THQ 2004 Annual Report Download - page 80

12. CAPITAL STOCK TRANSACTIONS
On September 10, 2002, we announced that our Board of Directors authorized the repurchase of up to $25.0 million of our common stock from time to
time on the open market or in private transactions. On November 21, 2002, we announced that our Board of Directors authorized the repurchase of up
to an additional $25.0 million of our common stock from time to time on the open market or in private transactions. On February 5, 2004, we announced
that our Board of Directors authorized the repurchase of an additional $25.0 million bringing the total authorized to $75.0 million. As of March 31, 2004,
we have repurchased 2,949,000 shares of our common stock for $43.8 million leaving $31.2 million available for future repurchases.
In connection with a licensing agreement, in September 2003, we issued a warrant to purchase 100,000 shares of common stock at $15.68 per share
having an estimated fair value of $1.0 million. The estimated fair value was determined using the Black Scholes option pricing model with the following
assumptions: an anticipated volatility of 71%, a weighted average risk-free interest rate of 3.43%, and a term of 10 years. The fair value of the warrant is
included in licenses in the accompanying balance sheet. The warrant expires December 31, 2013. As of March 31, 2004, these warrants have not been
exercised and are all outstanding.
On July 1, 2002 we issued approximately 167,000 shares of common stock as part of the purchase price of ValuSoft.
In connection with obtaining a license agreement, in February 2002, we issued a warrant to purchase 75,000 shares of common stock at $29.13 per
share having a fair value of $1.2 million at the time of issuance. The estimated fair value was determined using the Black Scholes option pricing model.
The estimated fair value was determined using the Black Scholes option pricing model with the following assumptions: an anticipated volatility of 71%, a
weighted average risk-free interest rate of 4.38%, and a term of 4 years. The fair value of the warrants is included in licenses in the accompanying balance
sheet. The warrants expire December 31, 2005. As of March 31, 2004, these warrants have not been exercised and are all outstanding.
On November 13, 2001, we issued 4,125,000 shares of our common stock in a secondary public offering. As part of the offering, on December 12, 2001,
the underwriters exercised their right to purchase an additional 471,222 shares. The net proceeds from these issuances were $154.6 million.
13. AGREEMENT WITH JAKKS PACIFIC, INC.
In June 1999 we entered into an agreement with JAKKS Pacific, Inc. (“JAKKS”), that governs our relationship with respect to the World Wrestling
Entertainment license we jointly obtained from World Wrestling Entertainment, Inc. (the “WWE”). This agreement with JAKKS was amended in January
2002. Our relationship with JAKKS was established to develop, manufacture, distribute, market and sell video games, pursuant to the license from the
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 the WWE.
For the period commencing November 16, 1999 and ending June 30, 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 the 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 June 30, 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.
We are responsible for the day-to-day operations of the venture. We are responsible for development, sales and distribution of the WWE-licensed games,
and JAKKS is responsible for the approval process and other relationship matters with the 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 through
December 31, 2013.