Exhibit 10.7

THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR STATE SECURITIES LAWS, OR UNLESS THE PROPOSED TRANSACTION IS REGISTERED OR QUALIFIED AS
REQUIRED.

This
instrument and the rights and obligations evidenced hereby are subordinate in the manner and to the extent set forth in that certain Amended and Restated Subordination and Intercreditor Agreement
(as amended, supplemented or otherwise modified from time to time, the "Subordination Agreement") dated as of April 30, 2002, among KBB Retail Assets Corp. f/k/a F.A.O. Schwarz, Quality
Fulfillment Services, Inc. ("QFS"), FAO, Inc., f/k/a The Right Start, Inc. (the "Parent"), FAO Schwarz, Inc. f/k/a Toy Soldier, Inc. (the "Company") (collectively
with Parent, the "Obligors") and Wells Fargo Retail Finance, LLC (the "Senior Lender"), to the indebtedness (including interest) owed by the Obligors pursuant to that certain Amended and Restated Loan
and Security Agreement dated as of April 30, 2002, as amended, between the Obligors and the Senior Lender, as such Loan and Security Agreement has been and hereafter may be amended,
supplemented or otherwise modified from time to time (the "Wells Loan Agreement") and to indebtedness refinancing the indebtedness under that agreement as contemplated by the Subordination Agreement;
and each holder of this instrument, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement.

FAO SCHWARZ, INC.

AMENDED AND RESTATED SUBORDINATED NOTE DUE JANUARY 6, 2005

|$15,459,859    |  | King of Prussia, Pennsylvania
|-------------- |  | -----------------------------
|Note No. FAO-2 |  | December 16, 2002            

FOR
VALUE RECEIVED, the undersigned, FAO Schwarz, Inc., a Delaware corporation (the "Company"), promises to pay to KBB RETAIL ASSETS CORP., or registered assigns, the principal
sum of FIFTEEN MILLION FOUR HUNDRED FIFTY-NINE THOUSAND EIGHT HUNDRED FIFTY-NINE DOLLARS, as such principal sum may be reduced through prepayments, plus any accrued and unpaid
interest thereon as provided for herein (or so much of such aggregate amount as shall not have been prepaid) on January 6, 2005. This Note is being issued as payment under the terms of the
Asset Purchase Agreement dated November 19, 2001 (the "Agreement"; capitalized terms used in this Note without definition shall have the meanings ascribed to such terms in the Agreement) by and
among the Parent, the Company, KBB Retail Assets Corp., Quality Fulfillment Services, Inc. and Royal Vendex KBB N.V. Payments are to be made to the address of the registered holder of this Note
as set forth on the records of the Company in lawful money of the United States of America. The Company promises to pay interest on the principal amount of this Note, in cash,
semi-annually on each June 1 and December 1, commencing June 1, 2003 (each such date an "Interest Payment Date"), at a rate of 8% per annum, to the holder of record of
this Note on the Company's records (the "Holder") at the close of business on the date that is 10 business days prior to such Interest Payment Date (the "Record Date"). This Note amends and restates
that certain Subordinated Note No. FAO-1 due January 6, 2005 in the initial aggregate principal amount of $17,098,100 which principal amount was subsequently reduced to $14,828,637
then increased to $14,830,637 (the "Original Note"). Cash interest was paid on the Original Note on June 1, 2002. The increase in the aggregate principal amount of the Original Note by $629,222
pursuant to this Note represents payment of interest due on December 1, 2002 on each of the Original Note and that certain Subordinated Note No. QFS-1 due January 6, 2005 in
the aggregate principal amount of $899,900.

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Interest
on the unpaid principal amount of this Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from December 1, 2002.
Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months and paid semi-annually. The Company shall pay principal of and interest
on this Note in such coin or currency of the United States of America as at the time of payment shall be legal tender. The Company may, however, pay principal of or interest on this Note by wire
transfer of federal funds, or interest on this Note by its check payable in such legal tender.

Subject
to Section 1, the Company shall prepay principal as set forth in Section 3.

