Document:

ACQUISITION AND ADMINISTRATION AGREEMENT

 

AGREEMENT made as of this 28TH day of June, 2002, by and between Cherry Lane Publishing Company, Inc. of 6 East 32nd Street, 11th Floor, New York, New York 10016 (“Company”) and 4Kids Entertainment Music, Inc. of 1414 Avenue of the Americas, New York, New York 10019 (“4KEM”).

WHEREAS, subject to the terms and conditions set forth herein, 4KEM has the exclusive right to administer, sell, otherwise dispose of and deal with all copyrights and other rights in musical compositions of every kind, whether now in existence or hereafter created, including so called “cues,” including the music, lyrics and titles thereof and all copyrights and other rights, in all sound recordings of every kind (including the musical compositions contained therein), whether now in existence or hereafter created, including attendant soundtrack rights utilized in, derived from, or relating to existing and future television programs and motion pictures produced, owned, controlled or acquired directly or indirectly or in whole or in part during the term hereof by 4KEM, or by any of 4KEM’s parent, subsidiary, affiliated or related companies or entities of any kind, (“4Kids
Affiliates”) including without limitation the television series “Yu-Gi-Oh,” “Cubix” and “Tama & Friends” (but specifically excluding only those rights with respect to the Pokemon television series and motion pictures encompassed by existing agreements between 

 

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Company and 4KEM and/or any 4Kids Affiliates). All of the television programs and motion pictures referred to above are hereafter referred to as the “Shows.”  All of the aforesaid copyrights and other rights in the aforesaid musical compositions and sound recordings are hereinafter referred to as the “Intellectual Assets”; and 

WHEREAS, notwithstanding the foregoing, the extent of and the limitations to, 4KEM’s rights in each of the Intellectual Assets presently in existence and the Compositions and Recordings comprising same are set forth on Schedules I and II hereof which are annexed hereto and made part hereof.  As each new Intellectual Asset comes into existence 4KEM shall supply to Company true and accurate Schedules with respect thereto which shall set forth the extent of and the limitations to 4KEM’s rights in each such new Intellectual Asset and shall similarly be incorporated herein and made part hereof.  Anecdotal information may be included in such Schedules in addition to the columnar information indicated and shall be accompanied by all necessary third party contractual provisions in support and documentation thereof) 

WHEREAS, 4KEM wishes Company to administer the Intellectual Assets on the terms and conditions contained herein; and

WHEREAS, Company wishes to administer the Intellectual Assets upon the terms and conditions contained herein; and

WHEREAS, 4KEM wishes to transfer to Company an ownership interest in the Intellectual Assets; and

 

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WHEREAS, Company wishes to acquire an interest in the Intellectual Assets.

NOW, THEREFORE, in consideration of the grants and obligations herein contained, it is agreed as follows:

1.  (a) 4KEM hereby assigns to Company an undivided one-half (1/2) interest in 4KEM’s interests in the Intellectual Assets, including but not limited to all of the recordings and all of the compositions comprising same, including but not limited to those compositions set forth on Schedule I attached hereto and made part hereof and all copyrights, renewal copyrights, extensions of rights, including post-termination rights and other rights therein and thereto throughout the Territory in perpetuity. As a result of such assignment and transfer of rights, 4KEM and Company shall each own an undivided one-half (1/2) interest in and to such portion of the Intellectual Assets and all copyrights, renewal copyrights, extensions of rights, including post-termination rights therein and thereto, that 4KEM and/or the 4Kids Affiliates owned or controlled prior to the transfer. Except as
provided in the Schedules, the territory within which 4KEM and Company may exploit the rights herein granted to the Intellectual Assets (the “Territory”) shall be throughout the universe. Except as provided in the Schedules, the term within which 4KEM and Company may exploit the rights herein granted to the Intellectual Assets (“CR Term”) shall be in perpetuity. 

	
             
 	
            (b)
 	
            Company acknowledges and agrees that the
 

 

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Company’s rights with respect to the Compositions and Recordings are subject in all cases to any and all limitations on the rights of 4KEM and 4Kids and Affiliates in such Compositions and Recordings. For the avoidance of doubt, if 4KEM or 4Kids and Affiliates do not own one hundred percent (100%) of the copyright to any Composition, Company’s rights with respect to such Composition shall be limited to one-half of the ownership interest of 4KEM or 4Kids and Affiliates in such Composition and Company’s administration of such Composition shall likewise be limited to such rights of administration owned or controlled by 4KEM or 4Kids and Affiliates in such Composition. 

 (c)       Company further acknowledges and agrees that the Schedules also list and shall list any restrictions on the territories within which or term during which Company may exploit such Compositions and Recordings. Company acknowledges and agrees that the grant of rights to Company hereunder is subject to such territorial limitations or term limitations set forth on the Schedules and Company agrees to abide by such limitations.  

 (d)            Company further acknowledges that the 4KEM’s and Company’s rights to the Compositions and Recordings are subject to any other limitations set forth in the agreements between 4KEM and/or affiliates, on the one hand, and the third parties who (i) write the music, or (ii) own or control rights to the Shows, or (iii) otherwise own or control Compositions or Recordings. Company acknowledges that the Schedules list and 

 

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shall also list such additional limitations and Company agrees to abide by such limitations.  

 (e)       In the event that 4KEM or affiliates enter into one or more agreements with third parties providing for 4KEM and affiliates to create musical compositions for any Show but for the copyright to such musical compositions to be owned by such third parties with 4KEM or affiliates to receive all or a portion of the music publishing revenues from such musical compositions, 4KEM and Company agree that Company shall receive one half (1⁄2) of 4KEM’s share of the music publishing revenues or other monies payable to 4KEM and affiliates in respect of such music.

 (f)            Company acknowledges and agrees that 4KEM shall have sole creative control over the Compositions and Recordings and that any creative decision with respect to the 

Compositions and Recordings shall be made by 4KEM, in its sole discretion, provided however, that not more than One Hundred Thousand ($100,000.00) Dollars may be spent on a Recording without the mutual consent of Company and 4KEM.

 (g)            4KEM shall provide in its agreements with the writers of musical compositions comprising Intellectual Assets (“writers”) that they shall receive as royalties no more than 37.5% of the mechanical, foreign, synchronization, and other income earned thereby, other than the writer’s share of performance income.  Beginning with Compositions composed after February 1, 2002, 4KEM shall secure for the benefit of 4KEM and 

 

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Company a twenty five (25%) percent interest in the writer’s share of performance income with respect to each musical composition comprising an Intellectual Asset and shall deliver said performance income to Company, for inclusion as part of Composition/Recordings Gross Receipts immediately upon its receipt thereof. Notwithstanding anything herein to the contrary, Company acknowledges and agrees that during the Term, there may be writers whose services are deemed necessary in connection with the creation of an Intellectual Asset who refuse to agree to a reduction of their writer royalties to accommodate this sub paragraph, and that in those exceptional instances, 4KEM, in the good faith exercise of its business judgment, may dispense with the requirements of this subparagraph. 

(h) The parties acknowledge and agree that 4KEM shall update the Schedules (including the anecdotal information) from time to time as may be necessary to reflect the creation of new Compositions and Recordings and to reflect deals with property owners with respect to Compositions and Recordings. 4KEM shall consult with Company regarding deals with property owners with respect to Compositions and Recordings. 4KEM shall provide Company from time to time as they come into being with copies of the provisions of agreements with property owners pertaining to the Compositions and Recordings.

2.       (a)       Company and 4KEM shall each own an undivided one-half (1/2) interest in and to the intellectual assets created by Company hereunder (the “Company Intellectual Assets”) and all 

 

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copyrights, renewal copyrights, extensions of rights, including post-termination rights and other rights therein and thereto throughout the Territory in perpetuity.  Company hereby assigns to 4KEM an undivided one-half (1/2) interest in its interest in Company Intellectual Assets, including all musical compositions and sound recordings and all copyrights, renewal copyrights, extensions of rights, including post-termination rights and other rights therein and thereto throughout the Territory in perpetuity. 

(b)    Company shall provide in its agreements with the writers of musical compositions comprising Company Intellectual Assets (“writers”) that they shall receive as royalties no more than 37.5% of the mechanical, foreign, synchronization, and other income earned thereby, other than the writer’s share of performance income.  Company shall secure for the benefit of 4KEM and Company a twenty-five (25%) percent interest in the writer’s share of performance income with respect to each musical composition which is a Company Intellectual Asset and shall include said performance income as part of Composition/Recordings Gross Receipts immediately upon its receipt thereof. 

3.  All musical compositions included in the Intellectual Assets and the Company Intellectual Assets are hereinafter referred to as the “Compositions” and all sound recordings included in the Intellectual Assets and the Company Intellectual Assets are hereinafter referred to as the “Recordings.”  4KEM 

 

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hereby grants to Company and Company shall have the sole and exclusive right and obligation to administer and protect and deal in and with the Compositions and the Recordings during the lesser of the (i) CR Term, or the Term (as defined below in Paragraph 4) and throughout the Territory applicable to each such Composition or Recording.  Without limiting the generality of the foregoing, Company shall have the right to lease, license or otherwise turn to account any and all rights in the Compositions and the Recordings and to collect, hold and distribute any sums realized therefrom, including uncollected sums earned prior to the commencement of the Term. The rights herein granted Company include, but are not limited to, the right to authorize any other person, firm or corporation including its own affiliates and subsidiaries to sub-publish the Compositions in any part of the Territory.  Company shall have the
right to accord such other person, firm or corporation label, and/or album cover, and/or sheet music credit with regard to its services in connection with the Compositions; provided, however, that the position and size of the credit, if disconsonant with industry norms, shall be subject to the approval of 4KEM.

4.  (a)  The term of this agreement shall be for a period of fifteen (15) years from the date hereof (the “Term”).  It is however, specifically understood and agreed that all rights vested in Company and 4KEM hereunder with respect to such Compositions and Recordings shall survive the expiration of the 

 

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Term hereof and shall endure, except as may be limited by the Schedules, for the duration of all copyrights and renewals and extensions thereof in and to their respective interests in the Intellectual Assets and Company Intellectual Assets, including the Compositions and Recordings throughout the Territory.

 (b)       It is specifically understood and agreed that Company’s exclusive right to administer 4KEM’s interests in the Intellectual Assets and Company Intellectual Assets, including the Compositions and the Recordings, shall cease upon the expiration of the Term, provided however, that Company shall be entitled for a period of two (2) years following the expiration of the Term to collect and account for in accordance with the terms hereof all monies earned by the Compositions and the Recordings during the Term but not collected by Company during the Term.

5.  “Composition/Record Gross Receipts” as that term is used herein shall mean all monies actually earned by the Compositions and the Recordings, (including the so called “writer’s share” of performance income received by Company pursuant to Paragraph 1(g) above) actually received by Company in the United States from the sale, lease, license, disposition or other turning to account of rights in the Compositions and the Recordings, including all monies actually received in connection with the infringement by third parties of rights in the Compositions or the Recordings.

	
             
 	
            “Composition/Record Net Receipts” as that term is used
 

 

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herein shall be arrived at as follows:

 (a)       Company shall first deduct and retain ten (10%) percent of Composition/Record Gross Receipts in consideration of its services hereunder;

 (b)       Company shall then deduct five (5%) percent of Composition/Record Gross Receipts and pay such sum to 4KEM (subject to Paragraph 14(f) below) in consideration of 4KEM’s excess song costs.

 (c)   Company shall then deduct from the Composition/Record Gross Receipts that portion of Composition/Record Gross Receipts payable to various property owners set forth in the Schedules to this Agreement who receive a portion of Composition/Record Gross Receipts attributable to Compositions contained in or Recordings based on the television series or productions owned by such property owners. Company  shall pay to 4KEM such amount for remittance to the property owners. With respect to all property owners receiving a share of the Composition/Record Gross Receipts after deduction of expenses, 4KEM shall provide Company on a quarterly basis with an accounting statement setting forth the expenses incurred by 4Kids and Affiliates that may be charged against such property owner’s share of the Composition/Record Gross Receipts in accordance with the relevant agreement between 4Kids and
Affiliates and such property owner. Company shall provide 4KEM with a statement setting forth the expenses incurred by Company that may be charged against such property owner’s share of the 

 

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Composition/Record Gross Receipts in accordance with the relevant agreement between 4Kids and Affiliates and such property owner as previously supplied to Company by 4KEM..     

 (d)       Company shall then deduct from Composition/Record Gross Receipts and pay therefrom the royalties due to the writers of the Compositions (the “Writers”) and the royalties due the Artists and Producers of the Recordings in accordance with any applicable agreements that have been furnished to Company;

 (e) Company shall then deduct from Composition/Record Gross Receipts the Advances provided for in Paragraph 14 below;

 (f)            From the balance of Composition/Record Gross Receipts remaining after the deductions provided for in Paragraphs 5(a), 5(b), 5(c),5(d) and 5 (e) hereof, Company shall be entitled to deduct and retain amounts equal to the following reasonable out-of-pocket direct costs actually advanced or incurred by Company with respect to the Compositions ("Composition Costs") and the Recordings (Recordings Costs):  

 (i) All costs of copyrighting the Compositions and the Recordings; 

 (ii) fees of a trustee or collecting agent for the licensing of recording or other rights in the Compositions that are disconsonant with industry practices; 

 (iii) legal fees not in the ordinary course of Company’s business, including legal fees arising out of or relating to any claim of copyright infringement brought by or 

 

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against Company relating to the Compositions and/or the Recordings. Pryor Cashman Sherman & Flynn LLP is approved as counsel in connection with matters contemplated by this paragraph; 

 (iv) amounts paid to partial owners of the Compositions and/or the Recordings or third party publishers and record companies and/or producers, if any; 

 (v) accounting fees not in the ordinary course of Company’s business, such as audits of the books and records of licensees of the Intellectual Assets; 

 (vi) the costs of any phonograph records or tapes of the Compositions distributed for promotional purposes and the out of pocket costs of such distribution; 

 (vii) the cost of collection of Composition/Record Gross Receipts and the costs of demonstration records of the Compositions, if any when such costs of collection are disconsonant with industry practice.  

4KEM shall have a right of approval, not to be unreasonably withheld or delayed, over items (ii), (iii), (v) and (vii) above. Any unrecouped Composition Costs or Recordings Costs for any accounting period may be recouped from Composition/Record Gross Receipts remaining after the payments provided for in Paragraphs 5(a), 5(b), 5(c) and 5(d) hereof in any subsequent accounting period.       Except as provided below in Paragraphs 15 and 18, 4KEM and Company shall each receive fifty (50%) percent of the Composition/Record Net Receipts. 

