Document:

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 

 

 

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 

 

2

 

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 

 

3

 

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.

 

4

 

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 

 

5

 

(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.

 

6

 

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.

 

7

 

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

  
					

 

 

 

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

  	 

 

 

 

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

  
							

 

 

 

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

  

 

 

 

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

  
						

 

 

 

 

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

  
					

 

 

 

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

  

 

 

 

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

  

 

 

 

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 OfficerExhibit

10.66

 

SHAREHOLDERS

AGREEMENT

TAG-ALONG

RIGHTS AND DRAG-ALONG RIGHTS

 

This SHAREHOLDERS

AGREEMENT, dated as of April 23, 2003 (this “Agreement”), among the

holders (the “Holders”) who have purchased the Class I Convertible

Preferred Stock (the “Convertible Preferred Stock”) of FAO, Inc. (the “Company”)

and the Company.

 

R

E  C  I  T  A  L  S:

 

The Holders and the

Company have entered into a Securities Purchase Agreement, dated as of April 3,

2003 (the “Purchase Agreement”), pursuant to which, among other things,

the Holders agreed to purchase the Preferred Stock.

 

The Convertible Preferred

Stock is convertible into shares (such shares as issued or issuable on

conversion of the Convertible Preferred Stock, until registration of such

shares, the “Conversion Shares”) of common stock, with a par value of

$0.001 per share, of the Company (the “Common Stock”).

 

As a condition to the

Closing under the Purchase Agreement, the parties hereto have agreed to enter

into this Agreement.

 

In consideration of the

foregoing and the mutual agreements and covenants hereinafter set forth, the

parties hereto hereby agree as follows:

 

1.             Tag-Along Rights.  If any Holder proposes to sell or transfer (“Tag-Along

Transfer”) a number of Conversion Shares equal to or greater than the

number of Conversion Shares that would be received upon conversion of 2,000

shares of Convertible Preferred Stock (which amount shall be adjusted to

account for any dividends on, subdivisions of, or combinations of, Common

Stock) held by such Holder to a Person who is not an Affiliate of such Holder

(“Third Party”), in a single transaction or a series of related

transactions, then, at least fifteen (15) days prior to any such Tag-Along

Transfer, such Holder shall provide to all other Holders a notice (a “Tag-Along

Notice”) delivered to such Holders at their address set forth in the

Purchase Agreement, explaining the terms and conditions of such Tag-Along

Transfer (including the consideration to be paid) and identifying the name and

address of the Third Party.  If such

notice is sent, then, upon the written request (“Tag-Along Request”) of

any such Holder (a “Requesting Holder”) made within ten (10) days after

the day the Tag-Along Notice is received by such Holder, the Holder proposing

to make the Tag-Along Transfer shall cause the Third Party to purchase from

each Requesting Holder a number of Conversion Shares equal to the product of

(A) the quotient of (1) the total number of Conversion Shares to be subject to

such Tag-Along Transfer divided by (2) the total number of Conversion

Shares held by the Holder proposing such Tag-Along Transfer and all Requesting

Holders, multiplied by (B) the total number of Conversion Shares the

Requesting Holder has requested to have transferred.   Such purchase shall be made on the same date and at the same

price and on terms and conditions at least as favorable to Requesting Holders

as the terms and conditions contained in the Tag-Along Notice delivered in

connection with such proposed transaction.  

To the extent a Holder does not receive a Tag-Along Request with respect

to Conversion Shares for which such Holder has provided a Tag-Along Notice

within the time period noted above, the Holder providing the Tag-Along Notice

may sell the shares proposed to be subject to such Tag-Along Transfer as set

forth in the Tag-Along Transfer Notice.

 

 

Each Requesting Holder

shall effect its participation in a Tag-Along Transfer by promptly delivering

to the Holder who proposed the Tag-Along Transfer (the “Proposing Holder”),

for transfer to the Third-Party, one or more certificates, properly endorsed

for transfer, which represent the Conversion Shares the Requesting Holder has

requested be transferred.  Upon

consummation of the Tag-Along Transfer, the Proposing Holder shall remit or

arrange for direct transfer to the Requesting Holder that portion of the sale

proceeds to which the Requesting Holder is entitled as a result of its

participation in the Tag-Along Transfer.

