LINCOLN LOGS LTD, PRE 14A, 1997-06-04

LINCOLN LOGS LTD
PRE 14A, 1997-06-04
PREFABRICATED WOOD BLDGS & COMPONENTS

Previous: REGIS CORP, S-3, 1997-06-04

Next: HARTER FINANCIAL INC, 8-K/A, 1997-06-04

LINCOLN LOGS LTD.
Riverside Drive
Chestertown, New York 12817
_____________________

NOTICE OF THE ANNUAL MEETING
OF SHAREHOLDERS

July 7, 1997

Notice is hereby given that the Annual Meeting of Shareholders of Lincoln
Logs Ltd., a New York corporation (the "Company"), will be held at the
Queensbury Hotel, 88 Ridge Street, Glens Falls, New York, on Wednesday,
July 7, 1997, at 11:00 a.m., local time, for the following purposes:

1. To elect a Board of Directors of five directors to serve until the
next Annual Meeting of Shareholders and until their successors are duly elected
and qualified;

2. To approve the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending January 31, 1998;

3. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 5,000,000 shares to 10,000,000 shares;

4. To approve an amendment to and re-adopt, in its amended form, the
Company's Stock Option Plan to increase the number of options that may be
awarded with respect to shares of the Company's common stock from 132,840
shares to 235,000 shares, issuable as Incentive Stock Options, and from
151,000 shares to 250,000 shares, issuable as Non-Qualified Stock Options; and

5. To transact such other business as may properly come before the
Meeting or any adjournment thereof.

The stock transfer books of the Company will not be closed, but only
shareholders of record at the close of business on May 12, 1997, will be
entitled to notice of and to vote at the Meeting.

By Order of the Board of Directors

Carole P. Hart
Secretary

May 28, 1997

You are cordially invited to attend the Meeting and vote your shares. In
the event you cannot attend, please fill in, date and sign the enclosed proxy
and mail it promptly in the enclosed self-addressed envelope to ensure that
your shares are represented at the Meeting. A shareholder who executes and
returns a proxy in the accompanying form has the power to revoke such proxy
at any time prior to the exercise thereof.

<PAGE>
LINCOLN LOGS LTD.
Riverside Drive
Chestertown, New York 12817

___________________

PROXY STATEMENT

___________________

The accompanying proxy is solicited by the Board of Directors of Lincoln
Logs Ltd., a New York corporation (the "Company"), for use at the Annual Meeting
of Shareholders to be held on July 7, 1997, or any adjournment or adjournments
thereof, for the purposes set forth in the attached Notice of Meeting. It is
expected that proxy solicitation materials will be first mailed or given to
shareholders on or about June 12, 1997. The expense of soliciting proxies will
be paid by the Company.

Proxies in the accompanying form, properly executed and received prior to
the Meeting and not revoked, will be voted in the manner directed by the
shareholders executing such proxies. If no direction is made, executed
proxies will be voted for the election of each of Management's five nominees
for election as directors, for the approval of the appointment of KPMG Peat
Marwick LLP as independent auditors for the Company, for the approval of an
amendment to the Company's Certificate of Incorporation increasing the number
ofauthorized shares of the Company's common stock from 5,000,000 shares of
common stock, $.01 par value per share, to 10,000,000 shares of common stock,
$.01 par value per share, and for the approval of an amendment to and
re-adoption of, in its amended form, the Company's Stock Option Plan to
increase the number of options that may be awarded with respect to shares of
the Company's Common Stock from 132,840 shares to 235,000 shares issuable as
Incentive Stock Options and from 151,000 shares to 250,000 shares, issuable
as Non-Qualified Stock Options. A shareholder who executes and returns a
proxy in the accompanying form has the power to revoke such proxy at any time
prior to the exercise thereof either by (i) notice in writing received by the
Secretary of the Company, (ii) signing and delivering a new proxy card
earing a later date, or (iii) attendance at the Meeting and voting in person.

The Board of Directors does not intend to present at the Meeting any
matters other than those set forth in this Proxy Statement, nor does the
Board of Directors know of any other matters which may come before the
Meeting. If any other matters should properly come before the Meeting,
however, it is the intention of the persons named in the enclosed proxy to
vote all proxies in accordance with their best judgment on such matters.

Only shareholders of record at the close of business on May 12, 1997,
will be entitled to vote at the Meeting. On May 12, 1997, there were
outstanding 945,759 shares of the Company's Common Stock, which is the only
outstanding class of voting securities of the Company. Each outstanding
share of Common Stock is entitled to one vote on each matter to be voted upon
at the Meeting.

PROPOSAL NO. 1
ELECTION OF DIRECTORS

The Company's directors are to be elected at each Annual Meeting of
Shareholders. At this Meeting, five directors are to be elected to serve
until the next Annual Meeting of Shareholders and until their successors are
elected and qualify. The nominees for election as directors at this Meeting
set forth in the table below are all recommended by the Board of Directors of
the Company.

Six meetings of the Board of Directors were held during the past fiscal
year. Each of the incumbent directors of the Company attended at least
seventy-five percent of the meetings of the Board of Directors that were held
during the past fiscal year.

Nominees for Election

Shares represented by the enclosed proxy, unless otherwise directed,
will be voted to elect the five nominees listed below to serve until the 1998
Annual Meeting of Shareholders and until their successors are duly elected
and qualified. Each of the nominees has consented to being named a nominee
in this Proxy Statement and to serve as a director if elected. In the event any
nominee should become unable or unwilling to accept a nomination or election,
the persons named in the enclosed proxy will vote for the election of a
nominee designated by the remaining nominees.

Name of Director Age Year first Position with the Company
elected a (other than as a
Director director)

Leslie M. Apple 47 1982 Member of The Office of the
Chief Executive; Special
Administrative Assistant to
the President

Richard C. Farr 68 1982 Chairman of the Board;
Member of The Office of the
Chief Executive; President
and Treasurer

Samuel J. Padula 73 1985 Member of The Office of the
Chief Executive; Special
Administrative Assistant to
the President

Reginald W. Ray, Jr. 67 1982 Special Administrative
Assistant to the
President

John D. Shepherd 51 1982 Member of The Office of the
Chief Executive; Special
Administrative Assistant to
the President

Business Experience

Leslie M. Apple has been a practicing attorney with the Albany, New York,
law firm of Whiteman Osterman & Hanna since January 1995. Prior to joining this
firm, Mr. Apple practiced law with Apple, Honen, Sims & Wood, P.C., Albany,
New York, since founding that firm in August 1985. Since January 1987,
Mr. Apple has been a Special Administrative Assistant to the President.
Since May 1997, Mr. Apple has been a member of The Company's Office of Chief
Executive.

Richard C. Farr has been Chairman of the Board of the Company since
January 1990 and President and Treasurer of the Company since December 1991.
Mr. Farr was the Company's Chief Executive Officer from December 1991 to
May 1997, at which time he became a Member of the Office of Chief Executive.
Mr. Farr has also been Chairman and Chief Executive Officer of Farr
Investment Company, a private investment firm in West Hartford, Connecticut,
for more than the past five years. From January 1987 to December 1991,
Mr. Farr was a Special Administrative Assistant to the President.

Samuel J. Padula has been President and Chief Executive Officer of
Padula Construction Corp., a real estate development and construction firm in
Oceanport, New Jersey, for more than the past five years. Since January
1987, Mr. Padula has been a Special Administrative Assistant to the
President. Since May 1997, Mr. Padula has been a member of The Company's
Office of Chief Executive.

Reginald W. Ray, Jr., has been President of The Hunter Corporation, a
commercial construction firm in Westport, Connecticut, for more than the past
five years. Since January 1987, Mr. Ray has been a Special Administrative
Assistant to the President.

John D. Shepherd has been President of Sweetbrier Ltd., an equestrian
facility, since June 1992 and a private investor since May 1991. Mr.
Shepherd was Co-Chairman and Treasurer of Aquatherm Products Corporation, a
manufacturer and distributor of health care products for home
and institutional use in Rahway, New Jersey, from January 1986 to May 1991.
Since January 1987, Mr. Shepherd has been a Special Administrative Assistant
to the President, and since May 1997, Mr. Shepherd has been a member of The
Company's Office of Chief Executive.

