Exhibit 10.58

 

GUARANTY

(FAO, Inc.)

 

This GUARANTY, dated as of April 23, 2003, is made by FAO, Inc. (fka The Right
Start, Inc.), a Delaware corporation (“Guarantor”), in favor of KBB Retail
Assets Corp., a New York corporation (fka F.A.O. Schwarz) ( the “Subordinated
Note Holder”) the holder of that certain Subordinated Note (the “Subordinated
Note”) issued by FAO Schwarz, Inc. (fka Toy Soldier, Inc.), a Delaware
corporation (“Issuer”) and wholly-owned subsidiary of Guarantor pursuant to the
Plan (defined below):

 

RECITALS

 

A.                                   PURSUANT TO THAT CERTAIN ASSET PURCHASE
AGREEMENT DATED NOVEMBER 19, 2001(THE “PURCHASE AGREEMENT”) ENTERED INTO BY AND
AMONG GUARANTOR, ISSUER, ROYAL VENDEX KBB N.V., A NETHERLANDS CORPORATION,
SUBORDINATED NOTE HOLDER, AND QUALITY FULFILLMENT SERVICES, INC., A VIRGINIA
CORPORATION (“QFS”) , ISSUER ISSUED TO THE SUBORDINATED NOTE HOLDER AND QFS
CERTAIN SUBORDINATED NOTES IN PARTIAL PAYMENT OF THE INITIAL PURCHASE PRICE (AS
DEFINED BY THE PURCHASE AGREEMENT).

 

B.                                     ON JANUARY 13, 2003 THE GUARANTOR AND
ISSUER COMMENCED THEIR RESPECTIVE REORGANIZATION CASES BY FILING VOLUNTARY
PETITIONS FOR RELIEF UNDER CHAPTER 11 OF THE BANKRUPTCY CODE.

 

C.                                     THE SUBORDINATED NOTE IS BEING ISSUED TO
SUBORDINATED NOTE HOLDER PURSUANT TO THE GUARANTOR’S AND ISSUER’S FIRST AMENDED
JOINT PLAN OF REORGANIZATION AS CONFIRMED ON APRIL 4, 2003 BY THE UNITED STATES
BANKRUPTCY COURT DISTRICT OF DELAWARE IN CASE NO. 03-10119(LK) (THE “PLAN”) IN
COMPROMISE OF SUCH EARLIER ISSUED SUBORDINATED NOTES.

 

D.                                    PURSUANT TO THE PLAN GUARANTOR IS REQUIRED
TO ENTER INTO THIS GUARANTY AND TO GUARANTY THE GUARANTIED OBLIGATIONS AS
HEREINAFTER PROVIDED.

 

AGREEMENT

 

NOW, THEREFORE,  Guarantor hereby represents, warrants, covenants, agrees and
guaranties as follows:

 

1.                                       DEFINITIONS.  GUARANTOR IS FAO, INC. 
TERMS DEFINED IN THE SUBORDINATED NOTE AND NOT OTHERWISE DEFINED IN THIS
GUARANTY SHALL HAVE THE MEANINGS GIVEN THOSE TERMS IN THE SUBORDINATED NOTE WHEN
USED HEREIN AND SUCH DEFINITIONS ARE INCORPORATED HEREIN AS THOUGH SET FORTH IN
FULL.  IN ADDITION, AS USED HEREIN, THE FOLLOWING TERMS SHALL HAVE THE MEANINGS
RESPECTIVELY SET FORTH AFTER EACH:

 

“Guarantied Obligations” means any and all present and future obligations of
Issuer to Subordinated Note Holder arising under or related to the Subordinated
Note and/or any one or more of them, whether due or to become due, matured or
unmatured, or liquidated or unliquidated, including interest that accrues after
the commencement of any bankruptcy or insolvency proceeding by or against any
Subordinated Note Holder, Issuer or any other person.

 

“Guaranty” means this Guaranty, and any extensions, modifications, renewals,
restatements, reaffirmations, supplements or amendments hereof.

