurred
            or for the value of any work done or material furnished to
            the
            Premises or any part thereof; but all such alterations,
            changes,
            additions, improvements and repair and materials and labor
            shall
            be at Tenant's expenses and Tenant shall be solely and
            wholly
            responsible for the contractors, laborers and materialmen
            furnishing labor and materials to said Premises and the
            Building
            or any part thereof. If, because of any act or omission of
            Tenant, any mechanic's or other lien or order for the
            payment of
            money shall be filed against the Premises or any Building or
            improvement thereon, or against Landlord (whether or not
            such
            lien or order is valid or enforceable as such), Tenant
            shall, at
            Tenant's own cost and expense, within forty (40) days after
            the
            date of notice thereof, cause the same to be canceled and
            discharged of record, or furnish Landlord with a surety bond
            issued by a surety company or letter of credit reasonably
            satisfactory to the Landlord, protecting Landlord from any
            loss
            because of non-payment of such lien claim, and further shall
            indemnify, defend and save harmless Landlord from and
            against any
            and all costs, expenses, claims, losses or damages,
            including
            reasonable counsel fees, resulting therefrom or by reason
            thereof.
            44.  Repairs.  Supplementing Article 4, Tenant shall take
<PAGE>





            good care of the Premises and shall, at the Tenant's own
            cost and
            expense, make all repairs except structural repairs not
            caused or
            occasioned by Tenant, its agents, employees, licensees,
            invitees
            or customers. Tenant shall make all non-structural repairs,
            within the Premises, including but not limited to the
            following:
            repairs to plate glass, ceilings, floors, non-bearing walls,
            electrical, plumbing and decorating, and at the end or other
            expiration of the term, shall deliver up the Premises in
            good
            order or condition, damages by the elements and normal wear
            and
            tear excepted. In the event Landlord is responsible for any
            repairs Tenant shall give Landlord written notice detailing
            the
            repairs to be done and Landlord shall have a reasonable time
            to
            perform such repairs.
            45.  Maintenance.   Supplementing Article 4, Tenant agrees
            that it shall maintain the Premises in a clean and orderly
            manner
            at its sole cost and expense to the reasonable satisfaction
            of
            Landlord, and Landlord shall have no responsibility
            whatsoever
            for maintenance or cleaning of the Premises. Tenant shall
            place
            its refuse in areas approved by Landlord. Landlord shall
            have the
            right to remove Tenant's refuse from non-approved areas and
            charge Tenant two times Landlord's removal cost. Tenant, at
            its
            sole cost and expense shall contract with an independent
            company
            for the cleaning of the Premises and the removal of its
            refuse.
            46.  Landlord's Obligation re Compliance.    Supplementing
            Article 6, Landlord shall not be liable for any change of
            condition in the Premises caused by the compliance with any
            present or future laws, rules, order, ordinances,
            requirements,
            or regulations of any Federal, State, County or Municipal
            authority or government, including any change required by
            law for
            off-street parking or similar legislation, or by revocation
            by
            any such authority or authorities of any permit or license
            heretofore granted, if such revocation was caused by
            Landlord or
            by construction or operation of any public or quasi-public
            work,
<PAGE>





            or by the erection of any building or buildings upon any
            adjacent
            property, or by change of environment. Landlord shall not be
            liable for interference with or loss of light or other
            incorporeal hereditaments caused by anybody other than
            Landlord,
            or caused by or for the City or any governmental or quasi-
            governmental agency or authority in connection with the
            construction of any public or quasi-public work.
            47.  Modification of the Lease for Mortgagee Supplementing
            Article 7, if, in connection with obtaining financing or
            refinancing for the premises demised to Landlord (as
            hereinafter
            defined), a banking, insurance or other institutional lender
            shall request reasonable modifications to this Lease as a
            condition to such financing or refinancing, Tenant will not
            withhold, delay or defer its consent thereto, provided that
            such
            modifications do not increase Tenant's rent obligations and
            do
            not materially increase Tenant's non-monetary obligations
            hereunder (as an example, Tenant may be required to give
            notices
            of any defaults by Landlord to such lender and/or permit the
            curing of such defaults by such lender together with the
            granting
            of such additional time for such curing as may be required
            for
            such lender) or materially adversely affect the leasehold
            interest hereby created. In no event shall a requirement
            that the
            consent (providing that such consent shall not be
            unreasonably
            withheld) of any such lender be given for any modification
            of
            this Lease, be deemed to materially adversely affect the
            Leasehold interest hereby created.
            48.  Insurance.     Supplementing Article 8, Tenant
            covenants to provide on or before the commencement of the
            demised
            term and to keep in force during the demised term: (i)
            Commercial
            general liability insurance relating to the Premises and its
            appurtenances on an occurrence basis with minimum limits of
            liability in amounts of Five Million ($5,000,000) Dollars
            for
            bodily injury, personal injury or death to any one person,
            Six
            Million ($6,000,000) Dollars for bodily injury, personal
            injury
            or death to more than one person, and One Million
            ($1,000,000)
            Dollars with respect to damage to property by water or
            otherwise;
<PAGE>





            (ii) Fire and extended coverage, vandalism, mischief and
            special
            extended coverage insurance in an amount adequate to cover
            the
            cost of replacement of all improvements in the Premises; and
            (iii) Rent Insurance in an amount equal to one year of Basic
            Rent
            and additional rent, if Landlord cannot obtain same as part
            of
            its regular insurance package without additional cost.
            Tenant
            agrees to deliver to Landlord, at least thirty (30) days
            prior to
            the time such insurance is first required to be carried by
            Tenant, and thereafter at least thirty (30) days prior to
            the
            expiration of any such policy, either a duplicate original
            or a
            certificate and true copy of all policies procured by Tenant
            in
            compliance with its obligations hereunder, together with
            evidence
            of payment therefor and including an endorsement which
            states
            that such insurance may not be canceled except upon thirty
            (30)
            days' prior written notice to Landlord and any designees of
            Landlord.
            All of the aforesaid insurance shall be issued in the name
            of Tenant with Landlord (and any designees of Landlord) and
            any
            mortgagee of the Building as their interests may appear as
            Additional Insureds on the liability policies and as payee
            as
            their interests may appear on the property policies, and
            shall be
            written by one or more responsible insurance companies
            satisfactory to Landlord; all such insurance shall contain
            endorsements that: (i) Such insurance may not be canceled or
            amended with respect to Landlord (or its designees) except
            upon
            thirty (30) days' prior written notice by certified mail to
            Landlord (and such designees) by the insurance company; and
            (ii)
            Tenant shall be solely responsible for the payment of
            premiums
            and that Landlord (or its designees) shall not be required
            to pay
            any premiums for such insurance.
            The minimum limits of the comprehensive general liability
            policy of insurance shall be subject to increase at any time
            and
            from time to time, after the commencement of the third (3rd)
            year
<PAGE>





            of the full term hereof if Landlord in the exercise of its
            reasonable judgment shall deem same necessary for adequate
            protection.
            49.  Indemnification.    Supplementing Article 8, Tenant
            shall indemnify and save harmless Landlord and Landlord's
            agents
            and at Landlord's option, defend Landlord and Landlord's
            agents
            against and from (i) any and all claims against Landlord or
            such
            agents directly or indirectly of whatever nature arising
            wholly
            or in part from any act, omission or negligence of Tenant,
            its
            contractors. licensees, agents, servants, officers,
            employees,
            invitees or visitors; (ii) all claims against Landlord or
            such
            agents arising directly or indirectly from any accident,
            injury
            or damage whatsoever caused to any person or to the property
            of
            any person and occurring during the term of this Lease in or
            about the Premises, or occurring outside of the Premises but
            anywhere within or about the land or the Building, where
            such
            accident, injury or damage results or is claimed to have
            resulted
            wholly or in part from any act, omission or negligence of
            Tenant
            or Tenant's contractors, licensees, agents, servants,
            officers,
            employees, invitees or visitors; (iii) any breach, violation
            or
            nonperformance of any covenant, condition or agreement in
            this
            Lease set forth and contained on the part of Tenant to be
            fulfilled, kept, observed and performed; and (iv) any cost,
            liability or responsibility for the payment of any sales tax
            with
            respect to any installations, furniture, furnishings,
            fixtures or
            other improvements located, installed or constructed in the
            Premises, or the filing of any tax return in connection
            therewith
            (although Landlord agrees to execute any such return if
            required
            by law) regardless of whether such tax is imposed upon
            Landlord
            or Tenant. This indemnity and hold harmless agreement shall
            include indemnity from and against any and all liability,
            fines,
            suits, demands, costs, damages and reasonable expenses of
            any
<PAGE>





            kind or nature (including without limitation attorney's and
            other
            professional fees and disbursements) incurred in or in
            connection
            with any such claims (including any settlement thereof) or
            proceeding brought thereon, and the defense thereof.
            50. Waiver of Subrogation.    Supplementing Articles 8 and
            9, each party releases and waives any claim or right of
            recovery
            against the other party, its affiliates, agents, successors
            and
            assigns, for any loss resulting from causes covered by
            insurance
            and shall procure a waiver of subrogation on the part of the
            insurer against the other party by an endorsement to all
            insurance policies whereby the insurer recognizes that the
            assured has waived any right of recovery from the other
            party. A
            copy of such endorsement shall be deposited with Landlord
            and
            Tenant. Landlord shall not be liable for any damage to or
            destruction of any of Tenant's goods, merchandise, fixtures
            or
            other property by fire, or other cause or casualty no matter
            how
            caused, except by reason of Landlord's negligence.
            51.   Assignment and Subletting.   Supplementing Article 11,
            (a) Tenant, for itself, its heirs, distributees, executors,
            administrators, legal representatives, successors and
            assigns,
            expressly covenants that it shall not assign, or mortgage or
            otherwise encumber, all or any part of its interest in this
            Lease, sublet the Premises, in whole or in part, or suffer
            or
            permit the Premises or any part thereof to be used by
            others,
            without the prior written consent of Landlord in each
            instance.
            Tenant represents that it is a public corporation and is the
            entity conducting all of the "Vermont Teddy Bear" business.
            (b) If Tenant shall desire to assign its interest in this
            Lease or to sublet all or any portion of the Premises,
            Tenant
            shall submit to Landlord a written request for Landlord's
            consent
            to such assignment or subletting, which request shall be
            accompanied by the following information: (i) the name and
            address of the proposed assignee or subtenant; (ii) if
            Tenant
            desires to sublet a portion of the Premises, a description
            of the
            portion to be sublet, together with a floor plan thereof;
            (iii)
            the terms and conditions of the proposed assignment or
<PAGE>





            subletting; (iv) the nature, character and image of the
            business
            of the proposed assignee or subtenant and its proposed use
            of the
            Premises; (v) current financial information and any other
            information Landlord may, in its sole discretion, request
            with
            respect to the proposed assignee or subtenant; (vi) the
            number of
            years of operation of the business of the proposed assignee
            or
            subtenant and (vii) the current and past addresses where the
            proposed assignee or sublessee has conducted business and
            the
            dates of when the business was conducted. Notwithstanding
            the
            foregoing, any proposed assignment or sub-letting shall be
            subject to Landlord's consent in its sole discretion.
            (c) Tenant shall reimburse Landlord within thirty (30) days
            written notice for reasonable costs, including reasonable
            attorneys' fees and disbursements that may be incurred by
            Landlord in connection with said proposed assignment or
            sublease.
            (d) Every subletting hereunder is subject to the express
            condition, and by accepting a sublease hereunder each
            subtenant
            shall be conclusively deemed to have agreed, that if this
            Lease
            shall be terminated prior to the Expiration Date or if
            Landlord
            shall succeed to Tenant's estate in the Premises, then at
            Landlord's election such subtenant shall either surrender
            the
            Premises to Landlord or shall attorn to and recognize
            Landlord as
            such subtenant's landlord under such sublease, and such
            subtenant
            shall promptly execute and deliver any instrument Landlord
            may
            reasonably request to evidence such attornment.
            (e) Tenant shall deliver to Landlord a copy of each sublease
            or assignment with assumption made hereunder within five (5)
            days
            after the date of its execution. Tenant shall remain fully
            liable
            for the performance of all of Tenant's obligations hereunder
            notwithstanding any subletting or assignment provided for
            herein
            and, without limiting the generality of the foregoing, shall
            remain fully responsible and liable to Landlord for acts and
            omissions of any subtenant, assignee or anyone claiming by,
            through or under any subtenant or assignee which shall be in
            violation of any of the obligations of this Lease, and any
            such
<PAGE>





            violation shall be deemed to be a violation by Tenant.
            Tenant
            herein named and any Guarantor, and each immediate or remote
            successor in interest of Tenant herein named, shall remain
            jointly and severally (as a primary obligor) with its
            assignee
            and all subsequent assignees for the performance of Tenant's
            obligations hereunder, and shall remain fully and directly
            responsible and liable to the Landlord for all the acts and
            omissions on the part of any assignee subsequent to it in
            violation of any of the obligations of this Lease.
            (f) Notwithstanding anything to the contrary contained in
            this Lease, no assignment of Tenant's interest in this Lease
            shall be binding upon Landlord unless the assignee shall
            execute
            and deliver to Landlord an agreement, in recordable form,
            whereby
            such assignee agrees unconditionally to be bound by and to
            perform all of the obligations of Tenant hereunder and
            further
            expressly agrees that notwithstanding such assignment the
            provisions of this Article shall continue to be binding upon
            such
            assignee with respect to all future assignments and
            transfers.
            (g) In the event that Tenant fails to execute and deliver
            any assignment or sublease to which Landlord consented under
            the
            provisions of this Article within sixty (60) days after the
            giving of such consent, then Tenant shall again comply with
            all
            of the provisions of this Article before assigning its
            interest
            in this Lease or subletting the Premises.
            (h) The consent of Landlord to an assignment or a subletting
            shall not relieve Tenant from obtaining the express consent
            in
            writing of Landlord to any further assignment or subletting.
            (i) If Tenant's interest in this Lease be assigned, or if
            the Premises or any part thereof be sublet or occupied by
            anyone
            other than Tenant, Landlord may collect rent from the
            assignee,
            subtenant or occupant and apply the net amount collected to
            the
            Basic Rent and all additional rent herein reserved, but no
            such
            assignment, subletting, occupancy or collection shall be
            deemed a
            waiver of the provisions of this Article or of any default
            hereunder or the acceptance of the assignee, subtenant or
            occupant as Tenant, or a release of Tenant from the further
            observance or performance by Tenant of all of the covenants,
            conditions, terms and provisions on the part of Tenant to be
<PAGE>





            performed or observed.
            52.  Access to Premises. Supplementing Article 13, Landlord,
            for its agents, designees or employees, shall have the right
            to
            enter into the Premises for purposes of inspection or to do
            such
            repair work as may be required which shall be done except in
            the
            case of emergencies at reasonable times and after reasonable
            notice. Tenant shall provide Landlord with an emergency 24
            hour
            phone number where a representative of Tenant can be
            reached.
            53.  Use of Premises.    Supplementing Articles 2 and 15,
            Tenant covenants that Tenant will not use or permit any
            person to
            use the Premises for any unlawful purpose. Tenant shall
            obtain
            and maintain at Tenant's sole cost and expense all licenses
            and
            permits from any and all governmental authorities having
            jurisdiction of the Premises which may be necessary for the
            conduct of Tenant's business therein. Tenant further
            covenants to
            comply with applicable laws, resolutions, codes, rules and
            regulations of any department bureau, agency or any
            governmental
            authority having jurisdiction over the operation, occupancy,
            maintenance and use of the Premises for the purposes set
            forth
            herein. Tenant will indemnify and save Landlord harmless
            from and
            against any claims, penalties, loss, damage or expenses
            imposed
            by reason of governmental authorities having jurisdiction
            thereof
            related to Tenant's use and occupancy. Tenant shall obtain
            at its
            sole cost and expense an amended certificate of occupancy
            permitting Tenant's use if required by law.
            54.  Tenant's Use and Compliance with Laws and Insurance.
                 Supplementing Article 15, subject to and in accordance
            with all rules, regulations, laws, ordinances, statutes and
            requirements of all governmental
            authorities and the Fire Insurance Rating Organization and
            Board
            of Fire Insurance Underwriters, and any similar bodies
            having
            jurisdiction hereof, Tenant covenants and agrees that it
            shall
            use the Premises solely for the uses detailed in Article 2.
            55.  Quality of Building.     Supplementing Article 15,
            Tenant, recognizing that the Building has been developed and
            is
<PAGE>





            maintained as a first class Building and as an additional
            inducement to Landlord to enter into this Lease, covenants
            and
            agrees that at all times (i) the business to be conducted in
            or
            from the Premises and the kind and quality of the
            merchandise,
            goods, and services offered in the conduct thereof will be
            reputable in every respect and in keeping with the high
            quality
            of the Building, (ii) Tenant shall maintain any and all
            exterior
            portions of the Premises in a clean and orderly condition in
            accordance with the high quality of the building and (iii)
            Tenant
            shall maintain the exterior and interior windows, including
            any
            and all displays and advertisements located therein, of the
            Premises in a neat and orderly condition and in a quality
            and
            character representative of the high quality of the
            building.
            56.  Vending Machines.   Supplementing Article 15, Tenant
            shall not place or permit to be placed any vending machines
            in
            the Premises, except for the exclusive use of Tenant's
            employees,
            without the prior written consent of Landlord in each
            instance.
            57.  Three Proceedings and Grace Period.
            (a)  Supplementing Article 17, if during any twenty-four
            month period, Landlord shall have commenced against Tenant
            two
            summary proceedings for the non-payment of rent, and Tenant
            shall
            within such twenty-four month period commit a third default
            then
            any provision of this Lease which provides for notice of
            default
            or opportunity to cure default notwithstanding, Landlord, at
            its
            option, may immediately exercise any remedy afforded by this
            Lease, including without limitation, service of a 7 day
            notice of
            termination without further notice to Tenant, and without
            any
            opportunity for Tenant to cure such default.
            (b)  Tenant shall have a five day grace period prior to
            being in default for the payment of Basic Rent. This grace
            period
            shall be automatically eliminated in the event Tenant is
            late in
            the payment of Basic Rent beyond such grace period more than
            two
<PAGE>





            times in any 12 month period.
            58.  Late Charges.  Supplementing Article 17, if Tenant
            shall make any payment of fixed rent, additional rent or
            other
            charges more than five (5) days after the same is due and
            payable
            Tenant  shall pay interest on the amount due equal to the
            lower
            of 12% per annum or the highest rate permitted by law
            ("Interest
            Rate"). Such amounts shall be payable as additional rent
            hereunder. Additionally, in the event Landlord incurs any
            expenditure due to a default by Tenant, in addition to such
            amounts, Tenant shall pay interest on the amounts expended
            at the
            Interest Rate.
            59.  No Representations. Supplementing Article 20, neither
            Landlord nor Landlord's agents have made any representations
            or
            promises with respect to the Building or Premises except as
            herein expressly set forth and Tenant agrees that it will
            accept
            possession of the Premises "as is" except for the work to be
            performed by the Landlord as shown on Exhibit B.
            60.  Provisions re Surrender. Supplementing Article 21,
            Tenant shall ascertain from Landlord within thirty (30) days
            prior to the end of the term hereof or any extension or
            renewal
            thereof whether Landlord desires to have any non-movable
            fixtures, machinery and/or equipment permanently installed
            by
            Tenant, removed from the Premises with the Premises being
            returned, in as good a condition as upon the commencement of
            the
            term hereof, reasonable wear and tear excepted. All
            fixtures,
            machinery and equipment installed by Tenant, except those
            items
            which Landlord expressly agrees are to remain in the
            Premises and
            become the property of Landlord, remaining within the
            Premises
            after the expiration of such term or sooner termination
            thereof
            and after Tenant is no longer in possession of the Premises
            shall, at Landlord's option, either (i) become the property
            of
            the Landlord, free of any claim by Tenant or any person
            claiming
            through Tenant, or (ii) be removed and disposed of by
            Landlord,
            at Tenant's cost and expense, without further notice to or
            demand
            upon Tenant. Machinery, fixtures, chattels or equipment, if
<PAGE>





            any,
            furnished or installed by Tenant, the cost of which is to be
            borne by Landlord, shall become the property of Landlord
            upon
            payment therefor by Landlord or reimbursement of Tenant by
            Landlord, as the case may be, and shall not be removed by
            Tenant.
            The Tenant's obligations under this Article shall survive
            the
            expiration or sooner termination of the term hereof.  Tenant
            shall not make any installation of any other ventilating,
            air-
            conditioning or heating equipment or perform any mechanical
            work
            without the prior written consent of Landlord.
            61.  Holdover. Supplementing Article 21, in the event that
            the Tenant shall remain in the Premises after the expiration
            or
            sooner termination of the term of this Lease without having
            entered into a new written lease with the Landlord, executed
            and
            delivered by Landlord and Tenant, such holding over shall
            not
            constitute the renewal or extension of this Lease.  The
            Landlord
            may at its option, elect to treat the Tenant as one who has
            not
            removed at the end of his term, and thereupon be entitled to
            all
            the remedies against the Tenant provided by law in that
            situation
            and rent shall accrue from the date of such holdover at the
            rate
            of two (2) times the then monthly Basic Rent, plus any
            additional
            rent or escalations due, or the Landlord may elect, at its
            option, to construe such holding over as a tenancy from
            month to
            month subject to the payment of all rent in advance at the
            rate
            of two (2) times the then monthly Basic Rent, plus any
            additional
            rent or escalations due.
            62.  Notice.   Supplementing Article 27, any notice,
            statement, demand or other communication required or
            permitted to
            be given rendered or made by either party to the other,
            pursuant
            to this Lease or pursuant to any applicable law or
            requirement of
            public authority, shall be in writing (whether or not so
            stated
            elsewhere in this Lease) and shall be given by registered or
            certified mail, return receipt requested, or by recognized
<PAGE>





            overnight delivery service, addressed to each of the
            following
            parties:
            if to Landlord:          538 Madison Realty Company
            c/o Siegel Consultants, Ltd.
            50 School Lane
            Huntington, New York  11743
            Attn:     Robert Siegel
            Joan Siegel

            with a copy to:          Hoffinger Friedland Dobrish
               Bernfeld & Stern, P.C.
            110 East 59th Street
            New York, New York  10022
            Attn: Samuel P. Ross, Esq.

            if to Tenant:       The Vermont Teddy BEar Co., Inc.
            2236 Shelburne Road
            P.O. Box 965
            Shelburne, Vermont  05482

            with a copy:        Spencer R. Knapp, Esq.
            Dinse, Erdmann, Knapp & McAndrew
            209 Battery Street
            P.O. Box 988
            Burlington, Vermont  05402

            All notices shall be deemed to have been given, rendered or
            made
            five (5) days after the date of mailing thereof or upon
            receipt,
            whichever is sooner.  Either party may, by notice as
            aforesaid,
            designate a different address or addresses for notices,
            statements, demands or other communications intended for it,
            provided, however, that Tenant shall not designate more than
            one
            (1) of such addresses (and one (1) for a copy) at any one
            time.
            63.  HVAC.     Supplementing Article 30, Tenant at its sole
            cost and expense shall be responsible for the installation
            of any
            heating, ventilating and air conditioning and exhaust
            ("HVAC")
            systems if same do not presently exist.  Landlord makes no
            representations as to the condition of any existing HVAC
            system.
            Tenant, at Tenant's sole cost and expense, shall be
            responsible
            for all maintenance and repairs to the HVAC system and any
            replacement thereof.  Upon the expiration or other
            termination of
            this Lease, TEnant shall not remove the HVAC system and the
            HVAC
<PAGE>





            system shall be in as good condition as upon the
            commencement of
            the term hereof, reasonable wear and tear excepted.
            Nothing herein contained shall be construed so as to require
            Landlord to repair, maintain or replace same.
            64.  Utilities.     Supplementing Article 30, it is
            expressly understood that Landlord shall not supply to the
            Premises any utilities or building services of any kind,
            except
            as may be specifically set forth herein.  Tenant agrees to
            make
            its own arrangements with the public utility company
            servicing
            the Premisses for the furnishing of and payment of all
            charges
            for electricity, gas and for all other utilities consumed by
            Tenant in the Premises, and for the installation of meters
            therefor including branch meters.  In no event shall
            Landlord be
            responsible for charges for electricity, gas or any other
            utilities consumed in the Premises by tEnant.  All meters at
            the
            Premises for the purposes of measuring Tenant's consumption
            of
            the respective utilities (gas, electricity, steam, etc.)
            shall be
            installed by and maintained by Tenant, at Tenant's sole cost
            and
            expense, in good order and condition. Notwithstanding the
            foregoing, Landlord, at Tenant's expense may install sub-
            meters.
            Interruption or curtailment of any such service shall not
            constitute a constructive or partial eviction, nor entitle
            Tenant
            to any compensation or abatement of rent. In no event shall
            Tenant in any way interfere with or tie in to any electrical
            feeders, risers or other electrical installations within the
            Building of which the Premises form a part.

            65.  Security. Supplementing Article 31, Tenant shall
            deposit additional amounts of security so that at all times
            the
            amount of security shall equal six (6) months of the then
            Basic
            Rent. Interest on the cash security deposit less 1% shall
            accrue
            and be part of the security deposit. Tenant in lieu of cash
            may
            deliver an irrevocable letter of credit to Landlord from a
            bank
            and in form satisfactory to Landlord in its sole discretion
            and
            Landlord shall return the cash deposit plus accrued interest
            to
<PAGE>





            Tenant.
            66.  Definition of Owner and Landlord.  Supplementing
            Article 33, wherever the word Owner appears it shall also
            mean
            Landlord and wherever the word Landlord appears it shall
            also
            mean Owner.
            67.  Plate Glass.   Supplementing Article 36, anything
            contained herein to the contrary notwithstanding, Tenant at
            its
            own expense shall replace throughout the Premises all glass
            broken after the commencement date of this Lease.
            68.  Estoppel. Supplementing Article 38, Tenant shall,
            without charge at any time and from time to time, within ten
            (10)
            days after request by Landlord, duly execute, acknowledge
            and
            deliver to the owner of the Building or to any mortgagee,
            assignee of any mortgagee or purchaser, or any proposed
            mortgagee, assignee of any mortgagee or purchaser, or any
            other
            person, firm or corporation specified by Landlord a written
            statement certifying such reasonable information regarding
            this
            Lease as Landlord may request including (without
            limitation):
            (a)  The commencement and expiration dates of this Lease;
            (b)  This Lease is unmodified and in full force and effect
            (or, if there has been modification, that the same is in
            full
            force and effect as modified and stating the modifications);
            (c)  Whether or not the Landlord is in default under this
            Lease and if so, specifying each such default;
            (d)  Whether or not there are then existing any set-offs or
            defenses against the enforcement of any of the agreements,
            terms,
            covenants or conditions hereof upon the part of Tenant to be
            performed or complied with (and, if so, specifying the
            same); and
            (e)  The dates, if any, to which the rental and all other
            charges hereunder have been paid in advance, if any.
            Breach of the foregoing will constitute Tenant's
            acknowledgment, which may be relied on by any person holding
            or
            proposing to acquire an interest in the Building or this
            Lease,
            that this Lease is unmodified and in full force and effect
            and
            will constitute, as to any such person, a waiver of any
            defaults
            on Landlord's part which may exist prior to the date of such
            notice. The foregoing does not limit any other rights and
            remedies available to Landlord for breach of this Article.
            69.   Limitation of Landlord's Liability.
<PAGE>





            (a)  With respect to any provision of this Lease which
            provides, in effect, that Landlord shall not unreasonably
            withhold or unreasonably delay any consent for any approval,
            Tenant in no event, shall be entitled to make, nor shall
            Tenant
            make any claim and Tenant hereby waives any claim for money
            damages; nor shall Tenant claim any money damages by way of
            set-
            off, counterclaim or defense, based upon any claim or
            assertion
            by Tenant that Landlord has unreasonably withheld or
            unreasonably
            delayed any consent or approval; but Tenant's sole remedy
            shall
            be an action or proceeding to enforce any such provision or
            for
            specific performance, injunction or declaratory judgment.
            (b)  Notwithstanding anything in this Lease to the contrary,
            (i) Landlord shall have no liability for any breach for
            damages
            to Tenant's merchandise or personalty or for loss of
            business and
            (ii) the Landlord and its partners, agents and employees
            shall
            have no personal liability with respect to any claim Tenant
            may
            have under this Lease. Tenant's sole recourse shall be
            against
            Landlord's interest in the Building.
            70.  Tenant Occupying Other Space. Tenant shall not directly
            or indirectly occupy any space in the Building (by
            assignment,
            sublease or otherwise) other than the Premises, except with
            the
            prior written consent of Landlord in each instance.
            71.  Landlord's Right to Make Changes in the Building.
                 Landlord reserves the right, at any time, without
            incurring
            any liability to Tenant therefor, to make such changes in or
            to
            the Building and which the Premises hereunder are a part
            thereof
            and the fixtures and equipment thereof, as well as in or to
            the
            street entrances, halls, passages, elevators and stairways
            thereof, as it may deem necessary or desirable, so long as
            such
            changes will not unreasonably obstruct or impair access or
            visibility to the Premises or materially impacts the
            operation of
            Tenant's business.
            72.  Lease Not Binding Until Signed.    This Lease is not an
            offer and shall not be binding upon the Landlord unless and
            until
<PAGE>





            it is signed by Landlord and delivered to Tenant and shall
            not
            prejudice Landlord in any pending litigation.
            73.  Rider Controls.     In the event of any inconsistency
            between provisions of the printed form of this Lease and the
            provisions of the rider, the provisions of the rider shall
            control. Wherever in the printed form the word "premises" or
            "demised premises" appear they shall be deemed to read
            "Premises", wherever the word "building" appears it shall be
            deemed to read "Building", and wherever the words "this
            lease" or
            "the lease" appear they shall be deemed to read "this Lease"
            or
            "the Lease".
            74.   Signs.
            (a)  Tenant shall not, without Landlord's prior consent in
            its sole discretion, place or install any sign on any
            exterior
            wall of the Premises. Tenant must obtain Landlord's written
            approval for the location and design of any sign or awning.
            Notwithstanding the foregoing, Landlord shall not
            unreasonably withhold its consent to Tenant installing flags
            displaying The Great American Teddy Bear or Vermont Teddy
            Bear
            logos on the exterior or facade above the second level
            (which
            facade shall be for the exclusive use of the second floor
            tenant's displays and awnings). Awning colors may be chosen
            by
            Tenant subject to Landlord's approval, but may not bear any
            wording or logos (except on street level). All signs, flags,
            and
            awnings must comply with all governmental rules and
            regulations.
            Tenant must obtain all requisite permits. Landlord shall not
            unreasonably withhold or delay its consent to street level
            signs
            in character with Grade A Office Buildings in the Plaza
            District
            provided such signs are within the boundaries of the store.
            Landlord consent will be in its sole discretion for other
            locations.
            (b) As used in this article, the word "sign" shall be
            construed to include any placard, light or other advertising
            symbol or object irrespective of whether same be temporary
            or
            permanent.
            75.  Broker.   Landlord and Tenant each represent and
            warrant to each other that each has dealt with no broker in
            connection with this Lease and that this Lease was not
            brought
            about or procured through the use, negotiation and/or
            instrumentality of any agent or broker. Landlord and Tenant
            covenant and agree to indemnify and hold each other harmless
<PAGE>





            from
            and against any and all claims for commissions and other
            compensation made by any agent or agents and/or any broker
            or
            brokers based on any dealings between them and any agent or
            agents and/or any broker or brokers, together with all costs
            and
            expenses incurred by Landlord or Tenant in resisting such
            claims,
            (including, without limitation, attorneys' fees).
            76.  Landlord's Right to Cancel.   As a material inducement
            to Owner to execute and deliver this Lease to Tenant, Tenant
            hereby agrees that Owner shall have the option (hereinafter
            referred to as the "Cancellation Option"), exercisable at
            Owner's
            sole discretion, to cancel this lease as hereinafter
            provided in
            the event that the Owner intends to (a) either demolish or
            substantially renovate the Building or change the use of the
            Building for any reason whatsoever or (b) the land and/or
            Building shall hereinafter be involved in an assemblage,
            regardless of whether or not such assemblage shall occur as
            a
            result of Landlord acquiring a fee or other interest in
            other
            land(s) or building(s) or a third party acquiring Landlord's
            land
            or building. If Owner shall desire to exercise the
            Cancellation
            Option, Owner shall send written notice thereof (hereinafter
            referred to as the "Cancellation Date") for the cancellation
            of
            the term hereof, which date shall not be earlier than (a)
            180
            days from the date the Cancellation Notice is sent and (b)
            the
            first day of the third lease year.
            THE NOTICE SHALL BE SUBSTANTIALLY AS FOLLOWS:

            "Please be advised that the undersigned Owner
            hereby intends to [INSERT REASON]. Pursuant
            to Article 76 of the lease for the premises
            you occupy at 538 Madison Avenue, New York,
            New York, Owner hereby elects to terminate
            your lease as of the ____ day of _____________,
            199__ (Cancellation Date)."

            In the event that Owner shall send the Cancellation Notice
            to Tenant as hereinbefore provided, the term hereof shall
            cease
            and expire as of the Cancellation Date as if such date were
            expressly set forth herein as the Expiration Date, and the
            Tenant
            shall quit and surrender the premises on or before
<PAGE>





            Cancellation
            Date, and the Owner shall immediately be entitled to the
            recovery
            of the possession of the demised premises in the manner
            herein
            provided; and the Tenant shall on demand execute and deliver
            to
            the Owner a written surrender in recordable form.
            In the event of such termination, provided Tenant is not
            then in default, Landlord shall pay to Tenant upon Tenant
            vacating the Premises, the sum of (i) $100,000 and (ii) the
            unamortized cost of leasehold improvements made to the
            Premises
            by Tenant in accordance with generally accepted accounting
            principals ("Termination Payment"). The Termination Payment
            shall
            be reduced by an amount equal to 1/120 per month for each
            month
            which elapses from the Commencement Date to the Cancellation
            Date
            multiplied by the Termination Payment.

