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

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            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

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