No nominee for director holds any directorship in a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to the requirements of Section 15(d) of such Act. No nominee
for director holds any directorship in a company registered as an investment
company under the Investment Company Act of 1940 other than Mr. Farr, who is
a Trustee of the Scottish Widows International Fund.

The Board of Directors has established an Audit Committee, a Compensation
Committee and a Strategy Committee. The Audit Committee, whose function is
to oversee the Company's financial reporting systems, consists of Messrs.
Apple and Padula, and Ms. Considine. The Compensation Committee, whose
function is to review and make recommendations to the Board on executive
compensation, consists of Messrs. Padula, Ray and Shepherd. The Strategy
Committee, whose function is to make recommendations to the Board on the
future business direction of the Company, consists of Messrs. Apple, Ray and
Shepherd. One meeting of each of the above committees was held during the
past fiscal year. The Company does not have a standing nominating committee
or any committee performing a similar function.

THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS
A VOTE "FOR" THE ELECTION OF THE NOMINEES NAMED ABOVE.

EXECUTIVE OFFICERS

The executive officers of the Company, each of whom was elected by the
Board of Directors of the Company to serve in the capacities set forth below
opposite their names, and, except as otherwise noted, is currently serving a
one-year term to expire on the date of the Annual Meeting, July 7, 1997, are
as follows:

Name Age Office(s)

Leslie M. Apple (1) 47 Member of The Office of Chief Executive

Richard C. Farr (1) 68 Chairman of the Board; Member of The
Office of Chief Executive; President and
Treasurer;

Barbara J. Durkish 36 Vice President, Communications;
Assistant Secretary

Steven W. Ewing (2) 55 Chief Operating Officer

Carole P. Hart 54 Secretary; Manager, Administrative
Services

Peter M. Hart 57 Vice President, Administration and
Planning

John W. Naftzger (3) 56 Vice President, Company Sales and
New Distribution

Samuel J. Padula (1) 73 Member of The Office of Chief
Executive

John F. Schumaker 50 Vice President, Design and Production

John D. Shepherd (1) 51 Member of The Office of Chief
Executive

(1) As of May 20, 1997, the Board of Directors created The Office of Chief
Executive to replace the position of Chief Executive Officer. Messrs. Apple,
Farr, Padula and Shepherd were elected by the Board of Directors to fill The
Office of Chief Executive, to serve until the 1997 Annual Meeting of The Board
of Directors, at which time they will be nominated to serve in their current
capacity for the upcoming year.

(2) Mr. Ewing was elected to this current position by the Board of Directors
effective May 20, 1997, to serve until the 1997 Annual Meeting of the Board
of Directors, at which time he will be nominated to serve in his current
capacity for the upcoming year.

(3) Mr. Naftzger was elected to this current position by the Board of
Directors effective April 1, 1997, to serve until the 1997 Annual Meeting of
the Board of Directors.

Leslie M. Apple has been a practicing attorney with the Albany, New York,
law firm of Whiteman Osterman & Hanna since January 1995. Prior to joining this
firm, Mr. Apple practiced law with Apple, Honen, Sims & Wood, P.C., Albany,
New York, since founding that firm in August 1985. Since January 1987,
Mr. Apple has been a Special Administrative Assistant to the President.
Since May 20, 1997, Mr. Apple has been a member of The Company's Office of
Chief Executive.

Barbara J. Durkish has been Vice President, Communications, of the Company
since July 1987 and Assistant Secretary since June 1992. Ms. Durkish has
served in several capacities since she joined the Company in 1979, including
Vice President, Consumer Affairs from February 1983 to July 1987, and
Secretary of the Company from February 1983 to June 1992. Ms. Durkish is
the daughter of Richard Considine, formerly a Director of the Company until
his resignation from the Board in May 1993 and formerly the President and
Chief Executive Officer of the Company, from which positions he resigned in
December 1991. Barbara J. Durkish is the sister of Susan M. Considine, a
director of the Company.

Steven W. Ewing has been Chief Operating Officer since May 1997. Prior
to joining the Company, Mr. Ewing was the founder and President of
Interactive Creative Ideas, Inc., a provider of entertainment and financial
services in Dallas, Texas, from March 1996 to April 1997. Prior to that
position, Mr. Ewing was the Managing Director of West End Post, Inc., a
traditional audio/video post product company in Dallas, Texas from May 1994
to April 1996. From June 1989 to April 1994, Mr. Ewing was a founder and
Senior Vice President, Finance and Administration and Chief Operating Officer
of Graphix Zone, Inc., a producer and distributor of computer interactive
multimedia consumer products.

Carole P. Hart has been Secretary and Manager of Administrative Services
since June 1996. Prior to her promotion to her current position, Ms. Hart
was Assistant Secretary and Senior Staff Administrator, a position she held
since joining the Company in April 1994. Prior to joining the Company, Ms.
Hart was employed by New England Log Homes, Inc. as the Senior Staff
Administrator from January 1981 to January 1994. Ms. Hart is the wife of
Peter M. Hart, Vice President, Administration and Planning.

Peter M. Hart, MBA, has been Vice President, Administration and Planning
since April 1997. Prior to assuming his current position, Mr. Hart was Vice
President, Finance, Administration and Planning since June 1996. Prior to
that position, Mr. Hart was Vice President, Planning, Customer Satisfaction
and Quality Assurance since March 1995. Prior to that promotion, Mr. Hart
was General Manager, Western Region, a position he held since joining
the Company in April 1994. Prior to joining the Company, Mr. Hart was
employed by New England Log Homes, Inc. from August 1980 to January 1994,
where he had served as Senior Vice President and Director of Marketing since
1986. Mr. Hart is the husband of Carole P. Hart, Secretary of the Company.

John W. Naftzger has been Vice President, Company Sales and New
Distribution since April 1997. Prior to assuming his current position,
Mr. Naftzger was Vice President, Marketing and Sales since August 1993.
Prior to that position, Mr. Naftzger was Director of Marketing and
Sales, a position he held from May 1992, when he joined the Company.
Prior to joining the Company, Mr. Naftzger was President of J. Naftzger
Communications, a consulting firm, from January 1989 to May 1992.

Samuel J. Padula has been President and Chief Executive Officer of Padula
Construction Corp., a real estate development and construction firm in
Oceanport, New Jersey, for more than the past five years. Since January
1987, Mr. Padula has been a Special Administrative Assistant
to the President. Since May 20, 1997, Mr. Padula has been a member of the
Company's Office of Chief Executive.

John F. Schumaker has been Vice President, Design and Production since
June 1996. Prior to his promotion to his present position, Mr. Schumaker was
Vice President of Design and Engineering for the Company from August 1993 to
June 1996 and Director of Design and Engineering from May 1990 to August 1993.

John D. Shepherd has been President of Sweetbrier Ltd., an equestrian
facility, since June 1992 and a private investor since May 1991.
Mr. Shepherd was Co-Chairman and Treasurer of Aquatherm Products Corporation,
a manufacturer and distributor of health care products for home and
institutional use in Rahway, New Jersey, from January 1986 to May 1991.
Since January 1987, Mr. Shepherd has been a Special Administrative Assistant
to the President, and since May 20, 1997, Mr. Shepherd has been a member of
the Company's Office of Chief Executive.

In conjunction with the creation of The Office of Chief Executive and the
appointment of a Chief Operating Officer, the Board of Directors has proposed
for consideration at its annual meeting following the Annual Meeting of
Shareholders, that the following shall be appointed as the officers of
the Company:

Name Age Office(s)

Leslie M. Apple 47 Member of The Office of Chief
Executive

Richard C. Farr 68 Chairman of the Board; Member of The
Office of Chief Executive; President
and Treasurer;

Steven W. Ewing 55 Vice President-Chief Operating Officer

Carole P. Hart 54 Secretary; Manager, Administrative
Services

Samuel J. Padula 73 Member of The Office of Chief
Executive

John D. Shepherd 51 Member of The Office of Chief
Executive

EXECUTIVE COMPENSATION

The following table sets forth all annual and long- term compensation paid
by the Company through the latest practicable date to the Chief Executive
Officer of the Company and to all executive officers of the Company who
received total annual salary and bonus in excess of $100,000 for services
rendered in all capacities to the Company and its subsidiaries during the
fiscal year ended January 31, 1997.