            In the event Landlord terminates this Lease and Tenant is
            not then in default, Tenant's security deposit shall be
            returned
            to Tenant after Landlord verifies Tenant has vacated the
            Premises.
            Tenant hereby acknowledges its understanding that Owner will
            suffer great and irreparable damage, the extent of which is
            now
            and will be in the future impossible to quantify, in the
            event
            that Tenant shall fail to vacate and surrender the Premises
            to
            Owner as hereinbefore provided in the event that Owner shall
            duly
            exercise the Cancellation Option. In view thereof, the
            parties
            hereto agree that, in the event the Premises shall not be
            vacated
            and surrendered to Owner for any reason whatsoever on or
            before
            the close of business on the Cancellation Date, Owner shall
            have
            the following remedies in addition to any other remedies
            available to Owner at law or in equity, which remedies Owner
            may
            exercise independently, in any sequence, or cumulatively at
            Owner's sole election:
            (i) to enter a final order in any court of appropriate
            jurisdiction dispossessing Tenant from the demised premises
            and
            to cause a warrant to be issued thereon without a stay of
            execution, and Tenant hereby consents to the entering of
<PAGE>





            such an
            order and the issuance of such a warrant and hereby waives
            all
            rights that it may have to contest the same or to assert a
            claim
            for any damages whatsoever that it may sustain or for any
            award
            or compensation to which it may otherwise be entitle by
            reason
            thereof; and
            (ii) to require Tenant to pay the sum of Two Thousand
            Five Hundred ($2,500.00) Dollars a day from and after the
            day
            next succeeding the Cancellation Date to and including the
            day
            upon which the demised premises is finally vacated and
            surrendered to Owner, representing liquidated damages that
            Tenant
            acknowledges Owner will sustain as a result of Owner's not
            obtaining possession thereof upon the Cancellation Date.
            In the event Tenant challenges Landlord's right to exercise
            its Cancellation Option, Tenant in no event shall (a) be
            entitled
            to make any claim nor shall Tenant make any claim to remain
            in
            possession of the Premises, nor (b) commence any action or
            proceeding to remain in possession or for injunction or-
            declaratory judgment. Tenant's sole remedy shall be limited
            to a
            claim, action or proceeding for money damages only.
            77.  Security Gate. Tenant shall remove at its sole cost and
            expense the existing security gate and replace it with
            either an
            interior security gate or an exterior gate which shall be of
            a
            type in keeping with the high quality of the Building.
            78.  Tenant's Work: Access to Landlord. Tenant shall be
            doing certain work ("Tenant's Work") which shall be
            performed in
            accordance with Article 43.  Landlord shall either pay to
            Tenant
            or give Tenant a rent credit in the sum of $
            ______________________ towards Tenant's Work.  Tenant shall
            permit Landlord's contractors in the Premises in order for
            Landlord to provide extra support for the second floor.
            79.  Landlord's Right to Recapture Space.    Landlord shall
            have the right to recapture up to 1 foot by 2 feet of the
            Premises on the outer perimeter of the Premises. Landlord
            shall
            give Tenant a rent abatement for the space taken The
            recapture is
            subject to the following conditions: (a) the recapture is
            reasonably necessary to allow the Landlord to perform
            alterations
<PAGE>





            reasonably necessary for other tenants; (b) the space
            recaptured
            cannot be along the street facade; and (c) the recaptured
            space
            will be in a location that will not unreasonably obstruct or
            impair access to or visibility of the Premises or materially
            affect the operation of Tenant's business.
            80.  Four Foot Corridor. Tenant acknowledges that the four
            foot corridor excluded from the description of the Premises
            does
            not presently exist. However, Landlord in its sole
            discretion may
            make such a corridor and Tenant shall not be entitled to any
            rent
            abatement.
            81.  Method of Payment.  Tenant shall make all monetary
            payments including Basic Rent and additional rent to
            Landlord by
            either a wire transfer or check drawn on a New York
            Clearinghouse
            Bank.
            EXHIBIT 10.35

                                               The Vermont Teddy Bear
            Co.
                                               2236 Shelburne Road
                                               P.O. Box 965
                                               Shelburne, Vermont 05482


                                               December 31, 1996




            Fred Marks, President
            Venture Management Group, Inc.
            160 Shelburne Road
            Burlington, Vermont  05401

            Dear Fred:

            This letter will confirm the agreement between Vermont Teddy
            Bear
            Company ("VTBC") and Venture Management Group, Inc.("Venture
            Group"), regarding the provision of consulting services by
            Venture Group to VTBC, as follows:

            1.   Scope of Consulting Services.

                 During the term of this agreement, Venture Group will
            provide consulting services to VTBC, when and as needed by
            VTBC, in the areas of financial management, corporate
            finance, investor relations and strategic planning (the
<PAGE>





            "Consulting Services"). The Consulting Services shall be
            provided by one or more qualified Consultants employed by
            Venture Group and acceptable to VTBC. Initially, VTBC
            acknowledges and agrees that the Consulting Services are to
            be provided by yourself, given your knowledge, background
            and familiarity with the business of VTBC.  In the event
            that Venture Group chooses to provide the Consulting
            Services through additional or alternative Consultants, such
            persons shall be subject to the approval of VTBC, which
            shall not be unreasonably delayed or withheld.  It is
            contemplated that the Consulting Services shall involve a
            maximum of 1500 hours of time, in total, each year to be
            provided by the Consultants furnished by Venture Group.
            VTBC shall from time to time define the specific scope of
            consulting projects to be provided by Venture Group.
            Venture Group shall have the sole authority to determine the
            method and manner of providing the Consulting Services.

            2.   Term.

                 The term of this agreement shall commence on January 1,
            1997
            and shall terminate on December 31, 2006, unless earlier
            terminated in accordance with this agreement.


            3.   Consulting Fees.

                 In consideration of the Consulting Services to be
            provided
            hereunder, Venture Group shall be paid consulting fees of
            $65,000 per year, payable monthly, plus expenses and
            disbursements reasonably incurred in the performance of
            services under this Agreement, provided, however, that in
            the event VTBC defaults in its obligations under this
            Agreement, Venture Group may, at its sole option, declare
            the entire compensation under this contract to be
            immediately due and payable.  If a "change in control of the
            Company" occurs during the term of this Agreement, Venture
            Group may, at its sole option, declare the entire
            compensation under this Agreement to be immediately due and
            payable.  In either such event, the balance then due and
            owing shall bear interest at the prime rate of VTBC's
            principal lender, adjusted quarterly, until full payment is
            made to Venture Group, and Venture Group shall be entitled
            to collect from VTBC its reasonable attorneys' fees arising
            from any default and all costs of collection.  For purposes
            of this Agreement, a "change in control of the Company"
            shall be deemed to have occurred if:  (a) any person becomes
            the "beneficial owner" (as defined in Rule 13d-3 under the
            Securities Exchange Act of 1934, as amended), of securities
            of the Company representing 51% or more of the combined
            voting power of the Company's then outstanding securities;
            or (b) the shareholders of the Company approve a merger or
<PAGE>





            consolidation of the Company with any other corporation,
            other than a merger or consolidation which would result in
            the voting securities of the Company outstanding immediately
            prior thereto continuing to represent (either by remaining
            outstanding or by being converted into voting securities of
            the surviving entity) at least 80% of the combined voting
            power of the voting securities of the Company or such
            surviving entity) at least 80% of the combined voting power
            of the voting securities of the Company or such surviving
            entity outstanding immediately after such securities of
            merger or consolidation, or the shareholders of the Company
            approve an agreement for the sale or disposition by the
            Company of all or substantially all of the Company's assets.

            4.   Nature of Relationship.

                 For all purposes, Venture Group and the Consultants
            furnished by it shall be deemed to be independent
            contractors of VTBC and shall not be subject to the
            direction, supervision or control of VTBC.  Consultants
            furnished by Venture Group shall not be considered or deemed
            to be employees or agents of VTBC for any purpose and
            neither Venture Group, nor the Consultants which it
            furnishes shall represent or hold themselves out as such in
            any manner.  Consultants furnished by Venture Group shall
            not be entitled to receive any of the benefits paid or
            provided by VTBC to its employees, such as health,
            disability or life insurance, paid sick leave or vacation.
            Venture Group shall be solely responsible for arranging to
            provide to consultants which it furnishes any of such
            benefits it may consider appropriate, and for paying any
            state or federal income taxes which may be due in connection
            with the compensation paid or payable by Venture Group to
            its employees in connection with this agreement.  VTBC shall
            not, withhold on behalf on Venture Group or its employees
            any state or federal income, social security or Medicare
            taxes or any unemployment contributions.

            5.   Termination.

                 This agreement may be terminated by either party upon a
            material breach and the failure to cure such breach within
            thirty (30) days written notice to the breaching party.

            If this letter agreement accurately conforms to your
            understanding of the agreement between VTBC and Venture
            Group
            please so indicate by signing in the space provided below.

            Very truly yours,


            ________________________________________
            VERMONT TEDDY BEAR COMPANY, INC.
<PAGE>





            R. Patrick Burns, President

            AGREED:


            _______________________________________
            VENTURE MANAGEMENT GROUP, INCORPORATED
            Fred Marks, President

            EXHIBIT 10.36


                 INDEX TO LEASE

            Paragraph Page

            1.   Leased Premises     1

            2.   Term of Lease  1

            3.   Minimum Rent   1

            4.   Percentage Rent     2

            5.   Additional Rent -Taxes   2

            6.   Maintenance of Common Areas -
            Tenant's Contribution    2

            7.   Utilities 2

            8.   Use of Premises     3

            9.   Assignment - Subleasing  3

            10.  Repair - Maintenance     4

            11.  Indemnity and Public Liability Insurance     4

            12.  Landlord's Access to Premises 5

            13.  Insurance 5

            14.  Total or Partial Destruction  6

            15.  Eminent Domain 6

            16.  Other Stores   7

            17.  Landlord's Remedies 7

            18.  Covenant of Quiet Enjoyment   7

            19.  Estoppel Certificate - Subordination -
<PAGE>





            Attornment - Mortgage    8

            20.  Security Deposit    8

            21.  Assignment of Rent  8

            22.  Mechanic's Lien     8

            23.  Real Estate Broker  9

            24.  Notices   9

            25.  Holdover  9

            26.  Miscellaneous Provisions 9

            27.  When Lease Becomes Binding    10

            Execution and Acknowledgement 10,11

            Exhibit A - Leased Premises   12
            Exhibit B - Landlord's Work   13
            Exhibit C - Estimated C.A.M. Expenses for the first year of
            the
            Lease     14
            Exhibit D - Rules and Regulations  15
            Exhibit E - Tenant's Work          16




            INDENTURE OF LEASE, made as of this 17th day of January
            1997, by and between THE TOWN OF FREEPORT, MAINE, a Maine
            Municipality having a place of business at the Municipal
            Building, Freeport Maine 04032 (hereinafter referred to as
            "Landlord") and THE VERMONT TEDDY BEAR CO., INC. a New York
            corporation having a mailing address of 2236 Shelburne Road,
            P.
            O. Box 965, Shelburne, Vermont, (hereinafter referred to as
            "Tenant").

                 WITNESSETH:

            1.   A. Leased Premises. Landlord hereby leases to Tenant,
            and Tenant hereby rents from Landlord, upon the terms and
            provisions of this Lease, the store premises which the
            parties
            deem to contain approximately 6000 square feet cross hatched
            on
            Exhibit A and the surrounding land and improvements depicted
            on
            said Exhibit A which is attached hereto and incorporated
            herein
            (hereinafter referred to as the "Leased Premises",
<PAGE>





            "Facility",
            "Demised Premises", or "Store") and comprising the entire
            facility known as The Bartol Library Building, located on
            Main
            Street, Freeport, Maine, as more fully set forth in and
            subject
            to the terms and conditions of this Indenture of Lease and
            to
            such rules and regulations for the use thereof as may be
            prescribed from time to time by the Landlord in accordance
            with
            Paragraph 8(c) of the Lease.

            2.   Term of Lease.      (a) The term of this Lease shall be
            for a period of one hundred twenty (120) calendar months,
            plus
            the number of days remaining in the calendar month in which
            this
            Lease commences. The term shall commence on the earlier to
            occur
            of (a) forty five (45) days after the date on which the
            Landlord
            substantially completes Landlord's work (in accordance with
            the
            provisions of this Lease) which shall not occur later than
            November 1, 1997; or (b) the opening by Tenant of its
            business in
            the Leased Premises; and the term hereof shall end on the
            last
            day of the 120th calendar month after the calendar month in
            which
            this Lease commences. The Landlord agrees to use reasonable
            efforts to substantially complete its work on or before
            September
            1, 1997. The parties hereto agree, upon demand of the other,
            to
            execute a written declaration, in recordable form,
            expressing the
            commencement and termination dates of the term when the
            commencement date has been determined.

            (b)  The Leased Premises shall be deemed to be ready for
            occupancy by Tenant on the date there is sent to Tenant a
            notice
            from Landlord to the effect that Landlord has substantially
            completed all of Landlord's work described in Exhibit B
            which is
            attached hereto and incorporated herein, which notice will
            be
            binding and conclusive in the absence of bad faith.
            "Substantially completed", as used in this paragraph, is
            defined
            to mean completed in such fashion as to enable Tenant upon
            performance of the work to be done by Tenant, to open for
<PAGE>





            business in the normal manner, exclusive of minor punch list
            items. Landlord's and Tenant's architects shall mutually
            agree on
            the punch list items.

            (c)  Tenant shall perform, at its own cost and expense, all
            of Tenant's work set forth in Exhibit E which is attached
            hereto
            and incorporated herein and shall equip the Leased Premises
            with
            trade fixtures and all personal property necessary for the
            operation of Tenant's business.

            3.   Minimum Rent.  (a) Tenant covenants and agrees to pay
            to Landlord, at Landlord's office at the Municipal Building,
            Freeport, Maine 04032, or at such other place as Landlord
            shall
            from time to time designate in writing, minimum rent for the
            Leased Premises inclusive, without deduction or offset as
            follows:

            (1) $240,000.00 per year ($20,000.00 per calendar month)
            ($40 per square foot) for years 1 through 4 of the term;

            (2) $252,000.00 per year ($21,000.00 per calendar month)
            ($42 per square foot) for years 5 through 7 of the term; and

            (3) $264,000.00 per year ($22,000.00 per calendar month)
            ($44 per square foot) for years 8 through 10 of the teen.

            Each monthly payment shall be paid in advance on the first
            day of each and every calendar month during the term.

            Landlord and Tenant expressly covenant and agree that any
            payment of minimum or additional rent which is not paid to
            Landlord within ten (10) days of the first day of each
            calendar
            month during the term shall be considered a late payment of
            rent
            (hereinafter referred to as "Late Rent Payment"). Landlord
            and
            Tenant further covenant and agree that Landlord, in its sole
            discretion may impose a late charge for any Late Rent
            Payment
            made by Tenant during the term or any extension thereof in
            an
            amount equal to four percent (4%) of the minimum rent due
            Landlord each month in addition to the monthly rent then due
            or
            in addition to the additional rent then due. The rights
            afforded
            to Landlord pursuant to this Paragraph 3 shall be in
            addition to
            and not in lieu of any other rights and remedies Landlord
<PAGE>





            may
            have under this Lease.

            (a)  If Tenant fails to open for business at the
            commencement date set forth in Paragraph 2, and/or (b)
            thereafter, if Tenant fails to continuously operate its
            business
            in accordance with the terms of this Lease or vacates the
            Leased
            Premises prior to the expiration of the term hereof,
            Landlord
            shall have the right to treat any of the aforesaid events as
            an
            event of default and shall, have the right in any of the
            aforesaid events, but not the obligation, upon 60 day's
            notice,
            to require the Tenant to surrender the Leased Premises to
            the
            Landlord in consideration of the appropriate pro rata
            adjustment
            of the Tenant's obligations under this Lease..
            Notwithstanding
            the above, Tenant's closing of the store for inventory not
            more
            than three (3) days per year shall not constitute a default
            under
            this paragraph.

            Hours of operation shall be consistent with major retailers,
            in the "Freeport Downtown Village Area" (such as Polo/Ralph
            Lauren, Dansk, Cole Haan The Gap but not L.L. Bean) such
            hours
            being no less than approximately 10:00 A.M. to 6:00 P.M. six
            (6)
            days a week.

            4 (a). Percentage Rent - Intentionally Deleted.

            4 (b). Lease Year - Whenever used in this Lease  the words
            "lease year" shall mean the twelve (12) full calendar months
            of
            the term commencing with the January 1st immediately
            following
            the commencement date and ending December 31st of such
            calendar
            year and each succeeding twelve (12) month period; provided,
            however, that the first lease year shall commence on the
            commencement date and terminate on the immediately following
            thirty-first (31st) day of December in the term of this
            Lease and
            the last lease year shall terminate on the last day of the
            term
            of this Lease.
<PAGE>





            5.   Additional Rent-Taxes.   Tenant shall pay annually all
            real estate taxes (if any) and assessments (hereinafter
            "taxes")
            assessed against the Leased Premises. Tenant's pro rata
            share
            hereunder is 100%. Tenant's payment of said taxes shall be
            due
            and payable 1/12 each month in advance with the minimum
            rent,
            based on Landlord's good faith estimate of what total taxes
            will
            be, with a final adjustment to be made as soon as said pro
            rata
            share has been determined. The provisions of this Paragraph
            are
            predicated upon the present system of taxation in the State
            of
            Maine. If taxes upon rentals shall be substituted, in whole
            or in
            part, for the present ad valorem real estate taxes, then
            Tenant's
            pro rata share of taxes shall be based upon such taxes on
            rentals
            to the extent to which the same shall be a substitute for
            present
            ad valorem real estate taxes, plus said ad valorem real
            estate
            taxes. The foregoing shall generally apply to any system of
            taxation instituted which replaces the present method of
            taxation, in whole or in part.

            6.   Maintenance of Common Areas - Tenant's Contribution.
                 (a) Tenant shall cause the Facility (except for repairs
            and
            maintenance allocated to Landlord in Section 10 and
            elsewhere in
            this Lease) including the parking facilities and sidewalks,
            and
            lighting thereof, to be maintained in reasonably good repair
            and
            clean condition at all times during the term of this Lease.
            Accumulations of snow will be removed from parking areas by
            Tenant and from sidewalks by Tenant.

            (b)  All commercially reasonable costs and expenses of every
            kind and nature paid or incurred by Landlord in operating,
            managing equipping, policing, lighting, repairing replacing
            and
            maintaining all parking facilities, the Off Premises Parking
            facilities, sidewalks, enclosed portions of the Facility,
            and all
            other facilities (including, but without limitation, all
            landscaping and gardening) shall be paid by Tenant in the
            manner
<PAGE>





            hereinafter provided. Such commercially reasonable costs and
            expenses shall likewise include (but shall not be limited
            to)
            water and sewer charges; premiums for liability, property
            damage,
            fire, and all other insurance carried by Landlord with
            respect to
            the Leased Premises; wages, unemployment taxes, social
            security
            taxes, personal property taxes and assessments; but there
            shall
            be excluded costs of equipment properly chargeable to
            capital
            account and depreciation of the buildings and parking
            facilities.
            Tenant shall reimburse Landlord for all such costs and
            expenses
            of every kind and nature paid or incurred by Landlord for
            all
            premiums for liability, property damage, fire, and all other
            insurance carried by Landlord with respect to the Leased
            Premises, the Tenant's per space charge representing the
            Tenant's
            parking, or other required parking facilities or spaces.
            Tenant's
            insurance costs and expenses set forth in this Paragraph
            shall be
            determined in accordance with the same formula by which
            Tenant's
            share of the real estate taxes is determined under Paragraph
            5.
            Tenant's  share of said premiums shall be due and payable in
            monthly installments, in the amount estimated by Landlord,
            on the
            first day of each and every calendar month, in advance.
            Within
            ninety (90) days after the end of each calendar year during
            the
            term hereof, Landlord shall furnish to Tenant a statement,
            in
            reasonable detail, setting forth the computation of such
            total
            costs and expenses; thereupon there shall be a prompt
            adjustment
            between Landlord and Tenant, with payment to, or repayment
            by,
            Landlord, as the case may require,, to the end that Landlord
            shall receive the entire amount of Tenant's share of said
            costs
            and expenses, and not more.  Tenant's estimated expenses for
            the
            first year of the term of this Lease is set forth on Exhibit
            C.
            The Landlord's statement will be deemed correct unless
<PAGE>





            questioned
            by Tenant within ninety (90) days after being delivered.

            (c)  Tenant's share of the commercially reasonable costs and
            expenses set forth in this Paragraph shall be determined in
            accordance with the same formula by which Tenant's pro rata
            share
            of the real estate taxes is determined under Paragraph 5.
            Tenant's pro rata share shall be paid in monthly
            installments, in
            the amount reasonably estimated by Landlord, on the first
            day of
            each and every calendar month, in advance. Within ninety
            (90)
            days after the end of each calendar year during the term
            hereof,
            Landlord shall furnish to Tenant a statement in reasonable
            detail
            setting forth the computation of such total costs and
            expenses;
            thereupon there shall be a prompt adjustment between
            Landlord and
            Tenant, with payment to, or repayment by, Landlord, as the
            case
            may require, to the end that Landlord shall receive the
            entire
            amount of Tenant's pro rata share of said costs and
            expenses, and
            no more.

            (d) Off Site Parking.    As a portion of the Common Area
            Maintenance Charges, Tenant will pay Landlord the cost of
            the off
            site parking spaces allocated to Tenant (including without
            limitation all snow removal, grounds care, cleaning, rubbish
            removal, lighting, repairs, restriping or other costs
            required to
            be provided under current Town of Freeport Ordinances in
            conjunction with the Tenant's retail use of the Leased
            Premises.
            Tenant acknowledges that Landlord has agreed to designate
            all off
            site parking spaces as "shared" parking as defined in the
            Town of
            Freeport Parking Ordinance and such spaces cannot be
            restricted
            in any way to provide for exclusive use by Tenant or any
            other
            party.

            (e) Cost of Compliance.  Tenant agrees to be responsible for
            its pro rated share of all reasonable costs required to be
            incurred to comply with any and all future ordinances, laws,
            rules or regulations promulgated by the Town or any other
<PAGE>





            Municipality that arise out of Tenant's use or operation of
            the
            Leased Premises as a retail facility.

            7.   Utilities.     Tenant shall pay for all of its
            requirements for utilities, including, but not limited to,
            gas,
            steam, water, electricity, oil, phone, and the like,
            including
            all utilities necessary for heating and air conditioning the
            Leased Promises including sewer charges. In the event that
            Landlord shall elect to supply any of such utilities, Tenant
            agrees to purchase the same from Landlord, provided the rate
            does
            not exceed the rate which Tenant would be required to pay in
            a
            market competitive and independent transaction to the
            utility
            and/or fuel oil company furnishing the same.

            8.   Use of Premises.    (a)  It is understood and agreed by
            Tenant that the Leased Premises shall be used and occupied
            by
            Tenant only for the purpose of: the retail sale of teddy
            bear
            items, other stuffed animal items and related
            "bearaphenalia" and
            featuring "Make your own Teddy Bear" inter-activity or such
            other
            retail activity that relates to Teddy Bears and for no other
            use.

            (b)  Tenant further agrees to conform to the following
            provisions in addition to the Rules and Regulations set
            forth in
            Exhibit D attached hereto during the entire term of this
            Lease:
            (1) No auction, fire, or bankruptcy sales may be conducted
            within
            the Leased Premises without the prior written consent of
            Landlord; (2) Tenant shall not use the sidewalks adjacent to
            the
            Leased Premises for any purpose without obtaining temporary
            activity permits; (3) Tenant shall keep the display windows
            of
            the Lease Premises clean; (4) Tenant shall receive and
            deliver
            goods and merchandise only in the manner at such time and in
            such
            areas as may be in conformity with approvals and conditions
            imposed by the Town of Freeport. (a) Semi-trailer limitation
            signs shall be reviewed by the Code Enforcement Officer,
            Police
            Chief and the Town Planner. (5) All trash, refuse, and the
<PAGE>





            like,
            shall be kept in covered metal cans, which metal cans shall
            be
            kept within the Leased Premises at all times, and in no
            event
            stored outside of the same; unless Landlord shall provide a
            separate trash storage area and such trash, refuse and the
            like
            will only be removed at times which comply with the Freeport
            Zoning Ordinance approvals and conditions imposed by the
            Town of
            Freeport; (6) Tenant shall not place on the exterior of the
            Leased Premises or visible from the exterior (including, but
            without limitation, windows, doors, and entrance lobbies)
            any
            signs other than those which comply with the Freeport Zoning
            Ordinance and site review. The Tenant will be allowed to
            have
            signage in the approved locations. The proposed signage and
            the
            lighting for the signage must be approved by both Landlord
            and
            applicable Town Officials or Boards. If, subsequent to the
            commencement of the Lease the Tenant is granted additional
            signage by the Town of Freeport, such additional signage
            shall be
            allowed if it conforms to the above conditions. The signs
            desired
            by Tenant shall be purchased, installed and maintained at
            Tenant's sole cost and expense; (7) Tenant shall not perform
            any
            act or carry on any practice which may physically damage the
            Leased Premises or any part of the Facility, or cause any
            offensive odors or loud noise (including, but without
            limitation,
            the use of loudspeakers or musical instruments), or cause a
            nuisance or menace to other persons; (8) The Leased Premises
            will
            be kept open for business for those hours and days
            consistent
            with other direct retailers in the area; (9) Tenant shall
            not use
            any portion of the Leased Premises for storage or other
            services,
            except in conjunction with its business in the Leased
            Premises;
            (10) Tenant acknowledges that Freeport, Maine requires
            retailers
            to recycle cardboard and agrees to comply with this
            requirement;
            (11) Tenant acknowledges that Freeport, Maine requires that
            all
            restrooms located in retail facilities will be open to the
            public; and (12) Tenant's janitorial service shall be at its
<PAGE>





            sole
            cost and expense.

            (c)  Tenant will observe and comply with the Rules and
            Regulations set forth on Exhibit D and such other reasonable
            Rules and Regulations from time to time mutually agreed to
            by
            Landlord and Tenant.

            (d)  Tenant covenants and agrees that, with respect to any
            hazardous, toxic or special wastes, materials or substances
            including asbestos, waste oil and petroleum products (the
            "Hazardous Materials") which Tenant, its agent or employees,
            may
            use, handle, store or generate in the conduct of its
            business at
            the Leased Premises it will: (i) comply with all applicable
            laws,
            ordinances and regulations which relate to the treatment,
            storage, transportation and handling of the Hazardous
            Materials;
            (ii) that Tenant will in no event permit or cause any
            disposal of
            Hazardous Materials in, on or about the Leased Premises or
            the
            Facility and in particular will not deposit any Hazardous
            Materials in, on or about the floor or in any drainage
            system or
            in the trash containers which are customarily used for the
            disposal of solid waste; (iii) that with respect to any off-
            site
            disposal, shipment storage, recycling or transportation of
            any
            Hazardous Materials, Tenant shall properly package the
            Hazardous
            Materials and shall cause to be executed and duly led and
            retain
            all records required by federal, state or local law; (iv)
            that
            Tenant will at all reasonable times and upon reasonable
            notice
            (except in emergency situations) permit Landlord or its
            agents or
            employees to enter the Leased Premises to inspect the same
            for
            compliance with the terms of this Paragraph and will further
            provide upon five (5) days notice from Landlord copies of
            all
            records which Tenant may be obligated to obtain and keep in
            accordance with the terms of this Paragraph; (v) that upon
            termination of this Lease, Tenant will at its expense,
            remove all
            Hazardous Materials from the Leased Premises which were
            deposited
<PAGE>





            by the Tenant, its employees, agents, or invitees after the
            date
            Landlord substantially completes all of Landlord's Work and
            Tenant takes possession of the Leased Premises and Facility,
            and
            comply with respect to Hazardous Materials deposited in, on,
            or
            about the Leased Premises or the Facility by Tenant, its
            employees, agents, or invitees, with applicable Maine and
            federal
            law as the same may be amended from time to time, including
            without limitation Chapter 851 of the Regulations for the
            Maine
            Department of Environmental Protection, Section 11 relating
            to
            "Closure." For all purposes under this Lease, neither
            Landlord,
            nor Landlord's contractors, subcontractors, agents,
            employees, or
            any other person or entities performing or providing any
            work or
            services to the Facility, the Leased Premises or the areas
            surrounding same, whether before or after the commencement
            of
            this Lease, shall ever be deemed to be an agent or employee
            of
            Tenant; and (vi) Tenant further agrees to deliver the Leased
            Premises to Landlord at the termination of this Lease free
            of
            pollutants, contaminants, special wastes, underground
            storage
            tanks installed by Tenant, its employees or agents;
            asbestos,
            waste oil, petroleum, other hazardous, pathological,
            radioactive,
            dangerous or toxic substances, materials or wastes which
            have
            been deposited by Tenant, its employees,, agents or invitees
            after the date Tenant takes possession of the Leased
            Premises.
            The terms used in this Paragraph shall include, without
            limitation, all substances, materials, etc., designated by
            such
            terms under any laws, ordinances or regulations, whether
            federal,
            state or local. Tenant further agrees to (a) hold harmless
            and
            (b) indemnify Landlord, its officers directors,
            shareholders,
            partners, employees, agents and contractors for and against
            any
            and all claims, loss, costs, damages and expenses, including
            reasonable attorneys' fees, which may arise in the event
            that
<PAGE>





            Tenant fails to comply with any of the provisions contained
            in
            this Paragraph. The terms of this Paragraph 8(d) shall
            expressly
            survive the expiration or earlier termination of this Lease.

            (e)  Landlord is aware of no Hazardous Materials located at
            the Leased Premises prior to the date of this Lease (other
            than
            normal office products).

            9.   Assignment - Subleasing  Tenant covenants and agrees
            that it will not assign this Lease the whole or any part of
            the
            Leased Premises without in each instance having first
            received
            the express written consent of Landlord which consent may,
            at the
            sole, exclusive and absolute discretion of Landlord be
            withheld.
            Tenant covenants and agrees that it will not sublease any or
            the
            whole of the Leased Premises without, in each instance
            having
            first received the express written consent of the Landlord,
            which
            consent shall not be unreasonably withheld or delayed. In
            any
            case where Landlord shall consent to such subletting: (1)
            Tenant
            named herein shall remain fully liable for the obligations
            of
            Tenant hereunder, including, without limitation' or the
            obligation to pay the rent and other amounts provided under
            this
            Lease; and (2) the proposed subtenant will have equal or
            greater
            financial strength and stature as Tenant; and (3) Landlord
            shall
            receive any amount received by Tenant from such subtenant in
            excess of the minimum rent. For the purposes of this
            Paragraph
            the term "assignment" shall not include a transfer of any
            part or
            all of the corporate shares of Tenant so as to result in a
            change
            in the effective voting control of Tenant.  The provisions
            of the
            Paragraph shall not be applicable to an assignment of this
            Lease
            by Tenant to a subsidiary or controlling corporation,
            provided
            (and it shall be a condition of the validity of any such
            assignment) that such subsidiary or controlling corporation
<PAGE>





            agrees directly with Landlord to be bound by all of the
            obligations of Tenant hereunder, including, without
            limitation,
            the obligation to pay the rent and other amounts provided
            for
            under this Lease, and the covenant against further
            assignment;
            but such assignment shall not relieve Tenant of any of its
            obligations hereunder, and Tenant shall remain fully liable
            therefor.  Notwithstanding anything to the contrary,
            however,
            within forty-five days after Tenant submits a letter of
            intent to
            sublease or assign the Tenant's interest in this Lease,
            Landlord
            shall have the right to require (so long as such assignment
            is
            not for the purpose of obtaining Tenant's financing) that
            all (or
            any portion) of the premises which Tenant proposes to
            sublease or
            as to which Tenant proposes to assign this lease (if the
            subtenant or assignee is not an entity controlled by the
            same
            interests which control Tenant) be surrendered to Landlord
            for
            the term of the proposed sublease or assignment in
            consideration
            of the pro rata adjustment of (based on the number of
            rentable
            square feet being recaptured), or cancellation of, the
            Tenant's
            obligations hereunder.

            10.  Repair - Maintenance.    (a) Landlord agrees to keep in
            good order, condition, and repair, the foundation and
            structural
            components of the building of the Leased Premises and will
            be
            responsible to maintain and replace the roof. Landlord
            agrees to
            repair and replace the sidewalks, driveways and parking
            areas (to
            the extent there are any); however, Tenant shall remain
            solely
            liable to clean debris from and remove snow and ice from all
            such
            sidewalks, driveways and parking areas at the Premises.
            Tenant
            will keep in good order, condition and repair the HVAC and
            mechanical systems and Landlord will transfer any existing
            warranty to the Tenant to the extent transferable. Tenant
            shall
            also be responsible for the cost of routine maintenance of
<PAGE>





            such
            mechanical systems, glass, windows and the so called store
            front,
            irrespective of which party installed same. This Paragraph
            is not
            intended to refer to damage by fire or other insured risk to
            the
            Leased Premises, provision for which is hereinafter made.
            Tenant
            will receive all mechanical and HVAC systems provided for in
            Landlord's work in good working order.

