Sample Business Contracts

Royalty Agreement - Toy Biz Inc. and Avi Arad & Associates

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February 14, 1997

Mr. Avi Arad
Arad & Associates
1698 Post Road East
Westport, CT  06880

Dear Avi:

     In order to insure that there are no misunderstandings regarding the
royalty stream to Avi Arad & Associates it is in everyone's best interest to
clarify what I believe to be our existing understanding as well as the impact of
the contemplated Marvel transaction.

     First, as has been our practice, we will continue to document those items
which the company deeply discounts or "closes out." We have never accrued or
paid royalties on these items.

     Second, there are several Marvel items in the 1996 line which were
developed internally and for which no royalties are due. As we have previously
discussed, while the company saved the royalty component on these sales by
developing them internally, the items were not as exciting or successful as we
would hope. I have asked you and, in fact you have, become closely involved in
the development of the 1997 Marvel line. Subject to further review on both our
parts and except in very limited circumstances, it is the company's
understanding that you are due royalties on the 1997 Marvel line since you are
the primary developer/inventor.

     Third, we have adjusted the royalty rate on all Marvel items on which you
are due a royalty to 4% on a worldwide basis. As you are aware, our agreement to
this rate was apparently not communicated to our Accounting Department but all
adjustments have been properly recorded. Obviously, for non-Marvel items we will
continue to negotiate each item on a "stand alone", item by item basis.

     Finally, I believe we are in agreement regarding the Battle Builder's
royalty adjustment. I realize how difficult this was for you because I know how
much you believe in this product, while I believe you are right, as you have
seen with our on-going negotiation with Warner Brothers in trying to get them to
participate in the support of the Batman Ride-On product on some financial basis
(tooling/advertising support or substantially reduced royalty) sometimes
licensors must participate in these marketing programs. I agree that your
support of Battle Builders will be no more than the $500,000 that you
participated in for 1996.

     As far as the future is concerned, we must document, under separate cover,
exactly what your new arrangement will be after the Marvel acquisition. I
understand your "cap" amount will change and therefore we should better define
the terms of your new deal. In order to confirm your agreement with all of the
above, please sign and return a copy of this letter for our files.

                                       Very truly yours,

                                       Joseph M. Ahearn
                                       President and
                                       Chief Executive Officer