 

2.                                       SUBORDINATION AGREEMENT.  THIS
INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN
THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION

 

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AND INTERCREDITOR AGREEMENT DATED AS OF APRIL 23, 2003 (AS AMENDED, SUPPLEMENTED
OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “SUBORDINATION AGREEMENT”) AMONG
ROYAL VENDEX KBB, N.V., KBB RETAIL ASSETS CORP., ISSUER, GUARANTOR AND FLEET
RETAIL FINANCE, INC., TO THE INDEBTEDNESS (INCLUDING INTEREST) OWED BY GUARANTOR
AND ISSUER PURSUANT TO THE LOAN AND SECURITY AGREEMENT DATED AS OF APRIL 23,
2003 (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE
“FLEET LOAN AGREEMENT”), AMONG FAO, INC., FAO SCHWARZ, INC., ZB COMPANY, INC.,
THE RIGHT START, INC., TARGOFF-RS, LLC, FLEET RETAIL FINANCE INC., BACK BAY
CAPITAL FUNDING LLC AND THE OTHER LENDING INSTITUTIONS PARTY FROM TIME TO TIME
PARTY THERETO AND FLEET RETAIL FINANCE INC. AS AGENT FOR THE LENDERSAND TO
INDEBTEDNESS REFINANCING THE INDEBTEDNESS UNDER THE FLEET LOAN AGREEMENT (THE
“FLEET INDEBTEDNESS”) AS CONTEMPLATED BY THE SUBORDINATION AGREEMENT, AND TO ANY
OTHER SECURED INDEBTEDNESS OF GUARANTOR FOR BORROWED MONEY PERMITTED BY THE
FLEET LOAN AGREEMENT, AND EACH HOLDER OF THE SUBORDINATED NOTE, BY ACCEPTANCE
THEREOF, HAS AGREED TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION
AGREEMENT.  IN THE EVENT THAT ANY PROVISIONS OF THIS GUARANTY ARE DEEMED TO
CONFLICT WITH THE SUBORDINATION AGREEMENT, THE PROVISIONS OF THE SUBORDINATION
AGREEMENT SHALL GOVERN.

 

3.                                       GUARANTY OF GUARANTIED OBLIGATIONS. 
GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY GUARANTIES AND PROMISES TO PAY
ON DEMAND THE GUARANTIED OBLIGATIONS AND EACH AND EVERY ONE OF THEM, INCLUDING
ALL AMENDMENTS, MODIFICATIONS, SUPPLEMENTS, RENEWALS OR EXTENSIONS OF ANY OF
THEM, WHETHER SUCH AMENDMENTS, MODIFICATIONS, SUPPLEMENTS, RENEWALS OR
EXTENSIONS ARE EVIDENCED BY NEW OR ADDITIONAL INSTRUMENTS, DOCUMENTS OR
AGREEMENTS OR CHANGE THE RATE OF INTEREST ON ANY GUARANTIED OBLIGATION OR THE
SECURITY THEREFOR, OR OTHERWISE.

 

4.                                       NATURE OF GUARANTY.  THIS GUARANTY IS
IRREVOCABLE AND CONTINUING IN NATURE AND RELATES TO ANY GUARANTIED OBLIGATIONS
NOW EXISTING OR HEREAFTER ARISING.  THIS GUARANTY IS A GUARANTY OF PROMPT AND
PUNCTUAL PAYMENT AND IS NOT MERELY A GUARANTY OF COLLECTION.

 

5.                                       RELATIONSHIP TO OTHER AGREEMENTS. 
NOTHING HEREIN SHALL IN ANY WAY MODIFY OR LIMIT THE EFFECT OF TERMS OR
CONDITIONS SET FORTH IN ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED BY
GUARANTOR IN CONNECTION WITH THE GUARANTIED OBLIGATIONS, BUT EACH AND EVERY TERM
AND CONDITION HEREOF SHALL BE IN ADDITION THERETO.  ALL PROVISIONS CONTAINED IN
THE SUBORDINATED NOTE ARE FULLY APPLICABLE TO THIS GUARANTY AND ARE INCORPORATED
HEREIN BY THIS REFERENCE.

