Interactive Marketing Agreement - America Online Inc. and eToys Inc.


                       INTERACTIVE MARKETING AGREEMENT

     This Interactive Marketing Agreement (the "Agreement"), dated as of 
October 1, 1997 (the "Effective Date"), is between America Online, Inc. 
("AOL"), a Delaware corporation, with offices at 22000 AOL Way, Dulles, 
Virginia 20166, and eToys Inc. ("eToys"), a private corporation, with offices 
at 1640 5th Street, Suite 124, Santa Monica, CA 90401. AOL and eToys may be 
referred to individually as a "Party" and collectively as "Parties."

                                 INTRODUCTION

     AOL and eToys each desires to enter into an interactive marketing 
relationship whereby AOL will promote an interactive site referred to (and 
further defined) herein as the Affiliated eToys Site. This relationship is 
further described below and is subject to the terms and conditions set forth 
in this Agreement. Defined terms used but not defined in the body of the 
Agreement will be as defined on Exhibit B attached hereto.

                                      TERMS

1.   PROMOTION, DISTRIBUTION AND MARKETING.

     1.1. AOL PROMOTION OF AFFILIATED eTOYS SITE.

          AOL will provide eToys with the promotions for the Affiliated eToys 
          Site described on Exhibit A (the "Promotions"). Screen shots 
          indicating the current design for the applicable screens within the 
          shopping channels on each of the AOL Service and AOL.com are 
          attached hereto. Subject to eToys's reasonable approval, AOL will 
          have the right to fulfill its promotional commitments with respect 
          to any of the foregoing by providing eToys comparable promotional 
          placements in alternative areas of the AOL Network. AOL reserves 
          the right to redesign or modify the organization, structure, "look 
          and feel," navigation and other elements of the AOL services at any 
          time. In the event such modifications materially and adversely 
          affect any specific Promotion, AOL will work with eToys to provide 
          eToys, as its sole remedy, a comparable promotional placement. In 
          the event that modifications materially and adversely affect the 
          aggregate promotional value to be received hereunder by eToys 
          (including, without limitation, the promotional value of the 
          placements reflected through the attached screen shots) and AOL and 
          eToys cannot reach agreement regarding substitute promotional 
          placements reasonably satisfactory to eToys (notwithstanding both 
          Parties' good faith efforts to reach agreement for a period of 
          thirty days), then eToys will be entitled to terminate this 
          Agreement with fifteen days prior written notice to AOL. In the 
          event of such an early termination, eToys will be responsible for 
          the pro-rata portion of the payments provided for herein. This 
          pro-rata portion will represent the average of the percentages of 
          value delivered with respect to each component of Promotions 
          described on Exhibit A. For the impressions-based Promotions, the 
          percentage of value will be determined with reference to the 
          percentage of impressions which were delivered prior to the 
          effectiveness of the termination. For the other Promotions, the 
          percentage of value will be determined with reference to the 
          percentage of days of the term of the agreement which precede the 
          effectiveness of such termination.

          With respect to the impressions targets specified on Exhibit A, 
          AOL will not be obligated to provide in excess of any of such 
          target amounts in any year. Any shortfall in impressions at the end 
          of a year will not be deemed a breach of the Agreement by AOL. In 
          the event there is a shortfall in impressions as of the end of 
          either year during the Initial Term (a "Shortfall"), AOL will 
          provide eToys with advertising placements in mutually

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          agreed upon areas of the AOL Network which have a total value, 
          based on rates comparable to those set forth in Exhibit A, equal to 
          the value of the Shortfall (determined by multiplying the 
          percentage of impressions that were not delivered by the total 
          guaranteed payment provided for below) and which will be delivered 
          during the first four months following the end of the year in 
          question. [*]

     1.2. CONTENT OF PROMOTIONS. The specific eToys Content (e.g., eToys's 
          logo) to be contained within the Promotions will be determined by 
          eToys, subject to AOL technical limitations and AOL's 
          then-applicable policies relating to advertising and promotions. 
          Except to the extent described herein, the specific form, 
          placement, duration and nature of the Promotions will be as 
          determined by AOL in its reasonable editorial discretion 
          (consistent with the editorial composition of the applicable 
          screens).

     1.3. eTOYS PROMOTION OF AFFILIATED eTOYS SITE AND AOL. As set forth in 
          fuller detail in Exhibit C, eToys will promote the availability of 
          the Affiliated eToys Site through the AOL Network.

2.   AFFILIATED eTOYS SITE.

     2.1. CONTENT. eToys will make available through the Affiliated eToys 
          Site [*]. eToys will ensure that the Affiliated eToys Site does not in
          any respect promote, advertise, market or distribute the products, 
          services or content of any Interactive Service through the linked 
          pages of the Affiliated eToys Site. The linked pages of the 
          Affiliated eToys Site will not contain advertisements, promotions, 
          links, sponsorships or other Content (i) [*] or (ii) otherwise in 
          conflict with AOL's standard advertising policies (except as 
          expressly approved by writing by AOL).

     2.2. PRODUCTION WORK. eToys will be responsible for all production work 
          associated with the Affiliated eToys Site, including all related 
          costs and expenses.

     2.3. TECHNOLOGY. eToys shall take reasonable steps necessary to conform 
          its promotion and sale of Products through the Affiliated eToys 
          Site to the then-existing technologies identified by AOL which are 
          optimized for the AOL Service. AOL reserves the right to review and 
          test the Affiliated eToys Site from time to time to determine whether
          the site is compatible with AOL's then-available client and host 
          software and the AOL Network.

