Company Name: DANIEL GREEN COMPANY Ticker Symbol: DAGR


                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  Form 10-QSB

                  Quarterly Report under Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

         For the quarter ended March 31, 2001 Commission File No. 0-774
                              DANIEL GREEN COMPANY
                 (Name of Small Business Issuer in its Charter)

         MASSACHUSETTS                              15-0327010
(State or other jurisdiction of           (IRS Employer Identification No.)
Incorporation or organization)

         OLD TOWN, MAINE                             04468
(Address of principal executive offices)           (Zip Code)

Issuer's telephone number, including area code: (207) 827-4431

Former  name,  former  address and former  fiscal  year,  if changed  since last
report: None.

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 twelve months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to the filing requirements for the past 90 days. YES  X NO ___

         CLASS                              OUTSTANDING AT March 31, 2001
Common Stock $2.50 par value                         1,571,316


Transitional Small Business Disclosure Format (Check One)  Yes __   No X


<PAGE>

                              DANIEL GREEN COMPANY
                                      INDEX

                                                                            Page
                                                                          Number

Index..........................................................................1

PART I - Financial Information

Consolidated Balance Sheets, Assets
         March 31, 2001 and December 31, 2000..................................2

Consolidated Balance Sheets, Liabilities & Stockholders' Equity
         March 31, 2001 and December 31, 2000..................................3

Consolidated Statements of Operations for the three months ended
          March 31, 2001 and 2000..............................................4

Consolidated Statements of Cash Flows for the three months ended
         March 31, 2001 and 2000...............................................5

Notes to Consolidated Financial Statements.....................................6

Management Discussion & Analysis of Financial Condition and Results
         of Operations.........................................................8

PART II - Other Information...................................................11


                                       1
<PAGE>

                              DANIEL GREEN COMPANY
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                     ASSETS
                                                              March 31,           December 31,
                                                                2001                 2000
                                                             (Unaudited)              (*)
                                                            ------------          ------------
<S>                                                         <C>                   <C>
Current Assets:
Cash                                                        $ 2,804,101           $     1,395
Accounts Receivable, trade
less allowances of $3,244,000 in 2001
         and $2,249,000 in 1999                              11,520,627            14,601,499

Deferred Income Tax Asset                                       654,491               654,491

Finished Goods Inventories, at lower of
         cost (FIFO) or market:                              15,292,014            14,758,949

Other Current Assets                                            154,268               193,757
                                                            -----------           -----------
 Total Current Assets                                        30,425,501            30,210,091

Property, plant & equipment:
Real Estate and Water Power, at cost                          1,698,581             1,698,581
Machinery & Equipment at cost                                   734,330               734,330
                                                            -----------           -----------
                                                              2,432,911             2,432,911
Less: Accumulated Depreciation                                  429,506               378,333
                                                            -----------           -----------
Property, plant & equipment, net                              2,003,405             2,054,578

Other Assets:
Prepaid Pension Cost                                          3,610,518             3,610,518
Other Assets, net                                             2,983,620             1,754,176
Deferred Income Tax Asset                                         --                  795,038
                                                            -----------           -----------
 Total Other Assets                                           6,594,138             6,772,796
                                                            -----------           -----------
 Total Assets                                               $39,023,044           $38,424,401
                                                            ===========           ===========
</TABLE>

(*)  Derived  from  audited  consolidated  financial  statements.  See  notes to
consolidated financial statements.


                                       2
<PAGE>

                              DANIEL GREEN COMPANY
                           Consolidated Balance Sheets

                       LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                          March 31,             December 31,
                                                             2001                  2000
                                                         (Unaudited)                (*)
                                                         ------------          ------------
<S>                                                     <C>                     <C>
Current Liabilities:

Notes Payable, line of credit                           $ 12,500,000            $ 12,500,000
Notes Payable, current                                     6,213,389               6,416,743
Accounts Payable, trade                                    8,335,915               9,158,314
Liability to former stockholder                            1,805,951               1,805,951
Income Tax Payable                                           174,748                 898,364
Other Accrued Liabilities                                  1,532,098               1,038,078
                                                        ------------            ------------
Total Current Liabilities                                 30,562,101              31,817,450

Deferred Income Taxes                                        613,064
Notes Payable, non-current                                 1,059,320                   9,320
Other Liability                                              700,000                 700,000
                                                        ------------            ------------
Total Other Liabilities                                    2,372,384                 709,320
Total Liabilities                                         32,934,485              32,526,770

Stockholders' Equity:

Common Stock                                               4,245,823               4,245,823
Paid-in-excess of par value                                  815,940                 815,940
Retained Earnings                                          1,530,113               1,305,759
                                                        ------------            ------------
                                                           6,591,876               6,367,522
Less: Treasury Stock                                        (503,317)               (469,891)
                                                        ------------            ------------
Total Stockholders' Equity                                 6,088,559               5,897,631
                                                        ------------            ------------
Total Liabilities & Stockholders'
         Equity                                         $ 39,023,044            $ 38,424,401
                                                        ============            ============
</TABLE>

(*)  Derived  from  audited  consolidated  financial  statements.  See  notes to
consolidated financial statements.


                                       3
<PAGE>

                              DANIEL GREEN COMPANY
                      Consolidated Statements of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                  March 31,           March 31,
                                                    2001                2000
                                                -------------        ------------
<S>                                              <C>                 <C>
Net Sales                                        $10,917,492         $ 1,155,557

Costs and Expenses
  Cost of Goods Sold                               6,940,772           1,306,657
  Selling, General &
    Administrative                                 3,104,360           1,808,866
 Interest Expense                                    491,771              69,282
                                                 -----------         -----------
Total Costs and Expenses                          10,536,903           3,184,805

Income (Loss) before
  Income Tax Expense/(Credit)                        380,589          (2,029,248)

Income Tax Expense/(Credit)                          156,235             487,020
                                                 -----------         -----------
Net Income (Loss)                                $   224,354         $(1,542,228)
                                                 ===========         ===========

Net Income (Loss) per Share:
  Basic                                          $      0.14         $     (0.99)
  Diluted                                        $      0.14         $     (0.99)

Shares Outstanding:
  Basic                                            1,571,316           1,564,532
  Diluted                                          1,571,316           1,564,532

See notes to consolidated financial statements.
</TABLE>


                                       4
<PAGE>

                              DANIEL GREEN COMPANY
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                    For the Three Months Ended
                                                                   March 31,             March 31,
                                                                     2001                  2000
                                                                -------------          ------------
<S>                                                             <C>                   <C>
Operating Activities:
Net Income (Loss)                                               $   224,354           $ (1,542,228)
Adjustments to reconcile net income (loss)
  to net provided by operating activities:
     Depreciation and amortization                                  229,831                 77,561
Changes in assets & liabilities:
  (Increases) decreases in:
    Accounts Receivable, trade                                    3,080,872              2,150,221
     Finished Goods Inventories                                    (533,065)              (529,147)
    Other Current Assets                                             39,489                (41,757)
    Other Assets                                                          0               (487,019)
 Increases (decreases) in:
    Accounts Payable, trade                                        (822,399)                 9,602
    Accrued Salaries & Commissions                                        0                (34,702)
    Other Accrued Liabilities                                       494,020                578,672
    Income Taxes Payable                                           (723,616)                     0
                                                                -----------           ------------
Net cash provided by Operating
    Activities                                                    1,989,486                181,203
Investing Activities:
  Acquisition of business less cash acquired                              0            (11,485,900)
  Purchase of property & equipment                                        0                (42,988)
                                                                -----------           ------------
Net cash used in Investing Activities                                     0            (11,528,888)
 Financing Activities:
  Net Borrowing on Line of Credit                                         0              5,716,152
  Net Borrowing of Notes Payable                                    846,646              5,978,926
  Purchase of Treasury Stock                                        (33,426)               (25,183)
  Other Refinancing Expenses                                              0                (52,727)
                                                                -----------           ------------
Net Cash Provided in Financing Activities                           813,220             11,617,168
                                                                -----------           ------------
 Net Increase in Cash                                             2,802,706                269,483

Cash at Beginning of Period                                           1,395                225,079
                                                                -----------           ------------
 Cash at End of Period                                          $ 2,804,101           $    494,562
                                                                ===========           ============
</TABLE>


                                       5
<PAGE>

                              DANIEL GREEN COMPANY
                   Notes to Consolidated Financial Statements

Note 1. Interim Financial Statements and Basis of Presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions  to Form 10-QSB.  Accordingly,
they do not include all of the information  and footnotes  required by generally
accepted accounting principles for complete financial statements. In the opinion
of the Company,  the accompanying  unaudited  consolidated  financial statements
contain  adjustments,  all  of  which  are of a  normal  and  recurring  nature,
necessary to present fairly the financial  position as of March 31, 2001 and the
results  of  operations  and cash flows for the three  months  then  ended.  The
results  of  operations  for the  three  months  ended  March  31,  2001 are not
necessarily  indicative  of the results to be expected for the full year.  These
condensed  consolidated  financial statements should be read in conjunction with
the  consolidated  financial  statements  and  notes  thereto  included  in  the
Company's annual report to stockholders for the year ended December 31, 2000.

Note 2. Acquisitions

     Due to severe global competition, the Company ceased domestic manufacturing
and  transitioned  to a fully  sourced  importer  during 1999. At the same time,
several acquisition  opportunities were aggressively evaluated and pursued. This
activity  resulted in acquiring  certain assets of one of the Company's  largest
competitors,  L. B.  Evans and Son  Company  Limited  Partnership  ("Evans")  on
February 3, 2000.  In addition,  the Company  purchased  all of the  outstanding
shares of Penobscot Shoe Company ("Penobscot") from Riedman Corporation on March
30, 2000.  Penobscot Shoe Company has been making  women's  footwear for over 60
years  and is  based in Old  Town,  Maine.  Since a  significantly  more  modern
distribution facility, with excess capacity came with the Penobscot acquisition,
it was decided that relocating the Daniel Green operation to Maine would provide
the most efficient and effective  platform for optimizing the synergies from the
three businesses. During May 2000, and pursuant to a public announcement made by
the Company on March 30,  2000,  the  Company's  headquarters  and  distribution
operation  previously  located in  Dolgeville,  New York were  relocated to, and
consolidated with, the newly acquired operations in Old Town, Maine.

     The  acquisition  of Penobscot  has been  accounted  for under the purchase
method of accounting and,  accordingly,  the operation results of Penobscot have
been included in the Company's  consolidated financial statements since the date
of acquisition.


                                       6
<PAGE>

The  following  summary  presents  unaudited  proforma  consolidated  results of
operations  as if the  acquisition  had occurred at the  beginning of 2000,  and
include adjustments for estimated amounts of goodwill amortization, depreciation
of fixed  assets  acquired  based  on their  estimated  fair  values,  increased
interest expense assuming the purchase  consideration had resulted in additional
borrowing  during  the  periods  presented.   The  pro  forma  results  are  for
illustrative  purposes  only,  and do not purport to be indicative of the actual
results which would have occurred had the transaction been consummated as of the
earlier dates,  nor are they indicative of results of operations which may occur
in the future. The results do not reflect synergies.

        Quarter Ended March 31,                                     2000
        -------------------------------------------------------------------

        In thousands, except per share amounts (unaudited)
        Net Sales                                                  $7,670
        Net Earnings (Loss)                                          (755)
        Net Earnings (Loss) per Common Share                        (0.48)

Note 3.   Subsequent Events

     On April 11, 2001,  the  Company's  Chairman and Chief  Executive  Officer,
James Riedman, who is an affiliate of our principal stockholder,  advanced to us
$750,000.  The Company  used the proceeds of this loan to repay a portion of the
past  due  accounts  to its  Brazilian  suppliers.  The loan is  evidenced  by a
convertible  subordinated  note in an original face amount of $750,000  which we
issued to Mr.  Riedman.  The note is  subordinated  to our  existing  and future
senior indebtedness,  including the credit facility with our bank. The principal
amount of the note is due and  payable on April 11,  2002,  provided  that as of
that time or any subsequent date on which the note is repaid, certain conditions
relating to our revolving line of credit and banking agreement are met. The note
bears interest at an annual rate of 15.00%, payable quarterly beginning June 30,
2001 and continuing until the principal amount of the note is fully repaid.  The
note must be repaid to the extent any  proceeds are received by the Company from
a rights offering. The Company may also prepay the note from the proceeds of any
equity  or  subordinated  debt  issuances.  The  note is  secured  by all of the
Company's  assets and is guaranteed by our  wholly-owned  subsidiary,  Penobscot
Shoe Company.  The security  interest and guaranty are both  subordinated to our
bank's security interest and debt repayment. The note is convertible at any time
into  shares  of our  common  stock at the  conversion  price of $3.68 per share
(subject to  adjustment  in certain  circumstances).  In  consideration  for the
issuance of the note, we issued an option to Mr.  Riedman for the purchase of up
to 25,000 shares of common stock at an exercise price of $3.68 per share.

Note 4.  Financial Accounting Standards No. 133

     During  the  first  quarter  of 2001,  the  Company  adopted  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting  for  Derivative
Instruments  and  Hedging  Activities.   The  Company  has  not  identified  any
derivatives  that meet the  criteria for a  derivative  instrument  and does not
participate in any hedging  activities.  As a result,  management of the Company
concluded  that  there  was no  material  effect on the  Company's  consolidated
financial  position,  results of  operations  or cash flows  resulting  from the
adoption of SFAS No. 133 at March 31, 2001.


                                       7
<PAGE>

                              DANIEL GREEN COMPANY
           Management Discussion & Analysis of Financial Condition and
                              Results of Operations

1. Liquidity and Capital Resources

     At March 31, 2001 the Daniel Green Company had a working capital deficiency
of  ($136,000)  vs.  ($1,607,359)  at  December  31,  2000.  The  reason for the
deficiency  is  primarily  related  to the  reclassification  of  the  Company's
long-term bank debt as a current  liability as discussed  below. The decrease in
working  capital  deficiency  since  December  31, 2000 is primarily a result of
reductions in accounts receivable. Due to the seasonality of the business, trade
accounts  receivable  usually  in peak in  December  of each year  andthereafter
decrease as cash is collected and shipments decrease.

     The consolidated statement of cash flows to the first quarter of 2001 shows
an increase of cash since December 31, 2000.  Net cash provided from  operations
was  $1,989,486,  primarily  due to the  reduction in accounts  receivable  from
December 31, 2000.

     At the end of the first quarter of 2001, total indebtedness was $21,578,660
which  consisted  of:  line of credit  balance,  current of  $12,500,000,  notes
payable, current, of $6,213,389, notes payable, noncurrent, of $1,059,320, and a
liability related to the dissenting shareholders of Penobscot of $1,805,951. The
Company is current on all of its notes payable and long-term debt, payroll,  and
payroll tax  obligations  except for a mortgage  note in the original  principal
amount of $6 million and a current principal  balance of approximately  $600,000
and  approximately  $600,00 of  borrowings  which are in excess of its borrowing
base on its line of credit.  The  Company  has also been  unable to make  timely
payments  to its  Brazilian  suppliers.  As of March 31,  the  Company  had $3.5
Million  in past  due  trade  payables  to these  suppliers.  As a  result,  its
Brazilian  suppliers  notified  the  Company  that they would not  purchase  any
further  leather or other  materials  for future  orders until the accounts were
brought  current.  As discussed  below,  the Company is currently in discussions
with its bank to establish  arrangements to provide  additional  credit with its
bank to the funding necessary to bring its Brazilian suppliers current.

     The Company has a revolving line of credit ("revolver"), an additional term
loan facility in the amount of $6,000,000  and a  supplemental  loan facility in
the  amount of  $2,800,000.  The  borrowing  base for the  revolver  is based on
certain  balances of eligible  accounts  receivable and eligible  inventory,  as
defined in the  agreement.  The  maximum  credit  amount  under the  revolver is
$12,500,000,  the  interest  rate is prime  plus .75% (the  prime rate was 9% at
March 31) and the revolver  expires on April 1, 2003. As of March 31, 2001,  the
Company had  $12,500,000  in principal  amount  outstanding  under the revolver,
leaving no  availability  under the line. The term loan is payable through April
1, 2003. The supplemental  loan facility is available through April 1, 2003. All
of the  Company's  indebtedness  to its bank is secured by all of the  Company's
assets,  including,  but not  limited to,  accounts  receivable,  inventory  and
equipment.  Riedaman Corporation,  the Company's largest single has guaranteed a
limited amount of these facilities.

     Our loan agreement  requires the Company to comply with various  covenants,
including  financial  covenants  relative to average  borrowed funds to earnings
ratio,  net income,  current  ratio,  and cash flow coverage.  In addition,  the
payment or declaration of dividends and  distributions and certain other actions
are prohibited  unless a written consent is first received from our bank.  Since
December  31,  2000 the  Company  has been in  violation  of  certain  financial
covenants  under its loan agreement.  The Company has not obtained  waivers from
the bank on these  financial  covenants,  which resulted in classifying  all the
related debt as a current liability at March 31, 2001 and December 31, 2000.

     As a result  of four  financial  covenant  defaults,  our bank has  several
remedies  available,   including,   without  limitation,   acceleration  of  all
outstanding  indebtedness under the loan agreement. If the bank calls our loans,
we would be unable to pay the bank in a timely manner.  The bank,  however,  has
not demanded  payment of the  Company's  indebtedness  and Company  continues to
borrow under the line of credit. As discussed below, we arefinalizing terms with
the bank the terms  under  which it would  waive  these  defaults  , modify  our
financial  covenants and increase and continue our credit facility.  The Company
is exposed to a higher interest rate on its indebtedness  with financial penalty
at least until the Company obtains waivers, cures the violations, or establishes
new financing.


