Exhibit 10.56
FAO, INC. SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of April 23, 2003, is made by FAO, Inc. (fka
The Right Start, Inc.), a Delaware corporation ("Grantor"), in favor of KBB
Retail Assets Corp. (fka F.A.O. Schwarz), a New York corporation (the
"Subordinated Secured Party"), the holder of that certain Subordinated Note (the
"Subordinated Note") issued by Grantor pursuant to the Plan (as defined below)
to Subordinated Secured Party and guaranteed by Grantor, with reference to the
following facts:
RECITALS
A.
PURSUANT TO THE ASSET PURCHASE AGREEMENT BY
AND AMONG GRANTOR, FAO SCHWARZ, INC. (FKA TOY SOLDIER, INC.), A DELAWARE
CORPORATION (THE "ISSUER"), ROYAL VENDEX KBB N.V., A NETHERLANDS CORPORATION,
QUALITY FULFILLMENT SERVICES, INC., A VIRGINIA CORPORATION ("QFS") AND THE
SUBORDINATED SECURED PARTY, DATED NOVEMBER 19, 2001 (THE "ASSET PURCHASE
AGREEMENT"), THE SUBORDINATED SECURED PARTY AND QFS AGREED TO ACCEPT, IN PARTIAL
PAYMENT OF THE INITIAL PURCHASE PRICE (AS DEFINED IN THE ASSET PURCHASE
AGREEMENT), CERTAIN SUBORDINATED NOTES ISSUED BY ISSUER AND GUARANTEED BY
GRANTOR.
B.
ON JANUARY 13, 2003 THE ISSUER AND
GRANTOR 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
THE SUBORDINATED SECURED PARTY PURSUANT TO THE ISSUER'S AND THE GRANTOR'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 THE EARLIER ISSUED SUBORDINATED NOTES.
D.
THE PLAN REQUIRES THAT GRANTOR ENTER INTO
A GUARANTY OF THE OBLIGATIONS OF ISSUER UNDER THE SUBORDINATED NOTE (THE
"GUARANTY"), ENTER INTO THIS SECURITY AGREEMENT AND GRANT SECURITY INTERESTS TO
THE SUBORDINATED SECURED PARTY AS HEREIN PROVIDED.
E.
THE SECURITY INTERESTS CREATED UNDER
THIS SECURITY AGREEMENT ARE JUNIOR AND SUBORDINATED AS SPECIFIED IN SECTION 8
HEREOF.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which hereby is acknowledged, Grantor hereby represents, warrants, covenants,
agrees, assigns and grants as follows:
1.
Definitions.
Terms defined in the
Guaranty and not otherwise defined in this Agreement shall have the meanings
defined for those terms in the Guaranty.
Terms defined in the New York Uniform
Commercial Code and not otherwise defined in this Agreement or in the Guaranty
shall have the meanings defined for those terms in the New York Uniform
Commercial Code.
As used in this Agreement, the following terms shall have the
meanings respectively set forth after each:
"Agreement" means this Security Agreement, and any extensions, modifications,
renewals, restatements, supplements or amendments hereof.
1
"Collateral" means all of Grantor's now owned or hereafter acquired right, title
and interest in and to each of the following:
(a)
accounts, contract rights, and all other forms of
obligations owing to Grantor arising out of the sale or lease of goods or the
rendition of services by Grantor, irrespective of whether earned by performance,
and any and all credit insurance, guaranties, or security therefor;
(b)
books and records including: ledgers; records