     2.4. PRODUCT OFFERING. eToys will ensure that the Affiliated eToys Site 
          includes all of the Products and other Content (including, without 
          limitation, any features, offers, contests, functionality or 
          technology) that are then made available by or on behalf of eToys 
          through

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          the "General eToys Site" (i.e., the publicly available site at 
          www.etoys.com to which an unregistered user would have access); 
          provided, however, that (a) such inclusion will not be required 
          where it is commercially or technically impractical to either Party 
          (i.e., inclusion would cause either Party to incur substantial 
          incremental costs); and (b) eToys will notify AOL of the material, 
          specific changes in scope, nature and/or offerings required by such 
          inclusion.

     2.5. PRICING AND TERMS. [*]

     2.6. SPECIAL OFFERS. [*]

     2.7. OPERATING STANDARDS. eToys will ensure that the Affiliated eToys 
          Site complies with the operating standards set forth in Exhibit D.

     2.8. TRAFFIC FLOW. eToys will take reasonable efforts to ensure that AOL 
          traffic is either kept within the Affiliated eToys Site or 
          channeled back into the AOL Network (with the exception of 
          advertising links sold and implemented pursuant to the Agreement). 
          The Parties will work together on mutually acceptable links back to 
          the AOL Service.

3.   AOL EXCLUSIVITY OBLIGATIONS. [*] Notwithstanding anything to contrary in 
     this Section 3, no provision of this Agreement will limit AOL's ability 
     (on or off the AOL Network) to undertake activities or perform duties 
     pursuant to existing arrangements with third parties.

4.   PAYMENTS.

     4.1. PAYMENTS. eToys will pay AOL an amount of Three Million Dollars 
          (US$3,000,000), to be paid in: [*]

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          As indicated elsewhere herein, this Agreement supersedes eToys 
          prior agreements with AOL related to advertising and placement in 
          the AOL shopping channel (the "Prior Agreements"). In that regard, 
          (i) eToys has no further payment obligations under the Prior 
          Agreements (except to invoices which have been received by eToys as 
          of its execution of this Agreement) and (ii) any impressions 
          delivered to eToys beginning as of the Effective Date will count 
          towards the impressions commitments contained herein.

     4.2. WIRED PAYMENTS; LATE PAYMENTS. All payments required under this 
          Section 4 will be paid in immediately available, non-refundable 
          funds either by way of check or as wired to AOL's account. All 
          amounts owed hereunder not paid when due and payable will bear 
          interest from the date such amounts are due and payable at the rate 
          of 10% per year.

5.  TERM; RENEWAL; TERMINATION.

     5.1  TERM. Unless earlier terminated as set forth herein, the initial 
          term of this Agreement will be from the Effective Date through 
          December 31, 1999 (the "Initial Term").

     5.2. TERMINATION FOR BREACH. Except as expressly provided elsewhere in 
          this Agreement, either Party may terminate this Agreement at any 
          time in the event of a material breach of the Agreement by the 
          other Party which remains uncured after thirty (30) days written 
          notice thereof to the other Party (or such shorter period as may be 
          specified elsewhere in this Agreement). Notwithstanding the 
          foregoing, in the event of a material breach of a provision that 
          expressly requires action to be completed within an express period 
          shorter than 30 days, either Party may terminate this Agreement if 
          the breach remains uncured after written notice thereof to the 
          other Party.

     5.3  TERMINATION FOR BANKRUPTCY/INSOLVENCY. Either Party may terminate 
          this Agreement immediately following written notice to the other 
          Party if the other Party (i) ceases to do business in the normal 
          course, (ii) becomes or is declared insolvent or bankrupt, (iii) is 
          the subject of any proceeding related to its liquidation or 
          insolvency (whether voluntary or involuntary) which is not 
          dismissed within ninety (90) calendar days or (iv) makes an 
          assignment for the benefit of creditors.

6.   STANDARD TERMS. The Standard Online Commerce Terms & Conditions set forth 
     on Exhibit E attached hereto and Standard Legal Terms & Conditions set 
     forth on Exhibit F attached hereto are each hereby made a part of this 
     Agreement.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the 
Effective Date.

AMERICA ONLINE, INC.                   ETOYS INC.

By: /s/ David M. [ILLEGIBLE]          By: /s/ Toby Lenk
   ------------------------------         -------------------------------

Print Name: David M. [ILLEGIBLE]      Print Name:  /s/ Toby Lenk
           ----------------------                  ----------------------

Title:  Sr. V.P.                     Title:  CEO
      ---------------------------            ----------------------------

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                                  EXHIBIT A

                         PLACEMENT/PROMOTION PLAN

AOL SERVICE SHOPPING CHANNEL [*]


AOL.COM SHOPPING CHANNEL [*]

ADDITIONAL ADVERTISING [*]

Should eToys wish to increase or decrease its impression levels within any of 
the impressions-based, additional advertising categories described above (the 
"Impressions-based Ads"), AOL will work in good faith with eToys to 
accommodate any such requests, subject to availability and provided that 
eToys will continue to be required to pay AOL the full amounts specified 
under this Agreement and eToys will not, 

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through any adjustment, be entitled to value in excess of that allocable to 
the Impressions-based Ads (taking into account the relative values of the 
impressions involved in any such adjustments).

In delivering the impressions called for under the Impressions-based Ads, AOL 
will use all commercially reasonable efforts to deliver [*] of the annual 
impressions for the following categories during the fourth calendar quarter: 
[*]; provided that, in the event AOL believes that it will 
not be able to deliver the requisite impressions in any specific category, 
eToys will cooperate in good faith with AOL to designate comparable, 
substitute inventory for delivery of such impressions during such period. The 
Parties will use commercially reasonable efforts to spread the remaining 
impressions on a relatively even basis during the remaining three quarters of 
each year (or on such other basis as the Parties may reasonably agree); 
provided that, in the event that the impressions are not spread on that basis 
due to eToys role in the process, then AOL shall not be responsible for any 
penalties or timing restrictions with respect to shortfalls of impressions 
which may otherwise be called for hereunder.