                                       8
<PAGE>

     In order to assist us in funding our working  capital  needs,  on April 11,
2001,  our  Chairman  and Chief  Executive  Officer,  James  Riedman,  who is an
affiliate of our  principal  stockholder,  advanced to us $750,000.  The Company
used the  proceeds  of this loan to repay a portion of the past due  accounts to
its Brazilian  suppliers.  This loan is evidenced by a convertible  subordinated
note in an original face amount of $750,000 which we issued to Mr. Riedman.  The
note is subordinated to our existing and future senior  indebtedness,  including
the credit facility with our bank described  above.  The principal amount of the
note is due and payable on April 11, 2002,  provided that as of that time or any
subsequent date on which the note is repaid, the following conditions are met:

     o    We have at least $2.5 million in availability under our revolving line
          of credit;

     o    Less than 30% of our  accounts  receivable  are  ineligible  under the
          borrowing base of our revolving line of credit;

     o    Less than 30% of our inventory is ineligible  under the borrowing base
          for our revolving line of credit; and

     o    We are not in default under our credit facility agreement.

The note is also prepayable  from the proceeds of any rights offering  conducted
by the  Company.  The Company may also prepay the note from the  proceeds of any
equity or subordinated debt issuances.

     The note bears  interest  at an annual rate of 15.00%,  payable  quarterly,
beginning June 30, 2001, until the note is fully repaid.  The note is secured by
all of the Company's  assets and is guaranteed by our  wholly-owned  subsidiary,
Penobscot Shoe Company. The security interest and guaranty are both subordinated
to our bank's security  interest and debt repayment.  The note is convertible at
any time into shares of our common  stock at the  conversion  price of $3.68 per
share (subject to adjustment in certain circumstances). In consideration for the
issuance of the note, we issued an option to Mr.  Riedman for the purchase of up
to 25,000 shares of common stock at an exercise price of $3.68 per share.

     As described  in Part II, Item 1 below,  a  dissenting  shareholder  in the
aciton brought by the Company's subsidiary, Penobscot Shoe Company, to determine
the fair value of  dissenters  shares,  has  requested the court to increase the
amount of the bond securing payment of his shares due to the Company's financial
condition. The Company intends to oppose this application.  However, there is no
assurance that it will be successful. If the court were to grant the relief (the
amount being indeterminate),  the Company would be required to obtain additional
credit to meet the  court's  order.  There is no  assurance  that such credit is
available  or can  be  obtained  on  terms  favorable  to the  Company  and  its
shareholders.

     In  order to  assist  the  Company  in  meeting  its  funding  requirements
necessary  to bring the Company  current  with its  Brazilian  suppliers,  James
Riedman,  has informed the Company's  bank that he is prepared to guarantee a $2
million  overadvance  facility  which  may be used for  payment  of its past due
obligations  to its the  Brazilian  suppliers,  provided  that the  bank  waives
existing  defaults under the Company's  credit facility and modifies  certain of
our financial  covenants and makes other the amendments to the Company's banking
agreement  necessitated  thereby.  The  bank  has  indicated  its  intention  to
establish  the 2.0 million  overadance  facility,  but has yet to determine  the
revised  financial  covenants.   Accordingly,  a  definitive  amendment  to  the
Company's bank agreement has not yet been signed with respect to the overadvance
facility and the Company is currently in the process of negotiating final terms.
Although the Company expects such an amendment to be executed in May 2001, there
can be no assurance that this will occur.

If the amendment with the bank is not executed or is substantially  delayed,  or
the lender determines not to establish the overadvance  facility,  the Company's
liquidity  will be adversely  affected  and the Company  will not have  adequate
funds bring the Brazilian  manufacturers current unless it liquidates assets. In
such event,  the Company  may be required to sell equity or debt  securities  or
obtain  additional  credit  facilities.  There  can be no  assurance  that  such
additional  capital,  if needed,  will be available on satisfactory terms, if at
all.   Furthermore,   any  additional   equity  financing  may  be  dilutive  to
stockholders,   and  debt  financing,  if  available,  may  include  restrictive
covenants. In such event, there can be no assurance that the Company's creditors
will not demand  immediate  payment of amounts due or that they will continue to
extend  additional  credit to the  Company,  which  could  affect the  Company's
ability to continue as a going concern.


                                       9
<PAGE>

2. Results of Operations

     Net Sales for the first quarter of 2001 were $10.9 million compared to $1.1
million for the same period in the prior year.  On a pro-forma  basis,  assuming
that the Penobscot Shoe Co. and L.B. Evans  acquisition  had occurred on January
1, 2001 net sales would have been $7.7 million.  This year's results represent a
41.5% increase over the pro-forma  results for last year. The net sales increase
is primarily attributable to the Trotters and Softwalk brands.

     The gross margin in the current quarter was approximately 36.4% compared to
a loss of (13.1%) in the same quarter last year. The increase in gross profit is
due to the positive performance in all brands.

     Selling,  general and administrative  expenses as a percentage of net sales
were 28.4% or $3.1  million for the first  quarter of 2001 as compared to 156.5%
or $1.8  million for the same  quarter in 2000.  The results in 2000  include an
accrual of $508,811 for costs associated with closing and securing the Company's
Dolgeville location and terminated employees' severance packages.

     During the first quarter of 2001,  interest expense amounted to $492,000 as
compared to $69,000 in the first quarter of 2000.  This increase is attributable
to increased borrowings incurred in connection with the L.B. Evans and Penobscot
Shoe Co. acquisitions and the increased working capital  requirements  resulting
from these acquisitions.

     A majority of our products  continue to be made of leather.  As a result of
the Mad Cow disease epidemics in Europe,  the footwear industry  continues to be
concerned  about  rising  leather  prices in the future and what impact on gross
profits this could have. Year to date we have begun to experience  limited price
increases for our cost of goods sold.

     During what has been described as a "very tough" early Spring season by the
industry, both the Trotters and Softwalk brands of the Company have continued to
perform  well at  retail.  This is a result of our  brands  maintaining  a clean
channel  of   distribution   with  a  focus  on  growing   the   business   with
non-promotional retailers. Our order backlog position is currently running ahead
of last year's results.


                                       10
<PAGE>

                           Part II - Other Information

Item 1. Legal Proceedings.

As reported in the Company's  form 10-KSB for the fiscal year ended December 31,
2000, the Company's subsidiary, Penobscot Shoe Company ("Penobscot"), filed suit
in the Superior Court in Maine,  Penobscot  County, on April 3, 2000 to have the
court  determine  the fair value of shares in  Penobscot  owned by  persons  who
dissented  from the merger of Penobscot  with a subsidiary  of the Company.  The
court had ordered  Penobscot to post a bond of  approximately  $1.56  million to
secure payment of the fair value of one dissenter's  shares.  On April 24, 2001,
the same  dissenter  requested  the court to increase  the amount of the bond to
cover  additional  interest and attorney's fees as well as the fair value of his
shares  and/or  to impose a lien on the  property  of the  Company  based on its
financial  condition.  See Part I, Item 2  "Management  Discussion & Analysis of
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources,"  regarding the impact on the Company's liquidity of this request, if
granted.

Item 2. Changes in Securities-

Our  Chairman  and Chief  Executive  Officer,  who is also an  affiliate  of our
principal  shareholder,  on April 11, 2001,  loaned $750,000 to the Company,  in
exchange for a one-year subordinated  convertible  promissory note and an option
to purchase 25,000 shares of common stock.  The proceeds were used primarily for
working capital and payments of past due payments to our Brazilian vendors.  See
Part I - Item 2  "Management  Discussion & Analysis of Financial  Condition  and
Results of Operations - Liquidity and Capital Resources."

Item 3. Default upon Senior Securities.

See Part I - Item 2 "Management Discussion & Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."

Item 4. Submission of matters to a vote of security holders.

Item 5. Other Information.-

In March,  2001, the Company  announced that its annual meeting of  stockholders
had  been  postponed  and  would  be  rescheduled.   The  Company  is  currently
determining an appropriate date for the meeting.

Item 6. Exhibits and Reports on Form 8K.-

The Exhibit Index  appearing  after the signature  page of this report is hereby
incorporated by reference.

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto, duly authorized.

                              DANIEL GREEN COMPANY
                                   Registrant


Date:
     ------------------                              -------------------------
                                                     Robert M. Weedon
                                                     Chief Financial Officer



                                                       /s/ James R. Riedman
                                                       ------------------------
                                                       James R. Reidman
                                                       Chief Executive Office

                                       11
<PAGE>

                                 April 11, 2001


Daniel Green Company
450 North Main Street
Old Town, Maine 04468

Attention:  Greg Tunney, President

Dear Mr. Tunney:

     Pursuant to our prior discussions, this Letter Loan Agreement will serve to
set forth the terms of the  financing  agreement  by and  between  Daniel  Green
Company,  a Massachusetts  corporation  (the  "Borrower") and James Riedman (the
"Lender"):

     1. Loan.

          (a) Subject to the terms and  conditions set forth in this Letter Loan
     Agreement (the "Loan Agreement") and the other agreements,  instruments and
     documents executed and delivered in connection herewith and pursuant hereto
     (collectively,  together with this Loan Agreement,  referred to hereinafter
     as the "Loan  Documents"),  the Lender agrees to lend to the Borrower,  and
     the  Borrower  agrees to borrow  from the Lender,  a loan in the  principal
     amount of $750,000.00 (the "Loan").

          (b) The Loan shall be evidenced  by a  Convertible  Subordinated  Note
     (herein  called,  together  with any  renewals,  extensions  and  increases
     thereof,  the  "Note"),  in the form of  Exhibit  A  annexed  hereto,  duly
     executed by the Borrower, dated the date thereof, in the original principal
     amount of the Loan.

          (c) (i) Subject to Section  1(c)(ii)  below,  the Lender will have the
     right ("Conversion  Right"),  at the Lender's option, to convert all or any
     portion of the  principal  of the Note into  fully  paid and  nonassessable
     shares of the Borrower's  common stock,  par value $2.50 per share ("Common
     Stock").  The  number of shares of Common  Stock into which the Note may be
     converted  ("Conversion  Shares")  shall  be  determined  by  dividing  the
     aggregate principal amount of the Note by the conversion price in effect at
     the time of conversion (the "Conversion Price"). The Conversion Price shall
     be $3.68 per share,  subject to adjustment in accordance  with the terms of
     the Note.

               (ii)   Notwithstanding   the  foregoing,   until  the  Borrower's
          stockholders  have  approved the issuance of  Borrower's  Common Stock
          pursuant  to the Note and the  Options  (defined  below) and any other
          shares  of  Common  Stock  treated  as  part  of  the  same  financing
          (collectively,  the "Financing Securities"),  or counsel acceptable to
          the  Borrower  opines that such  stockholder  approval is not required
          under Nasdaq Rule 4460, only the principal amount of



<PAGE>

          the Note which is convertible  into 157,221 shares of Common Stock (as
          adjusted   for   stock    splits,    combinations,    dividends    and
          reclassifications)  at the  Conversion  Price may be  converted.  Upon
          approval  by  the  Borrower's  stockholders  of  the  issuance  of the
          Financing  Securities or receipt of an appropriate legal opinion,  all
          or any part of the Note may be converted by the Lender at any time.

     2. Repayment Terms.

          (a) All unpaid  principal  under the Note shall be due and  payable on
     April 11,  2002 (the  "Maturity  Date").  Unless  earlier  accelerated,  no
     payments of principal  shall be made prior to the Maturity Date,  provided,
     however,  if the Borrower issues Common Stock or other capital stock (other
     than  capital  stock  imposing  mandatory  redemption  obligations  on  the
     Borrower  ("Redeemable  Preferred")) for cash consideration or subordinated
     debt or Redeemable  Preferred that is approved by Manufacturers and Traders
     Trust  Company  ("M&T  Bank")  (or any  lender  replacing  M&T  Bank in the
     future),  then the proceeds  thereof  shall be used to repay the Note after
     the Borrower has first repaid any other subordinated note designated by the
     Borrower  ("Designated  Subordinated  Note") up to a maximum of $750,000 in
     proceeds from such issuance in full. To the extent not previously paid, all
     of the  outstanding  and unpaid  principal  under the Note shall be due and
     payable on the Maturity Date.

          (b) Within five (5) days after the  issuance of any Common  Stock in a
     rights  offering and the repayment in full of any  Designated  Subordinated
     Note,  the  Borrower  shall  make a  mandatory  prepayment  of  the  unpaid
     principal  of the Note to the extent of the net cash  proceeds  received by
     the Borrower from a rights offering after payment in full of the Designated
     Subordinated Note. Except for the repayment of the Designated  Subordinated
     Note,  no  proceeds  from any rights  offering  shall be used for any other
     purposes  (including the payment of  indebtedness  of Borrower to M&T Bank)
     unless and until the Note has been repaid in full.

          (c) Prior to an event of default,  the unpaid principal balance of the
     Loan  shall  accrue  interest  at the rate of 15% per  annum  and  shall be
     payable on each March 31,  June 30,  September  30 and  December 31 of each
     calendar  year,  with the first such  payment to be made on June 30,  2001.
     After an event of default,  interest  shall accrue the rate that would have
     applied plus 2% per annum.

     3. Use of Proceeds.  The Borrower may use the proceeds of the Loan only for
the payment of the  outstanding  accounts  payable to the  Borrower's  Brazilian
suppliers  and after all such  suppliers  have been  brought  current,  then for
general corporate purposes.

     4.  Collateral.  As collateral  and security for the Loan,  and any and all
other indebtedness or obligations from time to time owing by the Borrower to the
Lender,  the Borrower shall grant,  or cause the owner thereof to grant,  to the
Lender, his successors and assigns, a security interest,  in and to all personal
property,  now existing or hereafter acquired, of Borrower pursuant to a General
Security Agreement (the "Security  Agreement")  annexed hereto as Exhibit B. The
security interest shall be subject and subordinate only to the security interest
in the  Borrower's  personal  property  granted to M&T Bank,  and shall be parri
passu with a security  interest in the Borrower's  personal  property granted to
any holders of  Designated


                                       -2-
<PAGE>

Subordinated  Notes. The Lender shall be appointed  collateral agent for himself
and the holders of the Designated Subordinated Notes (collectively, the "Secured
Parties") with respect to their respective  security interest in accordance with
the  terms and  conditions  of the  Security  Agreement.  Concurrently  with the
execution  and  delivery  of the Note,  Borrower  shall  execute and deliver the
Security Agreement to the Secured Parties, and shall also execute and deliver to
Lender, as collateral,  for the benefit of the Secured Parties appropriate UCC-1
financing  statements  which  shall be filed in  appropriate  filing  offices to
perfect the security interests granted thereby.

     5.  Guaranties.  At closing,  and as an inducement to the Lender to execute
and  deliver  this  Loan  Agreement  and to make the Loan to the  Borrower,  the
Borrower agrees to cause its wholly-owned subsidiary,  Penobscot Shoe Company, a
Maine  corporation  (the  "Guarantor"),  to execute  and deliver to the Lender a
Guaranty, in form of Exhibit C annexed hereto (the "Guaranty Agreement").

     6.  Stock  Options.  In order to  induce  Lender  into  granting  the Loan,
Borrower has agreed to issue to Lender a certain  stock  option (the  "Option"),
having a term of five (5) years, allowing the purchase of up to 25,000 shares of
Common Stock,  at an exercise price of $3.68 per share and containing a cashless
exercise provision. The Option shall be in the form of Exhibit D annexed hereto.
The  number of shares  subject to the Option  and the  exercise  price  shall be
subject to adjustment in accordance with the terms of the Option.

     7.  Representations  and Warranties.  The Borrower  represents and warrants
that: (a) this Loan Letter Agreement and the Loan Documents and the transactions
contemplated  hereby  and  thereby  have been  duly  approved  by all  necessary
corporate action on the part of Borrower and that this Loan Letter Agreement and
each of the other Loan Documents  constitute the valid and binding  agreement of
the Borrower, enforceable against Borrower in accordance with the terms thereof,
except in the event of bankruptcy or general  principles of equity;  and (b) the
execution  and  delivery  of this  Loan  Letter  Agreement  and the  other  Loan
Documents and the  performance by Borrower of its  obligations  thereunder do no
violate  Borrower's  Articles of Incorporation or By-Laws or require the consent
of anyone other than Borrower's  bank, which consent has been obtained and is in
full force and effect.

     8. Lender's  Representations,  Warranties and Acknowledgements.  The Lender
makes the following representations and warranties:

          (a) State of Residence.  For purposes of state  securities  laws,  the
     Lender is a resident solely of the State of New York.

          (b)  Investment  Purpose.  The  Lender is  acquiring  the Note and the
     Option and the shares of Common Stock issuable upon  conversion or exercise
     thereof,  for his own  account,  for  investment  only  and not with a view
     towards the public sale or distribution  thereof,  except pursuant to sales
     registered or exempted from registration under the Securities Act.

          (c) Accredited Investor Status. The Lender is an "accredited investor"
     as that term is defined in Rule 501(a) of  Regulation D  promulgated  under
     the Securities Act.


                                       -3-
<PAGE>

          (d) Reliance on Exemptions.  The Lender  understands that the Note and
     the Option are being  offered  and sold to him in  reliance  upon  specific
     exemptions from the registration  requirements of the United States federal
     and state  securities  laws and that the Borrower is relying upon the truth
     and accuracy of, and the Lender's  compliance  with,  the  representations,
     warranties,  agreements,  acknowledgments  and understandings of the Lender
     set forth herein in order to determine the availability of such exemptions.