 

Notwithstanding the

foregoing, Requesting Holders shall have no rights under this Section 1 with

respect to any Tag-Along Transfer by a Holder to the extent such Tag-Along

Transfer is (i) in the form of a distribution to withdrawing partners from such

Holder or otherwise among Affiliates of such Holder; (ii) in connection with a

call written against the stock held by any Holder or a put right written with

respect to stock held by a Holder, the rights under this Section 1 shall not

arise until exercise of such put or call; (iii) any bona fide gift; or (iv) a

transfer to the Proposing Holder’s ancestors, descendants or spouse, or to

trusts for the benefit of such persons or the Proposing Holder.

 

Any transferee of a

Tag-Along Transfer shall take Conversion Shares so transferred free of the

rights and obligations of this Section. Any transferee under a transfer not

subject to this Section shall take Conversion Shares so transferred subject to

the rights and obligations of this Section.

 

2.             Drag-Along Rights.  In the event that the Company receives a bona fide purchase offer

from a non-affiliate of the Company (an “Offeror”) seeking to purchase

the Company’s outstanding equity, and (i) the Company’s Board of Directors and

(ii) Holders of not less than 50% of the Conversion Shares consent to such

purchase, all Holders of Conversion Shares shall sell their Conversion Shares

(as Preferred Stock if such Preferred Stock has not yet been converted) to such

offeror at the price so approved.  At

least twenty (20) but not more than ninety (90) days prior to any transfer to

an Offeror (a “Drag-Along Transfer”), the Company shall provide to the

Holders a notice (a “Drag-Along Notice”) delivered to the Holders at

their address set forth in the Purchase Agreement, explaining the terms and

conditions of such Drag-Along Transfer (including the consideration to be

paid), identifying the name and address of the Offeror and indicating the date

that is fifteen (15) days after the mailing of the Drag-Along Notice (the “Response

Date”).  If such Drag-Along Notice

is sent, then, on or before the Response Date, each Holder that consents to the

Drag-Along Transfer shall provide written notice of such consent (the “Consent

Notice”) to the Company.  Any

Consent Notice may be revoked prior to the Response Date by sending an

additional writing explicitly revoking such Consent Notice.   If the Company receives unrevoked Consent

Notices from the requisite Holders on or before the Response Date or any

extension by the Company thereof (not to exceed thirty days), the Company shall

promptly send a second notice to all Holders informing the Holders that the

requisite Holders delivered Consent Notices.  

If requisite Holders deliver Consent Notices on or prior to later of the

Response Date or any such extension, the purchase of all Conversion Shares

shall be deemed to have been made on the closing of the Drag-Along Transfer

(the “Closing Date”) without further action by the Company or any Holder.  Any share certificates for Conversion Shares

held by any Holder shall be deemed cancelled on the Closing Date and each

Holder shall promptly forward such certificate, duly endorsed for transfer, to

the Company upon the written request of the Company.  Upon consummation of the Drag-Along Transfer, the Company shall

remit or arrange for direct transfer to each Holder that portion of the sale

proceeds to which such Holder is entitled as a result of the Drag-Along

Transfer.

 

3.             Further Assurances.  The Holders shall cooperate fully with the Company to enable the

parties to fulfill their obligations and responsibilities under, and obtain the

benefits of, this Agreement.  The

Holders shall use all reasonable efforts to take, or cause to be taken, all

appropriate action, do or cause to be done all things necessary, proper or

advisable under applicable laws, and execute

 

2

 

and deliver such documents and other papers as may be required or

appropriate to carry out the provisions of this Agreement and to consummate,

perform and make effective the transactions (including any Drag-Along Transfer)

contemplated hereby.

 

4.             Term. 

This Agreement shall be effective as of the Effective Time and shall

terminate on the date the Holders no longer hold any Conversion Shares (the “Term”).

 

5.             Amendments. 

This Agreement may not be amended except in a writing signed by, or on

behalf of, all parties hereto.

 

6.             Notices. 

All notices, consents, instructions and other communications required or

permitted under this Agreement (collectively, “Notice”) shall be

effective only if given in writing and shall be considered to have been duly

given when (i) delivered by hand, (ii) sent by telecopier (with receipt

con­firmed), provided that a copy is mailed (on the same date) by certified or

registered mail, return receipt requested, postage prepaid, or (iii) re­ceived

by the addressee, if sent by Express Mail, Federal Ex­press or other reputable

express delivery service (receipt request­ed), or by first class certified or

registered mail, return receipt requested, postage prepaid.  Notice shall be sent in each case to the appropriate

ad­dresses or telecopier numbers set forth below (or to such other addresses

and telecopier numbers as a party may from time to time designate as to itself

by notice simi­larly given to the other parties in accordance herewith, which

shall not be deemed given until received by the addressee).  Notice shall be given:

 

to the Holders at their

address set forth in the Purchase Agreement.