* For purposes of these promotions, the first year shall be deemed to end 
December 31, 1998

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                                   EXHIBIT B

                                  DEFINITIONS


The following definitions will apply to this Agreement:

ADDITIONAL eTOYS CHANNEL. Any third-party distribution channel (e.g., an 
Interactive Service) through which the Affiliated eToys Site is made 
available.

AFFILIATED eTOYS SITE. The specific area to be promoted and distributed by 
AOL hereunder in which eToys can market and complete transactions regarding 
its Products.

AOL.COM. AOL's primary Internet-based Interactive Site marketed under the 
"AOL.COM" brand, specifically excluding (a) the AOL Service, (b) any 
international versions of AOL.com, (c) "Driveway," "AOL Instant Messenger" 
or any similar product or service offered by or through such site or any 
other AOL Interactive Site, (d) "Digital Cities," "WorldPlay," "Entertainment 
Asylum," the "Hub," or any similar "sub-service" offered by or through such 
site or any other AOL Interactive Site and (e) any programming or content area 
offered by or through such site or any other AOL Interactive Site which is 
provided and operationally controlled by a third-party content provider and 
not by AOL (or any successor to or substitute for any of the foregoing 
properties in clauses (a) through (e)).

AOL LOOK AND FEEL. The elements of graphics, design, organization, 
presentation, layout, user interface, navigation and stylistic convention 
(including the digital implementations thereof) which are generally 
associated with Interactive Sites within the AOL Service or AOL.com.

AOL MEMBER. Any authorized user of the AOL Network, including any 
sub-accounts using the AOL Network under an authorized master account.

AOL NETWORK. (i) The AOL Service and (ii) any other product or service owned, 
operated, distributed or authorized to be distributed by or through AOL or 
its Affiliates worldwide through which such party elects to offer the 
Licensed Content.

AOL SERVICE. The U.S. version of the America Online-Registered TradeMark- 
brand service, specifically excluding (a) AOL.com or any other AOL 
Interactive Site, (b) the international versions of the AOL Service (e.g., 
AOL Japan), (c) "Driveway," "NetFind," AOL Instant Messenger" or any similar 
product or service offered by or through the U.S. version of the America 
Online-Registered TradeMark- brand service, (d) "Digital Cities," 
"WorldPlay," "Entertainment Asylum," the "Hub," or any similar "sub-service" 
offered by or through the U.S. version of the America Online-Regestered 
Trademark- brand service and (e) any programming or content area offered by 
or through the U.S. version of the America Online-Registered TradeMark- brand 
service which is provided and operationally controlled by a third-party 
content provider and not by AOL (or any successor to or substitute for any of 
the foregoing properties in clauses (a) through (e)).

CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the 
course of the Agreement, which is or should be reasonably understood to be 
confidential or proprietary to the disclosing Party, including, but not 
limited to, the material terms of this Agreement, information about AOL 
Members and eToys customers, technical processes and formulas, source codes, 
product designs, sales, cost and other unpublished financial information, 
product and business plans, projections, and marketing data. "Confidential 
Information" will not include information (a) already lawfully known to or 
independently developed by the receiving Party, (b) disclosed in published 
materials, (c) generally known to the public, or (d) lawfully obtained from 
any third party.

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CONTENT. Information, materials, features, Products, advertisements, 
promotions, links, pointers and software, including any modifications, 
upgrades, updates, enhancements and related documentation.

eTOYS COMPETITORS. [*]

IMPRESSION. Any access by a user to the file representing the page containing 
the applicable Promotion.

INTERACTIVE SERVICE. Any entity that offers online or Internet connectivity 
(or any successor form of connectivity), aggregates and/or distributes a 
broad selection of third-party interactive Content, or provides interactive 
navigational services (including, without limitation, any online service 
providers, Internet service providers, @Home or other broadband providers, 
search or directory providers, "push" product providers such as the Pointcast 
Network or providers of interactive environments such as Microsoft's "Active 
Desktop").

INTERACTIVE SITE. Any interactive site or area (other than the Affiliated 
eToys Site) which is managed. maintained or owned by eToys or its agents, 
including, by way of example and without limitation, (i) an eToys site on the 
World Wide Web portion of the internet or (ii) a channel or area delivered 
through a "push" product such as the Pointcast Network or interactive 
environment such as Microsoft's proposed "Active Desktop."

LICENSED CONTENT.  All Content offered through the Affiliated eToys Site 
pursuant to this Agreement, including any modifications, upgrades, updates, 
enhancements, and related documentation.

PRODUCT.  Any product, good or service which eToys offers, sells or licenses 
to AOL Members through (i) the Affiliated eToys Site (including through any 
Interactive Site linked thereto) or (ii) an "offline" means (e.g., toll-free 
number) for receiving orders related to specific offers within the 
Affiliated eToys Site requiring purchasers to reference a specific 
promotional identifier or tracking code, including, without limitation, 
products sold through surcharged downloads (to the extent expressly 
permitted hereunder).

TOYS.  Childrens toy products.

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                                   EXHIBIT C

                             eTOYS CROSS-PROMOTION

ONLINE

In each eToys Interactive Site, eToys will include:

-

-  [*]


OFFLINE

In eToys' television, radio and print advertisements and in any publications, 
programs, features or other forms of media over which eToys exercises at 
least partial editorial control, eToys will make reasonable efforts to 
include on a periodic basis:

-  [*]

Subject to the requirements of Section 1 of Exhibit F, eToys will be entitled 
   to issue a press release regarding this Agreement.