          (e)  Information.  The Lender is a member of the Board of Directors of
     the  Borrower.  As a result,  the Lender is  familiar  with the  Borrower's
     business,  financial condition and prospects, and with the terms and merits
     of the securities being offered hereby.  The Lender further represents that
     he has had an  opportunity  to ask questions  and receive  answers from the
     Borrower  regarding the terms and conditions of the  investment  being made
     hereby and business,  properties,  prospects and financial condition of the
     Borrower,  including  its current  default on its loans from M&T Bank.  The
     Lender  understands  that his investment in the Note and Option and in each
     case the Common Stock  issuable  pursuant  thereto  involves a  significant
     degree of risk,  including  the  possibility  that his entire  loan and the
     securities  hereby  offered may become  uncollectible  and  worthless.  The
     Lender has made his own  independent  decision to make the Loan and acquire
     the securities provided for hereunder upon the terms set forth in this Loan
     Letter  Agreement based upon his own  determination of the prospects of the
     Borrower  and  the  value  of the  securities,  and is not  relying  on any
     representations  made to him by  representatives of the Borrower other than
     in the Borrower's publicly filed documents with the Securities and Exchange
     Commission.

          (f) Governmental  Review. The Lender understands that no United States
     federal or state agency or any other government or governmental  agency has
     passed upon or made any  recommendation  or endorsement of the Note and the
     Option.

          (g) Transfer or Resale.  The Lender  understands  the  limitations  on
     resale or transfer of the Note and the Option incorporated herein and those
     additional restrictions applicable pursuant to securities laws.

          (h)  Legends.  The Lender  understands  that the Note and Option  and,
     until such time as the shares of Common Stock  issuable upon the conversion
     of the Note and/or  exercise of the Option have been  registered  under the
     Securities Act as contemplated  herein,  such shares may bear a restrictive
     legend in substantially  the following form (and a stop-transfer  order may
     be placed against transfer of the certificates for such securities):

          The  securities   represented  by  this   certificate  have  not  been
          registered  under  the  Securities  Act  of  1933,  as  amended.   The
          securities  have been  acquired  for  investment  and may not be sold,
          transferred  or assigned in the absence of an  effective  registration
          statement for the securities under said Act, or an opinion of counsel,
          in form,  substance  and scope  reasonably  acceptable to the Company,
          that  registration  is not  required  under  said Act or  unless  sold
          pursuant to Rule 144 under said Act.


                                      -4-
<PAGE>

     9.  Independent  Advisors.  The Lender  acknowledges  that the Borrower has
recommended that he obtain independent legal, tax and financial advice regarding
this Loan Letter Agreement and each of the other Loan Documents, and that he has
had an adequate opportunity to do so. The Lender further acknowledges that Woods
Oviatt  Gilman LLP,  legal  counsel for the Borrower,  has not  represented  the
Lender in this transaction in any respect whatsoever.

     11.  Miscellaneous.  This Loan  Letter  Agreement  shall be governed by the
internal  laws of the State of New York.  This Letter  Agreement and each of the
other Loan Documents  referred to herein constitute the entire agreement between
Borrower and Lender and they may not be amended or modified  except by a writing
signed by both parties.  Any litigation between the Borrower and Lender shall be
adjudicated  in a court  located in Monroe  County,  New York,  and the  parties
hereto irrevocably agree to the exclusive  jurisdiction and venue of such courts
and waive any objection thereto.

     If you are in  agreement  with  the  foregoing,  please  sign in the  space
provided below.

                            [SIGNATURE PAGE FOLLOWS]


                                      -5-
<PAGE>

                                        -------------------------------
                                        James Riedman


Accept and Agreed:

Daniel Green Company

By:
   -------------------------
Name: Greg Tunney
Title: President
Dated: April 11, 2001


                                      -6-
<PAGE>

                                    EXHIBIT A


NEITHER THIS NOTE NOR THE CONVERSION  SHARES ISSUABLE UPON CONVERSION HEREOF MAY
BE RESOLD OR  TRANSFERRED  UNLESS SUCH  RESALE OR TRANSFER IS EXEMPTED  FROM THE
REGISTRATION  REQUIREMENTS  OF THE SECURITIES  ACT OF 1933, AS AMENDED,  AND ANY
APPLICABLE  SECURITIES  LAWS,  AND THE  COMPANY  RECEIVES,  PRIOR TO  RESALE  OR
TRANSFER,   WRITTEN  REPRESENTATIONS  OF  THE  HOLDER  AND  PROPOSED  TRANSFEREE
SATISFACTORY  TO THE COMPANY  REGARDING SUCH TRANSFER OR, AT THE ELECTION OF THE
COMPANY,  AN OPINION OF COUNSEL  REASONABLY  SATISFACTORY  TO THE COMPANY TO THE
EFFECT THAT THE  PROPOSED  TRANSFER  OF THE NOTE OR THE  CONVERSION  SHARES,  AS
APPROPRIATE,  MAY BE EFFECTED WITHOUT  REGISTRATION  UNDER THE SECURITIES ACT OR
QUALIFICATION  UNDER THE  APPLICABLE  STATE  SECURITIES  LAWS,  OR THE RESALE OR
TRANSFER OF THE CONVERSION SHARES IS REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE


$750,000.00                                                  Rochester, New York
                                                                  April 11, 2001

     For value  received,  DANIEL GREEN COMPANY,  a  Massachusetts  corporation,
promises  to pay to the order of JAMES  RIEDMAN,  in lawful  money of the United
States, the principal sum of Seven Hundred Fifty Thousand Dollars  ($750,000.00)
together with interest as specified below, payable as follows:

     This Note is being issued  pursuant to a certain  loan letter  agreement of
even date  herewith  between  the  Company  and the  Holder  (the  "Letter  Loan
Agreement").

     1. Definitions.  As used in this Note, the following terms, where used with
an initial capital letter, have the following meanings:

          "Act" means the Securities Act of 1933, as amended.

          "Company" means Daniel Green Company, a Massachusetts corporation, and
     will also include its successors and assigns.

          "Corresponding Debt" means any other subordinated  indebtedness of the
     Company that by its terms ranks on parity with this Note in dissolution and
     liquidation of the Company.


<PAGE>

          "Equity  Issuances"  means the  issuance  by the Company of any common
     stock or other capital stock (other than  Redeemable  Preferred)  after the
     date hereof for cash purchase  price,  whether in a private  placement or a
     registered offering  (including  pursuant to a rights offering),  but other
     than  pursuant  to the  Company's  stock  option  plans  or  pursuant  to a
     transaction  contemplated  by  Rule  145 of  the  Securities  and  Exchange
     Commission.

          "Holder"  means  James  Riedman,  or any  person  to whom this Note is
     subsequently  properly  transferred and who becomes a registered  holder of
     this Note.

          "Maturity Date" means April 11, 2002.

          "M&T Maturity Date Conditions" means each of the following conditions:

               (a) on the Maturity Date or any date thereafter,  the Company has
          $2,500,000 of  availability  under its  $12,000,000  Revolving  Credit
          Agreement  dated  March 30,  2000 (the "M&T  Credit  Agreement")  with
          Manufacturers and Traders Trust Company ("M&T Bank");

               (b) the Company's  ineligible  accounts  receivable under the M&T
          Credit  Agreement shall not exceed 20% of the Company's total accounts
          receivable on a consolidated  basis for thirty (30)  consecutive  days
          prior to the Maturity Date or any subsequent  date on which the Note's
          principal is to be repaid;

               (c) the  Company's  eligible  inventory  as a  percentage  of the
          Company's  borrowing  base  shall not  exceed  30% of the  outstanding
          borrowings under the M&T Credit  Agreement's  revolving line of credit
          for thirty (30)  consecutive  days prior to the  Maturity  Date or any
          subsequent date on which the Note's principal is to be repaid; and

               (d) no event of default shall exist and be  continuing  under the
          M&T Credit Agreement.

          "Quarterly  Interest  Payment Date" means March 31, June 30, September
     30 and December 31.

          "Redeemable  Preferred" means any capital stock which, pursuant to the
     terms of the Company's Articles of Incorporation, By-Laws or any agreement,
     is mandatorily redeemable by the Company under any circumstances.

          "Senior  Debt"  means (a) the  principal  of and  unpaid  interest  on
     indebtedness  (other  than this Note) of the  Company,  or with  respect to
     which the Company is a guarantor, (i) under the M&T Credit Agreement, as it
     may be amended or  modified,  (ii) for other money  borrowed  evidenced  by
     bonds, notes or similar written  obligations or (iii) indebtedness  secured
     by property  acquired by the Company subject to such  indebtedness  and for
     which the Company is directly or contingently  liable,  whether outstanding
     on the date of this Note or  subsequently  created,  assumed  or  incurred,
     unless  by  the  terms  of  the  instrument   creating  or  evidencing  the
     indebtedness it is provided that such indebtedness is Corresponding Debt or
     is  otherwise  not


                                      A-2
<PAGE>

     superior in right of payment to this Note; and (b) any other  indebtedness,
     liability or  obligation,  contingent or otherwise,  of the Company or with
     respect to which the Company is a guarantor,  which is created,  assumed or
     incurred  after the date of this Note and which,  when created,  assumed or
     incurred, is specifically  designated by the Company as Senior Debt for the
     purpose  of  this  Note  in the  instrument  creating  or  evidencing  such
     indebtedness,  liability or obligation,  or guaranty  thereof;  and (c) any
     refundings,  renewals  or  extensions  of any  indebtedness,  liability  or
     obligation  described in clauses (a) and (b) above.  The term "Senior Debt"
     does not include any short-term account payable (payable within ninety (90)
     days or less of its  creation)  created or  assumed  by the  Company in the
     ordinary  course  of its  business  in  connection  with the  obtaining  of
     materials or services.

          "Subordinated  Debt  Issuances"  means any  issuance of notes or other
     evidences of  indebtedness  by the Company  pursuant to which the principal
     amount thereof is  subordinated  to the Senior Debt on terms and conditions
     that are materially the same as those which apply to this Note in Section 6
     below  (other than  Corresponding  Debt  designated  by the Company) or any
     issuances of Redeemable Preferred.

     2. Interest.

          (a)  Prior to an Event of  Default  (as  defined  below),  the  unpaid
     principal  balance  under this Note shall accrue  interest at 15% per annum
     until paid in full. Upon and during the continuance of an Event of Default,
     interest  shall  accrue on the unpaid  principal  balance of this Note at a
     rate of 2% per annum greater than the pre-Acceleration interest rate, until
     this Note is paid in full.  Interest  shall be  computed  on the basis of a
     three  hundred  sixty (360) day year for the actual number of days elapsed.
     In no event,  however,  shall the  interest  rate on this Note  exceed  the
     maximum rate allowed by law.

          (b) The  Company  shall pay accrued  interest on the unpaid  principal
     amount of this Note on each Quarterly Interest Payment Date, with the first
     such payment due on June 30, 2001 and each  subsequent  payment due on each
     successive Quarterly Interest Payment Date until this Note is paid in full.
     All  accrued  and unpaid  principal  shall  also be due and  payable on the
     Maturity Date or when this Note is otherwise paid in full.

     3. Principal Payments. This Note shall mature and be all due and payable on
the Maturity Date.  Unless  Acceleration  occurs as provided below, no principal
payments shall be due or owing prior to the Maturity Date.

     4. Prepayment.

          (a)  Optional  Prepayments.  Except as provided in Section 4(b) below,
     the  Company  may not  prepay  all or a portion  of the  principal  balance
     hereunder  at anytime  unless (i) either (A) M&T Bank and the  holders of a
     majority of the outstanding Senior Debt consent thereto in writing,  or (B)
     the  prepayment  is  made  from  the  proceeds  of an  Equity  Issuance  or
     Subordinated Debt Issuance and, (ii) the Company first provides Holder with
     ten (10) days advance  written  notice of its intention to prepay an amount
     specified  in such  notice.  In such event,  the Company  shall  prepay the
     amount set forth in the  prepayment  notice and no other


                                      A-3
<PAGE>

     amount,  and such  prepayment  shall  occur  on the  date set  forth in the
     notice,  PROVIDED,  HOWEVER,  that the Lender shall have the right prior to
     the  anticipated  prepayment  date set forth in the notice to exercise  his
     conversion  rights contained in Section 7 hereof and convert this Note into
     common stock,  in which case the  prepayment  notice shall be of no further
     force or effect.

          (b) Mandatory  Prepayments.  In the event that the Company  conducts a
     rights  offering at any time,  then within five (5) days after the issuance
     of any  common  stock  pursuant  thereto  and  the  payment  in full of any
     Corresponding  Debt  designated  by the  Company up to a maximum  principal
     amount  not  to  exceed  $750,000,  the  Company  shall  make  a  mandatory
     prepayment of principal of this Note to the extent of the net cash proceeds
     received  by the  Company  therefrom,  less such  amount as was  previously
     applied to the Corresponding Debt, and before any such proceeds are applied
     to the payment of Senior Debt or any other debt of any kind.

          (c)  Application  of  Payments.  All  such  prepayments  shall be made
     without  premium or penalty and shall be applied to this Note first to fees
     and expenses due hereunder, then to accrued and unpaid interest.

     5. Security. This Note is secured by a security interest granted by Company
to Holder pursuant to a General Security Agreement of even date herewith between
such parties and  designated  holders of the  Corresponding  Debt (the "Security
Agreement").  Payment of this Note is guaranteed by Penobscot  Shoe Company (the
"Guarantor")  pursuant  to  a  certain  Guaranty  of  even  date  herewith  (the
"Guaranty").

     6. Subordination.

          (a)  Generally.  Payment  of  the  principal  of and  interest  on the
     indebtedness  evidenced  by this Note will be  subordinate,  and  junior in
     right of payment, to the extent and in the manner stated in this Section 6,
     to the prior  payment in full of all Senior Debt.  The  provisions  of this
     Section 6 are  intended  solely for the  purpose of defining  the  relative
     rights of the Holder and the holders of Senior Debt.

          (b)  Payments.  No  payments  shall be made with  respect to this Note
     except for regularly  scheduled  payments of principal.  Payment in full of
     this Note on or after the Maturity  Date (other than  pursuant to permitted
     or  mandatory  prepayments)  shall be  subject to  satisfaction  of the M&T
     Maturity  Date  Conditions.  No  principal  payments  shall  be paid on the
     Maturity Date or thereafter  until the M&T Maturity  Date  Conditions  have
     been satisfied.  If such conditions are not satisfied on the Maturity Date,
     then  this Note  shall be paid in full  immediately  upon  such  conditions
     thereafter  being  satisfied.  The M&T Maturity Date  Conditions  shall not
     apply and the  payment  of the  outstanding  principal  amount of this Note
     shall not be subject to the M&T Maturity  Date  Conditions  on the Maturity
     Date unless M&T Bank holds Senior Debt on the Maturity Date.

          (c)  Liquidation.  Upon any full or partial payment or distribution of
     the  assets  of  the  Company  upon  any  dissolution,  winding  up,  total
     liquidation  or  reorganization  of the


                                      A-4
<PAGE>

     Company (whether in bankruptcy, insolvency,  reorganization or receivership
     proceedings,  upon an  assignment  for the benefit of creditors or upon any
     other marshalling of the assets and liabilities of the Company):

               (i) All Senior Debt (including  interest  accruing on such Senior
          Debt after the date of filing of a petition or other action commencing
          any such proceeding) will first be paid in full before the Holder will
          be entitled to receive any payment or  distribution  of any  character
          from or by the Company, whether in cash, securities or other property,
          on  account  of the  principal  of or  interest  on  the  indebtedness
          evidenced by this Note; and

               (ii) Any payment or  distribution of assets of the Company of any
          character,  whether in cash,  securities or other property, on account
          of the principal of or interest on the indebtedness  evidenced by this
          Note,  which  would,   except  for  this  Section  6,  be  payable  or
          deliverable  in  respect  of this  Note,  will  be  paid or  delivered
          directly to the holders of the Senior  Debt,  until the Senior Debt is
          paid in full.

          (d) Default On Senior Debt.  In the event and during the  continuation
     of any default in respect of any Senior Debt, or under any agreement  under
     which any Senior Debt was issued, continuing beyond the period of grace, if
     any,  specified  in such  agreement,  then unless and until such default is
     cured or waived or has  ceased to exist or all the  Senior  Debt is paid in
     full and this  subordination  has been terminated  pursuant to Section 6(k)
     below, then neither the Holder will take, demand, or receive,  nor will the
     Company,  make,  give  or  permit,  directly  or  indirectly,   by  setoff,
     redemption,  purchase or in any other manner,  any  regularly  scheduled or
     other payments of interest or principal under this Note or security for the
     whole or any part of this  Subordinated Debt which is inconsistent with the
     provisions of this Section 6.

          (e) Standstill Restrictions. Unless and until the Senior Debt has been
     accelerated,  the Holder will not assert,  collect or enforce  this Note or
     any part hereof or take any action to  foreclose,  realize or enforce  this
     Note or any part hereof or any collateral security for, or guaranty of this
     Note, except pursuant to a mandatory  prepayment  pursuant to Section 4(b).
     Until  the  Senior  Debt has been paid in full,  Holder  shall not have any
     right of subrogation, reimbursement, restitution, contribution or indemnity
     whatsoever  from any assets of the Company or any  guarantor of or provider
     of  collateral  security  for the Senior  Debt.  Holder  waives any and all
     rights with respect to marshalling.

