THQ 2005 Annual Report Download - page 100

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and a term of 4 years. The fair value of the warrant is included in licenses in the consolidated balance
sheet. The warrant expires December 31, 2005. As of March 31, 2005, this warrant has not been exercised
and is outstanding.
13.Agreement with JAKKS Pacific, Inc.
In June 1999 we entered into anoperating agreement with JAKKS Pacific, Inc. (“JAKKS”) that governs
our relationship with respect to the World Wrestling Entertainment, Inc. (“WWE”) license. This
agreement was amended in January 2002. Our relationship with JAKKS was established to enable THQ to
develop, manufacture, distribute, market and sell video games pursuant to the license from WWE. The
principal terms of this operating agreement are as follows:
•We are responsible for funding all operations of the venture, including all payments owed to WWE;
•For the period commencing November 16, 1999 and ending June30, 2006, JAKKS is entitled to
receive a preferred payment equal to the greater of a fixed guarantee, payable quarterly, or
specified percentages of the net sales from WWE-licensed games (as defined) in amounts that vary
based on the platform. The payment of these amounts is guaranteed by us. We are entitled to the
profits and cash distributions remaining after the payment of these amounts;
•For periods after June30, 2006, the amount of the preferred payment will be subject to
renegotiation between the parties. An arbitration procedure is specified in the event the parties do
not reach agreement; and
•We are responsible for the day-to-day operations of the venture. We are responsible for
development, sales and distribution of WWE-licensed games, and JAKKS is responsible for the
approval process and other relationship matters with WWE.
For financial reporting purposes, we are deemed to control the venture; therefore, all venture operating
results are consolidated with our results.
In November 2001, through the venture with JAKKS, we entered into an amendment to expand the WWE
license to include exclusive rights to other wrestling content produced by the WWE. In exchange for these
rights we have agreed to increase the minimum guarantee payable to WWE throughDecember 31, 2013.
We are currently involved in litigation with WWE and JAKKS with respect to the license. See “Note 15—
Commitments and Contingencies.”
14.Stockholders Rights Plan
On March 6, 2002, the Board of Directors (the “Board”) approved an amendment to the Amended and
Restated Rights Agreement dated August 22, 2001 (the “Plan”). Pursuant to the Plan, each share of
common stock has one preferred stock purchase right (“Right”) which entitles the registered holder to
purchase one one-thousandth (1 ⁄1000) of a share of Series A Junior Participating Preferred Stock at an
exercise price of $100, subject to adjustment. The Rights become exercisable 10 days after any person or
group acquires, or 10 business days after any person or group has announced its intention to commence a
tender offer for, 15% or more of the outstanding common stock of THQ. In the event that any person or
group acquires 15% or more of our outstanding common stock, each holder of a Right (other than such
person or group) will be entitled to purchase, at the exercise price, the number of shares of common stock
having a current market value equal to two times the exercise price of the Right.
In the event that any person or group acquires 15% or more of the outstanding common stock of THQ,
each registered holder of a Right (other than such person or group) will be entitled to purchase, at the
exercise price, the number of shares of common stock having a current market value equal to two times the
exercise price of the Right. If we are acquired in a merger or other business combination, each registered