---------------------------
[*]

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                                EXHIBIT D

                           OPERATING STANDARDS

GENERAL.  [*]

HOSTING; CAPACITY.  eToys will provide all computer servers, routers, 
switches and associated hardware in an amount reasonably necessary to meet 
anticipated traffic demands, adequate power supply (including generator 
back-up) and HVAC, adequate insurance, adequate service contracts and all 
necessary equipment racks, floor space, network cabling, and power 
distribution to support the Affiliated eToys Site (collectively, "Hosting 
Infrastructure"). In the event eToys fails to satisfy this requirement AOL 
will have the right (in addition to any other remedies available to AOL 
hereunder) to regulate the promotions it provides to eToys hereunder to the 
extent necessary to minimize user delays until such time as eToys corrects 
its infrastructure deficiencies.

SPEED; ACCESSIBILITY.  eToys will ensure that the performance and 
availability of the Affiliated eToys Site (a) is monitored on a continuous, 
24/7 basis and (b) remains competitive in all material respects with the 
performance and availability of other similar sites based on similar form 
technology. eToys will use commercially reasonable efforts to ensure that: 
(a) the functionality and features within the Affiliated eToys Site are 
optimized for the AOL client software then in use by AOL Members; and (b) the 
Affiliated eToys Site is designed and populated in a manner that minimizes 
delays when AOL Members and AOL Users attempt to access such site.

USER INTERFACE.  eToys will maintain a graphical user interface within the 
Affiliated eToys Site that is competitive in all material respects with 
interfaces of other similar sites based on similar form technology. AOL 
reserves the right to conduct focus group testing to assess eToys' 
competitiveness in this regard.

MONITORING.  AOL Network Operations Center (NOC) will work with a 
eToys-designated technical contact in the event of any performance 
malfunction or other emergency related to the Affiliated eToys Site and will 
either assist or work in parallel with eToys' contact using eToys tools and 
procedures, as applicable. The Parties will develop a process to monitor 
performance and member behavior with respect to access, capacity, security 
and related issues both during normal operations and during special 
promotions/events.

TELECOMMUNICATIONS.  The Parties agree to explore encryption methodology to 
secure data communications between the Parties' data centers. The network 
between the Parties will be configured such that no single component failure 
will significantly impact AOL Users. The network will be sized such that no 
single line runs at more than 70% average utilization for a five minute peak 
in a daily period.

SECURITY REVIEW.  eToys and AOL will work together to perform an initial 
security review of, and to perform tests of, the eToys system, network, and 
service security in order to evaluate the security risks and provide 
recommendations to eToys, including periodic follow-up reviews as reasonably 
required by eToys or AOL.

TECHNICAL PERFORMANCE.  eToys will perform the following technical 
obligations (and any reasonable updates thereto from time to time by AOL): 

1.   eToys will design the Affiliated eToys Site to support the Windows 
version of the Microsoft Internet Explorer 4.0 browser, and make commercially 
reasonable effects to support all other AOL browsers listed at: 
http://webmaster.info.aol.com/BrowTable.html.

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2.   eToys will configure the server from which it serves the site to 
examine the HTTP User-Agent field in order to identify the AOL Member-Agents 
listed at: http://webmaster.info.aol.com/Brow2Text.html (the "AOL 
Member-Agents"). 

3.   eToys will design its site to support HTTP 1.0 or later protocol as 
defined in RFC 1945 (available at http://ds.internic.net/rfc/rfc1945.text) 
and to adhere to AOL's parameters for refreshing cached information listed at 
http://webmaster.info.aol.com/CacheText.html. 

eToys will provide continuous navigational ability for AOL Users to return to 
an agreed-upon point on the AOL Network (for which AOL will supply the proper 
address) from the Affiliated eToys Site.

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                                   EXHIBIT E

                  STANDARD ONLINE COMMERCE TERMS & CONDITIONS

1.   AOL NETWORK DISTRIBUTION.  eToys will not authorize or permit any third 
party to distribute or promote the Affiliated eToys Site through the AOL 
Network absent AOL's prior written approval. AOL shall be entitled to require 
reasonable changes to the Content (including, without limitations features 
and functionality) within any linked pages of the Affiliated eToys Site to 
the extent AOL reasonably believes that such Content will adversely affect 
AOL's operation of the AOL Network.

2.   PROVISION OF OTHER CONTENT.  In the event that AOL notifies eToys that 
(i) as reasonably determined by AOL, any Content within the Affiliated eToys 
Site violates AOL's then-standard Terms of Service (as set forth on the 
America Online-Registered Trademark- brand service), the terms of this 
Agreement or any other standard, written AOL policy or (ii) AOL reasonably 
objects to the inclusion of any Content within the Affiliated eToys Site 
(other than any specific items of Content which may be expressly identified 
in this Agreement), then eToys shall take commercially reasonable steps to 
block access by AOL Members to such Content using eToys's then-available 
technology. In the event that eToys cannot, through its commercially 
reasonable efforts, block access by AOL Members to the Content in question, 
then eToys shall provide AOL prompt written notice of such fact. AOL may 
then, at its option, restrict access from the AOL Network to the Content in 
question using technology available to AOL. eToys will cooperate with AOL's 
reasonable requests to the extent AOL elects to implement any such access 
restrictions.

3.   CONTESTS.  eToys will take all steps necessary to ensure that any 
contest, sweepstakes or similar promotion conducted or promoted through the 
Affiliated eToys Site (a "Contest") complies with all applicable federal, 
state and local laws and requisitions.

4.   DISCLAIMERS.  Upon AOL's request, eToys agrees to include within the 
Rainman Screens a product disclaimer (the specific form and substance to be 
mutually agreed upon by the Parties) indicating that transactions are solely 
between eToys and AOL Users purchasing products from eToys.

5.   OWNERSHIP.  eToys acknowledges and agrees that AOL will own all right, 
title and interest in and to the elements of graphics, design, organization, 
presentation, layout, user interface, navigation and stylistic convention 
(including the digital implementations thereof) (collectively the "Look and 
Feel") which are generally associated with online areas contained within the 
AOL Network (the AOL Look and Feel, as previously defined), subject to eToys' 
ownership rights in any eToys trademarks or copyrighted material within the 
Affiliated eToys Site. AOL acknowledges and agrees that eToys will own all 
right, title and interest in and to the Look and Feel which is generally 
associated with the Affiliated eToys Site, subject to AOL's ownership rights 
in any AOL trademarks or copyrighted material and the AOL Look and Feel.