 

6.                                       WAIVERS AND CONSENTS.  GUARANTOR
ACKNOWLEDGES THAT THE OBLIGATIONS UNDERTAKEN HEREIN INVOLVE THE GUARANTY OF
OBLIGATIONS OF PERSONS OTHER THAN GUARANTOR AND, IN FULL RECOGNITION OF THAT
FACT, CONSENTS AND AGREES THAT SUBORDINATED NOTE HOLDER, TOGETHER WITH ISSUER,
MAY, AT ANY TIME AND FROM TIME TO TIME, WITHOUT NOTICE OR DEMAND, AND WITHOUT
AFFECTING THE ENFORCEABILITY OR CONTINUING EFFECTIVENESS HEREOF (A) SUPPLEMENT,
MODIFY, AMEND, EXTEND, RENEW, ACCELERATE OR OTHERWISE CHANGE THE TIME FOR
PAYMENT OR THE TERMS OF THE GUARANTIED OBLIGATIONS OR ANY PART THEREOF,
INCLUDING ANY INCREASE OR DECREASE OF THE RATE OF INTEREST THEREON; (B)
SUPPLEMENT, MODIFY, AMEND OR WAIVE, OR ENTER INTO OR GIVE ANY AGREEMENT,
APPROVAL OR CONSENT WITH RESPECT TO, THE GUARANTIED OBLIGATIONS OR ANY PART
THEREOF, OR ANY OF THE SUBORDINATED NOTE TO WHICH GUARANTOR IS NOT A PARTY OR
ANY ADDITIONAL SECURITY OR GUARANTIES, OR ANY CONDITION, COVENANT, DEFAULT,
REMEDY, RIGHT, REPRESENTATION OR TERM THEREOF OR THEREUNDER; (C) ACCEPT NEW OR
ADDITIONAL INSTRUMENTS, DOCUMENTS OR AGREEMENTS IN EXCHANGE FOR OR RELATIVE TO
ANY OF THE SUBORDINATED NOTE OR THE GUARANTIED OBLIGATIONS OR ANY PART THEREOF;
(D) ACCEPT PARTIAL PAYMENTS ON THE GUARANTIED OBLIGATIONS; (E) RECEIVE AND HOLD
ADDITIONAL SECURITY OR GUARANTIES FOR THE GUARANTIED OBLIGATIONS OR ANY PART
THEREOF; (F) RELEASE, RECONVEY, TERMINATE, WAIVE, ABANDON, FAIL TO PERFECT,
SUBORDINATE, EXCHANGE, SUBSTITUTE, TRANSFER AND/OR ENFORCE ANY SECURITY OR
GUARANTIES, AND APPLY ANY SECURITY AND DIRECT THE ORDER OR MANNER OF SALE
THEREOF AS SUBORDINATED NOTE HOLDER IN CONJUNCTION WITH ISSUER MAY DETERMINE;
(G) RELEASE ANY PERSON FROM ANY PERSONAL LIABILITY WITH RESPECT TO THE
GUARANTIED OBLIGATIONS OR ANY PART THEREOF; (H) SETTLE, RELEASE ON TERMS
SATISFACTORY TO SUBORDINATED NOTE HOLDER OR BY OPERATION OF APPLICABLE LAWS OR
OTHERWISE LIQUIDATE OR ENFORCE ANY GUARANTIED OBLIGATIONS AND ANY SECURITY OR
GUARANTY THEREFOR IN

 

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ANY MANNER, CONSENT TO THE TRANSFER OF ANY SECURITY AND BID AND PURCHASE AT ANY
SALE; AND/OR (I) CONSENT TO THE MERGER, CHANGE OR ANY OTHER RESTRUCTURING OR
TERMINATION OF THE CORPORATE OR OTHER EXISTENCE OF ISSUER AND CORRESPONDINGLY
RESTRUCTURE THE GUARANTIED OBLIGATIONS, AND ANY SUCH MERGER, CHANGE,
RESTRUCTURING OR TERMINATION SHALL NOT AFFECT THE LIABILITY OF GUARANTOR OR THE
CONTINUING EFFECTIVENESS HEREOF, OR THE ENFORCEABILITY HEREOF WITH RESPECT TO
ALL OR ANY PART OF THE GUARANTIED OBLIGATIONS.