          (f) Notice to Senior Debt Holders; Cross-Default.  The Company agrees,
     for the benefit of the holders of Senior Debt,  that in the event that this
     Note  shall be  declared  due and  payable  because  of an Event of Default
     hereunder,  it will promptly give written  notice  thereof to the Holder or
     holders  of  all  Senior  Debt  or  to  his  or  their   representative  or
     representatives. In the event that an Event of Default occurs hereunder, an
     event of default will be deemed to have occurred with respect to the Senior
     Debt by M&T Bank.

          (g)  Impermissible  Payments  Received  in Trust.  In the event  that,
     despite the  provisions of this Section 6, any payment or  distribution  of
     assets of the  Company of any  character,  whether in cash,  securities  or
     other property (other than shares of Common Stock issued upon conversion of
     this Note in  accordance  with  Section 7 hereof of pursuant to a


                                      A-5
<PAGE>

     permitted  optional  or  mandatory  prepayment  pursuant  to Section 4), is
     received by the Holder before all Senior Debt is paid in full, such payment
     or distribution  will be held in trust for the benefit of, and will be paid
     over or delivered to, the holders of such Senior Debt in the proportions in
     which they hold the same, until the Senior Debt is paid in full.

          (h)  Nonimpairment.  Nothing  contained in this Note is intended to or
     will (i) impair, as between the Company,  its creditors and the Holder, the
     obligation of the Company,  which is absolute and unconditional,  to pay to
     the Holder the principal of and interest on this Note, as and when the same
     becomes due and payable in  accordance  with its terms,  or (ii) affect the
     relative rights of the Holder and other creditors of the Company other than
     the holders of Senior  Debt.  Except as provided in Section  6(e),  nothing
     contained in this Note will prevent the Holder from exercising all remedies
     otherwise  permitted by  applicable  law upon any default  under this Note,
     subject to the rights,  if any, under this Section 6, of the holders of the
     Senior Debt in respect of cash, securities or other property of the Company
     received upon exercise of any such remedy.

          (i)  Continuing  Rights Of Senior  Debt.  No right of any  present  or
     future  holder of the Senior Debt to enforce  subordination  as provided in
     this Section 6 will at any time in any way be prejudiced or impaired by any
     act or  failure  to act,  in good  faith,  by any  such  holder,  or by any
     noncompliance  by the Company with the terms,  provisions  and covenants of
     this Note,  regardless of any  knowledge  thereof which any such holder may
     have or may be charged with having.

          (j) Changes in Senior Debt.  Holder agrees that Company and any holder
     of Senior  Debt may agree to increase  the amount of, and to extend,  renew
     and create  additional  Senior  Debt or  otherwise  modify the terms of any
     Senior  Debt,  including,  but not  limited  to,  the  waiver  of  defaults
     thereunder and the amendment of any of the terms or provisions  thereof (or
     any instrument evidencing, creating, securing or guaranteeing the same) and
     any holder may grant  extensions of the time of payment or performance  and
     make compromises,  (including  non-perfection,  compromises and releases of
     collateral  and  compromises  and  releases of  guaranties),  releases  and
     settlements  with Company and all other  persons,  in each case without the
     consent of the Holder and without  affecting  the  provisions  contained in
     this Section 6;  provided,  however,  that nothing  contained  herein shall
     constitute a waiver of the right of the Company  itself to agree or consent
     to a settlement  or  compromise  of a claim which any holder of Senior Debt
     may  have  against  the  Company.  No  compromise,  alteration,  amendment,
     renewal, or other change of, or waiver, consent, or other action in respect
     of  any  liability  or  obligation  under  or in  respect  of,  any  terms,
     covenants,  or conditions of the Senior Debt (or any instrument evidencing,
     creating,  securing  or  guaranteeing  the  same),  whether  or not done in
     accordance  with the  provisions  of the  Senior  Debt  (or any  instrument
     evidencing,  creating  securing or guaranteeing the same),  will in any way
     alter or affect any of the provisions of this Section 6.

          (k) Effect of  Subordination.  Each  holder of Senior  Debt shall be a
     third party  beneficiary of the provisions of this Section 6 and shall have
     the right to enforce such provisions against the Holder or any other party.
     No failure or delay on the part of holders of Senior  Debt in the  exercise
     of any power,  right or privilege  hereunder shall impair such power, right
     or privilege or be construed to be a waiver of any default or  acquiescence
     therein,  nor shall any


                                      A-6
<PAGE>

     single or partial exercise of any such power,  right or privilege  preclude
     any other or  further  exercise  thereof  or of any other  power,  right or
     privilege.

          (l)  Undertaking.  By its acceptance of this Note, the Holder and each
     other holder of this Note agrees to execute and deliver all such  documents
     as may be  reasonably  requested  from time to time by the  Company  or the
     holder of any Senior Debt in order to implement the  subordination  of this
     Note as contemplated in this Section 6.

          (m)  Termination  of  Subordination.  The provisions of this Section 6
     shall continue in full force and effect,  and the rights and/or obligations
     of the holders of any Senior Debt and the Company  hereunder shall continue
     to be fully  operative,  until all of the Senior  Debt shall have been paid
     and satisfied in full in cash and such full payment and satisfaction  shall
     be final and not avoidable.

          (n)  Modification  or Sale of the  Subordinated  Debt. The Holder will
     not, at any time while this Section 6 is in effect: modify any of the terms
     of any of this Note or any of the documents  evidencing or related to same;
     or sell, transfer, pledge, assign, hypothecate or otherwise dispose of this
     Note or any portion  hereof to any person other than a person who agrees in
     a  writing,  satisfactory  in form and  substance  to holders of all Senior
     Debt, to be bound by all of the obligations of the Holder hereunder.

          (o) Relative Rights of Holders of Senior Debt. If at any time there is
     more than one holder of Senior Debt, and an agreement exists among all such
     holders  regarding  the procedure by which the rights of such holders under
     this  Section  6 are  to be  exercised,  amended,  waived,  compromised  or
     settled,  then such procedure shall control.  However, if no such agreement
     exists, then such rights will be so exercised, amended, waived, compromised
     or settled  pursuant  to a vote of the  holders  which  hold a majority  in
     principal amount of the then outstanding Senior Debt.

          (p)  Amendments.  No  amendment or  modification  of the terms of this
     Section 6 shall be effective against any holder of Senior Debt before or at
     the time of such  amendment  or  modification  unless such holder of Senior
     Debt so  consents,  in  accordance  with the term of  instruments  (if any)
     evidencing such indebtedness.

     7. Conversion.

          (a) Conversion  Privilege.  Subject to Section 7(b)(ii),  this Note is
     convertible  into shares of the Company's common stock, par value $2.50 per
     share (the "Common  Stock"),  at an initial  conversion  price of $3.68 per
     share (the "Conversion  Price") at any time prior to the payment in full of
     this  Note.  The  Conversion  Price is subject to  adjustment  pursuant  to
     Section 7(e) below.

          (b) Optional Conversion.

               (i) Subject to Section 7(b)(ii), the Holder shall have the right,
          exercisable  at any time in accordance  with the terms of this Section
          7, to convert all or any


                                      A-7
<PAGE>

          portion of the principal balance under this Note into shares of Common
          Stock.  In the case of optional  conversion by the Holder  pursuant to
          this Section 7(b),  this Note must be surrendered and accompanied by a
          written  conversion  notice in the form  attached  hereto as Exhibit A
          (hereinafter  referred to as the "Conversion Notice") delivered to the
          Company at its principal office during usual business hours.

               (ii) The Lender  shall be  entitled  to convert  this Note into a
          total of 157,221 shares of Common Stock (which number shall be subject
          to   readjustment   for   any   stock   split,   stock   dividend   or
          reclassification  of the Common Stock) (the "10% CAP").  If,  however,
          any  Corresponding  Debt  designated  by the  Company  up to a maximum
          principal  amount not to exceed  $750,000 is repaid prior to this Note
          being  repaid  at any  time  and  at  that  time,  the  holder  of any
          Corresponding  Debt converted all of the principal amount of this Note
          into  shares  of Common  Stock,  then the 10% Cap  hereunder  shall be
          increased by the difference  between the Corresponding  Debt's 10% Cap
          and the number of shares of Common Stock into which the holder of such
          Corresponding  Debt  converted  this Note, if any. The  restriction in
          this Section  7(b)(ii) shall cease to apply if (A) the Company obtains
          approval of the Company's stockholders to issue shares of Common Stock
          in excess of the 20%  limitation  pursuant  to Nasdaq Rule 4460 or (B)
          the Company provides the Lender with irrevocable written notice, based
          upon the advice of its  counsel,  that any such  issuance of shares of
          Common  Stock upon  conversion  of this Note is not  subject to Nasdaq
          Rule 4460.  The Company will use its best  efforts  promptly to obtain
          either the stockholder approval or the irrevocable notice described in
          the preceding  sentence and to provide the Lender with a copy of same.
          Without  limiting  the  foregoing,   the  Company  shall  solicit  the
          aforementioned  stockholder  approval at the next stockholders meeting
          (for whatever purpose it may be called).

          (c)  Conversion  Shares.  The  shares of Common  Stock  issuable  upon
     conversion  of this Note  pursuant to this Section 7 are referred to herein
     as the  "Conversion  Shares."  The  number of  Conversion  Shares  shall be
     calculated by dividing the principal  amount of this Note or portion hereof
     to be converted by the  Conversion  Price as adjusted  from time to time as
     provided herein.

          (d)  Issuance Of Common  Stock.  The  conversion  of this Note will be
     deemed to have been made at the close of business on the date on which this
     Note has been  surrendered for conversion  with the Conversion  Notice duly
     executed (the "Conversion  Date"). As of the Conversion Date, the rights of
     the  Holder  as a holder of this Note  will  cease and the  Holder  will be
     treated  for all  purposes  as  having  become  the  record  holder  of the
     Conversion  Shares as of such Conversion Date. No fractional shares will be
     issued upon the conversion of this Note, but,  instead of any fraction of a
     share that would otherwise be issuable,  the Company will deliver an amount
     of cash equal to such fraction multiplied by the then applicable Conversion
     Price.

          (e)  Adjustment Of Conversion  Price.  The  Conversion  Price shall be
     subject to adjustment from time to time as follows:

               (i) In case the Company shall subdivide its outstanding shares of
          Common  Stock  into a greater  number of shares at any time,  the then
          applicable  Conversion  Price  in  effect  immediately  prior  to such
          subdivision shall be proportionately reduced, and conversely,


                                      A-8
<PAGE>

          in case the outstanding shares of Common Stock of the Company shall be
          combined  into  a  smaller  number  of  shares,  the  then  applicable
          Conversion Price in effect immediately prior to such combination shall
          be proportionately increased.

               (ii) If any capital  reorganization  or  reclassification  of the
          capital  stock of the  Company,  or  consolidation  or  merger  of the
          Company with another corporation,  or the sale of all or substantially
          all of its assets to another  corporation  shall be effected in such a
          way that holders of Common  Stock shall be entitled to receive  stock,
          securities  or assets with respect to or in exchange for Common Stock,
          then,  as  a  condition  of  such  reorganization,   reclassification,
          consolidation,  merger or sale, lawful and adequate provision shall be
          made  whereby the Holder  shall  thereafter  have the right to receive
          upon the  terms and  conditions  specified  herein  and in lieu of the
          Conversion  Shares   immediately   theretofore   receivable  upon  the
          conversion of this Note, such shares of stock, securities or assets as
          may be issued or payable  with  respect to or in exchange for a number
          of  outstanding  shares  of such  Common  Stock  equal  to the  number
          theretofore  receivable  upon  the  conversion  of this  Note had such
          reorganization,  reclassification,  consolidation,  merger or sale not
          taken place, and in any such case appropriate  provision shall be made
          with respect to the rights and interests of the Holder to the end that
          the provisions hereof (including,  without limitation,  provisions for
          adjustments of the then applicable  Conversion Price and of the number
          of  securities  receivable  upon the  conversion  of this Note)  shall
          thereafter be applicable, as nearly as may be practicable, in relation
          to any shares of stock,  securities  or assets  thereafter  receivable
          upon the conversion of this Note.

               (iii) In any case in which this Section  7(e) shall  require that
          an adjustment shall become effective  immediately  after a record date
          for an event,  and if the Holder  should  convert this Note after such
          record date and before the occurrence of such event,  then the Company
          may  defer  until  the  occurrence  of  such  event  (A)  issuing  the
          additional  shares of Common Stock  issuable  upon such  conversion by
          reason of the  adjustment  required  by such  event over and above the
          shares  issuable  upon such  conversion  before  giving effect to such
          adjustment  and (B) paying to the Holder any amount of cash in lieu of
          a fractional share pursuant to Section 7(d) above.

               (iv) All  calculations  under this  Section 7(e) shall be made to
          the nearest cent or to the nearest  one-hundredth  of a share,  as the
          case may be.

               (v) Upon any adjustment of the Conversion Price, then and in each
          such  case,  the  Company  shall  give  written  notice  thereof,   by
          first-class  mail,  postage prepaid,  addressed to the Holder,  at the
          address  of the  Holder  as shown on the books of the  Company,  which
          notice shall state the Conversion Price resulting from such adjustment
          and the  increase or  decrease,  if any,  in the number of  Conversion
          Shares  issuable upon  conversion of this Note at such price,  setting
          forth in  reasonable  detail the method of  calculation  and the facts
          upon which such calculation is based.

               (vi) The  Company  shall give the Holder  five (5) days'  written
          notice prior to the effective  date of any of the events  described in
          this Section 7(e).


                                      A-9
<PAGE>

          (f)  Adjustment  of Number of  Shares.  Upon  each  adjustment  of the
     Conversion Price pursuant to Section 7(e), the number of Conversion  Shares
     shall be adjusted by dividing the then unpaid  principal  amount  hereof by
     the applicable per share Conversion Price in effect  immediately  following
     such adjustment.

          (g)  Covenants  of  Company.  The  Company  covenants  that all of the
     Conversion Shares will, upon issuance, be duly authorized and issued, fully
     paid, nonassessable and free from all taxes, liens and charges with respect
     to the issue thereof.  The Company further covenants that during the period
     within which this Note may be converted, the Company will at all times have
     authorized, and reserved free of preemptive or other rights for the purpose
     of issue,  such  number of shares  of  Conversion  Shares as shall  then be
     issuable upon conversion of this Note as herein provided.

          (h) No Registration.  The Holder understands that neither the Note nor
     the  Conversion  Shares have been  registered  under the Act, or applicable
     securities laws, and the Note is (and the Conversion Shares will be) issued
     pursuant  to  exemptions  from  registration  under  the Act and the  state
     securities laws. The Holder acknowledges that this Note, and the Conversion
     Shares if issued,  must be held  indefinitely  unless  exemptions from such
     registration are available.  The Holder  understands that this Note may not
     be sold or  transferred  by the  Holder  except  pursuant  to an  effective
     registration statement under the Act and any applicable securities laws, or
     an opinion of counsel  acceptable to the Company that such  registration is
     not required.

     8. Consolidation, Merger, Sale Or Conveyance.

          (a)  Generally.  Nothing  contained  in this  Note  will  prevent  any
     consolidation  or merger of the Company with or into any other  corporation
     or  corporations  or  successive  consolidations  or  mergers  in which the
     Company or its  successor  or  successors  is a party or  parties,  or will
     prevent  any  sale or  conveyance  of the  property  of the  Company  as an
     entirety  or  substantially  as  an  entirety  to  any  other   corporation
     authorized  to acquire and operate the same.  However,  the Company  hereby
     covenants  and  agrees  that  any  such  consolidation,   merger,  sale  or
     conveyance  will be upon the  condition  that (i)  immediately  after  such
     consolidation,  merger,  sale or conveyance  the  corporation  (whether the
     Company  or  such  other  corporation)  formed  by or  surviving  any  such
     consolidation or merger, or to which such sale or conveyance will have been
     made, will not be in default in the performance or observance of any of the
     terms, covenants and conditions of this Note to be kept or performed by the
     Company;  and (ii) the  corporation  (whether  the  Company  or such  other
     corporation) formed by or surviving any such consolidation or merger, or to
     which such sale or conveyance  will have been made,  will expressly  assume
     the due and punctual  payment of the  principal of this Note,  according to
     the terms of this Note, and the faithful  performance and observance of all
     of the covenants, conditions, and requirements of this Note to be performed
     by the Company by a supplemental  instrument  executed and delivered to the
     Holder by such corporation.

          (b) Release;  Liability Of Successor Corporation.  In case of any such
     consolidation,  merger, sale or conveyance,  and upon the assumption by any
     successor  corporation  pursuant  to Section  8(a)  above,  such  successor
     corporation  will succeed to and be


                                      A-10
<PAGE>

     substituted  for the Company,  with the same effect as if it had been named
     in this  Note  in the  Company's  place,  and the  Company  (including  any
     intervening  successor to the Company which has become obligated under this
     Note) will be relieved of any further  obligation  under this Note.  All of
     the covenants,  stipulations,  promises,  and agreements  contained in this
     Note by or on behalf of the Company will bind its  successors  and assigns,
     whether so expressed or not.

     9. Events of Default.

          (a) Events of Defaults.  Each of the  following  shall  constitute  an
     event of default under this Note (an "Event of Default"):

               (i) Failure of Company to make any  payment to Holder  under this
          Note within five (5) days after receipt of written  notice from Holder
          of Company's failure to make such payment when due hereunder.

