CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE OF ALL CLAIMS

CONFIDENTIAL SETTLEMENT AGREEMENT AND  

GENERAL RELEASE OF ALL CLAIMS

RECITALS

WHEREAS, 4Kids Entertainment, Inc. (“4Kids”) filed a Complaint against Fox Broadcasting Company (“Fox”) captioned 4Kids Entertainment Inc. v. Fox Broadcasting Company , Index No. 601232/08 in the Supreme Court of the State of New York, County of New York, which was later removed to the United States District Court for the Southern District of New York and captioned as 4Kids Entertainment Inc. v. Fox Broadcasting Company, No. 08-CV-4865 (the “Action”);

WHEREAS, Fox filed an Answer and Counterclaims in the Action which set forth causes of action against 4Kids alleging, inter alia , damages associated with 4Kids’ failure to make contractual quarterly payments as due;

WHEREAS, 4Kids and Fox entered into a contract on or about January 18, 2002 and amended and extended that contract from time to time, including without limitation on or about March 2, 2006 and August 3, 2007 (the contract and all amendments and extensions thereto and option notifications thereunder collectively constituting the “Term Sheet”);

WHEREAS, 4Kids denies any and all allegations contained in the Counterclaims filed by Fox and believes it has meritorious defenses;

WHEREAS, Fox denies any and all allegations contained in the Complaint filed by 4Kids and believes it has meritorious defenses;

NOW, THEREFORE, 4Kids and Fox hereby agree to resolve any and all disputes between them on the terms and conditions set forth herein.

I. DEFINITIONS

A.        “Action” means the action that is currently pending in the United States District Court for the Southern District of New York and captioned as 4Kids Entertainment Inc. v. Fox Broadcasting Company, No. 08-CV-4865 (S.D.N.Y.).

B.        “Settlement Agreement” means this Confidential Settlement Agreement and General Release of All Claims.               

C.        “4Kids” means 4Kids Entertainment, Inc. and all of its predecessors in interest, former, present and future subsidiaries, divisions, parents, predecessors, successors, and affiliated companies and each of its respective present and former officers, directors, employees, shareholders, successors, partners, employees, agents, representatives, insurers, assigns, servants, attorneys, assignees, heirs, and executors.

D.        “4Kids Claim” or “4Kids Claims” means any and all claims, actions, causes of action, demands, cross-claims, counterclaims, obligations, contracts, indemnity, contribution, suits, debts, sums, accounts, controversies, rights, damages, costs, attorneys’ fees, losses, expenses, and damages and liabilities whatsoever (contingent, accrued, mature, direct, derivative, subrogated, personal, assigned, discovered, undiscovered, inchoate, or otherwise) which 4Kids ever had, now has or hereafter can, shall or may have in the future arising out of, relating to, resulting from, or in any way connected with the Term Sheet, including those claims and damages of which either Party is not aware and/or that either Party has not yet anticipated.

E.        “Fox Claim” or “Fox Claims” means any and all claims, actions, causes of action, demands, cross-claims, counterclaims, obligations, contracts, indemnity, contribution, suits, debts, sums, accounts, controversies, rights, damages, costs, attorneys’ fees, losses, expenses, and damages and liabilities whatsoever (contingent, accrued, mature, direct, derivative, subrogated, personal, assigned, discovered, undiscovered, inchoate, or otherwise) which Fox ever had, now has or hereafter can, shall or may have in the future arising out of, relating to, resulting from, or in any way connected with the Term Sheet, including those claims and damages of which either Party is not aware and/or that either Party has not yet anticipated.

F.        “Fox” means Fox Broadcasting Company and all of its predecessors in interest, former, present and future subsidiaries, divisions, predecessors, and successors, and each of their

respective present and former officers, directors, employees, shareholders, successors, partners, employees, agents, representatives, insurers, assigns, servants, attorneys, assignees, heirs, and executors.

G.        “Release” means the Confidential Settlement Agreement and Release of All Claims set forth herein.

H.        “Parties” means 4Kids and Fox collectively and “Party” means one or more than one of them.

I.         “Programming” means the television broadcast content provided by 4Kids to Fox pursuant to the Term Sheet and broadcasted by Fox pursuant to the Term Sheet.

J.         Any capitalized terms not defined herein shall have the meaning ascribed to them in the Term Sheet.

A.        The Parties shall have mutual obligations to assist each other and cooperate in the performance of any acts required or contemplated by this Settlement Agreement in accordance with all legal principles.

C.  The undersigned represent and warrant that each has the full right and authority to execute this Settlement Agreement on behalf of the company whom each purports to represent, and the full right and authority to bind the company to the obligations and other provisions of this Settlement Agreement.

