Exhibit 10.65

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is made as of April 23,
2003 between FAO, Inc., a Delaware corporation (the “Company”), and each of the
undersigned and those who may purchase the Securities (as defined) in the future
(each individually a “Purchaser,” and collectively the “Purchasers”).

 

WHEREAS, the Company and certain of the Purchasers have entered into a
Securities Purchase Agreement dated as of April 3, 2003, as amended by a First
Amendment to Securities Purchase Agreement dated as of April 21, 2003 (as so
amended, the “Purchase Agreement”); and

 

WHEREAS, pursuant to the Purchase Agreement, the Company and such Purchasers
desire to enter into this Agreement to provide such Purchasers with certain
registration rights and to address related matters;

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, the parties agree as follows:

 

1.      Registration Rights.

 

1.1    Demand Registration Rights.

 

(a)          Subject to the provisions of this Section 1.1, at any time after
the date hereof, Purchasers holding (i) shares of the Company’s Common Stock,
$.001 par value (the “Common Stock”) issued or issuable upon the conversion of
at least $5 million in aggregate liquidation preference of Class I Convertible
Preferred Stock (the “Class I Preferred Stock”) issued by the Company to certain
of the Purchasers pursuant to the Purchase Agreement (the number of such shares
being the “Registration Threshold Number”), or (ii) the Registration Threshold
Number of shares of Common Stock which holders had the benefit of registration
rights prior to the Company’s January 13, 2003 bankruptcy filing and which
shares of Common Stock cannot be resold pursuant to Rule 144(k) promulgated
under the Securities Exchange Act of 1934 (the “Prior Registrable Common Stock,”
and collectively with the Common Stock issued or issuable upon the conversion of
Class I Preferred Stock, the “Securities”), may request registration for sale
under the Securities Act of 1933, as amended (the “Act”), of all or part of the
Securities.  In addition, subject to the provisions of this Section 1.1, at any
time after the date hereof if the Company is then eligible to use Form S-3 for
such purpose, a Purchaser or Purchasers holding at least 40% of the Registration
Threshold Number of shares of Common Stock may request registration for sale
under the Act of all or part of the Securities (a “Special S-3 Demand”);
provided that the Company shall not be required to make any registration under
this sentence if Form S-3 is, or becomes, unavailable for such purpose.  Within
ten days after receipt of a demand notice or a Special S-3 Demand pursuant to
this Section 1.1(a), the Company shall notify the other holders of Securities
that a registration demand has been made.  Within 15 days after such
notification is sent by the Company, any holder of Securities (a “Joining
Holder”) may request participation in the registration demanded.  After such
fifteenth day, the Company shall, as expeditiously as practicable, notify the
other holders of the Securities that such registration has been requested and
use its best efforts (i) to file with the Securities and Exchange Commission
(the “SEC”) under the Act, a registration statement on the appropriate form
(using Form S-3 or other “short form,” if available) covering all the shares of
Common Stock specified in the demand request and any request made by a Joining
Holder and (ii) to cause such registration statement to be declared effective. 
The Company shall use its best efforts to cause each

 