Summary Compensation Table
<TABLE>
Annual Compensation Long-Term Compensation
Awards
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Restricted Options/ LTIP All Other
Principal Annual Stock Awards SARs Payouts Compensation
Position Year Salary Bonus Compensation ($) (#) ($) ($)
- - - -------- ---- ------- ----- ------------ ------------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard 1997 0.00 0.00 104,894.00 0.00 75,000(4) 0.00 36,000.00(5)
C. Farr 1996 0.00 0.00 98,238.00 0.00 40,000 0.00 0.00
Chief 1995 0.00 0.00 100,294.00 0.00 40,000 0.00 0.00
Executive
Officer

</TABLE>

(4) On June 19, 1996, Mr. Farr's 40,000 options were canceled and replaced with
75,000 options.
(5) In February 1996, the Company began accruing an expense for a Post
Retirement Life Insurance Policy on behalf of Richard C. Farr.

Since becoming President and Chief Executive Officer in December 1991,
Mr. Farr has not received any base salary or bonus for serving the Company in
those capacities. For the period since January 1990, Mr. Farr has not
received any base salary or bonus for serving as Chairman of the Board.
Mr. Farr did receive compensation for serving as director during the fiscal
years ended January 31, 1997, 1996 and 1995, on the same basis as that received
by other directors (see "EXECUTIVE COMPENSATION-Compensation of Directors").
During the fiscal year ended January 31, 1997, and for each of the three
previous fiscal years, Mr. Farr has periodically advanced funds to the
Company to assist the Company in meeting operating needs. It is
anticipated that the Company will repay these interest-bearing advances when its
cash position enables it to do so.

No other executive officer of the Company received annual compensation
exceeding $100,000 during the fiscal year ended January 31, 1997.

Employee Savings Plan

The Company maintains a defined contribution salary reduction plan (the
"Plan") pursuant to Section 401(k) of the Internal Revenue Code of 1986 (as
amended from time to time, the "Internal Revenue Code") for all employees who
have completed one year of service with the Company. Thirty-seven of the
Company's employees are currently eligible to participate in the Plan,
nineteen of whom have elected to participate. Employees participating in the
Plan may elect to defer compensation up to the maximum permitted by the
Internal Revenue Code. The Company contributes, on behalf of each
participating employee, a percentage amount of determined annually by the
Company based upon the profits of the Company. Aggregate annual additions
on behalf of any employee may not exceed the lesser of 25% of such employee's
compensation for any given year or $7,000 (as adjusted for increases in the
cost of living as prescribed by regulation by the Secretary of the Treasury,
$9,500 for the 1997 calendar year). Contributions to the Plan made by the
Company are 20% vested after a participating employee completes three years
of service with the Company and continue to vest at the rate of an additional
20% over each of the following four years of employment.

During the fiscal years ended January 31, 1997, 1996 and 1995, $28,622,
$6,972 and $98,685, respectively, were paid to employees of the Company
pursuant to the Plan.

Stock Option Plan

The Company has in effect a Stock Option Plan (the "Option Plan") which
permits the granting to key employees stock options which qualify as
"incentive stock options" under the Internal Revenue Code to purchase up to
132,840 shares of the Company's Common Stock in accordance with the
requirements imposed by the Internal Revenue Code. The Option Plan
permits the Board of Directors of the Company, or a committee of the Board of
Directors consisting of at least three directors, to grant incentive stock
options to key employees of the Company. All of the Company's directors, as
key employees of the Company, are eligible to receive incentive stock
options. As required by the applicable provisions of the Internal Revenue
Code, the exercise price of incentive stock options granted under the Option
Plan must be equal to or greater than the fair market value of the shares
which are subject to any option on the date the option is granted.

There are currently approximately ten persons eligible to receive incentive
stock options under the Plan. During the fiscal year ended January 31, 1997,
incentive stock options to purchase a total of 45,000 shares of the Company's
Common Stock which had previously been issued to seven key employees and the
Company's founder were canceled. The canceled incentive stock options
entitled the seven Company employees to purchase a total of 35,000 shares of the
Company's Common Stock at a purchase price of $0.875 per share; the remaining
canceled option entitled the holder thereof to purchase 10,000 shares at a
purchase price of $0.888 per share. During the fiscal year ended January 31,
1997, incentive stock options to purchase a total of 52,500 shares of the
Company's Common Stock were granted to the seven key employees who held
canceled incentive stock options and three additional key employees. The newly
granted incentive stock options entitle nine of the holders thereof to
purchase 47,500 share of the Company's Common Stock at a purchase price of
$0.1875 per share; the remaining option entitles the holder thereof to
purchase 5,000 shares at a purchase price of $0.20625 per share. No
incentive stock options granted under the Plan have been exercised through the
date of this Proxy Statement.

In addition to granting options to key employees intended to qualify as
incentive stock options under the Internal Revenue Code, the Option Plan also
permits the Board of Directors (or the committee which administers the Option
Plan), to grant stock options (the "Non-qualified Stock Options") which do
not qualify as incentive stock options to key employees of the Company
and directors who are not employees of the Company. Up to 151,000 options are
currently designated by the Option Plan for issuance as non-qualified stock
options. The Board, or the committee that administers the Option Plan, has
the authority to decide to whom non-qualified stock options are granted, as
well as the number of shares of the Company's Common Stock that may be
purchased under each such option, the exercise price to be paid by the optionee
for the shares purchasable upon exercise of such option, and the other terms,
conditions and restrictions (if any) of such options (which need not be the
same for each non-qualified stock option granted).

There are currently approximately ten persons eligible to receive
non-qualified stock options under the Plan. During the fiscal year ended
January 31, 1997, non-qualified stock options to purchase a total of 145,000
shares of the Company's Common Stock at a purchase price of $0.625 which
previously had been issued to eight key employees and directors pursuant to the
Option Plan and options to purchase a total of 22,000 shares at a price of
$0.625 issued outside the Option Plan to two individuals were canceled. In
place of the canceled options, non-qualified stock options to purchase a
total of 145,000 shares of the Company's Common Stock at a purchase
price of $0.1875 per share were granted to eight key employees and directors
pursuant to the Option Plan and options to purchase 62,000 shares at a price
of $0.1875 were granted outside the Option Plan to two individuals. No
non-qualified stock options have been exercised through the date of this
Proxy Statement.

Compensation of Directors

Each director is compensated for his or her services in the amount of
$5,000 per year (which amount was reduced for the Company's fiscal year ended
January 31, 1997 to $4,438, in accordance with a Company program pursuant to
which there was a percentage reduction of compensation paid to directors,
officers and certain other employees of the Company), plus $1,250 for each
meeting of the Board of Directors attended. Each member of the Audit,
Compensation and Strategy Committees is compensated in the amount of $500 for
each Committee meeting attended. Health insurance is available to the
directors at the Company's expense. Those directors who do not require
health insurance are eligible for other benefits (such as tax
preparation by a financial planning service designated by the Company) of
comparable value.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Description of certain transactions and agreements to which the Company and
certain of the officers and directors of the Company are parties are set
forth below.

In August 1984, the Company granted a below-market mortgage loan to
Barbara J. Durkish, a Vice President and the Assistant Secretary of the
Company, in the amount of $90,000, repayable with interest at the rate of
6% per annum in equal monthly installments over a 35-year period. The
outstanding balance of said loan as of January 31, 1997 and January 31, 1996 was
$76,204 and $77,615, respectively.

The Company paid the law firm of Whiteman Osterman & Hanna, of which
Leslie M. Apple, a director of the Company, is a principal, a total of
$25,347 for legal services rendered during the past fiscal year. The Company
believes the services provided to it by the law firm of Whiteman Osterman &
Hanna were provided to it at a cost comparable to that which the Company
would have been required to pay for comparable services from an unaffiliated
third party.