6.

7.   MANAGEMENT OF THE AFFILIATED eTOYS SITE.  eToys will manage, review, 
delete, edit, create, update and otherwise manage all Products available on 
or through the Affiliated eToys Site, in a timely and professional manner and 
in accordance with the terms of this Agreement. eToys will ensure that each 
Affiliated eToys Site is current, accurate and well-organized at all times. 
eToys warrants that the Affiliated eToys Site, including all Products and 
Contents available therein: (i) will not infringe on or violate any 
copyright, trademark, U.S. patent or any other third party right, including 
without limitation, any music performance or other music-related rights; and 
(ii) will not contain any Product which violates any applicable law or 
regulation, including those relating to contests, sweepstakes or similar 
promotions. AOL will have no obligations with respect to the Products 
available on or through the Affiliated eToys Site, including, but not limited 
to, any duty to review or monitor any such Products.

8.   DUTY TO INFORM.  eToys will promptly inform AOL of any information 
related to the eToys Service or Affiliated eToys Site which could reasonably 
lead to a claim, demand, or liability of or against AOL and/or its affiliates 
by any third party.

9.   CUSTOMER SERVICE.  It is the sole responsibility of eToys to provide 
customer service to persons or entities purchasing Products through the AOL 
Network ("Customers"). eToys will bear full responsibility for all customer 
service, including without limitation, order processing, billing, 
fulfillment, shipment, collection and other customer service associated with 
any Products offered, sold or licensed through the Affiliated eToys Site, and 
AOL will have no obligations whatsoever with respect thereto. eToys will 
receive all emails from Customers via a computer available to eToys' customer 
service staff and generally respond to such emails within one business day of 
receipt. eToys will receive all orders electronically and generally process 
all orders within one business day of receipt, provided Products ordered are 
not advance order

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items. eToys will ensure that all orders of Products are received, processed, 
fulfilled and delivered on a timely and professional basis. eToys will offer 
AOL Users who purchase Products through such Affiliated eToys Site a money 
back satisfaction guarantee. eToys will bear all responsibility for compliance 
with federal, state and local laws in the event that Products are out of 
stock or are no longer available at the time an order is received. eToys will 
also comply with the requirements of any federal, state or local consumer 
protection or disclosure law. Payment for Products will be collected by eToys 
directly from customers. eToys' order fulfillment operation will be subject 
to AOL's reasonable review.

10.  PRODUCTION WORK.  In the event that eToys requests AOL's production 
assistance in connection with any matter, eToys will work with AOL to develop 
a detailed production plan for the requested production assistance (the 
"Production Plan"). Following receipt of the final Production Plan, AOL will 
notify eToys of (i) AOL's availability to perform the requested production 
work, (ii) the proposed fee or fee structure for the requested production and 
maintenance work and (iii) the estimated development schedule for such work. 
To the extent the Parties reach agreement regarding implementation of 
agreed-upon Production Plan, such agreement will be reflected in a separate 
work order signed by the Parties. To the extent eToys elects to retain a 
third party provider to perform any such production work, work produced by 
such third party provider must generally conform to AOL's production 
Standards & Practices (a copy of which will be supplied by AOL to eToys upon 
request). The specific production resources which AOL allocates to any 
production work to be performed on behalf of eToys will be as determined by 
AOL in its sole discretion.

11.  MERCHANT CERTIFICATION PROGRAM.  eToys will participate in any generally 
applicable "Certified Merchant" program operated by AOL or its authorized 
agents or contractors. Such program may require merchant participants on an 
ongoing basis to meet certain reasonable standards relating to provision of 
electronic commerce through the AOL Network and may also require the payment 
of certain reasonable certification fees to the applicable entity operating 
the program.


                                      13



                                                                   CONFIDENTIAL

                                  EXHIBIT F

                      STANDARD LEGAL TERMS & CONDITIONS

1.  PROMOTIONAL MATERIALS/PRESS RELEASES.  Each Party will submit to the other 
Party, for its prior written approval, which will not be unreasonably 
withheld or delayed, any marketing, advertising, press releases, and all 
other promotional materials related to the Affiliated eToys Site and/or 
referencing the other Party and/or its trade names, trademarks, and service 
marks (the "Materials"); provided, however, that either Party's use of screen 
shots of the Affiliated eToys Site for promotional purposes will not require 
the approval of the other Party so long as the AOL Network is clearly 
identified as the source of such screen shots. Each Party will solicit and 
reasonably consider the views of the other Party in designing and 
implementing such Materials. Once approved, the Materials may be used by a 
Party and its affiliates for the purpose of promoting the Affiliated eToys 
Site and the content contained therein and reused for such purpose until such 
approval is withdrawn with reasonable prior notice. In the event such 
approval is withdrawn, existing inventories of Materials may be depleted. 
Notwithstanding the foregoing, either Party may issue press releases and 
other disclosures as required by law or as reasonably advised by legal 
counsel without the consent of the other Party and in such event, prompt 
notice thereof will be provided to the other Party.

2.  LICENSE.  eToys hereby grants AOL a non-exclusive worldwide license to 
market, license, distribute, reproduce, display, perform, transmit and 
promote the Affiliated eToys Site and the Products contained therein (or any 
portion thereof) through such areas or features of the AOL Network as AOL 
deems appropriate. AOL Users will have the right to access and use the 
Affiliate eToys Site.