            (b)  Tenant agrees that from and after the date that
            possession of the Leased Premises is delivered to Tenant,
            and
            until the end of the term of this Lease, it will keep neat
            and
            clean and maintain in good order, condition and repair: all
            interior and exterior portions of the Leased Premises
            including
            but not limited to the store front and the exterior and
            interior
            portions of all doors, windows, plate glass and showcases
            surrounding the Leased Premises; all plumbing and sewage
            facilities within the Leased Premises; fixtures; interior
            wars;
            floors; ceilings; signs (including exterior signs where
            permitted); and all wiring, electrical systems, interior
            building
            appliances, heating, air conditioning and ventilation
            systems and
            equipment, (but excepting the foundation and the structural
            components of the building of the Leased Premises and
            maintenance
            and replacing the roof and certain repairs and replacing of
            sidewalks, driveways and parking areas, except as set forth
            in
            paragraph 10(a) above). Tenant shall repaint and refurbish
            the
            Leased Premises from time to time in order to assure that
            the
            same are kept in a first-class, tenantable, and attractive
            condition throughout the term of this Lease consistent with
            other
            first class retail locations in Freeport, Maine. There is
            excepted from this paragraph, however, damage to such
            portions of
            the Leased Premises originally delivered by Landlord to
            Tenant as
            is caused by those hazards which are covered by the policies
            of
            fire insurance with extended coverage endorsements carried
            by
            Landlord and described in Paragraph 13 hereof, unless caused
<PAGE>





            by
            Tenant, its employees, agents or invitees. Tenant further
            agrees
            that the Leased Premises shall be kept in a clean, sanitary
            and
            safe condition in accordance with the laws of the State of
            Maine
            and ordinances of the City of Freeport Maine, and in
            accordance
            with all directions, rules, regulations of the Health
            Officer,
            Fire Marshal, Building Inspector, and other proper officers
            of
            the governmental agencies having jurisdiction over the
            Leased
            Premises.

            (c)  Tenant shall not make any alterations, renovations,
            improvements and/or additions to the Leased Premises without
            first obtaining, in each instance, the written consent of
            Landlord, it being understood that Landlord must also obtain
            the
            consent of Landlord, except that Tenant may make non-
            structural
            interior alterations to and/or remodel the interior costing
            not
            more than Five Thousand Dollars ($5,000), upon condition
            that
            such alterations shall be made in accordance with all
            applicable
            laws and in a good and first-class, workmanlike manner
            without
            Landlord's consent. In no event shall Tenant be permitted to
            alter or renovate the exterior of the Leased Premises
            without
            Landlord's consent which may be denied in Landlord's
            discretion.
            Any and all alterations, additions, improvements, and
            fixtures
            which may be made or installed by either Landlord or Tenant
            upon
            the Leased Premises and which in any manner are attached to
            the
            floors, walls or ceilings (including, without limitation,
            any
            linoleum or other floor covering of similar character which
            may
            be cemented or otherwise adhesively affixed to the floor)
            shall
            remain upon the Leased Premises, and at the termination of
            this
            Lease shall be surrendered with the Leased Premises as a
            part
            thereof without disturbance, molestation or injury .
<PAGE>





            However, the
            usual trade fixtures and furniture which may be installed in
            the
            Leased Promises prior to or during the term hereof at the
            cost of
            Tenant may be removed by Tenant from the Leased Premises
            upon the
            termination of this Lease. Further, Tenant covenants and
            agrees,
            at its own cost and expense, to repair any and all damage to
            the
            Leased Premises resulting from or caused by such removal. In
            no
            event shall Tenant be entitled to remove any heating,
            ventilating, or air conditioning equipment, nor shall Tenant
            be
            entitled to remove any store front or grate or related
            opening
            and closing mechanisms.

            11.  Indemnity and Public Liability Insurance.    (a) Except
            to the extent caused by the negligence of Landlord, its
            agents,
            servants, and employees, or a breach of this Lease by
            Landlord.
            Tenant will defend and will indemnify Landlord and save it
            harmless from and against any and all claims, actions,
            damages,
            liability and expense (including, but not limited to,
            attorney's
            fees and disbursements) in connection with the loss of life,
            personal injury or damage to property or business arising
            from,
            related to, or in connection with the occupancy or use by
            Tenant
            of the Leased Premises occasioned wholly or in part by
            negligence
            or intentional act or omission of Tenant, its contractors,
            subcontractors, subtenants, licensees or concessionaires, or
            its
            or their respective agents, servants or employees. The
            provisions
            of this Paragraph shall survive the termination or earlier
            expiration of the term of this Lease. Neither Landlord, its
            agents, servants, employees nor contractors shall be liable
            for
            and Tenant hereby releases them from all claims for, loss of
            life, personal injury or damage to property of business
            sustained
            by Tenant or any person claiming through Tenant resulting
            from
            any fire, accident, occurrence or condition in or upon the
            Facility or any part thereof (including, without limitation,
            the
<PAGE>





            Leased Premises), including, but not limited to, such claims
            for
            loss of life, personal injury or damage resulting from (1)
            any
            defect in or failure of plumbing, heating or air
            conditioning
            equipment, electrical wiring or installation thereof, water
            pipes, stairs, railings or walks; (2) any equipment or
            appurtenances being out of repair, (3) the bursting, leaking
            or
            running of any tank, washstand, water closet, waste pipe,
            drain
            or any other pipe or tank in, upon or about the Facility,
            (4) the
            backing up of any sewer pipe; (5) the escape of steam or hot
            water, (6) water, snow or ice being upon or coming through
            the
            roof or any other place upon or near the Leased Premises or
            the
            building of which the same is a part; (7) the falling of any
            fixture, plaster or stucco; (8) broken glass; and (9) any
            act or
            omission of any subtenants or other occupants of the Leased
            Premises. Notwithstanding the above, on work performed by
            Landlord, the Landlord's work will be delivered in good
            working
            order.

            (b)  Tenant agrees to maintain in full force during the term
            hereof a policy of public liability and property damage
            insurance
            under which Landlord, and Tenant are named as insureds, and
            under
            which the insurer agrees to indemnify and hold Landlord and
            those
            in privity of estate with Landlord harmless from and against
            all
            cost, expense and/or liability arising out of or based upon
            any
            and all claims, accidents, injuries, and damages mentioned
            in
            subparagraph (a) of this Paragraph 11, except for those
            caused by
            the negligence of Landlord or Landlord's agents, or a breach
            of
            this Lease by Landlord.  Each such policy shall be non-
            cancelable
            with respect to Landlord without thirty (30) days' prior
            written
            notice to Landlord. The minimum limits of liability of such
            insurance shall be One Million Five Hundred Thousand Dollars
            ($1,500,000.00) for injury (or death) to any one person, and
            Three Million Dollars ($3,000,000.00) for injury (or death)
            to
<PAGE>





            more than one person, and Two Hundred Thousand Dollars
            ($250,000.00) with respect to damage to property in any one
            accident or other occurrence such policy or policies shall
            include Landlord and the Lessor as additional insured.
            Tenant
            agrees to deliver certificates of such insurance to Landlord
            at
            the commencement of the Term of this Lease and thereafter
            not
            less than thirty (30) Lays prior to the expiration of any
            such
            policy. Such insurance shall be noncancelable without thirty
            (30)
            days written notice to Landlord.

            (c)  Tenant agrees to use and occupy the Leased Premises at
            its own risk; and that Landlord shall have no responsibility
            or
            liability for any loss of or damage to fixtures or other
            personal
            property of Tenant except if caused by the Intentional act
            of
            Landlord. The provisions of this Paragraph 11 (c) shall
            apply
            during the whole of the term hereof.

            12.  Landlord's Access to Premises.     (a) Landlord may at
            all reasonable times during tile term of this Lease enter to
            inspect the Leased Premises upon reasonable notice and/or
            may
            show the Leased Premises to prospective purchasers, tenants,
            or
            lenders. At any time within nine (9) months immediately
            preceding
            the expiration of the term of this Lease, Landlord shall
            have the
            right to display on the exterior of the Leased Premises (but
            not
            so as to unreasonably obstruct the view thereof or access
            thereto) up to four customary "For Rent" signs (no larger
            than
            four feet by four feet each) on places other than on doors
            or
            covering windows and during such period Landlord may show
            the
            Leased Premises and all parts thereof to prospective tenants
            during Tenant's hours of operation or by special arrangement
            after hours. Landlord also reserves the right after notice
            of
            intention to so enter (except that in the event of an
            emergency,
            no notice shall be required) to enter the Leased Premises at
            any
            time and from time to time to make such repairs, additions,
<PAGE>





            or
            alterations as it may deem necessary for the safety,
            improvement,
            or preservation thereof, or of the building in which the
            Leased
            Premises is contained, but Landlord assumes no obligation to
            do
            so, and the performance thereof by Landlord shall not
            constitute
            a waiver of Tenant's default in failing to perform the same.
            Landlord shall in no event be liable for any inconvenience,
            disturbances, loss of business, or other damage to Tenant by
            reason of the performance by Landlord of any work in, upon,
            above
            or under the Leased Premises or the exercise by Landlord of
            any
            of its rights and remedies herein If Tenant shall have
            vacated or
            deserted the Leased Premises or, in the event of an
            emergency, or
            if in any other instance after Landlord has given notice of
            Landlord's intention to enter Tenant or Tenant's employees
            shall
            not be personally present to permit an entry into the Leased
            Premises, then in any such event, Landlord or its agents or
            employees may enter the same by the use of force or
            otherwise
            without rendering Landlord liable therefor, and without in
            any
            manner affecting Tenant's obligations under this Lease. The
            exercise of any such reserved right by Landlord shall not be
            deemed an eviction or disturbance of Tenant's use and
            possession
            of the Leased Premises and shall not render Landlord liable
            in
            any manner to Tenant or to any other person, nor shall the
            same
            constitute any grounds for an abatement of any rent
            hereunder.

            13.  Insurance.     (a) Landlord shall keep the Leased
            Premises insured against loss or damage by fire or other
            casualty, with the usual extended coverage endorsements and
            such
            other insurance as the then holder of the first mortgage on
            the
            Facility which includes the Leased Premises shall require,
            in
            amounts not less the full replacement value thereof above
            foundation walls or in such other amounts as are required by
            Landlord's mortgagee.

            (b)  Tenant agrees that it shall keep its property including
            but not limited to leasehold improvements, fixtures,
<PAGE>





            merchandise
            and equipment insured against loss or damage by fire or
            other
            casualty with the usual extended coverage endorsements. It
            is
            understood and agreed that Tenant assumes all risk of damage
            to
            its own property arising from any cause whatsoever,
            including,
            without limitation, loss by theft or otherwise, except if
            such
            damage is caused by the intentional act of Landlord.

            (c)  Insofar as and to the extent that the following
            provision may be effective without invalidating or making it
            impossible to secure insurance coverage obtainable from
            responsible insurance companies doing business in the State
            of
            Maine (even though extra premium may result therefrom)
            Landlord
            and Tenant mutually agree, to the extent of the insurance
            coverage only, that with respect to any property loss which
            is
            covered by insurance then being carried by them,
            respectively,
            the one carrying such insurance and suffering said loss
            releases
            the other of and from any and all claims with respect to
            such
            loss; and they further mutually agree that their respective
            insurance companies shall have no right of subrogation
            against
            the other on account thereof. In the event that extra
            premium is
            payable by either party as a result of this provision, the
            other
            party shall reimburse the party paying such premium the
            amount of
            such extra premium. If, at the written request of one party,
            this
            release and non -subrogation provision is waived,, then the
            obligation of reimbursement shall cease for such period of
            time
            as such waiver shall be effective, but nothing contained in
            this
            Paragraph shall be deemed to modify or otherwise affect
            releases
            elsewhere herein contained of either party for claims.

            (d)  Tenant covenants and agrees that it will not do or
            permit anything to be done in or upon the Leased Premises or
            bring in anything or keep anything therein, which shall
            increase
            the rate of insurance on the Facility above the standard
<PAGE>





            rate at
            a free standing retail store in Freeport, Maine; and Tenant
            further agrees that in the event it shall do any of the
            foregoing, it will promptly pay to Landlord on demand any
            such
            increase resulting therefrom which shall be due and payable
            as
            additional rent hereunder.

            14.  Total or Partial Destruction. (a) In the event that
            thirty-five percent (35%) or more of the leasable floor area
            of
            the Leased Premises are damaged or destroyed by fire or
            other
            casualty, Landlord shall have the right to terminate this
            Lease
            in the manner described hereafter. If by reason of such
            occurrence, the Leased Premises shall be rendered
            untenantable in
            whole or in part, Landlord, at its own expense, shall cause
            the
            damage to be repaired if this Lease is not terminated and
            the
            Minimum Rent and meanwhile shall be abated promptly and
            proportionately as to the portion of the Leased Premises
            rendered
            untenantable until delivery of possession of the restored
            Leased
            Premises. If the Leased Premises shall be damaged or
            destroyed by
            a fire or casualty not fully covered by Landlord's policies
            of
            fire and extended coverage insurance or if Landlord has the
            option to terminate described below, or if the Landlord, at
            its
            option, decides not to repair and restore the Leased
            Premises,
            Landlord shall have the right, to be exercised by notice in
            writing delivered to Tenant within ninety (90) days from and
            after the occurrence of such damage or destruction, to elect
            to
            cancel and terminate this Lease. Tenant shall have the right
            to
            elect to cancel and terminate this Lease upon 30 days
            notice, if
            Landlord advises Tenant that it does not intend to rebuild
            the
            Leased Premises. Either party shall have the right, to be
            exercised by notice in writing, delivered to the other
            within
            thirty (30) days from and after any occurrence which renders
            the
            Leased Premises wholly untenantable to cancel this Lease if
            said
<PAGE>





            destruction of the premises occurs during the term of this
            Lease,
            said cancellation to take effect thirty (30) days from and
            after
            the delivery of such notice by the other party, and in such
            event
            this Lease and the tenancy hereby created shall cease as of
            the
            aforesaid cancellation date, the rent to be adjusted as of
            such
            date; provided, however, that if Landlord shall commence
            repairs
            or reconstruction of the damaged portions of the Leased
            Premises
            during the period prior to the cancellation date, the
            tenancy
            shall remain in effect and said notice of cancellation shall
            be
            considered void. In no event shall Landlord be obligated to
            expend for any repairs or reconstruction pursuant to this
            Paragraph 14 an amount in excess of the insurance proceeds
            recovered by it and allocable to the damage to the Leased
            Premises after deduction therefrom of Landlord's reasonable
            expenses in obtaining such proceeds and any amounts required
            to
            be paid to Landlord's mortgagee. Notwithstanding anything
            herein
            to the contrary, in the event of a destruction, if Landlord
            elects to restore, Landlord will substantially complete its
            restoration within 180 days of the loss or either Landlord
            or
            Tenant may terminate this Lease upon notice to the other.
            Once
            the Landlord's restoration work is substantially complete,
            the
            Tenant's right to terminate will expire.

            (b)  If the Landlord is required to repair or reconstruct
            the Leased Premises pursuant to the provisions of this
            paragraph,
            its obligation shall be limited to the building shell and
            the
            condition of the Leased Premises as it existed at the
            commencement of this lease term. Tenant at Tenant's expense
            shall
            promptly perform all repairs or restoration not required to
            be
            done by Landlord and shall promptly re-enter the Leased
            Premises
            and commence doing business in accordance with the
            provisions of
            this Lease. With respect to total or partial destruction as
            described in paragraph 14 (a), Landlord shall not be liable
            for
<PAGE>





            delays occasioned by adjustment of losses with insurance
            carriers
            or by any other cause so long as Landlord shall proceed in
            good
            faith; this provision shall have no effect on the time
            periods
            described in 14(a).


            (c)  Notwithstanding anything set forth herein to the
            contrary, Tenant shall be responsible for all repairs and
            replacements of damage and/or destruction of the Leased
            Premises
            necessitated by burglary or attempted burglary, or any other
            illegal or forcible entry into the Leased Premises.

            (d)  Tenant covenants that it will give notice to Landlord
            of any accident or damage, whether such damage is caused by
            insured or uninsured casualty, occurring in, on or about the
            Leased Premises within forty eight (48) hours after Tenant
            has or
            should have had knowledge of the occurrence of such accident
            or
            damage. If Tenant breaches its covenant set forth in this
            paragraph 14(d), Landlord in addition to all other rights
            and
            remedies under this Lease, at law or in equity shall, at its
            option, be relieved of any of its obligations under this
            Paragraph 14.

            15.  Eminent Domain.     (a) If all of the Leased Premises
            shall be taken by condemnation or right of eminent domain,
            either
            party, upon written notice to the other, shall be entitled
            to
            terminate this Lease, provided that such notice is given not
            later than thirty (30) days after Tenant has been deprived
            of
            possession. Should more than 30% of the Leased Promises be
            so
            taken or condemned then Landlord or Tenant may, terminate
            this
            Lease in the manner described above within sixty (60) days.
            If
            this Lease is not terminated, Landlord covenants and agrees
            promptly after such taking or condemnation, and the
            determination
            of Landlord's award therein, to expend so much as may be
            necessary of the net amount which may be awarded to Landlord
            in
            such condemnation proceedings in restoring the Leased
            Premises to
            an architectural unit as nearly like their condition prior
            to
<PAGE>





            such taking as shall be practicable. Should the net amount
            so
            awarded to Landlord be insufficient to cover the costs of
            restoring the Leased Premises, as estimated by Landlord,
            Landlord
            may, but shall not be obligated to, supply the amount of
            such
            insufficiency and restore the Leased Premises as above
            provided,
            with all reasonable diligence, or terminate this Lease.
            Where
            Tenant has not already exercised any right of termination
            accorded to it under the foregoing portion of this
            paragraph,
            Landlord shall notify Tenant of Landlord's election not
            later
            than ninety (90) days after the final determination of the
            amount
            of the award.

            (b)  Out of any award for any taking of the Leased Premises,
            in condemnation proceedings or by right of eminent domain,
            Landlord shall be entitled to receive and retain the amounts
            awarded for the Leased Premises and for Landlord's business
            loss.
            Tenant shall only be entitled to receive and retain any
            amounts
            which may be specifically awarded to it in any such
            condemnation
            proceeding because of the taking of its trade fixtures or
            furniture.

            (c)  In the event of any such taking of the Leased Premises,
            the minimum rent, or a fair and just proportion thereof,
            according to the nature and extent of the damage sustained,
            shall
            be suspended or abated.

            16.  Other Stores.  Intentionally deleted.

            17.  Landlord's Remedies.     (a) It is covenanted and
            agreed that if Tenant shall neglect or fail to perform or
            observe
            any of the covenants, terms, provisions or conditions
            contained
            in this Lease and on its part to be performed or observed
            within
            thirty (30) days after written notice of default or such
            additional time as is necessary to cure such default if
            Tenant
            has commenced a cure during said thirty (30) day period and
            is
            diligently effecting a cure, (except for payment of minimum
            rent
<PAGE>





            or other charges, in which case said period shall be seven
            (7)
            business days after written notice of default; provided
            however,
            that Landlord shall not be required to send Tenant notice of
            a
            monetary default more than two (2) times in any twelve month
            period after which there shall be no further notice of
            default or
            cure period required), or if the estate hereby created shall
            be
            taken on execution or by other process of law, or if Tenant
            shall
            be judicially declared bankrupt or insolvent according to
            law, or
            if any assignment shall be made of the property of Tenant
            for the
            benefit of creditors (other than a Collateral Assignment of
            Lease
            as required for Tenant's financing), or if a receiver,
            guardian,
            conservator, trustee in involuntary bankruptcy or other
            similar
            officer shall be appointed to take charge of all or any
            substantial part of Tenant's property by a court of
            competent
            jurisdiction, or if a petition shall be filed for the
            reorganization of Tenant under any provisions of the Federal
            Bankruptcy Code now or hereafter enacted, and such
            proceeding is
            not dismissed within ninety (90) days after it is begun, or
            if
            Tenant shall file a petition for such reorganization, or for
            arrangement under any provisions of the Federal Bankruptcy
            Code
            now or hereafter enacted and providing a plan for a debtor
            to
            settle, satisfy or extend the time for the payment of debts
            -
            then, and in any of said cases (notwithstanding any license
            of
            any former breach of covenant or waiver of the benefit
            hereof or
            consent in a former instance), Landlord shall be entitled to
            all
            remedies available to Landlord at law and/or equity,
            including,
            without limitation, the remedy of forcible entry and
            detainer,
            and Landlord lawfully may enter into the Premises,
            immediately or
            at any time thereafter, and in compliance with any statute
            in any
            manner relating to summary process. As an additional remedy,
<PAGE>





            Landlord may, at its election, enter into and upon the
            Leased
            Premises or any part thereof in the name of the whole and
            repossess the same as of its former estate, and expel Tenant
            and
            those claiming through or under it in accordance with law,
            and
            remove it or their effects without being deemed guilty of
            any
            manner of trespass, and without prejudice to any remedies
            which
            might otherwise be used for arrears of rent or preceding
            breach
            of covenant, and upon entry as aforesaid, this Lease shall
            terminate. Tenant covenants and agrees, notwithstanding any
            entry
            or re-entry by Landlord, whether by summary proceedings,
            termination, or otherwise, that Tenant shall, as of the date
            of
            such termination, immediately be liable for and pay to
            landlord
            the entire unpaid rental and all other balances due under
            this
            lease for the remainder of the term, as well as all costs
            incurred by Landlord to obtain and fit-up the Leased
            Premises for
            a new tenant including, without limitation, brokerage
            commissions. Further, if this Lease shall be guaranteed on
            behalf
            of Tenant, all of the foregoing provisions with respect to
            bankruptcy of Tenant shall be deemed to read: "Tenant or the
            guarantor hereof." Landlord will use reasonable efforts to
            mitigate Tenant's losses.

            (b)  Notwithstanding anything in this Lease to the contrary,
            Tenant, and Landlord for themselves, their heirs,
            successors, and
            assigns hereby knowingly, willingly and voluntarily waive
            any and
            all rights such party may have to a trial by jury in any
            forcible
            entry and detainer ("FED") action or proceeding brought by
            Landlord, or Landlord's successors and/or assigns based upon
            or
            related to the provisions of this Lease. Landlord and Tenant
            hereby agree that any such FED action or proceeding shall be
            heard before a single judge of the appropriate District
            Court or
            a single justice of the appropriate Superior Court, or a
            Federal
            District Court Judge sitting in the District of Maine.

            (c)  Landlord shall in no event be in default in the
            performance of any of its obligations hereunder unless and
<PAGE>





            until
            Landlord shall have failed to perform such obligations
            within
            thirty (30) days or such additional time as is reasonably
            required to correct any such default after written notice by
            Tenant to Landlord properly specifying wherein Landlord has
            failed to perform any such obligation. Landlord agrees to
            respond
            reasonably promptly in emergency situations.

            18.  Covenant of Quite Enjoyment: Exculpation. Force
            Majeure.

            (a)  Tenant subject to the terms and provisions of this
            Lease on payment of the rent and observing, keeping and
            performing all of the terms and provisions of this Lease on
            its
            part to be observed, kept and performed, shall lawfully,
            peaceably and quietly have, hold, occupy and enjoy the
            Leased
            Premises during the term without hindrance or ejection by
            Landlord or any persons lawfully claiming under Landlord;
            but it
            is understood and agreed that this covenant and any and all
            other
            covenants of Landlord contained in this Lease shall be
            binding
            upon Landlord only with respect to Landlord's period of
            interest
            hereunder.

            (b)  In addition, Tenant specifically agrees to look solely
            to Landlord's interest in the Leased Premises for recovery
            of any
            judgment from Landlord; it being specifically agreed that
            neither
            Landlord nor anyone claiming under Landlord shall ever be
            personally liable for any such judgment. The provision
            contained
            in the foregoing sentence is not intended to, and shall not,
            limit any right that Tenant might otherwise have to obtain
            injunctive relief against Landlord or Landlord's successors
            in
            interest, or any other action not involving the personal
            liability of Landlord or anyone claiming under Landlord, to
            respond in monetary damages from their assets other than its
            interest in the Leased Premises.

            (c)  It is further understood and agreed that with respect
            to any services to be furnished by Landlord to Tenant,
            Landlord
            shall in no event be liable for failure to furnish the same
            when
            prevented from so doing by strike, lockout, breakdown,
<PAGE>





            accident,
            order or regulation of or by any governmental authority, or
            failure of supply, or inability by the exercise of
            reasonable
            diligence to obtain supplies, parts, or employees necessary
            to
            furnish such services, or because of war or other emergency,
            or
            for any cause beyond Landlord's reasonable control, or for
            any
            cause due to any act or neglect of Tenant or its servants,
            agents, employees, licensees, or any person claiming by,
            through
            or under Tenant, or any termination for any reason of
            Landlord
            occupancy of the Leased Premises from which the service is
            being
            supplied by Landlord, and in no event shall Landlord ever be
            liable to Tenant for any indirect or consequential damages.

            19.  Estoppel Certificate - Subordination - Attornment -
            Mortgage.  At any time, and from time to time, upon the
            written
            request of Landlord, Landlord's Lessor, or any mortgagee,
            Tenant
            within ten (10) days of the date of such written requests
            agrees
            to execute and deliver to Landlord and/or such mortgagee,
            without
            charge and in a form reasonably satisfactory to Landlord,
            Tenant,
            and/or such mortgagee, a written statement: (i) ratifying
            this
            Lease; (ii) confirming the commencement and expiration dates
            of
            the term of this Lease; (iii) certifying that Tenant is in
            occupancy of the Lease Premises, and that the Lease is in
            full
            force and effect and has not been modified, assigned,
            supplemented or amended except by such writings as shall be
            state; (iv) certifying that all conditions and agreements
            under
            this Lease to be satisfied or performed by Landlord have
            been
            satisfied and performed except as shall be state; (v)
            certifying
            that Landlord is not in default under the Lease and there
            are no
            defenses or offsets against the enforcement of this Lease by
            Landlord, or stating the defaults and/or defenses claimed by
            Tenant; (vi) reciting the amount of advance rent, if any,
            paid by
            Tenant and the date to which such rent has been paid and
            agrees
<PAGE>





            not to prepay rent more than thirty (30) days in advance;
            (vii)
            reciting the amount of security deposited with Landlord, if
            any;
            and (viii) any other information which Landlord or the
            mortgagee
            shall reasonably require.  The failure of Tenant to execute,
            acknowledge and deliver to Landlord and/or any mortgagee a
            statement in accordance with the provisions of this
            paragraph
            within the period set forth shall constitute an
            acknowledgement
            by Tenant which may be relied upon by any person holding or
            intending to acquire any interest whatsoever in the Leased
            Premises or the Facility that this Lease has not ben
            assigned,
            amended, changed or modified, is in full force and effect
            and
            that the Minimum Rent, Tenant's share of Common Area
            Expenses and
            Taxes, Utility Charges, and Percentage Rent have been duly
            and
            fully paid (subject to adjustment) not beyond the respective
            due
            dates immediately preceding the date of the request for such
            statement and shall constitute as to any persons entitled to
            rely
            on such statements a waiver of any defaults by Landlord or
            defenses or offsets against the enforcement of this Lease by
            Landlord which may exist prior to the date of the written
            request, and Landlord, at its option, may treat such failure
            as
            an event of default.  Tenant agrees that, except as
            hereinafter
            provided, this Lease is, and all of Tenant's rights
            hereunder are
            and shall always be, subject and subordinate to any
            mortgage,
            leases of Landlord's property (in sale-leaseback) pursuant
            to
            which Landlord has or shall retain the right of possession
            of the
            Leased Premises or security instruments (collectively called
            "Mortgage") that now exist, or may hereafter be placed upon
            the
            Leased Premise or the Facility or any part thereof and to
            all
            advances made or to be made thereunder and to the interest
            thereon, and all renewals, replacements, modifications,
            consolidations, or extensions thereof so long as the same do
            not
            change the terms hereof; that if the holder of any such
            Mortgage
            ("Mortgagee") or if the purchaser at any foreclosure sale or
<PAGE>





            at
            any sale under a power of sale contained in any Mortgage
            shall at
            its sole option so request, Tenant will attorn to, and
            recognize
            such Mortgagee or purchaser, as the case may be, as Landlord
            under this Lease for the balance then remaining of the terms
            of
            this Lease, subject to all terms of this Lease, and that the
            aforesaid provisions shall be self-operative and no further
            instrument or document shall be necessary unless required by
            any
            such Mortgagee or purchaser.  At any time so requested by
            Landlord or Landlord's Mortgagee, Tenant covenants and
            agrees to
            deliver to Landlord and/or any such Mortgagee, without
            charge, a
            copy of Tenant's most recent and fully completed public
            financial
            statements, which statements shall be in compliance with
            general
            accounting practices.  Tenant shall deliver said financial
            statements to Landlord and/or any such Mortgagee within ten
            (10)
            days of Landlord's request for the same.  Notwithstanding
            anything to the contrary set forth above, any Mortgagee may
            at
            any time subordinate its Mortgage to this Lease, without
            Tenant's
            consent, by execution of a written document subordinating
            such
            Mortgage to this Lease to the extent set forth therein, and
            thereupon this Lease shall be deemed prior to such Mortgage
            to
            the extent set forth in such written document without regard
            to
            their respective dates of execution, delivery and/or
            recording
            and in that event, to the extent set forth in such written
            document such Mortgagee shall have the same rights with
            respect
            to this Lease as though this Lease has been executed and a
            memorandum thereof recorded prior to the execution, delivery
            and
            recording of the Mortgage and as though this Lease had been
            assigned to such mortgagee.  Should Landlord or any
            Mortgagee or
            purchaser desire confirmation of either such subordination
            or
            such attornment, as the case may be, Tenant upon written
            request,
            and from time to time, will execute and deliver without
            charge
            and in form reasonably satisfactory to Tenant and Landlord,
<PAGE>





            the
            Mortgagee or the purchaser all instruments and/or documents
            that
            may be requested to acknowledge such subordination and/or
            agreement to attorn, in recordable form as long as said
            mortgagee
            agrees to execute a non disturbance or recognition agreement
            for
            the benefit of the Tenant.  At Tenant's request, Landlord
            will
            use reasonable efforts to obtain non-disturbance or a
            recognition
            agreement from its mortgagee.  In the event Tenant fails to
            execute and deliver the instruments and documents as
            provided for
            in this paragraph within the time period set forth, Landlord
            may
            treat such failure as an event of default.

            20.  Security Deposit.        Upon substantial completion of
            Landlord's Work, the Tenant shall deliver to Landlord and
            maintain during the entire term of this Lease a performance
            bond
            underwritten by a good and solvent insurance company
            licensed to
            do business in the state of Main, which bond shall be in the
            principal amount of $120,000 (6 months of base rent) in form
            satisfactory to Landlord which shall be held by Landlord
            throughout the term of this Lease, as security for the
            faithful
            performance of all of Tenant's obligations hereunder.
            Landlord
            shall have the right to apply any part or the whole of said
            bond
            to the curing of any default that may then exist without
            prejudice to any other remedy which Landlord may have on
            account
            thereof.  Should the Leased Premises be conveyed by
            Landlord,
            such bond shall be turned over by Landlord to Landlord's
            transferee.  If Tenant shall have fully and promptly
            complied
            with all of the terms of this Lease during the entire term
            hereof, the said bond shall be redelivered to Tenant.

            21.  Assignment of Rents.     With reference to any
            assignment by Landlord of Landlord's interest in this Lease,
            or
            the rents payable hereunder, conditional in nature or
            otherwise,
            which assignment is made to the holder of a mortgage on the
            Leased Premises, Tenant agrees that the execution thereof by
            Landlord, and the acceptance thereof by such holder, shall
            never
<PAGE>





            be deemed an assumption by such holder of any of the
            obligations
            of Landlord hereunder, unless such holder shall, by written
            notice sent to Tenant, specifically otherwise elect.

            22.  Mechanic's Liens.   Tenant agrees immediately to
            discharge (either by payment or by filing of the necessary
            bond,
            or otherwise) any mechanic's lien, materialmen's lien, or
            other
            lien against the Lease Premises and/or Landlord's interest
            therein, which liens may arise out of any payment due for or
            purported to be due for, any labor, services, materials,
            supplies, or equipment alleged to have been furnished to or
            for
            Tenant in, upon or about the Leased Premises.

            23.  Real Estate Broker . Tenant warrants and represents
            that it has not dealt with a real estate broker,  in
            connection
            with the consummation of this Lease except for Jackman
            Commercial
            Realty and Jack Riddle, Commercial Properties, Inc., and in
            the
            event of any brokerage claims against Landlord predicted
            upon
            dealings with Tenant other than by John A. Jackman, Jackman
            Commercial Investment Realty and Jack Riddle, Commercial
            Properties Inc., Tenant agrees to defend the same and
            indemnify
            Landlord against any such claim. Landlord and Tenant agree
            that
            any brokerage commission due to John A. Jackman, Jackman
            Commercial Investment Realty and Jack Riddle Commercial
            Properties, Inc. shall be paid by  Landlord split equally,
            per
            agreement between Commercial Properties,  Inc. and the
            Landlord
            and the Landlord will indemnify Tenant against  any such
            claim.

            24.   Notices. Whenever by the terms of this Lease notice,
            demand or other communication shall or may be given either
            to
            Landlord or to Tenant, the same shall be in writing and
            shall be
            sent by registered or certified mail , postage prepaid or by
            overnight delivery service, prepaid,  and requiring a
            receipt:

            If intended for Landlord, addressed to it at the address set
            forth on the first page of this Lease, (or to such other
            addresses as may from  time to time hereafter be designated
            by
<PAGE>





            Landlord), with a copy to:

            Charles E. Miller, Esq.
            Bernstein, Shur, Sawyer & Nelson
            One Hundred Middle Street
            P. O. Box 9729
            Portland, ME 04104-5029

            If intended for Tenant, addressed to it at the address set
            forth on the first page of this Lease (or to such other
            address
            addresses as may from time to time hereafter be designated
            by
            Tenant by  like notice).

            After receiving written notice from any person, firm, or
            other entity, stating  that it holds a mortgage on the
            Leased
            Premises, Tenant shall, so long as such mortgage is
            outstanding,
            be required to give to such holder the same notices as are
            required to be given to Landlord under the terms of this
            Lease,
            but such notices may be given by  Tenant to Landlord and
            such
            holder concurrently. It is further agreed that such holder
            shall
            have an additional 30 days after the Landlord's obligation
            to
            cure any default or to effect such curing, and if necessary
            to
            cure such a default, such holder shall have access to the
            Leased
            Premises.  All notices shall be deemed effective when
            mailed.