               (ii)  Failure of the  Company  or the  Guarantor  to perform  any
          obligation  under any  agreement  entered  into at any time with or in
          favor of  Holder,  under  the  Letter  Loan  Agreement,  the  Security
          Agreement, the Guaranty or a stock purchase option issued on even date
          herewith by Company to Holder (collectively, the "Loan Documents").

               (iii) Falsity of any  representation or warranty contained in any
          of the Loan Documents.

               (iv) The  occurrence  of a default or event of default  under the
          M&T Credit Agreement or any other loan agreement or any note, security
          agreement,   guaranty  or  other  instrument  executed  in  connection
          therewith with any lender providing  financing to Company at any time,
          including any Corresponding Debt.

               (v) Entry of a  judgment  and/or  filing  of a  federal  tax lien
          against  either  Company or the Guarantor and the failure to discharge
          or bond such  judgment or lien or, in the case of a judgment,  to have
          it  stayed  pending  appeal  within  thirty  (30)  days from the entry
          thereof,  or if such judgment shall be affirmed on appeal,  failure to
          discharge such judgment within thirty (30) days from the entry of such
          affirmation.

               (vi) Commencement of a bankruptcy proceeding or an assignment for
          the  benefit  of  creditors  by  or  against  either  Company  or  the
          Guarantor,  except  that if the  bankruptcy  proceeding  commenced  is
          involuntary,  it shall not be an Event of Default  if the  involuntary
          proceeding is dismissed within thirty (30) days of filing.

               (vii) Dissolution or failure of the Company to maintain itself as
          a corporation in good standing.


                                      A-11
<PAGE>

               (viii) The making by either  Company or  Guarantor of a bulk sale
          or other  disposition of substantially  all of their respective assets
          or the  transfer  by the  Company  of any  significant  portion of its
          assets.

               (ix)  Insolvency (in the form of a negative net worth) of Company
          or the Guarantor.

               (x) Repossession of or the appointment of a receiver or custodian
          for any  property  of Company or the  Guarantor  if such  receiver  or
          custodian is not removed within thirty (30) days of appointment.

          (b)  Acceleration.  Upon the  occurrence  of an Event of Default,  the
     Holder  may  declare  the  entire  unpaid  principal  balance  of this Note
     immediately due and payable, without notice, presentment, demand or protest
     of any kind, all of which are hereby waived by Company.

          (c)  Collection  Costs,  etc. In the event this Note is referred to an
     attorney  for  collection,  Company  shall  pay all of  Holder's  costs  of
     collection,  including all of Holder's reasonable attorneys' fees, incurred
     and to be incurred in connection  with the  enforcement  and  collection of
     this Note including,  but not limited to, attorneys' fee incurred and to be
     incurred in any bankruptcy  proceeding  involving Company,  if any, of this
     Note.

     10. Miscellaneous.  This Note is governed by the internal laws of the State
of New York law.  This Note sets forth the entire terms of this Note and may not
be  modified  or waived  orally.  Any  litigation  involving  this Note shall be
triable only in a court located in Monroe County, New York.

     This Note may not be modified or terminated orally.


                                       DANIEL GREEN COMPANY

                                       By:
                                          -----------------------------
                                       Name:  Greg Tunney
                                       Title:   President


                                      A-12
<PAGE>

                   EXHIBIT A TO CONVERTIBLE SUBORDINATED NOTE
                            FORM OF CONVERSION NOTICE


                                                     ____________, 20__

Daniel Green Company
450 North Main Street
Old Town, Maine 04468

Attention: President

     Pursuant to the terms of Section 8 of that certain Convertible Subordinated
Note dated  April 11,  2001 and issued by Daniel  Green  Company  (the  "Note"),
notice is hereby  given that the  Holder  elects to  convert  $_________  of the
principal  amount of the Note into  shares of Common  Stock (as  defined  in the
Note).  The originally  issued Note  accompanies  this Conversion  Notice and is
surrendered by the Holder for conversion of the principal amount stated above in
accordance with the terms of the Note.

     The shares of Common Stock  issuable  upon  conversion of the Note (and, if
applicable,  a check  for any  amount  payable  in  lieu of a  fractional  share
interest and a replacement  Note instrument in the principal  amount of the Note
that remains  outstanding  following the  conversion  effected  hereby) shall be
issued in the name of the Holder and forwarded to:


                                    __________________________________

                                    __________________________________

                                    __________________________________


                                                 THE HOLDER



                                                 By:_____________________
                                                 Name:
                                                 Title:


                                      A-13
<PAGE>

                                    EXHIBIT B

                               SECURITY AGREEMENT

     This SECURITY  AGREEMENT  (this  "Agreement") is dated as of April 11, 2001
and  entered  into  by  and  between  DANIEL  GREEN  COMPANY,   a  Massachusetts
corporation (the  "Company"),  and PENOBSCOT SHOE COMPANY,  a Maine  corporation
("Penobscot"  and,  together  with the  Company,  the  "Grantors"  and  each,  a
"Grantor"),  jointly and severally, and JAMES RIEDMAN ("Riedman"), as lender and
agent  ("Collateral  Agent") for himself and for any lenders of  indebtedness to
the Company hereafter  designated by the Company (provided the maximum principal
amount of such indebtedness held by such other lenders does not exceed $750,000,
together with Riedman, the "Lenders").

                             Preliminary Statements

     A.  Pursuant to a certain loan letter  agreement of date  herewith  between
Grantor and Riedman (the "Letter Loan  Agreement"),  Riedman has made a $750,000
loan to  Grantor  which is  evidenced  by a  $750,000  Convertible  Subordinated
Promissory Note executed by Grantor in favor of Riedman (the "Note").

     B. Payment of the Note is guaranteed by Penobscot pursuant to a Guaranty of
even date herewith executed by Penobscot in favor of each Lender.

     C. Under the Letter  Loan  Agreement,  it is a condition  precedent  to the
Lenders making the above described loans (collectively,  the "Loans") to Grantor
that each Grantor shall have (i) granted the security interests  contemplated by
this Agreement in favor of Collateral  Agent for the benefit of Lenders and (ii)
undertaken the obligations contemplated by this Agreement.

                                   Provisions

     NOW,  THEREFORE,  in  consideration  of the premises and in order to induce
Lenders  to make the Loans  contemplated  under the  Letter  Loan  agreement  to
Grantor and for other good and valuable consideration,  the receipt and adequacy
of which are hereby acknowledged, Grantor hereby agrees with Collateral Agent as
follows:

     Section 1. Grant Of Security.  Each Grantor  hereby  assigns to  Collateral
Agent, and hereby grants to Collateral Agent a security  interest in, subject to
and  subordinate  in all  respects to the first and prior  security  interest of
Manufacturers  and Traders Trust Company ("M&T Bank") therein,  all of Grantor's
right,  title and interest in and to the following,  in each case whether now or
hereafter existing or in which Grantor now has or hereafter acquires an interest
and wherever the same may be located (the "Collateral"):

          (a) All equipment now owned by Company or in which Company now has any
     interest,  and all  equipment  hereafter  acquired  by  Company or in which
     Company  hereafter


<PAGE>

     acquires any interest, together with substitutions,  accessions, increases,
     parts, fittings and replacements thereof (the "Equipment").

          (b) All fixtures now owned by Company or in which  Company now has any
     interest  located at and/or  attached to real  property now owned,  leased,
     used or occupied by Company or hereafter owned, leased, used or occupied by
     Company  (including,  without  limitation,  the real property  specified in
     Exhibit A to this Security Agreement),  and all fixtures hereafter acquired
     by Company or in which Company hereafter  acquires any interest,  which are
     subsequently  located  at  and/or  attached  to any  real  property  now or
     hereafter acquired, leased used or occupied by Company.

          (c) All inventory now owned by Company or in which Company now has any
     interest,  and all  inventory  hereafter  acquired  by  Company or in which
     Company  hereafter  acquires any interest,  wherever located and whether in
     the actual or constructive possession of others, including, but not limited
     to, finished products,  raw materials,  work in process,  materials used or
     consumed  in  Company's  business,  all  additions  thereto,  and any goods
     returned or  repossessed  from  Company's  customers,  as well as supplies,
     incidentals,  packaging  materials and all other items which  contribute to
     the  products  sold,  manufactured  or processed by Company or to the sale,
     promotion or shipment thereof (the "Inventory").

          (d) All Company's accounts and accounts  receivable,  now in existence
     and all  Company's  accounts  and  accounts  receivable  hereafter  arising
     ("Accounts").

          (e) All general  intangibles now owned by Company, or in which Company
     now has any interest,  and all general  intangibles  hereafter  acquired by
     Company, or in which Company hereafter acquires any interest.

          (f) All  investment  property now owned by Company or in which Company
     now has any  interest and all  investment  property  hereafter  acquired by
     Company or in which Company hereafter acquires any interest.

          (g) All  instruments  now owned by Company or in which Company now has
     any interest and all instruments  hereafter acquired by Company or in which
     Company hereafter acquires any interest.

          (h) All chattel paper now owned by Company or in which Company now has
     any  interest  and all chattel  paper  hereafter  acquired by company or in
     which Company hereafter acquires any interest.

          (i) All documents now owned by Company or in which Company now has any
     interest  and all  documents  hereafter  acquired  by  Company  or in which
     Company hereafter acquires any interest.

          (j) All deposit  accounts now owned by Company or in which Company now
     has any interest and all deposit accounts  hereafter acquired by Company or
     in which Company hereafter acquires any interest.


                                      B-2
<PAGE>

          (k) All money now owned by  Company  or in which  Company  now has any
     interest and all money  hereafter  acquired by Company or in which  Company
     hereafter acquires any interest.

All cash and non-cash  proceeds of the items  listed  above,  including  but not
limited to  insurance  proceeds,  all of which are  collectively  referred to as
"Proceeds". All of the property specified in "(a)" through "(k)" is collectively
referred  to as the  "Collateral."  For  purposes  of this  Agreement,  the term
"proceeds"  includes  whatever is  receivable  or received  when  Collateral  or
proceeds are sold,  exchanged,  collected or otherwise disposed of, whether such
disposition  is  voluntary  or  involuntary  together  with all other  proceeds,
products,  rents and profits of or from any and all of the foregoing  Collateral
and, to the extent not otherwise included, all payments under insurance (whether
or not Collateral Agent is the loss holder thereof), any indemnity,  warranty or
guaranty,  payable  by reason of loss or  otherwise  with  respect to any of the
foregoing Collateral.

     In addition to, and not by way of limitation of, the granting of a security
interest in the Collateral,  each Grantor hereby,  effective upon the occurrence
of an Event of Default (as hereinafter defined) and upon written notice from the
Collateral Agent, grants,  sells, conveys,  transfers,  assigns and sets over to
the  Collateral  Agent , for the benefit of the Lenders,  all of such  Grantor's
right, title and interest in and to any trademarks,  trade names, copyrights and
patents and technical processes in which it has an interest, the goodwill of the
business symbolized by said trademarks, and all trademark,  copyright and patent
registrations.  Each  Grantor  hereby  assigns,  transfers  and  conveys  to the
Collateral  Agent for the benefit of the Lenders,  effective upon the occurrence
of any  Event  of  Default,  the  nonexclusive  right  and  license  to use  all
trademarks,  trade names,  copyrights,  patents or technical  processes owned or
used by such  Grantor  that relate to the  Collateral  and any other  collateral
granted by such Grantor as security for the Secured  Obligations (as hereinafter
defined),  together with any goodwill  associated  therewith,  all to the extent
necessary to enable the Collateral  Agent for the benefit of the Lenders to use,
possess and realize on the  Collateral  and to enable any successor or assign to
enjoy the benefits of the Collateral.  This right and license shall inure to the
benefit of all successors,  assigns and transferees of the Collateral  Agent for
the benefit of the Lenders and its successors, assigns and transferees,  whether
by voluntary conveyance,  operation of law, assignment,  transfer,  foreclosure,
deed in lieu of foreclosure or otherwise. Such right and license is granted free
of charge,  without  requirement that any monetary payment whatsoever be made to
such Grantor.

     Section 2. Security For Obligations ;Subordination.

          (a) This Agreement secures,  and the Collateral is collateral security
     for, the prompt payment or performance in full when due,  whether at stated
     maturity,  by required  prepayment,  declaration,  acceleration,  demand or
     otherwise  (including  the payment of amounts that would become due but for
     the operation of the automatic  stay under Section 362(a) of the Bankruptcy
     Code, 11 U.S.C.  ss.362(a)),  of all  obligations  and liabilities of every
     nature of Grantor now or hereafter  existing  under or arising out of or in
     connection  with  the  Notes,  the  Guarantees  and all  other  agreements,
     instruments and documents executed by either Grantor in


                                      B-3
<PAGE>

     favor of any Lender in connection  therewith and all extensions or renewals
     thereof,  whether for principal,  interest (including,  without limitation,
     interest that, but for the filing of a petition in bankruptcy  with respect
     to either  Grantor,  would  accrue on such  obligations),  fees,  expenses,
     indemnities  or  otherwise,  whether  voluntary or  involuntary,  direct or
     indirect,  absolute or contingent,  liquidated or unliquidated,  whether or
     not  jointly  owed  with  others,  and  whether  or not  from  time to time
     decreased or extinguished and later increased, created or incurred, and all
     or any portion of such  obligations  or  liabilities  that are paid, to the
     extent all or any part of such payment is avoided or recovered  directly or
     indirectly from Collateral Agent or any Lender as a preference,  fraudulent
     transfer or otherwise and all  obligations  of every nature of the Grantors
     now or hereafter existing under this Agreement (all such obligations of the
     Grantors being the "Secured Obligations").

          (b) The Lenders  hereby agree that all Liens that such Lenders may now
     have or hereafter  acquire against any of the Collateral  resulting from or
     relating to the Secured  Obligations shall be subordinate and junior in all
     respects  to the Liens  against the  property  of the  Grantors of M&T Bank
     regardless  of the order or time as of which any Liens attach to any of the
     Collateral,  the order or time of financing  statement filings or any other
     filings or recordings,  the order of time of granting of any such Liens, or
     the physical possession of any of the Collateral. The Lenders further agree
     that  unless and until M&T Bank  shall  exercise  its  rights and  remedies
     against the  Collateral,  the Lenders  shall not,  and they shall cause the
     Collateral  Agent not  exercise any of its  remedies  hereunder,  including
     notifying Account debtors,  foreclosing on any Collateral or commencing any
     action or other proceeding against either of the Grantors.

     Section  3.  Grantors  Remains  Liable.  Anything  contained  herein to the
contrary  notwithstanding,  (a) Grantors shall remain liable under any contracts
and agreements  included in the Collateral,  to the extent set forth therein, to
perform all of its duties and  obligations  thereunder  to the same extent as if
this  Agreement had not been executed,  (b) the exercise by Collateral  Agent of
any of its rights  hereunder  shall not release  either  Grantor from any of its
duties or  obligations  under  the  contracts  and  agreements  included  in the
Collateral,  and (c) Collateral Agent shall not have any obligation or liability
under any contracts and agreements  included in the Collateral by reason of this
Agreement,  nor  shall  Collateral  Agent be  obligated  to  perform  any of the
obligations or duties of Grantors thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.

     Section 4.  Representations  And  Warranties.  Each Grantor  represents and
warrants as follows:

          (a) Ownership Of Collateral.  Except for the security interest created
     by this Agreement or held by M&T Bank each Grantor owns, or with respect to
     Collateral acquired after the date hereof will own, the Collateral free and
     clear of any Lien.

          (b) Office  Locations;  Other Names. The chief place of business,  the
     chief executive  office and the office where each Grantor keeps its records
     regarding  the  Collateral  and all  originals  of all  chattel  paper that
     evidence  Collateral  is,  and has  been  for the  four  (4)  month  period
     preceding  the date  hereof,  as set forth on  Schedule  B annexed  hereto,
     neither  Grantor  has not in the past done,  and does not now do,  business
     under any other name (including any trade-


                                      B-4
<PAGE>

     name or fictitious business name) except as specified on Schedule B annexed
     hereto.  All of the  Equipment  and  Inventory  is, as of the date  hereof,
     located at the places specified in Schedule B annexed hereto.

          (c) Delivery Of Certain  Collateral.  All notes and other  instruments
     (excluding checks) comprising any and all items of Collateral have been, or
     with respect to Collateral acquired after the date hereof and chattel paper
     requested  by  Collateral  Agent  pursuant  to  Section  5(a)(ii)  will be,
     delivered  to  Collateral  Agent  duly  endorsed  and  accompanied  by duly
     executed instruments of transfer or assignment in blank.

          (d)  Perfection.  This  Agreement,  together  with the  filing  of UCC
     financing  statements  describing  the  Collateral  with the filing offices
     indicated on Schedule B annexed  hereto,  creates a valid,  perfected  and,
     first  priority  security  interest in all  Collateral  in which a security
     interest may be perfected by the filing of a financing statement,  securing
     the payment of the Secured Obligations.

     Section 5. Further Assurances.

