THIRD AMENDMENT TO
                          THE GREAT TRAIN STORE COMPANY
                        1994 INCENTIVE COMPENSATION PLAN



         WHEREAS,  The Great Train Store Company (the  "Company") has heretofore
adopted, and subsequently  amended, The Great Train Store Company 1994 Incentive
Compensation Plan (the "Plan"),  under which Plan an aggregate of 460,000 shares
of the Company's common stock, $.01 par value per share (the "Common Stock") may
be awarded subject to forfeiture or may be issued upon the exercise of incentive
and  nonqualified  stock options granted  pursuant to and in accordance with the
terms of the Plan;

         WHEREAS,  the  Company  has  heretofore  granted  options  to  eligible
individuals  under the Plan to purchase  153,700 shares of Common Stock issuable
under the Plan; and

         WHEREAS,  in order to provide  additional  incentive to certain persons
engaged by the Company to promote the  long-term  interests of the company,  the
Board of Directors of the Company has  authorized  the  amendment of the Plan to
extend the  description  of those persons  eligible to receive  awards under the
Plan to include  consultants,  advisors  and other  persons who renders  similar
services to the Company on a regular basis;

         NOW, THEREFORE, the Plan be and hereby is amended as follows:

         A.  Article I of the Plan is hereby  deleted in its  entirety,  and the
following  substituted  in lieu  thereof to  constitute  said Article I from and
after the effectiveness of this Amendment:

                             I. Purpose of the Plan

         The Great Train Store  Company 1994  Incentive  Compensation  Plan (the
"Plan")  is  intended  to  provide  a  means  whereby   certain  key  employees,
consultants, advisors and other persons who render similar services to The Great
Train Store Company, a Delaware  corporation (the "Company") on a regular basis,
may  develop  a  sense  of  proprietorship  and  personal   involvement  in  the
development and financial  success of the Company and its  subsidiaries,  and to
encourage  them to remain with and devote  their best efforts to the business of
the Company and its subsidiaries, thereby advancing the interests of the Company
and  its   stockholders.   Accordingly,   the  Company  may  grant  to  eligible
participants  awards  ("Awards") in the form of stock options  ("Options")  with
respect to shares of the Company's  common stock, par value $0.01 per share (the
"Stock")  and in the form of  shares  of Stock  which  are  subject  to  certain
restrictions and possible forfeiture ("Restricted Stock"). Options may either be
nonqualified stock options ("Nonqualified Options") or options ("Incentive Stock
Options") which are intended to qualify as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").


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Notwithstanding  the foregoing,  participants  who are not also key employees of
the Company  shall not be entitled  to receive  awards in the form of  Incentive
Stock Options or Restricted Stock.

         B. The  reference  in the  first  sentence  of the first  paragraph  of
Article  II of the Plan to  "disinterested  persons"  is hereby  deleted  in its
entirety, and the term "non-employee director" as defined in paragraph (b)(3)(i)
of Rule 16b-3 is substituted in lieu thereof from and after the effectiveness of
this Amendment.

         C. The fourth  paragraph of Article II of the Plan is hereby deleted in
its entirety,  and the following  substituted in lieu thereof to constitute said
paragraph from and after the effectiveness of this Amendment:

         Only key employees,  consultants, advisors and other persons who render
similar  services  to the  Company  and its  subsidiaries  shall be  eligible to
receive  Awards  under the  Plan.  In  granting  Awards  to a  participant,  the
Committee shall take into  consideration  the  contribution  the participant has
made or may make to the  success  of the  Company or its  subsidiaries  and such
other considerations as the Committee shall determine.  The Committee shall also
have the authority to consult with and receive recommendations from officers and
other  employees  of the  Company  and its  subsidiaries  with  regard  to these
matters. In no event shall any participant or his or her legal  representatives,
heirs,  legatees,  distributees,  or successors have any right to participate in
the Plan, except to such extent, if any, as the Committee shall determine.

         D. Paragraph G. of Article IV of the Plan is hereby modified to include
the following phrase immediately before the first sentence of said paragraph:

         "If the participant is an employee of the Company and...."

         E. All references to "employee" in Articles VII, XI and XIII,  shall be
and hereby are deleted and the term "participant" substituted in lieu thereof.

         IN  WITNESS  WHEREOF,  this  Amendment  is  dated as of the 22th day of
August, 1996.



                                     By: /s/ James H. Levi
                                        James H. Levi
                                        Chairman of the Board, President
                                        and Chief Executive Officer