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offering pursuant to this Section 1.1(a) (other than one arising from a Special
S-3 Demand) to be managed, on a firm commitment basis, by a recognized regional
or national underwriter.  If the managing underwriter advises the Company or any
holder electing to participate in the demand registration offering, as the case
may be, in writing that in their opinion the amount of common stock requested to
be included in such registration exceeds the amount which can be sold
effectively in such offering, the common stock to be included shall be reduced
pro rata among the electing holders based on the number of shares of common
stock each requested to have included.  The Company shall not be required to
comply with (A) more than two requests for demand registration pursuant to this
Section 1.1(a) (other than a Special S-3 Demand) or (B) in any 12-month period
more than one Special S-3 Demand.  The Company shall not be required to keep any
such registration statement effective in excess of 60 days after it is declared
effective by the SEC or after completion of the distribution of the Common Stock
so registered, whichever is earlier.  The Company shall not be required to
effect a demand registration under the Act pursuant to this Section 1.1(a) if
(i) the Company receives such request for registration within 120 days preceding
the anticipated effective date of a proposed underwritten public offering of
securities of the Company approved by the Company’s Board of Directors prior  to
the Company’s receipt of such request; (ii) within 180 days prior to any such
request for registration, a registration of securities of the Company has been
effected in which Purchasers had the right to participate pursuant to Section
1.2 hereof; or (iii) the Board of Directors of the Company reasonably determines
in good faith that effecting such a demand registration at such time would have
a material adverse effect upon a proposed sale of all (or substantially all) the
assets of the Company, or a merger, reorganization, recapitalization, or similar
transaction materially affecting the capital structure or equity ownership of
the Company; provided, however, that the Company may only delay a demand
registration pursuant to this Section 1.1(a)(iii) for a period not exceeding 90
days (or until such earlier time as such transaction is consummated or no longer
proposed).  The Company shall promptly notify Purchasers in writing of any
decision not to effect any such request for registration pursuant to this
Section 1.1(a), which notice shall set forth in reasonable detail the reason for
such decision and shall include an undertaking by the Company promptly to notify
Purchasers as soon as a demand registration may be effected.

 

(b)         Purchasers may withdraw a request for demand registration at any
time before a registration statement is declared effective, in which event the
Company shall withdraw such registration statement.  If the Company withdraws a
registration statement under this Section 1.1(b) in respect of a registration
for which the Company would otherwise be required to pay expenses under Section
1.4 hereof, Purchasers shall be liable to the Company for all expenses of such
registration specified in Section 1.4 hereof in proportion to the number of
shares each of the Purchasers shall have requested to be registered, and
Purchasers shall not be deemed to have requested a demand registration for
purposes of Section 1.1(a) hereof unless Purchasers fail to pay such expenses.

 

1.2    Piggyback Registration Rights.

 

(a)          If at any time or times after the date hereof, the Company proposes
to make a registered public offering of any of its securities under the Act,
whether to be sold by it or by one or more third parties (including an offering
pursuant to a demand registration under Section 1.1(a) hereof but excluding an
offering registered on Form S-8, Form S-4, or comparable forms), the Company
shall, not less than 45 days prior to the proposed filing date of the
registration form, give written notice of the proposed registration to
Purchasers, and at the written requests of Purchasers delivered to the Company
within 20 days after the receipt

 

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of such notice, shall include in such registration and offering, and in any
underwriting of such offering, all shares of Common Stock that may have been
designated in Purchasers’ requests.

 

(b)         If a registration in which Purchasers have the right to participate
pursuant to this Section 1.2 is an underwritten offering for the account of the
Company or for the account of a security holder (other than Purchasers) pursuant
to the exercise of a demand registration right, and the managing underwriters
advise the Company or such security holder, as the case may be, in writing that
in their opinion the number of securities requested to be included in such
registration, together with the securities being offered by the Company or such
security holder, as the case may be, exceeds the number which can be effectively
sold in such offering, the Company shall include in such registration (i) first,
the securities of the Company or such security holder proposed to be sold, and
(ii) second, to the extent possible, the Common Stock proposed to be sold by
each of the Purchasers and any other selling shareholders, in proportion to the
number of shares of Common Stock with respect to which they have requested
registration.

 

1.3 Registration Procedures.  The Company shall have no obligation to file a
registration statement pursuant to Section 1.1 hereof, or to include shares of
Common Stock owned by or issuable to any Purchaser in a registration statement
pursuant to Section 1.2 hereof, unless and until such Purchaser shall have
furnished the Company with all information and statements about or pertaining to
such Purchaser in such reasonable detail and on such timely basis as is
reasonably required by the Company in connection with the preparation of the
registration statement and, in the case of a registration statement pursuant to
Section 1.2 hereof, shall have entered into any underwriting agreement in
connection with such registration.  Whenever Purchasers have requested that any
shares of Common Stock be registered pursuant to Section 1.1 or 1.2 hereof, the
Company shall, as expeditiously as reasonably possible:

 

(a)          prepare and file with the SEC a registration statement with respect
to such shares and use its best efforts to cause such registration statement to
become effective as soon as reasonably practicable thereafter (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish counsel for the Purchasers with
copies of all such documents proposed to be filed);