 

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6.   Within ninety (90) days after March 31, June 30, September 30 and December 31 of each year, Company shall furnish 4KEM with
                  statements setting forth its share of the Composition/Record Net Receipts, if any, for the three (3) month period
                  ending on such March 31, June 30, September 30 or December 31, computed in accordance with the provisions of
                  Paragraphs 5, 15 and 18.  The statement delivered to 4KEM shall be accompanied by payment of the Composition/Record
                  Net Receipts set forth on such statement. Company shall also use reasonable commercial efforts to provide 4KEM with
                  a good faith estimate of the 4KEM share of Composition/Record Net Receipts within thirty-five (35) days after the
                  end of each calendar quarter during the Term.  Except as provided below, said statements and payments, in the
                  absence of written objection thereto by 4KEM within three (3) years from receipt thereof, shall constitute an
                  account stated as to all royalties due for the period covered by such statement and/or payment. 4KEM shall have the
                  right to cause Company's books and records to be examined by a certified public accountant with respect to
                  statements rendered hereunder to which 4KEM's right to object has not expired, as provided herein, provided,
                  however, that no such examination shall take place any later than ninety (90) days after 4KEM has sent to

 

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Company the aforementioned written objection. Under no circumstances (except as hereinbelow provided) shall 4KEM be entitled to conduct such an examination more than once during any calendar year and not more than once as to any accounting period. Such examination shall take place at Company's place of business during normal business hours upon thirty (30) days prior written notice to Company and shall be completed within ninety (90) days of its commencement. Except as provided below, 4KEM shall be foreclosed from maintaining any action, claim or proceeding relating to any accounting hereunder unless it is commenced against Company in a court of competent jurisdiction within two (2) years after the date 4KEM has delivered its written objection to Company hereunder.  Such examination shall be at 4KEM’s expense; provided, however, that if as the result of any examination there is
adjudicated to be, or stipulated by Company to be an underpayment of more than ten (10%) percent of the amount due for the period that is subject to the examination, Company shall reimburse 4KEM for the reasonable cost (excluding travel and lodging) of such examination. Company shall also promptly pay 4KEM the amount due pursuant to the findings of such examination. Notwithstanding the foregoing, Company acknowledges that 4KEM or 4Kids Affiliates may be subject to contractual obligations to licensors of rights 

 

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related to Intellectual Assets that may require it to conduct audits of Company that are in conflict with the foregoing.  In those instances where such contractual requirements are imposed upon 4KEM or 4Kids Affiliates by third parties, Company shall accommodate such audit requirements. After the aggregate value of Company’s share of the Composition/Record Net Receipts and the Company’s administration fees pursuant to this Agreement equals Five Million ($5,000,000.00) Dollars, Company shall, subject to payments to writers and other third parties, deposit Composition/Record Gross Receipts in an interest bearing account and shall divide the interest earned fifty percent (50%) to Company and fifty percent (50%) to 4KEM.

7.  Notwithstanding anything herein contained, the parties acknowledge that all creative decisions with respect to uses of the Compositions and the Recordings are subject to the approval of 4KEM; hence Company acknowledges and agrees that it shall not issue licenses with respect to uses of the Compositions or the Recordings, except mechanical licenses for uses of the Compositions at no less than three-quarters (3/4) of the mechanical rate provided by the United States Copyright Act, without the prior consent of 4KEM.

8.  Each party hereby agrees to do all acts and things and to execute any and all instruments and documents required by the other party or by the terms of this Agreement to effectuate and 

 

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implement any or all terms, provisions and purposes of this Agreement.  4KEM or 4Kids Affiliates specifically agree to execute a short form assignment in the form of the assignment annexed hereto and made part hereof as Exhibit “A” with respect to each of the Compositions.  In the event of the unavailability of 4KEM or 4Kids Affiliates, or of the refusal or failure of 4KEM or 4Kids Affiliates to comply with the provisions of this Paragraph 8, Company is hereby designated 4KEM’s or 4Kids Affiliates’ agent and is authorized to act in the place and stead of 4KEM or 4Kids and Affiliates to implement the terms hereof.  Company specifically agrees to execute a short form assignment substantially in the form of the assignment annexed hereto and made part hereof as Exhibit “A” with respect to each of the Company Intellectual Assets.  In the event of the refusal or failure of Company to
comply with the provisions of the this Paragraph 8, 4KEM is hereby designated Company’s agent and is authorized to act in the place and stead of Company to implement the terms of this Paragraph 8. 

9.  4KEM warrants and represents that the musical compositions and sound recordings listed in Schedules I and II annexed hereto and made part hereof are all of the Compositions and Recordings, respectively, in existence upon the execution of this Agreement.  4KEM shall promptly furnish notice to Company of the acquisition or creation of all future Compositions and Recordings together with all of the information with respect thereto required by Schedules I and II.  Such future 

 

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Compositions and Recordings shall then be deemed automatically added to Schedules I and II hereof respectively, upon their acquisition or creation. 4KEM further warrants and represents that all royalties or other sums due to songwriters, third party publishers, artists and record producers and other third parties with respect to the Compositions and the Recordings through the date hereof have been or shall be paid in full.

10.  4KEM warrants and represents that each of the Compositions and the Recordings are and shall be original and shall not infringe upon any other copyrighted work or the rights of third parties; that 4KEM has the full right, power and authority to enter into this Agreement and to grant to Company the rights herein granted. 4KEM will indemnify and hold Company harmless from and against any claim(s) arising out of or connected with any breach or alleged breach by 4KEM of this Agreement or of any warranty, representation or covenant made by 4KEM herein. 4KEM shall be given written notice of any such claim(s) and shall defend such claim by an attorney of its choice and at 4KEM’s expense. Except in those instances where by reason of contractual commitments by 4KEM to owners of properties involving Compositions and/or
Recordings which would bar Company from participation, Company shall have the right to participate in the defense of such claim(s) by attorney’s of its choice at its own expense.  Where Company is barred as aforesaid, 4KEM shall keep Company apprised of all aspects of such claim(s)and any litigation arising therefrom and shall 

 

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promptly supply Company with copies of all claim letters, correspondence, related documents, pleadings, etc.

11.  4KEM and Company agree that in the event, in the opinion of either, the other has breached this Agreement, the complaining party shall deliver to the purported breaching party by registered or certified mail, return receipt requested, Federal Express or United States Express mail, a written notice specifying all such alleged breach(es). The recipient of such notice shall have thirty (30) days from its receipt to substantially cure such alleged breach.  Such alleged breach shall not be grounds for any action, claim or proceeding, whether at law or in equity, with respect to this Agreement until the expiration of said thirty(30) day period and unless during said thirty(30) day period the purported breaching party has not substantially cured same.  No waiver of any provision of, or default under this Agreement shall
affect the right thereafter to enforce same. In the event of any adjudicated termination, or the expiration of this Agreement as provided herein, 4KEM’s obligation to transfer and assign to Company an undivided one half interest in 4KEM’s interests in musical compositions thereafter created shall likewise terminate and 4KEM shall have the right to use an administrator other than Company to administer 4KEM’s ownership interest in the Compositions and Recordings.

12.  Company shall not initiate litigation in connection with infringements of the Compositions by third parties unless 

 

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mutually agreed upon by 4KEM and Company.  Any proceeds of such litigation shall be shared between Company and 4KEM as set forth above after the deduction of the actual costs attendant upon such litigation.

13.  In consideration of the rights assigned and transferred by 4KEM to Company with respect to 4KEM’s interest in the Compositions hereunder, Company agrees to pay 4KEM the following amounts: (i) the sum of $3,000,000 upon execution and delivery of this Agreement, which sum shall be paid with respect to the transfer to Company of one-half of 4KEM’s interest in the Compositions contained in, or to be contained in “Yu-Gi-Oh,” “Cubix,” “Tama & Friends,” “Ultraman,” “Ultimate Muscle,” “Kirby,” “Fighting Foodons,” and “Teenage Mutant Ninja Turtles” existing as of date hereof; (ii) the sum of $750,000, which sum shall be paid by Company to 4KEM on the first anniversary of the date hereof and shall be paid with respect to
the transfer to Company of one-half of 4KEM’s interest in the new Compositions and Recordings added to the Schedules between the execution of this Agreement and said first anniversary payment date; and (iii) the sum of $750,000 which shall be paid by Company on the second anniversary of the date hereof and shall be paid with respect to the transfer to Company of one-half of 4KEM’s interest in the new Compositions and Recordings added to the Schedules between the first anniversary and second anniversary payment dates; and (iv)the sum of $500,000 which shall be paid by Company on the third anniversary of the date hereof and shall 

 

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be paid with respect to the transfer to Company of one-half of 4KEM’s interest in the new Compositions and Recordings added to the Schedules throughout the remainder of the Term and all other Intellectual Assets not specifically otherwise referred to in this Paragraph.  The parties acknowledge and agree that the sums set forth above in Paragraph 13 are not, and shall not be deemed to be, advances against 4KEM’ s share of the Composition/Record Gross Receipts but rather shall be payment by Company for the undivided one half interest in  4KEM’s interests in the Compositions, Recordings and Intellectual Assets hereunder.

14.  Company shall advance the following sums (the “Advances”):

 (a)  Three Thousand ($3,000.00) Dollars to 4KEM for each of the first twenty-six (26) new episodes of a television series which is a Show hereunder and which contains seventeen (17) or more minutes of original music one hundred (100%) percent of which is owned by 4KEM and Company and exclusively administered by Company throughout the universe, and a lesser sum for each such episode which contains fewer than seventeen (17) minutes of such music, or which contains original music only partially owned by Company and 4KEM and not exclusively administered by Company and Six Hundred ($600.00) Dollars [in lieu of Three Thousand ($3,000.00) Dollars] with respect to the twenty-seventh (27th) and each subsequent new episode of such a television series.  The number of minutes ascribable to original music which is not owned one hundred (100%) percent by Company 

 

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and 4KEM shall be arrived at by dividing the playing time of such music by the percentage thereof owned by Company, e.g. if Company and 4KEM owned fifty (50%) percent of a piece of original music that played for ten (10) minutes in such an episode it would be deemed to have a playing time of five (5) minutes for the purposes of this Paragraph.  The advance payable by Company pursuant to this Paragraph with respect to such an episode which contains less than seventeen (17) minutes of original music owned one hundred (100%) percent by Company shall be reduced proportionately.  By way of illustration:  If the tenth (10th) episode of such a television series contained five (5) minutes of original music owned one hundred (100%) percent by Company and 4KEM and ten (10) minutes of original music owned fifty (50%) percent by Company and 4KEM and fifty (50%) percent by third party “X” which was
co-administered by Company and “X” the advance payable by Company pursuant to this Paragraph would be One Thousand Seven Hundred and Sixty Four ($1,764.71) Dollars and Seventy One Cents or 10/17 of Three Thousand ($3,000.00) Dollars. Notwithstanding anything hereinabove contained, if Company does not administer at least the share of such music owned by Company and 4KEM, the playing time of such music shall not be included in the calculation of the advance payable pursuant to this Paragraph.  The term “original music” as used in this Paragraph shall mean music created for the episode with respect to which the advance is being paid. Company shall pay the advances provided for herein with respect to Yu-gi-oh! 

 

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episodes 27 et. seq. (with episodes 27-52 being deemed to be the first 26 episodes with the advance being paid at the rate of $3,000 as adjusted in accordance with this Paragraph), Cubix episodes 14 et. seq. and with respect to the episodes of “Ultraman,” “Ultimate Muscle,” “Kirby,” “Fighting Foodons,”, “Teenage Mutant Ninja Turtles” and other television series and productions to be produced by 4Kids and Affiliates during the Term. 

 (b)  From time to time, as mutually agreed by 4KEM and Company, 4KEM and Company shall cause to be created phonograph records relating to television series that are Shows hereunder.  With respect to such phonograph records, Company and 4KEM shall cause to be created original songs as may be required in connection with such phonograph records and shall oversee the production of each such phonograph record.  Company shall shop the resulting phonograph record to record companies and shall negotiate and conclude, subject to 4KEM’s approval, any agreements with record companies that may result.  Company shall provide such additional services as may be agreed upon by 4KEM and Company. Company shall advance one hundred (100%) percent of the costs attendant upon the creation of the phonograph records contemplated by this Paragraph, which costs shall not
exceed One Hundred Thousand ($100,000) Dollars per phonograph record without mutual prior written consent.  All phonograph records created pursuant to this Paragraph and musical compositions created for use therein, shall be Intellectual Assets hereunder 

 

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and shall be the sole and exclusive property of 4KEM and Company.

 (c)  From time to time, as mutually agreed by Company and 4KEM, Company and 4KEM shall cause to be created phonograph records relating to motion pictures that are Shows hereunder.  With respect to such phonograph records, Company and 4KEM shall cause to be created original songs as may be required in connection with such phonograph records and shall oversee the production of each such phonograph record.  Company shall shop the resulting phonograph record to record companies and shall negotiate and conclude, subject to 4KEM’s approval, any agreements with record companies that may result.  In addition, Company shall provide such additional services as may be agreed upon by 4KEM and Company. Company shall advance one hundred (100%) percent of the costs attendant upon the creation of the phonograph record contemplated by this Paragraph, which costs
shall be mutually agreed upon by 4KEM and Company.  All phonograph records created pursuant to this Paragraph and musical compositions created for use therein, shall be Intellectual Assets hereunder and shall be the sole and exclusive property of 4KEM and Company.

 (d)  Company shall provide legal services in connection with the acquisition and/or creation of Company Intellectual Assets, the reasonable costs of which shall be Advances hereunder.

 (e)   All of the Advances in accordance with this

 

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Paragraph 14, shall be recoupable from all monies received in the United States by Company in accordance with Paragraph 5 above.

 (f)  The parties acknowledge and agree that the amounts of the advances set forth in this Paragraph 14 are based on the costs of composing music in 2001-2002. The parties agree that at least every three (3) years during the Term, the parties shall discuss whether the Company’s advances for (i) musical compositions composed for the Shows and phonograph recordings that are set forth in this Paragraph 14 or have otherwise been adopted pursuant to the process set forth in this Paragraph 14 fairly reflect Company’s commitment to share the costs of creating the music and pay all the costs of creating any phonograph record.  Company agrees that if 4KEM can demonstrate that the costs of creating musical compositions composed for the Shows or for the phonograph recordings materially increased, then the parties
agree that the Advances to be paid by Company shall be increased to an amount agreed upon in good faith by the parties. In determining whether the Advances to be paid by Company pursuant to Paragraph 14(a) above are to be increased, there shall be factored into the attendant calculations the five (5%) percent of Composition/Record Gross Receipts paid to 4KEM pursuant to Paragraph 5(b) above i.e., if the sums paid to 4KEM pursuant to Paragraph 5(b) above defray any costs incurred by 

 

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4KEM above the amounts provided by Paragraph 14(a) above, there shall be no increase in the Advances payable pursuant to Paragraph 14(a) above.  In the event an increase is determined to be in order, the revised amounts of Advances shall be deemed substituted for the amount of the Advances set forth in this Paragraph 14(a).

15.  As additional consideration to 4KEM hereunder, Company agrees that upon the commencement of the ninth year of the Term, and through the remainder of the Term, (but subject to Paragraph 18 below), 4KEM shall receive prospectively sixty-two and one-half (62.5%) percent of Composition Net Receipts and Company shall receive prospectively thirty-seven and one-half (37.5%) percent of Composition Net Receipts as opposed to the 50%/50% split that theretofore pertained and which shall pertain after the expiration of the Term. 

16.  (a)   4KEM represents and warrants that:

(i)  4KEM is a Delaware corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder. 

 (ii)  Neither the execution, delivery nor performance of this Agreement by 4KEM shall, with or without the giving of notice or passage of time, or both, conflict with, or 

 

25

 

result in a default or loss of rights under, any material agreement or understanding to which 4KEM or any of its affiliates is a party or by which it or any of its properties may be bound.