            25.  Holdover. If Tenant remains in possession of the
            Premises after the expiration of the term of this lease,
            such
            possession shall be as a month-to-month tenant. During  such
            month-to-month tenancy, the provisions of this Lease, except
            for
            Minimum Rent, shall be applicable. If Landlord and Tenant
            are
            negotiating an extension or renewal in good faith the
            Minimum
            Rent shall continue at the same rate required by the Lease
            for
            the prior month for a period not to exceed one month;
            thereafter,
            Minimum Rent shall be increased to one and one half (1 1/2)
            times
            the then-current Minimum Rent for the period just preceding
            such
<PAGE>





            termination. Landlord or Tenant my terminate any such month-
            to-
            month tenancy by giving the other party thirty (30) days
            prior
            written notice.

            26.  Miscellaneous Provisions.       (a)  Waiver. Failure on
            the part of Landlord to complain of any action or nonaction
            on
            the part of Tenant no matter how long the same may continue,
            shall never be deemed to be a waiver by Landlord of any of
            its
            rights hereunder. Further, no waiver at any time of any of
            the
            provisions hereof by Landlord shall be construed as a waiver
            of
            any of the other provisions hereof, and that a waiver at any
            time
            of any of the provisions hereof shall not be construed as a
            waiver at any subsequent time of the same provisions. The
            consent
            or approval of Landlord to or of any action by the other
            requiring Landlord's consent or approval shall not be deemed
            to
            waive or render unnecessary Landlord's consent or approval
            to or
            of any subsequent similar act by Tenant. No payment by
            Tenant, or
            acceptance by Landlord, or a lesser amount than shall be due
            from
            Tenant to Landlord shall be treated otherwise than as a
            payment
            on account. The acceptance by either Landlord of a check for
            a
            lesser amount with an endorsement or statement thereon, or
            upon
            any letter accompanying such check, that such lesser amount
            is
            payment in full shall be given no effect; and Landlord may
            accept
            such check without prejudice to any other rights or remedies
            which Landlord  may have against Tenant.

            (b) Invalidity of Particular Provisions. If any term or
            provision of this Lease, or the application thereof to any
            person
            or circumstance shall, to any extent, be invalid or
            unenforceable, the remainder of this Lease, or the
            application of
            such term or provision to persons or circumstances other
            than
            those as to which it is held invalid or unenforceable, shall
            not
            be affected thereby, and each term and provision of this
<PAGE>





            Lease
            shall be valid and be enforced to the fullest extent
            permitted by
            law.

            (c)  Governing Law. This Lease shall he governed exclusively
            by the provisions hereof and by the laws of State  of Maine.

            (d)  Recording.     Tenant agrees not to  record this Lease,
            but each party hereto agrees, on request of the other, to
            execute a Memorandum of Lease in recordable form and
            satisfactory
            to Landlord's and Tenant's attorney. In no event shall such
            memorandum set the forth the rental or other charges payable
            by
            Tenant under  this Lease and any such memorandum shall
            expressly
            state that it is executed pursuant to the provisions
            contained in
            this Lease, and is not intended to vary the terms and
            conditions
            of hereof.

            (e)  Paragraph Headings. The paragraph headings throughout
            this instrument are for convenience and reference only, and
            is
            contained therein shall in no way be held to explain,
            modify,
            amplify, or aid in the interpretation, construction, or
            meaning
            of the provisions of this Lease.

            (f)  Tenant Defined - Use of Pronoun.   The work "Tenant"
            shall be deemed and taken to mean each and every person or
            party
            mentioned as a Tenant herein, be the same one or more; and
            if
            there shall be more than one Tenant, any notice required or
            permitted by the terms of this Lease may be given by or to
            any
            one thereof, and shall have the same force and effect as if
            given
            by or to all thereof.  The use of the neuter singular
            pronoun to
            refer to Landlord or TEnant shall be deemed a proper
            reference
            even though Landlord or Tenant may be an individual, a
            partnership, a corporation, or a group of two or more
            individuals
            or corporations.  The necessary grammatical changes required
            to
            make the provisions of this Lease apply in the plural number
            where there is more than one Landlord or Tenant and to
            either
<PAGE>





            corporations, associations, partnerships, or individuals,
            males
            or females, shall in all instances be assumed as though in
            each
            case fully expressed.

            (g)  Additional Right.   In the event it shall become
            necessary for Landlord to bring suit in order to collect the
            rent
            aforesaid or to enforce any other provision of this Lease on
            the
            part of Tenant to be performed.  landlord shall be entitled
            to
            collect reasonable legal fees, costs and disbursements from
            Tenant in connection with the aforesaid enforcement
            proceedings.

            (h)  Performance of Covenants.     Landlord and Tenant
            covenant and agree that each will perform all agreements and
            observe all covenants herein expressed on its part to be
            performed and observed and that each will promptly, comply
            with
            such notices from the other.  If Tenant or Landlord shall
            not
            comply with any such notice to the satisfaction of the other
            prior to the date on which such non-compliance would
            constitute
            an event of default, in addition to, and not in lieu or in
            limitation of any other remedy which may have pursuant to
            this
            Lease, at law or in equity, Landlord and TEnant may, but
            shall
            not be obligated to, enter upon the Leased Premises and do
            the
            things specified in said notice.  Landlord and Tenant shall
            have
            no liability to the other for any loss or damage resulting
            in any
            way from such action and the non performing party agrees to
            pay
            upon demand, any expense incurred by the other in taking
            such
            action.  Notwithstanding the foregoing, Landlord's or
            Tenant's
            performance of any or all of the other's covenants shall not
            release the defaulting party from liability for non-
            performance.

            (i)  Interpretation.     Whenever in this Lease provision is
            made for the doing of any act by any party, it is understood
            and
            agreed that said act shall be done by such party at its own
            cost
            and expense, unless a contrary intent is expressed.  All
<PAGE>





            measurements of leasable space shall be from the exterior of
            the
            outside wall to the exterior of the outside wall.

            27.  When Lease BEcomes Binding.   Only the Town Manager of
            Landlord shall have authority to make or agree to make a
            lease or
            any other agreement or undertaking in connection herewith.
            The
            submission of this document for examination and negotiation
            does
            not constitute an offer to lease, or a reservation of, or
            option
            for, the Leased Premises, and this document shall become
            effective and binding only upon the execution and delivery
            hereof
            by both Landlord and Tenant.  All negotiations,
            considerations,
            representations and understandings between Landlord and
            Tenant
            are incorporated herein and may be modified or altered only
            by
            agreement in writing between Landlord and TEnant, and no act
            or
            omission of any employee or agent of Landlord shall alter,
            change, or modify any of the provisions hereof.  All rights,
            obligations and liabilities herein given to, or imposed
            upon, the
            respective parties hereto shall extend to and bind the
            several
            respective heirs, executors, administrators, trustees,
            receivers,
            legal representatives, successors and assigns of the said
            parties; and if there shall be more than one tenant, they
            shall
            all be bound jointly and severally by the terms, covenants
            and
            agreements herein.  No rights, however, shall inure to the
            benefit of any assignee, legal representative, trustee,
            receiver,
            legatee or other personal representative of Tenant unless
            the
            assignment to such party has been approved by Landlord in
            writing
            as provide din Paragraph 9 hereof.

            WITNESS the execution hereof, under seal, in any number of
            counterpart copies, each of which counterpart copies shall
            be
            deemed an original for all purposes, as of the day and year
            first
            above written.

            WITNESS:                      THE TOWN OF FREEPORT, MAINE
<PAGE>





            (LANDLORD)



            _________________________
                 By:__________________________________________
            Its Town Manager

            THE VERMONT TEDDY BEAR COMPANY,
            INC.
            (TENANT)



            _________________________
                 By:__________________________________________
            Its Chief Financial Officer
            Thereunto duly authorized


            STATE OF MAINE
            CUMBERLAND, SS


            January ______, 1997

            Then personally appeared the above-named Dale Olmstead, Jr.,
            Town Manager of the Town of Freeport and he acknowledged the
            foregoing instrument to be his free act and deed in his said
            capacity.

            Before me,


            ___________________________________
            Name:
            Title:



            STATE OF VERMONT
            CHITTENDEN, SS.
            January ______, 1997

            Then personally appeared the above-named Elisabeth Robert,
            and acknowledged the foregoing instrument to be her free act
            and
            deed in her said capacity as Chief Financial Officer of The
            Vermont Teddy BEar Co., Inc., and the free act and deed of
            The
            Vermont Teddy Bear Co., Inc.

            Before me,
<PAGE>







            ___________________________________
            _
            Name:
            Title:





                 EXHIBIT "A"

                 LEASED PREMISES


            Diagram of Leased Premises
<PAGE>


































                 EXHIBIT "B"

                 LANDLORD'S WORK (COVER PAGE PLUS PAGES ATTACHED)


            Notwithstanding anything herein to the contrary, the cost of
            Landlord's work* described on this Exhibit B shall be capped
            at
            $230,000.  The Tenant shall be responsible for all work in
            excess
            of $230,000 notwithstanding such work's designation as
            Landlord's
            work.

            *  If the work to be performed pursuant to this Exhibit B is
            not
            prepared at Lease execution, the Landlord and TEnant agree
            that
            such work shall be mutually agreed upon by Landlord's
            architect
            and Tenant's architect; provided, however, Landlord's work
            shall
            never cost more than the $230,000 cap set forth herein.
<PAGE>





            *in providing a vanilla box
<PAGE>









                 EXHIBIT "C"

                 ADDITIONAL TERMS AND CONDITIONS

                 ESTIMATED COMMON AREA CHARGES PER SQUARE FOOT

            Building Insurance                      $   .15 per square
            foot
            (Property and Liability)

            Real Estate Taxes                            $ 4.82 per
            square
            foot

            Parking                                 $ 5.78 per square
            foot

            Management                              $   .50 per square
            foot



            Note that these figures are "good faith" estimated charges
            per
            square foot.  Actual charges may be higher or lower.

            (Grounds/Building Maintenance, and utilities shall be
            Tenant's
            direct cost and responsibility.

            Costs for Tenant's electricity for lights and outlets, heat
            and
            air conditioning and janitorial services are not shown.
            These
            items will be the Tenant's cost and responsibility.

            Parking charges are subject to annual increases.

            Notwithstanding the above, Landlord and Tenant acknowledge
            that
            Tenant's per square foot cost for insurance premiums covered
            as
            common area insurance and the common area parking charges
            described as a category of common area expense on this
            Exhibit C
            shall not increase more than 5% annually after the actual
            cost of
            the common area charges for the first Lease year is
            determined.
<PAGE>














































                 EXHIBIT "D"

                 RULES AND REGULATIONS


            1.   The sidewalk, entrances, passages, courts, vestibules,
            corridors or halls shall not be obstructed or encumbered by
            any
            Tenant.

            2.   No awnings or other projections shall be attached to
            the outside walls of the building without the prior written
            consent of the Landlord.  No curtains, blinds, shades, or
<PAGE>





            screens
            shall be attached to or hung in, or used in connection with,
            any
            window or door of the Leased Premises, without prior written
            consent of the Landlord.

            3.   No show cases, sales tables, merchandise displays,
            signs or other articles shall be put in front of or affixed
            to
            any part of the exterior of the building, nor upon any
            public or
            common facilities of the Facility without the prior written
            consent of the Landlord.

            4.   The water and wash closets and other plumbing fixtures,
            if any, shall not be used for any purposes other than those
            for
            which they were constructed, and no sweepings, rubbish,
            rags, or
            other substances shall be thrown therein.  All damages
            resulting
            from any misuse of the fixtures shall be borne by the
            Tenant.

            5.   Tenant shall not mark, paint, drill into, or in any way
            deface any part of the lease premises or the building of
            which
            they form a part.  No boring, cutting or stringing of wires
            shall
            be permitted, except with the prior written consent of the
            Landlord, and as the Landlord may direct.

            6.   Tenant, nor any of Tenant's servants, employees, gents,
            visitors, or licensees, shall not at any time bring or keep
            upon
            the Leased Premises any inflammable, combustible or
            explosive
            fluid, chemical, or substance other than for household use
            and
            under such circumstances, TEnant shall properly store and
            dispose
            of such fluids, chemicals, or substances.

            7.   No additional locks or bolts of any kind may be placed
            upon any of the doors or windows by Tenant, nor shall any
            changes
            be made in existing locks or the mechanism thereof.  Tenant
            must,
            upon the termination of its tenancy, restore to the Landlord
            all
            keys, codes or combinations of stores, offices, and toilet
            rooms,
            either furnished to, or otherwise procured by, such TEnant,
            and
<PAGE>





            in the event of the loss of any keys, codes or combinations
            so
            furnished to Tenant or procured by TEnant, Tenant shall pay
            to
            the Landlord the cost thereof, and in the event sages,
            closets or
            other lockable permanent fixtures are installed in the
            premises,
            give all keys, codes or combinations thereto to the
            Landlord.

            8.   The premises shall not be used for lodging or sleeping
            or for any immoral or illegal purpose.

            9.   Requests of TEnant will be attended to only upon
            written application to the Landlord or its agent.
            Landlord's
            employees shall not perform any work or do anything outside
            of
            the regular duties, unless under special instructions from
            the
            office of the Landlord or its agent.

            10.  Canvassing, soliciting, and peddling in the building is
            prohibited and TEnant shall cooperate to prevent the same.

            11.  All deliveries or shipments of any kind to and from the
            Premises, including loading and unloading of goods, shall be
            made
            only by way of the rear of the Premises of at any other
            location
            or times required by Town approvals and ordinances, and only
            at
            such times designated for such purpose by he Town of
            Freeport.

            12.  No external radio, television, phonograph or other
            similar devices shall be installed without first obtaining
            in
            each instance the Landlord's consent in writing, and if such
            consent be given, no such device shall be used in a manner
            so as
            to be heard or seen outside the Premises; provided, however,
            Tenant may install a satellite dish for tele-communications
            subject to the approval to the Town of Freeport and Landlord
            and
            further provided that such installation shall never pierce
            the
            membrane of the roof at the Facility.

            13.  Tenant shall keep the Premises at a temperature
            sufficiently high to prevent freezing of water in pipes and
            fixtures.
<PAGE>





            14.  The outside sidewalk area immediately adjoining the
            Premises shall be kept clean and free from snow, ice, dirt
            and
            rubbish by Tenant and Tenant shall not place, suffer or
            permit
            any obstructions or merchandise in such areas.

            15.  Plumbing facilities shall not be used for any other
            purpose than that for which they are construed, and no
            foreign
            substance of any kind shall be thrown therein.







                 EXHIBIT "E"

                 TENANT'S WORK


            Tenant shall be responsible for all other work necessary for
            Tenant to open for business, including, but not limited to,
            all
            interior partitions, wall treatments and/or floor coverings
            in
            excess of that which is described in Exhibit C as Landlord's
            work.  All of Tenant's work as referred to in this paragraph
            shall be subject to the review and approval of Landlord.  In
            addition, any Tenant's work which increases the costs of
            Landlord's work over the amount specified in Exhibit C shall
            be
            at TEnant's cost and expense and shall be paid by Tenant
            within
            thirty (30) days of being invoiced.

            Tenant shall BE responsible for all other work necessary for
            Tenant to open for business, including, but not limited to,
            all
            interior partitions, wall treatments and/or floor coverings
            in
            excess of that which is described in Exhibit C as Landlord's
            work
            All of Tenant's work as referred to in this paragraph shall
            be
            subject to the review and approval of Landlord. In addition,
            any
            Tenant's work which increases the costs of Landlord's work
            over
            the amount specified in Exhibit C shall be at Tenant's cost
            and
            expense and shall be paid by Tenant within thirty (30) days
<PAGE>





            of
            being invoiced.

            EXHIBIT 10.37

            LEASE AGREEMENT
            by and between

            URSA (VT) QRS 12-30, INC.,
            a Vermont corporation

            as LANDLORD

            and

            THE VERMONT TEDDY BEAR CO., INC.,
            a New York corporation,

            as TENANT


            Premises:  Shelburne, Vermont






            Dated as of: July 10, 1997

            TABLE OF CONTENTS
                                       Page

            Parties       1
            1.   Demise of Premises      1
            2.   Certain Definitions     1
            3.   Title and Condition     9
            4.   Use of Leased Premises; Quiet Enjoyment    10
            5.   Term         11
            6.   Basic Rent        12
            7.   Additional Rent        12
            8.   Net Lease; Non-Terminability     13
            9.   Payment of Impositions      14
             10. Compliance with Laws and Easement Agreements;
            Environmental Matters       16
                 11.  Liens; Recording and Title         17
             12. Maintenance and Repair        18
             13. Alterations and Improvements       19
             14. Permitted Contests       20
             15. Indemnification          21
             16. Insurance      22
             17. Casualty and Condemnation          25
             18. Termination Events       27
             19. Restoration         28
<PAGE>





             20. Procedures Upon Purchase      30
             21. Assignment and Subletting; Prohibition
                           against Leasehold Financing      32
                 22.  Events of Default        33
             23. Remedies and Damages Upon Default       35
             24. Notices        39
             25. Estoppel Certificate          40
             26. Surrender      40
             27. No Merger of Title       40
             28. Books and Records        41
             29. Determination of Value        42
             30. Non-Recourse as to Landlord        43
             31. Financing      44
             32. Subordination       45
             33. Financial Covenants      45
             34. Tax Treatment; Reporting      45
             35. Option to Purchase       45
             36. Right of First Refusal        46
             37. Additional Property
             38. Miscellaneous       48


            EXHIBITS

            Exhibit "A"   - Premises
            Exhibit "A-1" - Additional Property
            Exhibit "B"   - Machinery and Equipment
            Exhibit "C"   - Schedule of Permitted Encumbrances
            Exhibit "D"   - Rent Schedule
            Exhibit "E"   - Financial Covenants

            LEASE AGREEMENT, made as of this 10th day of July,
            1997, between URSA (VT) QRS 12-30, INC., a Vermont
            corporation
            with an address c/o W. P. Carey & Co., Inc., 50 Rockefeller
            Plaza, 2nd Floor, New York, New York  10020 ("Landlord"),
            and THE
            VERMONT TEDDY BEAR CO., INC., a New York corporation with an
            address at 2236 Shelburne Road, Shelburne, Vermont  05482
            ("Tenant").

            In consideration of the rents and provisions herein
            stipulated to be paid and performed, Landlord and Tenant
            hereby
            covenant and agree as follows:

            1.   Demise of Premises.  Landlord hereby demises and
            lets to Tenant, and Tenant hereby takes and leases from
            Landlord,
            for the term and upon the provisions hereinafter specified,
            the
            following described property (collectively, the "Leased
            Premises"):  (a) the premises described in Exhibit "A"
            hereto,
<PAGE>





            together with the Appurtenances (collectively, the "Land");
            (b) the buildings, structures and other improvements now or
            hereafter constructed on the Land (collectively, the
            "Improvements"); and (c) the fixtures, machinery, equipment
            and
            other property described in Exhibit "B" hereto
            (collectively, the
            "Equipment").

            2.   Certain Definitions.

            "Acquisition Cost" shall mean $5,863,874.

            "Additional Property" shall mean those certain
            parcels of real property owned by Tenant, pledged to
            Landlord, as
            Lease Collateral and more particularly described in Exhibit
            "A-1"
            hereto and any proceeds from the sale of any one or more of
            such
            parcels.

            "Additional Rent" shall mean Additional Rent as
            defined in Paragraph 7.

            "Adjoining Property" shall mean all sidewalks,
            driveways, curbs, gores and vault spaces adjoining any of
            the
            Leased Premises.

            "Alterations" shall mean all changes, additions,
            improvements or repairs to, all alterations,
            reconstructions,
            renewals, replacements or removals of and all substitutions
            or
            replacements for any of the Improvements or Equipment, both
            interior and exterior, structural and non-structural, and
            ordinary and extraordinary.

            "Appurtenances" shall mean all tenements,
            hereditaments, easements, rights-of-way, rights, privileges
            in
            and to the Land, including (a) easements over other lands
            granted
            by any Easement Agreement and (b) any streets, ways, alleys,
            vaults, gores or strips of land adjoining the Land.

            "Assignment" shall mean any assignment of rents
            and leases from Landlord to a Lender which (a) encumbers any
            of
            the Leased Premises and (b) secures Landlord's obligation to

            repay a Loan, as the same may be amended, supplemented or
            modified from time to time.
<PAGE>






            "Basic Rent" shall mean Basic Rent as defined in
            Paragraph 6.

            "Basic Rent Payment Dates" shall mean the Basic
            Rent Payment Dates as defined in Paragraph 6.

            "Casualty" shall mean any injury to or death of
            any person or any loss of or damage to any property
            (including
            the Leased Premises) included within or related to the
            Leased
            Premises or arising from the Adjoining Property.

            "Commencement Date" shall mean Commencement Date
            as defined in Paragraph 5.

            "Condemnation" shall mean (a) any taking or
            damaging of all or a portion of any of the Leased Premises
            (i) in
            or by condemnation or other eminent domain proceedings
            pursuant
            to any Law, general or special, or (ii) by reason of any
            agreement with any condemnor in settlement of or under
            threat of
            any such condemnation or other eminent domain proceeding, or
            (iii) by any other means, or (b) any de facto condemnation.
            The
            Condemnation shall be considered to have taken place as of
            the
            later of the date actual physical possession is taken by the
            condemnor, or the date on which the right to compensation
            and
            damages accrues under the law applicable to the Leased
            Premises.

            "Condemnation Notice" shall mean notice or
            knowledge of the institution of or intention to institute
            any
            proceeding for Condemnation.

            "Costs" of a Person or associated with a specified
            transaction shall mean all reasonable costs and expenses
            incurred
            by such Person or associated with such transaction,
            including
            without limitation, reasonable attorneys' fees and expenses,
            court costs, brokerage fees, escrow fees, title insurance
            premiums, mortgage commitment fees, mortgage points,
            recording
            fees and transfer taxes, as the circumstances require.

            "Covenants" shall mean the covenants and
            agreements described on Exhibit "E".
<PAGE>






            "CPI" shall mean CPI as defined in Exhibit "D"
            hereto.

            "Default Termination Amount" shall mean the
            Default Termination Amount as defined in Paragraph
            23(a)(iii).

            "Default Rate" shall mean the Default Rate as
            defined in Paragraph 7(a)(iv).

            "Easement Agreement" shall mean any conditions,
            covenants, restrictions, easements, declarations, licenses
            and

            other agreements listed as Permitted Encumbrances or as may
            hereafter affect the Leased Premises.

            "Environmental Law" shall mean (i) whenever
            enacted or promulgated, any applicable federal, state,
            foreign
            and local law, statute, ordinance, rule, regulation,
            license,
            permit, authorization, approval, consent, court order,
            judgment,
            decree, injunction, code, requirement or agreement with any
            governmental entity, (x) relating to pollution (or the
            cleanup
            thereof), or the protection of air, water vapor, surface
            water,
            groundwater, drinking water supply, land (including land
            surface
            or subsurface), plant, aquatic and animal life from injury
            caused
            by a Hazardous Substance or (y) concerning exposure to, or
            the
            use, containment, storage, recycling, reclamation, reuse,
            treatment, generation, discharge, transportation,
            processing,
            handling, labeling, production, disposal or remediation of
            Hazardous Substances, Hazardous Conditions or Hazardous
            Activities, in each case as amended and as now or hereafter
            in
            effect, and (ii) any common law or equitable doctrine
            (including,
            without limitation, injunctive relief and tort doctrines
            such as
            negligence, nuisance, trespass and strict liability) that
            may
            impose liability or obligations or injuries or damages due
            to or
            threatened as a result of the presence of, exposure to, or
            ingestion of, any Hazardous Substance.  The term
            Environmental
<PAGE>





            Law includes, without limitation, the federal Comprehensive
            Environmental Response Compensation and Liability Act of
            1980,
            the Superfund Amendments and Reauthorization Act, the
            federal
            Water Pollution Control Act, the federal Clean Air Act, the
            federal Clean Water Act, the federal Resources Conservation
            and
            Recovery Act of 1976 (including the Hazardous and Solid
            Waste
            Amendments to RCRA), the federal Solid Waste Disposal Act,
            the
            federal Toxic Substance Control Act, the federal
            Insecticide,
            Fungicide and Rodenticide Act, the federal Occupational
            Safety
            and Health Act of 1970, the federal National Environmental
            Policy
            Act and the federal Hazardous Materials Transportation Act,
            each
            as amended and as now or hereafter in effect and any similar
            state or local Law.

            "Environmental Violation" shall mean (a) any
            direct or indirect discharge, disposal, spillage, emission,
            escape, pumping, pouring, injection, leaching, release,
            seepage,
            filtration or transporting of any Hazardous Substance at,
            upon,
            under, onto or within the Leased Premises, or from the
            Leased
            Premises to the environment, in violation of any
            Environmental
            Law or in excess of any reportable quantity established
            under any
            Environmental Law or which could result in any liability to
            Landlord, Tenant or Lender, any Federal, state or local
            government or any other Person for the costs of any removal
            or
            remedial action or natural resources damage or for bodily
            injury
            or property damage, (b) any deposit, storage, dumping,
            placement
            or use of any Hazardous Substance at, upon, under or within
            the
            Leased Premises or which extends to any Adjoining Property
            in
            violation of any Environmental Law or in excess of any
            reportable
            quantity established under any Environmental Law or which
            could
            result in any liability to any Federal, state or local
            government
<PAGE>





            or to any other Person for the costs of any removal or
            remedial
            action or natural resources damage or for bodily injury or
            property damage, (c) the abandonment or discarding of any
            barrels, containers or other receptacles containing any
            Hazardous
            Substances in violation of any Environmental Laws, (d) any
            activity, occurrence or condition which could result in any
            liability, cost or expense to Landlord or Lender or any
            other
            owner or occupier of the Leased Premises, or which could
            result
            in the creation of a lien on the Leased Premises under any
            Environmental Law, or (e) any violation of or noncompliance
            with
            any Environmental Law.

            "Equipment" shall mean the Equipment as defined in
            Paragraph 1.

            "Event of Default" shall mean an Event of Default
            as defined in Paragraph 22(a).

            "Fair Market Value" shall mean the higher of
            (a) the fair market value of the Leased Premises as of the
            Relevant Date as if unaffected and unencumbered by this
            Lease or
            (b) the fair market value of the Leased Premises as of the
            Relevant Date as affected and encumbered by this Lease and
            assuming that the Term has been extended for all extension
            periods provided for herein.  For all purposes of this
            Lease,
            Fair Market Value shall be determined in accordance with the
            procedure specified in Paragraph 29.

            "Fair Market Value Date" shall mean the date when
            the Fair Market Value is determined in accordance with
            Paragraph 29.

            "Federal Funds" shall mean federal or other
            immediately available funds which at the time of payment are
            legal tender for the payment of public and private debts in
            the
            United States of America.

            "Hazardous Activity" means any activity, process,
            procedure or undertaking which directly or indirectly
            (i) procures, generates or creates any Hazardous Substance;
            (ii) causes or results in (or threatens to cause or result
            in)
            the release, seepage, spill, leak, flow, discharge or
            emission of
            any Hazardous Substance into the environment (including the
            air,
<PAGE>





            ground water, watercourses or water systems), (iii) involves
            the
            containment or storage of any Hazardous Substance; or (iv)
            would
            cause the Leased Premises or any portion thereof to become a
            hazardous waste treatment, recycling, reclamation,
            processing,
            storage or disposal facility within the meaning of any
            Environmental Law.

            "Hazardous Condition" means any condition which
            would support any claim or liability under any Environmental
            Law,
            including the presence of underground storage tanks.

            "Hazardous Substance" means (i) any substance,

            material, product, petroleum, petroleum product, derivative,
            compound or mixture, mineral (including asbestos), chemical,
            gas,
            medical waste, or other pollutant, in each case whether
            naturally
            occurring, man-made or the by-product of any process, that
            is
            toxic, harmful or hazardous or acutely hazardous to the
            environment or public health or safety or (ii) any substance
            supporting a claim under any Environmental Law, whether or
            not
            defined as hazardous as such under any Environmental Law.
            Hazardous Substances include, without limitation, any toxic
            or
            hazardous waste, pollutant, contaminant, industrial waste,
            petroleum or petroleum-derived substances or waste, radon,
            radioactive materials, asbestos, asbestos containing
            materials,
            urea formaldehyde foam insulation, lead and polychlorinated
            biphenyls.

            "Impositions" shall mean the Impositions as
            defined in Paragraph 9(a).

            "Improvements" shall mean the Improvements as
            defined in Paragraph 1.

            "Indemnitee" shall mean an Indemnitee as defined
            in Paragraph 15.

            "Initial Loan" shall mean the $3,311,508.74 Loan
            from Vermont National Bank to Landlord.

            "Insurance Requirements" shall mean the
            requirements of all insurance policies required to be
            maintained
            in accordance with this Lease.
<PAGE>






            "Land" shall mean the Land as defined in
            Paragraph 1.

            "Law" shall mean any constitution, statute, rule
            of law, code, ordinance, order, judgment, decree,
            injunction,
            rule, regulation, policy, requirement or administrative or
            judicial determination, even if unforeseen or extraordinary,
            of
            every duly constituted governmental authority, court or
            agency,
            now or hereafter enacted or in effect.

            "Lease" shall mean this Lease Agreement.

            "Lease Collateral" shall mean the collateral
            pledged, assigned and/or mortgaged by Tenant to Landlord
            pursuant
            to the Lease Collateral Documents to secure the obligations
            and
            liabilities of Tenant under this Lease.

            "Lease Collateral Documents" shall mean the
            Trademark Collateral Assignment, Assignment of Certificates,
            Commercial Mortgage Deed for the Additional Property,
            Security
            Agreement and any other documents from Tenant to Landlord
            evidencing and securing the grant of the Lease Collateral.

            "Lease Year" shall mean, with respect to the first

            Lease Year, the period commencing on the Commencement Date
            and
            ending at midnight on the last day of the twelfth (12th)
            consecutive calendar month following the month in which the
            Commencement Date occurred, and each succeeding twelve (12)
            month
            period during the Term.

            "Leased Premises" shall mean the Leased Premises
            as defined in Paragraph 1.

            "Legal Requirements" shall mean the requirements
            of all present and future Laws (including but not limited to
            Environmental Laws and Laws relating to accessibility to,
            usability by, and discrimination against, disabled
            individuals)
            and all covenants, restrictions and conditions now or
            hereafter
            of record which may be applicable to Tenant or to any of the
            Leased Premises, or to the use, manner of use, occupancy,
            possession, operation, maintenance, alteration, repair or
            restoration of any of the Leased Premises, even if
<PAGE>





            compliance
            therewith necessitates structural changes or improvements or
            results in interference with the use or enjoyment of any of
            the
            Leased Premises.

            "Lender" shall mean (a) Vermont National Bank and
            (b) any other Person (and their respective successors and
            assigns) which may, after the date hereof, make a Loan to
            Landlord or is the holder of any Note.

            "Loan" shall mean any loan, including the Initial
            Loan, made by one or more Lenders to Landlord, which loan is
            secured by a Mortgage and an Assignment and evidenced by a
            Note.

            "Monetary Obligations" shall mean Rent and all
            other sums payable by Tenant under this Lease to Landlord,
            to any
            third party on behalf of Landlord or to any Indemnitee.

            "Mortgage" shall mean any mortgage or deed of
            trust from Landlord to a Lender which (a) encumbers any of
            the
            Leased Premises and (b) secures Landlord's obligation to
            repay a
            Loan, as the same may be amended, supplemented or modified.

            "Net Award" shall mean (a) the entire award
            payable to Landlord or Lender by reason of a Condemnation
            whether
            pursuant to a judgment or by agreement or otherwise, or (b)
            the
            entire proceeds of any insurance required under clauses (i),
            (ii)
            (to the extent payable to Landlord or Lender), (iv), (v) or
            (vi)
            of Paragraph 16(a), as the case may be, less any expenses
            incurred by Landlord and Lender in collecting such award or
            proceeds.

            "Note" shall mean any promissory note evidencing
            Landlord's obligation to repay a Loan, as the same may be
            amended, supplemented or modified.

            "Offer Amount" shall mean the greater of (a) the
            Fair Market Value of the Leased Premises as of the Relevant
            Date

            and (b) the sum of the Acquisition Cost and the applicable
            Prepayment Premium which Landlord will be required to pay in
            prepaying any Loan with the proceeds of the Offer Amount.

            "Partial Casualty" shall mean any Casualty which
<PAGE>





            does not constitute a Termination Event.

            "Partial Condemnation" shall mean any Condemnation
            which does not constitute a Termination Event.

            "Permitted Encumbrances" shall mean those
            covenants, restrictions, reservations, liens, conditions and
            easements and other encumbrances, other than any Mortgage or
            Assignment, listed on Exhibit "C" hereto (but such listing
            shall
            not be deemed to revive any such encumbrances that have
            expired
            or terminated or are otherwise invalid or unenforceable).

            "Person" shall mean an individual, partnership,
            association, corporation or other entity.

            "Prepayment Premium" shall mean any payment (other
            than a payment of principal and/or interest which Landlord
            is
            required to make under a Note or a Mortgage) by reason of
            any
            prepayment by Landlord of any principal due under a Note or
            Mortgage, and which may be (in lieu of such prepayment
            premium or
            prepayment penalty) a "make whole" clause requiring a
            prepayment
            premium in an amount sufficient to compensate the Lender for
            the
            loss of the benefit of the Loan due to a prepayment.

            "Present Value" of any amount shall mean such
            amount discounted by a rate per annum which is the lower of
            (a) the Prime Rate at the time such present value is
            determined
            or (b) eight percent (8%) per annum.

