CEO Employment Contract

The Vermont Teddy Bear Company, Inc.

6655 Shelburne Road

Shelburne, Vermont 05482


November 21, 2001


Ms. Elizabeth B. Robert

Shelburne, VT 05482

Re: Employment Agreement

Dear Liz:

This letter is to follow up on recent discussions by the Board and confirms our agreement concerning the terms of your continued employment by The Vermont Teddy Bear Co., Inc. (the "Company"). Except as specifically set forth in this letter, this agreement is intended to supersede all of your prior or existing employment agreements. Our agreement is as follows:

1. Position . You shall continue to be employed as President and Chief Executive Officer of the Company. You shall continue to devote all of your business time, attention, skill, and efforts to the business and affairs of the Company, with such duties as shall be assigned to you by the Board of Directors. You shall be based at the Company's Shelburne, Vermont offices.

2. Term . Your employment shall commence on October 23, 2001 and shall continue until October 22, 2004, unless earlier terminated in accordance with this agreement.

3. Base Salary . Commencing October 23, 2001, your base salary shall be $220,000, increasing to $235,000 on October 23, 2002, and to $250,000 on October 23, 2003.

4. Annual Cash Bonus Based on Increased Revenues and Pre-Tax Profits . In addition to your base salary, you will be entitled to a cash bonus for each fiscal year during the term of your employment equal to the sum of the following:

(a) .25% of the first $3 million of increased consolidated revenues of the Company over consolidated revenues of the prior fiscal year;

(b) 1.5% of any additional increased consolidated revenues exceeding $3 million over consolidated revenues of the prior fiscal year;

(c) .25% of the first $3 million of pre-tax income; plus

(d) 1.5% of the any additional pre-tax income in excess of $ 3 million.

In calculating the Company's pre-tax income for purposes of determining your bonus under this paragraph 4, the amount of the bonus to be paid to you shall be treated as an expense of the Company. The examples set forth on Exhibit A attached to this agreement illustrate the computation of the annual bonus pursuant to this paragraph 4.


The cash bonus shall be paid in cash within sixty (60) days following the end of the fiscal year to which the bonus relates.

5. Discretionary Cash Bonus . The Board reserves the discretion to award a supplemental cash bonus in fiscal year 2002 based on your performance in the event the targets set forth above are not met due to the uncertainty of the times.

6. Stock Options . In addition to the stock options previously granted to you, you shall be entitled to participate in any equity or option incentive plans adopted in connection with any new ventures of the Company, such as SendAMERICA and PajamaGrams.

7. Benefits . You shall receive the following Company benefits: (a) a Thirty Thousand Dollar ($30,000) life insurance policy, (b) a company car of your choice, subject to the Company's approval, which shall not be unreasonably withheld, and (c) participation in all other benefit plans available to senior executive employees of the Company in accordance with the policies and procedures currently or then in effect, as the case may be.

8. Indemnification . The Company shall indemnify you (and your estate) in accordance with the Company's by-laws as in effect from time to time. This indemnification by the Company shall survive termination or expiration of this agreement.

9. Termination .

(a) This agreement may be terminated by either you or by the Company at any time. If your employment is terminated by (a) you for "Good Reason" or (b) the Company, for any reason other than for "Cause" at any time, (i) you shall receive in lieu of any other payment or benefit (except as set forth in subparagraph (e) of this paragraph) continuation of your then current base salary for a period of eighteen (18) months, plus a bonus for the year in which your employment was terminated, pro rated for the period you were employed, calculated in accordance with paragraph 4 of this agreement, and (ii) all your outstanding stock options which were subject to vesting on or prior to the end of the fiscal year in which your employment was terminated shall immediately vest and all your outstanding stock options which were subject to vesting on the basis of the price of the Company's Common Stock shall vest if the stock price meets the applicable benchmark at or prior to the end of the fiscal year in which your employment was terminated, and all such vested exercisable for a period of ten years after the date of their grant.

(b) Upon termination of your employment by the Company at any time (other than for "Cause"), the Company shall provide you with reasonable outplacement services.

(c) Except as set forth in subparagraph (e) of this paragraph, upon a termination by the Company for "Cause" or by you without "Good Reason", you shall not be entitled to receive any further payments or benefits following the date of your termination.

(d) If your employment is terminated on account of your death or your disability which lasts (or is likely, based on reasonable medical evidence, to last) for more than six consecutive months and renders you unable to perform your duties under this agreement, all outstanding stock options which were subject to vesting on or prior to the end of the fiscal year in which your employment was terminated shall immediately vest and all your stock options shall continue to be exercisable for a period of ten years after the date of their grant. Upon such termination for your death or disability, neither you nor your estate shall be entitled to receive the salary continuation referred to in clause (i) of subparagraph (a) of this paragraph 9 with respect to a termination by the Company for any reason other than "Cause".

(e) In the event that your employment is terminated for any reason during the period commencing on the date a definitive agreement is executed by the Company providing for a "Change or Control" or, if earlier, the date which is 90 days prior to a "Change o ...