 (iii)  The execution, delivery and performance of this Agreement by 4KEM has been duly and properly authorized by all necessary corporate actions; and this Agreement constitutes a valid and binding obligation of 4KEM enforceable in accordance with its terms.

 (iv) All of the Intellectual Assets contributed and to be contributed by 4KEM are and shall be original and shall not infringe upon any other work. 

 (v) All of the Intellectual Assets contributed and to be contributed by 4KEM are, and shall be free and clear of any unrecouped advances, claims, demands, actions, liens or encumbrances. 

 (vi) There are no suits, claims actions or other legal or administrative proceedings involving 4KEM, or the Intellectual Assets contributed by 4KEM, now pending or threatened, nor is there any basis therefore. 

 (vii) There are no existing administration, publishing or sub-publishing agreements that are currently in effect with respect to the Intellectual Assets contributed by 4KEM nor shall there be any with respect to Intellectual Assets to be contributed by 4KEM.

 (viii)  4KEM exclusively owns and/or controls

 

26

 

throughout the universe the music publishing and sound recording rights in the following  television series:  (A) “Yu-Gi-Oh”, “Cubix” and “Tama and Friends.”

 (ix)  4KEM has licensed a daily four (4) hour block of time from the FOX television network for the period of four broadcast seasons commencing with the 2002 – 2003 broadcast season during which time 4KEM may, and intends to, program up to seven (7) one-half hour series owned and/or controlled by 4KEM.

 (b)  4KEM will use its best efforts to cause each distributor, broadcaster, licensee, licensor and subsequent owner of Shows containing Intellectual Assets to contractually undertake not to “strip” or replace or alter in any way the “M&E” (music and effects) tracks of such Shows, nor make any claims with respect thereto with any mechanical rights or performing rights organization; provided, however, that Company acknowledges that certain broadcasters outside of the United States (such as the Italian broadcaster Mediaset) require the right to substitute their own theme or title music for the theme or title music originally added to the Show by 4KEM and that 4KEM shall have the right to permit such broadcasters to substitute their theme or title music for the existing theme or title music where it is a condition precedent to
having the property broadcast in that territory.

 (c)  4KEM will use its best efforts to contractually require its distributors and licensors of Shows to provide:

   (i)  the foreign language name of each of the

 

27

 

Shows as distributed in each country of the Territory; and

 (ii)  the names of, and contact information with respect to, existing local sub-distributors in each country of the Territory as they may change from time to time; and

 (iii)   the names of, and contact information with respect to, local film distributors and broadcasters with whom contracts have been entered into with respect to the Shows and the expiration dates of such contracts.  

4KEM will upon its receipt of the foregoing supply Company, with all of the foregoing information.  4KEM will provide to Company, upon the execution hereof, to the extent it has not already done so, cue sheets and all other information and documentation with respect to all Shows containing existing Intellectual Assets and will similarly provide cue sheets, information and documentation with respect to all Shows containing future Intellectual Assets as they come into existence.            

 (iv)  4KEM shall upon the execution hereof furnish to Company, copies of all songwriter, co-publishing, artist, producer and other agreements necessary for the Company to perform its services with respect to the existing Intellectual Assets and shall supply same with respect to future Intellectual Assets promptly upon their creation or acquisition.

 

28

 

17.  Company represents and warrants that:

(a)  Company is a New York corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder. 

 (b   Neither the execution, delivery nor performance of this Agreement by Company shall, with or without the giving of notice or passage of time, or both, conflict with, or result in a default or loss of rights under, any material agreement or understanding to which Company or any of its affiliates is a party or by which it or any of its properties may be bound.

 (c)  The execution, delivery and performance of this Agreement by Company has been duly and properly authorized by all necessary actions; and this Agreement constitutes the valid and binding obligation of Company enforceable in accordance with its terms.

 (d)  All of the Company Intellectual Assets which may be contributed by Company shall be original and shall not infringe upon any other work.

 (e)  All of the Company Intellectual Assets which may be contributed by Company shall be free and clear of any unrecouped advances, claims, demands, actions, liens or 

 

29

 

encumbrances.

 (f)       There are no suits, claims, actions or other legal or administrative proceedings involving Company now pending or threatened, nor is there any basis therefore.

18.   (a) 4KEM hereby covenants and agrees that during the first seven (7) years of the term of this Agreement, 4KEM shall, on behalf of 4KEM and Company, create and/or acquire music publishing rights in no less than twelve (12) additional television series (including, “Ultraman,” “Ultimate Muscle,” “Kirby,” “Fighting Foodons” and “Teenage Mutant Ninja Turtles,” which shall be Shows hereunder and which shall contain at least twenty-six (26) episodes per television series in which approximately seventeen (17) minutes of original music per episode shall be Intellectual Assets hereunder. Company and 4KEM acknowledge that when such a television series attains a very large number of episodes, it deserves to be treated for the purpose of this paragraph, as more than a single television series, that is, a
“Multiple Value Series.” 4KEM and Company agree that blocks of fifty two (52) episodes starting with one hundred four (104) such episodes should be determinative of when such a television series hereunder becomes a Multiple Value Series.  Accordingly, it is agreed that when such a television series attains the following numbers of episodes, it becomes a 

 

30

 

Multiple Value Series, the value of which is set forth below:

One hundred four (104) such episodes equals two (2) such television series;

One hundred fifty six (156) such episodes equals three (3) such television series;

Two hundred eight (208) such episodes equals four (4) such television series; and 

Two hundred sixty (260) such episodes equals five (5) such television series, etc.

By way of clarification and illustration, such a television series that attains one hundred eighty two (182) such episodes, would only be counted as three (3) such television series.

 (b)  If during the first seven (7) years of the Term, 4KEM fails to create musical compositions and/or acquire music publishing rights in no less than twelve (12) additional television series which shall be Shows hereunder and which shall contain at least twenty-six (26) episodes per television series in which approximately seventeen (17) minutes of original music per episode shall be Intellectual Assets hereunder, then Company’s sole remedy shall be for Company to receive one hundred percent (100%) of the Composition/Record Net Receipts until such time as the aggregate value of Company’s share of the Composition/Record Net Receipts and the Company’s administration 

 

31

 

fees pursuant to this Agreement equals Five Million ($5,000,000.00) Dollars. After the aggregate value of Company’s share of the Composition/Record Net Receipts and the Company’s administration fees pursuant to this Agreement equals Five Million ($5,000,000.00) Dollars, the Composition/Record Net Receipts shall be paid fifty percent (50%) to 4KEM and fifty percent (50%) to Company, (or if Paragraph 15 applies, the Composition/Record Net Receipts shall be paid sixty-two and one-half (62.5%) percent to 4KEM and thirty-seven and one-half (37.5%) percent to Company. If by the end of the Term of this Agreement, the aggregate value of Company’s share of Composition/Record Net Receipts and Company’s administration fees does not equal Five Million ($5,000,000.00) Dollars, this Agreement shall persist until such time as the aggregate value of Company’s share of
Composition/Record Net Receipts and Company’s administration fees equals Five Million ($5,000,000.00) Dollars.

19.  4KEM warrants and represents that it shall use its best efforts to acquire one hundred (100%) percent of the music publishing rights and sound recording rights, including all copyrights and administration rights in and to the Shows and to cause all such rights to become Intellectual Assets hereunder.          

 

20.   4KEM agrees to and does hereby indemnify, save and hold 

32

 

Company harmless from and against any and all loss and damage (including, without limitation, reasonable attorneys’ fees and legal costs) arising out of or connected with any claim which is inconsistent with or a breach of any of the warranties, representations, covenants or agreements made by 4KEM in this Agreement. 4KEM agrees to reimburse Company on demand for any payments made by Company at any time after the date hereof with respect to claims covered by 4KEM’s indemnification obligation hereunder and that are properly reimbursable by the indemnifying party and for any loss or damage of any kind or nature incurred by Company with respect to any liability or claim to which the foregoing indemnity relates. 

21.  Company agrees to and does hereby indemnify, save and hold 4KEM harmless from and against any and all loss and damage (including, without limitation, reasonable attorneys’ fees and legal costs) arising out of or connected with any claim which is inconsistent with or a breach of any of the warranties, representations, covenants or agreements made by Company in this Agreement. Company agrees to reimburse 4KEM on demand for any payments made by 4KEM at any time after the date hereof with respect to claims covered by Company’s indemnification obligation hereunder and that are properly reimbursable by the indemnifying party and for any loss or damage of any kind or 

 

33

 

nature incurred by 4KEM with respect to any liability or claim to which the foregoing indemnity relates. 

22.  This Agreement shall be binding upon Company and 4KEM and their respective heirs, successors and permitted assigns.  This Agreement sets forth the entire agreement between the parties and no modification, amendment, waiver, termination or discharge shall be binding unless confirmed by a written instrument duly signed by the party to be charged therewith. Neither this Agreement nor any of 4KEM’s rights hereunder are assignable by 4KEM, except as part of the sale of 4KEM’s parent company or of substantially all of its assets, without the prior written consent of Company and any attempted assignment by 4KEM not in compliance with this provision shall be null and void ab initio. Any third party thereby acquiring ownership or control of 4KEM shall be
contractually prohibited from “stripping” the Compositions from any Shows or Intellectual Assets or placing music that is not a Composition upon any Recordings. Neither this Agreement nor any of Company’s rights hereunder are assignable by Company except as part of the sale of Company or substantially all of its assets, without the prior written consent of 4KEM and any attempted assignment by Company not in compliance with this provision shall be null and void ab initio. No waiver of any provision of, or default under this Agreement 

 

34

 

shall affect the parties’ rights thereafter to enforce such provisions. If any part of this Agreement shall be invalid or unenforceable, it shall not affect the validity of the balance of this Agreement.

23.  This Agreement is being entered into and shall be construed in accordance with the laws of the State of New York as if it were entered into and wholly executed in the State of New York. All judicial proceedings brought against a party with respect to this Agreement or any related document shall be brought in any state or federal court of competent jurisdiction in the County of New York in the State of New York and by its execution and delivery of this Agreement, each of the parties accepts, for itself and in connection with its properties, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts.  Each of the parties hereby irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, or by
overnight courier, to its notice address hereunder, such service to become effective five (5) business days after such mailing or on the next business day if sent by overnight courier. Nothing herein shall affect the right to serve process in any other manner permitted by law.

 

35

 

24.  All notices hereunder shall be in writing and shall be given in the same manner as set forth in Paragraph 11 hereof with respect to breaches of this Agreement.  All such notices shall be deemed given when received.

25.  If in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is prohibited, unenforceable or otherwise restricted, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction and without affecting the validity or enforceability of such provision in any other jurisdiction or its application to other parties or circumstances.  

26.   Company agrees to keep the terms and conditions of this Agreement and the information disclosed to Company in the Schedules and in the agreements supplied to Company in connection with this Agreement and such Schedules (collectively “Confidential Information”)strictly confidential and shall not disclose such Confidential Information to any third party. Notwithstanding the foregoing, Company may disclose such Confidential Information or portions thereof to such persons within Company on a strict "need to know basis," and to Company’s attorneys, accountants and professional advisors who need to know such information it being understood that each such person shall be informed by Company of the confidential nature 

 

36

 

of such Confidential Information and shall be directed by Company not to disclose such Confidential Information. The term "Confidential Information" does not include any information which (i) is in the public domain prior to the time of disclosure or subsequently becomes part of the public domain through its disclosure by a person bound by the terms of this confidentiality provision (ii) is demonstrated by written or other tangible evidence to have been lawfully obtained by Company from a source other than 4Kids and Affiliates, provided that such source is not and was not bound by a confidentiality agreement with 4Kids and Affiliates.

 

37

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	
             
 	
            Cherry Lane Music Publishing Company, Inc.
 

 

By:_________________________                 

	
             
 	
            FEDERAL I.D.#_______________
 

	
             
 	
            4Kids Entertainment Music, Inc.
 

 

	
             
 	
            By:_________________________
 

	
             
 	
            FEDERAL I.D.#_______________
 

 

For good and valuable consideration, 4Kids Entertainment, Inc., the owner of one hundred (100%) percent of the stock of 4Kids Entertainment Music, Inc. as an inducement to Cherry Lane Music Publishing Company, Inc. to enter into the above agreement and to perform its obligations thereunder does hereby guarantee the performance of 4Kids Entertainment Music, Inc. under said agreement and agrees to be bound by said agreement to the extent said agreement applies to 4Kids Entertainment, Inc.

 

	
             
 	
                  4Kids Entertainment, Inc.
 

 

 

   By:__________________________

38

 

EXHIBIT "A"

 

KNOW ALL MEN BY THESE PRESENT, that the undersigned 4Kids Entertainment Music, Inc., for good and valuable consideration does hereby sell, assign, transfer and set over unto Cherry Lane Music Publishing Company, Inc. (subject to the terms and conditions of that certain agreement between Cherry Lane Music Publishing Company, Inc. and 4Kids Entertainment Music, Inc. dated ___________) an undivided interest as set forth below in and to the copyrights and renewal copyrights and all extensions thereof for the entire universe in perpetuity in and to the following musical compositions:                                            

 

	
             
 	
            PERCENT OF COPYRIGHT
 

	
             
 	
            ASSIGNED TO CHERRY LANE MUSIC
 

	
             
 	
            PUBLISHING
 	
                            REGISTRATION
 

	
            COMPOSITIONS
 	
            AUTHOR(S)
 	
            and DATE (if any) COMPANY, INC.
 

_______________________________________________________________

 

 

 

 

 

together with such portion of all the right, title and interest of the undersigned therein and thereto.

 

IN WITNESS WHEREOF, the undersigned has caused this assignment to be signed this _____ day of ____________, 200__.

 

                        

                                          
                              4Kids Music Entertainment, Inc.

                          

 

By:____________________________                        

 

39

 

SCHEDULE I

 

THE COMPOSITIONS

 

 

	
            Name    
 	
            Publisher(s)and Shares  
 	
            Writer(s)and Shares  
 	
             Copyright Date and Registration Number (if any)  
 

 

 

SCHEDULE II

 

THE RECORDINGS

 

	
            Name    
 	
            Owner(s)and Shares  
 	
            Artist(s)and Shares  
 	
            Producer(s)and Shares  
 	

  Copyright Date and Registration Number (if any)THE CW NETWORK, LLC- 4KIDS ENTERTAINMENT, INC.

SATURDAY MORNING PROGRAMMING BLOCK

TERM SHEET

 

This term sheet (“Term Sheet”) will confirm the material terms of the agreement entered into as of September 26, 2007, between 4Kids Entertainment, Inc., 1414 Avenue of the Americas, New York, NY 10019 (“Company”) and The CW Network, LLC, 3300 West Olive Ave., Burbank, CA 91505 (“The CW”) with respect to the children’s programming block (the “Block”) broadcast on the CW network. 

 

Other terms and conditions may be contained in a long form agreement consistent with the terms of this Term Sheet and containing those customary provisions contained in a more formal agreement of this type.  Unless and until such time, this Term Sheet, when countersigned by Company and The CW below, will be binding on both parties.