Richard Considine, the Company's founder, was a party to a ten-year
employment agreement with the Company dated as of March 12, 1986 (the
"Employment Agreement"). By mutual agreement between Mr. Considine and the
Company, Mr. Considine retired from all positions he held with the Company,
including his directorship, effective May 1, 1993. In settlement of their
mutual obligations under the Employment Agreement, the Company and Mr.
Considine entered into a Stock Purchase, Deferred Compensation, Retirement and
Loan Agreement dated as of May 21, 1993 (the "Retirement Agreement"). Under the
terms of the Retirement Agreement, the Company has agreed, among other things,
to repurchase the shares of the Company's Common Stock held by Mr. Considine
and/or members of his family in four installments, to pay Mr. Considine
certain deferred compensation which had accrued under the Employment
Agreement, and to provide Mr. Considine with certain life and health insurance
benefits. In addition to retiring from all positions held by him on the
effective date of the Retirement Agreement, Mr. Considine agreed to enter into a
non-competition agreement with the Company whereby Mr. Considine agreed not to
compete with the Company for a fixed period of time not to extend beyond
March 12, 1996. Mr. Considine and members of his family who held shares on
the effective date of the Retirement Agreement also entered into a Shareholder
Voting Agreement with the Company dated as of May 21, 1993. Pursuant to the
terms of the Shareholder Voting Agreement, Mr. Considine and the members of
his family, who were a party to the agreement, agreed to vote their shares of
the Company's Common Stock in accordance with the direction of Mr. Richard C.
Farr, the Company's Chairman, President, Chief Executive Officer
and Treasurer, or the then-current Chairman of the Board. The total liability
related to the Retirement Agreement was $747,689, of which $281,805 related to
the redemption of 375,740 shares of Company Common Stock and $465,884 related
to accrued deferred compensation and other post-employment benefits.

On July 10, 1996, the Company made the final payments to Mr. Considine
related to stock redemption and accrued deferred compensation/benefits in the
amount of $94,305 and $106,802, respectively. This completed the redemption
of the 375,740 shares of the Company's Common Stock held by Mr. Considine
and/or members of his family, and accordingly, the Shareholder
Voting Agreement terminated.

<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The following table identifies each person known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock and
sets forth the number of shares of the Company's Common Stock beneficially owned
by each such person and the percentage of the shares of the Company's
outstanding Common Stock owned by each such person.

Name and Address of Number of Shares Percent of
Beneficial Owner of Common Stock of the Outstanding Common
Beneficially Owned Beneficially Owned
as of May 12, 1997 as of May 12, 1997
- - - --------------------- ------------------ ------------------

Richard C. Farr
40 Colony Road
W. Hartford, CT 06117 1,110,801 (1) 23.6%

Austin W. Marxe
153 East 53rd Street
New York, NY 10022 1,127,500 (2) 24.0%

Samuel J. Padula
6 Leeward Court
Oceanport, NJ 07757 285,140 (3) 6.1%

John D. Shepherd
1020 Sport Hill Road
Easton, CT 06612 1,151,961 (4) 24.5%

(1) Includes (i) 75,000 shares subject to options which are exercisable within
60 days, and (ii) 1,000,000 shares subject to the Company's Convertible
Subordinated Debentures which are convertible within 60 days.

(2) Includes (i) 162,000 shares owned by Special Situations Fund III, L.P.,
(ii) 750,000 shares subject to the Company's Convertible Subordinated
Debentures held by Special Situations Fund III, L.P. which are convertible
within 60 days, (iii) 5,000 shares owned by Special Situations Cayman Fund,
L.P., and (iv) 200,000 shares subject to the Company's Convertible
Subordinated Debentures which are convertible within 60 days. Certain
information regarding Mr. Marxe, Special Situations Fund III, L.P. and
Special Situations Cayman Fund, L.P. is based on information set forth in the
Schedule 13G for the period ended December 31, 1996, filed with the
Securities and Exchange Commission on behalf of Mr. Marxe and the various
funds with which he is affiliated.

(3) Includes (i) 30,000 shares subject to options which are exercisable within
60 days, (ii) 2,100 shares owned jointly by Mr. Padula with his wife,
Mrs. Eleanor Padula, with whom Mr. Padula shares voting and investment power,
and (iii) 250,000 shares subject to the Company's Convertible Subordinated
Debentures held by Mrs. Padula which are convertible within 60 days; excludes
13,603 shares held by Mrs. Padula, as to which Mr. Padula disclaims
beneficial ownership.

(4) Includes (i) 30,000 shares subject to options which are exercisable within
60 days, and (ii) 1,000,000 shares subject to the Company's Convertible
Subordinated Debentures which are convertible within 60 days.

Security Ownership of Management

The following table sets forth the number of optioned shares of the
Company's Common Stock beneficially owned by each director of the Company and
all directors and officers of the Company as a group and the percentage of
the shares of the Company's outstanding Common Stock owned by each director
of the Company and all directors and officers of the Company as
a group. Except as otherwise noted, the named individual has sole voting power
and sole investment power over the securities.

Number of Shares Percent of
of Common Stock of Outstanding Common
the Company Stock of the Company
Beneficially Owned Beneficially Owned as of
Name as of May 12, 1997 May 12, 1997
- - - --------------- ------------------ ------------------------

Leslie M. Apple 157,104 (1)(2)(3) 3.3%

Susan M. Considine 30,000 (1) 0.6%

Richard C. Farr 1,110,802 (4) 23.6%

Samuel J. Padula 285,140 (1)(5) 6.1%

Reginald W. Ray, Jr. 208,802 (1)(3)(6) 4.4%

John D. Shepherd 1,151,961 (1)(7) 24.5%

All officers and
directors as a group
(11 persons) 2,967,309 (8) 63.25%

(1) Includes 30,000 shares subject to options which are exercisable within 60
days.

(2) Includes 1,000 shares owned by Leslie M. Apple, P.C., a professional
corporation of which Mr. Apple is the sole shareholder.

(3) Includes 125,000 shares subject to the Company's Convertible Subordinated
Debentures which are convertible within 60 days.

(4) Includes (i) 75,000 shares subject to options which are exercisable
within 60 days, and (ii) 1,000,000 shares subject to the Company's
Convertible Subordinated Debentures which are convertible within 60 days.

(5) Includes (i) 2,100 owned jointly by Mr. Padula with his wife, Mrs. Eleanor
Padula, with whom Mr. Padula shares voting and investment power, and
(ii) 250,000 shares subject to the Company's Convertible Subordinated
Debentures held by Mrs. Padula which are convertible within 60 days; excludes
13,603 shares held by Mrs. Padula, as to which Mr.Padula disclaims beneficial
ownership.

(6) Excludes 12,702 shares owned by Mr. Ray's wife, as to which Mr. Ray
disclaims beneficial ownership.

(7) Includes 1,000,000 shares subject to the Company's Convertible Subordinated
Debentures which are convertible within 60 days.

(8) Includes a total of (i) 257,500 shares subject to options which are
exercisable within 60 days, and (ii) 2,500,000 shares subject to the Company's
Convertible Subordinated Debentures which are convertible within 60 days.

There are no arrangements known to the Company the operation of which may
at a subsequent date result in a change in control of the Company.

PROPOSAL NO. 2
APPROVAL OF INDEPENDENT AUDITORS

Subject to approval of the Company's shareholders, the Board of Directors
has decided that KPMG Peat Marwick LLP, which firm has been the independent
certified public accountants of the Company since 1987, be continued as
auditors for the Company. The shareholders are being asked to approve the
Board's decision to retain KPMG Peat Marwick LLP for the fiscal year
ending January 31, 1998.

A representative of KPMG Peat Marwick LLP is expected to be present at the
Meeting and will have the opportunity to make a statement if he desires to do so
and to respond to appropriate questions from shareholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING
JANUARY 31, 1998.