          (a) Each Grantor agrees that from time to time, at the expense of such
     Grantor,  Grantor will promptly execute and deliver all further instruments
     and  documents,  and take all  further  action,  that may be  necessary  or
     desirable,  or that Collateral  Agent may request,  in order to perfect and
     protect any security  interest granted or purported to be granted hereby or
     to enable  Collateral Agent to exercise and enforce its rights and remedies
     hereunder with respect to any Collateral.  Without  limiting the generality
     of the foregoing, each Grantor will:

               (i) at the request of Collateral Agent, mark  conspicuously  each
          item of chattel paper  included in the  Accounts,  , at the request of
          Collateral  Agent,  each of its records  pertaining to the Collateral,
          with a legend, in form and substance satisfactory to Collateral Agent,
          indicating  that such  Collateral is subject to the security  interest
          granted hereby,

               (ii) at the request of  Collateral  Agent,  deliver and pledge to
          Collateral Agent hereunder all promissory notes and other  instruments
          (including  checks) and all  original  counterparts  of chattel  paper
          constituting  Collateral,   duly  endorsed  and  accompanied  by  duly
          executed  instruments  of  transfer  or  assignment,  all in form  and
          substance satisfactory to Collateral Agent,

               (iii) execute and file such financing or continuation statements,
          or amendments  thereto,  and such other instruments or notices, as may
          be necessary or  desirable,  or as  Collateral  Agent may request,  in
          order to  perfect  and  preserve  the  security  interests  granted or
          purported to be granted hereby,

               (iv) at any reasonable  time,  upon request by Collateral  Agent,
          exhibit the  Collateral to and allow  inspection of the  Collateral by
          Collateral Agent, or persons designated by Collateral Agent, and


                                      B-5
<PAGE>

               (v) at  Collateral  Agent's  request,  appear in and  defend  any
          action  or  proceeding  that may  affect  such  Grantor's  title to or
          Collateral  Agent's  security  interest  in  all or  any  part  of the
          Collateral.

          (b) Each Grantor  hereby  authorizes  Collateral  Agent to file one or
     more financing or continuation statements, and amendments thereto, relative
     to all or any part of the Collateral without the signature of such Grantor.
     Each Grantor agrees that a carbon,  photographic  or other  reproduction of
     this Agreement or of a financing  statement signed by such Grantor shall be
     sufficient  as a  financing  statement  and  may be  filed  as a  financing
     statement in any and all jurisdictions.

          (c) Each Grantor will  furnish to  Collateral  Agent from time to time
     statements and schedules further  identifying and describing the Collateral
     and such other  reports in  connection  with the  Collateral  as Collateral
     Agent may reasonably request, all in reasonable detail.

     Section 6. Certain Covenants Of Grantors. Grantors shall:

          (a) not use or  permit  any  Collateral  to be used  unlawfully  or in
     violation of any  provision of this  Agreement or any  applicable  statute,
     regulation or ordinance or any policy of insurance covering the Collateral;

          (b) notify  Collateral  Agent of any change in either  Grantor's name,
     identity or corporate structure within fifteen (15) days of such change;

          (c) keep its chief place of business  and chief  executive  office and
     the office where it keeps its records  concerning  the  Collateral  and all
     originals  of all chattel  paper that  evidence  Accounts  at the  location
     therefor  specified in  subsection  4(b) hereof,  or, upon thirty (30) days
     prior  written  notice to  Collateral  Agent,  at such other  location in a
     jurisdiction  where all action that may be necessary or desirable,  or that
     Collateral Agent may request,  in order to perfect and protect any security
     interest granted or purported to be granted hereby, or to enable Collateral
     Agent to  exercise  and  enforce its rights and  remedies  hereunder,  with
     respect to the Collateral shall have been taken. Each Grantor will hold and
     preserve such records and chattel paper and will permit  representatives of
     Collateral  Agent at any time during normal  business  hours to inspect and
     make abstracts from such records and chattel paper, and each Grantor agrees
     to render to Collateral  Agent,  at such Grantor's  cost and expense,  such
     clerical and other  assistance as may be reasonably  requested  with regard
     thereto;

          (d) if Collateral  Agent gives value to enable such Grantor to acquire
     rights in or the use of any  Collateral,  use such value for such purposes;
     and

          (e) pay promptly  when due all  property and other taxes,  assessments
     and governmental  charges or levies imposed upon, and all claims (including
     claims for labor,  materials and supplies) against, the Collateral,  except
     to the  extent  the  validity  thereof is being  contested  in good  faith;
     provided that such Grantor shall in any event pay such taxes,  assessments,
     charges, levies or claims not later than five (5) days prior to the date of
     any


                                      B-6
<PAGE>

     proposed sale under any judgement, writ or warrant of attachment entered or
     filed against  either  Grantor or any of the  Collateral as a result of the
     failure to make such payment.

     Section 7. Special Covenants With Respect to Equipment and Inventory.  Each
Grantor shall:

          (a) keep the Equipment and Inventory at the places therefor  specified
     on Schedule B annexed hereto or, upon thirty (30) days prior written notice
     to Lenders, at such other places in jurisdictions where all action that may
     be necessary or desirable, or that Lenders may request, in order to perfect
     and  protect  any  security  interest  granted or  purported  to be granted
     hereby,  or to enable  Lenders  to  exercise  and  enforce  its  rights and
     remedies hereunder, with respect to such Equipment and Inventory shall have
     been taken;

          (b) cause the  Equipment to be  maintained  and  preserved in the same
     condition,  repair and working  order as when new,  ordinary  wear and tear
     excepted,  and in accordance with such Grantor's past practices,  and shall
     forthwith  make or cause to be made all  repairs,  replacements  and  other
     improvements  in  connection  therewith  that are necessary or desirable to
     such end.  Each  Grantor  shall  promptly  furnish to  Lenders a  statement
     respecting any material loss or material  damage to any of the Equipment in
     excess of $20,000;

          (c) keep correct and accurate records of the Inventory,  itemizing and
     describing  the kind,  type and quantity of Inventory,  such Grantor's cost
     therefor and (where applicable) the current list prices for the Inventory;

          (d) if any  Inventory  is in  possession  or  control  of any of  such
     Grantor's  agents or  processors,  if the aggregate  book value of all such
     Inventory  exceeds  $20,000,  and in any  event  upon the  occurrence  of a
     default  or an event of  default  under the Note,  instruct  such  agent or
     processor to hold all such Inventory for the account of Lenders and subject
     to the instructions of Lenders; and

          (e)  promptly  upon the  issuance  and delivery to such Grantor of any
     Negotiable Document of Title,  deliver such Negotiable Document of Title to
     Lenders.

     Section 8.  Insurance.  Each Grantor  shall,  at its own expense,  maintain
insurance  with  respect to the  Equipment  and  Inventory  in  accordance  with
commercially  sound  business  practices for similar  companies in the Company's
industry.

     Section 9. Special Covenants With Respect To Accounts.

          (a) Each Grantor shall, for not less than five (5) years from the date
     on which such Account arose, maintain (i) complete records of each Account,
     including  records of all payments  received and credits granted,  and (ii)
     all documentation relating thereto.

          (b) Except as  otherwise  provided in this  subsection  (b),  Grantors
     shall continue to collect, at its own expense, all amounts due or to become
     due to Grantors under the Accounts.  In connection  with such  collections,
     Grantors may take such action as Grantors  may


                                      B-7
<PAGE>

     deem  necessary  or advisable  to enforce  collection  of amounts due or to
     become due under the Accounts;  provided,  however,  that Collateral  Agent
     shall  have the right at any  time,  upon the  occurrence  and  during  the
     continuation  of an Event of Default and upon written notice to Grantors of
     its intention to do so, to notify the account debtors or obligors under any
     Accounts of the  assignment  of such  Accounts to  Collateral  Agent and to
     direct such account  debtors or obligors to make payment of all amounts due
     or to become due to Grantors  thereunder  directly to Collateral  Agent, to
     notify each Person  maintaining a lockbox or similar  arrangement  to which
     account  debtors or obligors  under any Accounts have been directed to make
     payment to remit all amounts  representing  collections on checks and other
     payment  items from time to time sent to or  deposited  in such  lockbox or
     other arrangement  directly to Collateral Agent and, upon such notification
     and at the expense of Grantors,  to enforce collection of any such Accounts
     and to adjust,  settle or compromise the amount or payment thereof,  in the
     same  manner and to the same  extent as  Grantors  might  have done.  After
     receipt by Grantors of the notice from Collateral  Agent referred to in the
     proviso to the preceding sentence,  (i) all amounts and proceeds (including
     checks  and other  instruments)  received  by  Grantors  in  respect of the
     Accounts  shall be received in trust for the  benefit of  Collateral  Agent
     hereunder,  shall be  segregated  from other funds of Grantors and shall be
     forthwith paid over or delivered to Collateral Agent in the same form as so
     received (with any necessary endorsement) to be held as cash Collateral and
     applied as  provided  by Section  16, and (ii)  Grantors  shall not adjust,
     settle or  compromise  the  amount or payment  of any  Account,  or release
     wholly or partly any account debtor or obligor thereof, or allow any credit
     or discount thereon.

     Section 10. Transfers And Other Liens. Grantors shall not:

          (a) sell,  assign (by  operation  of law or  otherwise)  or  otherwise
     dispose of any of the Collateral; or

          (b) except for the security interest created by this Agreement, create
     or suffer to exist any Lien upon or with  respect to any of the  Collateral
     to secure the indebtedness of other obligations of any Person.

     Section 11.  Collateral Agent Appointed  Attorney-In-Fact.  Grantors hereby
irrevocably  appoints  Collateral  Agent  as  s'  attorney-in-fact,   with  full
authority  in the  place  and  stead of  Grantors  and in the name of  Grantors,
Collateral  Agent  or  otherwise,  from  time  to  time  in  Collateral  Agent's
discretion  to take any action and to execute  any  instrument  that  Collateral
Agent may deem  necessary  or  advisable  to  accomplish  the  purposes  of this
Agreement, including, without limitation:

          (a) upon the  occurrence  and during the  continuation  of an Event of
     Default, to ask for, demand, collect, sue for, recover,  compound,  receive
     and give acquittance and receipts for moneys due and to become due under or
     in respect of any of the Collateral;

          (b) upon the  occurrence  and during the  continuation  of an Event of
     Default,  to receive,  endorse and collect any drafts or other instruments,
     documents and chattel paper in connection with clause (a) above;


                                      B-8
<PAGE>

          (c) upon the  occurrence  and during the  continuation  of an Event of
     Default, to file any claims or take any action or institute any proceedings
     that Collateral Agent may deem necessary or desirable for the collection of
     any of the  Collateral  or  otherwise  to enforce the rights of  Collateral
     Agent with respect to any of the Collateral;

          (d) to pay or  discharge  taxes or Liens  (other than Liens  permitted
     under this  Agreement)  levied or placed  upon or  threatened  against  the
     Collateral,  the legality or validity thereof and the amounts  necessary to
     discharge  the  same to be  determined  by  Collateral  Agent  in its  sole
     discretion,   any  such  payments  made  by  Collateral   Agent  to  become
     obligations of Grantors to Collateral  Agent,  due and payable  immediately
     without demand;

          (e) upon the  occurrence  and during the  continuation  of an Event of
     Default,  to  sign  and  endorse  any  invoices,  drafts  against  debtors,
     assignments,  verifications and notices in connection with the Accounts and
     other documents relating to the Collateral;

          (f) upon the  occurrence  and during the  continuation  of an Event of
     Default,  generally to sell,  transfer,  pledge,  make any  agreement  with
     respect  to or  otherwise  deal  with any of the  Collateral  as fully  and
     completely as though  Collateral  Agent were the absolute owner thereof for
     all  purposes,  and to do,  at  Collateral  Agent's  option  and  Grantors'
     expense,  at any time or from  time to  time,  all  acts  and  things  that
     Collateral  Agent deems necessary to protect,  preserve or realize upon the
     Collateral and Collateral  Agent's  security  interest  therein in order to
     effect  the  intent  of this  Agreement,  all as fully and  effectively  as
     Grantors might do.

     Section 12.  Collateral Agent May Perform.  If Grantors fail to perform any
agreement  contained  herein,  Collateral  Agent may  itself  perform,  or cause
performance of, such agreement, and the expenses of Collateral Agent incurred in
connection therewith shall be payable by Grantors under Section 14(b).

     Section 13. Standard Of Care.

          (a) The powers  conferred on Collateral  Agent hereunder are solely to
     protect its interest in the  Collateral  and shall not impose any duty upon
     it to exercise any such powers.  Except for the exercise of reasonable care
     in the custody of any  Collateral in its  possession and the accounting for
     moneys actually  received by it hereunder,  Collateral  Agent shall have no
     duty as to any  Collateral  or as to the taking of any  necessary  steps to
     preserve rights against prior parties or any other rights pertaining to any
     Collateral.  Collateral Agent shall be deemed to have exercised  reasonable
     care in the custody and  preservation  of Collateral  in its  possession if
     such  Collateral is accorded  treatment  substantially  equal to that which
     Collateral Agent accords its own property.

          (b)  Neither  Collateral  Agent  nor any  Lender  shall be  liable  to
     Grantors  (i) or any loss or damage  sustained by it, or (ii) for any loss,
     damage,  depreciation  or  other  diminution  in  the  value  of any of the
     Collateral  that may occur as a result of, in connection with or that is an
     any way related to (A) any  exercise by  Collateral  Agent or any Lender of
     any right or remedy under this Agreement or (B) any other act of or failure
     to act by  Collateral  Agent or any  Lender,  except to the extent that the
     same  shall be  determined  by a final  judgment  of


                                      B-9
<PAGE>

     a court of competent  jurisdiction  that is final and not subject to review
     on appeal,  to be the result of acts or omissions on the part of Collateral
     Agent or such Lender constituting gross negligence or willful misconduct.

          (c) NO CLAIM MAY BE MADE BY GRANTORS  AGAINST  COLLATERAL  AGENT,  ANY
     LENDER OR THEIR  RESPECTIVE  AFFILIATES,  DIRECTORS,  OFFICERS,  EMPLOYEES,
     ATTORNEYS OR AGENTS FOR ANY SPECIAL,  INDIRECT, OR CONSEQUENTIAL DAMAGES IN
     RESPECT OF ANY BREACH OR WRONGFUL  CONDUCT  (WHETHER THE CLAIM  THEREFOR IS
     BASED ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING
     OUT  OF  OR IN  ANY  WAY  RELATED  TO  THE  TRANSACTIONS  CONTEMPLATED  AND
     RELATIONSHIP  ESTABLISHED BY THIS AGREEMENT,  OR ANY ACT, OMISSION OR EVENT
     OCCURRING IN CONNECTION THEREWITH; AND GRANTORS HEREBY WAIVES, RELEASES AND
     AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES,  WHETHER OR NOT
     ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.

     Section 14.  Remedies.  If any Event of Default  shall have occurred and be
continuing,  Collateral  Agent may  exercise  in respect of the  Collateral,  in
addition  to all other  rights and  remedies  provided  for herein or  otherwise
available to it, all the rights and  remedies of a Lenders on default  under the
Uniform  Commercial Code as in effect in any relevant  jurisdiction (the "Code")
(whether or not the Code applies to the affected  Collateral),  and also may (i)
require  Grantors to, and Grantors hereby agrees that it will at its expense and
upon  request  of  Collateral  Agent  forthwith,  assemble  all or  part  of the
Collateral as directed by  Collateral  Agent and make it available to Collateral
Agent  at a place  to be  designated  by  Collateral  Agent  that is  reasonably
convenient to both parties, (ii) enter onto the property where any Collateral is
located and take  possession  thereof with or without  judicial  process,  (iii)
prior to the disposition of the Collateral,  store or process, the Collateral or
otherwise  prepare the  Collateral  for  disposition in any manner to the extent
Collateral Agent deems appropriate, (iv) take possession of Grantor' premises or
place custodians in exclusive  control thereof,  remain on such premises and use
the same and any of  Grantor'  equipment  for the  purpose of taking any actions
described in the preceding  clause (iii) and collecting any Secured  Obligation,
and (v) without  notice except as specified  below,  sell the  Collateral or any
part  thereof  in one or more  parcels  at public  or  private  sale,  at any of
Collateral  Agent's  offices  or  elsewhere,  for cash,  on credit or for future
delivery,  at such time or times and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable.  Collateral Agent or
any Lender may be the purchaser of any or all of the Collateral at any such sale
and Collateral  Agent, as agent for and  representative  of Lenders (but not any
Lender  or  Lenders  in its or their  respective  individual  capacities  unless
Requisite Lenders shall otherwise agree in writing),  shall be entitled, for the
purpose of bidding and making  settlement  or payment of the purchase  price for
all or any portion of the  Collateral  sold at any such public sale,  to use and
apply any of the  Secured  Obligations  as a credit on account  of the  purchase
price  for any  Collateral  payable  by  Collateral  Agent  at such  sale.  Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of  Grantors,  and  Grantors  hereby  waives  (to the
extent  permitted  by  applicable  law) all rights of  redemption,  stay  and/or
appraisal  which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Grantors agree that, to the
extent


                                      B-10
<PAGE>

notice of sale  shall be  required  by law,  at least  ten (10)  days  notice to
Grantors  of the time and place of any public  sale or the time after  which any
private sale is to be made shall constitute reasonable notification.  Collateral
Agent shall not be obligated to make any sale of Collateral regardless of notice
of sale having been  given.  Collateral  Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.  Grantors  hereby waives any claims against  Collateral  Agent
arising  by reason of the fact that the price at which any  Collateral  may have
been sold at such a private  sale was less than the price  which might have been
obtained at a public  sale,  even if  Collateral  Agent  accepts the first offer
received and does not offer such  Collateral  to more than one  offeree.  If the
proceeds of any sale or other  disposition of the Collateral are insufficient to
pay all the Secured Obligations (other than inchoate indemnification obligations
with  respect  to claims,  losses or  liabilities  which  have not yet  arisen),
Grantors  shall be  liable  for the  deficiency  and the  fees of any  attorneys
employed by Collateral Agent to collect such deficiency.