3.  TRADEMARK LICENSE.  In designing and implementing the Materials and 
subject to the other provisions contained herein, eToys will be entitled to 
use the following trade names, trademarks, and service marks of AOL: the 
"America Online-Registered Trademark-" brand service, "AOL" service/software 
and AOL's triangle logo; and AOL and its Affiliates will be entitled to use 
the trade names, trademarks, and service marks of eToys (collectively, 
together with the AOL marks listed above, the "Marks"); provided that each 
Party: (i) does not create a unitary composite mark involving a Mark of the 
other Party without the prior written approval of such other Party; and (ii) 
displays symbols and notices clearly and sufficiently indicating the 
trademark status and ownership of the other Party's Marks in accordance with 
applicable trademark law and practice.

4.  OWNERSHIP OF TRADEMARKS.  Each Party acknowledges the ownership of the 
other Party in the Marks of the other Party and agrees that all use of the 
other Party's Marks will inure to the benefit, and be on behalf, of the other 
Party. Each Party acknowledges that its utilization of the other Party's 
Marks will not create in it, nor will it represent it has, any right, title, 
or interest in or to such Marks other than the licenses expressly granted 
herein. Each Party agrees not to do anything contesting or impairing the 
trademark rights of the other Party.

5.  QUALITY STANDARDS.  Each Party agrees that the nature and quality of its 
products and services supplied in connection with the other Party's Marks 
will conform to quality standards set by the other Party. Each Party agrees 
to supply the other Party, upon request, with a reasonable number of samples 
of any Materials publicly disseminated by such Party which utilize the other 
Party's Marks. Each Party will comply with all applicable laws, regulations, 
and customs and obtain any required government approvals pertaining to use of 
the other Party's marks.

6.  INFRINGEMENT PROCEEDINGS.  Each Party agrees to promptly notify the other 
Party of any unauthorized use of the other Party's Marks of which it has 
actual knowledge. Each Party will have the sole right and discretion to bring 
proceedings alleging infringement of its Marks or unfair competition related 
thereto; provided, however, that each Party agrees to provide the other Party 
with its reasonable cooperation and assistance with respect to any such 
infringement proceedings.

7.  REPRESENTATIONS AND WARRANTIES.  Each Party represents and warrants to 
the other Party that: (i) such Party has the full corporate right, power and 
authority to enter into this Agreement and to perform the acts required of it 
hereunder; (ii) the execution of this Agreement by such Party, and the 
performance by such Party of its obligations and duties hereunder, do not and 
will not violate any agreement to which such Party is a party or by which it 
is otherwise bound; (iii) when executed and delivered by such Party, this 
Agreement will constitute the legal, valid and binding obligation of such 
Party, enforceable against such Party in accordance with its terms; and (iv) 
such Party acknowledges that the other Party makes no representations, 
warranties or agreements related to the subject matter hereof that are not 
expressly provided for in this Agreement.

8.  CONFIDENTIALITY.  Each Party acknowledges that Confidential Information 
may be disclosed to the other Party during the course of this Agreement. 
Each Party agrees that it will take reasonable steps, at least substantially 
equivalent to the steps it takes to protect its own proprietary information, 
during the term of this Agreement, and for a


                                      14



                                                                   CONFIDENTIAL

period of three years following expiration or termination of this Agreement, 
to prevent the duplication or disclosure of Confidential Information of the 
other Party, other than by or to its employees or agents who must have access 
to such Confidential Information to perform such Party's obligations 
hereunder, who will each agree to comply with this section.  Notwithstanding 
the foregoing, either Party may issue a press release or other disclosure 
containing Confidential Information without the consent of the other Party, 
to the extent such disclosure is required by law, rule, regulation or 
government or court order. In such event, the disclosing Party will provide 
at least five (5) business days prior written notice of such proposed 
disclosure to the other Party. Further, in the event such disclosure is 
required of either Party under the laws, rules or regulations of the 
Securities and Exchange Commission or any other applicable governing body, 
such Party will (i) redact mutually agreed-upon portions of this Agreement to 
the fullest extent permitted under applicable laws, rules and regulations and 
(ii) submit a request to such governing body that such portions and other 
provisions of this Agreement receive confidential treatment under the laws, 
rules and regulations of the Securities and Exchange Commission or otherwise 
be held in the strictest confidence to the fullest extent permitted under the 
laws, rules or regulations of any other applicable governing body.

9.  LIMITATION OF LIABILITY; DISCLAIMER INDEMNIFICATION. 

9.1.  LIABILITY.  UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE 
OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY 
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH 
DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE 
OR INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE 
AFFILIATED eToys SITE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, 
SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST 
BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL 
REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE 
CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO 
SECTION 9.3 OF THIS EXHIBIT F. EXCEPT AS PROVIDED IN SECTION 9.3 OF THIS  
EXHIBIT F, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN 
$1,000,000; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE AGGREGATE 
AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO SECTION 
4 OF THE AGREEMENT.

9.2.  NO ADDITIONAL WARRANTIES.  EXCEPT AS EXPRESSLY SET FORTH IN THIS 
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY 
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING 
THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED eToys SITE, 
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR 
PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF 
PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL 
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF THE 
AFFILIATED ETOYS SITE.

9.3.  INDEMNITY.  Either Party will defend, indemnify, save and hold harmless 
the other Party and the officers, directors, agents, affiliates, 
distributors, franchisees and employees of the other Party from any and all 
third party claims, demands, liabilities, costs or expenses, including 
reasonable attorneys' fees ("Liabilities"), resulting from the indemnifying 
Party's material breach of any duty, representation, or warranty of this 
Agreement, except where Liabilities result from the gross negligence or 
knowing and willful misconduct of the other Party.

9.4.  CLAIMS.  Each Party agrees to (i) promptly notify the other Party in 
writing of any indemnifiable claim and give the other Party the opportunity 
to defend or negotiate a settlement of any such claim at such other Party's 
expense, and (ii) cooperate fully with the other Party, at that other Party's 
expense, in defending or settling such claim. AOL reserves the right, at its 
own expense, to assume the exclusive defense and control of any matter 
otherwise subject to indemnification by eToys hereunder, and in such event, 
eToys will have no further obligation to provide indemnification for such 
matter hereunder.