This
Note is secured by a guaranty dated the date hereof from Parent (the "Guaranty") dated as of January 6, 2002, as amended from time to time and secured by a security agreement
dated as of January 6, 2002, each of which was amended by that certain Amended and Restated Interim Operating Agreement, of even date herewith, by and among the Company, the Parent, the Holder
and QFS. This Note is one of the subordinated notes totaling $15,459,859 in aggregate principal amount issued as payment under the Agreement (the "Notes"). If the Company shall (i) fail to pay
principal or interest when due, (ii) fail generally to pay its debts as they mature, (iii) have any complaint, application, or petition filed by or against it initiating any matter in
which the Company is or may be granted any relief from the its debts pursuant to Title 11, U.S.C., as amended from time to time, or any other insolvency statute or procedure or make a general
assignment for the benefit of its creditors (a "Bankruptcy Event"), (iv) experience or suffer to exist an "Event of Default" (as defined in the Wells Loan Agreement) which Event of Default (as
defined in the Wells Loan Agreement) is continuing and has not been waived within ten days after written notice thereof to the Company, or (v) fail to comply with any other provision of this
Note or the Agreement which failure shall continue for five days after written notice thereof from the Holder (each of (i) through (v) above, an "Event of Default"), the aggregate
outstanding amount of this Note, including any accrued and unpaid interest, shall be immediately due and payable, and in addition thereto, and not in substitution therefor, the Holder shall be
entitled to exercise any one or more of the rights and remedies provided by law. Failure to exercise any right or remedy under this Note or available under applicable law shall not constitute a waiver
of such option or such other remedies or of the right to exercise any of the same in the event of any subsequent Event of Default. The Company and all makers, sureties, guarantors, endorsers and other
persons assuming obligations pursuant to this Note hereby waive presentment, protest, demand, notice of dishonor and all other notices and all defenses and pleas on the grounds of any extension of the
time of payments or the due dates hereof, in whole or in part, before or after maturity, with or without notice. No renewal or extension of this Note, no release of any obligor and no delay in
enforcement of this Note or in exercising any right or power hereunder shall affect the liability of any obligor hereunder.

1.
Ranking. This instrument and the rights and obligations evidenced hereby are subordinate in the manner and to the extent set forth in the Subordination Agreement to the indebtedness
(including interest) owed by the Company pursuant to the Wells Loan Agreement and to indebtedness refinancing the indebtedness under the Wells Loan Agreement (the "Wells Indebtedness") as contemplated
by the Subordination Agreement, and to any other secured indebtedness of the Company for borrowed money permitted by the Wells Loan Agreement, and each Holder of this Note, by acceptance hereof,
agrees to be bound by the provisions of the Subordination Agreement. In the event that any provisions of this Note are deemed to conflict with the Subordination Agreement, the provisions of the
Subordination Agreement shall govern.

2.
Covenants.



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3.
Prepayment of this Note.



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4.
Payment Suspension. Notwithstanding anything in this Note to the contrary, to the extent that the Company and the Holder dispute the amount of any indemnity payment alleged to be due
from the Holder to the Company pursuant to and in accordance with the Agreement, then the Company may suspend payment under the Notes (other than any payment due by reason of the prior occurrence of
an Event of Default) up to the net amount of such indemnity payments in dispute under the Agreement until such dispute is resolved and such suspension shall not be deemed an Event of Default.

5.
Transfer; Registration; Replacement. Upon surrender of this Note for registration of transfer or assignment, duly endorsed, or accompanied by a written instrument of transfer or
assignment duly executed, by the registered Holder hereof or such Holder's attorney duly authorized in writing, a new Note for a like principal amount shall be issued to, and, at the option of the
Holder, registered in the name of, the transferee or assignee. The Company may deem and treat the person in whose name this

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Note is registered as the Holder and owner hereof for the purpose of receiving payments and for all other purposes whatsoever, and the Company shall not be affected by any notice to the contrary.

6.
Miscellaneous.



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If to Holder:

At its address set forth on the
records of the Company which, until
changed as set forth herein shall be:c/o Royal Vendex KBB N.V.
De Klencke 6, NL-1083
Postbus 7997, 1008, AD
Amsterdam, The Netherlands
Attention: Marcel Smits/Eric ter Hark
Tel: 31.20.5490.596
Fax: 31.20.6461.954
Email: eric.ter.hark@vendexkbb.nlwith required copy to (which, in and of
itself, shall not constitute notice):Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
Attention: Mark Lipschutz
Tel: (212) 479-6355
Fax: (212) 479-6275
Email: mlipschutz@klwhllp.comIf to Company to:FAO Schwarz, Inc.
2520 Renaissance Blvd.
King of Prussia, PA 19406
Attention: Legal
Tel: (610)278-7800
Fax: (610)278-7804
Email: jgroner@faoinc.comwith required copy to (which, in and of
itself, shall not constitute notice):Fulbright & Jaworski L.L.P.
865 South Figueroa Street, 29th Floor
Los Angeles, CA 90017
Attention: Victor Hsu, Esq.
Tel: (213) 892-9326
Fax: (213) 680-4518
Email: vhsu@fulbright.com




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[Remainder
of Page Intentionally Left Blank]

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IN
WITNESS WHEREOF, the undersigned has caused this Note to be duly executed on its behalf as of the date first hereinabove set forth.

| |  | FAO SCHWARZ, INC.
| |  | -----------------
| |  | By:              

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Schedule of Principal Prepayments and Adjustments

|Date |  | Amount of Principal
Prepayment or
Adjustment |  | Aggregate Principal Amount
of Note after
Prepayment or Adjustment
|---- |  | -------------------------------------------- |  | -----------------------------------------------------------------
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  
|     |  |                                              |  |                                                                  

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