Item 1.01 Entry into a Material Definitive Agreement
On March 2, 2009, TC Digital Games LLC ("TC Digital"), 4Kids Entertainment, Inc. (the "Company") and Home Focus Development Ltd. ("Home Focus") entered into various agreements pursuant to which TC Digital and Home Focus agreed to form TC Digital International Ltd. ("TDI"), an Irish Private Corporation, for the purpose of distributing "Chaotic" trading cards principally in Europe and the Middle East ("TDI Territory") and the Company agreed to purchase a 25% interest in TDI from Home Focus (the "TDI Interest"). As a result, TDI is owned 50% by TC Digital, 25% by the Company and 25% by Home Focus. The purchase price for the TDI Interest is an initial price amount of approximately $1.6 million. The Company is obligated to pay up to an additional $1 million to Home Focus (the "Conditional Payments") conditioned upon the "Chaotic" television series being telecast in the five largest European television markets (the United Kingdom, France, Germany, Spain and Italy) and/or TDI selling in excess of $10 million of "Chaotic" trading cards. To date, the Company has entered into agreements for the telecast of the "Chaotic" television series in the UK and France, requiring the Company to make $400,000 of the Conditional Payments to Home Focus. The Company has or will be paying Home Focus the consideration for the TDI interest as follows: the Company has paid $475,000 upon execution of the various agreements; will pay monthly installments of $125,000 beginning on April 1, 2009 and continuing through September 1, 2009; and beginning on October 1, 2009, $150,000 per month until such time as the balance due has been paid. On March 2, 2009, TC Digital, the Company and Home Focus entered into the TDI Shareholders Agreement ("TDI Agreement") under which the Board of Directors of TDI will consist of four directors. TC Digital has the right to elect two directors and the Company and Home Focus each have the right to elect one director. There are a number of extraordinary actions that require the consent by shareholders holding at least 80% of the voting stock of TDI in addition to approval of the Board of Directors. The TDI Agreement requires the shareholders to provide TDI with additional capital on a pro rata basis in exchange for additional equity. Under the TDI Agreement, TDI is required to pay or reimburse TC Digital for the costs and expenses associated with the printing, advertising, marketing and promotion of the "Chaotic" trading card game in the TDI Territory. In addition, TDI is responsible for reimbursing TC Digital and TC Websites for the cost of translating the "Chaotic" trading cards and "Chaotic" website into the European languages and for bandwidth and equipment charges associated with making the "Chaotic" website operational in the TDI Territory. TDI is also required to pay TC Digital and TC Websites a design fee equal to 3% and 1.5%, respectively, of net sales of "Chaotic" trading cards in the TDI Territory.