            "Prime Rate" shall mean the annual interest rate
            as published, from time to time, in The Wall Street Journal
            as
            the "Prime Rate" in its column entitled "Money Rate".  The
            Prime
            Rate may not be the lowest rate of interest charged by any
            "large
            U.S. money center commercial banks" and Landlord makes no
            representations or warranties to that effect.  In the event
            The
            Wall Street Journal ceases publication or ceases to publish
            the
            "Prime Rate" as described above, the Prime Rate shall be the
            average per annum discount rate (the "Discount Rate") on
            ninety-one (91) day bills ("Treasury Bills") issued from
            time to
            time by the United States Treasury at its most recent
<PAGE>





            auction,
            plus three hundred (300) basis points.  If no such 91-day
            Treasury Bills are then being issued, the Discount Rate
            shall be
            the discount rate on Treasury Bills then being issued for
            the
            period of time closest to ninety-one (91) days.

            "Relevant Amount" shall mean the Termination
            Amount, the Default Termination Amount or the Offer Amount,
            as
            the case may be.

            "Relevant Date" shall mean (a) the date
            immediately prior to the date on which the applicable
            Condemnation Notice is received, in the event of a
            Termination
            Notice under Paragraph 18 which is occasioned by a
            Condemnation,
            (b) the date immediately prior to the date on which the
            applicable Casualty occurs, in the event of a Termination
            Notice
            under Paragraph 18 which is occasioned by a Casualty, (c)
            the
            date when Fair Market Value is redetermined, in the event of
            a
            redetermination of Fair Market Value pursuant to Paragraph
            20(c),
            (d) the date immediately prior to the Event of Default
            giving
            rise to the need to determine Fair Market Value in the event
            Landlord provides Tenant with notice of its intention to
            require
            Tenant to make a termination offer under Paragraph
            23(a)(iii) or
            (e) the date immediately prior to the date on which the
            notice
            described in Paragraph 35(a) is received by Landlord.

            "Remaining Sum" shall mean Remaining Sum as
            defined in Paragraph 19(c).

            "Rent" shall mean, collectively, Basic Rent and
            Additional Rent.

            "Site Assessment" shall mean a Site Assessment as
            defined in Paragraph 10(c).

            "State" shall mean the State of Vermont.

            "Surviving Obligations" shall mean any obligations
            of Tenant under this Lease, actual or contingent, which
            arise on
            or prior to the expiration or prior termination of this
<PAGE>





            Lease or
            which survive such expiration or termination by their own
            terms.

            "Term" shall mean the Term as defined in
            Paragraph 5.

            "Termination Amount" shall mean the greater of
            (a) Fair Market Value or (b) the sum of the Acquisition Cost
            and
            any Prepayment Premium which Landlord will be required to
            pay in
            prepaying any Loan with proceeds of the Termination Amount.

            "Termination Date" shall mean Termination Date as
            defined in Paragraph 18(b).

            "Termination Event" shall mean a Termination Event
            as defined in Paragraph 18(a).

            "Termination Notice" shall mean Termination Notice
            as defined in Paragraph 18(a).

            3.   Title and Condition.

            (a)  The Leased Premises are demised and let
            subject to (i) the Mortgage and Assignment presently in
            effect,
            (ii) the rights of any Persons in possession of the Leased
            Premises, (iii) the existing state of title of any of the
            Leased
            Premises, including any Permitted Encumbrances, (iv) any
            state of
            facts which an accurate survey or physical inspection of the
            Leased Premises might show, (v) all Legal Requirements,
            including
            any existing violation of any thereof, and (vi) the
            condition of
            the Leased Premises as of the commencement of the Term,
            without
            representation or warranty by Landlord.

            (b)  Tenant acknowledges that the Leased Premises
            is in good condition and repair at the inception of this
            Lease.
            LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL
            TAKE THE
            LEASED PREMISES AS IS.  TENANT ACKNOWLEDGES THAT LANDLORD
            (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER
            CAPACITY)
            HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED
            TO
            HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR
            IMPLIED,
<PAGE>





            WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY
            WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR
            CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE
            QUALITY OF
            THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF
            ANY
            DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO,
            (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii)
            LOCATION,
            (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi)
            QUALITY,
            (xii) DESCRIPTION, (xiii) DURABILITY, (xiv) OPERATION, (xv)
            THE
            EXISTENCE OF ANY HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION OR
            HAZARDOUS ACTIVITY OR (xvi) COMPLIANCE OF THE LEASED
            PREMISES
            WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL RISKS INCIDENT
            THERETO
            ARE TO BE BORNE BY TENANT.  TENANT ACKNOWLEDGES THAT THE
            LEASED
            PREMISES IS OF ITS SELECTION AND TO ITS SPECIFICATIONS AND
            THAT
            THE LEASED PREMISES HAS BEEN INSPECTED BY TENANT AND IS
            SATISFACTORY TO IT.  IN THE EVENT OF ANY DEFECT OR
            DEFICIENCY IN
            ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER LATENT OR
            PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
            LIABILITY
            WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL
            DAMAGES (INCLUDING STRICT LIABILITY IN TORT).  THE
            PROVISIONS OF
            THIS PARAGRAPH 3(b) HAVE BEEN  NEGOTIATED, AND ARE INTENDED
            TO BE
            A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY
            LANDLORD,
            EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED
            PREMISES,
            ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER
            LAW
            NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.

            (c)  Tenant represents to Landlord that Tenant has
            examined the title to the Leased Premises prior to the
            execution
            and delivery of this Lease and has found the same to be
            satisfactory for the purposes contemplated hereby.  Tenant
            acknowledges that (i) fee simple title (both legal and
            equitable)
            is in Landlord and, except as provided in Paragraph(s) 35
            and 36
            hereof with respect to certain options and rights of first
            refusal to purchase the Leased Premises, that Tenant has
            only the
            leasehold right of possession and use of the Leased Premises
<PAGE>





            as
            provided herein, (ii) the Improvements conform to all
            material

            Legal Requirements and all Insurance Requirements, (iii) all
            easements necessary or appropriate for the use or operation
            of
            the Leased Premises have been obtained, (iv) all contractors
            and
            subcontractors who have performed work on or supplied
            materials
            to the Leased Premises have been fully paid, and all
            materials
            and supplies have been fully paid for, (v) the Improvements
            have
            been fully completed in all material respects in a
            workmanlike
            manner of first class quality, and (vi) all Equipment
            necessary
            for the use or operation of the Leased Premises has been
            installed and is presently fully operative in all material
            respects.

            (d)  Landlord hereby assigns to Tenant, without
            recourse or warranty whatsoever, all warranties, guaranties,
            indemnities and similar rights which Landlord may have
            against
            any manufacturer, seller, engineer, contractor or builder in
            respect of any of the Leased Premises.  Such assignment
            shall
            remain in effect until an Event of Default occurs or until
            the
            expiration or earlier termination of this Lease, whereupon
            such
            assignment shall cease and all of said warranties,
            guaranties,
            indemnities and other rights shall automatically revert to
            Landlord.

            4.   Use of Leased Premises; Quiet Enjoyment.

            (a)  Tenant may occupy and use the Leased Premises
            as a manufacturing, retail, tourist destination and office
            facility and for no other purposes.  Tenant shall not use or
            occupy or permit any of the Leased Premises to be used or
            occupied, nor do or permit anything to be done in or on any
            of
            the Leased Premises, in a manner which would or might (i)
            violate
            any Law or Legal Requirement, (ii) make void or voidable or
            cause
            any insurer to cancel any insurance required by this Lease,
            or
            make it difficult or impossible to obtain any such insurance
<PAGE>





            at
            commercially reasonable rates, (iii) cause structural injury
            to
            any of the Improvements or (iv) constitute a public or
            private
            nuisance or waste.

            (b)  Subject to the provisions hereof, so long as
            no Event of Default has occurred and is continuing, Tenant
            shall
            quietly hold, occupy and enjoy the Leased Premises
            throughout the
            Term, without any hindrance, ejection or molestation by
            Landlord
            with respect to matters that arise after the date hereof,
            provided that Landlord or its agents may enter upon and
            examine
            any of the Leased Premises at such reasonable times as
            Landlord
            may select and upon reasonable notice to Tenant (except in
            the
            case of an emergency, in which no notice shall be required)
            for
            the purpose of inspecting the Leased Premises, verifying
            compliance or non-compliance by Tenant with its obligations
            hereunder and the existence or non-existence of an Event of
            Default or event which with the passage of time and/or
            notice
            would constitute an Event of Default, showing the Leased
            Premises
            to prospective Lenders and purchasers and taking such other
            action with respect to the Leased Premises as is permitted
            by any
            provision hereof.

            5.   Term.

            (a)  Subject to the provisions hereof, Tenant
            shall have and hold the Leased Premises for an initial term
            (such
            term, as extended or renewed in accordance with the
            provisions
            hereof, being called the "Term") commencing on July ___,
            1997
            (the "Commencement Date") and ending on the last day of the
            two
            hundred fortieth (240th) calendar month next following the
            date
            hereof (the "Expiration Date").

            (b)  Provided that if, on or prior to the
            Expiration Date or any other Renewal Date (as hereinafter
            defined) this Lease shall not have been terminated pursuant
            to
<PAGE>





            any provision hereof, then on the Expiration Date and on the
            fifth (5th) and tenth (10th) anniversaries of the Expiration
            Date
            (the Expiration Date and each such anniversary being a
            "Renewal
            Date"), the Term shall be deemed to have been automatically
            extended for an additional period of five (5) years, unless
            Tenant shall notify Landlord in writing in recordable form
            at
            least two (2) years prior to the next Renewal Date that
            Tenant is
            terminating this Lease as of the next Renewal Date.  Any
            such
            extension of the Term shall be subject to all of the
            provisions
            of this Lease, as the same may be amended, supplemented or
            modified.

            (c)  If Tenant exercises its option not to extend
            or further extend the Term, or if an Event of Default
            occurs,
            then Landlord shall have the right during the remainder of
            the
            Term then in effect and, in any event, Landlord shall have
            the
            right during the last year of the Term, to (i) advertise the
            availability of the Leased Premises for sale or reletting
            and to
            erect upon the Leased Premises signs indicating such
            availability
            and (ii) show the Leased Premises to prospective purchasers
            or
            tenants or their agents at such reasonable times as Landlord
            may
            select.

            6.   Basic Rent.  Tenant shall pay to Landlord, as
            annual rent for the Leased Premises during the Term, the
            amounts
            determined in accordance with Exhibit "D" hereto ("Basic
            Rent"),
            commencing on the first day of the first month following the
            date
            hereof and continuing on the same day of each month
            thereafter
            during the Term (each such day being a "Basic Rent Payment
            Date").  Each such rental payment shall be made, at
            Landlord's
            sole discretion, (a) to Landlord at its address set forth
            above
            and/or to such one other Person, at such addresses and in
            such
            proportions as Landlord may direct by fifteen (15) days'
            prior
<PAGE>





            written notice to Tenant (in which event Tenant shall give
            Landlord notice of each such payment concurrent with the
            making
            thereof), and (b) by a check hand delivered at least three
            (3)
            business days before or mailed at least five (5) business
            days
            before the applicable Basic Rent Payment Date, or in Federal
            Funds.  Pro rata Basic Rent for the period from the date
            hereof
            through the last day of the month hereof shall be paid on
            the
            date hereof.

            7.   Additional Rent.

            (a)  Tenant shall pay and discharge, as additional
            rent (collectively, "Additional Rent"):

            (i)  except as otherwise specifically
            provided herein, all reasonable costs and expenses of
            Tenant,
            Landlord and any other Persons specifically referenced
            herein
            which are incurred in connection or associated with (A) the
            ownership, use, non-use, occupancy, possession, operation,
            condition, design, construction, maintenance, alteration,
            repair
            or restoration of any of the Leased Premises, (B) the
            performance
            of any of Tenant's obligations under this Lease, (C) any
            sale or
            other transfer of any of the Leased Premises to Tenant under
            this
            Lease, (D) any Condemnation proceedings, (E) the adjustment,
            settlement or compromise of any insurance claims involving
            or
            arising from any of the Leased Premises, (F) the
            prosecution,
            defense or settlement of any litigation involving or arising
            from
            any of the Leased Premises, this Lease, or the sale of the
            Leased
            Premises to Landlord, (G) the exercise or enforcement by
            Landlord, its successors and assigns, of any of its rights
            under
            this Lease; provided Landlord prevails in any such
            enforcement
            proceeding or a settlement is reached, (H) any amendment to
            or
            modification or termination of this Lease made at the
            request of
            Tenant, (I) Costs of Landlord's counsel incurred in
            connection
<PAGE>





            with any act undertaken by Landlord (or its counsel) at the
            request of Tenant, or incurred in connection with any act of
            Landlord performed on behalf of Tenant, and (J) any other
            items
            specifically required to be paid by Tenant under this Lease;

             (ii)  after the date all or any portion of
            any installment of Basic Rent is due and not paid, an amount
            equal to five percent (5%) of the amount of such unpaid
            installment or portion thereof;

            (iii)  a sum equal to any sums in excess of
            amounts payable under clauses (ii) and (iv) of this
            Paragraph
            7(a) (including any late charge, default penalties, interest
            and
            fees of Lender's counsel) which are payable by Landlord to
            any
            Lender under any Note by reason of Tenant's late payment or
            non-payment of Basic Rent or by reason of an Event of
            Default;
            and

            (iv)  interest at the rate (the "Default
            Rate") of five percent (5%) over the Prime Rate per annum on
            the
            following sums until paid in full:  (A) all overdue
            installments
            of Basic Rent from the respective due dates thereof, (B) all
            overdue amounts of Additional Rent relating to obligations
            which
            Landlord shall have paid on behalf of Tenant, from the date
            of
            payment thereof by Landlord, and (C) all other overdue
            amounts of
            Additional Rent, from the date when any such amount becomes
            overdue.

            (b)  Tenant shall pay and discharge (i) any
            Additional Rent referred to in Paragraph 7(a)(i) when the
            same

            shall become due, provided that amounts which are billed to
            Landlord or any third party, but not to Tenant, shall be
            paid
            within five (5) days after Landlord's demand for payment
            thereof,
            and (ii) any other Additional Rent, within five (5) days
            after
            Landlord's demand for payment thereof.  Landlord's demand
            for
            payment shall include reasonable substantiation of the
            amounts
            due.
<PAGE>






            (c)  In no event shall amounts payable under
            Paragraph 7(a)(ii), (iii) and (iv) exceed the maximum amount
            permitted by applicable Law.

            8.   Net Lease; Non-Terminability.

            (a)  This is a net lease and all Monetary
            Obligations shall be paid without notice or demand and
            without
            set-off, counterclaim, recoupment, abatement, suspension,
            deferment, diminution, deduction, reduction or defense
            (collectively, a "Set-Off").

            (b)  Except as otherwise expressly provided
            herein, this Lease and the rights of Landlord and the
            obligations
            of Tenant hereunder shall not be affected by any event or
            for any
            reason, including the following:  (i) any damage to or
            theft,
            loss or destruction of any of the Leased Premises, (ii) any
            Condemnation, (iii) Tenant's acquisition of ownership of any
            of
            the Leased Premises other than pursuant to an express
            provision
            of this Lease, (iv) any default on the part of Landlord
            hereunder
            or under any Note, Mortgage, Assignment or any other
            agreement,
            (v) any latent or other defect in any of the Leased
            Premises,
            (vi) the breach of any warranty of any seller or
            manufacturer of
            any of the Equipment, (vii) any violation of any provision
            of
            this Lease by Landlord, (viii) the bankruptcy, insolvency,
            reorganization, composition, readjustment, liquidation,
            dissolution or winding-up of, or other proceeding affecting
            Landlord, (ix) the exercise of any remedy, including
            foreclosure,
            under any Mortgage or Assignment, (x) any action with
            respect to
            this Lease (including the disaffirmance hereof) which may be
            taken by Landlord, any trustee, receiver or liquidator of
            Landlord or any court under the Federal Bankruptcy Code or
            otherwise, (xi) any interference with Tenant's use of the
            Leased
            Premises, (xii) market or economic changes or (xiii) any
            other
            cause, whether similar or dissimilar to the foregoing, any
            present or future Law to the contrary notwithstanding.

            (c)  The obligations of Tenant hereunder shall be
<PAGE>





            separate and independent covenants and agreements, all
            Monetary
            Obligations shall continue to be payable in all events (or,
            in
            lieu thereof, Tenant shall pay amounts equal thereto), and
            the
            obligations of Tenant hereunder shall continue unaffected
            unless
            the requirement to pay or perform the same shall have been
            terminated pursuant to an express provision of this Lease.
            All
            Rent payable by Tenant hereunder shall constitute "rent" for
            all
            purposes (including Section 502(b)(6) of the Bankruptcy
            Code).

            (d)  Except as otherwise expressly provided
            herein, Tenant shall have no right and hereby waives all
            rights
            which it may have under any Law (i) to quit, terminate or
            surrender this Lease or any of the Leased Premises, or (ii)
            to
            any Set-Off of any Monetary Obligations.

            9.   Payment of Impositions.

            (a)  Tenant shall, before interest or penalties
            are due thereon, pay and discharge all taxes (including real
            and
            personal property, franchise, sales and rent taxes), all
            charges
            for any easement or agreement maintained for the benefit of
            any
            of the Leased Premises, all assessments and levies, all
            permit,
            inspection and license fees, all rents and charges for
            water,
            sewer, utility and communication services relating to any of
            the
            Leased Premises, all ground rents and all other public
            charges
            whether of a like or different nature, even if unforeseen or
            extraordinary, imposed upon or assessed against (i) Tenant,
            (ii) Tenant's leasehold interest in the Leased Premises,
            (iii) any of the Leased Premises, (iv) Landlord as a result
            of or
            arising in respect of the acquisition, ownership, occupancy,
            leasing, use, possession or sale of any of the Leased
            Premises,
            any activity conducted on any of the Leased Premises, or the
            Rent, or (v) any Lender by reason of any Note, Mortgage,
            Assignment or other document evidencing or securing a Loan
            and
            which (as to this clause (v)) Landlord has agreed to pay
<PAGE>





            (collectively, the "Impositions"); provided, that nothing
            herein
            shall obligate Tenant to pay (A) income, excess profits or
            other
            taxes of Landlord (or Lender) which are determined on the
            basis
            of Landlord's (or Lender's) net income or net worth (unless
            such
            taxes are in lieu of or a substitute for any other tax,
            assessment or other charge upon or with respect to the
            Leased
            Premises which, if it were in effect, would be payable by
            Tenant
            under the provisions hereof or by the terms of such tax,
            assessment or other charge), (B) any estate, inheritance,
            succession, gift or similar tax imposed on Landlord or (C)
            any
            real property transfer (except in connection with a transfer
            to
            Tenant), capital gains or land gains tax imposed on Landlord
            in
            connection with the sale of the Leased Premises to any
            Person.
            If any Imposition may be paid in installments without
            interest or
            penalty, Tenant shall have the option to pay such Imposition
            in
            installments; in such event, Tenant shall be liable only for
            those installments which accrue or become due and payable
            during
            the Term.  Tenant shall prepare and file all tax reports
            required
            by governmental authorities which relate to the Impositions
            assessed against Tenant or all or any portion of the Leased
            Premises.  Tenant shall deliver to Landlord (1) copies of
            all
            settlements and notices pertaining to the Impositions which
            may
            be issued by any governmental authority within ten (10) days
            after Tenant's receipt thereof, (2) receipts for payment of
            all
            taxes required to be paid by Tenant hereunder within thirty
            (30)
            days after the due date thereof and (3) receipts for payment
            of
            all other Impositions within ten (10) days after Landlord's
            request therefor.  Where an Imposition is assessed against
            Landlord or Lender, Tenant's obligations to pay such
            Imposition

            and any interest thereon or penalty pertaining thereto is
            conditioned upon Tenant's receipt of reasonable notice of
            such
            Imposition.
<PAGE>






            (b)  Landlord shall have the right at any time to
            require Tenant to pay to Landlord an additional monthly sum
            (each
            an "Escrow Payment") sufficient to pay the Escrow Charges
            (as
            hereinafter defined) as they become due.  As used herein,
            "Escrow
            Charges" shall mean real estate taxes on the Leased Premises
            or
            payments in lieu thereof and premiums on any insurance
            required
            by this Lease.  Landlord shall determine the amount of the
            Escrow
            Charges and of each Escrow Payment which shall be binding,
            absent
            manifest error.  As long as the Escrow Payments are being
            held by
            Landlord the Escrow Payments shall not be commingled with
            other
            funds of Landlord or other Persons and interest thereon
            shall
            accrue for the benefit of Tenant from the date such monies
            are
            received and invested until the date such monies are
            disbursed to
            pay Escrow Charges.  Landlord shall promptly (and before
            interest
            or penalties are due thereon) apply the Escrow Payments to
            the
            payment of the Escrow Charges in such order or priority as
            Landlord shall determine or as required by law.  If at any
            time
            the Escrow Payments theretofore paid to Landlord shall be
            insufficient for the payment of the Escrow Charges, Tenant,
            within ten (10) days after Landlord's demand therefor, shall
            pay
            the amount of the deficiency to Landlord.

            10.  Compliance with Laws and Easement Agreements;
            Environmental Matters.

            (a)  Tenant shall, at its expense, comply with and
            conform to, and cause the Leased Premises and any other
            Person
            occupying any part of the Leased Premises to comply with and
            conform to, all Insurance Requirements, Legal Requirements
            (including all applicable Environmental Laws) and Permitted
            Encumbrances, including land use permits.  Tenant shall not
            at
            any time (i) cause, permit or suffer to occur any
            Environmental
            Violation or (ii) permit any sublessee, assignee or other
            Person
<PAGE>





            occupying the Leased Premises under or through Tenant to
            cause,
            permit or suffer to occur any Environmental Violation.  No
            later
            than September 1, 1997, Tenant shall cause the Subdivision
            Plat
            for Shelburne South Commercial Park to be reapproved by the
            Planning Commission of Shelburne and rerecorded in the land
            records of Shelburne Land Records in accordance with
            applicable
            law.

            (b)  Tenant, at its sole cost and expense, will at
            all times promptly and faithfully abide by, discharge and
            perform
            all of the covenants, conditions and agreements contained in
            any
            Easement Agreement on the part of Landlord or the occupier
            to be
            kept and performed thereunder.  Neither Landlord nor Tenant
            will
            alter, modify, amend or terminate any Easement Agreement,
            give
            any consent or approval thereunder, or enter into any new
            Easement Agreement without, in each case, the prior written
            consent of the other party hereto.

            (c)  Upon prior written notice from Landlord,
            Tenant shall permit such persons as Landlord may designate
            ("Site
            Reviewers") to visit the Leased Premises and perform, as
            agents
            of Tenant, environmental site investigations and assessments
            ("Site Assessments") on the Leased Premises for the purpose
            of
            determining whether there exists on the Leased Premises any
            Environmental Violation or any condition which could result
            in
            any Environmental Violation.  Such Site Assessments may
            include
            both above and below the ground testing for Environmental
            Violations and such other tests as may be necessary, in the
            opinion of the Site Reviewers, to conduct the Site
            Assessments.
            Tenant shall supply to the Site Reviewers such historical
            and
            operational information regarding the Leased Premises as may
            be
            reasonably requested by the Site Reviewers to facilitate the
            Site
            Assessments, and shall make available for meetings with the
            Site
            Reviewers appropriate personnel having knowledge of such
            matters.
<PAGE>





            The cost of performing and reporting Site Assessments shall
            be
            paid by Tenant so long as such Site Assessment is performed
            in
            connection with any of the following:  (i) a proposed sale
            of the
            Leased Premises; (ii) the occurrence of an Event of Default;
            (iii) the refinancing of any Loan; (iv) Landlord or Lender
            has a
            reasonable belief that an Environmental Violation has
            occurred;
            or (v) upon the direction of any governmental entity, agency
            or
            political subdivision having jurisdiction over Landlord or
            the
            Leased Premises.

            (d)  If an Environmental Violation occurs or is
            found to exist and, in Landlord's reasonable judgment, the
            cost
            of remediation of the same is likely to exceed $100,000,
            Tenant
            shall provide to Landlord, within ten (10) days after
            Landlord's
            request therefor, adequate financial assurances that Tenant
            will
            effect such remediation in accordance with applicable
            Environmental Laws.  Such financial assurances shall be a
            bond or
            letter of credit reasonably satisfactory to Landlord in form
            and
            substance and in an amount equal to or greater than
            Landlord's
            reasonable estimate, based upon a Site Assessment performed
            pursuant to Paragraph 10(c), of the anticipated cost of such
            remedial action.

            (e)  Notwithstanding any other provision of this
            Lease, if an Environmental Violation occurs or is found to
            exist
            and the Term would otherwise terminate or expire, then, at
            the
            option of Landlord, the Term shall be automatically extended
            beyond the date of termination or expiration and this Lease
            shall
            remain in full force and effect beyond such date until the
            earlier to occur of (i) the completion of all remedial
            action in
            accordance with applicable Environmental Laws or (ii) the
            date
            specified in a written notice from Landlord to Tenant
            terminating
            this Lease.
<PAGE>





            (f)  If Tenant fails to correct any Environmental
            Violation which occurs or is found to exist, Landlord shall
            have
            the right (but no obligation) to take any and all actions as
            Landlord shall deem necessary or advisable in order to cure
            such
            Environmental Violation.

            (g)  Tenant shall notify Landlord immediately
            after becoming aware of any Environmental Violation (or
            alleged
            Environmental Violation) or noncompliance with any of the
            covenants contained in this Paragraph 10 and shall forward
            to
            Landlord immediately upon receipt thereof copies of all
            orders,
            reports, notices, permits, applications or other
            communications
            relating to any such violation or noncompliance.

            (h)  All future leases, subleases or concession
            agreements relating to the Leased Premises entered into by
            Tenant
            shall contain covenants of the other party not to at any
            time
            (i) cause any Environmental Violation to occur or (ii)
            permit any
            Person occupying the Leased Premises through said subtenant
            or
            concessionaire to cause any Environmental Violation to
            occur.

            11.  Liens; Recording.

            (a)  Tenant shall not, directly or indirectly,
            create or permit to be created (except for statutory liens
            arising by operation of law) or to remain and shall promptly
            discharge or remove any lien, levy or encumbrance on any of
            the
            Leased Premises or on any Rent or any other sums payable by
            Tenant under this Lease, other than any Mortgage or
            Assignment,
            the Permitted Encumbrances and any mortgage, lien,
            encumbrance or
            other charge created by or resulting solely from any act or
            omission of Landlord.  NOTICE IS HEREBY GIVEN THAT LANDLORD
            SHALL
            NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
            OR
            TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR OCCUPYING
            ANY
            OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO
            MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
            MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD
<PAGE>





            IN
            AND TO ANY OF THE LEASED PREMISES.  LANDLORD MAY AT ANY
            TIME, AND
            AT LANDLORD'S REQUEST TENANT SHALL PROMPTLY, POST ANY
            NOTICES ON
            THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF
            LANDLORD.

            (b)  Tenant shall execute, deliver and record,
            file or register (collectively, "record") all such
            instruments as
            may be required or permitted by any present or future Law in
            order to evidence the respective interests of Landlord and
            Tenant
            in the Leased Premises, and shall cause a memorandum of this
            Lease (or, if such a memorandum cannot be recorded, this
            Lease),
            and any supplement hereto or thereto, to be recorded in such
            manner and in such places as may be required or permitted by
            any
            present or future Law in order to protect the validity and
            priority of this Lease.

            12.  Maintenance and Repair.

            (a)  Tenant shall at all times maintain the Leased
            Premises and the Adjoining Property in as good repair and
            appearance as they are in on the date hereof, except for
            ordinary
            wear and tear, and fit to be used for their intended use in
            accordance with the better of the practices generally
            recognized
            as then acceptable by other companies in its industry or
            observed
            by Tenant with respect to the other real properties owned or

            operated by it, and, in the case of the Equipment, in as
            good
            mechanical condition as it was on the later of the date
            hereof or
            the date of its installation, except for ordinary wear and
            tear.
            Tenant shall take every other action reasonably necessary or
            appropriate for the preservation and safety of the Leased
            Premises consistent with sound business practices and the
            permitted uses of the Leased Premises.  Tenant shall
            promptly
            make all Alterations of every kind and nature, whether
            foreseen
            or unforeseen, which may be required to comply with the
            foregoing
            requirements of this Paragraph 12(a).  Landlord shall not be
            required to make any Alteration, whether foreseen or
            unforeseen,
<PAGE>





            or to maintain any of the Leased Premises or Adjoining
            Property
            in any way, and Tenant hereby expressly waives any right
            which
            may be provided for in any Law now or hereafter in effect to
            make
            Alterations at the expense of Landlord or to require
            Landlord to
            make Alterations.  Any Alteration made by Tenant pursuant to
            this
            Paragraph 12 shall be made in conformity with the provisions
            of
            Paragraph 13.

            (b)  If any Improvement, now or hereafter
            constructed, shall (i) encroach upon any setback or any
            property,
            street or right-of-way adjoining the Leased Premises,
            (ii) violate the provisions of any restrictive covenant
            affecting
            the Leased Premises, (iii) hinder or obstruct any easement
            or
            right-of-way to which any of the Leased Premises is subject
            or
            (iv) impair the rights of others in, to or under any of the
            foregoing, Tenant shall, promptly after receiving notice or
            otherwise acquiring knowledge thereof, either (A) obtain
            from all
            necessary parties waivers or settlements of all claims,
            liabilities and damages resulting from each such
            encroachment,
            violation, hindrance, obstruction or impairment, whether the
            same
            shall affect Landlord, Tenant or both, or (B) take such
            action as
            shall be necessary to remove all such encroachments,
            hindrances
            or obstructions and to end all such violations or
            impairments,
            including, if necessary, making Alterations.

            13.  Alterations and Improvements.

            (a)  Tenant shall have the right, without having
            obtained the prior written consent of Landlord and Lender,
            to
            make (i) non-structural Alterations to the Leased Premises,
            (ii) structural Alterations or a series of related
            structural
            Alterations that, as to any such Alterations or series of
            related
            Alterations, do not cost in excess of $250,000 and (iii) to
            install or replace Equipment in the Improvements or
            accessions to
<PAGE>





            the Equipment that, as to such Equipment or accessions, do
            not
            cost in excess of $250,000, so long as at the time of
            construction or installation of any such Equipment or
            Alterations
            no Event of Default exists and the value and utility of the
            Leased Premises is not diminished thereby.  If the cost of
            any
            structural Alterations, series of related structural
            Alterations,
            Equipment or accessions thereto is in excess of $250,000,
            the
            prior written approval of Landlord and Lender shall be
            required,
            such approval not to be unreasonably withheld, delayed or
            conditioned.  Tenant shall not construct upon the Land any
            additional buildings without having first obtained the prior
            written consent of Landlord and Lender, which consent shall,
            so
            long as no Event of Default has occurred, not be
            unreasonably
            withheld, delayed or conditioned.

            (b)  If Tenant makes any Alterations pursuant to
            this Paragraph 13 or as required by Paragraph 12 or 17 (such
            Alterations and actions being hereinafter collectively
            referred
            to as "Work"), whether or not Landlord's consent is
            required,
            then (i) the market value of the Leased Premises shall not
            be
            lessened by any such Work or its usefulness impaired, (ii)
            all
            such Work shall be performed by Tenant in a good and
            workmanlike
            manner, (iii) all such Work shall be expeditiously completed
            in
            compliance with all Legal Requirements, (iv) all such Work
            shall
            comply with the Insurance Requirements, (v) if any such Work
            involves the replacement of Equipment or parts thereto, all
            replacement Equipment or parts shall have a value and useful
            life
            equal to the greater of (A) the value and useful life on the
            date
            hereof of the Equipment being replaced or (B) the value and
            useful life of the Equipment being replaced immediately
            prior to
            the occurrence of the event which required its replacement,
            (vi) Tenant shall promptly discharge or remove all liens
            filed
            against any of the Leased Premises arising out of such Work,
            (vii) Tenant shall procure and pay for all permits and
            licenses
<PAGE>





            required in connection with any such Work, (viii) all such
            Work
            shall be the property of Landlord and shall be subject to
            this
            Lease, and Tenant shall execute and deliver to Landlord any
            document requested by Landlord evidencing the assignment to
            Landlord of all estate, right, title and interest (other
            than the
            leasehold estate created hereby) of Tenant or any other
            Person
            thereto or therein, and (ix) Tenant shall comply, to the
            extent
            requested by Landlord or required by this Lease, with the
            provisions of Paragraph 19(a), whether or not such Work
            involves
            restoration of the Leased Premises.

            14.  Permitted Contests.  Notwithstanding any other

            provision of this Lease, Tenant shall not be required to (a)
            pay
            any Imposition, (b) discharge or remove any lien referred to
            in
            Paragraph 11 or 13 or (c) take any action with respect to
            any
            encroachment, violation, hindrance, obstruction or
            impairment
            referred to in Paragraph 12(b) (such non-compliance with the
            terms hereof being hereinafter referred to collectively as
            "Permitted Violations"), so long as at the time of such
            contest
            no Event of Default exists and so long as Tenant shall
            contest,
            in good faith, the existence, amount or validity thereof,
            the
            amount of the damages caused thereby, or the extent of its
            or
            Landlord's liability therefor by appropriate proceedings
            which
            shall operate during the pendency thereof to prevent or stay
            (i) the collection of, or other realization upon, the
            Permitted
            Violation so contested, (ii) the sale, forfeiture or loss of
            any
            of the Leased Premises or any Rent to satisfy or to pay any
            damages caused by any Permitted Violation, (iii) any
            interference
            with the use or occupancy of any of the Leased Premises,
            (iv) any
            interference with the payment of any Rent or (v) the
            cancellation
            or increase in the rate of any insurance policy or a
            statement by
            the carrier that coverage will be denied.  Tenant shall
<PAGE>





            provide
            Landlord security which is satisfactory, in Landlord's
            reasonable
            judgment, to assure that such Permitted Violation is
            corrected,
            including all Costs, interest and penalties that may be
            incurred
            or become due in connection therewith.  While any
            proceedings
            which comply with the requirements of this Paragraph 14 are
            pending and the required security is held by Landlord,
            Landlord
            shall not have the right to correct any Permitted Violation
            thereby being contested unless Landlord is required by law
            to
            correct such Permitted Violation and Tenant's contest does
            not
            prevent or stay such requirement as to Landlord.  Each such
            contest shall be promptly and diligently prosecuted by
            Tenant to
            a final conclusion, except that Tenant, so long as the
            conditions
            of this Paragraph 14 are at all times complied with, has the
            right to attempt to settle or compromise such contest
            through
            negotiations.  Tenant shall pay any and all losses,
            judgments,
            decrees and Costs in connection with any such contest and
            shall,
            promptly after the final determination of such contest,
            fully pay
            and discharge the amounts which shall be levied, assessed,
            charged or imposed or be determined to be payable therein or
            in
            connection therewith, together with all penalties, fines,
            interest and Costs thereof or in connection therewith, and
            perform all acts the performance of which shall be ordered
            or
            decreed as a result thereof.  No such contest shall subject
            Landlord to the risk of any civil or criminal liability.