A.        The dispute between the Parties concerned $13,000,000.00 (THIRTEEN MILLION DOLLARS AND NO CENTS) (the “Outstanding Amount”) in installments of the Time Buy Fee which were due to have been paid in the second, third, and fourth calendar quarters of 2008, but which were not paid.

In consideration of Fox’s promises, releases and other agreements as set forth in this Settlement Agreement, the sufficiency of which are hereby acknowledged, 4Kids agrees to pay a combined total amount of $12,250,000.00 (TWELVE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS) (pursuant to the terms outlined in this paragraph) as the “Settlement Amount.” 4Kids shall retain $750,000.00 (SEVEN HUNDRED FIFTY THOUSAND DOLLARS) (the “Retained Amount”) of the Outstanding Amount. For avoidance of doubt, except for the payments set forth in this Settlement Agreement, 4Kids shall not be liable to Fox for the payment of any further installments of the Time Buy Fee due Fox under the Term Sheet.

The Settlement Amount shall be paid as follows:

B.  The Initial, Second, and Third Payments shall be wire transferred to a bank account for which wiring instructions shall be provided to 4Kids’ counsel prior to the close of business (Pacific Time) on November 10, 2008.

C.  In consideration of the mutual promises, releases and other agreements as set forth in this Settlement Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties mutually agree that the Term Sheet shall terminate at 11:59 p.m. on December 31, 2008, and that the parties shall have no further obligations thereunder after such time.

D.  The Parties further mutually agree that Fox shall have no obligation to broadcast the Programming after December 28, 2008.

E.  Fox agrees that it shall reimburse 4Kids for certain outstanding Nielsen ratings service invoices as well as any and all outstanding charges incurred by 4Kids for the Nielsen ratings service through December 28, 2008.

F.  Fox agrees that 4Kids may provide a total of two (2) promotional advertisement for 4Kids during the Programming to be broadcast either the weekend of December 20-21, 2008 and/or the weekend of December 27-28, 2008, informing viewers that some of 4Kids’ programs broadcast on Fox will be broadcast on The CW Network beginning the weekend on January 3, 2009. These promotional spots shall not convey the specific time or date of the broadcasts on The CW Network. Fox further agrees that between the date of this Settlement Agreement and December 28, 2008, Fox shall comply with the Term Sheet with respect to promotion of the Programming, provided, however that the only promotional advertisements permitted to refer to

The CW or to the broadcasting of 4Kids’ programming on any Television Service other than Fox shall be the promotional advertisements referenced above to be broadcast on the weekends of December 20-21, 2008 and December 27-28, 2008, respectively.

G.  Fox agrees that during the period between the date of this agreement and December 28, 2008 it shall use commercially reasonable efforts to broadcast the Programming at a clearance rate consistent with the average clearance rate achieved during October 2008.

H.  4Kids shall execute a promissory note in the form of Exhibit A hereto (the “Installment Note”). 4Kids shall hand deliver the original executed Installment Note to Fox’s counsel Reed Smith LLP, Attn: John P. Hooper, Esq., 599 Lexington Avenue, New York, New York 10022, before 5:00 p.m. on November 10, 2008. Upon complete and timely payment of the Initial, Second, and Third Payments, a duly authorized representative of Fox shall mark the Installment Note canceled and return the Installment Note to 4Kids.

I.   All payments outstanding pursuant to the Installment Note shall be immediately due and accelerated in the event of any default under the Installment Note. The Installment Note shall not be interest bearing, except upon the occurrence of a default. Upon the occurrence of a default, the Installment Note shall bear interest at the statutory rate of nine percent (9%) per annum. Time is of the essence as to all payments required under the Installment Note.

J.   Upon the execution of this Settlement Agreement, each Party shall cause its counsel to execute the stipulation of dismissal with prejudice attached hereto as Exhibit B (the “Stipulation of Dismissal with Prejudice”) discontinuing the Action. 4Kids shall cause its counsel to deliver the executed copy of the Stipulation of Dismissal with Prejudice to Fox’s counsel, and Fox shall cause its counsel to file the Stipulation of Dismissal with Prejudice within ten (10) business days of the date of this Settlement Agreement.

A.        In order to secure payment by 4Kids to Fox of the First Payment due by no later than 5:00 p.m. Eastern Time on November 14, 2008; of the Second Payment due by no later than 5:00 p.m. Eastern Time on February 15, 2009; and of the Third Payment due by no later than 5:00 p.m. Eastern Time on March 15, 2009, 4Kids hereby grants to Fox a security interest in the

Contract Rights and Accounts arising from the sale by 4Kids of any and all national advertising time during the Programming during the fourth calendar quarter of 2008. Said Contract Rights and Accounts and the proceeds from any and all sales thereof shall hereinafter be referred to as the “Q4 Ad Proceeds.”

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