 

and to the Company at:

 

FAO, Inc.

2520 Renaissance

Boulevard

King of Prussia,

PA

Attention: Legal

Tel: (610) 278-7800

Fax: (610)

278-7804

Email:

kroyer@faoinc.com

 

with 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) 892-9200

Fax: (213) 680-4518

Email: vhsu@fulbright.com

 

7.             Governing Law.  This Agreement will be governed by and

construed under the laws of the State of New York without regard to

conflicts-of-laws principles that would require the application of any other

law.

 

3

 

8.             Specific Performance.  The Holders agree that if any of the provisions of this Agreement

were not performed in accordance with their specific terms or were otherwise

breached, irreparable damage would occur, no adequate remedy at law would exist

and damages would be difficult to determine, and that, in the event of a breach

or threatened breach of this Agreement, the Holders shall be entitled to

specific performance, injunctive or other equitable relief, in addition to any

other remedy available at law or in equity, without posting bond or other

undertaking.

 

9.             Non-Compliant Tag-Along Transfers.  The Holders agree that Tag-Along Transfers

attempted to be made in violation of this Agreement shall be void.  The Company agrees that it shall not (i)

register Tag-Along Transfers of Conversion Shares on its books nor issue new

stock certificates in connection with any such Tag-Along Transfer or (ii)

remove or cause the removal of any legend with respect to legended Conversion

Shares proposed to be subject to a Tag-Along Transfer, in each case, until it

shall first have received a copy of a Tag-Along Notice with respect to the

securities proposed to be subject to a Tag-Along Transfer and then only in

accordance with such Tag-Along Notice and any related Tag-Along Request

received after the Tag-Along Notice and prior to such action by the Company.

 

10.             Severability.  Any provision of this Agreement that is

prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,

be adjusted rather than voided, if possible, in order to achieve the intent of

the parties to this Agreement to the extent possible, without invalidating or

adjusting the remaining provisions hereof, and any such prohibition,

unenforceability or adjustment in any jurisdiction shall not invalidate, render

unenforceable or adjust such provision in any other jurisdiction.

 

11.           Successors and Assigns; Assignment.  All covenants and agreements in this

Agreement contained by or on behalf of the parties hereto shall bind and inure

to the benefit of the respective successors and assigns of the parties.

 

12.           Descriptive Headings. The

descriptive headings of the several sections and paragraphs of this Agreement

are inserted for convenience only and do not constitute a part of this

Agreement.

 

13.           Counterparts. This Agreement

may be executed in one or more counterparts, each of which will be deemed to be

an original copy of this Agreement and all of which, when taken together, will

be deemed to constitute one and the same agreement. The exchange of copies of

this Agreement and of signature pages by facsimile transmission shall

constitute effective execution and delivery of this Agreement as to the parties

and may be used in lieu of the original Agreement for all purposes. Signatures

of the parties transmitted by facsimile shall be deemed to be their original

signatures for all purposes.

 

[Remainder of page

intentionally blank]

 

4

 

IN WITNESS WHEREOF, each of the parties hereto has

caused this Agreement to be duly executed on it's behalf as of the date first

above written.

 

	

  FAO, INC.

  
	

  Delaware Corporation

  

 

	

  By:

  	

    /s/ Jerry R. Welch

  
	

  Name:

  	

  Jerry R. Welch

  
	

  Title:

  	

  President, and Chief

  Executive Officer. 

  

 

 

 

 

 

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

  	

   

  
						

 

 

 

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

  	 

 

 

 

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

  	

   

  
						

 

 

 

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

  

 

 

 

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

  liability company,

  	 

	

   

  	

  its general partner

  	 

	

   

  	

  By

  	

      /s/ Brian McDermott

  	

   

  	 

	

   

  	

  Name:

  	

    Brian McDermott

  	

   

  
	

   

  	

  Title:

  	

    Partner

  	

   

  
									

 

 

 

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

  	

   

  
					

 

 

 

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

  

 

 

 

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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