4Kids Entertainment - Yu-Gi-Oh! Lawsuit and Bankruptcy

Yu-Gi-Oh! Lawsuit and Bankruptcy

On March 29, 2011, TV Tokyo and Nihon Ad Systems (NAS) sued 4Kids Entertainment, alleging that the company entered into illegal agreements with other companies, including Funimation Entertainment and Majesco Entertainment, regarding the Yu-Gi-Oh! anime franchise. TV Tokyo claimed that those agreements allowed 4Kids to collect royalties without paying a portion of those royalties to TV Tokyo, which violates their original agreement. The companies are seeking almost $5 million in "underpayments, wrongful deductions, and unmet obligations." As part of the suit, the companies terminated the Yu-Gi-Oh! license from 4Kids. Neither Funimation nor Majesco are listed as defendants in the case.

4Kids Entertainment informed the licensors on March 27, 2011 that their termination letter was "wrongful and devoid of any factual and legal basis," and that they had not given 4Kids 10 days notice as required. 4Kids further revealed that they had made a good-faith payment of $1 million and agreed to a March 18 meeting in lieu of a lawsuit, which TV Tokyo and NAS nevertheless decided to go ahead with. The company also stated that even if the termination is found to be valid, the company is prepared to do whatever it takes to stay in business. 4Kids filed for Chapter 11 bankruptcy protection as of April 6, 2011. 4Kids requested that the court suspend co-licensor Asatsu DK's attempts to exercise control of the Yu-Gi-Oh! franchise in the United States, particularly in terms of selling the rights to the latest anime series, Yu-Gi-Oh! Zexal, which was due to be pitched at the Licensing International Expo on June 14. However, on June 2, 2011, bankruptcy judge Shelley Chapman issued a court order on TV Tokyo and NAS for an automatic stay on the U.S. Yu-Gi-Oh! license and said that the trial will proceed in two phases. The first phase is whether the contractual termination was valid, and the second is how much money 4Kids would owe the companies. The first phase of the trial began on August 29, 2011.

On October 27, 2011, 4Kids and the executives of former financial company Lehman Brothers reached a deal, after Lehman had improperly invested most of 4Kids funds in auction rate securities. 4Kids received $500,000 from the deal. Chapman later ruled that the Yu-Gi-Oh! license is still in effect due to TV Tokyo, NAS and ADK not terminating the agreement properly. On February 29, 2012, there was an amicable settlement of the lawsuit between 4Kids Entertainment and Asatsu-DK (ADK) and TV Tokyo over the license of the Yu-Gi-Oh! property.

On May 1, 2012, Kidsco Media Ventures LLC, an affiliate of Saban Capital Group, placed a bid to acquire some of 4Kids' assets, including the US rights to the Yu-Gi-Oh! franchise and The CW4Kids block, for $10 million. 4K Acquisition Corp, a subsidiary of Konami, then placed a bid to acquire all of 4Kids' assets. On June 5, 2012, 4Kids commenced an auction between Kidsco and 4K Acquisition which was then adjourned so 4Kids, Kidsco, and 4K Acquisition could consider an alternative transaction. On June 15, 2012, 4Kids filed a notice outlining a proposed deal in which its assets would be divided between Kidsco and 4K Acquisition which was finalised on June 26, 2012. The deal saw 4K Acquisition acquire the US rights to the Yu-Gi-Oh! franchise and KidsCo acquire 4Kids' other assets including the agreements for Dragon Ball Z, Sonic X, Cubix and The CW Network's Toonzai Saturday morning programming block.

On August 14, 2012, it was announced through a quarterly report that 4Kids Entertainment had discontinued operations of four operating divisions: 4Kids Ad Sales Inc., 4Kids Productions Inc., 4Kids Entertainment Music Inc., and 4Kids Entertainment Home Video, Inc. due to their continued lack of profitability.

On August 31, 2012, Brian Lacey, Executive Vice President of 4Kids Entertainment International (the company's subsidiary based in London), ended his employment. Brian Lacey had been responsible for the broadcast distribution of over 2,000 episodes of television entertainment to over 100 countries worldwide.

On September 13, 2012, it was revealed through a quarterly report that on August 16, 2012 the Board of Directors of 4Kids Entertainment determined to discontinue the operations of its UK subsidiary, 4Kids Entertainment International Ltd., which became effective on September 30, 2012.

On October 3, 2012, 4Kids Entertainment, Inc. announced that Michael Goldstein had retired from his positions as interim Chairman, as a member of the Company’s Board of Directors, as Chairman of the Company’s Audit Committee and as a member of the Company’s Nominating Committee.

On October 05, 2012, 4Kids Entertainment announced will be submitting its Chapter 11 disclosure statement, the first step to exiting bankruptcy. 4Kids Entertainment plans after reorganization are to continue, strengthen and expand their "legacy licensing business" and expand into sports licensing. The legacy properties not sold during the bankruptcy process include: Artlist, Dinosaur King, The Cat Fanciers' Association, Rocket Monkeys, Viva Piñata, Charlie Chan, Negro League Baseball Players Association, Thundercats and Chaotic.

On October 16, 2012, 4Kids Entertainment elected Jay Emmett, age 83, as the company's Chairman and appointed Bruce Foster, age 52, to the Board, to serve until the next annual meeting of the company's stockholders and promoted him from Executive Vice President to interim Chief Executive Officer.

On October 31, 2012,4Kids Entertainment announced that Samuel R. Newborn resigned from his position as Executive Vice President and General Counsel of the Company and as a member of the Company's Board of Directors.