     Section 15. Application Of Proceeds. Except as expressly provided elsewhere
in this Agreement,  all proceeds  received by Collateral Agent in respect of any
sale  of,  collection  from,  or other  realization  upon all or any part of the
Collateral  shall be applied to the payment of the unpaid  principal and accrued
interest  owed  under the Notes on a pro rata basis  according  to the amount so
owed and such amount shall be delivered by the Collateral Agent to the Lenders.

     Section 16. Indemnity And Expenses.

          (a) Grantors agree to indemnify  Collateral Agent and each Lender from
     and against any and all claims,  losses and liabilities in any way relating
     to, growing out of or resulting  from this  Agreement and the  transactions
     contemplated  hereby (including,  without  limitation,  enforcement of this
     Agreement),  except to the extent such claims, losses or liabilities result
     from  Collateral  Agent's  or such  Lender's  gross  negligence  or willful
     misconduct as finally determined by a court of competent jurisdiction.

          (b) Grantors  shall pay to Collateral  Agent upon demand the amount of
     any and all costs and expenses,  including the reasonable fees and expenses
     of his counsel and of any experts  and agents,  that  Collateral  Agent may
     incur in connection  with (i) the custody or  preservation  of, or the sale
     of, collection from, or other realization upon, any of the Collateral, (ii)
     the  exercise  or  enforcement  of any of the  rights of  Collateral  Agent
     hereunder,  or (iii) the  failure by  Grantors to perform or observe any of
     the provisions hereof.

          (c) The  obligations  of Grantors  under this Section 16 shall survive
     the  termination  of this  Agreement  and the  discharge of Grantors  other
     obligations under this Agreement.

     Section 17. Continuing Security Interest; Transfer Of Notes. This Agreement
shall  create a continuing  security  interest in the  Collateral  and shall (a)
remain  in full  force  and  effect  until the  payment  in full of the  Secured
Obligations  (other than inchoate  indemnification  obligations  with respect to
claims, losses or liabilities which have not yet arisen) and the cancellation or
termination of the Commitments, (b) be binding upon Grantors, its successors


                                      B-11
<PAGE>

and assigns, and (c) inure,  together with the rights and remedies of Collateral
Agent  hereunder,  to the  benefit  of  Collateral  Agent  and  his  successors,
transferees and assigns. Without limiting the generality of the foregoing clause
any Lender may assign or  otherwise  transfer  any Loans held by it to any other
Person,  and such  other  Person  shall  thereupon  become  vested  with all the
benefits in respect  thereof  granted to Lenders  herein or otherwise.  Upon the
payment in full of all Secured Obligations (other than inchoate  indemnification
obligations  with respect to claims,  losses or  liabilities  which have not yet
arisen) and the  cancellation  or termination of the  Commitments,  the security
interest  granted hereby shall terminate and all rights to the Collateral  shall
revert  to  Grantors.  Upon any  such  termination  Collateral  Agent  will,  at
Grantors'  expense,  execute and deliver to Grantors such  documents as Grantors
shall reasonably request to evidence such termination.

     Section 18. Collateral Agent.

          (a)  Collateral  Agent has been  appointed to act as Collateral  Agent
     hereunder by Lenders.  Collateral Agent shall be obligated,  and shall have
     the right  hereunder,  to make  demands,  to give  notices,  to exercise or
     refrain from exercising any rights,  and to take or refrain from taking any
     action  (including,  without  limitation,  the release or  substitution  of
     Collateral), solely in accordance with this Agreement.

          (b)  Collateral  Agent  shall at all times be the same  Person that is
     Collateral Agent unless and until the Collateral Agent dies or resigns.  In
     such event the Collateral Agent or his legal representative shall appoint a
     successor  Collateral  Agent.  Upon the  acceptance of any  appointment  as
     Collateral Agent by a successor Collateral Agent, that successor Collateral
     Agent  shall  thereupon  succeed to and become  vested with all the rights,
     powers,  privileges and duties of the retiring or removed  Collateral Agent
     under this Agreement,  and the retiring or removed  Collateral  Agent under
     this Agreement  shall  promptly (i) transfer to such  successor  Collateral
     Agent all sums,  securities and other items of Collateral  held  hereunder,
     together with all records and other  documents  necessary or appropriate in
     connection with the  performance of the duties of the successor  Collateral
     Agent under this Agreement,  and (ii) execute and deliver to such successor
     Collateral  Agent such  amendments to financing  statements,  and take such
     other actions,  as may be necessary or  appropriate in connection  with the
     assignment to such  successor  Collateral  Agent of the security  interests
     created  hereunder,  whereupon  such retiring or removed  Collateral  Agent
     shall be discharged from its duties and  obligations  under this Agreement.
     After any retiring or removed  Collateral  Agent's  resignation  or removal
     hereunder as Collateral Agent, the provisions of this Agreement shall inure
     to its benefit as to any  actions  taken or omitted to be taken by it under
     this Agreement while it was Collateral Agent hereunder.

     Section 19.  Amendments;  Etc. No amendment,  modification,  termination or
waiver of any  provision of this  Agreement,  and no consent to any departure by
Grantors therefrom,  shall in any event be effective unless the same shall be in
writing and signed by Collateral Agent and, in the case of any such amendment or
modification, by Grantors. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.

     Section 20. Notices.  Any notice or other communication  herein required or
permitted to be given shall be in writing and may be personally served,  telexed
or sent by  facsimile  or United


                                      B-12
<PAGE>

States mail or courier and shall be deemed to have been given when  delivered in
person or by courier service,  upon receipt of facsimile or telex (with received
answer  back),  or three (3)  business  days after  depositing  it in the United
States mail with postage prepaid and properly  addressed;  provided that notices
to Collateral  Agent shall not be effective until received.  For purposes hereof
the address of each party set forth in the beginning of this Agreement  shall be
such  address or such other  address as shall be  designated  by such party in a
written notice delivered to the other party hereto.

     Section 21. Severability. In case any provision in or obligation under this
Agreement shall be invalid,  illegal or unenforceable in any  jurisdiction,  the
validity,   legality  and   enforceability   of  the  remaining   provisions  or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

     Section 22. Headings. Section and subsection headings in this Agreement are
included  herein for  convenience  of reference  only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.

     Section  23.  Governing  Law;  Terms.  THIS  AGREEMENT  AND THE  RIGHTS AND
OBLIGATIONS  OF THE  PARTIES  HEREUNDER  SHALL  BE  GOVERNED  BY,  AND  SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING,  WITHOUT LIMITATION,  SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW OF THE STATE OF NEW YORK),  WITHOUT REGARD TO CONFLICTS OF LAWS  PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE  PERFECTION OF THE SECURITY
INTEREST  HEREUNDER,  OR  REMEDIES  HEREUNDER,  IN  RESPECT  OF  ANY  PARTICULAR
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK.  Unless  otherwise  defined herein , terms used in Articles 8 and 9 of
the Uniform  Commercial Code in the State of New York are used herein as therein
defined.

     Section 24.  Counterparts.  This  Agreement  may be executed in one or more
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed and delivered  shall be deemed an original,  but all such
counterparts  together  shall  constitute  but  one  and  the  same  instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single  counterpart so that all signature pages are physically  attached to
the same document.

                          REMAINDER OF PAGE LEFT BLANK
                                       ***
                             SIGNATURE PAGE FOLLOWS


                                      B-13
<PAGE>

     IN  WITNESS  WHEREOF,  Grantors  and  Collateral  Agent  have  caused  this
Agreement  to be duly  executed  and  delivered  by  their  respective  officers
thereunto duly authorized as of the date first above written.

                                         DANIEL GREEN COMPANY

                                         By:
                                            --------------------------------
                                         Name:  Greg Tunney
                                         Title:   President

         ACCEPTED AND AGREED



         -----------------------------
         James R. Riedman, as Collateral Agent and Lender
         Date: April 11, 2001


                                      B-14
<PAGE>

                                    EXHIBIT C

                               CONTINUING GUARANTY


     This CONTINUING  GUARANTY (this  "Guaranty"),  dated as of ______,  2001 is
executed by PENOBSCOT SHOE COMPANY,  a Maine corporation (the  "Guarantor"),  in
favor of JAMES RIEDMAN (the "Lender").

                             Preliminary Statement:

     WHEREAS, the Guarantor is a wholly-owned subsidiary of Daniel Green Company
(the "Borrower");

     WHEREAS,  as a  condition  to the  Lender  making  a  $750,000  loan to the
Borrower, the Guarantor is required to execute and deliver this Guaranty; and

     WHEREAS, Guarantor acknowledges that it will benefit from such loan;

                                   Provisions:

     NOW,  THEREFORE,  in  consideration  of the  premises  and  of  the  mutual
covenants herein contained, Guarantor hereby agrees as follows:

                                    ARTICLE I
                                   DEFINITIONS

     1.1 Certain Terms.  The following terms (whether or not  underscored)  when
used in this Guaranty shall, except where the context otherwise  requires,  have
the  following  meanings  (such  definitions  to be  equally  applicable  to the
singular and plural forms thereof):

          "Default"  shall  mean any  Event of  Default  or event or  conditions
     which,  with notice or lapse of time or both,  would constitute an Event of
     Default.

          "Event of Default" shall have the meaning given thereto in the Note.

          "Note" shall mean the  $750,000  Convertible  Subordinated  Promissory
     Note of even date herewith executed by Borrower in favor of Lender.


<PAGE>

                                   ARTICLE II
                                    GUARANTY

     2.1 Guaranty of Payment. The Guarantor, hereby absolutely,  unconditionally
and irrevocably:

          (a) guarantees the full and prompt payment and  performance  when due,
     whether   by   required   payment,   voluntary   prepayment,   declaration,
     acceleration  or  otherwise,  and at  all  times  thereafter  of all of the
     monetary  obligations of Borrower under the Note and each other  Instrument
     executed and delivered  pursuant  thereto or in connection  therewith  (the
     "Liabilities"); and

          (b) agrees to reimburse Lender for all costs and expenses,  including,
     without  limitation,  reasonable  attorneys' fees and disbursements,  which
     Lender  expends or incurs in  collecting  or  compromising  any  obligation
     referred to in clause (a) and in enforcing  this  Guaranty,  whether or not
     suit  is  filed,  expressly  including,   without  limitation,  all  costs,
     expenses,  reasonable  attorneys'  fees and other charges  incurred by such
     Person  in  connection  with any  insolvency,  bankruptcy,  reorganization,
     liquidation,   dissolution,   arrangement  or  other  similar   proceedings
     involving the Guarantor which in any way affect the exercise by such Person
     of its  rights,  powers,  remedies  and  privileges  with  respect  to this
     Guaranty or the outstanding principal amount of the Note.

     2.2 Obligations Absolute, Unconditional, Etc. The Guarantor agrees that its
obligations   hereunder  shall  be  absolute,   unconditional  and  irrevocable,
irrespective of the genuineness,  validity,  legality or  enforceability  of the
Liabilities,  the Note,  or any other  instrument  executed or to be executed in
connection with the Note, or any other  instrument or collateral  relating to or
securing  the  payment,   performance   or  observance   thereof  or  any  other
circumstance which could otherwise  constitute a legal or equitable discharge of
a surety or guarantor,  and Lender may proceed to enforce this Guaranty  without
pursuing or collecting a judgment against any other Person  (including,  without
limitation,  the  Guarantor),  without  resorting  to  or  enforcing  any  other
collateral or security and without any other action whatsoever. The Lender shall
not have any  obligation to protect,  secure,  perfect or insure any  collateral
security  document or property  subject thereto at any time held as security for
the   Liabilities   or  this   Guaranty.   The  Guarantor   hereby   absolutely,
unconditionally  and  irrevocably  waives  and  agrees  not to  assert  or  take
advantage of:

          (a) any right to require  Lender to proceed  against  Borrower  or any
     other  Obligor or any other  Person,  or to proceed  against or exhaust any
     other security or collateral for the payment,  performance or observance of
     the Liabilities, or to pursue any other remedy whatsoever before proceeding
     against the Guarantor hereunder;

          (b) any defense  that may arise by reason of the  incapacity,  lack of
     authority,  death or disability of any Person,  or the failure of Lender to
     file or enforce a claim against any estate (in  administration,  bankruptcy
     or any other proceedings) of any Person;


                                      C-2
<PAGE>

          (c) any  defense  based  upon  an  election  of  remedies  by  Lender,
     including,  without  limitation,  an  election  to proceed by  non-judicial
     rather than judicial  foreclosure,  which  destroys or impairs any right of
     subrogation  of the  Guarantor  or the right of the  Guarantor  to  proceed
     against Borrower or any other Person for reimbursement or both;

          (d) any other  defense of Borrower,  or the cessation of the liability
     of Borrower for any cause whatsoever, with respect to any Liability;

          (e) any other  defense of any kind,  whether  now  existing or arising
     hereafter,  of the  Guarantor  to any  action,  suit or  judicial  or legal
     proceeding that may be instituted with respect to this Guaranty;

          (f) presentment,  demand,  protest and notice of any kind,  including,
     without   limitation,   notice   of  the   creation   or   non-payment   or
     non-performance  of all or any of the  Liabilities,  notice of  dishonor or
     protest,  notice of acceptance by Lender of this  Agreement,  notice of the
     existence,  creation or incurrence  of any new or additional  indebtedness,
     obligation  or other  liability,  and notice of action or non-action on the
     part of Lender,  Borrower or the  Guarantor  or any other  Obligor or other
     Person in connection with the Liabilities or otherwise; and

          (g) any duty on the part of Lender or other  Person to disclose to the
     Guarantor  any facts or  information  any such Person may now or  hereafter
     know or possess  regarding  Borrower,  the  Liabilities or any other matter
     whatsoever,  regardless  of whether  such Person has reason to believe that
     such facts or other information may materially  increase the risk which the
     Guarantor  intends to assume or has  reason to  believe  that such facts or
     other  information  are  unknown  to  the  Guarantor  or  has a  reasonable
     opportunity  to  communicate  such  facts  or other  information,  it being
     understood  and agreed that the  Guarantor is fully and solely  responsible
     for being and keeping  informed of the financial  condition of Borrower and
     of  all  other   circumstances   bearing   on  the  risk  of   non-payment,
     non-performance or non-observance of any Liability.  This Guaranty shall in
     all  respects be a  continuing,  absolute,  unconditional  and  irrevocable
     Guaranty of payment,  and shall  remain in full force and effect  until all
     Liabilities  have been fully  paid,  and may not be  amended,  modified  or
     supplemented  except in  accordance  with the  Note.  This  Guaranty  shall
     continue to be effective,  or to be  reinstated,  as the case may be, if at
     any time any payment, in whole or in part, of any Liability is rescinded or
     must  otherwise  be restored  or  returned  by Lender upon the  insolvency,
     bankruptcy, dissolution,  liquidation or reorganization of the Guarantor or
     Borrower,  or  upon  or as a  result  of the  appointment  of a  custodian,
     receiver,  trustee or other officer with similar powers with respect to the
     Guarantor or Borrower or any part of either of its property,  or otherwise,
     all as though such  payments had never been made.  If any Default  shall at
     any time have  occurred and be  continuing  and  acceleration  of the Notes
     shall at any time be prevented by reason of the pendency  against  Borrower
     of a case or proceeding under a bankruptcy or insolvency law, the Guarantor
     agrees that, for purposes of this Guaranty and its  obligations  hereunder,
     the  maturity  of such  principal  amount  shall  be  deemed  to have  been
     accelerated  with  the  same  effect  as if  the  holder  of the  Note  had
     accelerated  the  same  in  accordance  with  the  terms  thereof,  and the
     Guarantor  shall, to the extent it constitutes  Liabilities,  forthwith pay
     such principal  amount and interest (if any) thereon and other  Liabilities
     without further notice of demand.