9.5.  ACKNOWLEDGMENT.  AOL and eToys each acknowledges that the provisions of 
this Agreement were negotiated to reflect an informed, voluntary allocation 
between them of all risks (both known and unknown) associated with the 
transactions contemplated hereunder. The limitations and disclaimers related 
to warranties and liability contained in this Agreement are intended to limit 
the circumstances and extent of liability. The provisions of this Section 6 
will be enforceable independent of and severable from any other enforceable 
or unenforceable provision of this Agreement.

10.  SOLICITATION OF AOL USERS.  During the term of this Agreement, and for 
the two-year period following the expiration or termination of this 
Agreement, neither eToys nor its agents will use the AOL Network to (i) 
solicit, or


                                      15



                                                                 CONFIDENTIAL

participate in the solicitation of AOL Users when that solicitation is for the 
benefit of any entity (including eToys) which could reasonably be construed 
to be or become in competition with AOL or (ii) promote any services which 
could reasonably be construed to be in competition with AOL, including, but 
not limited to, services available through the Internet. In addition, eToys 
may not send AOL Users e-mail communications promoting eToys' Products 
through the AOL Network without a "Prior Business Relationship." For purposes 
of this Agreement, a "Prior Business Relationship" will mean that the AOL 
User has either (i) engaged in a transaction with eToys through the AOL 
Network or (ii) voluntarily provided information to eToys through a contest, 
registration, or other communication, which included notice to the AOL User 
that the information provided by the AOL User could result in an e-mail being 
sent to that AOL User by eToys or its agents. A Prior Business Relationship 
does not exist by virtue of an AOL User's visit to an Affiliated eToys Site 
(absent the elements above). More generally, eToys will be subject to any 
standard policies regarding e-mail distribution through the AOL Network which 
AOL may implement.

11. COLLECTION OF USER INFORMATION. eToys is prohibited from collecting AOL 
Member screennames from public or private areas of the AOL Network, except as 
specifically provided below. eToys will ensure that any survey, questionnaire 
or other means of collecting AOL Member screennames or AOL User email 
addresses, names, addresses or other identifying information ("User 
Information"), including, without limitation, requests directed to specific 
AOL Member screennames and automated methods of collecting screennames (an 
"Information Request") complies with (i) all applicable laws and regulations 
and (ii) any privacy policies which have been issued by AOL in writing during 
the Term (the "AOL Privacy Policies"). Each Information Request will clearly 
and conspicuously specify to the AOL Users at issue the purpose for which 
User Information collected through the Information Request will be used (the 
"Specified Purpose").

12. USE OF USER INFORMATION. eToys will restrict use of the User Information 
collected through an Information Request to the Specified Purpose. In no 
event will eToys (i) provide User Information to any third party (except to 
the extent specifically (a) permitted under the AOL Privacy Policies or (b) 
authorized by the members in question), (ii) rent, sell or barter User 
Information, (iii) identify, promote or otherwise disclose such User 
Information in a manner that identifies AOL Users as end-users of the AOL 
Service, AOL.com or the AOL Network or (iv) otherwise use any User 
Information in contravention of Section 10 above. Notwithstanding the 
foregoing, in the case of AOL Users who purchase Products from eToys, eToys 
will be entitled to use User Information from such AOL Users as part of 
eToy's aggregate list of Customers; provided that eToys's use does not in any 
way identify, promote or otherwise disclose such User Information in a manner 
that identifies AOL Users as end-users of the AOL Service. AOL.com or the AOL 
Network. In addition, eToys will not use any User Information for any purpose 
(including any Specified Purpose) not directly related to the business purpose 
of the Affiliated eToys Site.

13. EXCUSE. Neither Party will be liable for, or be considered in breach of 
or default under this Agreement on account of, any delay or failure to 
perform as required by this Agreement as a result  of any causes or 
conditions which are beyond such Party's reasonable control and which such 
Party is unable to overcome by the exercise of reasonable diligence.

14. INDEPENDENT CONTRACTORS. The Parties to this Agreement are independent 
contractors. Neither Party is an agent, representative or partner of the 
other Party. Neither Party will have any right, power or authority to enter 
into any agreement for or on behalf of, or incur any obligation or 
liability of, or to otherwise bind, the other Party. This Agreement will not 
be interpreted or construed to create an association, agency, joint venture 
or partnership between the Parties or to impose any liability attributable 
to such a relationship upon either Party.

15. NOTICE. Any notice, approval, request, authorization, direction or other 
communication under this Agreement will be given in writing and will be 
deemed to have been delivered and given for all purposes on the delivery date 
if delivered by electronic mail on the AOL Network or (i) on the delivery 
date if delivered personally to the Party to whom the same is directed; (ii) 
one business day after deposit with a commercial overnight carrier, with 
written verification of receipt, or (iii) five business days after the 
mailing date, whether or not actually received, if sent by U.S. mail, return 
receipt requested, postage and charges prepaid, or any other means of rapid 
mail delivery for which a receipt is available, to the person(s) specified 
below at the address of the Party set forth in the first paragraph of this 
Agreement.

16. NO WAIVER. The failure of either Party to insist upon or enforce strict 
performance by the other Party of any provision of this Agreement or to 
exercise any right under this Agreement will not be construed as a waiver or 
relinquishment to any extent of such Party's right to assert or rely upon any 
such provision or right in that or any other instance; rather, the same will 
be and remain in full force and effect.

17. RETURN OF INFORMATION. Upon the expiration or termination of this 
Agreement, each Party will, upon the written request of the other Party, 
return or destroy (at the option of the Party receiving the request) all 
confidential information, documents, manuals and other materials specified 
the other Party.