 

(b)         prepare and file with the SEC such amendments and supplements to
such registration statement and prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a period of not
less than nine months (or two years, if the provisions of Rule 415 under the Act
are available with respect thereto) or until the Purchasers have completed the
distribution described in such registration statement, whichever occurs first;

 

(c)          furnish to the Purchasers such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus),
and such other document as the Purchasers may reasonably request;

 

(d)         use its best efforts to register or qualify such shares under such
other securities or blue sky laws of such jurisdictions as the Purchasers
request (and to maintain such registrations and qualifications effective for a
period of nine months or until the Purchasers have completed the distribution of
such shares, whichever occurs first), and to do any and all other acts and
things which may be necessary or advisable to enable the Purchasers to
consummate the disposition in such jurisdictions of such shares;  provided that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would

 

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not be required but for this Section 1.3(d); (ii) subject itself to taxation in
any such jurisdiction; or (iii) file any general consent to service of process
in any such jurisdiction;

 

(e)          notify the Purchasers, at any time during which a prospectus
relating thereto is required to be delivered under the Act within the period
that the Company is required to keep a registration statement effective, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;

 

(f)          use its best efforts to cause all such shares to be listed on
securities exchanges or interdealer quotation systems (including Nasdaq National
Market), if any, on which similar securities issued by the Company are then
listed;

 

(g)         enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Purchasers
reasonably request (and subject to the Purchasers’ reasonable approval) in order
to expedite or facilitate the disposition of such shares; and

 

(h)         make reasonably available for inspection by the Purchasers, by any
underwriter participating in any distribution pursuant to such registration
statement, and by any attorney, accountant or other agent retained by the
Purchasers or by any such underwriter, all relevant financial and other records,
pertinent corporate documents, and properties (other than confidential
intellectual property) of the Company; provided, however, that any information
that is designated in writing by the Company, in good faith, as confidential at
the time of delivery of such information shall be kept confidential by the
Purchasers or any such underwriter, attorney, accountant or agent, unless such
disclosure is made in connection with a court proceeding or required by law, or
such information becomes available to the public generally or through a third
party without an accompanying obligation of confidentiality.

 

1.4    Registration Expenses.

 

The Company will pay all Registration Expenses of all registrations under this
Agreement, provided, however, that if a registration under Section 1.1 is
withdrawn at the request of the Purchasers (other than as a result of
information concerning the business or financial condition of the Company that
is made known to the Purchasers after the date on which such registration was
requested) and if the requesting the Purchasers elect not to have such
registration counted as a registration requested under Section 1.1, the
Purchasers shall pay the Registration Expenses of such registration.  For
purposes of this Section, the term “Registration Expenses” means all expenses
incurred by the Company in complying with this Section, including, without
limitation, all registration and filing fees (other than National Association of
Securities Dealers, Inc. filing fees pursuant to an underwritten offering),
exchange listing fees, printing expenses, fees, and expenses of counsel for the
Company and the reasonable fees and expenses of one firm or counsel selected by
the Purchasers to represent them, state Blue Sky fees and expenses, and the
expense of any special audits incident to or required by any such registration,
but excluding underwriting discounts and selling commissions.

 

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1.5    Indemnity.

 

(a)          In the event that any shares of Common Stock owned by the
Purchasers are sold by means of a registration statement pursuant to Section 1.1
or 1.2 hereof, the Company agrees to indemnify and hold harmless such
Purchasers, each of their partners and their officers and directors, and each
person, if any, who controls such Purchasers within the meaning of the Act (each
such Purchaser, its partners and their officers and directors, and any such
other persons individually an “Indemnified Person” and collectively “Indemnified
Persons”) from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs, and expenses, including,
without limitation, interest, penalties, and reasonable attorneys’ fees and
disbursements, asserted against, resulting to, imposed upon or incurred by such
Indemnified Person, directly or indirectly (in this Section 1.5 in the singular
a “claim” and in the plural “claims”), based upon, arising out of or resulting
from any untrue statement of a material fact contained in the registration
statement or any omission to state therein a material fact necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such claim is based upon, arises out of
or results from information furnished to the Company in writing by such
Purchaser for use in connection with the registration statement.