            15.  Indemnification.

            (a)  Tenant shall pay, protect, indemnify, defend,
            save and hold harmless Landlord, Lender and all other
            Persons
            described in Paragraph 30 (each an "Indemnitee") from and
            against
            any and all liabilities, losses, damages (including punitive
            damages), penalties, Costs (including attorneys' fees and
            costs),
            causes of action, suits, claims, demands or judgments of any
            nature whatsoever, howsoever caused, without regard to the
            form
<PAGE>





            of action and whether based on strict liability, negligence
            or

            any other theory of recovery at law or in equity, arising
            from
            (i) any matter pertaining to the ownership, use, non-use,
            occupancy, operation, condition, design, construction,
            maintenance, repair or restoration of the Leased Premises or
            Adjoining Property, (ii) any casualty in any manner arising
            from
            the Leased Premises or Adjoining Property, whether or not
            Indemnitee has or should have knowledge or notice of any
            defect
            or condition causing or contributing to said casualty, (iii)
            any
            violation by Tenant of any provision of this Lease, any
            contract
            or agreement to which Tenant is a party, any Legal
            Requirement or
            any Permitted Encumbrance or any encumbrance Tenant
            consented to
            or the Mortgage or Assignment or (iv) any alleged,
            threatened or
            actual Environmental Violation, including (A) liability for
            response costs and for costs of removal and remedial action
            incurred by the United States Government, any state or local
            governmental unit or any other Person, or damages from
            injury to
            or destruction or loss of natural resources, including the
            reasonable costs of assessing such injury, destruction or
            loss,
            incurred pursuant to Section 107 of CERCLA, or any successor
            section or act or provision of any similar state or local
            Law,
            (B) liability for costs and expenses of abatement,
            correction or
            clean-up, fines, damages, response costs or penalties which
            arise
            from the provisions of any of the other Environmental Laws
            and
            (C) liability for personal injury or property damage arising
            under any statutory or common-law tort theory, including
            damages
            assessed for the maintenance of a public or private nuisance
            or
            for carrying on of a dangerous activity.  Notwithstanding
            the
            foregoing, Tenant shall not be obligated to indemnify any
            Person
            pursuant to this Paragraph 15 from and against any liability
            to
            the extent arising directly from the gross negligence or
            willful
            misconduct of Landlord, its agents or employees.
<PAGE>






            (b)  In case any action or proceeding is brought
            against any Indemnitee by reason of any such claim, (i)
            Tenant
            may, except in the event of a conflict of interest or a
            dispute
            between Tenant and any such Indemnitee or during the
            continuance
            of an Event of Default, retain its own counsel and defend
            such
            action (it being understood that Landlord may at its expense
            employ counsel of its choice to monitor the defense of any
            such
            action) and (ii) such Indemnitee shall notify Tenant to
            resist or
            defend such action or proceeding by retaining counsel
            reasonably
            satisfactory to such Indemnitee, and such Indemnitee will
            cooperate and assist in the defense of such action or
            proceeding
            if reasonably requested so to do by Tenant.  In the event of
            a
            conflict of interest or dispute or during the continuance of
            an
            Event of Default, Landlord shall have the right to select
            counsel, and the cost of such counsel shall by paid by
            Tenant.

            (c)  The obligations of Tenant under this
            Paragraph 15 shall survive any termination, expiration or
            rejection in bankruptcy of this Lease with respect to any
            matter
            that occurred, existed or arose prior to such termination,
            expiration or rejection.

            16.  Insurance.

            (a)  Tenant shall maintain the following insurance
            on or in connection with the Leased Premises:

            (i)  Insurance against physical loss or
            damage to the Improvements and Equipment as provided under a
            standard "All Risk" property policy including but not
            limited to
            flood (if the Leased Premises is in a flood zone) and
            earthquake
            coverage in amounts not less than the actual replacement
            cost of
            the Improvements and Equipment.  Such policies shall contain
            Replacement Cost and Agreed Amount Endorsements and shall
            contain
            deductibles not more than $10,000 per occurrence.

            (ii)  Commercial General Liability Insurance
<PAGE>





            and Business Automobile Liability Insurance (including Non-
            Owned
            and Hired Automobile Liability) against claims for personal
            and
            bodily injury, death or property damage occurring on, in or
            as a
            result of the use of the Leased Premises, in an amount not
            less
            than $7,000,000 per occurrence/annual aggregate and all
            other
            coverage extensions that are usual and customary for
            properties
            of this size and type; provided, however, that Landlord
            shall
            have the right to require such higher limits as may be
            reasonable
            and customary for properties of this size and type.

            (iii)  Worker's compensation insurance
            covering all persons employed by Tenant in connection with
            any
            work done on or about any of the Leased Premises for which
            claims
            for death, disease or bodily injury may be asserted against
            Landlord, Tenant or any of the Leased Premises or, in lieu
            of
            such Worker's Compensation Insurance, a program of self-
            insurance
            complying with the rules, regulations and requirements of
            the
            appropriate agency of the State.

            (iv)  Comprehensive Boiler and Machinery
            Insurance on any of the Equipment or any other equipment on
            or in
            the Leased Premises, in an amount not less than $5,000,000
            per
            accident for damage to property.  Such policies shall
            include at
            least $5,000,000 per accident for Off-Premises Service
            Interruption, Expediting Expenses, Ammonia Contamination,
            and
            Hazardous Materials Clean-Up Expense and may contain a
            deductible
            not to exceed $250,000.

            (v)  Business Income/Extra Expense Insurance
            to include loss of rents at limits sufficient to cover 100%
            of
            the annual rent payable to Landlord with a period of
            indemnity
            not less than one year from time of loss.  Such insurance
            shall
            name Landlord as additional insured solely with respect to
<PAGE>





            Rent
            payable to or for the benefit of Landlord under this Lease.

            (vi)  During any period in which substantial
            Alterations at the Leased Premises are being undertaken,
            builder's risk insurance covering the total completed value
            including any "soft costs" with respect to the Improvements
            being
            altered or repaired (on a completed value, non-reporting
            basis),

            replacement cost of work performed and equipment, supplies
            and
            materials furnished in connection with such construction or
            repair of Improvements or Equipment, together with such
            "soft
            cost" endorsements and such other endorsements as Landlord
            may
            reasonably require and general liability, worker's
            compensation
            and automobile liability insurance with respect to the
            Improvements being constructed, altered or repaired.

            (vii)  Such other insurance (or other terms
            with respect to any insurance required pursuant to this
            Paragraph 16, including without limitation amounts of
            coverage,
            deductibles, form of mortgagee clause) on or in connection
            with
            any of the Leased Premises as Landlord or Lender may
            reasonably
            require, which at the time is usual and commonly obtained in
            connection with properties similar in type of building size,
            use
            and location to the Leased Premises.

            (b)  The insurance required by Paragraph 16(a)
            shall be written by companies which have a Best's rating of
            A:X
            or above and are admitted in, and approved to write
            insurance
            policies by, the State Insurance Department for the State.
            The
            insurance policies (i) shall be for such terms as Landlord
            may
            reasonably approve and (ii) shall be in amounts sufficient
            at all
            times to satisfy any coinsurance requirements thereof.  The
            insurance referred to in Paragraphs 16(a)(i), 16(a)(iv) and
            16(a)(vi) shall name Landlord as Owner and Lender as loss
            payee
            and Tenant as its interest may appear.  The insurance
            referred to
            in Paragraph 16(a)(ii) shall name Landlord and Lender as
<PAGE>





            additional insureds, and the insurance referred to in
            Paragraph 16(a)(v) shall name Landlord as insured and Lender
            Landlord as loss payee.  If said insurance or any part
            thereof
            shall expire, be withdrawn, become void, voidable,
            unreliable or
            unsafe for any reason, including a breach of any condition
            thereof by Tenant or the failure or impairment of the
            capital of
            any insurer, or if for any other reason whatsoever said
            insurance
            shall become reasonably unsatisfactory to Landlord, Tenant
            shall
            immediately obtain new or additional insurance reasonably
            satisfactory to Landlord.

            (c)  Each insurance policy referred to in
            clauses (i), (iv), (v) and (vi) of Paragraph 16(a) shall
            contain
            standard non-contributory mortgagee clauses in favor of and
            acceptable to Lender.  Each policy required by any provision
            of
            Paragraph 16(a), except clause (iii) thereof, shall provide
            that
            it may not be canceled except after thirty (30) days' prior
            notice to Landlord and Lender.  Each such policy shall also
            provide that any loss otherwise payable thereunder shall be
            payable notwithstanding (i) any act or omission of Landlord
            or
            Tenant which might, absent such provision, result in a
            forfeiture
            of all or a part of such insurance payment, (ii) the
            occupation
            or use of any of the Leased Premises for purposes more
            hazardous
            than those permitted by the provisions of such policy, (iii)
            any
            foreclosure or other action or proceeding taken by Lender
            pursuant to any provision of the Mortgage, Note, Assignment
            or
            other document evidencing or securing the Loan upon the
            happening

            of an event of default therein or (iv) any change in title
            to or
            ownership of any of the Leased Premises.

            (d)  Tenant shall pay as they become due all
            premiums for the insurance required by Paragraph 16(a),
            shall
            renew or replace each policy and deliver to Landlord
            evidence of
            the payment of the full premium therefor or installment then
            due
<PAGE>





            at least thirty (30) days prior to the expiration date of
            such
            policy, and shall promptly deliver to Landlord all original
            policies.

            (e)  Anything in this Paragraph 16 to the contrary
            notwithstanding, any insurance which Tenant is required to
            obtain
            pursuant to Paragraph 16(a) may be carried under a "blanket"
            or
            umbrella policy or policies covering other properties or
            liabilities of Tenant, provided that such "blanket" or
            umbrella
            policy or policies otherwise comply with the provisions of
            this
            Paragraph 16 and provided further that Tenant shall provide
            to
            Landlord a Statement of Values which shall be reviewed
            annually
            and amended as necessary based on Replacement Cost
            Valuations.
            The original or a certified copy of each such "blanket" or
            umbrella policy shall promptly be delivered to Landlord.

            (f)  Tenant shall promptly comply with and conform
            to (i) all provisions of each insurance policy required by
            this
            Paragraph 16 and (ii) all requirements of the insurers
            thereunder
            applicable to Landlord, Tenant or any of the Leased Premises
            or
            to the use, manner of use, occupancy, possession, operation,
            maintenance, alteration or repair of any of the Leased
            Premises,
            even if such compliance necessitates Alterations or results
            in
            interference with the use or enjoyment of any of the Leased
            Premises.

            (g)  Tenant shall not carry separate insurance
            concurrent in form or contributing in the event of a
            Casualty
            with that required in this Paragraph 16 unless (i) Landlord
            and
            Lender are included therein as named insureds, with loss
            payable
            as provided herein, and (ii) such separate insurance
            complies
            with the other provisions of this Paragraph 16.  Tenant
            shall
            immediately notify Landlord of such separate insurance and
            shall
            deliver to Landlord the original policies thereof.
<PAGE>





            (h)  All policies shall contain effective waivers
            by the carrier against all claims for insurance premiums
            against
            Landlord and shall contain full waivers of subrogation
            against
            Landlord.

            (i)  All proceeds of any insurance required under
            Paragraph 16(a) shall be payable as follows:

            (i)  Except for proceeds payable to a Person
            other than Landlord, Tenant or Lender, all proceeds of
            insurance
            required under clauses (ii), (iii), (iv), (v) and (vii) of
            Paragraph 16(a) and proceeds attributable to the general
            liability coverage provisions of Builder's Risk insurance
            under
            clause (vi) of Paragraph 16(a) shall be payable to Landlord
            or,
            if required by the Mortgage, to Lender.

            (ii)  Proceeds of insurance required under
            clause (i) of Paragraph 16(a) and proceeds attributable to
            Builder's Risk insurance (other than its general liability
            coverage provisions) under clause (vi) of Paragraph 16(a)
            shall
            be payable to Landlord (or Lender) and applied as set forth
            in
            Paragraph 17.  Tenant shall apply the Net Award to
            restoration of
            the Leased Premises in accordance with the applicable
            provisions
            of this Lease.

            17.  Casualty and Condemnation.

            (a)  If any Casualty occurs to the Leased
            Premises, Tenant shall give Landlord and Lender immediate
            notice
            thereof.  Landlord and Lender are hereby authorized to
            adjust,
            collect and compromise, in their discretion and upon notice
            to
            Tenant (except that no notice to Tenant shall be required if
            an
            Event of Default has occurred and is continuing), all claims
            under any of the insurance policies required by Paragraph
            16(a)
            (except public liability insurance claims payable to a
            Person
            other than Tenant, Landlord or Lender) and to execute and
            deliver
            on behalf of Tenant all necessary proofs of loss, receipts,
            vouchers and releases required by the insurers; provided,
<PAGE>





            however, that so long as no Event of Default has occurred,
            Landlord and Lender shall not adjust or compromise any such
            claim
            without the prior written consent of Tenant, which consent
            shall
            not be unreasonably withheld.  Provided that no Event of
            Default
            has occurred and is continuing, Tenant shall be entitled to
            participate with Landlord and Lender in any adjustment,
            collection and compromise of the Net Award payable in
            connection
            with a Casualty.  Tenant agrees to sign, upon the request of
            Landlord and Lender, all such proofs of loss, receipts,
            vouchers
            and releases.  If Landlord or Lender so requests, Tenant
            shall
            adjust, collect and compromise any and all such claims, and
            Landlord and Lender shall have the right to join with Tenant
            therein.  Any adjustment, settlement or compromise of any
            such
            claim shall be subject to the prior written approval of
            Landlord
            and Lender, and Landlord and Lender shall have the right to
            prosecute or contest, or to require Tenant to prosecute or
            contest, any such claim, adjustment, settlement or
            compromise.
            Each insurer is hereby authorized and directed to make
            payment
            under said policies, directly to Landlord or, if required by
            the
            Mortgage, to Lender instead of to Landlord and Tenant
            jointly,
            and Tenant hereby appoints each of Landlord and Lender as
            Tenant's attorneys-in-fact to endorse any draft therefor.
            The

            rights of Landlord under this Paragraph 17(a) shall be
            extended
            to Lender if and to the extent that any Mortgage so
            provides.

            (b)  Tenant, immediately upon receiving a
            Condemnation Notice, shall notify Landlord and Lender
            thereof.
            Landlord and Lender are authorized to collect, settle and
            compromise, in their discretion (and, if no Event of Default
            exists, upon notice to Tenant), the amount of any Net Award.
            Provided that no Event of Default has occurred and is
            continuing,
            Tenant shall be entitled to participate with Landlord and
            Lender
            in any Condemnation proceeding or negotiations under threat
            thereof and to contest the Condemnation or the amount of the
            Net
<PAGE>





            Award therefor.  No agreement with any condemnor in
            settlement or
            under threat of any Condemnation shall be made by Tenant
            without
            the written consent of Landlord and Lender.  Subject to the
            provisions of this Paragraph 17(b), Tenant hereby
            irrevocably
            assigns to Landlord any award or payment to which Tenant is
            or
            may be entitled by reason of any Condemnation, whether the
            same
            shall be paid or payable for Tenant's leasehold interest
            hereunder or otherwise; but nothing in this Lease shall
            impair
            Tenant's right to any award or payment on account of
            Tenant's
            trade fixtures, equipment or other tangible property which
            is not
            part of the Equipment, moving expenses or loss of business,
            if
            available, to the extent that and so long as (i) Tenant
            shall
            have the right to make, and does make, a separate claim
            therefor
            against the condemnor and (ii) such claim does not in any
            way
            reduce either the amount of the award otherwise payable to
            Landlord for the Condemnation of Landlord's fee interest in
            the
            Leased Premises or the amount of the award (if any)
            otherwise
            payable for the Condemnation of Tenant's leasehold interest
            hereunder.  The rights of Landlord under this Paragraph
            17(b)
            shall also be extended to Landlord if and to the extent that
            any
            Mortgage so provides.

            (c)  If any Partial Casualty (whether or not
            insured against) or Partial Condemnation shall occur, this
            Lease
            shall continue, notwithstanding such event, and there shall
            be no
            abatement or reduction of any Monetary Obligations.
            Promptly
            after such Partial Casualty or Partial Condemnation, Tenant,
            as
            required in Paragraphs 12(a) and 13(b), shall commence and
            diligently continue to restore the Leased Premises as nearly
            as
            possible to their value, condition and character immediately
            prior to such event (assuming the Leased Premises to have
            been in
            the condition required by this Lease).  So long as no Event
<PAGE>





            of
            Default exists, any Net Award up to and including $250,000
            shall
            be reasonably paid by Landlord to Tenant and Tenant shall
            restore
            the Leased Premises in accordance with the requirements of
            Paragraphs 12(a) and 13(b) of this Lease.  Any Net Award in
            excess of $250,000 shall (unless such Casualty resulting in
            the
            Net Award is a Termination Event) be made available by
            Landlord
            (or Lender, if required by the terms of any Mortgage) to
            Tenant
            for the restoration of any of the Leased Premises pursuant
            to and
            in accordance with the provisions of Paragraph 19 hereof. If
            any
            Casualty or Condemnation which is not a Partial Casualty or
            Partial Condemnation shall occur, Tenant shall comply with
            the

            terms and conditions of Paragraph 18.

            18.  Termination Events.

            (a)  If (i) the entire Leased Premises shall be
            taken by a Condemnation or (ii) any substantial portion of
            the
            Leased Premises shall be taken by a Condemnation or all or
            any
            substantial portion of the Leased Premises shall be damaged
            or
            destroyed by a Casualty and, in such case, Tenant certifies
            and
            covenants to Landlord that it will forever abandon
            operations at
            the Leased Premises (each of the events described in the
            above
            clauses (i) and (ii) shall hereinafter be referred to as a
            "Termination Event"), then (x) in the case of (i) above,
            Tenant
            shall be obligated, within thirty (30) days after Tenant
            receives
            a Condemnation Notice and (y) in the case of (ii) above,
            Tenant
            shall have the option, within thirty (30) days after Tenant
            receives a Condemnation Notice or thirty (30) days after the
            Casualty, as the case may be, to give to Landlord written
            notice
            of Tenant's option to terminate this Lease (a "Termination
            Notice") in the form described in Paragraph 18(b).

            (b)  A Termination Notice shall contain (i) notice
            of Tenant's intention to terminate this Lease on the first
<PAGE>





            Basic
            Rent Payment Date which occurs at least sixty (60) days
            after the
            Fair Market Value Date (the "Termination Date"), (ii) a
            binding
            and irrevocable offer of Tenant to pay to Landlord the
            Termination Amount and (iii) if the Termination Event is an
            event
            described in Paragraph 18(a)(ii), the certification and
            covenants
            described therein and a certified resolution of the Board of
            Directors of Tenant authorizing the same.  Promptly upon the
            delivery to Landlord of a Termination Notice, Landlord and
            Tenant
            shall commence to determine the Fair Market Value.

            (c)  If Landlord shall reject such offer to
            terminate this Lease by written notice to Tenant (a
            "Rejection"),
            which Rejection shall contain the written consent of Lender,
            not
            later than thirty (30) days following the Fair Market Value
            Date,
            then this Lease shall terminate on the Termination Date;
            provided
            that, if Tenant has not satisfied all Monetary Obligations
            and
            all other obligations and liabilities under this Lease which
            have
            arisen on or prior to the Termination Date (collectively,
            "Remaining Obligations") on the Termination Date, then
            Landlord
            may, at its option, extend the date on which this Lease may
            terminate to a date which is no later than the first Basic
            Rent
            Payment Date after the Termination Date on which Tenant has
            satisfied all Remaining Obligations.  Upon such termination
            (i) all obligations of Tenant hereunder shall terminate
            except
            for any Surviving Obligations, (ii) Tenant shall immediately
            vacate and shall have no further right, title or interest in
            or
            to any of the Leased Premises and (iii) the Net Award shall
            be
            retained by Landlord.  Notwithstanding anything to the
            contrary
            hereinabove contained, if Tenant shall have received a
            Rejection
            and, on the date when this Lease would otherwise terminate
            as
            provided above, Landlord shall not have received the full
            amount
            of the Net Award payable by reason of the applicable
            Termination
<PAGE>






            Event, then the date on which this Lease is to terminate
            automatically shall be extended to the first Basic Rent
            Payment
            Date after the receipt by Landlord of the full amount of the
            Net
            Award; provided that, if Tenant has not satisfied all
            Remaining
            Obligations on such date, then Landlord may, at its option,
            extend the date on which this Lease may terminate to a date
            which
            is no later than the first Basic Rent Payment Date after
            such
            date on which Tenant has satisfied all such Remaining
            Obligations.

            (d)  Unless Tenant shall have received a Rejection
            not later than the thirtieth (30th) day following the Fair
            Market
            Value Date, Landlord shall be conclusively presumed to have
            accepted such offer.  If such offer is accepted by Landlord
            then,
            on the Termination Date, Tenant shall pay to Landlord the
            Termination Amount and all Remaining Obligations and, if
            requested by Tenant, Landlord shall (i) convey to Tenant the
            Leased Premises or the remaining portion thereof, if any,
            and
            (ii) pay to or assign to Tenant Landlord's entire interest
            in and
            to the Net Award, all in accordance with Paragraph 20.

            19.  Restoration.

            (a)  Landlord (or Lender if required by any
            Mortgage) shall hold any Net Award in excess of $250,000 in
            a
            fund (the "Restoration Fund") and disburse amounts from the
            Restoration Fund only in accordance with the following
            conditions:

            (i)  prior to commencement of restoration,
            (A) the architects, contracts, contractors, plans and
            specifications for the restoration shall have been approved
            by
            Landlord, (B) Landlord and Lender shall be provided with
            mechanics' lien insurance (if available) and acceptable
            performance and payment bonds which insure satisfactory
            completion of and payment for the restoration, are in an
            amount
            and form and have a surety acceptable to Landlord, and name
            Landlord and Lender as additional dual obligees, and
            (C) appropriate waivers of mechanics' and materialmen's
            liens
            shall have been filed;
<PAGE>






            (ii)  at the time of any disbursement, no
            Event of Default shall exist and no mechanics' or
            materialmen's
            liens shall have been filed against any of the Leased
            Premises
            and remain undischarged;

            (iii)  disbursements shall be made from time
            to time in an amount not exceeding the cost of the work
            completed
            since the last disbursement, upon receipt of (A)
            satisfactory
            evidence, including architects' certificates, of the stage
            of
            completion, the estimated total cost of completion and
            performance of the work to date in a good and workmanlike
            manner
            in accordance with the contracts, plans and specifications,
            (B) waivers of liens, (C) contractors' and subcontractors'
            sworn
            statements as to completed work and the cost thereof for
            which

            payment is requested, (D) a satisfactory bringdown of title
            insurance and (E) other evidence of cost and payment so that
            Landlord can verify that the amounts disbursed from time to
            time
            are represented by work that is completed, in place and free
            and
            clear of mechanics' and materialmen's lien claims;

            (iv)  each request for disbursement shall be
            accompanied by a certificate of Tenant, signed by the
            president
            or a vice president of Tenant, describing the work for which
            payment is requested, stating the cost incurred in
            connection
            therewith, stating that Tenant has not previously received
            payment for such work and, upon completion of the work, also
            stating that the work has been fully completed and complies
            with
            the applicable requirements of this Lease;

            (v)  Landlord may retain ten percent (10%) of
            the Restoration Fund until the restoration is fully
            completed;

            (vi)  if the Restoration Fund is held by
            Landlord, the Restoration Fund shall not be commingled with
            Landlord's other funds and shall bear interest at a rate
            agreed
            to by Landlord and Tenant; and
<PAGE>





            (vii) such other reasonable conditions as
            Landlord or Lender may impose.

            (b)  Prior to commencement of restoration and at
            any time during restoration, if the estimated cost of
            completing
            the restoration work free and clear of all liens, as
            determined
            by Landlord, exceeds the amount of the Net Award available
            for
            such restoration, the amount of such excess shall, upon
            demand by
            Landlord, be paid by Tenant to Landlord to be added to the
            Restoration Fund.  Any sum so added by Tenant which remains
            in
            the Restoration Fund upon completion of restoration shall be
            refunded to Tenant.  For purposes of determining the source
            of
            funds with respect to the disposition of funds remaining
            after
            the completion  of restoration, the Net Award shall be
            deemed to
            be disbursed prior to any amount added by Tenant.

            (c)  If any sum remains in the Restoration Fund
            after completion of the restoration and any refund to Tenant
            pursuant to Paragraph 19(b), such sum (the "Remaining Sum")
            shall
            be retained by Landlord or, if required by a Note or
            Mortgage,
            paid by Landlord to a Lender.  If the Remaining Sum is (i)
            retained by Landlord, each installment of Basic Rent payable
            on
            or after the Retention Date shall be reduced by a fraction,
            the
            denominator of which shall be the total amount of all Basic
            Rent
            due from such date to and including the last Basic Rent
            Payment
            Date for the then existing Term and the numerator of which
            shall
            be the Remaining Sum, or (ii) paid to Lender, then each
            installment of Basic Rent thereafter payable shall be
            reduced in
            the same amount as payments are reduced under any Note if
            the
            Loan corresponding to such Note is reamortized to reflect
            such
            payment, in each case until such Remaining Sum has been
            applied
            in full or until the Term has expired, whichever occurs
            first.

            Upon the expiration of the Term, any portion of the
<PAGE>





            Remaining Sum
            which has not been so applied shall be retained by Landlord.

            20.  Procedures Upon Purchase.

            (a)  If the Leased Premises is purchased by Tenant
            pursuant to any provision of this Lease, Landlord need not
            convey
            any better title thereto than that which was conveyed to
            Landlord, and Tenant shall accept such title, subject,
            however,
            to the Permitted Encumbrances and to all other liens,
            exceptions
            and restrictions on, against or relating to any of the
            Leased
            Premises and to all applicable Laws, but free of the lien of
            and
            security interest created by any Mortgage or Assignment and
            liens, exceptions and restrictions on, against or relating
            to the
            Leased Premises which have been created by or resulted
            solely
            from acts of Landlord after the date of this Lease, unless
            the
            same are Permitted Encumbrances or customary utility
            easements
            benefiting the Leased Premises or were created with the
            concurrence of Tenant or as a result of a default by Tenant
            under
            this Lease.

            (b)  Upon the date fixed for any such purchase of
            the Leased Premises pursuant to any provision of this Lease
            (any
            such date the "Purchase Date"), Tenant shall pay to
            Landlord, or
            to any Person to whom Landlord directs payment, the Relevant
            Amount therefor specified herein, in Federal Funds, less any
            credit of the Net Award received and retained by Landlord or
            a
            Lender allowed against the Relevant Amount, and Landlord
            shall
            deliver to Tenant (i) a special warranty deed which
            describes the
            premises being conveyed and conveys the title thereto as
            provided
            in Paragraph 20(a), (ii) such other instruments as shall be
            necessary to transfer to Tenant or its designee any other
            property (or rights to any Net Award not yet received by
            Landlord
            or a Lender) then required to be sold by Landlord to Tenant
            pursuant to this Lease and (iii) any Net Award received by
            Landlord, not credited to Tenant against the Relevant Amount
            and
<PAGE>





            required to be delivered by Landlord to Tenant pursuant to
            this
            Lease; provided, that if any Monetary Obligations remain
            outstanding on such date, then Landlord may deduct from the
            Net
            Award the amount of such Monetary Obligations; and further
            provided, that if any event has occurred which, in
            Landlord's
            reasonable judgment, is likely to subject any Indemnitee to
            any
            liability which Tenant is required to indemnify against
            pursuant
            to Paragraph 15, then an amount shall be deducted from the
            Net
            Award which, in Landlord's reasonable judgment, is
            sufficient to
            satisfy such liability, which amount shall be deposited in
            an
            escrow account with a financial institution reasonably
            satisfactory to Landlord and Tenant pending resolution of
            such
            matter.  If on the Purchase Date any Monetary Obligations
            remain
            outstanding and no Net Award is payable to Tenant by
            Landlord or
            the amount of such Net Award is less than the amount of the
            Monetary Obligations, then Tenant shall pay to Landlord on
            the
            Purchase Date the amount of such Monetary Obligations.  Upon
            the
            completion of such purchase, this Lease and all obligations
            and
            liabilities of Tenant hereunder shall terminate, except any

            Surviving Obligations.

            (c)  If the completion of such purchase shall be
            delayed after (i) the Termination Date, in the event of a
            purchase pursuant to Paragraph 18 or, (ii) the date
            scheduled for
            such purchase, in the event of a purchase under any other
            provision of this Lease then (x) Rent shall continue to be
            due
            and payable until completion of such purchase and (y) at
            Landlord's sole option, Fair Market Value shall be
            redetermined
            and the Relevant Amount payable by Tenant pursuant to the
            applicable provision of this Lease shall be adjusted to
            reflect
            such redetermination.

            (d)  Any prepaid Monetary Obligations paid to
            Landlord shall be prorated as of the Purchase Date, and the
            prorated unapplied balance shall be deducted from the
<PAGE>





            Relevant
            Amount due to Landlord.  Apportionment of any Impositions
            shall
            be made upon any such purchase.

            21.  Assignment and Subletting; Prohibition against
            Leasehold Financing.

            (a)  Except as provided in Paragraph 1(a) of
            Exhibit "E", Tenant may not assign this Lease, voluntarily
            or
            involuntarily, whether by operation of law or otherwise, or
            sublet any of the Leased Premises at any time to any other
            Person
            without the prior written consent of Landlord, which
            consent, in
            the event of an assignment, may be withheld by Landlord for
            any
            or no reason.

            (b)  If Tenant assigns all its rights and interest
            under this Lease, the assignee under such assignment shall
            expressly assume all the obligations of Tenant hereunder,
            actual
            or contingent, including obligations of Tenant which may
            have
            arisen on or prior to the date of such assignment, by a
            written
            instrument delivered to Landlord at the time of such
            assignment.
            Each sublease of any of the Leased Premises shall be subject
            and
            subordinate to the provisions of this Lease.  No assignment
            or
            sublease shall affect or reduce any of the obligations of
            Tenant
            hereunder, and all such obligations shall continue in full
            force
            and effect as obligations of a principal and not as
            obligations
            of a guarantor, as if no assignment or sublease had been
            made.
            No assignment or sublease shall impose any additional
            obligations
            on Landlord under this Lease.

            (c)  Tenant shall, within ten (10) days after the
            execution and delivery of any assignment or sublease
            consented to
            by Landlord, deliver a duplicate original copy thereof to
            Landlord which, in the event of an assignment, shall be in
            recordable form.

            (d)  As security for performance of its
<PAGE>





            obligations under this Lease, Tenant hereby grants, conveys
            and
            assigns to Landlord all right, title and interest of Tenant
            in
            and to all subleases now in existence or hereafter entered
            into

            for any or all of the Leased Premises, any and all
            extensions,
            modifications and renewals thereof and all rents, issues and
            profits therefrom.  Landlord hereby grants to Tenant a
            license to
            collect and enjoy all rents and other sums of money payable
            under
            any sublease of any of the Leased Premises; provided,
            however,
            that Landlord shall have the absolute right at any time
            following
            the occurrence of an Event of Default to revoke said license
            and
            to collect such rents and sums of money and to retain the
            same.
            Tenant shall not consent to, cause or allow any modification
            or
            alteration of any of the terms, conditions or covenants of
            any of
            the subleases or the termination thereof, without the prior
            written approval of Landlord, which consent shall not be
            unreasonably withheld, nor shall Tenant accept any rents
            more
            than thirty (30) days in advance of the accrual thereof nor
            do
            nor permit anything to be done, the doing of which, nor omit
            or
            refrain from doing anything, the omission of which, will or
            could
            be a breach of or default in the terms of any of the
            subleases.

            (e)  Tenant shall not have the power to mortgage,
            pledge or otherwise encumber its interest under this Lease
            or any
            sublease of the Leased Premises, and any such mortgage,
            pledge or
            encumbrance made in violation of this Paragraph 21 shall be
            void
            and of no force and effect.

            (f)  Subject to the provisions of Paragraph 35 and
            36 below, Landlord may sell or transfer the Leased Premises
            at
            any time without Tenant's consent to any third party (each a
            "Third Party Purchaser").  In the event of any such
            transfer,
<PAGE>





            Tenant shall attorn to any Third Party Purchaser as Landlord
            so
            long as such Third Party Purchaser and Landlord notify
            Tenant in
            writing of such transfer.  At the request of Landlord,
            Tenant
            will execute such documents confirming the agreement
            referred to
            above and such other agreements as Landlord may reasonably
            request, provided that such agreements do not increase the
            liabilities and obligations of Tenant hereunder.