                                      C-3
<PAGE>

     2.3 Waiver of All  Defenses.  Lender  may,  from time to time,  in its sole
discretion and without notice to the Guarantor, take any or all of the following
actions, all without in any way diminishing,  impairing,  releasing or affecting
the  liability or  obligations  of the  Guarantor  under or with respect to this
Guaranty,  and the Guarantor  hereby  irrevocably  consents to any or all of the
following actions by Lender or any holder of the Note:

          (a) retain or obtain a Security Interest in any property to secure any
     of the Liabilities or any obligation hereunder;

          (b)  retain or obtain  the  primary or  secondary  obligations  of any
     obligor or obligors,  in addition to the Guarantor and the other  Obligors,
     with respect to any of the Liabilities;

          (c)  extend or renew for one or more  periods  (whether  or not longer
     than the original period), or alter or exchange, any of the Liabilities, or
     release or compromise  any  obligation  of the  Guarantor  hereunder or any
     obligation  of any  nature of any other  Obligor or any other  Person  with
     respect to any of the  Liabilities  or amend or modify in any  respect  the
     Note or any Instrument executed pursuant thereto;

          (d) waive,  modify,  subordinate,  compromise  or release its Security
     Interest in, or surrender,  release or permit any  substitution or exchange
     for, all or any part of any property securing any of the Liabilities or any
     obligation  hereunder,  or extend or renew for one or more periods (whether
     or not longer than the  original  period) or waive,  release,  subordinate,
     compromise,  modify, alter or exchange any guaranty or other obligations of
     any nature of any obligor with respect to any such property; and

          (e) resort to the  Guarantor  for  payment of any of the  Liabilities,
     whether or not Lender shall have  resorted to or exhausted any other remedy
     or any other security or collateral  for any obligation  hereunder or shall
     have  proceeded  against  Borrower  or any other  Obligor  or other  Person
     primarily or secondarily  obligated with respect to any of the Liabilities.
     The Guarantor  absolutely,  unconditionally and irrevocably agrees that, as
     long as any Liabilities have not been paid in full, the Guarantor shall not
     have and shall not  enforce  any right of  subrogation,  and the  Guarantor
     waives any right to enforce  any remedy  which  Lender or the holder of any
     Note now has or may  hereafter  have  against  Borrower or any other Person
     hereunder or pursuant  hereto or under or pursuant to the Note or any other
     Instrument  executed or to be executed pursuant hereto or thereto,  and any
     benefit  of,  and  any  right  to  participate  in,  any  security  for the
     Liabilities  now or hereafter held by Lender or the holder of any Note. The
     Guarantor  absolutely,  unconditionally  and  irrevocably  agrees  that the
     liability of the Guarantor hereunder,  and the remedies for the enforcement
     of such liability, shall in no way be diminished or affected by:

          (f) the release or discharge  of Borrower or any other  Obligor or any
     other Person responsible for the payment,  performance or observance of any
     Liability  in  any  creditors'  receivership,  bankruptcy,  reorganization,
     insolvency or other proceeding;


                                      C-4
<PAGE>

          (g) the  rejection  or  disaffirmance  in any such  proceeding  of any
     Instrument  evidencing,  securing,  or executed  in  connection  with,  the
     Liabilities; or

          (h) the  impairment,  limitation or  modification  of the  Liabilities
     resulting  from the  operation  of any present or future  provision  of the
     federal bankruptcy code or any other statute or law of any kind or from the
     decision or order of any court. The Guarantor  absolutely,  unconditionally
     and irrevocably further agrees that:

          (i) the creation from time to time of Liabilities,  including, without
     limitation,  the  making  of  Loans to  Borrower,  and the  application  or
     allocation of amounts received by Lender or any other Person to the payment
     of such Liabilities,  and the creation,  existence or enforcement from time
     to time  of any  security  for the  Liabilities,  and the  application  and
     allocation  of the  proceeds  of such  security,  shall in no way affect or
     impair the rights, remedies,  powers and privileges of Lender or the holder
     of any Note or the obligation of the Guarantor under this Guaranty; and

          (j) any amounts  received by Lender from whatsoever  source on account
     of the  Liabilities  may be applied by it toward the payment of such of the
     Liabilities  and in such  order of  application  as Lender  may in his sole
     discretion  determine.  The Guarantor hereby expressly waives notice of the
     creation of the  Liabilities  and all diligence in collection or protection
     of or  realization  upon the  Liabilities  or any thereof,  any  obligation
     hereunder, or any security for or guaranty of any of the foregoing.

     2.4 Payment,  Etc. by the Guarantor.  The Guarantor hereby  unconditionally
covenants and agrees that:

          (a) in the event  Borrower  shall fail to duly and  punctually pay any
     Liability  on the date on which such  payment is due  (whether at scheduled
     maturity, by acceleration or otherwise); or

          (b) upon the occurrence of any other Event of Default;

the Guarantor  will,  within five (5) Business Days after the receipt of written
notice from Lender demanding payment of either the amount of the Liability which
Borrower  has  failed  to pay (in the case of a demand  arising  out of an event
described in clause (a)) or up to the entire  unpaid  amount of the  Liabilities
(in the case of an event  described  in clause  (b)),  pay the entire  amount of
Liabilities  demanded to Lender at such address as he may direct in  immediately
available  funds.  If the  Guarantor  fails to pay any such  amount,  Lender may
institute any action or proceeding,  and make,  obtain and enforce a judgment or
final decree, against the Guarantor and collect in the manner provided by law or
in equity out of such  Guarantor's  property,  wherever  situated,  all  amounts
adjudged or decreed to be payable.  The Guarantor  making any payment  hereunder
shall also be entitled to a right of subrogation in respect of such payment from
Borrower; provided, however, that so long as the Liabilities remain outstanding,
all rights of the Guarantor against Borrower,  by way of right of subrogation or
otherwise, shall in all respects, as provided in the second paragraph of Section
2.3, be subordinate and junior in right of payment to the prior  satisfaction in
full  of the  Liabilities  and no  payment  in  satisfaction  of such  right  of


                                      C-5
<PAGE>

subrogation shall be made by Borrower,  or demanded or claimed by the Guarantor,
until such prior satisfaction in full of the Liabilities.

                                   ARTICLE III
                                  SUBORDINATION

     3.1  Subordination.   Guarantor  and  Lender,   agree  that  the  following
subordination  provisions in this Article III are for the benefit of the holders
of the Senior Debt (as defined in the Note) the  payment of the  Liabilities  by
the Guarantor is and shall be subordinated, to the extent and in the manner that
payments  under  the  Note  are  subordinated  and the  Guarantor  shall  not be
permitted  to make any  payment  of the  Liabilities  except to the  extent  and
subject to the conditions contained in the Note.

     3.2 Effect of  Subordination.  Each  holder of Senior Debt shall be a third
party beneficiary of the provisions of this Article III and shall have the right
to enforce such provisions against the Holder or any other party. The provisions
of this Article III are solely for the purpose of defining  the relative  rights
of the  holders of Senior  Debt on the one hand,  and the holder of this Note on
the other hand,  as against the Company.  Subject to the rights,  if any, of the
holders of Senior Debt under this Article III, nothing contained in this Article
III shall  impair,  as between the Company and  Holder,  the  obligation  of the
Company,  subject to the terms and  conditions  hereof,  to pay to the Holder or
such holder the principal hereof and interest hereon as and when the same become
due and  payable,  or shall  prevent the Holder,  upon default  hereunder,  from
exercising  all rights,  powers and  remedies  otherwise  provided  herein or by
applicable law.

     3.3 Termination of Subordination.  The provisions of this Article III shall
continue  in full force and effect,  and the rights  and/or  obligations  of the
holders of any Senior Debt and the Company  hereunder shall continue to be fully
operative,  until all of the Senior Debt shall have been paid and  satisfied  in
full in cash and such  full  payment  and  satisfaction  shall be final  and not
avoidable.

     3.4 Modification or Sale of the Subordinated  Debt. The Lender will not, at
any time while this Article III is in effect:  modify any of the terms of any of
this  Guaranty or any of the  documents  evidencing or related to same; or sell,
transfer,  pledge, assign,  hypothecate or otherwise dispose of this Guaranty or
any  portion  hereof to any person  other than a person who agrees in a writing,
satisfactory in form and substance to holders of all Senior Debt, to be bound by
all of the obligations of the Lender hereunder.

     3.5 Relative Rights of Holders of Senior Debt. If at any time there is more
than one holder of Senior Debt,  and an agreement  exists among all such holders
regarding  the  procedure by which the rights of such holders under this Article
III are to be exercised,  amended,  waived,  compromised  or settled,  then such
procedure shall control.  However, if no such agreement exists, then such rights
will be so exercised, amended, waived, compromised or settled pursuant to a vote
of the holders which hold a majority in principal amount of the then outstanding
Senior Debt.


                                      C-6
<PAGE>

     3.6  Amendments.  No amendment or modification of the terms of this Article
III shall be  effective  against any holder of Senior Debt before or at the time
of such amendment or modification unless such holder of Senior Debt so consents,
in  accordance   with  the  term  of  instruments   (if  any)   evidencing  such
indebtedness.

                                   ARTICLE IV
                                  MISCELLANEOUS

     4.1 Successors and Assigns; Assignment. This Guaranty shall be binding upon
the Guarantor and its  successors  and assigns and shall inure to the benefit of
and be  enforceable  by  Lender  and  its  respective  successors  and  assigns,
including, without limitation, any assignee of any Liability; provided, however,
that the Guarantor may not assign any of its obligations  hereunder  without the
prior written consent of Lender.  Lender may, from time to time,  without notice
to the Guarantor assign or transfer any Liability or any interest therein,  and,
notwithstanding  any such transfer or assignment or any  subsequent  transfer or
assignment  thereof,  such  Liabilities  shall  be and  remain  Liabilities  for
purposes  of  this  Guaranty,  and  each  and  every  immediate  and  successive
transferee or assignee of any Liability or any interest  therein  shall,  to the
extent of the interest of such  transferee  or assignee in the  Liabilities,  be
entitled to the benefits of this Guaranty.

     4.2 Independent Obligations. The obligations of the Guarantor hereunder are
independent  of the  obligations  of  Borrower,  and in the event of any default
hereunder,  a  separate  action  or  actions  may  be  brought,  maintained  and
prosecuted  against the Guarantor  whether or not Borrower is a party thereto or
joined  therein or a separate  action or actions are brought  against  Borrower.
Lender may maintain successive actions upon any default hereunder. The rights of
Lender  shall not be  exhausted  by his  exercise of any of his rights,  powers,
remedies  and  privileges  hereunder  or by any such  action or by any number of
successive  actions until and unless all  Liabilities and all obligations of the
Guarantor hereunder have been fully paid and performed.

     4.4  Governing  Law.  This  Guaranty  shall be deemed to be a contract made
under and governed by the internal  laws of the State of New York.  For purposes
of any action or  proceeding  involving  this  Guaranty,  the  Guarantor  hereby
expressly submits to the jurisdiction of all federal and state courts located in
the State of New York and  consents  that it may be served  with any  process or
paper by registered  mail or by personal  service within or without the State of
New York, provided a reasonable time for appearance is allowed.

     4.5  Notices.  All  notices  and  other  communications  hereunder  to  the
Guarantor  shall be delivered or transmitted to the Guarantor at the address set
forth below its signature hereto.

     4.6 Termination.  Subject to the last three sentences of Section 2.2 and to
Section  2.3(c),  this Guaranty  shall be of no further force or effect upon the
full payment and performance in full of the Liabilities.

     IN WITNESS  WHEREOF,  the Guarantor has caused this Guaranty to be executed
and delivered by its authorized officer as of the date first above written.


                                      C-7
<PAGE>

                                 PENOBSCOT SHOE COMPANY

                                 By:
                                    ---------------------------
                                 Name:
                                 Title:
                                 Address:
                                          ---------------------


                                      C-8
<PAGE>

                                    EXHIBIT D

                              DANIEL GREEN COMPANY
                              Stock Purchase Option


     DANIEL GREEN COMPANY,  a Massachusetts  corporation with a principal office
at 450 North  Main  Street,  Old  Town,  Maine  04468  (the  "Company"),  hereby
certifies  that  JAMES  RIEDMAN  with a  principal  office  at 45  East  Avenue,
Rochester, New York 14604 (the "Optionee") is entitled to purchase shares of the
Company's  Common  Stock upon the terms and  conditions  of this Stock  Purchase
Option.

     1. Grant.  The Company hereby grants to the Optionee the Option to purchase
from the Company an aggregate of 25,000  shares of its Common  Stock,  $2.50 par
value ("Common Stock").

     2. Option Price.  This Option may be exercised at the Option price of $3.68
per share of the Common Stock.

     3. Term and  Exercisability of Option.  This Option shall be exercisable in
whole or in part at any time after the date hereof and prior to April 11, 2011.

     4. Method of Exercise.  This Option may be  exercised  from time to time by
written  notice to the  Company  substantially  in the form  attached  hereto as
Exhibit 1,  accompanied by payment in full of the Option price for the number of
shares to be  delivered,  in cash or check  payable to the  Company.  As soon as
practicable  after its  receipt  of such  notice,  the  Company  shall,  without
transfer,  issue tax or other  expense to the  Optionee,  deliver or cause to be
delivered to the Optionee stock  certificates  representing the number of shares
to be issued upon such exercise.

     5. Resale of Stock Acquired Pursuant to this Option.

          (a) Registration Required. Any Common Stock of the Company acquired by
     the  Optionee  pursuant  to the  exercise  of this  Option may not be sold,
     transferred,  exchanged  or otherwise  disposed of unless:  (i) such shares
     have been  registered  under the  Securities  Act of 1933,  as amended (the
     "Act"), (ii) such shares can be sold,  transferred,  exchanged or otherwise
     disposed of without  registration  pursuant to an exemption from the Act or
     otherwise without registration and the Optionee has furnished an opinion of
     counsel or other evidence,  including an opinion of the Company's  counsel,
     satisfactory  to the Company to this effect,  or (iii) the  Optionee  shall
     have  held such  shares  for a period of at least one year from the date of
     acquisition of the shares and shall have complied with all other provisions
     of Rule 144 issued  under the Act,  as amended and in effect at the time of
     such sale or other  disposition.  The  stock  certificate  or  certificates
     evidencing  shares of Common Stock issued  pursuant to any exercise of this
     Option  will  bear a  legend  referring  to  these  restrictions  on  their
     transferability.



<PAGE>

          (b) Registration  Rights. Upon the request(s) of Optionee at any time,
     the Company  shall  promptly  cause any or all Common Stock  subject to the
     Option or held by  Optionee  pursuant  to his  exercise of the Option to be
     registered for sale under the  Securities  Act (or any statutory  successor
     thereto) and  qualified  for sale  pursuant to state "blue sky" laws and do
     all things  reasonably  necessary to facilitate the registered  sale of the
     Common Stock by Optionee.  To the extent reasonably  practicable,  Optionee
     shall combine any such request with a request for registration  pursuant to
     his rights under (a) Section 4.6 of the Stock Purchase Agreement dated June
     26, 1996 between the Company and the Optionee (b) the Stock Purchase Option
     granted by the  Company to  Optionee  dated  September  1, 1999 and (c) the
     Stock Purchase  Option granted by the Company to Optionee dated January 19,
     2001.  The  Company  shall  bear  the  expenses  of such  registration  and
     qualifications, other than Optionee's legal counsel's fees and distribution
     fees and expenses, which shall be borne by Optionee.

     If the proposed  sale by the  Optionee  could be  accomplished  in a manner
substantially  similar  to that  proposed  and at the  same  net  sale  price to
Optionee by means of a transaction  which would be exempt from  registration  in
accordance  with the existing rules and  regulations  under the Securities  Act,
then the Company shall not be required to register such sale.

     6. Changes in Capital Structure.

          (a) Stock  Split,  Etc.  In the event that the  outstanding  shares of
     Common Stock are hereafter changed for a different number or kind of shares
     or  other  securities  of  the  Company,  by  reason  of a  reorganization,
     recapitalization,  exchange of shares,  stock split,  reverse  stock split,
     combination  of  shares  or  dividend  payable  in  Common  Stock  or other
     securities, a corresponding adjustment shall be made in the number and kind
     of shares or other securities  covered by this Option.  Any such adjustment
     in this Option shall be made without  change in the total price  applicable
     to the unexercised portion of the Option, but the price per share specified
     in the Option shall be correspondingly adjusted.

          (b) Merger,  Etc. If the Company  merges or  consolidates  with one or
     more corporations (whether or not the Company is the surviving corporation)
     or if  the  Company  is  liquidated  or  sells  or  otherwise  disposes  of
     substantially  all of its assets to another entity,  then, the terms of the
     unexercised  portion  of the  Option  shall be  amended  so that  after the
     effective date of such merger,  consolidation  or sale, as the case may be,
     either:

               (i) the Optionee  shall be entitled,  upon exercise of the Option
          to receive  in lieu of shares of Common  Stock the number and class of
          shares of such stock or other  securities  to which it would have been
          entitled pursuant to the terms of the merger, consolidation or sale if
          on the  effective  date of such merger,  consolidation  or sale it had
          been the holder of record of the  number of shares of Common  Stock to
          which the Option could be converted upon exercise in full, or

               (ii) the Optionee shall be entitled to receive from the successor
          entity  a new  stock  option  of  comparable  value in lieu of the old
          Option, which shall be canceled.


                                      D-2
<PAGE>

     7. General Provisions.

          (a)  Amendment;  Waivers.  This Option may not be modified or amended,
     nor may any provision hereof be waived,  except by a written agreement duly
     signed by each of the parties.  The waiver by either of the parties  hereto
     of any  provision  hereof in any instance  shall not operate as a waiver of
     any other provision hereof or in any other instance.

          (b)  Governing  Law. This Option shall be governed by and construed in
     accordance with the laws of the Commonwealth of Massachusetts.

          (c) Notices. Any notice in connection with this Option shall be deemed
     to have been  properly  delivered  if it is in writing and is  delivered by
     hand or sent by  registered  mail to the party at the address  given above,
     attention of the President.

          (d)  Expenses.  The  Company  hereby  agrees  to  pay  on  demand  all
     reasonable  expenses  incurred  or paid by Riedman  Corporation,  including
     reasonable  fees of attorneys,  in connection with the review of this Stock
     Purchase Option and compliance with applicable SEC  requirements  reporting
     requirements.

     IN WITNESS  WHEREOF,  the  Company has caused this Option to be executed by
its officer thereunto duly authorized as of the __ day of March, 2001.

                                   DANIEL GREEN COMPANY

                                   By:
                                      ---------------------------------
                                   Name:    Greg A. Tunney
                                   Title:   President


                                      D-3
<PAGE>

                       Exhibit 1 to Stock Purchase Option


                           ____________________, 20__


Treasurer
Daniel Green Company
450 North Main Street
Old Town, Maine  04468

         Re:      Exercise of Stock Purchase Option

Dear Sir:

     The undersigned hereby elects to purchase  _______________ shares of Common
Stock,  $2.50 par value,  of Daniel Green Company (the "Company") for the option
price of $___ per share, pursuant and subject to the terms and conditions of the
Stock Purchase Option dated April __, 2001 (the "Option").

     The undersigned  encloses herewith payment, in cash or check payable to the
Company, of the option purchase price for said shares.

     The undersigned hereby specifically confirms to the Company that the shares
shall be held subject to all of the terms and conditions of the Option.

                                                Very truly yours,


                                                ------------------------------


                                      D-4