 

	
            1.
 	
            Grant of Rights
 

 

a.         Grant of Rights.  Subject to the terms and conditions hereof, The CW hereby grants to Company the exclusive right to provide and supply The CW with all television series and specials, promotional announcements, interstitial programs, additional programming elements, commercial advertisements, and any other audiovisual elements (collectively, “Content”) that are broadcast in the Block during the Term (as defined below).  Subject to the terms and conditions hereof, the Content will be made available and all necessary ancillary rights will be granted to The CW for broadcasting, that is, transmission by its affiliates over broadcast television facilities, retransmission by multi-channel video programming distributors, and dissemination as a part of The CW Plus stations and cable
channels.  Company may not "sub-lease" the Block in whole or in part to any third parties without The CW’s prior written approval.

 

b.         Exhibition Rights.  Company grants to The CW all rights necessary to telecast, transmit and exhibit in the United States, its territories and possessions, including English-speaking Puerto Rico (collectively “Territory”), all Content which Company provides for inclusion in the Block (including without limitation, national advertisements and promotional content).

 

	
            2.
 	
            Term
 

 

a.         Initial Term.  The initial term will be five (5) years beginning on the first Saturday of The CW’s 2008/2009 Broadcast Year (as defined below) and ending with the last Saturday of The CW’s 2012/2013 Broadcast Year.  "Broadcast Year" means the period which starts in September with the commencement, as designated by The CW, of The CW's television season (not including previews, “sneak peeks,” early premieres, etc.) and continues for fifty-two (52) weeks until the commencement, as designated by The CW, of the following television season in the following September.

 

 

 

b.         Extension Options.  The CW and Company will each have an option, subject to the approval of the other party, to extend the initial term for two Broadcast Years beginning on the first Saturday of The CW’s 2013/2014 Broadcast Year and ending with the last Saturday of The CW’s 2014/2015 Broadcast Year.  The party that elects to exercise the option will deliver written notice of such exercise to the other on or before January 15, 2012, but in no event before September 15, 2011.  The other party shall indicate its approval or disapproval within ten (10) business days of receipt of the notice of exercise from the electing party.  If either party elects to exercise the foregoing option and the other party approves, the initial term shall be extended for The CW’s 2013/2014
Broadcast Year and ending with the last Saturday of The CW’s 2014/2015 Broadcast Year (which two (2) Broadcast Years shall comprise 104 weeks in the aggregate) on the same terms and conditions as are set forth herein with respect to the initial term.

 

c.         Term.  For purposes of this Term Sheet, “Term” shall mean the initial term and the extensions if exercised as provided in Paragraph 2.b. above.

 

	
            3.
 	
            Broadcast Coverage
 

 

	
             
 	
            a.
 	
            National Coverage for the Block.
 

 

 (i)  Current National Coverage for the Block: As of the date hereof, the Block is cleared in the designated market areas (“DMAs”) as defined by Nielsen Media Research (“Nielsen”) as set forth in Exhibit A:

 

 (a)  Except as provided with respect to the DMAs of Atlanta, Sacramento, Baltimore, Hartford, Raleigh, Birmingham, Norfolk, Memphis, Providence and Burlington, the Block is broadcast in pattern on Saturday mornings between the hours of 7 a.m. through 12 noon.

 

 (b)  The Block is telecast in DMAs containing 90% or more of U.S. television households (“U.S. TV Households”).

 

 (ii)  National Coverage during the Term:  By no later than the March 1 preceding the beginning of any Broadcast Year during the Term, The CW shall provide Company with a revised Exhibit A listing the anticipated clearances for the Block in the DMAs for the upcoming Broadcast Year.  By no later than the August 1 preceding the beginning of any Broadcast Year during the Term, The CW shall provide Company with a revised Exhibit A listing any DMAs in which the Block will be broadcast not “In Pattern” (as defined below) together with any revisions to the list of anticipated clearances supplied to Company by The CW as of the previous March 1.

 

	
             
 	
            b.
 	
            Block Clearance Requirements/Failure to Meet Requirements.
 

 

 (i)  In Pattern, Top Ten DMAs: The Block will be broadcast In Pattern in each of the top ten (10) DMAs (other than Atlanta) for at least thirty-nine (39) weeks during each Broadcast Year.

 

 

 

 (a)  Failure to Meet The Top Ten DMA Requirement: With regard to any top ten DMA (other than Atlanta) in which the Block is broadcast In Pattern for fewer than thirty-nine (39) weeks, the Block shall be deemed not to have been broadcast at all in that DMA and the Total Guarantee (as defined in Paragraph 5.c. below) applicable to such Broadcast Year will be reduced by an amount equal to the Total Guarantee for such Broadcast Year multiplied by the percentage of U.S. TV Households within such top ten DMA (other than Atlanta) in which the Block has been broadcast In Pattern for fewer than thirty-nine (39) weeks.

 

 (ii)  In Pattern, DMAs Containing 82% of U.S. TV Households: The Block will be broadcast In Pattern in DMAs containing no fewer than 82% of U.S. TV Households for at least thirty-nine (39) weeks during each Broadcast Year.

 

 (a)  Failure to Meet 82% Requirement: If the Block is not broadcast In Pattern in DMAs containing at least 82% of U.S. TV Households for at least thirty-nine (39) weeks during each Broadcast Year, such In Pattern carriage below 82% will be reflected in the calculation of the “Average Block Clearance” as set forth below.

 

 (iii)  Broadcast in Top 25 DMAs: The Block will be broadcast in each of the top twenty-five (25) DMAs for at least thirty-nine (39) weeks during each Broadcast Year.

 

 (a)  Failure to Meet Top 25 DMA Broadcast Requirement: With regard to any top twenty-five DMA in which the Block is broadcast for fewer than 39 weeks during a Broadcast Year, the Block shall be deemed not to have been broadcast at all in that DMA for such Broadcast Year and the Total Guarantee for such Broadcast Year will be reduced by amount equal to the Total Guarantee for such Broadcast Year multiplied by the percentage of U.S. TV Households within such top twenty-five (25) DMA  in which the Block has been broadcast for fewer than thirty-nine (39) weeks.

 

 (iv)  Annual Average Block Clearance: The annual Average Block Clearance will be at least 90% in each Broadcast Year.

 

 (a)  Failure to Meet 90% Average Block Clearance: If the annual Average Block Clearance for any Broadcast Year is below 90%, then the applicable Total Guarantee for the applicable Broadcast Year shall be reduced by $50,000 for every one tenth of a percentage point (adjusted pro rata for smaller increments) by which the Block Clearance is below 90%.

 

 (b)  If the quarterly Average Block Clearance is below 85% in two (2) consecutive quarters during any Broadcast Year, 4KAS shall have the right exercisable in writing to (i) eliminate the remaining quarterly guarantee installments for such Broadcast Year, and, (ii) to the extent that the split of National Commercial Proceeds is 80%--20% in favor of The CW, revise the split of National Commercial Proceeds to 65%--35% in favor of The CW for such Broadcast Year.

 

 (c)  If the quarterly Average Block Clearance is below 80% in any two (2) consecutive quarters during any Broadcast Year, Company shall have the right exercisable in writing 

 

 

to terminate this Term Sheet by delivering a written notice of termination to the CW.  Such notice of termination shall be effective as of the end of the then applicable Broadcast Year.

 

 (v)  Failure to meet the Block Clearance requirements as set forth in (i) (ii) (iii) and (iv) above (“Block Clearance Requirements”) due to an occasional pre-emption of the broadcast of the Block shall not be deemed to be a violation of the Block Clearance Requirements but shall be taken into account for purposes of calculating the Average Block Clearance. 

 

 (vi)  In the event that the applicable Total Guarantee is to be reduced as provided herein due to a failure of The CW to meet more than one of the Block Clearance Requirements, the parties agree that the Total Guarantee shall be reduced by the application of the one (1) Total Guarantee reduction formula that results in the greatest reduction of the Total Guarantee but that the Total Guarantee shall not be reduced by the cumulative application of more than one (1) Total Guarantee reduction formula.

 

For example: If in any Broadcast Year, the Average Block Clearance is 88.5% and the Block has also not been broadcast in the top twenty-five (25) DMA of Portland representing 1.004% of the U.S. TV Households, the Total Guarantee of $15,000,000 for such Broadcast Year shall be reduced by $750,000 giving application to the reduction formula in Paragraph 3.b.(iv) and not by $150,600 after giving effect to the reduction formula in Paragraph 3.b.(iii) above.  For the avoidance of doubt, the Total Guarantee shall also not be reduced by the sum of (x) the $750,000 reduction resulting from the application of the reduction formula in Paragraph 3.b.(iv) and (y) $150,600 resulting from the application of the reduction formula in Paragraph 3.b.(iii) above.

 

	
             
 	
            c.
 	
            Definitions, Procedures.
 

 

 (i)  Block Clearance: The “Block Clearance” is the percentage of U.S. TV Households contained within the DMAs in which the Block is broadcast.

 

 (ii)  In Pattern: “In Pattern” means broadcast on Saturday mornings between the hours of 7 a.m. through 12 noon, with adjustments for time zone differences (i.e., broadcasts of the Block on Saturday mornings between the hours of 6 a.m. through 11 a.m. or 8 a.m. through 1 p.m. will be deemed In Pattern). If all or any portion of the Block is not broadcast between 7 a.m. and 12 noon, (with adjustments for time zone differences as provided above), all or such portion of the Block not broadcast between 7 a.m. and 12 noon  will be deemed a preemption unless all or that portion of the Block not broadcast between 7 a.m. and 12 noon, (with adjustments for time zone differences as provided above) is made-good between 7:00 a.m. and 6:30 p.m. on either the day of the scheduled broadcast or the following day.

 

 (iii)  Calculation of the Average Block Clearance: The average Block Clearance within any DMA for any Broadcast Year shall be calculated as follows: first, the number of hours of preemptions and out-of-pattern broadcasts (as compared with broadcast time period listed on Exhibit A) for the Broadcast Year shall be computed and subtracted from the number of hours that the Block is transmitted by The CW during that Broadcast Year (52 weeks multiplied by 5 hours per week= 

 

 

260 hours without taking into account such preemptions or out of pattern broadcasts to calculate the Block Clearance hours;  second, the Block Clearance hours shall be divided by the number of hours that the Block is transmitted by The CW during that Broadcast Year (i.e., 260 hours) to calculate the Block Clearance percentage for such Broadcast Year; third, the Block Clearance percentage for such Broadcast Year shall be multiplied by the percentage of U.S. TV Households contained within that DMA.  Preemptions that are made-good between 7:00 a.m. and 6:30 p.m. on either the day of the scheduled broadcast or the following day will not be considered as preemptions for purposes of the calculation of the Average Block Clearance. If the Block is not telecast in its entirety due to Company’s failure to deliver sufficient Content for the Block, such  failure of the Block to be telecast in its entirety shall
not be deemed to be a preemption and the number of hours transmitted by The CW hereunder will be deemed to be 260.

 

For example, if in the DMA of New York, there have been twenty (20) hours of preemptions and out-of-pattern broadcasts for the Broadcast Year out of the two hundred sixty (260) hours that the Block is transmitted by The CW during that Broadcast Year, the Block Clearance percentage is 260 minus 20, or 240 divided by 260 or 92.3%.  If New York contains 6.616% of the U.S. TV Households in such Broadcast Year, the Average Block Clearance for New York in such Broadcast Year equals 92.3% multiplied by 6.616% or 6.106%.

 

The sum of the Average Block Clearances of each DMA within the U.S. where the Block is broadcast during such Broadcast Year will be the Average Block Clearance.  Quarterly Average Block Clearance will be calculated based on three (3) month periods beginning with the initial broadcast of the Block within the Broadcast Year.

 

d.         Block Clearance Report.  Within ten (10) business days following the conclusion of each month during the Term, The CW will provide Company with a clearance list setting forth the DMAs in which the Block has been broadcast as well as any Content in the Block that has been time-shifted or day-shifted, or preempted in whole or in part. The Block Clearance report shall also list any “make goods” provided by The CW’s affiliates in response to any such preemptions. In the event that The CW is aware of any upcoming preemptions in any DMA that is part of the Block Clearance prior to the date of such preemptions, The CW shall provide Company with written notice of such upcoming preemptions.

 

	
            4.
 	
            Inventory Split of Commercial and Promotional Time
 

 

a.         National and Local Units.  For each Broadcast Year during the Term, Company shall have the exclusive right to sell all advertising units in the Block except for the one (1) minute of advertising per hour that is retained by the CW affiliates.  The parties agree that the advertising units in the Block shall be allocated as follows:

 

 

 

 

	
            Advertising Time in Children’s Programming (i.e., 10.5 minutes per hour in total)

 
 	
            (i) 9.5 minutes per hour of national commercial time for Company (“National Commercial Time");

(ii) 1 minute per hour of local commercial time for CW affiliates
 
	
            Advertising Time in All Other Programs, if any (i.e., up to 15 minutes per hour in total)
 	
            (i) no less than 12 minutes per hour of National Commercial Time;

(ii) no more than 3 minutes per hour of local commercial time for CW affiliates
 

 

In the event that the amount of commercial time in Children’s Programming is increased above 10.5 minutes per hour, such additional time shall be divided pro-rata between Company and the CW affiliates.  Company and The CW shall divide the National Commercial Proceeds (as defined below) from sale of National Commercial Time as is provided in Paragraph 5 below.  All sales of advertising units by Company hereunder will be subject to The CW’s customary policies with regard to advertising sales which are part of The CW’s then current broadcast standards and practices.

 

b.         Duration of Programs/Promotional Announcements.  Company agrees that except for occasional episodes of Content on the Block, the duration of the episodes within each half hour of programming on the Block shall be no less than twenty (20) minutes and thirty (30) seconds.  Company, to the extent consistent with all Federal Communications Commission (“FCC”) or other federal regulations, will have the right to use, for the purpose of promoting the Block, all the time in the Block that is available for national promotional use.  Company may only use such promotional time to promote viewership of the Content on The CW and associated websites, for public service announcements, and to publicize CW Programming-related contests, sweepstakes and promotions.  Company’s use of such
promotional time shall be subject to The CW’s then current broadcast standards and practices.

 

	
            5.
 	
            Division of National Commercial Proceeds / Quarterly Guarantee Installments
 

 

a.         Division of National Commercial Proceeds.  Except as provided herein, Company will pay to The CW an amount equal to 80% of the first $20,000,000 in “National Commercial Proceeds” (as defined below) during each Broadcast Year.  Company will be entitled to retain an amount equal to 20% of the first $20,000,000 in National Commercial Proceeds during each Broadcast Year as its commission for the sale of such National Commercial Time.  In the event that National Commercial Proceeds exceed $20,000,000 during any Broadcast Year, Company will pay to The CW an amount equal to 50% of National Commercial Proceeds in excess of $20,000,000 during any Broadcast Year and Company will be entitled to retain an amount equal to 50% of the National Commercial Proceeds in excess of $20,000,000
during any Broadcast Year as its commission for the sale of such National Commercial Time.

