THQ 2007 Annual Report Download - page 86

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78
THQ’s stockholders, (iii) the “adjustment number” (as defined in theCertificate of Designation) used in
Section 6of the Certificateof Designation for calculating theliquidation amount for Preferred Stock is
2,250and (iv) in the event of a consolidation, merger,combination or similar transaction, each share of
Preferred Stock will be exchanged or changed into an amount per share equal to 2,250 times the amount of
capital stock, securities, cash or other property forwhich each share of common stock is exchanged or
changed. Thedescriptionof the Rights contained herein does notpurport to be complete and is qualified
in its entirety by reference to theRights Agreement and the Certificateof Designation.
16.Agreement with JAKKS Pacific, Inc.
In June 1999 we entered into an operating agreement with JAKKS Pacific, Inc. (“JAKKS”) that governs
ourrelationship with respect to theWorld Wrestling Entertainment,Inc.(“WWE”) license. This
agreement was amended in January 2002. Our relationship with JAKKSwasestablished to enableTHQto
develop, manufacture, distribute,marketandsell videogames pursuanttothe license from WWE. The
principal terms of this operating agreement are as follows:
•We are responsible forfunding all operations of the venture, including allpayments owed to WWE;
•For the period commencing November 16,1999 and ending June 30, 2006, JAKKS was entitledto
receive apreferred paymentequal to the greater of a fixed guarantee, payablequarterly, or
specifiedpercentages of thenetsales from WWE-licensed games(as defined) in amounts that vary
based on the platform. We were entitled to the profits and cash distributions remainingafterthe
payment of these amounts;
•For periods after June 30, 2006, the amount of the preferred payment is subject to renegotiation
between the parties. Thepartieshave not yet reached agreement as to the amount of thepreferred
payment. We have not paid JAKKS since June 30, 2006, but areaccruing at the payment rate that
expired June30, 2006. This preferred payment is included in ourconsolidated statements of
operations in the caption “Cost of sales—venture partnerexpense.” An arbitration procedure is
specifiedin the event theparties do not reach agreement; and
•We are responsible for theday-to-day operationsof the venture. We areresponsible for
development, sales and distribution of WWE-licensed games, and JAKKS is responsible for the
approval process and other relationship matters withWWE.
For financial reporting purposes, we are deemed to control the venture; therefore, all ventureoperating
results are consolidated with ourresults.
In November 2001, through theventure with JAKKS, we entered into an amendment to expand the WWE
license to include exclusive rights to other wrestling contentproduced by the WWE through
December2014. In exchange for these rightswepaid a minimum guarantee to WWE that has already been
recouped.
We arecurrently involved in litigation with WWE andJAKKS with respectto thelicense and the preferred
payment. See “Note 17—Commitments and Contingencies -Litigation.”