<PAGE>
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION

Of its 5,000,000 authorized shares of Common Stock, par value $.01 per
share, the Company currently has 945,759 shares of Common Stock, par value $.01
per share, issued and outstanding. No shares of Preferred Stock are issued
and outstanding.

After giving effect to all shares reserved for issuance, the Company may
not have sufficient uncommitted shares for use in future transactions involving
the issuance of shares of the Company's Capital Stock.

The Board of Directors has approved, subject to shareholder approval, an
amendment to the Company's Certificate of Incorporation, that would increase the
number of authorized shares of the Company's Common Stock from 5,000,000 shares
to 10,000,000 shares.

The purpose of the proposed amendment is to provide additional shares which
could be issued for various purposes, including raising working capital,
providing the flexibility which the Board of Directors believes is important
to provide for business opportunities and to use for other general corporate
purposes without further stockholder approval unless required by applicable law,
regulation or stock exchange rule. In addition to availability for financing
and other general corporate purposes, the shares would be available for use in
acquisitions, stock dividends and splits and employee stock benefit plans.
The Company has no plans, agreements or understandings at the present time
for the issuance of the additional shares of capital stock to be
authorized by the amendment. No holders of any class of stock of the Company
are entitled as a matter of right to any preemptive or subscription rights
with respect to any shares of the Company's capital stock. Accordingly, the
issuance of common stock other than on a pro rata basis to all current
stockholders would reduce the current stockholders' proportionate ownership
interests.

The proposed amendment is not in response to any effort of which the
Company is aware to accumulate the Company's capital stock or to otherwise
obtain control of the Company. Although it is possible that the private
placement of a block of the Company's capital stock could be used as an
anti-takeover strategy, the Company has no present intention to issue any stock
for any such purpose.

Accordingly, the Board of Directors has proposed that Article 4 of the
Company's Certificate of Incorporation be amended to increase its authorized
capital stock. As so amended, this provision of the Certificate of
Incorporation would read as set forth on Exhibit A hereto.

THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS
A VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION.

PROPOSAL NO. 4
AMENDMENT TO AND RE-ADOPTION OF THE COMPANY'S
STOCK OPTION PLAN

The Company has used stock options as a key element of its overall
compensation program for key employees of the Company and directors who are
not employees of the Company. The Board of Directors and the Compensation
Committee of the Board of Directors believe that it is important to have
equity-based incentives available to attract and retain both qualified key
employees and directors who are not employees of the Company.

The Company's Stock Option Plan (the "Plan") expired on July 31, 1996.
The Board of Directors has approved, subject to shareholder approval, the
re-adoption of the Plan in its current form effective as of July 31, 1996,
subject to an amendment to the Plan that would increase the
number of options that may be awarded with respect to shares of the Company's
Common Stock from 132,840 shares to 235,000 shares issuable as Incentive
Stock Options and from 151,000 shares to 250,000 shares, issuable as
Non-Qualified Stock Options. A description of the Plan is also set forth
under "Stock Option Plan."

Under the Amended Plan, a maximum number of 235,000 shares of Common
Stock, $.01 par value per share, of the Company, which may be either
authorized and unissued shares or issued shares which have been reacquired by
the Company, is allocated for the issuance of all Incentive Stock Options.

The Plan contains the following principal restrictions: (1) the aggregate
fair market value (etermined as of the date the Incentive Stock Option is
granted) of the stock for which an employee may be granted Incentive Stock
Options in any calendar year shall not exceed $100,000 plus certain
adjustments, if applicable, contained in the Internal Revenue Code; (2) an
Incentive Stock Option shall not by its terms be exercisable by an employee
while there is outstanding any Incentive Stock Option which was previously
granted to such employee to purchase stock in the employee's employer
corporation or in a corporation which is a parent or subsidiary of the
employer corporation, or is a predecessor corporation of any such corporation;
(3) the Incentive Stock Option must be granted within ten years of the
earlier of the date of adoption or the date of approval of the Plan; (4) the
term of the Incentive Stock Option must not exceed ten years; (5) the
Incentive Stock Option exercise price, which may be paid in cash or, at the
discretion of the Board, in stock of the Company, valued at fair market
value, must equal or exceed the fair market value of the stock to which the
Incentive Stock Option relates on the date the Incentive Stock Option is
granted; (6) the Incentive Stock Option must be, by its terms, not transferable,
other than by will or the laws of descent and distribution and must be
exercisable during the lifetime of the employee only by the employee; and
(7) the employee must not, immediately before the Incentive Stock Option is
granted, own stock possessing more than 10% of the total combined
voting power of all classes of stock of the employer corporation or its parent
or subsidiary corporation, unless both (a) the Incentive Stock Option price
is not less than 110% of the fair market value of the stock to which the
Incentive Stock pertains at the time the Incentive Stock Option is granted;
and (b) the Incentive Stock Option by its terms is not exercisable after five
years from the date the Incentive Stock Option is granted.

The Plan permits, at the discretion of the Board of Directors, an optionee
to request the Company to automatically apply the share or shares received
upon the exercise of a portion of an Incentive Stock Option to satisfy the
exercise price for additional portions of the Incentive Stock Option. The
optionee is then required to pay in cash only the net balance of the exercise
price, if any, although the optionee will end up with fewer shares than the
full number subject to the Incentive Stock Option. The effect of such
transaction would not result in additional treasury shares, as shares
surrendered in the transaction would be reissued from treasury to the optionee
as the transaction continues.

The Board of Directors of the Company may amend or modify the Plan, except
that approval of the stockholders of the Company is required for any amendment
which shall (a) increase the aggregate number of shares of Common Stock of
the Company which may be issued and sold upon exercise of Incentive Stock
Options granted pursuant to the Plan or (b) reduce the minimum purchase price
per share of Common Stock purchasable under any Incentive Stock Option
granted pursuant to the Plan.

Under the Amended Plan, a maximum number of 250,000 shares of Common Stock,
par value $.01 per share, of the Company, which may be either authorized and
unissued shares or issued shares which have been reacquired by the Company,
is allocated for the issuance of all Non-Qualified Stock Options. No
business expense or other deduction will be allowed to the Company for tax
purposes in connection with the granting of an Incentive Stock Option or the
granting of a Non-Qualified Stock Option. The principal features of the Plan,
as described above, as it relates to Incentive Stock Options, is not affected by
the ability to award Non-Qualified StockOptions pursuant to the Plan.

Future awards, if any, that will be made to eligible participants in the
Stock Option Plan are subject to the discretion of the Committee and,
therefore, are not determinable at this time. The following table sets forth,
for certain executive officers, directors and key employees, the
number of optioned shares under the Stock Option Plan through January 31, 1997.

INCENTIVE STOCK OPTIONS

Name Number of Shares Exercise Price

Leslie M. Apple 5,000 $0.1875

Susan M. Considine 5,000 $0.1875

Barbara J. Durkish 5,000 $0.1875

Peter M. Hart 7,500 $0.1875

Richard C. Farr 5,000 $0.1875

John W. Naftzger 5,000 $0.1875

Samuel L. Padula 5,000 $0.1875

Reginald W. Ray, Jr. 5,000 $0.1875

John F. Schumaker 5,000 $0.1875

John D. Shepherd 5,000 $0.20625

NON-QUALIFIED STOCK OPTIONS

Name Number of Shares Exercise Price

Leslie M. Apple 25,000 $0.1875

Susan M. Considine 25,000 $0.1875

Barbara J. Durkish 10,000 $0.1875

Richard C. Farr 70,000 $0.1875

Frank G. Fredericksen 2,000 $0.1875

Samuel L. Padula 25,000 $0.1875

Reginald W. Ray, Jr. 25,000 $0.1875

John D. Shepherd 25,000 $0.1875

Participants in the Plan who receive an incentive stock option will not
recognize income for federal income tax purposes as a result of the receipt or
exercise of the incentive option. However, exercise of the incentive stock
option will increase the optionee's alternative minimum taxable income for
purposes of the alternative minimum tax in an amount equal to the excess of
the fair market value of the common stock received over the exercise price.
The Company will not be entitled to a deduction with respect to the grant or
exercise of an incentive option.