                                      16



                                                                 CONFIDENTIAL


18. SURVIVAL. Sections 9 through 12 of this Exhibit F, will survive the 
completion, expiration, termination or cancellation of this Agreement.

19. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and 
supersedes any and all prior agreements of the Parties with respect to the 
transactions set forth herein. Neither Party will be bound by, and each Party 
specifically objects to, any term, condition or other provision which is 
different from or in addition to the provisions of this Agreement (whether or 
not it would materially alter this Agreement) and which is proffered by the 
other Party in any correspondence or other document, unless the Party to be 
bound thereby specifically agrees to such provision in writing.

20. AMENDMENT. No change, amendment or modification of any provision of this 
Agreement will be valid unless set forth in a written instrument signed by 
the Party subject to enforcement of such amendment, and in the case of AOL, 
by an executive of at least the same standing to the executive who signed the 
Agreement.

21. FURTHER ASSURANCES. Each Party will take such action (including, but not 
limited to, the execution, acknowledgment and delivery of documents) as may 
reasonably be requested by any other Party of the implementation or 
continuing performance of this Agreement.

22. ASSIGNMENT. eToys will not assign this Agreement or any right, interest 
or benefit under this Agreement without the prior written consent of AOL. 
Subject to the foregoing, this Agreement will be fully binding upon, inure to 
the benefit of and be enforceable by the Parties hereto and their respective 
successors and assigns.

23. CONSTRUCTION; SEVERABILITY. In the event that any provision of this 
Agreement conflicts with the law under which this Agreement is to be 
construed or if any such provision is held invalid by a court with 
jurisdiction over the Parties to this Agreement, (i) such provision will be 
deemed to be restated to reflect as nearly as possible the original 
intentions of the Parties in accordance with applicable law, and (ii) the 
remaining terms, provisions, covenants and restrictions of this Agreement 
will remain in full force and effect.

24. REMEDIES. Except where otherwise specified, the rights and remedies 
granted to a Party under this Agreement are cumulative and in addition to, 
and not in lieu of, any other rights or remedies which the Party may possess 
at law or in equity; provided that, in connection with any dispute hereunder, 
eToys will be not entitled to offset any amounts that it claims to be due and 
payable from AOL against amounts otherwise payable by eToys to AOL.

25. APPLICABLE LAW; JURISDICTION. This Agreement will be interpreted, 
construed and enforced in all respects in accordance with the laws of the 
Commonwealth of Virginia except for its conflicts of laws principles. Each 
Party irrevocably consents to the exclusive jurisdiction of the courts of the 
Commonwealth of Virginia and the federal courts situated in the Commonwealth 
of Virginia. In connection with any action to enforce the provisions of this 
Agreement, to recover damages or other relief for breach or default under 
this Agreement, or otherwise arising under or by reason of this Agreement.

26. EXPORT CONTROLS. Both Parties will adhere to all applicable laws, 
regulations and rules relating to the export of technical data and will not 
export or re-export any technical data, any products received from the other 
Party or the direct product of such technical data to any proscribed country 
listed in such applicable laws, regulations and rules unless properly 
authorized.

27. HEADINGS. The captions and headings used in this Agreement are inserted 
for convenience only and will not affect the meaning or interpretation of 
this Agreement.

28. COUNTERPARTS. This Agreement may be executed in counterparts, each of 
which will be deemed an original and all of which together will constitute 
one and the same document.


                                      17



                ADDENDUM TO INTERACTIVE MARKETING AGREEMENT


     This Addendum, dated January 1, 1998 (the "Revised Effective Date"), is 
to that certain Interactive Marketing Agreement dated October 1, 1997 by and 
between America Online, Inc. ("AOL"), and eToys Inc. ("eToys") (the 
"Agreement"). Defined terms that are used but not defined herein shall be as 
defined in the Agreement.

The parties wish to amend the Agreement as follows:

1.   PARAGRAPH 4.1, PAYMENTS.  This clause shall be deleted in its entirety, 
     and replaced with the following:

     "PAYMENTS.  eToys will pay AOL an amount of Three Million One Hundred 
     Thousand Dollars (US$3,100,000), to be paid as follows: [*] As indicated 
     elsewhere herein, this Agreement supersedes eToys prior agreements with 
     AOL related to advertising and placement in the AOL shopping channel 
     (the "Prior Agreements"). In that regard, (i) eToys has no further 
     payment obligations under the Prior Agreements (except with respect to 
     invoices which have been received by eToys as of its execution of this 
     Agreement) and (ii) any impressions delivered to eToys beginning as of 
     the Effective Date will count towards the impressions commitments 
     contained herein."

2.   EXHIBIT A, PLACEMENT/PROMOTION PLAN.  The paragraph titled: 'AOL Service 
     Shopping Channel' shall be deleted in its entirety and replaced with the 
     following:

     "AOL SERVICE SHOPPING CHANNEL [*]


* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED 
  SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



     - *

     - 


3.   ORDER OF PRECEDENCE; STANDARD TERMS.  This Addendum is supplementary to 
     and modifies the Agreement. This Addendum supersedes provisions in the 
     Agreement only to the extent that the terms of this Addendum expressly 
     conflict with the provisions of the Agreement or such provisions are 
     otherwise expressly invalidated by reference herein.

4.   COUNTERPARTS.  This Addendum may be executed in counterparts, each of 
     which shall be deemed an original and all of which together shall 
     constitute one and the same document.

IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the 
date first written above.


AMERICA ONLINE, INC.                        eTOYS INC.

By: /s/ illegible                           By: /s/ Philip Polishook  2/16/98
    -------------------------------

Name: illegible                             Name: Philip Polishook
      -----------------------------

Title:                                      Title: Vice President Marketing
       ----------------------------

* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED 
  SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.