 

Upon the occurrence and during the continuance of any Event of Default,
Subordinated Note Holder may enforce this Guaranty independently of any other
remedy or security Subordinated Note Holder at any time may have or hold in
connection with the Guarantied Obligations.  Guarantor expressly waives any
right to require Subordinated Note HolderSubordinated Note Holder to marshal
assets in favor of Issuer, or to proceed against Issuer, or upon or against any
security or remedy, before proceeding to enforce this Guaranty.  Guarantor
agrees that Subordinated Note HolderSubordinated Note Holder may proceed against
Issuer, or upon or against any security or remedy, in such order as they shall
determine in their sole and absolute discretion.  Subordinated Note Holder may
file a separate action or actions against Issuer and/or Guarantor without
respect to whether action is brought or prosecuted with respect to any security
or against any other person, or whether any other person is joined in any such
action or actions.  Guarantor agrees that Subordinated Note Holder, Issuer, any
other obligors and any affiliates of Issuer or such obligors may deal with each
other in connection with the Guarantied Obligations or otherwise, or alter any
contracts or agreements now or hereafter existing between any of them, in any
manner whatsoever, all without in any way altering or affecting the security of
this Guaranty.  Subordinated Note Holder’s rights hereunder shall be reinstated
and revived, and the enforceability of this Guaranty shall continue, with
respect to any amount at any time paid on account of the Guarantied Obligations
which thereafter shall be required to be disgorged, restored or returned by
Subordinated Note Holder upon the bankruptcy, insolvency or reorganization of
Issuer or any other person, or otherwise, all as though such amount had not been
paid.  The rights of Subordinated Note Holder created or granted herein and the
enforceability of this Guaranty with respect to Guarantor at all times shall
remain effective to guaranty the full amount of all the Guarantied Obligations
even though the Guarantied Obligations, or any part thereof, or any security or
guaranty therefor, may be or hereafter may become invalid or otherwise
unenforceable as against Issuer or any other guarantor or surety or any other
person and whether or not Issuer or any other person shall have any personal
liability with respect thereto.  Guarantor expressly waives any and all defenses
now or hereafter arising or asserted by reason of (a) any disability or other
defense of Issuer or any other obligor with respect to the Guarantied
Obligations, (b) the unenforceability or invalidity of any security or guaranty
for the Guarantied Obligations or the lack of perfection or con­tinuing
perfection or failure of priority of any security for the Guarantied
Obligations, (c) the cessation for any cause whatsoever of the liability of
Issuer or any other obligor (other than by reason of the full payment and
performance of all Guarantied Obligations), (d) any failure of Subordinated Note
Holder to marshal assets in favor of Issuer or any other person, (e) except as
otherwise provided in this Guaranty, any failure of Subordinated Note Holder to
give notice of sale or other disposition of Collateral to Guarantor or any other
person or any defect in any notice that may be given in connection with any sale
or disposition of Collateral, (f) except as otherwise provided in this Guaranty,
any failure of Subordinated Note Holder to comply with applicable laws in
connection with the sale or other disposition of any Collateral or other
security for any Guarantied obligations, including without limitation, any
failure of Subordinated Note Holder to conduct a commercially reasonable sale or
other disposition of any Collateral or other security for any Guarantied
Obligation, (g) any act or omission of Subordinated Note Holder or others that
directly or indirectly results in or aids the discharge or release of Issuer or
any other obligor or the Guarantied Obligations or any security or guaranty
therefor by operation of law or otherwise, (h) any law which provides that the
obligation of a surety or guarantor must neither be larger in amount nor in
other respects more burdensome than that of the principal or which reduces a
surety’s or guarantor’s obligation in proportion to the principal obligation,
(i) any failure of Subordinated Note Holder to file or enforce a claim in any
bankruptcy or other proceeding with respect to any person, (j) the election by
Subordinated Note Holder, in any bankruptcy proceeding of any person, of the
application or non-application of Section 1111(b)(2)

 