Provided the shares are held as a capital asset gain recognized on the
disposition of common stock acquired by the exercise of an incentive stock
option will be treated as long-term capital gain if (a) the shares issued
upon exercise of the incentive stock option have been held by the optionee
more than two years after the date the incentive stock option was granted and
more than one year after the date the incentive stock option was exercised,
and (b) certain other requirements of the Internal Revenue Code are satisfied
by the holder of the stock issued upon the exercise of the incentive stock
option.

Participants in the Plan who receive a non-qualified option should not
recognize any taxable income at the time he or she receives the non-qualified
option. However, upon its exercise, the optionee will recognize ordinary
income for tax purposes measured by the excess, if any, of the then fair
market value of the shares over the exercise price. Upon resale of such
shares by the optionee, any difference between the selling price and the
exercise price, to the extent not recognized as ordinary income as provided
above, will be treated as capital gain or loss, and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than one year.

The foregoing summary of the Stock Option Plan is subject to the provisions
of the Plan which is attached hereto as Exhibit B.

THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 4 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS
A VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO AND RE-ADOPTION
OF THE STOCK OPTION PLAN.

ANNUAL REPORT

A copy of the Company's Annual Report for the fiscal year ended
January 31, 1997 accompanies this Proxy Statement, but does not constitute a
part of the proxy solicitation materials.

ANY PERSON FROM WHOM PROXIES FOR THIS MEETING ARE SOLICITED
MAY OBTAIN FROM THE COMPANY, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON
FORM 10-KSB FOR THE FISCAL YEAR ENDED JANUARY 31, 1997, INCLUDING
THE FINANCIAL STATEMENTS THEREIN, BY WRITTEN REQUEST ADDRESSED
TO CAROLE P. HART, SECRETARY, LINCOLN LOGS LTD., RIVERSIDE DRIVE,
CHESTERTOWN, NEW YORK 12817. ANY SUCH REQUEST FROM A BENEFICIAL
OWNER OF STOCK NOT REGISTERED IN HIS NAME MUST CONFIRM THAT HE
WAS A BENEFICIAL OWNER OF SUCH STOCK ON MAY 12, 1997.

SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the next annual
meeting of shareholders to be held in 1998 must be received by the Company at
Riverside Drive, Chestertown, New York 12817 on or before January 16, 1998.

<PAGE>

EXHIBIT A

RESTATED CERTIFICATE OF INCORPORATION

LINCOLN LOGS LTD.

UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW

The undersigned, being the President and the Secretary of LINCOLN LOGS
LTD., pursuant to Section 807 of the Business Corporation law of the State of
New York, do hereby restate, certify and set forth:

6. The name of the corporation is LINCOLN LOGS LTD.

7. The certificate of incorporation of the corporation was filed by the
Department of State on the 25th day of February, 1977.

8. The certificate of incorporation os the corporation, as amended and
restated heretofore, is hereby further amended to effect the following
amendment authorized by the Business Corporation Law:

To amend the provisions of subparagraph (a) of Article "FOURTH"
thereof, which sets forth the aggregate number of shares which the
Corporation is authorized to issue, so as to change the aggregate number of
shares of Common Stock which the Corporation is authorized to
issue from 5,000,000 shares to 10,000,000 shares.

9. The text of the certificate of incorporation of the corporation is
hereby restated, as amended hereby, to read as herein set forth in full:

FIRST: The name of the corporation is LINCOLN LOGS LTD.

SECOND: The purposes for which it is formed are: To engage in any lawful
act or activity for which corporations may be organized under the New York
Business Corporation Law, but not to engage in any act or activity requiring
the consent or approval of any state official, department, board, agency or
other body without such consent or approval first being obtained.

THIRD: The office of the corporation is located at Riverside Drive, Hamlet
of Chestertown, Town of Chester, County of Warren and State of New York 12817.

FOURTH: (a) The aggregate number of shares which the corporation shall
have authority to issue shall be Eleven Million (11,000,000) shares, to
consist of Ten Million (10,000,000) shares of Common Stock, par value of $.01
per share, and One Million (1,000,000) shares of Preferred Stock, par value
$.01 per share, which shares of Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is hereby vested with
authority to establish and designate each such series, to fix the number of
shares therein, and the variations in the relative rights, preferences and
limitations between series.

(b) No holder of any of the shares of the capital stock of the
corporation shall be entitled as of right to purchase or subscribe for any
unissued stock of any class or any additional shares of any class to be
issued by reason of any increase of the authorized capital stock of the
corporation of any class, or bonds, certificates of indebtedness, debentures or
other securities convertible into stock of the corporation, or carrying any
right to purchase stock of any class, but any such unissued stock or such
additional authorized issue of any stock or of other securities convertible
into stock, or carrying any right to purchase stock, may be issued and disposed
of pursuant to resolution of the Board of Directors to such persons, firms,
corporations or associations and upon such terms as may be deemed advisable
by the Board of Directors in the exercise of its discretion.

FIFTH: The Secretary of State is designated as agent of the corporation
upon whom process against it may be served. The post office address to which
the Secretary of State shall mail a copy of any process against the
corporation served upon him is: P.O. Box 135, Chestertown, New York 12817.

SIXTH: The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, proceeding or suit (including one by or in the right of the
corporation to procure a judgment in its favor), whether civil or criminal, by
reason of the fact that he, his testator or intestate is or was a director or
officer of the corporation, or is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
in any capacity at the request of the corporation, against judgments, fines,
amounts paid in settlement and expenses, including attorneys' fees, actually
incurred as a result of or in connection with any such action, proceeding or
suit, or any appeal therefrom, if such director or officer acted in good
faith for a purpose which he reasonably believed to be in or not opposed to the
best interests of the corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his conduct was unlawful;
provided, however, that no indemnification shall be made to or on behalf of
any director or officer if a judgment or other final adjudication
adverse to the director or officer establishes that his acts were committed in
bad faith or were the result of active and deliberate dishonesty and were
material to the cause of action so adjudicated, or that he personally gained
in fact a financial profit or other advantage to which he was not legally
entitled.

SEVENTH: Directors of the corporation shall not be personally liable to
the corporation or its shareholders for any breach of duty in such capacity;
provided, however, that this provision shall not operate so as to eliminate
or limit (i) the liability of any director if a judgment or other final
adjudication adverse to him establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or
that he personally gained in fact a financial profit or other advantage to
which he was not legally entitled or that his acts violated Section 719 of
the New York Business Corporation Law, or (ii) the liability of any director
for any act or omission prior to the date on which this Article SEVENTH
became effective.

10. The amendment effected by Paragraph 3 of this Restated Certificate of
Incorporation and the restatement of the corporation's certificate of
incorporation set forth in Paragraph 4 of this Restated Certificate of
Incorporation were authorized by the affirmative vote of a majority of the
Board of Directors of the corporation, followed by the affirmative vote of the
holders of a majority of all outstanding shares of the corporation's common
stock entitled to vote at a meeting of shareholders.

IN WITNESS WHEREOF, we have signed this certificate as of the _____ day of
June, 1997, and we affirm the statements contained herein as true under
penalties of perjury.

President

Carole P. Hart
Secretary

<PAGE>

EXHIBIT B

LINCOLN LOGS LTD.

AMENDED AND RESTATED
STOCK OPTION PLAN

11. Definitions. As used herein:

(a) The word "Committee" means the stock option committee
described in Section 3 hereof.

(b) The word "Corporation" means Lincoln Logs Ltd.

(d) The words "Fair Market Value" mean the mean between the high
and low selling prices of the Shares on the last trading day before the date of
the granting of an Incentive Stock Option, or, if there are no sales on that
date, the mean between the high and low selling prices on the next previous
day on which sales were made. If the Shares are neither listed nor have
trading privileges on a national securities exchange, the Committee shall make a
good faith determination of the Fair Market Value of Shares to be optioned,
which shall be set forth in writing in the Option Agreement to be entered
into between the Corporation and the Optionee at the time an Incentive
Stock Option is granted.