 

(b)         Each Purchaser agrees to indemnify and hold harmless the Company,
its officers and directors, and each person, if any, who controls the Company
within the meaning of the Act (each of the Company, its officers and directors,
and any such other persons individually as an “Indemnified Person” and
collectively “Indemnified Persons”) from and against all claims based upon,
arising out of or resulting from any untrue statement of a material fact
contained in the registration statement or any omission to state therein a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, to the
extent that such claim is based upon, arises out of or results from information
furnished to the Company in writing by such Purchaser for use in connection with
the registration statement.

 

(c)          The indemnification set forth herein shall be in addition to any
liability the Company or a Purchaser may otherwise have to the Indemnified
Persons.  Promptly after actually receiving definitive notice of any claim in
respect of which an Indemnified Person may seek indemnification under this
Section 1.5, such Indemnified Person shall submit written notice thereof to
either the Company or a Purchaser, as the case may be (an “Indemnifying
Person”).  The failure of the Indemnified Person so to notify the Indemnifying
Person of any such claim shall not relieve the Indemnifying Person from any
liability it may have hereunder except to the extent that (a) such liability was
caused or materially increased by such failure, or (b) the ability of the
Indemnifying Person to reduce such liability was materially adversely affected
by such failure.  In addition, the failure of the Indemnified Person so to
notify the Indemnifying Person of any such claim shall not relieve the
Indemnifying Person from any liability it may have otherwise than hereunder. 
The Indemnifying Person shall have the right to undertake, by counsel or
representatives of its own choosing, the defense, compromise or settlement
(without admitting liability of the Indemnified Person) of any such claim
asserted, such defense, compromise or settlement to be undertaken at the expense
and risk of the Indemnifying Person, and the Indemnified Person shall have the
right to engage separate counsel, at such Indemnified Person’s own expense, whom
counsel for the Indemnifying Person shall keep informed and consult with in a
reasonable manner.  In the event the Indemnifying Person shall elect not to
undertake such defense by its own representatives, the Indemnifying Person shall
give prompt written notice of such election to the Indemnified Person, and the
Indemnified Person may undertake the defense, compromise or settlement

 

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(without admitting liability of the Indemnified Person) thereof on behalf of and
for the account and risk of the Indemnifying Person by counsel or other
representatives designated by the Indemnified Person. Notwithstanding the
foregoing, no Indemnifying Person shall be obligated hereunder with respect to
amounts paid in settlement of any claim if such settlement is effected without
the consent of such Indemnifying Person, which consent shall not be unreasonably
withheld.

 

(d)         If for any reason the foregoing indemnity is unavailable to, or is
insufficient to hold harmless, an Indemnified Person, then the Indemnifying
Person shall contribute to the amount paid or payable by the Indemnified Person
as a result of such claims, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Person and the Indemnified Person as well as
any other relevant equitable considerations.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.

 

1.6  Subsequent Registration Statements.  The Company shall not cause or permit
any new registration statements (except registration statements on Form S-8,
S-4, or comparable forms) to become effective during the 90 days after the
effective date of a registration statement covering shares of Common Stock owned
by the Purchasers.

 

2.    Miscellaneous.

 

2.1  Additional Actions and Documents.  Each of the parties hereto hereby agrees
to use its good faith best efforts to take or cause to be taken such further
actions, to execute, deliver and file or cause to be executed, delivered and
filed such further documents and instruments, and to obtain such consents, as
may be necessary or as may be reasonably requested in order to fully effectuate
the purposes, terms and conditions of this Agreement.

 

2.2  Assignment.  Any Purchaser may assign its rights under this Agreement to
any assignee of the Securities (including any assignee of the Common Stock
issued upon conversion of the Class I Preferred Stock); provided that no such
assignment shall be effective unless and until the Company shall have received
written notice thereof from such Purchaser.