 

 

 

b.         National Commercial Proceeds.  “National Commercial Proceeds” means the amount earned by Company and/or its affiliated or related companies, agents, or entities, (“Company Affiliates”) from the sale of National Commercial Time during the Block, less only: (i) any and all commissions (capped at 15%) paid or allowed to advertising and/or media buying agencies purchasing such National Commercial Time for their own account or on behalf of advertisers, (ii) any uncollectible amounts with respect to the commercial units on the Block sold by Company and/or Company Affiliates, and (iii) any actual out-of-pocket auditable cash payments that Company and/or any Company Affiliate is contractually required to refund to advertisers due to ratings deficiencies.  For purposes of this
Term Sheet, amounts earned by Company and/or Company Affiliates shall mean the amounts billed by Company and/or Company Affiliates for the commercial units on the Block sold by Company and/or Company Affiliates less audience deficiency units.  If Company and/or any Company Affiliate uses a media buying/advertising agency to purchase any National Commercial Time on the Block, Company and/or Company Affiliates shall pay for such National Commercial Time in accordance with the rates negotiated and agreed to by Company and/or Company Affiliates and the media buying/advertising agency purchasing such National Commercial Time for Company and/or Company Affiliates, which rates are comparable to the rates Company and/or any Company Affiliate charges other clients of such media buying/advertising agency for the purchase of similar amounts of commercial time on the Block.  If there is no media buying/advertising agency acting on behalf of Company and Company Affiliates purchasing such National
Commercial Time on the Block at negotiated rates, then the rates for such National Commercial Time will be at the fair market value for such National Commercial Time.  Except as otherwise provided herein, Company and/or Company Affiliates will bear all responsibility for all costs incurred hereunder including but not limited to costs incurred in connection with the sale of all National Commercial Time.

 

c.         Quarterly Guarantee Payments.  Company will pay The CW a quarterly guarantee payable in installments set forth below with respect to each Broadcast Year during the Term. The quarterly guarantee installments shall be applied against The CW’s share of National Commercial Proceeds and The CW’s Merchandise Participation (as set forth below).  For purposes of this Term Sheet, the total of the four (4) quarterly guarantee installments to be paid to The CW as provided below for the Broadcast Year, shall be referred to as the "Total Guarantee."

 

$6,750,000 – quarterly guarantee for the period from the commencement of the Broadcast Year through December 31 of such Broadcast Year, which shall be paid no later than December 31 of such Broadcast Year;

 

$3,000,000 – quarterly guarantee for the period from January 1 of the Broadcast Year through  March 31 of such Broadcast Year, which shall be paid no later than March 31 of such Broadcast Year;

 

$2,700,000 – quarterly guarantee for the period from April 1 of the Broadcast Year through June 30 of such Broadcast Year, which shall be paid no later than June 30 of such Broadcast Year; and

 

 

 

$2,550,000 – quarterly guarantee for the period from July 1 of the Broadcast Year through the end of such Broadcast Year in the September, which amount shall be paid no later than the September 30 following the end of the Broadcast Year.

 

The parties acknowledge and agree that the foregoing quarterly guarantee installments may be reduced or eliminated in their entirety pursuant to the various adjustments provided for in Paragraphs 3, 5, 6 and 12 of this Term Sheet.  The parties further agree that if the revised Exhibit A delivered by The CW in accordance with Paragraph 3.a. above does not satisfy the Block Clearance requirements, ab initio, the quarterly guarantee payments for the upcoming Broadcast Year may be reduced or eliminated, as the case may be, as provided herein.

 

	
             
 	
            d.
 	
            Reports.
 

 

 (i)  Within sixty (60) days after the conclusion of each of the periods set forth in subparagraph (c) of this Paragraph, Company will furnish to The CW a statement of account listing the National Commercial Proceeds earned by Company during the applicable period.  Each such statement of account will in reasonable detail compute the amount due The CW for its share of said National Commercial Proceeds calculated as provided herein.

 

 (ii)  Within one hundred twenty (120) days after the end of each Broadcast Year during the Term, Company shall prepare a final accounting for the applicable Broadcast Year which shall set forth the National Commercial Proceeds received for such Broadcast Year, the amounts paid to The CW for such Broadcast Year whether in the form of quarterly guarantee installments or otherwise and the amount due The CW for such Broadcast Year.  Each party shall then make any payment necessary to the other party to “settle up” the accounting for such Broadcast Year so that the split of the National Commercial Proceeds between the parties for such Broadcast Year is as set forth in Paragraphs 3, 5, 6 and 12 hereof. 

 

For example, if Company has earned $20,000,000 in National Commercial Proceeds for the applicable Broadcast Year, the “settle up” accounting for such Broadcast Year shall compute The CW’s share of National Commercial Proceeds pursuant to Paragraph 5.a. ( 80% of $20,000,000 or $16,000,000).  Since the Total Guarantee of the four (4) quarterly guarantee installments paid to The CW pursuant to this Paragraph 5.d. equals $15,000,000, Company shall make a settle up payment of $1,000,000 to The CW.

 

For example, if Company has earned $15,000,000 in National Commercial Proceeds for the applicable Broadcast Year but the Block Clearance was only 85% instead of the required 90%, the “settle up” accounting for such Broadcast Year shall compute The CW’s share of National Commercial Proceeds pursuant to Paragraph 5.a. (80% of $15,000,000 or $12,000,000), the reduced Total Guarantee for such Broadcast Year based on the Block Clearance being less than 90% ($15,000,000 less $2,500,000 ($250,000 for each one half of 1% that the Block Clearance is below 90%) = $12,500,000).  Since The CW shall have received $15,000,000 in quarterly guarantee installments pursuant to Paragraph 5.d., The CW shall make a settle up payment of $2,500,000 to 4KAS.

 

 

 

 (iii)  No modification of the National Commercial Proceeds with regard to refunds, make-goods, or ratings short-falls will affect the quarterly guarantee payments.

 

e.         Audit.  Company will keep and maintain accurate records of the transactions underlying the statements of account furnished to The CW.  The CW will have the right to audit and make copies of the books and records of Company insofar as they relate to the National Commercial Proceeds.  Such audit will take place upon not less than ten (10) business days written notice during regular office hours and not more than once per Broadcast Year.  Such audit will be at the sole expense of The CW; provided, however that if such audit discloses a deficiency of 5% or more of the amount due to The CW for the period under audit,  Company will pay, in addition to the deficiency, the reasonable cost for such audit (including, without limitation, travel and related expenses).  This right to audit will not
be extinguished by the termination or expiration of this Term Sheet.

 

f.         Collections.  Company shall use reasonable commercial efforts to collect all National Commercial Proceeds due with respect to the sale of National Commercial Time during the Term; provided, however, that Company shall not be required to bring legal action against any advertiser, or any advertising or media buying agency to collect any National Commercial Proceeds that may be due.  In the event that Company is unable to collect any National Commercial Proceeds that are due, Company shall timely notify The CW in writing of the same by delivering an accounts receivable notice (“AR Notice”) to The CW.  The parties shall then discuss in good faith whether to pursue legal action against the party or parties from whom National Commercial Proceeds are due.  If the parties elect to
bring such legal action, the parties shall pay any legal expenses that may be incurred in collecting such National Commercial Proceeds in proportion to their percentage interests in the National Commercial Proceeds.  If within ten (10) business days of The CW’s receipt of the AR Notice and all relevant information, the parties do not agree to jointly bring a collection action, then either party may individually bring such collection action.  If one party elects to bring such legal action (“Litigating Party”) but the other party does not, the Litigating Party shall pay 100% of the costs and receive 100% of any recoveries.  The party not electing to bring the legal action (“Non-Litigating Party”) shall cooperate fully with the Litigating Party and shall execute such documents, provide such information, give such testimony and take such other actions as may be reasonably requested by the Litigating Party.  Should the Non-Litigating Party incur any out of pocket
expenses in connection with cooperating with the Litigating Party, the Litigating Party shall reimburse the Non-Litigating Party for such out-of-pocket expenses.  For the avoidance of doubt, any such recoveries (whether received by The CW or Company) net of out-of-pocket legal expenses incurred to collect the amount recovered from the advertiser or advertising or media buying agency, shall be deemed to be part of the National Commercial Proceeds received by The CW for purposes of determining whether the applicable Total Guarantee for the Broadcast Year has been paid to The CW.

 

	
            6.
 	
            Changes in Allowable Advertising
 

 

	
             
 	
            a.
 	
            Reduction in National Commercial Time.
 

 

 

 

 (i)  If any federal (including without limitation FCC) law, regulation or rule or any other federal action reduces or otherwise limits the commercial advertising that can be used in any or all Children’s Programming (as defined in Paragraph 9.a. below) below the current ten and one-half (10.5) minutes per hour and such law, regulation, rule or other federal action is applicable to the Block, then, notwithstanding anything to the contrary in this Term Sheet or otherwise, if the amount of National Commercial Time in the Block is reduced, the Total Guarantee for the Broadcast Year shall be reduced as set forth in this subparagraph 6 a.(ii) for each Broadcast Year during which such reduction is in effect.  Such reduction of the Total Guarantee for the Broadcast Year shall be measured from the effective date such federal limitation on the amount of commercial advertising in Children's
Programming is applicable to the Block.

 

 (ii)  If the National Commercial Time is reduced as stated above to nine (9) minutes, the Total Guarantee will be reduced to $13,500,000.  If the National Commercial Time is reduced to eight and one half (8.5) minutes, the Total Guarantee will be reduced to $12,000,000.  If the National Commercial Time is reduced to eight (8) minutes, the Total Guarantee will be reduced to $10,000,000.

 

 (iii)  Notwithstanding the foregoing, if the National Commercial Time is reduced as stated above to less than nine (9) minutes per hour, 4KAS shall have the right upon prior written notice, to the extent that the split of National Commercial Proceeds is 80%--20% in favor of The CW, to revise the split of National Commercial Proceeds to 65%--35% in favor of The CW (subject to Paragraph 6.c. below).

 

 (iv)  If the National Commercial Time is reduced as stated above to less than eight (8) minutes per hour, Company shall in addition to the rights set forth in this Paragraph have the termination right set forth in Paragraph 12.c. below.

 

	
             
 	
            b.
 	
            Limitation of Categories of Permitted Advertising.
 

 

 (i)  If any federal (including without limitation FCC) or state or other governmental law, regulation or rule or any industry action bans, reduces or otherwise limits the categories of permitted advertising that can be broadcast in any or all Children’s Programming (collectively “Children’s Ad Limits”), and the category or categories of advertising that are banned, reduced or otherwise limited constitute more than 10% but less than 20% of the National Commercial Proceeds earned from the Block during the preceding Broadcast Year, then the parties shall negotiate in good faith an equitable reduction of the applicable Total Guarantee for the Broadcast Year to take into account the financial detriment arising from the more limited categories of advertising that may be sold for broadcast in any Children’s Programming. Such equitable reduction of the applicable Total
Guarantee for the Broadcast Year shall become effective as of the date that such Children’s Ad Limits go into effect.

 

 (ii)  Notwithstanding the foregoing, if any Children’s Ad Limit bans, reduces or otherwise limits the categories of permitted advertising that can be broadcast in any or all Children’s Programming and the category or categories of advertising that are banned, reduced or otherwise 

 

 

limited constitute more than 20% of the National Commercial Proceeds earned from the Block  during the preceding Broadcast Year, Company shall have the right, exercisable in writing, to the extent that the split of National Commercial Proceeds is 80%--20% in favor of The CW, to revise the split of National Commercial Proceeds to 65%--35% in favor of The CW (subject to Paragraph 6.c. below).

 

 (iii)  If the advertising on the Block within the category or categories of advertising that are banned, reduced, or otherwise limited by such Children’s Ad Limits exceeds 20% of the National Commercial Proceeds earned from the Block during the preceding Broadcast Year, the Total Guarantee will be reduced by one tenth of the difference between the amount of the Total Guarantee and $10,000,000 for each percentage point that the category or categories of advertising that are banned, reduced, or otherwise limited exceeds 20% of the National Commercial Proceeds earned from the Block sold during the preceding Broadcast Year.

 

For example, if the category or categories of advertising that are banned, reduced, or otherwise limited constitute 25% of the National Commercial Proceeds earned from  the Block during the preceding Broadcast Year and the Total Guarantee is $14,000,000, the Total Guarantee will be reduced by one tenth of the difference between the amount of the Total Guarantee and $10,000,000 (i.e., $4,000,000 divided by 10 = $400,000 for each of the five (5) percentage points that the category or categories of advertising that are banned, reduced, or otherwise limited exceeds 20% of the advertising on the Block sold during the preceding Broadcast Year resulting in a reduction of $2,000,000 in the Total Guarantee to $13,000,000.

 

 (iv)  If the category or categories of advertising that are banned, reduced or otherwise limited constitute more than 30% of the National Commercial Proceeds earned from  the Block  during the preceding Broadcast Year, Company shall in addition to the rights set forth in this Paragraph have the termination right set forth in Paragraph 12.c. below.

 

 (v)  In the event that any Children’s Ad Limits go into effect between the date hereof and the end of the 2008/2009 Broadcast Year, the parties agree that neither the Total Guarantee of $15,000,000 applicable to the 2008/2009 Broadcast Year nor the 80%-20% split of National Commercial Proceeds in favor of The CW applicable to the 2008/2009 Broadcast Year shall be changed as a result of such Children’s Ad Limits.  If the Children’s Ad Limits remain in effect as of the beginning of the 2009/2010 Broadcast Year, the parties agree that the Total Guarantee applicable to the 2009/2010 Broadcast Year and the split of National Commercial Proceeds for the 2009/2010 Broadcast Year may be adjusted pursuant to Paragraph 6.b. above by measuring the reduction in National Commercial Proceeds earned from the Block in the 2009/2010 Broadcast Year against the National Commercial Proceeds
earned from advertising sold on the Block by The CW for the 2007/2008 Broadcast Year.  In addition, the parties agree that for purposes of the application of the financial detriment test in Paragraph 6.c. below, the Initial Impacted Year shall be the 2009/2010 Broadcast Year and the Measuring Broadcast Year shall be The CW’s 2007/2008 Broadcast Year.Upon written request from Company, The CW shall provide Company with a schedule listing the National Commercial Proceeds earned from advertising sold on the Block by The CW for the 2007/2008 Broadcast Year.

 

 

 

For example: If, as of July 1, 2008, fast food advertising is banned from Children’s Programming and such fast food advertising constituted 25% of the National Commercial Proceeds earned by The CW from the Block in the 2007/2008 Broadcast Year, the Total Guarantee and split of National Commercial Proceeds for the 2008-2009 Broadcast Year shall not be affected by the Children’s Ad Limits.  However, if the Children’s Ad Limits remain in effect for the 2009/2010 Broadcast Season, then subject to Paragraph 6.c., the Total Guarantee of $15,000,000 for 2009/2010 shall be reduced pursuant to Paragraph 6.b.(iii) as a result of the Children’s Ad Limits. Such reduction shall be computed by calculating  one tenth of the difference between $15,000,000 and $10,000,000 = $500,000 multiplied by 5 (the difference between 25% and 20%) to yield a reduction in the Total Guarantee of $2,500,000. In
addition, subject to Paragraph 6.c, the split of National Commercial Proceeds shall likewise be reduced pursuant to Paragraph 6.b.(ii) to 65%-35% in favor of The CW.