            22.  Events of Default.

            (a)  The occurrence of any one or more of the
            following (after expiration of any applicable cure period as
            provided in Paragraph 22(b)) shall, at the sole option of
            Landlord, constitute an "Event of Default" under this Lease:

            (i)  a failure by Tenant to make any payment
            of any Monetary Obligation, regardless of the reason for
            such
            failure;

            (ii)  a failure by Tenant duly to perform and
            observe, or a violation or breach of, any other provision
            hereof
            not otherwise specifically mentioned in this Paragraph
            22(a);

            (iii)  any representation or warranty made by
            Tenant herein or in any certificate, demand or request made
            pursuant hereto proves to be incorrect, now or hereafter, in
            any
            material respect;

            (iv)  a default beyond any applicable cure
            period or at maturity by Tenant in any payment of principal
            or
            interest on any obligations for borrowed money having an
            original
            principal balance of $3,000,000 or more in the aggregate, or
            in
            the performance of any other provision contained in any
            instrument under which any such obligation is created or
            secured
            (including the breach of any covenant thereunder), (x) if
            such
            payment is a payment at maturity or a final payment, or (y)
            if an
            effect of such default is to cause, or permit any Person to
            cause, such obligation to become due prior to its stated
            maturity;
<PAGE>





            (v)  a default by Tenant beyond any
            applicable cure period in the payment of rent under, or in
            the
            performance of any other material provision of, any other
            lease
            or leases that have, in the aggregate, rental obligations
            over
            the terms thereof of $1,000,000 or more;

            (vi)  a final, non-appealable judgment or
            judgments for the payment of money in excess of $1,000,000
            in the
            aggregate shall be rendered against Tenant and the same
            shall
            remain undischarged for a period of sixty (60) consecutive
            days;

            (vii)  The breach of any Covenant shall
            occur;

            (viii)  Tenant shall (A) voluntarily be
            adjudicated a bankrupt or insolvent, (B) seek or consent to
            the
            appointment of a receiver or trustee for itself or for the
            Leased
            Premises, (C) file a petition seeking relief under the
            bankruptcy
            or other similar laws of the United States, any state or any
            jurisdiction, (D) make a general assignment for the benefit
            of
            creditors, or (E) be unable to pay its debts as they mature;

             (ix)  a court shall enter an order, judgment
            or decree appointing, without the consent of Tenant, a
            receiver
            or trustee for it or for any of the Leased Premises or
            approving
            a petition filed against Tenant which seeks relief under the
            bankruptcy or other similar laws of the United States, any
            state
            or any jurisdiction, and such order, judgment or decree
            shall
            remain undischarged or unstayed sixty (60) days after it is
            entered;

            (x)  the Leased Premises shall have been
            vacated or abandoned;

            (xi)  Tenant shall be liquidated or dissolved
            or shall begin proceedings towards its liquidation or
            dissolution;

            (xii)  the estate or interest of Tenant in
            any of the Leased Premises shall be levied upon or attached
<PAGE>





            in
            any proceeding and such estate or interest is about to be
            sold or
            transferred or such process shall not be vacated or
            discharged
            within sixty (60) days after it is made;

            (xiii)  a failure by Tenant to perform or
            observe, or a violation or breach of, or a misrepresentation
            by
            Tenant under any provision of any Assignment or any other
            document between Tenant and Lender, if such failure,
            violation,
            breach or misrepresentation gives rise to a default beyond
            any
            applicable cure period with respect to any Loan;

            (xiv)  a failure by Tenant to maintain in
            effect any license or permit necessary for the use,
            occupancy or
            operation of the Leased Premises;

            (xv)  Tenant shall sell or transfer or enter
            into an agreement to sell or transfer all or substantially
            all of
            its assets; or

            (xvi)  a default shall occur under any Lease
            Collateral Document.

            (b)  No notice or cure period shall be required in
            any one or more of the following events:  (A) the occurrence
            of
            an Event of Default under clause (i) (except as otherwise
            set
            forth below), (iii), (iv), (v), (vi), (vii) (except as
            otherwise
            set forth below), (viii), (ix), (x), (xi), (xii), (xiii),
            (xiv)
            or (xv) of Paragraph 22(a);  (B) the default consists of a
            failure to pay Basic Rent, a failure to provide any
            insurance
            required by Paragraph 16 or an assignment or sublease
            entered
            into in violation of Paragraph 21; or (C) the default is
            such
            that any delay in the exercise of a remedy by Landlord could
            reasonably be expected to cause irreparable harm to
            Landlord.  If
            the default consists of the failure to pay any Monetary
            Obligation under clause (i) of Paragraph 22(a), the
            applicable
            cure period shall be three (3) days from the date on which
            notice
<PAGE>





            is given, but Landlord shall not be obligated to give notice
            of,
            or allow any cure period for, any such default more than
            twice
            within any Lease Year.  If the default consists of a default
            under clause (ii) of Paragraph 22(a), other than the events
            specified in clauses (B) and (C) of the first sentence of
            this
            Paragraph 22(b), the applicable cure period shall be thirty
            (30)
            days from the date on which notice is given or, if the
            default
            cannot be cured within such thirty (30) day period and delay
            in
            the exercise of a remedy would not (in Landlord's reasonable
            judgment) cause any material adverse harm to Landlord or any
            of
            the Leased Premises, the cure period shall be extended for
            the
            period required to cure the default (but such cure period,
            including any extension, shall not in the aggregate exceed
            sixty
            (60) days), provided that Tenant shall commence to cure the
            default within the said thirty-day period and shall
            actively,
            diligently and in good faith proceed with and continue the
            curing
            of the default until it shall be fully cured.  If the
            default
            consists of a default under clauses (c), (g) or, if so long
            as
            the Indebtedness incurred is less than $50,000 in a fiscal
            year
            of Tenant, (j) of Section 1 of Exhibit E hereto, the
            applicable
            cure period shall be thirty (30) days from the date on which
            notice is given to Lender.

            23.  Remedies and Damages Upon Default.

            (a)  If an Event of Default shall have occurred
            and is continuing, Landlord shall have the right, at its
            sole
            option, then or at any time thereafter, to exercise its
            remedies
            and to collect damages from Tenant in accordance with this
            Paragraph 23, subject in all events to applicable Law,
            without
            demand upon or notice to Tenant except as otherwise provided
            in
            Paragraph 22(b) and this Paragraph 23.

            (i)  Landlord may give Tenant notice of
            Landlord's intention to terminate this Lease on a date
<PAGE>





            specified
            in such notice.  Upon such date, this Lease, the estate
            hereby
            granted and all rights of Tenant hereunder shall expire and
            terminate.  Upon such termination, Tenant shall immediately
            surrender and deliver possession of the Leased Premises to
            Landlord in accordance with Paragraph 26.  If Tenant does
            not so
            surrender and deliver possession of the Leased Premises,
            Landlord
            may re-enter and repossess the Leased Premises, with or
            without
            legal process, by peaceably entering the Leased Premises and
            changing locks or by summary proceedings, ejectment or any
            other
            lawful means or procedure.  Upon or at any time after taking
            possession of the Leased Premises, Landlord may, by
            peaceable
            means or legal process, remove any Persons or property
            therefrom.
            Landlord shall be under no liability for or by reason of any
            such
            entry, repossession or removal.  Notwithstanding such entry
            or
            repossession, Landlord may (A) exercise the remedy set forth
            in
            and collect the damages permitted by Paragraph 23(a)(iii) or
            (B) collect the damages set forth in Paragraph 23(b)(i) or
            23(b)(ii).

            (ii)  After repossession of the Leased
            Premises pursuant to clause (i) above, Landlord shall have
            the
            right to relet any of the Leased Premises to such tenant or
            tenants, for such term or terms, for such rent, on such
            conditions and for such uses as Landlord in its sole
            discretion
            may determine, and collect and receive any rents payable by
            reason of such reletting.  Landlord may make such
            Alterations in
            connection with such reletting as it may deem advisable in
            its
            sole discretion.  Notwithstanding any such reletting,
            Landlord
            may collect the damages set forth in Paragraph 23(b)(ii).

            (iii)  Landlord may, upon notice to Tenant,
            require Tenant to make an irrevocable offer to terminate
            this
            Lease upon payment to Landlord of an amount (the "Default
            Termination Amount") specified in the next sentence.  The
            "Default Termination Amount" shall be the greatest of (A)
            the
            Fair Market Value of the Leased Premises, (B) the sum of the
<PAGE>





            Acquisition Cost and Prepayment Premium which Landlord will
            be
            required to pay in prepaying any Loan with proceeds of the
            Default Termination Amount or (C) an amount equal to the
            Present
            Value of the entire Basic Rent from the date of such
            purchase to
            the date on which the Term would expire, assuming that the
            Term
            has been extended for all extension periods, if any,
            provided for
            in this Lease.  Upon such notice to Tenant, Tenant shall be

            deemed to have made such offer and shall, if requested by
            Landlord, within ten (10) days following such request
            deposit
            with Landlord as payment against the Default Termination
            Amount
            the amount described in (B) above and Landlord and Tenant
            shall
            promptly commence to determine Fair Market Value.  Within
            thirty
            (30) days after the Fair Market Value Date, Landlord shall
            accept
            or reject such offer.  If Landlord accepts such offer then,
            on
            the tenth (10th) business day after such acceptance, Tenant
            shall
            pay to Landlord the Default Termination Amount and, at the
            request of Tenant, Landlord will convey the Leased Premises
            to
            Tenant or its designee in accordance with Paragraph 20.  Any
            rejection by Landlord of such offer shall have no effect on
            any
            other remedy Landlord may have under this Lease.

            (iv)  Landlord may declare by notice to
            Tenant the entire Basic Rent (in the amount of Basic Rent
            then in
            effect) for the remainder of the then current Term to be
            immediately due and payable.  Tenant shall immediately pay
            to
            Landlord all such Basic Rent discounted to its Present
            Value, all
            accrued Rent then due and unpaid, all other Monetary
            Obligations
            which are then due and unpaid and all Monetary Obligations
            which
            arise or become due by reason of such Event of Default
            (including
            any Costs of Landlord).  Upon receipt by Landlord of all
            such
            accelerated Basic Rent and Monetary Obligations, this Lease
            shall
<PAGE>





            remain in full force and effect and Tenant shall have the
            right
            to possession of the Leased Premises from the date of such
            receipt by Landlord to the end of the Term, and subject to
            all
            the provisions of this Lease, including the obligation to
            pay all
            increases in Basic Rent and all Monetary Obligations that
            subsequently become due, except that (A) no Basic Rent which
            has
            been prepaid hereunder shall be due thereafter during the
            said
            Term, (B) Tenant shall have no option to extend or renew the
            Term
            and (C) Tenant shall have no further rights under Paragraph
            35 or
            under Paragraph 36.

            (b)  The following constitute damages to which
            Landlord shall be entitled if Landlord exercises its
            remedies
            under Paragraph 23(a)(i) or 23(a)(ii):

            (i)  If Landlord exercises its remedy under
            Paragraph 23(a)(i) but not its remedy under Paragraph
            23(a)(ii)
            (or attempts to exercise such remedy and is unsuccessful in
            reletting the Leased Premises) then, upon written demand
            from
            Landlord, Tenant shall pay to Landlord, as liquidated and
            agreed
            final damages for Tenant's default and in lieu of all
            current
            damages beyond the date of such demand (it being agreed that
            it
            would be impracticable or extremely difficult to fix the
            actual
            damages), an amount equal to the Present Value of the
            excess, if
            any, of (A) all Basic Rent from the date of such demand to
            the
            date on which the Term is scheduled to expire hereunder in
            the
            absence of any earlier termination, re-entry or repossession
            over
            (B) the then fair market rental value of the Leased Premises
            for
            the same period.  Tenant shall also pay to Landlord all of
            Landlord's Costs in connection with the repossession of the
            Leased Premises and any attempted reletting thereof,
            including
            all brokerage commissions, legal expenses attorneys' fees,
            employees' expenses, costs of Alterations and expenses and
            preparation for reletting.
<PAGE>






            (ii)  If Landlord exercises its remedy under
            Paragraph 23(a)(i) or its remedies under Paragraph 23(a)(i)
            and
            23(a)(ii), then Tenant shall, until the end of what would
            have
            been the Term in the absence of the termination of the
            Lease, and
            whether or not any of the Leased Premises shall have been
            relet,
            be liable to Landlord for, and shall pay to Landlord, as
            liquidated and agreed current damages all Monetary
            Obligations
            which would be payable under this Lease by Tenant in the
            absence
            of such termination less the net proceeds, if any, of any
            reletting pursuant to Paragraph 23(a)(ii), after deducting
            from
            such proceeds all of Landlord's Costs (including the items
            listed
            in the last sentence of Paragraph 23(b)(i) hereof) incurred
            in
            connection with such repossessing and reletting; provided,
            that
            if Landlord has not relet the Leased Premises, such Costs of
            Landlord shall be considered to be Monetary Obligations
            payable
            by Tenant.  Tenant shall be and remain liable for all sums
            aforesaid, and Landlord may recover such damages from Tenant
            and
            institute and maintain successive actions or legal
            proceedings
            against Tenant for the recovery of such damages.  Nothing
            herein
            contained shall be deemed to require Landlord to wait to
            begin
            such action or other legal proceedings until the date when
            the
            Term would have expired by its own terms had there been no
            such
            Event of Default.

            (c)  Landlord shall have the right to exercise its
            remedies under any one or more of the Lease Collateral
            Documents.

            (d)  Notwithstanding anything to the contrary
            herein contained, in lieu of or in addition to any of the
            foregoing remedies and damages, Landlord may exercise any
            remedies and collect any damages available to it at law or
            in

            equity.  If Landlord is unable to obtain full satisfaction
            pursuant to the exercise of any remedy, it may pursue any
<PAGE>





            other
            remedy which it has hereunder or at law or in equity.

            (e)  If any Law shall validly limit the amount of
            any damages provided for herein to an amount which is less
            than
            the amount agreed to herein, Landlord shall be entitled to
            the
            maximum amount available under such Law.

            (f)  No termination of this Lease, repossession or
            reletting of the Leased Premises, exercise of any remedy or
            collection of any damages pursuant to this Paragraph 23
            shall
            relieve Tenant of any Surviving Obligations.

            (g)  WITH RESPECT TO ANY REMEDY OR PROCEEDING OF
            LANDLORD HEREUNDER, LANDLORD AND TENANT WAIVE ANY RIGHT TO A
            TRIAL BY JURY.

            (h)  Upon the occurrence of any Event of Default,
            Landlord shall have the right (but no obligation) to perform
            any
            act required of Tenant hereunder and, if performance of such
            act
            requires that Landlord enter the Leased Premises, Landlord
            may
            enter the Leased Premises for such purpose.

            (i)  No failure of Landlord (i) to insist at any
            time upon the strict performance of any provision of this
            Lease
            or (ii) to exercise any option, right, power or remedy
            contained
            in this Lease shall be construed as a waiver, modification
            or
            relinquishment thereof.  A receipt by Landlord of any sum in
            satisfaction of any Monetary Obligation with knowledge of
            the
            breach of any provision hereof shall not be deemed a waiver
            of
            such breach, and no waiver by Landlord of any provision
            hereof
            shall be deemed to have been made unless expressed in a
            writing
            signed by Landlord.

            (j)  Tenant hereby waives and surrenders, for
            itself and all those claiming under it, including creditors
            of
            all kinds, (i) any right and privilege which it or any of
            them
            may have under any present or future Law to redeem any of
            the
<PAGE>





            Leased Premises or to have a continuance of this Lease after
            termination of this Lease or of Tenant's right of occupancy
            or
            possession pursuant to any court order or any provision
            hereof,
            and (ii) the  benefits of any present or future Law which
            exempts
            property from liability for debt or for distress for rent.

            (k)  Except as otherwise provided herein, all
            remedies are cumulative and concurrent and no remedy is
            exclusive
            of any other remedy.  Each remedy may be exercised at any
            time an
            Event of Default has occurred and is continuing and may be
            exercised from time to time.  No remedy shall be exhausted
            by any
            exercise thereof.

            24.  Notices.  All notices, demands, requests,
            consents, approvals, offers, statements and other
            instruments or
            communications required or permitted to be given pursuant to
            the

            provisions of this Lease shall be in writing and shall be
            deemed
            to have been given and received for all purposes when
            delivered
            in person or by Federal Express or other reliable 24-hour
            delivery service or five (5) business days after being
            deposited
            in the United States mail, by registered or certified mail,
            return receipt requested, postage prepaid, addressed to the
            other
            party at its address stated above or when delivery is
            refused.  A
            copy of any notice given by Tenant to Landlord shall
            simultaneously be given by Tenant to Reed Smith Shaw &
            McClay,
            2500 One Liberty Place, Philadelphia, PA  19103, Attention:
            Chairman, Real Estate Department.  A copy of any notice
            given by
            Landlord to Tenant shall simultaneously be given by Landlord
            to
            Dinse, Erdmann, Knapp & McAndrew, P.C., 209 Battery Street,
            Burlington, Vermont 05402-0988, Attention:  Austin D. Hart,
            Esq.
            For the purposes of this Paragraph, any party may substitute
            another address stated above (or substituted by a previous
            notice) for its address by giving fifteen (15) days' notice
            of
            the new address to the other party, in the manner provided
            above.
<PAGE>






            25.  Estoppel Certificate.  At any time upon not less
            than ten (10) days' prior written request by either Landlord
            or
            Tenant (the "Requesting Party") to the other party (the
            "Responding Party"), the Responding Party shall deliver to
            the
            Requesting Party a statement in writing, executed by an
            authorized officer of the Responding Party, certifying (a)
            that,
            except as otherwise specified, this Lease is unmodified and
            in
            full force and effect, (b) the dates to which Basic Rent,
            Additional Rent and all other Monetary Obligations have been
            paid, (c) that, to the knowledge of the signer of such
            certificate and except as otherwise specified, no default by
            either Landlord or Tenant exists hereunder, (d) such other
            matters as the Requesting Party may reasonably request, and
            (e) if Tenant is the Responding Party that, except as
            otherwise
            specified, there are no proceedings pending or, to the
            knowledge
            of the signer, threatened, against Tenant before or by any
            court
            or administrative agency which, if adversely decided, would
            materially and adversely affect the financial condition and
            operations of Tenant.  Any such statements by the Responding
            Party may be relied upon by the Requesting Party, any Person
            whom
            the Requesting Party notifies the Responding Party in its
            request
            for the statement is an intended recipient or beneficiary of
            the
            statement, any Lender or their assignees and by any
            prospective
            purchaser or mortgagee of any of the Leased Premises.  Any
            statement required under this Paragraph 25 and delivered by
            Tenant shall state that, in the opinion of each person
            signing
            the same, he has made such examination or investigation as
            is
            necessary to enable him to express an informed opinion as to
            the
            subject matter of such statement, and shall briefly state
            the
            nature of such examination or investigation.

            26.  Surrender.  Upon the expiration or earlier
            termination of this Lease, Tenant shall peaceably leave and
            surrender the Leased Premises to Landlord in the same
            condition
            in which the Leased Premises was at the commencement of this
            Lease, except as repaired, rebuilt, restored, altered,
            replaced
<PAGE>






            or added to as permitted or required by any provision of
            this
            Lease, and except for ordinary wear and tear.  Upon such
            surrender, Tenant shall (a) remove from the Leased Premises
            all
            property which is owned by Tenant or third parties other
            than
            Landlord and (b) repair any damage caused by such removal.
            Property not so removed shall become the property of
            Landlord,
            and Landlord may thereafter cause such property to be
            removed
            from the Leased Premises.  The cost of removing and
            disposing of
            such property and repairing any damage to any of the Leased
            Premises caused by such removal shall be paid by Tenant to
            Landlord upon demand.  Landlord shall not in any manner or
            to any
            extent be obligated to reimburse Tenant for any such
            property
            which becomes the property of Landlord pursuant to this
            Paragraph 26.

            27.  No Merger of Title.  There shall be no merger of
            the leasehold estate created by this Lease with the fee
            estate in
            any of the Leased Premises by reason of the fact that the
            same
            Person may acquire or hold or own, directly or indirectly,
            (a) the leasehold estate created hereby or any part thereof
            or
            interest therein and (b) the fee estate in any of the Leased
            Premises or any part thereof or interest therein, unless and
            until all Persons having any interest in the interests
            described
            in (a) and (b) above which are sought to be merged shall
            join in
            a written instrument effecting such merger and shall duly
            record
            the same.

            28.  Books and Records.

            (a)  Tenant shall keep adequate records and books
            of account with respect to the finances and business of
            Tenant
            generally and with respect to the Leased Premises, in
            accordance
            with generally accepted accounting principles ("GAAP")
            consistently applied, and shall permit Landlord and Lender
            by
            their respective agents, accountants and attorneys, upon
            reasonable notice to Tenant, to visit and inspect the Leased
<PAGE>





            Premises and examine (and make copies of) the records and
            books
            of account and to discuss the finances and business with the
            officers of Tenant, at such reasonable times as may be
            requested
            by Landlord.  Upon the request of Lender or Landlord (either
            telephonically or in writing), Tenant shall provide the
            requesting party with copies of any information to which
            such
            party would be entitled in the course of a personal visit.

            (b)  Tenant shall deliver to Landlord and to
            Lender within ninety (90) days of the close of each fiscal
            year,
            annual audited financial statements of Tenant prepared by a
            nationally recognized firm of independent certified public
            accountants.  Tenant shall also furnish to Landlord and to
            Lender
            (i) within forty-five (45) days after the end of each of the
            three remaining quarters unaudited financial statements and
            all
            other quarterly reports of Tenant, certified by Tenant's
            chief
            financial officer, (ii) no later than five (5) business days
            after filing, all filings, if any, of Form 10-K, Form 10-Q
            and
            other required filings with the Securities and Exchange
            Commission pursuant to

            the provisions of the Securities Exchange Act of 1934, as
            amended, or any other Law, and (iii) within fifteen (15)
            days
            after the end of each calendar month, internally prepared
            financial statements along with agings of receivables,
            payables
            and an inventory report indicating raw materials, work in
            progress and finished goods.  All financial statements of
            Tenant
            shall be prepared in accordance with GAAP consistently
            applied.
            All annual financial statements shall be accompanied (i) by
            an
            opinion of said accountants stating that (A) there are no
            qualifications as to the scope of the audit and (B) the
            audit was
            performed in accordance with GAAP and (ii) by the affidavit
            of
            the president or a vice president of Tenant, dated within
            five
            (5) days of the delivery of such statement, stating that (C)
            the
            affiant knows of no Event of Default, or event which, upon
            notice
            or the passage of time or both, would become an Event of
<PAGE>





            Default
            which has occurred and is continuing hereunder or, if any
            such
            event has occurred and is continuing, specifying the nature
            and
            period of existence thereof and what action Tenant has taken
            or
            proposes to take with respect thereto and (D) except as
            otherwise
            specified in such affidavit, that Tenant has fulfilled all
            of its
            obligations under this Lease which are required to be
            fulfilled
            on or prior to the date of such affidavit.

            (c)  Tenant hereby agrees that it shall provide to
            Lender such written authorizations as Lender shall request
            so
            that the Lender can conduct credit reference checks on the
            three
            largest creditors of Tenant as determined by the Lender in
            its
            sole discretion.

            29.  Determination of Value.

            (a)  Whenever a determination of Fair Market Value
            is required pursuant to any provision of this Lease, such
            Fair
            Market Value shall be determined in accordance with the
            following
            procedure:

            (i)  Landlord and Tenant shall endeavor to
            agree upon such Fair Market Value within thirty (30) days
            after
            the date (the "Applicable Initial Date") on which (A) Tenant
            provides Landlord with notice of its intention to terminate
            this
            Lease and purchase the Leased Premises pursuant to Paragraph
            18,
            (B) Landlord provides Tenant with notice of its intention to
            redetermine Fair Market Value pursuant to Paragraph 20(c),
            (C) Landlord provides Tenant with notice of Landlord's
            intention
            to require Tenant to make an offer to terminate this Lease
            pursuant to Paragraph 23(a)(iii) or (D) Tenant exercises an
            option to purchase the Leased Premises pursuant to Paragraph
            35.
            Upon reaching such agreement, the parties shall execute an
            agreement setting forth the amount of such Fair Market
            Value.

            (ii)  If the parties shall not have signed
<PAGE>





            such agreement within thirty (30) days after the Applicable
            Initial Date, Tenant shall within fifty (50) days after the
            Applicable Initial Date select an appraiser and notify
            Landlord
            in writing of the name, address and qualifications of such

            appraiser.  Within twenty (20) days following Landlord's
            receipt
            of Tenant's notice of the appraiser selected by Tenant,
            Landlord
            shall select an appraiser and notify Tenant of the name,
            address
            and qualifications of such appraiser.  Such two appraisers
            shall
            endeavor to agree upon Fair Market Value based on a written
            appraisal made by each of them (and given to Landlord by
            Tenant)
            as of the Relevant Date.  If such two appraisers shall agree
            upon
            a Fair Market Value, the amount of such Fair Market Value as
            so
            agreed shall be binding and conclusive upon Landlord and
            Tenant.

            (iii)  If such two appraisers shall be unable
            to agree upon a Fair Market Value within twenty (20) days
            after
            the selection of an appraiser by Landlord, then such
            appraisers
            shall advise Landlord and Tenant of their respective
            determinations of Fair Market Value and shall select a third
            appraiser to make the determination of Fair Market Value.
            The
            selection of the third appraiser shall be binding and
            conclusive
            upon Landlord and Tenant.

            (iv)  If such two appraisers shall be unable
            to agree upon the designation of a third appraiser within
            ten
            (10) days after the expiration of the twenty (20) day period
            referred to in clause (iii) above, or if such third
            appraiser
            does not make a determination of Fair Market Value within
            twenty
            (20) days after his selection, then such third appraiser or
            a
            substituted third appraiser, as applicable, shall, at the
            request
            of either party hereto, be appointed by the President or
            Chairman
            of the American Arbitration Association in New York, New
            York.
            The determination of Fair Market Value made by the third
<PAGE>





            appraiser appointed pursuant hereto shall be made within
            twenty
            (20) days after such appointment.

            (v)  If a third appraiser is selected, Fair
            Market Value shall be the average of the determination of
            Fair
            Market Value made by the third appraiser and the
            determination of
            Fair Market Value made by the appraiser (selected pursuant
            to
            Paragraph 29(a)(ii) hereof) whose determination of Fair
            Market
            Value is nearest to that of the third appraiser.  Such
            average
            shall be binding and conclusive upon Landlord and Tenant.

            (vi)  All appraisers selected or appointed
            pursuant to this Paragraph 29(a) shall (A) be independent
            qualified MAI appraisers, (B) have no right, power or
            authority
            to alter or modify the provisions of this Lease, (C) utilize
            the
            definition of Fair Market Value hereinabove set forth above,
            and
            (D) be registered in the State if the State provides for or
            requires such registration.  The Cost of the procedure
            described
            in this Paragraph 29(a) above shall be split equally by
            Landlord
            and Tenant.

            (b)  If, by virtue of any delay, Fair Market Value
            is not determined by the expiration or termination of the
            then
            current Term, then the date on which the Term would
            otherwise
            expire or terminate shall be extended to the date specified
            for
            termination in the particular provision of this Lease
            pursuant to

            which the determination of Fair Market Value is being made.

            (c)  In determining Fair Market Value as defined
            in clause (b) of the definition of Fair Market Value, the
            appraisers shall add (a) the present value of the Rent for
            the
            remaining Term, assuming the Term has been extended for all
            extension periods provided herein (with assumed increases in
            the
            CPI to be determined by the appraisers) using a discount
            rate
            (which may be determined by an investment banker retained by
<PAGE>





            each
            appraiser) based on the creditworthiness of Tenant and (b)
            the
            present value of the Leased Premises as of the end of such
            Term
            (having assumed the Term has been extended for all extension
            periods provided herein).  The appraisers shall further
            assume
            that no default then exists under the Lease, that Tenant has
            complied (and will comply) with all provisions of the Lease,
            and
            that Tenant has not violated (and will not violate) any of
            the
            Covenants.

            30.  Non-Recourse as to Landlord.  Anything contained
            herein to the contrary notwithstanding, any claim based on
            or in
            respect of any liability of Landlord under this Lease shall
            be
            enforced only against the Leased Premises and not against
            any
            other assets, properties or funds of (i) Landlord, (ii) any
            director, officer, general partner, shareholder, limited
            partner,
            beneficiary, employee or agent of Landlord or any general
            partner
            of Landlord or any of its general partners (or any legal
            representative, heir, estate, successor or assign of any
            thereof), (iii) any predecessor or successor partnership or
            corporation (or other entity) of Landlord or any of its
            general
            partners, shareholders, officers, directors, employees or
            agents,
            either directly or through Landlord or its general partners,
            shareholders, officers, directors, employees or agents or
            any
            predecessor or successor partnership or corporation (or
            other
            entity), or (iv) any Person affiliated with any of the
            foregoing,
            or any director, officer, employee or agent of any thereof.

            31.  Financing.

            (a)  Tenant agrees to pay at the funding of the
            Initial Loan any reasonable cost, charge and expense
            incurred by
            Landlord in obtaining and closing such Loan, including
            commitment
            fees or points, title insurance, mortgage tax, recording
            costs
            and legal fees and expenses of Landlord and Lender.
<PAGE>





            (b)  Tenant agrees to pay, within three (3)
            business days of written demand therefor, any cost, charge
            or
            expense (other than the principal of the Note and interest
            thereon at the contract rate of interest specified therein)
            imposed upon Landlord by Lender pursuant to the Note, the
            Mortgage or the Assignment which is not caused solely by the
            gross negligence or willful misconduct of Landlord and which
            is
            not otherwise reimbursed by Tenant to Landlord pursuant to
            any
            other provision of this Lease.  Landlord agrees that it will
            use
            good faith efforts to refinance the Initial Loan with a
            Lender
            that does not require all of the Lease Collateral as
            security for

            its Loan, provided, however, that Landlord shall have no
            obligation to accept a Loan with an interest rate in excess
            of
            the interest rate then payable on the Initial Loan or an
            amortization schedule of less than 20 years.

            (c)  If Landlord desires to obtain or refinance
            any Loan, Tenant shall negotiate in good faith with Landlord
            concerning any request made by any Lender or proposed Lender
            for
            changes or modifications in this Lease.  In particular,
            Tenant
            shall agree, upon request of Landlord, to supply any such
            Lender
            with such notices and information as Tenant is required to
            give
            to Landlord hereunder and to extend the rights of Landlord
            hereunder to any such Lender and to consent to such
            financing if
            such consent is requested by such Lender.  Tenant shall
            provide
            any other consent or statement and shall execute any and all
            other documents that such Lender requires in connection with
            such
            financing, including any environmental indemnity agreement
            and
            subordination, non-disturbance and attornment agreement, so
            long
            as the same do not materially adversely affect any right,
            benefit
            or privilege of Tenant under this Lease or materially
            increase
            Tenant's obligations under this Lease.  Such subordination,
            nondisturbance and attornment agreement may require Tenant
            to
            confirm that (a) Lender and its assigns will not be liable
<PAGE>





            for
            any misrepresentation, act or omission of Landlord and (b)
            Lender
            and its assigns will not be subject to any counterclaim,
            demand
            or offset which Tenant may have against Landlord.

            32.  Subordination.  This Lease and Tenant's interest
            hereunder shall be subordinate to any Mortgage or other
            security
            instrument hereafter placed upon the Leased Premises by
            Landlord,
            and to any and all advances made or to be made thereunder,
            to the
            interest thereon, and all renewals, replacements and
            extensions
            thereof, provided that any such Mortgage or other security
            instrument (or a separate instrument in recordable form duly
            executed by the holder of any such Mortgage or other
            security
            instrument and delivered to Tenant) shall provide for the
            recognition of this Lease and all Tenant's rights hereunder
            unless and until an Event of Default exists or Landlord
            shall
            have the right to terminate this Lease pursuant to any
            applicable
            provision hereof.

            33.  Financial Covenants.  Tenant hereby covenants and
            agrees to comply with all the covenants and agreements
            described
            in Exhibit "E" hereto.

            34.  Tax Treatment; Reporting.  Landlord and Tenant
            each acknowledge that each shall treat this transaction as a
            true
            lease for state law purposes and shall report this
            transaction as
            a lease for Federal income tax purposes.  For Federal income
            tax
            purposes each shall report this Lease as a true lease with
            Landlord as the owner of the Leased Premises and Equipment
            and
            Tenant as the lessee of such Leased Premises and Equipment
            including:  (1) treating Landlord as the owner of the
            property
            eligible to claim depreciation deductions under Section 167
            or
            168 of the Internal Revenue Code of 1986 (the "Code") with

            respect to the Leased Premises and Equipment, (2) Tenant
            reporting its Rent payments as rent expense under Section
            162 of
            the Code, and (3) Landlord reporting the Rent payments as
<PAGE>





            rental
            income.