 

2.3  Entire Agreement; Amendment. This Agreement, including the other writings
referred to herein or delivered pursuant hereto, constitutes the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, and it supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein.  No amendment,
modification or discharge of this Agreement shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, or discharge is sought.

 

2.4  Limitation on Benefits.  It is the explicit intention of the parties hereto
that no person or entity other than the parties hereto (and their respective
successors and assigns) is or shall be entitled to bring any action to enforce
any provision of this Agreement against any of the parties hereto, and the
covenants, undertakings and agreements set forth in this Agreement shall be
solely for the benefit of, and shall be enforceable only by, the parties hereto
or their respective successors and assigns.

 

2.5  Binding Effect.  This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.

 

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2.6  Governing Law.    This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed by and
construed in accordance with the laws of the State of New York (without regard
to conflicts of laws principles).

 

2.7  Notices.  All notices, demands, requests, or other communications which may
be or are required to be given, served, or sent by any party to any other party
pursuant to this Agreement shall be in writing and shall be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery, including delivery by courier,
telegram, telex, or facsimile transmission, addressed as follows:

 

(a)  If to the Company:

 

FAO, Inc.

2520 Renaissance Boulevard

King of Prussia, PA 19406

Attention:  Legal

Facsimile:  (610) 278-7804

 

with a copy (which shall not constitute notice) to:

 

Fulbright & Jaworski L.L.P.

865 S. Figueroa, 29th Floor

Los Angeles, CA 90017

Attention:  Victor Hsu, Esq.

Facsimile:  (213) 680-4518

 

(b)  If to a Purchaser, to the address set forth in the Securities Purchase
Agreement for such Purchaser.

 

Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent. 
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the affidavit of
messenger or (with respect to a telex) the answer back being deemed conclusive
(but not exclusive) evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.

 

2.8  Headings.  Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.

 

2.9  Execution in Counterparts.  To facilitate execution, this Agreement may be
executed in as many counterparts as may be required; and it shall not be
necessary that the signatures of each party appear on each counterpart; but it
shall be sufficient that the signature of each party appear on one or more of
the counterparts.  All counterparts shall collectively constitute a single
agreement.  It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of all of the parties hereto.

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

SAKS INCORPORATED,

 

a Tennessee corporation

 

 

 

 

 

By

  /s/ George W. Carlis

 

Name:

  George W. Carlis

 

Title:

    Vice President

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

FRED KAYNE,

 

an Individual

 

 

 

 

 

By

   /s/ Fred Kayne

 

 

Fred Kayne

 

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

KAYNE ANDERSON CAPITAL ADVISORS, L.P.

 

 

 

 

 

By

Kayne Anderson Investment Management, Inc.
a Nevada corporation

 

 

 

 

 

 

By

  /s/ Richard Kayne

 

 

Name:

  Richard Kayne

 

 

Title:

    Chief Executive Officer

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

RICHARD KAYNE,
an Individual

 

 

 

 

 

 

By

  /s/ Richard Kayne

 

 

Richard Kayne

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

`

HANCOCK PARK CAPITAL II, L.P.
a Delaware limited partnership

 

 

 

 

 

By  Hancock Park Associates III

 

a Delaware limited partnership

 

its general partner

 

 

 

 

By

  /s/ Brian McDermott

 

 

Name:

  Brian McDermott

 

 

Title:

    Partner

 

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

WOODACRES LLC,

 

 

 

 

 

By

   /s/ David Shladovsky

 

Name:

   David Shladovsky

 

Title:

     General Counsel of Manager

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

CHARLES NORRIS,

 

an Individual

 

 

 

 

 

By

  /s/ Charles Norris

 

 

Charles Norris

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

LES BILLER, as Trustee

 

Amended and Restated Les and Sheri Biller
Revocable Trust U/A Dated June 5, 2002

 

 

 

 

 

By

  /s/ Les Biller

 

 

Les Biller

 

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first above written.

 

 

 

FAO, Inc.,

 

a Delaware corporation

 

 

 

 

 

By

  /s/   Jerry R. Welch

 

Name:

   Jerry R. Welch

 

Title:

     President and Chief Executive Officer

 

 

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