(e) The words "Incentive Stock Option" mean an Option granted to an
Optionee under the Plan which is intended to qualify as an "incentive stock
option" under Section 422 of the Internal Revenue Code.

(f) The words "Internal Revenue Code" mean the Internal Revenue
Code of 1986, as amended.

(g) The words "Key Employees" mean all such officers, division
managers, department heads and other management or supervisory personnel or
others employed by the Corporation or any parent or subsidiary of the
Corporation who are selected by the Committee to receive Options as provided
in Section 3 hereof.

(h) The words "Non-Qualified Stock Option" mean an Option granted to
an Optionee under the Plan which is not intended to qualify as an "incentive
stock option" under Section 422 of the Internal Revenue Code.

(i) The word "Option" means an Incentive Stock Option or a
Non-Qualified Stock Option.

(j) The words "Option Agreement" mean the Option Agreement an
Optionee must sign upon receiving an Option under the Plan.

(k) The word "Optionee" means a Key Employee or Director holding an
Option under the Plan.

(l) The word "Plan" means the Lincoln Logs Ltd. Stock Option Plan, as
amended and restated as herein set forth.

(m) The word "Shares" means shares of the Corporation's common
stock having a par value of $.01 per share.

12. Purposes. The purposes of the Plan are:

(a) To encourage a sense of proprietorship on the part of those
Key Employees and Directors who will be largely responsible for the continued
growth of the Corporation;

(b) To furnish Key Employees and Directors with further incentive
to develop and promote the business and financial success of the Corporation;
and

(c) To induce Key Employees and Directors to continue in the
service of the Corporation, by providing a means whereby they may purchase
stock in the Corporation under Options granted to them under the Plan.

13. Administration.

(a) The Plan shall be administered by a stock option committee
consisting of not less than three (3) persons as the Directors shall select
and whom the Directors may appoint from time to time, and who shall serve
at the pleasure of the Directors. The Directors may, from time to time,
appoint members of the Committee in substitution for members previously
appointed and fill vacancies, however caused, in the Committee. A majority
of the Committee shall constitute a quorum. All determinations of the
Committee shall be made by a majority of the Committee members present at
a meeting of the Committee at which a quorum is present.

(b) Subject to the express provisions of the Plan, the Committee
shall have full power and authority, in its discretion, to determine
initially and from time to time when and to whom Options shall be granted and
the number of Shares to be covered by each Option. Accomplishments of
individuals in furthering the interests of the Corporation shall be the primary
guide of the Committee in apportioning the number of Shares to be optioned
pursuant to the Plan, but the Committee may take into consideration the
position held by an Optionee, his or her compensation, and any other factors
that the Committee may deem pertinent.

(c) The Committee shall also have the power and authority to
construe and interpret the Plan and the respective Option Agreements entered
into hereunder, and to make all other determinations necessary or advisable
for administering the Plan (subject, however, with respect to Incentive Stock
Options, to the provisions of the Internal Revenue Code and the regulations
issued thereunder). Without limiting the generality of the foregoing, the
Committee shall have full and complete authority and discretion to prescribe
the following terms and conditions with respect to Non-Qualified Stock
Options which are granted under the Plan (which terms and conditions need not
be identical among Optionees): (i) the number of Shares subject to, and the
expiration date of, each Non-Qualified Stock Option; (ii) the purchase price of
the Shares under each Non-Qualified Stock Option; (iii) the manner, time and
rate of exercise of each Non-Qualified Stock Option; and (iv) the
restrictions, if any, to be placed upon each Non-Qualified Stock Option or
upon the Shares which may be issued upon the exercise of such Non-Qualified
Stock Option. The determination of the Committee on all matters referred to
in this section shall be final and conclusive.

(d) The Corporation shall pay all of the expenses reasonably
incurred by the Committee in the administration of the Plan, including
professional fees.

14. Eligibility. Incentive Stock Options may be granted only to persons
who qualify for "incentive stock options" under applicable provisions of the
Internal Revenue Code and the regulations promulgated thereunder. Subject
to the foregoing, person eligible to receive Options under the Plan shall
include all such officers, division managers, department heads, and any other
management or supervisory employees or others who are designated as Key
Employees by the Committee.

15. Shares Subject to the Plan.

(a) Overall Limits. The stock to be sold pursuant to Options
granted under the Plan may be either the Corporation's authorized and
unissued Shares or issued Shares heretofore or hereafter reacquired by the
Corporation and held as treasury shares. Subject to adjustment made in
accordance with Section 13 hereof, the total number of Shares which may be
issued during the existence of the Plan shall not exceed 485,000 Shares, no
more than 235,000 Shares of which may be issued under Incentive Stock Options
granted under the Plan, and no more than 250,000 Shares of which (being
approximately 2.5% of the Corporation's authorized Shares, including Shares
which are purchasable under outstanding warrants to purchase Shares and Shares
which are reserved for issuance under the Plan, but excluding Shares which are
owned by the Corporation) may be issued under Non-Qualified Stock Options
granted under the Plan. In the event any unexercised Options lapse or
terminate for any reason, the Shares covered thereby may be optioned to
other persons, and such lapsed or terminated Options shall not be considered in
computing the maximum number of Shares that may be optioned in computing the
maximum allowance for any individual.

(b) Individual Limits. The aggregate Fair Market Value (determined
at the time an Incentive Stock Option is granted) of Shares with respect to
which Incentive Stock Options are exercisable for the first time by an
Optionee during any calendar year under the plan and all other
incentive stock option plans maintained by the Corporation and any parent or
subsidiary shall not exceed $100,000.

(c) Stock Reserve. The Corporation shall at all times during the
duration of the Plan reserve and keep available such number of Shares as will
be sufficient to satisfy the requirements of the Plan.

16. Exercise Price of Incentive Stock Options. The purchase price of the
Shares under each Incentive Stock Option granted under the Plan shall be set by
the Committee at the time the Incentive Stock Option is granted, but such
price shall not be set at less than the Fair Market Value of the Shares which
are purchasable under such Incentive Stock Option (determined in accordance
with the applicable provisions of the Internal Revenue Code, including Section
422(c)(7)) at the time such Incentive Stock Option is granted. In the case of
any individual who, at the time an Incentive Stock Option is granted, owns
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Corporation (or more than 10% of such
stock and/or the stock of any parent or subsidiary of the Corporation), the
exercise price shall be set at not less than one hundred ten percent (110%)
of the Fair Market Value of the Shares which are purchasable under such
Incentive Stock Option, and such Option shall not be exercisable after the
expiration of five (5) years from the date such Option is granted.

17. Duration of Options. Each Option granted hereunder shall continue
for such period as the Committee may determine, not to exceed ten (10) years
from the date of its grant or issuance, unless sooner terminated under the
provisions of Section 8 hereof. In the case of individuals accumulating
more than 10% of the combined voting power of all classes of stock of
the Corporation (or more than 10% of such stock and/or the stock of any parent
or subsidiary of the Corporation), Incentive Stock Options shall continue for
such period as the Committee may determine, not to exceed five (5) years from
the date of their grant.

18. Termination of Incentive Stock Options.

(a) Except as provided in subparagraphs (b), (c) and (d)
(concerning death, disability and retirement), in the event of termination of
the employment of an Optionee for any cause, whether by reason of resignation
or discharge and regardless of whether such termination is with or without
cause, each Incentive Stock Option previously granted such Optionee pursuant
to the Plan shall terminate three (3) months after the date on which such
employment terminated.

(b) If any Optionee dies while employed by the Corporation, its
parent or subsidiary, or within three (3) months thereafter, the duly
appointed legal representative of such Optionee's estate may exercise any
Incentive Stock Options granted under the Plan within three (3) months
from the date that the Optionee was last employed.

(c) If any Optionee becomes permanently and totally disabled
(within the meaning as referenced in Section 422(c)(6) of the Internal
Revenue Code) while employed by the Corporation, its parent or subsidiary,
such disabled Optionee may exercise all Incentive Stock Options granted to
such Optionee under the Plan within twelve (12) months after the date that the
Optionee was last employed.