            35.  Option to Purchase.
            (a)  Landlord does hereby give and grant to Tenant
            the option to purchase the Leased Premises (i) for a
            purchase
            price (the "Purchase Price") equal to the Offer Amount and
            (ii)
            on any date (the "Option Purchase Date") between the
            nineteenth
            (19th) and twentieth (20th) anniversary of the date hereof
            and,
            if the Term is extended or further extended, as applicable,
            in
            accordance with and subject to the provisions of Paragraph 5
            hereof, between the twenty-fourth (24th) and twenty-fifth
            (25th),
            between the twenty-ninth (29th) and thirtieth (30th) and
            between
            the thirty-fourth (34th) and thirty-fifth (35th) anniversary
            of
            the date hereof, which is mutually agreeable to Landlord and
            Tenant, but in any event not sooner than thirty (30) days
            after
            the Fair Market Value Date.  If Tenant intends to exercise
            such
            option, Tenant shall give written notice to Landlord to such
            effect not later than six (6) months prior to the twentieth
            (20th) (or if the Term is extended or further extended,
            twenty-fifth (25th), thirtieth (30th) or thirty-fifth
            (35th), as
            applicable) anniversary of the date hereof.  Promptly upon
            receipt of such notice by Landlord, the parties shall
            commence to
            determine Fair Market Value.
            (b)  If Tenant shall exercise the foregoing option
            to purchase the Leased Premises, on the later to occur of
            (i) the
            Option Purchase Date or (ii) the date when Tenant has paid
            the
            Offer Amount and has satisfied all other Monetary
            Obligations,
            Landlord shall convey the Leased Premises to Tenant in
            accordance
            with Paragraph 20 hereof; provided, that if an Event of
            Default
            has occurred and is continuing on the Option Purchase Date,
            Landlord, at its sole option, may terminate Tenant's option
            to
            purchase hereunder.  IF THIS LEASE SHALL TERMINATE FOR ANY
            REASON
            PRIOR TO THE DATE ORIGINALLY FIXED HEREIN FOR THE EXPIRATION
            OF
<PAGE>





            THE TERM, OR IF TENANT EXERCISES ANY OPTION NOT TO EXTEND
            THE
            TERM PURSUANT TO PARAGRAPH 5, OR IF TENANT SHALL FAIL TO
            GIVE ANY
            OF THE AFORESAID NOTICES OF INTENTION TO PURCHASE, TIME
            BEING OF
            THE ESSENCE, THE OPTION PROVIDED IN THIS PARAGRAPH 35 AND
            ANY
            EXERCISE THEREOF BY TENANT SHALL CEASE AND TERMINATE AND
            SHALL BE
            NULL AND VOID.

            36.  Right of First Refusal.
            (a)  Except as otherwise provided in clause (e) of
            this Paragraph 36, and provided an Event of Default does not
            then
            exist if Landlord shall enter into a contract for the sale
            (the
            "Sale Contract") of the Leased Premises with a Third Party
            Purchaser, which Sale Contract shall be conditioned upon
            Tenant's
            failure to exercise its right under this Paragraph 36(a),
            Landlord shall give written notice to Tenant of the Sale
            Contract, together with a copy of the executed Sale Contract
            and
            the name and business address of the Third Party Purchaser.
            (b)  For a period of thirty (30) days following
            receipt of such notice, Tenant shall have the right and
            option,
            exercisable by written notice to Landlord given within said
            thirty (30) day period, to elect to purchase the Leased
            Premises
            at the purchase price and upon all the terms and conditions
            set
            forth in such Sale Contract except that no contingencies
            contained in such Sale Contract as to environmental
            assessments,
            engineering studies, inspection of the Leased Premises,
            availability of financing, sale of other property, state of
            the
            title to or encumbrances on the Leased Premises, or any
            other
            condition or contingency to the Third Party Purchaser's
            obligation to purchase the Leased Premises which pertains to
            the
            condition of the Leased Premises, the Third Party
            Purchaser's
            ability to take certain action or any other factor beyond
            the
            control of Landlord, shall apply to Tenant's obligation to
            purchase the Leased Premises under this Paragraph 36, and
            Tenant
            shall be obligated to purchase the Leased Premises without
            any
<PAGE>





            such condition or contingency.
            (c)  If at the expiration of the aforesaid thirty
            (30) day period Tenant shall have failed to exercise the
            aforesaid option, Landlord may sell the Leased Premises to
            such
            Third Party Purchaser upon the terms set forth in such
            contract.
            (d)  Except as otherwise specifically provided
            herein, the closing date for any purchase of the Leased
            Premises
            by Tenant pursuant to this Paragraph 36 shall be the earlier
            to
            occur of (i) ninety (90) days after the date of Tenant's
            notice
            to Landlord of its intention to purchase the Leased Premises
            upon
            the terms of a contract for sale with a Third Party
            Purchaser or
            (ii) the closing date provided in such contract for sale. At
            such
            closing Landlord shall convey the Leased Premises to Tenant
            in
            accordance with, and Tenant shall pay to Landlord the
            purchase
            price and other consideration set forth in, the applicable
            contract.
            (e)  Tenant shall have the right during the Term
            to exercise the foregoing right of first refusal upon (i)
            each
            proposed sale of the Leased Premises prior to the tenth
            (10th)
            anniversary of the date of this Lease and (ii) one (1) time
            during the period commencing with the tenth (10th)
            anniversary of
            the date of this Lease and ending with the last day of the
            fifteenth (15th) Lease Year hereof; provided, that if,
            following

            compliance with the procedure described in Paragraph 36(a),
            a
            Third Party Purchaser does not purchase the Leased Premises,
            such
            event shall not count as an exercise of Tenant's right of
            first
            refusal.  Notwithstanding anything to the contrary, if
            Tenant
            fails to exercise the right of first refusal granted
            pursuant to
            this  Paragraph (c), subsection (ii), after the tenth (10th)
            anniversary of the date of this Lease and the sale to the
            Third
            Party Purchaser is consummated or if this Lease terminates
            or the
            Term expires, such right shall terminate and be null and
<PAGE>





            void and
            of no further force and effect.  In such event Tenant shall
            execute a quitclaim deed and such other documents as
            Landlord
            shall reasonably request evidencing the termination of its
            right
            of first refusal.
            (f)  If Tenant does not exercise its right of
            first refusal to purchase the Leased Premises and the Leased
            Premises are transferred to a Third Party Purchaser, Tenant
            will
            attorn to any Third Party Purchaser as Landlord so long as
            such
            Third Party Purchaser and Landlord notify Tenant in writing
            of
            such transfer.  At the request of Landlord, Tenant will
            execute
            such documents confirming the agreement referred to above
            and
            such other agreements as Landlord may reasonably request,
            provided that such agreements do not increase the
            liabilities and
            obligations of Tenant hereunder.
            (g)  The provisions of this Paragraph 36 shall not
            apply to or prohibit (i) any mortgaging, subjection to deed
            of
            trust or other hypothecation of Landlord's interest in the
            Leased
            Premises, (ii) any sale of the Leased Premises pursuant to a
            private power of sale under or judicial foreclosure of any
            Mortgage or other security instrument or device to which
            Landlord's interest in the Leased Premises is now or
            hereafter
            subject, (iii) any transfer of Landlord's interest in the
            Leased
            Premises to a Lender, beneficiary under deed of trust or
            other
            holder of a security interest therein or their designees by
            deed
            in lieu of foreclosure, (iv) any transfer of the Leased
            Premises
            to any governmental or quasi-governmental agency with power
            of
            condemnation, (v) any transfer of the Leased Premises to any
            affiliate of Landlord or to any entity for whom W.P. Carey &
            Co.,
            Inc., W.P. Carey Incorporated or any of their affiliates
            provides
            management services or investment advice, (vi) any Person to
            whom
            Landlord sells all or substantially all of its assets, or
            (vii) any transfer of the Leased Premises to any of the
            successors or assigns of any of the Persons referred to in
            the
<PAGE>





            foregoing clauses (i) through (iv).

            37.  Additional Property.

            (a)  Tenant has mortgaged and assigned the
            Additional Property to Landlord pursuant to the Lease
            Collateral
            Documents, and Tenant acknowledges and agrees that Landlord
            has
            pledged and assigned its mortgagee interest in the mortgage
            encumbering the Additional Property to Lender to secure its
            obligations under the Initial Loan and, upon any refinancing
            of
            the Initial Loan may pledge and assign its mortgagee
            interest in
            said mortgage to any subsequent Lender.

            (b)  Landlord covenants and agrees that it will
            release the lien of its mortgage encumbering the Additional
            Property from any parcel comprising the Additional Property
            that
            is sold in an arms-length transaction provided that at the
            time
            of any such sale no Event of Default exists and the
            following
            conditions are complied with:

            (i)  Lender consents in writing to the
            release of the mortgage encumbering the Lease Collateral and
            releases the assignment of said mortgage from Landlord to
            Lender;

            (ii)  the Leased Premises shall have been
            assessed separately from the Additional Property for real
            estate
            tax purposes; and

            (iii) the net proceeds (gross sales prices
            less normal and customary closing costs) shall be paid to
            and
            held by Landlord or Landlord's designee (which may be in the
            form
            of a certificate of deposit) as part of the Lease
            Collateral.

            38.  Miscellaneous.

            (a)  The paragraph headings in this Lease are used
            only for convenience in finding the subject matters and are
            not
            part of this Lease or to be used in determining the intent
            of the
            parties or otherwise interpreting this Lease.
<PAGE>





            (b)  As used in this Lease, the singular shall
            include the plural and any gender shall include all genders
            as
            the context requires and the following words and phrases
            shall
            have the following meanings: (i) "including" shall mean
            "including without limitation"; (ii) "provisions" shall mean
            "provisions, terms, agreements, covenants and/or
            conditions";
            (iii) "lien" shall mean "lien, charge, encumbrance, title
            retention agreement, pledge, security interest, mortgage
            and/or
            deed of trust"; (iv) "obligation" shall mean "obligation,
            duty,
            agreement, liability, covenant and/or condition"; (v) "any
            of the
            Leased Premises" shall mean "the Leased Premises or any part
            thereof or interest therein"; (vi) "any of the Land" shall
            mean
            "the Land or any part thereof or interest therein"; (vii)
            "any of
            the Improvements" shall mean "the Improvements or any part
            thereof or interest therein"; (viii) "any of the Equipment"
            shall

            mean "the Equipment or any part thereof or interest
            therein"; and
            (ix) "any of the Adjoining Property" shall mean "the
            Adjoining
            Property or any part thereof or interest therein".

            (c)  Any act which Landlord is permitted to
            perform under this Lease may be performed at any time and
            from
            time to time by Landlord or any person or entity designated
            by
            Landlord.  Each appointment of Landlord as attorney-in-fact
            for
            Tenant hereunder is irrevocable and coupled with an
            interest.
            Except as otherwise specifically provided herein, Landlord
            shall
            have the right, at its sole option, to withhold or delay its
            consent whenever such consent is required under this Lease
            for
            any reason or no reason.  Time is of the essence with
            respect to
            the performance by Tenant of its obligations under this
            Lease.

            (d)  Landlord shall in no event be construed for
            any purpose to be a partner, joint venturer or associate of
            Tenant or of any subtenant, operator, concessionaire or
            licensee
<PAGE>





            of Tenant with respect to any of the Leased Premises or
            otherwise
            in the conduct of their respective businesses.

            (e)  This Lease and any documents which may be
            executed by Tenant on or about the effective date hereof at
            Landlord's request constitute the entire agreement between
            the
            parties and supersede all prior understandings and
            agreements,
            whether written or oral, between the parties hereto relating
            to
            the Leased Premises and the transactions provided for
            herein.
            Landlord and Tenant are business entities having substantial
            experience with the subject matter of this Lease and have
            each
            fully participated in the negotiation and drafting of this
            Lease.
            Accordingly, this Lease shall be construed without regard to
            the
            rule that ambiguities in a document are to be construed
            against
            the drafter.

            (f)  This Lease may be modified, amended,
            discharged or waived only by an agreement in writing signed
            by
            the party against whom enforcement of any such modification,
            amendment, discharge or waiver is sought.

            (g)  The covenants of this Lease shall run with
            the land and bind Landlord and Tenant, and their respective
            successors and assigns and all present and subsequent
            encumbrances and subtenants of any of the Leased Premises,
            and
            shall inure to the benefit of Landlord and Tenant, and their
            respective successors and assigns.  If there is more than
            one
            Tenant, the obligations of each shall be joint and several.

            (h)  If any one or more of the provisions
            contained in this Lease shall for any reason be held to be
            invalid, illegal or unenforceable in any respect, such
            invalidity, illegality or unenforceability shall not affect
            any
            other provision of this Lease, but this Lease shall be
            construed
            as if such invalid, illegal or unenforceable provision had
            never
            been contained herein.

            (i)  This Lease shall be governed by and construed
            and enforced in accordance with the Laws of the State.
<PAGE>






            IN WITNESS WHEREOF, Landlord and Tenant have caused
            this Lease to be duly executed under seal as of the day and
            year
            first above written.

            LANDLORD:

            URSA (VT) QRS 12-30, INC.



            _______________________  By:
            Witness
            Title: Second Vice President



            TENANT:

            THE VERMONT TEDDY BEAR CO., INC.


            By:
            _______________________
            Witness   Title:  Senior Vice President and
              Chief Financial Officer



            STATE OF VERMONT
            CHITTENDEN COUNTY, SS.

            At Burlington in said County and State this ___ day of July,
            1997, personally appeared Anne R. Coolidge, the Second Vice
            President and duly authorized agent of URSA (VT) QRS 12-30,
            INC.,
            and she acknowledged the foregoing instrument, to be her
            free act
            and deed and the free act and deed of URSA (VT) 12-30, INC.


            Before me:____________________
            Notary Public


            STATE OF VERMONT
            CHITTENDEN COUNTY, SS.

            At Burlington in said County and State this ___ day of July,
            1997, personally appeared Elizabeth B. Robert, the Senior
            Vice
            President, Chief Financial Officer and duly authorized agent
            of
<PAGE>





            THE VERMONT TEDDY BEAR CO., INC., and she acknowledged the
            foregoing instrument, to be her free act and deed and the
            free
            act and deed of THE VERMONT TEDDY BEAR CO., INC.


            Before me:____________________
            Notary Public





            PREMISES




            ADDITIONAL PROPERTY




            MACHINERY AND EQUIPMENT


            All fixtures, machinery, apparatus, equipment, fittings and
            appliances of every kind and nature whatsoever now or
            hereafter
            affixed or attached to or installed in any of the Leased
            Premises
            (except as hereafter provided), including all electrical,
            anti-pollution, heating, lighting (including hanging
            fluorescent
            lighting), incinerating, power, air cooling, air
            conditioning,
            humidification, sprinkling, plumbing, lifting, cleaning,
            fire
            prevention, fire extinguishing and ventilating systems,
            devices
            and machinery and all engines, pipes, pumps, tanks
            (including
            exchange tanks and fuel storage tanks), motors, conduits,
            ducts,
            steam circulation coils, blowers, steam lines, compressors,
            oil
            burners, boilers, doors, windows, loading platforms,
            lavatory
            facilities, stairwells, fencing (including cyclone fencing),
            passenger and freight elevators, overhead cranes and garage
            units, together with all additions thereto, substitutions
            therefor and replacements thereof required or permitted by
            this
            Lease, but excluding all personal property and all trade
<PAGE>





            fixtures, machinery, office, manufacturing and warehouse
            equipment which are not necessary to the operation, as
            buildings,
            of the buildings which constitute part of the Leased
            Premises.




            PERMITTED ENCUMBRANCES










            BASIC RENT PAYMENTS

            1.   Basic Rent.  Subject to the adjustments provided
            for in Paragraphs 2, 3 and 4 below, Basic Rent payable in
            respect
            of the Term shall be $652,400 per annum, payable monthly in
            advance on each Basic Rent Payment Date, in equal
            installments of
            $54,366.67 each.

            2.   CPI Adjustments to Basic Rent.  The Basic Rent
            shall be subject to adjustment, in the manner hereinafter
            set
            forth, for increases in the index known as United States
            Department of Labor, Bureau of Labor Statistics, Consumer
            Price
            Index, All Urban Consumers, United States City Average, All
            Items, (1982-84=100) ("CPI") or the successor index that
            most
            closely approximates the CPI.  If the CPI shall be
            discontinued
            with no successor or comparable successor index, Landlord
            and
            Tenant shall attempt to agree upon a substitute index or
            formula,
            but if they are unable to so agree, then the matter shall be
            determined by arbitration in accordance with the rules of
            the
            American Arbitration Association then prevailing in New York
            City.  Any decision or award resulting from such arbitration
            shall be final and binding upon Landlord and Tenant and
            judgment
            thereon may be entered in any court of competent
            jurisdiction.
<PAGE>





            In no event will the Basic Rent as adjusted by the CPI
            adjustment
            be less than the Basic Rent in effect for the three (3) year
            period immediately preceding such adjustment.

            3.   Effective Dates of CPI Adjustments.  Basic Rent
            shall not be adjusted to reflect changes in the CPI until
            the
            third (3rd) anniversary of the Basic Rent Payment Date on
            which
            the first full monthly installment of Basic Rent shall be
            due and
            payable (the "First Full Basic Rent Payment Date").  As of
            the
            third (3rd) anniversary of the First Full Basic Rent Payment
            Date
            and thereafter on the sixth (6th), ninth (9th), twelfth
            (12th),
            fifteenth (15th) and eighteenth (18th) and, if the initial
            Term
            is extended, on the twenty-first (21st), twenty-fourth
            (24th),
            twenty-seventh (27th), thirtieth (30th) and thirty-third
            (33rd)
            anniversaries of the First Full Basic Rent Payment Date,
            Basic
            Rent shall be adjusted to reflect increases in the CPI
            during the
            most recent three (3) year period immediately preceding each
            of
            the foregoing dates (each such date being hereinafter
            referred to
            as a "Basic Rent Adjustment Date").

            4.   Method of Adjustment for CPI Adjustment.

            (a)  As of each Basic Rent Adjustment Date, the
            Basic Rent in effect immediately prior to such date shall be
            multiplied by the Aggregate CPI Increase (as hereinafter
            defined)
            and the product of such multiplication shall be added to the
            Basic Rent in effect immediately prior to such Basic Rent
            Adjustment Date.

            "Aggregate CPI Increase" shall mean the sum of the
            compounded increases (but not decreases) in the Relevant CPI
            (as
            hereinafter defined) for each of the three (3) 12-month
            periods
            ending on the first, second and third anniversaries (each
            such
            anniversary being a "Calculation Date") of the first full
            Basic
            Rent Payment Date (in the case of the First Basic Rent
<PAGE>





            Adjustment
            Date) or the preceding Basic Rent Adjustment Date (in the
            case of
            each subsequent Basic Rent Adjustment Date) over the
            Relevant CPI
            for the previous 12-month period (each an "Annual Increase")
            plus
            one (1); provided, that if the Annual Increase for any 12-
            month
            period is greater than four percent (4)%, then the Annual
            Increase for such 12-month period shall be deemed to be four
            percent (4%).  The Relevant CPI for the 12-month period
            ending on
            any Calculation Date shall be equal to the average CPI for
            the
            three (3) calendar months published on or before the forty-
            fifth
            day preceding such Calculation Date (the "Prior Months"),
            and the
            Relevant CPI for each of the preceding 12-month periods
            shall be
            equal to the average CPI for the three (3) months of such
            12-month period which correspond to the Prior Months.

            By way of example and not of limitation, if,
            immediately prior to the Basic Rent Adjustment Date
            occurring on
            the ninth (9th) anniversary of the First Full Basic Rent
            Payment
            Date, Basic Rent is $100 and the increases in the Relevant
            CPI
            for the three (3) preceding years are 2%, 0% and 12%,
            respectively, the Aggregate CPI Increase will be as follows:
            (1.02 x 1.0 x 1.04) = 1.0608 - 1 = 0.608, then, .0608 x $100
            -
            $6.08; thence $100 + $6.08 = $106.08, which is the new Basic
            Rent.  Said another way, .0608 + 1 = 1.0608; then, $100 x
            1.0608
            = $106.08, which is the new Basic Rent.

            (b)  Notice of the new annual Basic Rent shall be
            delivered to Tenant on or before the tenth (10th) day
            preceding
            each Basic Rent Adjustment Date.

            COVENANTS

            1.   Negative Covenants.  Tenant shall not and shall
            not permit any Subsidiary to do any of the following without
            the prior written consent of Landlord and the Lender:
            (a)  Merge or consolidate with or acquire any
            Person, entity, revise the status of ownership (as
            shareholder partner or otherwise) in Tenant, or change the
            name of Tenant, except that Tenant shall have the right to
<PAGE>





            consolidate with or merge into another Person, if,
            immediately following such merger or consolidation the
            surviving corporation shall have a publicly traded unsecured
            debt rating of Baa2 or better from Moody's Investors
            Services, Inc. or a rating of BBB or better from Standard &
            Poor's Corporation, and in the event all of such rating
            agencies cease to furnish such ratings, then a comparable
            rating by any rating agency reasonably acceptable to
            Landlord and Lender.
            (b)  Except as specifically provided in Paragraph
            37 of this Lease with respect to the Additional Property
            sell, lease, assign, transfer or otherwise dispose of any of
            its assets other than (1) obsolete or worn out property not
            used or useful in its business, whether now or hereafter
            acquired, and (2) assets disposed of or leased in the
            ordinary and normal course of business operations as
            presently conducted and for full and adequate consideration.
            (c)  Directly or indirectly make any loans or
            advances other than travel advances, to any employees,
            officers or directors or relatives of such persons, except
            for advances on salaries already earned and normal and
            customary advances against sales commissions.
            (d)  Replace or remove Patrick Burns from the
            position of President of Tenant, or materially alter his
            duties as President and chief executive officer of Tenant.
            (e)  Enter into any purchase, sale, lease or
            exchange of property or the exchange of any service with any
            affiliated organization except in the ordinary course of
            business and for full and adequate consideration.
            (f)  Create, incur or suffer any lien, security
            interest or other encumbrance in the Lease Collateral, other
            than (i) those granted pursuant to the Lease Collateral
            Documents, (ii) purchase money security interests in
            equipment not exceeding $500,000 in the aggregate at any
            time and (iii) those granted to Green Mountain Capital which
            secure a loan in the amount of $500,000.
            (g)  Make Capital Expenditures in any fiscal year
            of Tenant in excess of the Capital Expenditure Limitation.

            (h)  Redeem, purchase or otherwise acquire,
            directly or indirectly, any of its stock;
            (i)  Directly or indirectly to, become or be a
            guarantor or surety of, or otherwise incur any Contingent
            Obligation or become or be responsible in any manner
            (whether by agreement to purchase any obligations, stock,
            assets, goods or services, or to supply or advance any
            funds, assets, goods or services, or otherwise) with respect
            to, any undertaking of any other Person;
            (j)  Directly or indirectly incur, create, assure
            or permit to exist any Indebtedness except for Indebtedness
            in existence on the date hereof and Indebtedness described
            in subclause (ii) of clause (f) above; or
            (k)  Change its fiscal year.
            2.   Financial Covenants.  Tenant shall not
<PAGE>






            (a)  Permit its Consolidated Current Ratio to be
            less than 1.25 to 1 at any time.
            (b)  Permit the Debt Service Coverage Ratio of
            Tenant and its consolidated Subsidiaries to be less than
            1.25 to 1 as of the end of each fiscal year.
            (c)  Permit the Indebtedness of Tenant and its
            consolidated Subsidiaries to Consolidated Tangible Net Worth
            Ratio to be more than 1.25 to 1 at any time.
            3.   Definitions.  For the purpose of this Exhibit "E"
            the following terms shall have the following meanings:
            "Capital Expenditures" of any Person shall mean,
            for any period, all expenditures (whether paid in cash or
            received as liability during such period) of such Person
            during such period which would be classified as Capital
            Expenditures in accordance with GAAP (including without
            limitation, expenditures for maintenance and repairs which
            are capitalized and leases to the extent an asset is
            recorded in connection therewith in accordance with GAAP).
            "Capital Expenditures Limitation" shall mean (a)
            If Tenant realizes a net profit after tax for any fiscal
            year of at least $50,000, then the limit on Capital
            Expenditures during that fiscal year shall be calculated as
            follows (all terms used in this definition shall be ascribed
            the meanings provided by GAAP and used in a GAAP Uniform
            Cash Flow analysis):
            Net Sales less Cost of Goods Sold less Cash Operating
            Expenses (defined as: selling, general and
            administrative expenses + changes in prepaid expenses,
            changes in accrued expenses) plus Miscellaneous Cash
            Income less Income Taxes

            Paid plus changes in receivables + changes in payables
            + changes in inventory plus Changes in Short Term Debt
            less Debt Service Coverage (defined as:  1.20 times
            (interest expense + current maturities of Long Term
            Debt + lease payments)) plus changes in Long Term Debt
            plus Changes in Equity (defined as: common stock +
            preferred stock + additional paid in capital); or
            (b) if Tenant does not realize a net profit after tax
            of $50,000 or more during any fiscal year, then the limit on
            aggregate Capital Expenditures during that year shall be
            $200,000.
            "Closing Date" shall mean July ____, 1997.

            "Consolidated Current Assets" at any time
            shall mean the "current assets" of the Tenant and its
            consolidated Subsidiaries determined on a consolidated basis
            in accordance with GAAP.

            "Consolidated Current Liabilities" at any
            time shall mean the "current liabilities" of the Tenant and
            its consolidated Subsidiaries determined on a consolidated
            basis in accordance with GAAP.
<PAGE>






            "Consolidated Current Ratio" shall mean at
            any time the ratio of the Consolidated Current Assets at
            such time to the Consolidated Current Liabilities at such
            time.

            "Consolidated Interest Expenses" for any
            period shall mean the total interest expense of the Tenant
            and its Consolidated Subsidiaries for such period determined
            on a consolidated basis in accordance with GAAP.

            "Consolidated Tangible Net Worth" at any time
            shall mean the total amount of stockholder' equity of the
            Tenant and its consolidated Subsidiaries at such time
            determined on a consolidated basis in accordance with GAAP,
            except that there shall be deducted therefrom the book value
            of all intangible assets and deferred charges and prepaid
            expenses of the Tenant and its consolidated Subsidiaries at
            such time determined on a consolidated basis in accordance
            with GAAP.

            "Contingent Obligation" as to any Person
            shall mean the undrawn face amount of any letters of credit
            issued for the account of such Person and shall also mean
            any obligation of such Person guaranteeing or in effect
            guaranteeing any Indebtedness, leases, dividends, letters of
            credit or other obligations ("primary obligations") of any
            other Person other than a Subsidiary (the "primary obligor")
            in any manner, whether directly or indirectly including,
            without limitation, any obligation of such Person, whether
            or not contingent, (a) to purchase any such primary
            obligation or any property constituting direct or indirect
            security therefor, (b) to advance or supply

            funds (i) for the purchase or payment of any such primary
            obligation or (ii) to maintain working capital or equity
            capital of the primary obligor or otherwise to maintain the
            financial condition or solvency of the primary obligor, (c)
            to purchase property, securities or services primarily for
            the purpose of assuring the obligee under any such primary
            obligation of the ability of the primary obligor to make
            payment of such primary obligation or (d) otherwise to
            assure or hold harmless the obligee under such primary
            obligation against loss in respect thereof; provided,
            however, that the term Contingent Obligation shall not
            include (x) endorsements of instruments for deposit or
            collection in the ordinary course of business or (y) usual
            and customary representations and warranties contained in
            loan and other financing agreements.  The amount of any
            Contingent Obligation shall be deemed to be an amount equal
            to the stated or determinable amount of the primary
            obligation or, where such Contingent Obligation is
            specifically limited to a portion of any such primary
            obligation, that portion to which it is limited.
<PAGE>






            "Debt Service Coverage Ratio" shall mean at
            any time the ratio of the sum of net income after taxes plus
            depreciation plus Consolidated Interest Expenses plus rent
            payments to the sum of payments on Indebtedness plus rent
            payments.

            "GAAP" shall mean generally accepted
            accounting principles as in effect from time to time in the
            United States of America, applied on a consistent basis.

            "Indebtedness" of any Person shall mean, as
            of any date, all obligations which would in accordance with
            GAAP be classified as debt, and shall include (a) all
            obligations of such Person for borrowed money, (b) all
            obligations of such person in respect of letters of credit,
            surety bonds or similar obligations issued for the account
            of such Person, (c) all obligations of such Person as
            lessee, user of obligor under any lease of real or personal
            property whether or not in accordance with GAAP, are or
            should be capitalized on the books of the lessee, user or
            obligor (including any lease classified in accordance with
            GAAP as an operating lease and any so called "synthetic
            lease"), (d) all obligations of such Person in respect of
            the deferred purchase price for goods, property or services
            acquired by such Person, (e) all obligations of such Person
            to purchase goods, property or services where payment
            therefor is required regardless of whether delivery of such
            goods or property or the performance of such services is
            ever made or tendered, (f) all obligations of such Person in
            respect of any interest rate or currency swap, rate cap or
            other similar transaction (valued in any amount equal to the
            highest termination payment, if any, that would be payable
            by such Person upon termination for any reason on the date
            of determination), and (g) all obligations of others similar
            in character to those described in clauses (a) through (f)
            of this definition to the extent such person is liable,
            contingently or otherwise, as obligor, guarantor or in any
            other capacity, or in

            respect of which obligations such Person assures a creditor
            against loss or agrees to take any action to prevent any
            such loss (other than endorsements of negotiable instruments
            for collection in the ordinary course of business),
            including, without limitation, all obligations of such
            Person to advance funds to, or to purchase property or
            services from, any other Person in order to maintain the
            financial condition of such other Person and, in the case of
            Tenant, all Indebtedness which is non-recourse to the credit
            of Tenant but which is secured by the assets or property of
            Tenant (but excluding any such non-recourse Indebtedness of
            Subsidiaries of Tenant in which Tenant has no liability).
            Indebtedness shall not include trade payables incurred in
            the ordinary course of business.  Any Indebtedness which is
<PAGE>





            extended or renewed (other than by an option created with
            the original creation of such Indebtedness) will be deemed
            to have been created when extended or renewed.

            "Person" shall mean an individual,
            partnership, association, corporation or other entity.

            "Subsidiary" of any Person means a
            corporation a majority of the Voting Stock of which is at
            the time owned, or the management of which is otherwise
            controlled, directly or indirectly, through one or
            intermediaries, or both, by such Person.

            "Voting Stock" means shares of stock of a
            corporation having ordinary voting power to elect the board
            of directors or other managers of such corporation.

            EXHIBIT 10.38









            Green Mountain Capital, L.P.
            RD 1, Box 1503
            Waterbury, Vermont 05676





            October 10, 1997

            Elizabeth B. Robert
            The Vermont Teddy Bear Co. Inc.
            P.O. Box 965
            2236 Shelburne Road
            Shelburne, Vermont 05482

            Re:  $200,000 Term Loan

            Dear Liz:

            We are pleased to advise you that Green Mountain
            Capital, L.P., (the "Lender") hereby agrees to make to The
            Vermont Teddy Bear Co., Inc., a New York corporation with
            its principal place of business in Shelburne, Vermont (the
            "Borrower"), a term loan (the "Loan")  on the terms and
            conditions of this commitment letter to provide working
            capital. This commitment shall be subject to definitive
<PAGE>





            documentation in form and substance satisfactory to the
            Lender.

            1.   Description of The Loan.

            a.   Amount.  $200,000.00 to be evidenced by a note.

            b.   Interest Rate.  12% per annum fixed.

            c.   Term.  60 months.

            d.   Repayment.  Interest payable monthly in arrears.
            Principal payable in equal consecutive monthly installments
            in such amount as will amortize the Loan over the five year
            term.  The Loan shall be subject to the same
            terms and conditions in the Loan Agreement, Stock Purchase
            Warrant Agreement and Security Agreement, dated December 26,
            1995, which will be amended to reflect this transaction and
            the conditions contained herein.

            e.   Points. 1 R to be paid at Closing.

            2.   Security. The Loan, together with existing indebtedness
            of the Borrower to the Lender, which indebtedness is
            evidenced by a certain Convertible Note, dated December 26,
            1995 and November 19, 1996, in the original principal amount
            of $500,000, shall be secured by the following Collateral:

            a.   a second mortgage from URSA QRS 12-30, INC., on
            Lot 9 at the Shelburne South Commercial Park, together with
            the building and other improvements located thereon, subject
            and subordinate to an existing mortgage held by URSA and
            agreed to by Vermont National Bank.

            b.   the Lender's existing security interest in all
            personal property of the Borrower, which is also subordinate
            to a security interest of URSA assigned to Vermont National
            Bank.

            c.   a second mortgage from the Borrower on the land it
            owns at Shelburne South Commercial Park subject to URSA
            mortgage deed.

            3.   Warrants. As additional consideration for the Loan, the
            Borrower shall issue to the Lender at closing a warrant
            entitling the Lender to purchase up to 100,000 shares of the
            common stock of the Borrower.  The exercise price of the
            warrant shall be One Dollar ($1.00) per share.  The warrant
            shall expire at the expiration of seven (7) years from the
            date of the Loan.

            4.   Release.  As a condition to the Closing, the Borrower
            shall have provided the Lender with a release whereby the
            Borrower releases the Lender from any liability to the
<PAGE>





            Borrower arising out of any conflict of interest that may
            have been created by the fact that partners of the Lender
            are also shareholders of the Borrower.

            5.   Borrower's Responsibility for Fees.  The Borrower shall
            pay all fees, expenses, and other charges with respect to
            the Loan, including recording and filing fees and expenses
            of the Lender's counsel.


            6.   Acceptance of Commitment.  The Borrower shall accept
            this commitment letter by signing and returning the enclosed
            copy of this letter to the Lender within two (2) days
            from the date hereof; otherwise, this commitment letter
            shall be null and void.

            Sincerely,

            GREEN MOUNTAIN CAPITAL,
            L.P.
            By Catamount Capital,
            Inc., General Partner


            By:
                 _____________________________
            Its Duly Authorized Agent


            EXAMINED, APPROVED AND ACCEPTED

            The Vermont Teddy Bear Co., Inc.


            By:  _____________________________
            Its Duly Authorized Agent
            Dated:    _________________________

            EXHIBIT 23.1


            [Arthur Andersen LLP letterhead]


            Consent of Independent Public Accountants



            As independent public accountants, we hereby consent to the
            incorporation by reference of our reports, dated September
            10, 1997 (except with respect to the matter discussed in
            Note 11, as to which the date is October 10, 1997) and
            August 30, 1996, included in The Vermont Teddy Bear Co.,
            Inc.'s Annual Report on Form 10-KSB for the years ended
<PAGE>





            June 30, 1997 and 1996 into the Company's previously files
            Registration Statement on Form S-8 No. 33-84586 (filed on
            September 26, 1995).



                 Arthur Andersen LLP



            Boston, Massachusetts
            October 14, 1997