 

c.         Financial Impact of Changes.  The parties acknowledge that the elimination of the Total Guarantee and the revision of the split of National Commercial Proceeds to 65%--35% in favor of The CW provided for in Paragraphs 3 and 6 is predicated upon the reduction in the number of minutes of commercial time per hour and/or the limits in any category or categories of available advertising on Children's Programming having an adverse financial impact on the aggregate amount of National Commercial Proceeds earned during such Broadcast Year.  As part of the statement of account to be rendered by Company to The CW pursuant to Paragraph 5.d.(ii) above, Company shall also include a line item listing the aggregate amount of National Commercial Proceeds (“Aggregate Proceeds”) earned during the
Broadcast Year  in which either the reduction in the number of minutes of commercial time per hour and/or the limits in any category or categories of available advertising on Children's Programming went into effect (“Initial Impacted Year”) as compared with the Aggregate Proceeds earned from the Block during the immediately preceding Broadcast Year (“Measuring Broadcast Year”).  If the Aggregate Proceeds earned during the Initial Impacted Year is equal to or more than the Aggregate Proceeds earned from the Block during the Measuring Broadcast Year, then notwithstanding anything herein to the contrary, the split of National Commercial Proceeds shall remain 80%--20% in favor of The CW and any reduction in the Total Guarantee resulting from the application Paragraphs 6.a.(ii) and/or 6.b.(iii) above shall be restored.

 

d.         Effective Date.  If the reduction in the amount of commercial time on Children's Programming and/or the reduction in permitted categories of available advertising on Children's Programming does not take effect at the beginning of the Initial Impacted Year, then the reduction in the split of National Commercial Proceeds applicable to the Broadcast Year immediately succeeding the Initial Impacted Year (“Next Broadcast Year”) shall be calculated by comparing the Aggregate Proceeds earned from the Block for the Next Broadcast Year to the Aggregate Proceeds earned from the Block for the Measuring Broadcast Year.  The parties shall then apply the split in National Commercial Proceeds arrived at pursuant to this Paragraph 6 to the National Commercial Proceeds earned with respect to
the Next Broadcast Year.

 

If, for example, the effective date of the reductions is in March, 2010, the Initial Impacted Year is the 2009/2010 Broadcast Year, the Measuring Broadcast Year is the 2008/2009 Broadcast Year, and the Next Broadcast Year is the 2010-2011 Broadcast Year.

 

 

 

e.         Restoration.  For the avoidance of doubt, in the event that there has been an reduction or elimination of the Total Guarantee and/or a change in the split of National Commercial Proceeds as provided in herein, the reduction or elimination of the Total Guarantee and/or change in the split of National Commercial Proceeds shall carry over to the succeeding Broadcast Year(s) of the Term unless as of the beginning of the applicable Broadcast Year, the reductions in (i) the Block Clearance Requirements, (ii) the amount of commercial time on Children's Programming, and/or (iii) the permitted categories of available advertising on Children's Programming which precipitated the reduction or elimination of the Total Guarantee and/or change in the split of National Commercial Proceeds have been
remedied so as to equal or exceed the original benchmarks set forth in Paragraphs 3 and 4 above for items (i)-(iii) above.

 

	
            7.
 	
            Launch of the Block on The CW
 

 

a.         Transitional Promotions.  During July and August 2008, The CW will use promotional time during the Block to promote the Content for the 2008/2009 Broadcast Year at comparable levels to the July and August promotions on The CW for the Block for the 2007/2008 Broadcast Year.  Company will produce and supply the promotional spots to The CW at Company’s sole cost and expense.  During July and August of the final Broadcast Year of the Term, Company will use promotional time during the Block to promote the new programming for the following Broadcast Year at comparable levels to the July and August promotions on the Block for the final Broadcast Year.  The CW will produce and supply the promotional spots to Company at The CW’s sole cost and expense.

 

b.         Launch Program.  For each Broadcast Year, at Company’s election, Company may produce at its cost a one half-hour program promoting the Content for that Broadcast Year (“Launch Program”).  Assuming timely delivery and sufficient notice of Company’s intent to produce, The CW will exhibit each Launch Program on The CW without cost to Company during the first week of September preceding the applicable Broadcast Year, at a precise date and at such specific time (other than during the Block) to be selected by The CW in consultation with the Company after taking into account the audience profile desired by Company.  It is contemplated that such Launch Program shall be broadcast on The CW on Sunday between the hours of 5 p.m. and 7 p.m. or between 3 p.m. and 5 p.m. on a
weekday during the first week of September.  Each Launch Program, if any, shall be produced and delivered by Company pursuant to The CW’s then-current delivery requirements for half-hour prime time programs.  Company shall sell the National Commercial Time in the Launch Program with the precise amount of such National Commercial Time in such Launch Program being determined based on (i) the agreement in place between The CW and its affiliates applicable to the division of commercial time for the time period when the Launch Program is broadcast and (ii) whether the Launch Program constitutes Children’s Programming.  The National Commercial Proceeds shall be divided 80% to The CW and 20% to the Company.  The CW’s share of Launch Program National Commercial Time will be accounted for and paid to The CW expeditiously and will not be subject to being withheld against the Total Guarantee.

 

 

 

c.         Promotional Spots.  The CW will allocate to Company a total of thirty seconds per week in prime-time and a total of one and one half minutes per week during the weekly Monday-Friday 3 p.m.–5 p.m. time period on The CW to promote the Content and the Block.  Such promotional time will be broadcast in splits and at times to be selected by The CW in consultation with the Company and taking into account the audience profile desired by Company.  The CW will coordinate with Company with respect to which particular promotional spots should run in each time period designated by The CW for Company’s promotional spots.  Company will produce and supply the promotional spots to The CW, at Company’s sole cost and expense.

 

	
            8.
 	
            CW Services
 

 

a.         Content/Integration.  Company will provide the Content to The CW, at Company’s sole cost and expense.  All Content will be delivered to The CW in accordance with The CW’s standard delivery requirements (as they may change from time to time).  Company will deliver all Content at least forty-eight (48) hours prior to any CW satellite transmission of the Content to affiliates.  Company will also supply, in advance, a weekly master schedule (in the form attached hereto) to The CW with detailed integration instructions.  Subject to timely delivery of elements, The CW will provide, at its sole cost and expense, all commercial integration services for the Block.  The CW will comply with the weekly master schedule to create the integrated programming on the Block each week during the
Term.  The CW, at its sole cost and expense, will provide to Company all technical services necessary to uplink and transmit to The CW ’s affiliates all Content in the Block that is timely delivered by Company to The CW.  The CW will also library for a period of five years from delivery all Company masters and Content elements necessary to create the Block.

 

b.         Broadcast Standards and Practices (“BS&P”).  The CW will timely provide Company with a delivery schedule for all elements of the Block and all elements of all programming in the Block consistent with the schedule and procedures now in place at The CW for its own program schedule.  Company will follow said schedule, which obligation is of the essence to this Term Sheet. The CW will review all Content to make certain that such content complies with The CW’s then current broadcast standards and practices as well as all applicable laws and regulations, including, without limitation, the Children's Television Act (“CTA”), as amended, and the regulations promulgated pursuant to the CTA.

 

c.         Additional Services.  During the Term, The CW shall supply Company with a billing system and television ratings in accordance with the terms of an agreement to be negotiated by the parties.

 

	
            9.
 	
            Program Approvals and Consultations
 

 

	
             
 	
            a.
 	
            Children’s Programming.
 

 

 (i)  Except as may be otherwise agreed by the parties, the programming provided by Company must be Children’s Programming (as defined below) and all Content must be provided in accordance with FCC standards for Children’s Programming as set forth in more detail in this 

 

 

Paragraph.  “Children’s Programming” means programming with a target audience of children ages 12 and under.  All programming provided hereunder must be first rate, network quality programming and will be exclusive to The CW for broadcast television during each such Broadcast Year.  The CW shall have final approval, not to be unreasonably withheld, over the selection of each series to be broadcast on the Block during the Term; provided, however, that any series broadcast on 4Kids TV on the “Fox Block” (as defined below) during the 2007/2008 Broadcast Year (including episodes from prior seasons of such series) shall be deemed approved by The CW for broadcast on the Block during the Term.  The approval mechanism, including the procedure for dealing with any dispute, will be negotiated in good faith.  The parties acknowledge and agree that there will be a substantial amount of
“first run” Children’s Programming broadcast on the Block during peak periods of advertising demand such as the “hard eight” and pre-Easter.  The parties acknowledge and agree that Company shall be broadcasting reruns of Content and may be broadcasting programs from Company’s library that have not been broadcast on 4Kids TV on the Fox Block during the 2007/2008 Broadcast Year (“Company Library Programming”) on the Block in accordance with customary scheduling practices for Children’s Programming. Company shall consult with The CW with respect to the scheduling of Company Library Programming on the Block.  The CW shall have the right to approve or disapprove Company Library Programming broadcast on the Block during the Term, such approval not to be unreasonably withheld or delayed.

 

 (ii)  2008/2009 Broadcast Year.  Company has advised The CW that Fox Broadcasting Corporation ("Fox") has exercised its option to require Company for the 2008/2009 Broadcast Year to program and sell national commercial inventory on the four-hour block of children's programming telecast principally on Saturday mornings on Fox (“Fox Block”) for the 2008/2009 Broadcast Year.  Company agrees that during the 2008/2009 Broadcast Year, Company shall not broadcast on The CW any of the same series that Company is broadcasting on the Fox Block during the 2008/2009 Broadcast Year.  Beginning in the 2009/2010 Broadcast Year, Company shall not provide any other over the air television broadcaster with a 4Kids-branded linear block of Children's Programming unless Company has received the approval of The CW, such approval not to be unreasonably
withheld or delayed.

 

b.         Stripping.  Notwithstanding anything herein to the contrary, Company will have the right to license any series of Children’s Programming debuting on the Block to any cable or satellite programming service, provided that no episodes of any series of Children’s Programming debuting on the Block may be licensed before the earlier of (i) the transmission by The CW of twenty-six (26) episodes of such series debuting on the Block, or (ii) six (6) months after the debut of such series on the Block.  Any such license of any series of Children’s Programming debuting on the Block shall provide that no episodes of such series may be transmitted between midnight Friday and noon Sunday.  For the avoidance of doubt, the foregoing limitations on stripping shall not apply to any series of
Children’s Programming that is broadcast on the Block during the Term but that did not debut on the Block.  Company shall consult in good faith with The CW with respect to the stripping of any series of Children’s Programming on the Block on any cable or satellite programming service, which stripping is scheduled to begin prior to the end of the Broadcast Year in which the first episodes of such series debuted on the Block.

 

 

 

c.         Other Programming.  Company shall have the right to suggest Content for the Block that is not Children’s Programming, including without limitation “specials” and teen programming (collectively “Other Programming”).  The CW will consider in good faith such Other Programming suggested by Company.  Any such Other Programming shall be subject to the prior written approval of The CW.  If The CW approves such Other Programming for the Block, the commercial inventory split for such Other Programming shall be as set forth in Paragraph 4.a. above and the split of national Commercial Proceeds from such Other Programming shall be as set forth herein in Paragraph 4.a. above.

 

d.         E/I Programming.  In the event that three (3) hours of educational or informational programming (“Core Programs”) are required by the CTA or one (1) hour is required by The CW’s agreements with its affiliates, Company will include in the Block at least one (1) hour of programming that qualifies as “Core Programs” per week throughout each Broadcast Year.  The Core Programs shall be of first-class network quality, with production values consistent with other Core Programs exhibited on The CW in the 2007/2008 Broadcast Year.  The CW has an existing procedure set in place with regard to the certification of the educational/informational programming that will appear on The CW and Company agrees to utilize that procedure, about which Company will be fully informed and
advised.  Company shall use reasonable commercial efforts to cause up to an additional one half-hour of Children’s Programming to be broadcast on the Block to qualify as Core Programs, it being agreed and understood that Company’s inability to qualify such additional one half-hour of Children’s Programming to be broadcast on the Block to qualify as Core Programs shall not constitute a breach of this Term Sheet.  Should Company and The CW be unable to reach agreement on the certification of any specific programming as E/I, the series listed in Exhibit “B” attached hereto are deemed approved by the parties as E/I.

 

e.         Consultant.  The CW will, in consultation with Company, have the right to engage an executive to monitor and approve programming elements.  Such engagement will commence at the start of the 2008/2009 season.  All salary connected with the engagement of the executive chosen hereunder will be split 50/50 between The CW and Company, up to a maximum contribution by Company of $50,000 per Broadcast Year, payable quarterly.  The CW shall provide Company with a copy of any agreement or other documentation setting forth the salary payable to such executive charged with monitoring or approving programming elements for the Block.  The CW shall also invoice Company quarterly for the portion of the Company’s share of the salary due for services rendered by such executive during the previous quarter.

 

f.         Block Name.  The name(s) of the Block and all marks to be used in connection therewith are subject to consultation with The CW and The CW’s prior approval, which will be made in a timely fashion.  Without limitation to the foregoing, The CW will have the right to include a presentation credit within the name of the Block in such size, style of type, color, placement and form as The CW elects from time to time, in its sole discretion.  The name “Kids’ WB!” and all marks and indicia thereof will not be used in any form.  Following the end of the Term, the right to the name “The CW” and all marks and indicia thereof will revert to The CW and Company will have no rights thereto.  The CW hereby approves including “4Kids TV” in the name of the Block.

 

 

 

g.         BS&P Approval Rights.  All Content will conform to The CW’s broadcast standards and practices and will comply with all applicable laws and regulations.  The CW will have the right to approve all Content in the Block with respect to The CW’s clearance policies relating to promotion and advertising and to The CW’s other operating policies (as The CW may change any of the foregoing from time to time) (“The CW’s BS&P Approval Rights”).  If The CW disapproves of any portion of any Content with respect to any of the above-listed matters, then Company will edit the applicable Content segments or submit substitute Content until such time as The CW has approved Content sufficient to fill the entire Block.  All
decisions of the CW’s BS&P department may be unilaterally executed by The CW if required by time exigencies.  Subject to the foregoing CW BS&P Approval Rights and the terms and conditions set forth herein, Company shall have the exclusive right to program the Block (including, without limitation, all Content and scheduling, and the selection and scheduling of promotional announcements, contests, sweepstakes and promotions), and to produce a Launch Program for each Broadcast Year.  Subject to The CW’s BS&P Approval Rights, 4KAS shall have the right to sell the National Commercial Time in the Block.

 

h.         Legal Compliance.  Company represents and warrants that during the Term, all Company and third-party Content-related websites, and all activities related thereto (including without limitation, the promotional and advertising content, promotions and sweepstakes) shall be in compliance with the CTA, the Children’s On-line Privacy Protection Act (“COPPA”) and all other applicable laws and governmental rules and regulations.

 

	
            10.
 	