(d) If any Optionee shall retire at or after the normal retirement
age, as the same may be established from time to time by the Directors,
such retired Optionee may exercise all Incentive Stock Options granted to
him or her under the Plan within three (3) months from the date that the
Optionee was last employed.

19. Exercise of Options.

(a) Subject to the following terms and conditions, Options may
be exercised by written notice to the Corporation at its principal office
(currently at Riverside Drive, Chestertown, New York 12817) and addressed to
the attention of the Secretary. Such notice shall specify the number of
Shares to be purchased, and shall contain such further information as may be
required by the terms of the Option Agreement entered into between the
Corporation and the Optionee.

(b) No Incentive Stock Option may be exercised unless and until
the Optionee shall have remained in the continuous employ of the Corporation
for twelve (12) months from the date such Incentive Stock Option was granted.

(c) An Option may be exercised either at one time as to the total
number of Shares covered thereby, or from time to time as to any portion
thereof in units of one hundred Shares or multiples thereof.

(d) On the exercise of an Option, the Optionee shall make payment
for the full purchase price of all Shares being purchased. Within thirty
(30) days thereafter, the Corporation shall issue or cause to be issued a
certificate or certificates evidencing the purchased Shares, which
certificate(s) shall be delivered to the Optionee.

(e) Subject to the limitations imposed by Sections 7 and 8 hereof,
in the event of the death of an Optionee, any Incentive Stock Option or Options
theretofore granted to such deceased Optionee may be exercised by the legal
representatives of the estate of the Optionee or by the person or persons to
whom the deceased Optionee's rights under any Incentive Stock Option or
Options shall pass by will or the laws of descent and distribution.

20. Payment. Payment of the purchase price for Shares purchased under
Options granted under the Plan must be made in full in cash at the time of
the exercise of the Option in the manner provided in Section 9 hereof. The
Committee, in its discretion, may provide, with respect to any Options
granted pursuant to the Plan, to permit payment of the purchase price of
the optioned stock by "pyramiding", that is, by requesting the Corporation to
automatically apply the Share or Shares received upon the exercise of a
portion of the Option to satisfy the exercise price for additional
portions of the Option.

21. Incentive Stock Options Not Transferrable. Incentive Stock Options
granted under the Plan may not be transferred except by will or the laws of
descent and distribution and, during the lifetime of the Optionee, may be
exercised only by the Optionee.

22. Purchase of Shares for Investment.

(a) Investment Intent. Each Optionee and each other person who
shall exercise an Option shall represent and agree in writing that all Shares
purchased pursuant to such Option will be purchased for investment and not
with a view to the distribution or resale thereof.

(b) Limitations on Resale. Any Shares purchased upon exercise of
an Incentive Stock Option granted under the Plan may not be sold or otherwise
disposed of within two (2) years after the Incentive Stock Option was granted
nor within one (1) year from the date Shares were issued and transferred to
the Optionee pursuant to his or her exercise of the Incentive Stock
Option, as provided in Subparagraph 9(d) hereof.

23. Adjustment of Shares. In the event of a merger, consolidation,
reorganization, recapitalization, reclassification of stock, stock divided,
split-up or other change in the Corporation structure or capitalization of
the Corporation affecting the Corporation's common stock as presently
constituted, appropriate adjustments shall be made by the Directors in the
aggregate number and kind of Shares subject to the Plan, the maximum number
and kind of Shares for which Incentive Stock Options may be granted to any
one employee and the price per Share for Shares subject to outstanding Options.

24. Registration or Qualification of Shares. Each Option shall be
subject to the condition that, if at any time the Committee shall determine
in its discretion that the registration or qualification of the Shares
covered thereby under any state or federal law is necessary or
desirable as a condition of or in connection with the granting of such Option or
the delivery of Shares on the exercise thereof, no such Option may be granted
or, if granted, delivery of Shares on the exercise thereof shall be deferred,
until such registration or qualification shall have been effected.

25. Time of Granting Options. Neither anything contained in the Plan or
in any resolution adopted or to be adopted by the Directors or the
shareholders of the Corporation nor any action taken by the Committee shall
constitute the granting of an Option. The granting of an Option shall take
place only when a written Option Agreement shall have been duly executed and
delivered by or on behalf of the Corporation and the Optionee.

26. Form of Option. The form of any Option Agreement granted pursuant to
the Plan shall contain such terms and provisions (not inconsistent with the
terms of the Plan or, in the case of Incentive Stock Options, with the
provisions of Section 422 of the Internal Revenue Code and
the regulations promulgated thereunder) as may be approved by the Committee.

27. Suspension, Amendment or Termination of Plan.

(a) The Directors shall have the right, at any time, to suspend,
amend or terminate the Plan.

(b) Notwithstanding the foregoing, no amendment shall increase the
total number of Shares that shall be the subject of the Plan or change the
formula for determining the purchase price for the Shares subject to Option,
unless duly approved by the holders of a majority of the issued and
outstanding common stock of the Corporation.

(c) No amendment shall be adopted which would cause Incentive Stock
Options granted under the Plan to cease to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code.

(d) No termination of the Plan or action by the Directors in
amending or suspending the Plan shall affect or impair the rights of an
Optionee under any Option previously granted under the Plan.

(e) No Option may be granted under the Plan during any written
suspension thereof or after the termination thereof.

28. Effective Date and Term of Plan. The Plan shall become effective at
such time as it shall have been approved by a majority vote of both the
Directors and the shareholders of the Corporation. The Plan shall continue
in effect unless terminated under Section 17 hereof.

<PAGE>

PROXY LINCOLN LOGS LTD. PROXY
ANNUAL MEETING OF SHAREHOLDERS HELD ON JULY 7, 1997
The undersigned hereby appoints Richard C. Farr and Carole P. Hart, or either
of them, as proxy or proxies of the undersigned, with full powers of
substitution, to vote at the Annual Meeting of Shareholders of Lincoln
Logs Ltd. (the "Company") to be held on July 7, 1997 at 11:00 a.m. local
Time at the Queensbury Hotel, 88 Ridge Street, Glens Falls, New York,
and at any and all adjournments thereof, according to the number of votes that
the undersigned would be entitled to cast with all powers the undersigned
would possess if personally present at the Meeting. This proxy may be
exercised to vote for the following purposes:

29. FOR the election as directors of all nominees listed below (except as
marked to the contrary below), or
WITHHOLD AUTHORITY TO VOTE ON all nominees listed below,

INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below:

Leslie M. Apple Richard C. Farr Samuel J. Padula Reginald W. Ray, Jr.
John D. Shepherd

30. FOR AGAINST ABSTAIN the proposal to approve the appointment of KPMG
Peat Marwick LLP as independent auditors for the Company for the fiscal year
ending January 31, 1998.

31. FOR AGAINST ABSTAIN the proposal to amend the Company's
Certificate of Incorporation.

32. FOR AGAINST ABSTAIN the proposal to amend and re-adopt the
Company's Stock Option Plan.

(Continued and to be signed on reverse side)

33. To act upon such other matters as may properly come before the Meeting
or any adjournment thereof. The undersigned hereby confirms all that said
proxy or proxies, or substitutes, may do by virtue hereof. The proxies are
authorized to vote in their discretion with respect to matters not known at
the date of the Company's Proxy Statement dated June __, 1997 (the "Proxy
Statement"). The undersigned hereby acknowledges receipt of the Notice of
Meeting, Proxy Statement and Annual Report for the fiscal year ended
January 31, 1997.

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH YOUR SPECIFICATIONS ABOVE. IN THE ABSENCE OF
SPECIFICATIONS, THIS PROXY WILL BE VOTED "FOR" THE ELECTION AS
DIRECTORS OF THE NOMINEES NAMED IN PROPOSAL 1 AND "FOR"
EACH OF PROPOSALS 2, 3 AND 4 SET FORTH ABOVE.
Dated: ,1997
(L.S.)
(L.S.)
Please sign here exactly as name appears at the left. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title as such. Each joint owner or trustee should sign the proxy. If the
shareholder is a corporation, the office of the person signing should be
indicated.

PLEASE SIGN, DATE AND MAIL THIS PROXY TODAY. THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY.