Document:

Exhibit
10.60

 

April 22, 2003

 

 

Hancock Park Capital II, LP

10323 Santa Monica Blvd. Suite 101

Los Angeles, CA 90025

 

Ladies and Gentlemen:

 

Re: Agreement
Regarding Certain Matters

 

Ladies and Gentlemen:

 

In consideration of the purchase by Hancock Park Capital
II, L.P. (“Hancock”) of  5,000 shares of
FAO, Inc. Class I Convertible Preferred Stock (the “Shares”), and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, this letter constitutes the following agreement:

 

1.               Kayne Anderson
Capital Advisors LP, Woodacre LLC, Fortune Twenty-Fifth, Inc., Fred Kayne,
Richard Kayne, Charles Norris, and Les Biller hereby agree that, so long as
Hancock and its affiliates own not less than 3,000 Shares or the shares of FAO,
Inc. (“FAO”) Common Stock into which such Shares have been converted, each of
them shall cause all shares of Class I Convertible Preferred Stock, Class J
Convertible Preferred Stock, and Common Stock owned by them to be voted so as
to elect the designee of Hancock to FAO’s Board of Directors.

 

2.               Fred Kayne and
Richard Kayne hereby agree that with respect to all FAO, Inc., FAO Schwartz,
Inc., and ZB Company, Inc. Equipment Notes dated on or about April 22, 2003
(the “Notes”) beneficially owned by either of them (including, but not limited
to, those held by Fortune Twenty-Fifth, Inc.), they will not exercise the
conversion right contained in such Notes at any time prior to January 12, 2004.

 

3.               Each party to this
agreement severally represents that (i) such party has full capacity to execute, deliver and perform this letter agreement; (ii) this letter
agreement has been duly authorized and approved, if applicable; and (iii) this letter agreement is the
valid and binding obligation of such party and enforceable against such party
in accordance with its terms.

 

 

	
   

  	
  Sincerely,

  	 

	
   

  
	
   

  
	 
	Kayne Anderson Capital Advisors, LP,

	 
	a California limited partnership

	 
	 

	 
	By 
	Kayne Anderson Investment Management, Inc.

a Nevada corporation

	
   

  
	
   

  
	
   

  	
  By 

  	
   /s/ David Shladovsky

  	
   

  
	
   

  	
  David Shladovsky

  
	
   

  	
  General Counsel

  
	
   

  
	
   

  
	 
	FRED KAYNE,

an Individual

	 
	 

	 
	By
	 /s/ Fred Kayne
	 

	 
	 

	 
	 

	 
	RICHARD KAYNE,

an Individual

	 
	 

	 
	 

	 
	By
	 /s/ Richard Kayne
	 

	 
	 

	 
	 

	
   

  	
  WOODACRES LLC

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ David Shladovsky

  	
   

  
	
   

  	
  Its:

  	
  General Counsel of
  Manager

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	 
	CHARLES NORRIS,

an Individual

	 
	 

	 
	 

	 
	By
	/s/ Charles A. Norris
	 

	 
	 

	 
	 

	 
	LES BILLER,

an Individual

	 
	 

	 
	 

	 
	By
	 
	 

															

 

2

 

	
   

  	
  FORTUNE TWENTY-FIFTH,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Fred Kayne

  	
   

  
	
   

  	
  Its:

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted and Agreed:

  	
   

  
	
   

  	
   

  
	
  HANCOCK
  PARK CAPITAL II L.P.,

  a Delaware limited partnership

  	
   

  
	
   

  	
   

  
	
  By:
  Hancock Park Associates III, LLC,

  a Delaware limited liability company

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian McDermott

  	
   

  	
   

  
	
  An authorized signatory

  	
   

  
						

 

3Exhibit 10.61

 

April 22, 2003

 

Hancock Park Capital II, LP

10323 Santa Monica Blvd. Suite 101

Los Angeles, CA 90025

 

Ladies and Gentlemen:

 

Re: 5,000 shares of FAO, Inc. Series I
Convertible Preferred Stock (the “Shares”)

 

Ladies and Gentlemen:

 

This letter agreement constitutes the
agreement of FAO, Inc. (“FAO”) that, so long as Hancock Park Capital II LP
(“Hancock”) and its affiliates own not less than 3,000 Shares or the shares of
FAO Common Stock into which such Shares have been converted, Hancock shall have
the right to designate one person for election to FAO’s Board of Directors (the
“Designee”).   FAO agrees that it shall
(A) nominate the Designee for election to FAO’s Board of Directors, and take
all related actions as may reasonably be necessary to cause such nomination, on
the same basis as FAO nominates all other directors for election and (B) use
its best efforts to cause FAO shareholders to elect the Designee to FAO’s Board
of Directors.  It shall constitute best
efforts if FAO (1) includes the Designee in its annual proxy statement and
proxy card for the election of directors; provided that Hancock has delivered
the information necessary for such inclusion as required under the Securities
Exchange Act of 1934, as amended, and (2) uses the same form and amount of
resources (including without limitation proxy solicitors and other solicitation
resources) to cause the Designee’s election as FAO uses to cause the election
of each of its other directors.

 

FAO represents that the
execution, delivery and performance of this letter agreement has been duly
authorized and approved by FAO’s Board of Directors and its Special Committee
of Independent Directors, and this letter agreement is the valid and binding
obligation of FAO and enforceable against FAO in accordance with its terms.

 

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   /s/ R. P. Springer

  
	
   

  	
  Raymond P. Springer

  Executive Vice President

  

 

 

April 22, 2003

Director Letter Agreement

 

 

Agreed

 

	
  Hancock Park Capital II LP

  
	
   

  
	
  By: Hancock Park Associates III, LLC

  
	
         its general partner

  
	
   

  
	
  By:

  	
    /s/ Brian McDermott

  	
   

  
	
  An Authorized Signatory

  

 

2Exhibit 10.62

 

April 3, 2003

 

Saks Incorporated

750 Lakeshore Parkway

Birmingham, Alabama 35211

 

Ladies and Gentlemen:

 

Re: 5,000 shares of FAO, Inc. Series I Convertible Preferred Stock
(the “Shares”)

 

Ladies and Gentlemen:

 

This letter agreement constitutes the agreement of FAO, Inc. (“FAO”)
that, so long as Saks Incorporated (“Saks”) and its affiliates own not less
than 3,000 Shares or the shares of FAO Common Stock into which at least 3,000
Shares have been converted, Saks shall have the right to designate one person
for election to FAO’s Board of Directors (the “Designee”).   FAO agrees that it shall (A) nominate the
Designee for election to FAO’s Board of Directors, and take all related actions
as may reasonably be necessary to cause such nomination, on the same basis as
FAO nominates all other directors for election and (B) use its best efforts to
cause FAO shareholders to elect the Designee to FAO’s Board of Directors.  It shall constitute best efforts if FAO (1)
includes the Designee in its annual proxy statement and proxy card for the
election of directors; provided that Saks has delivered the information
necessary for such inclusion as required under the Securities Exchange Act of
1934, as amended, and (2) uses the same form and amount of resources (including
without limitation proxy solicitors and other solicitation resources) to cause
the Designee’s election as FAO uses to cause the election of each of its other
directors.

 

FAO represents that the execution, delivery and
performance of this letter agreement has been duly authorized and approved by
FAO’s Board of Directors and its Special Committee of Independent Directors,
and this letter agreement is the valid and binding obligation of FAO and
enforceable against FAO in accordance with its terms.

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
    /s/ R. P. Springer

  
	
   

  	
  Raymond P. Springer

  Executive Vice President

  

 

 

April 3, 2003

Director Letter Agreement

 

 

Agreed

 

	
  Saks Incorporated

  
	
   

  
	
   

  
	
  By:

  	
    /s/ George Carlis

  	
   

  
	
  George Carlis

  Vice President

  

 

2Exhibit 10.64

 

FIRST AMENDMENT

TO

SECURITIES PURCHASE AGREEMENT

 

THIS
FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT (this “First Amendment”) is entered
into and effective as of April 21, 2003 by and among, on the one hand,
FAO, Inc., a Delaware corporation (“Company”), and certain purchasers (the “Purchasers”)
under that certain Securities Purchase Agreement dated as of April
3, 2003 (the “Purchase Agreement”).

 

RECITALS

 

Company
and Purchasers have entered into the Purchase Agreement pursuant to which Purchasers
have agreed to purchase and Company has agreed to sell its Series I Convertible
Preferred Stock (the “Preferred Stock”). 
Certain Purchasers have requested and Company has agreed to make certain
amendments to the Purchase Agreement. 
Certain new persons (the “New Purchasers”) wish to purchase the
Preferred Stock that certain existing Purchasers have a right to purchase.

 

Section
8.3 of the Purchase Agreement permits amendment with the written consent of the
Company and any Purchaser who would be materially adversely affected by the
amendment.

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties signatory hereto
agree as follows.

 

1.   Definitions  Capitalized
terms used but not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Purchase Agreement.

 

2.   Amendments to the Purchase Agreement.

 

(a)  Section 4.1 of the Purchase Agreement is
hereby amended by adding to the end of the definition of “Initial Equity
Capitalization” the following:  “,
as set forth in Schedule 2.3 attached hereto.”

 

(b)  Section 7.2 of the Purchase Agreement is
hereby amended and restated in its entirety as follows:

 

“Section 7.2  Commitment Provisions.  The Purchasers, pro rata in proportion to
each Purchaser’s Commitment, shall cause the issuance of the LC so requested by
the Company provided that:

 

(a)  The aggregate stated amount of the LC shall
not exceed $5 million:

 

(b)  The expiry of the LC shall not be later than
November 30, 2003;

 

(c)  The issuance date shall not be earlier than
June 1, 2003; and

 

(d)  The Company shall execute such documentation
to apply for and support the issuance of the LC as may be required by the
issuer of the LC, which may be one of the Company’s senior lenders (the “LC
Issuer).”

 

 

(c)  Section 7.4(b) of the Purchase Agreement is
hereby amended by adding to the end of such subsection the following:  “; provided that the issuance of such
warrants will not result in the cancellation of the LC Notes.”

 

(d)  Schedule I of the Purchase Agreement is
hereby amended and restated in its entirety as follows:

 

“SCHEDULE I
 

	PURCHASERS
	 
	AMOUNT OF

SHARES

PURCHASED
	 
	PRICE
	 

	 
	 
	 
	 
	 
	 

	Saks Incorporated
	 
	5,000
	 
	$
	5,000,000
	 

	Fred Kayne
	 
	4,000
	 
	$
	4,000,000
	 

	Kayne Anderson Capital Advisors, L.P.
	 
	5,000
	 
	$
	5,000,000
	 

	Richard Kayne
	 
	4,900
	 
	$
	4,900,000
	 

	Hancock Park Capital II, L.P.
	 
	5,000
	 
	$
	5,000,000
	 

	Woodacres LLC
	 
	3,100
	 
	$
	3,100,000
	 

	Les Biller, as trustee
	 
	2,000
	 
	$
	2,000,000
	 

	Charles Norris
	 
	1,000
	 
	$
	1,000,000
	”

 

(e)  Schedule 2.3  of
the Purchase Agreement is hereby amended and restated in its entirety as
follows:

 

“Schedule 2.3

 

Capitalization

 

The equity capitalization of FAO will be as follows on the Closing Date
(without giving effect to the 1:15 reverse stock split):

 

	
  Security

  	
   

  	
  Common Equivalents

  	
   

  
	
  Series I Convertible Preferred Stock*

  	
   

  	
  305,000,000

  	
   

  
	
  Series J Convertible Preferred Stock**

  	
   

  	
  65,704,954

  	
   

  
	
  Warrants***

  	
   

  	
  1,650,000

  	
   

  
	
  Common Stock****

  	
   

  	
  39,835,968

  	
   

  
	
  Total:

  	
   

  	
  412,190,924

  	
   

  

 

* Assumes 30,000 shares of Series I Convertible Preferred Stock are
issued under the Agreement at a conversion rate of $.10 per share.  Also includes 500 shares of Series I
Convertible Preferred Stock issued to KBB Retail Assets Corp. in compromise of
its claims in the Bankruptcy Case Proceedings.

 

** Series J Convertible Preferred Stock ranks pari passu with the
Series I and is issued in compromise of claims by Kayne Anderson affiliates and
Fred Kayne in connection with the Bankruptcy Case Proceedings.    Assumes that Kayne Anderson affiliates and
Fred Kayne convert the $4 million in aggregate principal amount of convertible
Equipment Notes they receive in compromise of their claims in the Bankruptcy
Case Proceedings.

 

2

 

*** Includes Common Stock issuable upon exercise of warrants held by
Kayne Anderson Affiliates and Fred Kayne.

 

****  Includes Common Stock to be
received by unsecured creditors in compromise of their claims in the Bankruptcy
Case Proceedings, and existing Common Stock.

 

Until the Closing Date, FAO will not issue additional equity not shown
in this Schedule except pursuant to the Agreement.”

 

3.   Choice of Law.    The
validity of this First Amendment, its construction, interpretation and
enforcement, and the rights of the parties hereunder, shall be determined
under, governed by, and construed in accordance with the laws of the State of
New York.

 

4.   Counterparts; Telefacsimile Execution.    This
First Amendment may be executed in any number of counterparts and by different
parties and separate counterparts, each of which when so executed and
delivered, shall be deemed an original, and all of which, when taken together,
shall constitute one and the same instrument. Delivery of an executed
counterpart of a signature page to this First Amendment by telefacsimile shall
be as effective as delivery of a manually executed counterpart of this First
Amendment. Any party delivering an executed counterpart of this First Amendment
by telefacsimile also shall deliver a manually executed counterpart of this
First Amendment but the failure to deliver a manually executed counterpart
shall not affect the validity, enforceability, and binding effect of this First
Amendment.

 

5.   Effect on Purchase Agreement.    The
Purchase Agreement, as amended hereby, shall be and remain in full force and
effect in accordance with its respective terms and hereby is ratified and
confirmed in all respects. The execution, delivery, and performance of this
First Amendment shall not operate as a waiver of or, except as expressly set
forth herein, as an amendment of, any right, power, or remedy of the Agent
under the Purchase Agreement, as in effect prior to the date hereof.

 

6.   Effect of Signatures of New Purchasers.  Upon execution of this Amendment,
the New Purchasers will become entitled to all the rights granted to Purchasers
under the Purchase Agreement and become obligated under the Purchase Agreement
as fully as if they had signed the Purchase Agreement originally, Kayne
Anderson Capital Advisors, L.P., as Agent, Richard Kayne and Fred Kayne will
have their purchase rights reduced as indicated and  PCG Tagi, LLC (Series H) shall no longer have any rights or
obligations under the Purchase Agreement or any related agreement.

 

7.   Miscellaneous.

 

(a)  Upon
and after the effectiveness of this First Amendment, each reference in the
Purchase Agreement to “this Agreement”, “hereunder”, “herein”, “hereof” or
words of like import referring to the Purchase Agreement, and each reference in
the related documents to “the Purchase Agreement”, “thereunder”, “therein”,
“thereof” or words of like import referring to the Purchase Agreement, shall
mean and be a reference to the Purchase Agreement as modified and amended
hereby.

 

(b)  The
Purchase Agreement and all related documents, are and shall continue to be in
full force and effect and are hereby in all respects ratified and confirmed and
shall constitute the legal, valid, binding and enforceable obligations of
Company.

 

[The rest of this
page is intentionally left blank]

 

3

 

IN WITNESS WHEREOF, the parties hereto have
caused this First Amendment to Securities Purchase Agreement to be executed as
of the date first above written.

 

	
   

  	
  FAO, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ R.P. Springer

  	
   

  
	
   

  	
  Raymond P.
  Springer

  Executive Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  EXITING PURCHASER:

  	
  NEW PURCHASERS:

  
	
   

  	
   

  
	
  PCG TAGI, LLC (SERIES H)

  	
  WOODACRES LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  By 

  	
  /s/ Kurt Tomita

  	
   

  	
  By 

  	
  /s/ David Shladovsky

  	
   

  
	
  Title:

  	
  Vice President, Finance

  	
   

  	
  Title:

  	
  General Counsel of General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Charles A. Norris

  	
   

  
	
   

  	
  CHARLES NORRIS

  
									

 

4

 

	
   

  	
   

  	
  NEW PURCHASER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Les Biller

  	
   

  
	
   

  	
   

  	
  LES BILLER, as Trustee

  Amended and Restated Les and Sheri Biller

  Revocable Trust U/A Dated June 5, 2002

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  REMAINING PURCHASERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  KAYNE ANDERSON CAPITAL ADVISORS,

  
	
   

  	
   

  	
  L.P., as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ David Shladovsky

  	
   

  
	
   

  	
   

  	
  Title:

  	
  General Counsel

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Fred Kayne

  	
   

  
	
   

  	
   

  	
  FRED KAYNE

  

 

5

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