            CW Legacy Programming
 

 

Within thirty (30) days after signature of this Term Sheet, The CW will provide to Company a summary of the terms and conditions of its agreements with respect to (i) television series (other than television series produced by Warner Bros. Animation) that The CW intends to broadcast in the Block during the 2007/2008 Broadcast Year to which The CW will have rights during the Term, and (ii) television series that The CW is developing for the 2008/2009 Broadcast Year (collectively "CW Series").  The CW hereby grants to the Company the right to include CW Series in the Block in accordance with the terms and conditions of its license agreements.  No CW Series produced by Warner Bros. Animation will be included in this grant of rights.  In the event that The CW has already paid a license fee with respect to such CW Series and The CW license fee permits additional broadcasts of such CW Series
during the Term, The CW will make such CW Series available to Company free of charge.  In the event that The CW is required to pay an additional license fee for the right to broadcast such CW Series in the Block during the Term, The CW will so notify Company in writing of the same (including the amount of such fee and the number of runs).  Company will have the right to require The CW to pay such additional license fee for the right to broadcast such CW series in the Block by notifying The CW in writing of the same.  In such event, Company will pay, or reimburse The CW, for the cost of the license of rights to such CW Series.  If The CW has the option to order additional episodes of any CW Series or the option to extend the term of the license to The CW of the rights to such CW Series, The CW will advise Company in writing of the same.  Company will have the right to require The CW to exercise its option to order such additional episodes or extend the term of license by notifying The
CW in writing of the same.  In such event, 

 

 

The CW will exercise its option and Company will promptly pay, or reimburse, The CW, for the cost of such additional episodes or the extension of the term of license with respect to such CW Series.

 

	
            11.
 	
            Merchandising Participation
 

 

a.         CW Merchandising Participation.  Company will pay The CW a percentage of Company’s share of the advances, royalties, and minimum guarantees received by Company from the exploitation in the Territory of U.S. merchandising rights to the Content broadcast for no less than thirteen (13) weeks on the Block during any Broadcast Year (“Broadcast Year Royalties”), as follows:

 

	
            Company’s Share of Broadcast Year Royalties
 	
            CW percentage of Company’s Share of Broadcast Year Royalties 
 
	
            $0 - $16,000,000
 	
            0%
 
	
            $16,000,001 - $25,000,000
 	
            5%
 
	
            $25,000,001-$50,000,000
 	
            10%
 
	
            $50,000,001 - 
 	
            15%
 

 

For purposes of this Term Sheet, Broadcast Year Royalties shall include 5% of the amount of net advertising revenues (net of agency’s commissions) earned by Company and/or affiliates (net of participations payable by Company or affiliates to unaffiliated third parties, including, without limitation, licensors or grantors to Company of various rights to the Content broadcast on the Block) from Internet sites specifically dedicated to the Content broadcast on the Block during any Broadcast Year or from those portions of general internet sites (e.g., www.4Kids.TV) specifically dedicated to Content broadcast on  the Block during any Broadcast Year; provided, however, that the foregoing shall not apply to net advertising revenues from websites devoted to multiplayer game play such as www.chaoticgame.com (the website where users can
play the Chaotic trading card game online).  For purposes of this Term Sheet, the term "merchandising rights" shall mean any product upon which any copyright or trademark contained in any series broadcast on the Block may be used or affixed, including, but not limited to: all items of wearing apparel, hats, shirts, jackets, shoes, toys, games, board games, toy figurines, stationery, “back-to-school” products, back packs, lunch boxes, portfolios, pendants, banners, confectionary items, video games, hand-held video games, computer games, cellular phone wallpaper and ring tones, published materials and premiums and promotional items.  For the avoidance of doubt, the term "merchandising rights" does not include motion picture rights, television rights, home-video rights, Internet rights (except as provided above) or cell phone rights (other than ring tones and wallpaper) to the series in any and all formats, including, without
limitation, video on demand, Internet streaming of Content to personal computers or cell phones, whether now known or hereafter invented.  The parties acknowledge that "merchandising rights” subject to this Term Sheet are limited to such "merchandising rights" actually represented by Company as merchandise licensing agent or controlled by Company as licensor for, and/or licensee of, any series broadcast on the Block.

 

Any amounts due the CW pursuant to this Paragraph 11.a. shall be reduced by any CW Series 

 

 

Royalties (net of participations payable by The CW or affiliates to unaffiliated third parties) as is provided below in Paragraph 11.b.  For purposes of this Paragraph 11 only, the Broadcast Year shall be deemed to start on October 1 of the applicable Broadcast Year and to conclude on the following September 30.  For the avoidance of doubt, Company’s share of Broadcast Year Royalties shall be net of participations payable by Company or affiliates to unaffiliated third parties, including, without limitation, licensors or grantors to Company of various rights to the Series broadcast on the Block.  The Company’s share of Broadcast Year Royalties shall be calculated for each Broadcast Year and not on a cumulative basis.  The CW’s percentage of Company’s share of Broadcast Year Royalties shall be computed based on the amounts that fall within the range of Company’s share of Broadcast
Year Royalties set forth in the above table.  For example, if in a Broadcast Year, Company’s share of Broadcast Year Royalties totals $30 million, The CW shall receive 0% of the first $16 million, 5% of $16,000,001-$25,000,000 of Company’s share of Broadcast Year Royalties or $450,000 and 10% of Company’s share of Broadcast Year Royalties between $25,000,001 and $30 million or $500,000.

 

b.         CW Series Royalties.  If Company broadcasts any CW Series on the Block, and by virtue of Company’s broadcast of such CW Series on the Block, The CW receives any merchandise or other royalties from the CW Series with respect to such Broadcast Year (“CW Series Royalties”), the amount of such CW Series Royalties (net of participations payable by The CW or affiliates to unaffiliated third parties) will be deducted from any payments due from Company to The CW pursuant to this Paragraph 11 with respect to the corresponding Broadcast Year.

 

c.         Company Series.  Notwithstanding anything herein to the contrary, Company’s Royalties from series previously broadcast by Company on 4Kids TV on Fox will be considered Company’s Broadcast Year Royalties hereunder only to the extent such Company Royalties during any Broadcast Year during the Term exceed a baseline of Company’s Royalties from such series during the last Broadcast Year that such series has been broadcast by Company on 4Kids TV on Fox.

 

d.         Related Party Transactions.  If Company is acting as both a licensor and a manufacturer/owner of the product or service, then an imputed royalty will be recognized for purposes of determining The CW’s participation.  The imputed royalty will be the Company’s share of the customary royalty for a similar product for a similar property.  Company will give prior notice to The CW of all such arrangements.

 

e.         Total Guarantee Shortfall.  Notwithstanding anything herein to the contrary, in the event that the Total Guarantee received by The CW with respect to any Broadcast Year during the Term exceeds the amount payable to The CW pursuant to Paragraph 5.a. above (“Total Guarantee Shortfall”), then any amounts payable by Company to The CW in respect of The CW's merchandising participation for that Broadcast Year pursuant to this Paragraph 11 will be reduced by the amount of such Total Guarantee Shortfall.  

 

For example, if Company earns National Commercial Proceeds of $18,000,000 with respect to a Broadcast Year, Company has paid a Total Guarantee of $15,000,000 to The CW and Company’s share of Broadcast Year Royalties is $20,000,000, then the Total Guarantee of  $15,000,000  paid  to The CW will have exceeded the amount payable to The CW pursuant to Paragraph 5.a. ($18,000,000 

 

 

multiplied by 80%= $14,400,000) by $600,000 thus yielding a Total Guarantee Shortfall. The CW’s merchandising participation for that Broadcast Year pursuant to this Paragraph 11 would ordinarily be 5% of $4,000,000 or $200,000. However, since there is a Total Guarantee Shortfall of $600,000, the amount payable to The CW as its merchandising participation for such Broadcast Year shall be reduced by the Total Guarantee Shortfall of $600,000.  Thus, in such Broadcast Year, The CW shall not receive any payment of any portion of Company’s share of Broadcast Year Royalties.

 

f.         Company Statements/Audit.  Company shall render a statement of account to The CW with respect to such Company share of Broadcast Year Royalties within ninety (90) days following the end of the applicable Broadcast Year.  Company will keep and maintain accurate records of the transactions underlying the statements of account furnished to The CW.  The CW will have the right to audit and make copies of the books and records of Company insofar as they relate to this Paragraph.  Such audit will take place upon not less than ten (10) business days written notice during regular office hours and not more than once per broadcast year.  Such audit will be at the sole expense of The CW; provided, however that if such audit will disclose a deficiency of 5% or more of the amount due to The CW for the
period under audit, Company will pay, in addition to the deficiency, the reasonable cost for such audit (including, without limitation, travel and related expenses).  This right to audit will not be extinguished by the termination or expiration of this Term Sheet.

 

g.         The CW Statements/Audit.  The CW shall render a statement of account to Company with respect to such CW Series Royalties within ninety (90) days following the end of the applicable Broadcast Year.  The CW will keep and maintain accurate records of the transactions underlying the statements of account furnished to Company with respect to CW Series Royalties.  Company will have the right to audit and make copies of the books and records of The CW insofar as they relate to this Paragraph.  Such audit will take place upon not less than ten (10) business days written notice during regular office hours and not more than once per broadcast year.  Such audit will be at the sole expense of Company; provided however, that if such audit discloses a deficiency of 5% or more of the amount to be
credited to Company for the period under audit, The CW will pay, in addition to the deficiency, the reasonable cost for such audit (including, without limitation, travel and related expenses).  This right to audit will not be extinguished by the termination or expiration of this Term Sheet.

 

h.         Merchandising Settle Up.  Within one hundred twenty (120) days following the end of the applicable Broadcast Year, Company shall make payment to The CW for any amounts due The CW pursuant to this Paragraph 11 after giving effect to any adjustments that may be required pursuant to Paragraphs 11.b. and 11.e. above.

 

	
            12.
 	
            Termination.
 

 

a.         Insolvency.  Upon one month's notice and to the extent permitted by law, either Company or The CW may terminate this Term Sheet if a petition in bankruptcy is filed by or on behalf of the other or if the other otherwise takes advantage of any insolvency law, or an involuntary petition in bankruptcy is filed against the other and not dismissed within thirty (30) days thereafter, 

 

 

or if a receiver or trustee of any of the other’s property is appointed at any time and such appointment is not vacated within thirty (30) days thereafter.

 

b.         Material Breach.  In the event that a party (the “Non-breaching Party”) believes that the other party (the “Breaching Party”) is in breach of any of the material terms and conditions of this Term Sheet, then the Non-breaching Party shall give notice to the Breaching Party of the particulars of the alleged breach. The Breaching Party shall have a period of fifteen (15) business days after receipt of the notice to cure the breach.  In the event that the breach is not cured within such fifteen (15) business day period, then the Non-breaching Party may institute the following dispute resolution procedures:

 

 (i)  Within five (5) business days following the end of the fifteen (15) business day cure period, each of Company and The CW shall each designate up to three senior executives (collectively referred to as “Senior Executives”) to meet in person, or telephonically, to attempt to negotiate a resolution of the breach.  If after fifteen (15) business days of negotiation, the Senior Executives fail to resolve the issue concerning the breach, then within five (5) business days, the issue will be submitted for Mediation administered by JAMS under its Commercial Mediation Procedures.  In the event that the issue is not resolved by Mediation, then the issue will be submitted within five (5) business days to final and binding arbitration.  The arbitration shall be initiated and conducted according to either the JAMS Streamlined (for claims under $250,000) or the JAMS Comprehensive (for
claims over $250,000) Arbitration Rules and Procedures, except as modified herein, including the Optional Appeal Procedure.  If Company is the Breaching Party, the arbitration shall take place at the Los Angeles office of JAMS, or its successor in effect at the time the request for arbitration is made.  If The CW is the Breaching Party, the arbitration shall take place at the New York office of JAMS in effect at the time the request for arbitration is made (the “Arbitration Rules”).  The arbitration shall be conducted in the venue determined as provided above before a single neutral arbitrator appointed in accordance with the Arbitration Rules.  The Arbitrator shall follow state law of the venue in which the arbitration is taking place of (" Arbitration Venue") and the Federal Rules of Evidence in adjudicating the Dispute.  The parties waive the right to seek punitive damages and the arbitrator shall have no authority to award such damages.  The arbitrator will provide a
detailed written statement of decision, which will be part of the arbitration award and admissible in any judicial proceeding to confirm, correct or vacate the award.  Unless agreed otherwise, the neutral arbitrator and the members of any appeal panel shall be former or retired judges or justices of any state or federal court with experience in matters involving the entertainment industry.

 

 (ii)  If any party refuses to perform any or all of its obligations under the final arbitration award (following appeal, if applicable) within thirty (30) days of such award being rendered, then the other parties may enforce the final award in any court of competent jurisdiction in the Arbitration Venue .  The party or parties seeking enforcement shall be entitled to an award of all costs, fees and expenses, including reasonable outside attorneys’ fees, incurred in enforcing the award, to be paid by the party against whom enforcement is ordered.  In the event that termination of the Term Sheet ordered as a result of the expedited commercial arbitration, then such termination may only take place effective at the end of the Broadcast Year. 

 

 

 

	
             
 	
            c.
 	
            Change in Advertising Regulations.
 

 

 (i)  If any federal (including without limitation FCC) law, regulation or rule or any other federal action reduces or otherwise limits the amount of commercial advertising that can be sold in any or all Children’s Programming such that after the pro-rata reduction of the total commercial time provided for in Paragraph 6.a. above, the National Commercial Time is less than eight (8) minutes per hour, then in addition to the rights and remedies that Company has pursuant to Paragraph 6.a. above, Company shall also have the right to terminate this Term Sheet by delivering a written notice of termination to the CW.  Such notice of termination shall be effective as of the date set forth therein; provided, however, that the effective date of any termination may not be earlier than the effective date of the change in advertising regulations and may not be earlier than the end of the then
applicable Broadcast Year.

 

 (ii)  If any Children’s Ad Limit bans, reduces or otherwise limits the categories of permitted advertising that can be broadcast in any or all Children’s Programming, and the category or categories of advertising that are banned, reduced or otherwise limited constitute more than 30% of the National Commercial Proceeds earned from the Block during the preceding Broadcast Year, then in addition to the rights and remedies that Company has pursuant to Paragraph 6.b. above, Company shall also have the right to terminate this Term Sheet by delivering a written notice of termination to The CW .  Such notice of termination shall be effective as of the date set forth therein; provided, however, that the effective date of any termination may not be earlier than the effective date of the change in advertising regulations and may not be earlier than the end of the then applicable Broadcast Year.

 

d.         CW Termination Right.  If after any reduction or elimination of the Total Guarantee or the split of National Commercial Proceeds hereunder and the share of National Commercial Proceeds paid by Company to The CW is less than $10,000,000 in any Broadcast Year, The CW will have the right to terminate this Term Sheet by delivering a written notice of termination to Company.  Such notice of termination shall be effective as of the date set forth therein; provided, however, that the effective date of any termination may not be earlier than the effective date of the change in advertising regulations and may not be earlier than the end of the then applicable Broadcast Year. Notwithstanding the foregoing, if The CW exercises it right of termination pursuant to this Paragraph 12 d., Company shall
have ten (10) business days within which to pay The CW the difference between $10,000,000 and the share of National Commercial Proceeds paid by Company to The CW with respect to such Broadcast Year (“Makeup Payment”).  If Company pays The CW the Makeup Payment within said ten (10) business days period, The CW’s notice of termination shall be null and void and this Term Sheet shall continue in full force and effect.

 

e.         Financial Impact of Changes.  The parties acknowledge that the termination of this Agreement by Company pursuant to Paragraph 12.c. above is predicated upon the reduction in the number of minutes of commercial time per hour and/or the limits in any category or categories of available advertising on Children's Programming having an adverse financial impact on the aggregate amount of National Commercial Proceeds earned during such Broadcast Year.  The 

 

 

parties, therefore, agree that if in any Broadcast Year in which Company would have a right of termination pursuant to Paragraph 12.c., the Aggregate Proceeds earned during the Initial Impacted Year are not materially less than the Aggregate Proceeds earned from the Block during the Measuring Broadcast Year, then notwithstanding anything herein to the contrary, Company shall not have the right to terminate this Term Sheet. 

 

f.         Effect of Termination.  In the event that either party exercises its right of termination pursuant to this Paragraph 12 and The CW notifies Company in writing that The CW wishes to continue to broadcast Children's Programming from the effective date of termination for one (1) or more Broadcast Years through the end of the Term, then Company and The CW shall negotiate in good faith the terms and conditions pursuant to which Company shall provide Content and/or advertising sales services for the Block for at least one (1) additional Broadcast Year after the effective date of termination of this Term Sheet.

 

	
            13.
 	
            Representations and Warranties
 

 

a.         Company’s Representations and Warranties.  In addition to the representations and warranties of Company set forth herein, Company further represents and warrants that:

 

(i)  Company has the full right and authority to enter into this Term Sheet, to provide the Content to The CW and to otherwise completely perform under this Term Sheet.   Company is not aware of any existing, potential, or threatened claims or litigation which could affect or impair the right of Company to provide the Content to The CW or to fully exploit all rights to the Content as permitted hereunder or for Company to sell the National Commercial Time on the Block during the Term.

 

(ii)  Company controls all rights of any nature whatsoever that are or may be necessary for Company to permit The CW to exercise all rights granted hereunder, and to allow The CW to transmit or otherwise exhibit, market, exploit, and promote the Block.  In this regard, the Content is either original with Company, or Company has licensed or otherwise acquired all rights (including without limitation any copyrights, trademarks and/or other intellectual property rights) that are or may be necessary for the grant of the license to The CW and the exploitation of such rights by The CW as contemplated by this Term Sheet.

 

(iii)  Subject to Paragraph 13.g. below, The CW’s transmission or other exhibition, marketing, exploitation, or promotion of the Block will not infringe the property or personal rights of any third-party, nor violate any law or regulation.

 

(iv)  Company has not provided or promised and Company shall not provide or promise during the Term any inappropriate or unlawful direct or indirect payment, bribe or other benefit to any official or employee of (or any person acting in an official capacity for or on behalf of) any government (including any department or agency), or other state-owned or administered entity, public international organization, political party (or candidate or member of such party), in order to 

 

 

affect the exercise of official discretionary authority in relation to the Content, The CW, or any matter covered by this Term Sheet.

 

(v)  Company will conform to the requirements of Section 507 of the Federal Communications Act (47 U.S.C. §508) concerning broadcast matter and disclosures required thereunder, insofar as that Section applies to persons furnishing program material for television broadcasting.  Company agrees that, without the approval of The CW's Broadcast Standards and Practices Department, no program will include any matter for which any money, service or other valuable consideration is directly or indirectly paid, or promised to, Company by a third-party, or accepted from or charged to a third-party by Packager.  Company will exercise reasonable diligence to inform its employees, and other persons with whom they deal directly in connection with the Content, of the requirements of Section 507; provided, however, that no act of any such employee or of any independent contractor connected with any of
the Content, in contravention of the provisions of Section 507, will constitute a breach of the provisions of this Paragraph unless a director, officer, or senior executive of Company has notice thereof and fails promptly to disclose such act to The CW.  As used in this Paragraph, the term "service or other valuable consideration" will not include any service or property furnished without charge or at a nominal charge for use in, or in connection with, any of the Content "unless it is so furnished in consideration for an identification in a broadcast of any person, product, service, trademark, or brand name beyond an identification which is reasonably related to the use of such service or property on the broadcast", as such terms are used in Section 507.

 

b.         Company Indemnity.  Subject to Paragraph 13.g. below, Company will indemnify, defend and hold harmless The CW, its joint venturers and their affiliates, and their officers, directors, employees and agents (collectively “The CW Indemnitees”) from and against any and all claims, liabilities, suits, losses, damages, and expenses (including reasonable outside attorneys' fees) brought by third parties against any of The CW Indemnitees arising out of or relating to any breach or alleged breach by Company and/or affiliates of any of its/their duties, obligations, representations and warranties set forth herein.

 

c.         CW Representations.  In addition to the representations and warranties set forth herein, The CW further represents and warrants that:

 

(i)  It is authorized to enter into this Term Sheet; and

 

(ii)  No content supplied by The CW to be transmitted on the Block will infringe upon or violate any copyrights, trademarks and/or other intellectual property rights of any third party.

 

d.         CW Indemnity.  Subject to Paragraph 13.g. below, The CW will indemnify, defend and hold harmless Company and its affiliates (including, without limitation, 4KAS), and their officers, directors, employees and agents (collectively “Company Indemnitees”) from and against any and all claims, liabilities, suits, losses, damages, and expenses (including reasonable outside attorneys' fees) brought by third parties against any of the Company Indemnitees arising out of or 

 

 

relating to any breach or alleged breach by Company and/or affiliates (including, without limitation, 4KAS), of any of its/their duties, obligations, representations and warranties set forth herein.

 

e.         Defense.  Upon notice from the indemnified party, the indemnifying party will undertake the defense of any such claim or suit subject to the indemnifications as set forth above.  In such event, the indemnified party will have the right to:

 

(i)  approve the attorney selected by the indemnifying party, such approval not to be unreasonably withheld;

 

(ii)  be kept informed at all times about such claim or suit; and

 

(iii)  approve any settlement offer or agreement (other than one solely for money damages where the indemnifying party pays the full amount of such settlement), such approval not to be unreasonably withheld.

 

The indemnified party will have the right to retain its own counsel in connection with any claim or suit brought or made as set forth hereinabove, provided that in such event, the indemnified party will pay its own legal expenses in connection therewith.

 

f.         Music.  With respect to all music used in the Content, Company warrants and represents that Company, at its own expense, will have obtained all necessary synchronization, master use, non-dramatic performing rights, and any other applicable rights in each musical composition for the exploitation of the Content contemplated hereunder; provided, however, that Company need not obtain non-dramatic performing rights in any musical composition during any period in which agreements with music performing rights societies (i.e., ASCAP, BMI, and SESAC) licensing such non-dramatic performing rights in such musical compositions will cover a majority of commercial television stations licensed by the Federal Communications Commission.  With respect to all music used in the Content, including, without
limitation, music not originally created for the Content, Company will obtain the right to use such music for the purpose of advertising and promotion of same; and, with respect to music synchronization licenses, the license obtained by Company will include the right to use the music with other footage from the Content (i.e., "out of context") for the purpose of advertising and promotion of the Content.

 

g.         Regulatory Issues.  Notwithstanding anything herein to the contrary and for the avoidance of doubt, in the event that any of Company’s websites relating to Content being telecast on the Block do not comply with the CTA and the regulations promulgated thereunder or any other laws or regulations, Company shall indemnify The CW Indemnitees against such claims in accordance with the provisions of this Paragraph 13.b.  In the event that any of Company’s Content that is broadcast on the Block that has been reviewed and approved by The CW’s broadcast standards and practices does not comply with the CTA and the regulations promulgated thereunder or any other laws or regulations, The CW shall indemnify the Company Indemnitees against such claims in accordance with the provisions of
this Paragraph 13.d.

 

 

 

	
            14.
 	
            Errors and Omissions Insurance
 

 

During the Term, each party will obtain and maintain, at its own expense, errors and omissions insurance from an insurance company maintaining at least an “A” rating providing adequate protection against any claims, liabilities, suits, losses, damages and expenses arising out of or relating to the Content, in the amount of at least $5,000,000 per incident or occurrence, with a reasonable deductible.  Such insurance will remain in full force during the Term and for a period of three years thereafter.  Each party will name the other as an “additional insured” under such party’s errors and omissions insurance.  Each party will provide the other with thirty (30) days prior written notice of any termination of such party’s errors and omissions insurance coverage.  If requested by the additional insured party in writing, the named insured party will provide the
additional insured party with a certificate of insurance confirming that such party is an “additional insured” under the named insured party’s errors and omissions insurance coverage.

 

	
            15.
 	
            Notices
 

 

All notices and statements required under this Term Sheet will be in writing addressed to the parties at the addresses above, unless notification of a change of address is given in writing.  All notices will be sent by (i) registered mail, return receipt requested, (ii) overnight courier (e.g. Express Mail, Federal Express); or (iii) telefax or e-mail with a follow up copy by regular mail.  All statements of account may be sent by regular mail.  The date of mailing will be deemed the date the notice or statement is received by a party.

 

	
            16.
 	
            Relationship Between The Parties
 

 

No party will represent itself as the agent or legal representative of the other party for any purpose whatsoever, and no party will have the right to create or assume any obligation of any kind, express or implied, for or on behalf of the other party in any way whatsoever.  This Term Sheet will not create or be deemed to create any agency, partnership, or joint venture between the parties.

 

	
            17.
 	
            Assignment
 

 

a.          Assignment.  Except as provided herein, neither this Term Sheet nor the rights granted in this Term Sheet may be sold, assigned, delegated, sublicensed or otherwise transferred or encumbered, in whole or in part, including without limitation, by operation of law, by either party without the prior written consent of the non-assigning party, which consent may be withheld by the non-assigning party in its sole discretion.

 

	
             
 	
            b.
 	
            Permitted Assignments.
 

 

 (i)  Notwithstanding anything herein to the contrary, The CW may assign this Agreement to either of its partners or entities affiliated with or subsidiary to its partners. 

 

 

 

 (ii)  In the event that the business of the Company is acquired by a third party, whether by merger, sale of stock, sale of assets or otherwise, such transaction shall not be deemed to be an assignment requiring notice to, and the prior written consent of, The CW pursuant to this Paragraph 17 unless the business of Company is acquired by a Competitor of The CW (as defined below), in which case, this Term Sheet may not be assigned, whether by operation of law or otherwise, without the prior written consent of The CW, which consent may be withheld by The CW, in its sole discretion.  For purposes of this Term Sheet, the term “Competitor” shall mean any company that is the owner of broadcast television networks or cable television networks.  Any attempted sale, assignment, delegation, sublicense or other transfer or in violation of the provisions of this Paragraph 17 shall be
deemed null and void, and of no effect.  Subject to the restrictions against assignment provided above, this Term Sheet shall be binding upon and inure to the benefit of the parties, their successors and assigns.

 

	
            18.
 	
            Confidentiality
 

 

Company and The CW will keep, and will each ensure that its respective officers, directors, agents, employees and any third party to whom it discloses any terms of this Term Sheet, as permitted, will keep secret and confidential the terms and conditions set forth in this Term Sheet.  Neither Company nor The CW will, without the prior written consent of the other, disclose the terms and conditions set forth in this Term Sheet to any third party (other than to its outside legal and financial representatives).  Notwithstanding anything herein to the contrary, the parties acknowledge that both Company and the joint venturers of The CW are public companies or affiliates of public companies that are obliged under the securities laws to make public disclosure, from time to time, of material information and that such material information may include certain information contained in this Term
Sheet.  In the event that either party, in the judgment of its outside SEC counsel, is required to disclose any information contained in this Term Sheet, the disclosing party will promptly notify the other party in writing.  The disclosing party will provide the other party with the proposed text of any proposed written disclosure regarding information contained in this Term Sheet for comment by the other party.  The disclosing party will make any reasonable changes that the other party may require in any written disclosure of information contained in this Term Sheet, it being understood, however, that the final text of any such disclosure will be determined by the disclosing party’s outside SEC counsel based on the disclosure requirements of the securities laws.  The CW and Company will mutually approve a press release to announce this Term Sheet.

 

	
            19.
 	
            Attorneys’ Fees
 

 

In the event that there is any dispute or litigation between the parties pursuant to this Term Sheet, the parties agree that the prevailing party in any such dispute will be entitled to recover from the losing party the prevailing party’s reasonable outside attorneys’ fees arising from such dispute or litigation.

 

	
            20.
 	
            Entire Agreement
 

 

 

 

This Term Sheet together with any other signed writings by the parties dated on or after the date of this Term Sheet relating to the subject matter hereof is intended by the parties as a final and complete expression of their agreement with respect to the subject matter hereof, and supersedes any and all prior and contemporaneous agreements, representations and understandings relating to it.

 

	
            21.
 	
            Modification and Waiver
 

 

This Term Sheet may not be modified and none of its terms may be waived, except in writing signed by all of the parties.  The failure of any party to enforce, or the delay by any party in enforcing, any of its rights will not be deemed a continuing waiver or a modification of this Term Sheet.

 

	
            22.
 	
            Severability
 

 

If any part of this Term Sheet will be declared invalid or unenforceable by a court of competent jurisdiction, it will not affect the validity of the balance of this Term Sheet.

 

	
            23.
 	
            Governing Law/Jurisdiction
 

 

The parties agree that should any litigation be brought by The CW against Company that is not subject to arbitration as provided above in Paragraph 12, such litigation will be brought in the State Courts situated in New York, New York, or in the United States District Court located in New York, New York and will be governed by the laws of the State of New York as to all matters, without giving effect to the principles of conflicts of law.  The parties agree that should any litigation be brought by the Company against The CW that is not subject to arbitration as provided above in Paragraph 12, such litigation will be brought in the State Courts situated in Los Angeles, California, or in the United States District Court located in Los Angeles, California and will be governed by the laws of the state of California as to all matters, without giving effect to the principles of conflicts of
law.  The foregoing consent to jurisdiction and appointment of agent for service of process will not constitute a general consent to service of process by either party for any purpose except as provided in this Paragraph.

 

	
            24.
 	
            Counterparts
 

 

Counterpart copies of this Term Sheet may be executed for the convenience of the parties, and each counterpart will de deemed to be an original instrument.

 

	
            25.
 	
            Paragraph Headings
 

 

The headings of the Paragraphs are for convenience only and in no way limit or affect the provisions hereof.

 

	
            26.
 	
            Force Majeure
 

 

 

 

Company will not be liable for failure to make available any programming or any portion thereof, and The CW will not be liable for failure to transmit any such programming or any portion thereof, by reason of any act of God, equipment failure, action or claims by any third person, labor dispute, law, governmental regulation or order, or other cause beyond either party's reasonable control.

 

	
            27.
 	
            Effectiveness
 

 

This Term Sheet shall be effective on the earlier of (i) seven (7) days after its full execution by the parties, or (ii) the date mutually agreed upon by the parties.

 

IN WITNESS WHEREOF, the parties have executed this Term Sheet as of the 26th day of September, 2007.

 

	
            4KIDS ENTERTAINMENT, INC.
 	
            THE CW NETWORK, LLC
 

 

 

	
            By:  /s/  Samuel R. Newborn
 	
            By:  /s/  John D. Maatta
 

 

	
            Its:  Execuvtive VP
 	
            Its:  COO

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