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of the United States Bankruptcy Code, (k) any extension of credit or the grant
of any lien under Section 364 of the United States Bankruptcy Code, (1) any use
of cash collateral under Section 363 of the United States Bankruptcy Code, (m)
any agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any person, (n) the avoidance of any
lien in favor of Subordinated Note Holder for any reason, (o) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding commenced by or against any person, including any
discharge of, or bar or stay against collecting, all or any of the Guarantied
Obligations (or any interest thereon) in or as a result of any such proceeding,
(p) to the extent permitted, the benefits of any form of one-action rule under
any applicable law, or (q) any action taken by Subordinated Note Holder that is
authorized by this Section or any other provision of the Subordinated Note. 
Guarantor expressly waives demands for payment or performance, notices of
nonpayment or nonperformance, protests, notices of protest, notices of dishonor
and all other notices or demands of any kind or nature whatsoever with respect
to the Guarantied Obligations, and all notices of acceptance of this Guaranty or
of the existence, creation or incurrence of new or additional Guarantied
Obligations.

 

7.                                       UNDERSTANDINGS WITH RESPECT TO WAIVERS
AND CONSENTS.  GUARANTOR WARRANTS AND AGREES THAT EACH OF THE WAIVERS AND
CONSENTS SET FORTH HEREIN ARE MADE WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND
CONSEQUENCES, WITH THE UNDERSTANDING THAT EVENTS GIVING RISE TO ANY DEFENSE OR
RIGHT WAIVED MAY DIMINISH, DESTROY OR OTHERWISE ADVERSELY AFFECT RIGHTS WHICH
GUARANTOR OTHERWISE MAY HAVE AGAINST ISSUER, SUBORDINATED NOTE HOLDER OR OTHERS,
OR AGAINST ANY COLLATERAL.  GUARANTOR ACKNOWLEDGES THAT IT HAS EITHER CONSULTED
WITH LEGAL COUNSEL REGARDING THE EFFECT OF THIS GUARANTY AND THE WAIVERS AND
CONSENTS SET FORTH HEREIN, OR HAS MADE AN INFORMED DECISION NOT TO DO SO.  IF
THIS GUARANTY OR ANY OF THE WAIVERS OR CONSENTS HEREIN ARE DETERMINED TO BE
UNENFORCEABLE UNDER OR IN VIOLATION OF APPLICABLE LAW, THIS GUARANTY AND SUCH
WAIVERS AND CONSENTS SHALL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW.

 

8.                                       LIMITATIONS ON LIABILITY. 
NOTWITHSTANDING ANYTHING TO THE CONTRARY ELSEWHERE CONTAINED HEREIN OR IN THE
SUBORDINATED NOTE, THE AGGREGATE LIABILITY OF GUARANTOR HEREUNDER FOR PAYMENT OF
THE GUARANTIED OBLIGATIONS SHALL NOT EXCEED AN AMOUNT WHICH, IN THE AGGREGATE,
IS $1.00 LESS THAN THAT AMOUNT WHICH IF SO PAID OR PERFORMED WOULD CONSTITUTE OR
RESULT IN A “FRAUDULENT TRANSFER,” “FRAUDULENT CONVEYANCE” OR TERMS OF SIMILAR
IMPORT, UNDER APPLICABLE STATE OR FEDERAL LAW, INCLUDING WITHOUT LIMITATION,
SECTION 548 OF THE UNITED STATES BANKRUPTCY CODE.

 

9.                                       THIS GUARANTY SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.

 

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IN WITNESS WHEREOF, Guarantor has executed this Guaranty by its duly authorized
officer as of the date first written above.

 

 

“Guarantor”

 

 

 

FAO, INC.,

 

a Delaware corporation

 

 

 

Address for Guarantor:

 

 

 

2520 Renaissance Boulevard
King of Prussia, Pennsylvania

 

Attn.:

Legal

 

 

kroyer@faoinc.com

 

Telephone:

(610) 278-7800

 

Fax:

(610) 278-7804

 

 

 

 

 

By:

  /s/ Jerry R. Welch

 

 

 

 

 

 

Title:

 President and Chief Executive Officer

 

 

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