THQ 2005 Annual Report Download - page 66

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(5) Other. On April 26, 2005 we paid $2.0 million in cash, and will pay an additional $2.0 million in the
followingfiscal year related to the purchase of Relic.
Other potential future expenditures relate to the following:
Manufacturer Indemnification. We must indemnify the manufacturers of our games with respect to all
loss, liability and expenses resulting from any claim against the manufacturer involving the development,
marketing, sale or use of our games, including any claims for copyright or trademark infringement brought
against the manufacturer. As a result, we bear a risk that the properties upon which the titles of our games
are based, or that the information and technology licensed from others and incorporated into the products,
may infringe the rights of third parties. Our agreements with our independent software developers and
property licensors typically provide indemnification rights for us withrespect to certain matters. However,
if a manufacturer brings a claim against us for indemnification, the developers or licensors may not have
sufficient resources to, in turn, indemnify us.
Director Indemnity Agreements. We have entered into indemnification agreements with the members of
our Board of Directors to provide a contractual right of indemnification to our Directors to the extent
permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages
incurred by the Directors as a result of any lawsuit, or any judicial, administrative or investigative
proceeding in which the Directors are sued as a result of their service as members of our Board of
Directors. The indemnification agreements provide specific procedures and time frames with respect to
requests for indemnification and clarify the benefits and remedies available to Directors in the event of an
indemnification request.
Credit Facility. On November 29, 2004, we amended our revolving credit agreement to (i) extend the term
of the credit agreement through November 29, 2006; and (ii) increase the maximum monthly facility
amount to $40.0 million for each August, September and October, and reduce the maximum monthly
facility amount to $12.0 million for every other month. Additionally, pursuant to the amendment, the
credit facility is now unsecured and accordingly the bank terminated its lien over our assets on January 4,
2005. The credit agreement contains customary financial and non-financial covenants that require us to
maintain specified operating profits and liquidity and limits our ability to incur additional indebtedness,
sell assets, pay cash dividends and enter into certain mergers or acquisitions. As of March 31, 2005, we
were in compliance with all the covenants under the credit facility and had outstanding letters of credit of
approximately $3.8 million.
Inflation
Our management currently believes that inflation has not had a material impact on continuing operations.
Financial Condition
We believe the existing cash, cash equivalents, short-term investments, and cash generated from operations
will be sufficient to meet our operating requirements for at least the next twelve months, including working
capital requirements, capital expenditures and potential future acquisitions or strategic investments. We
may choose at any time to raise additional capital to strengthen our cash position, facilitate expansion,
pursue strategic investments or to take advantage of business opportunities as they arise.
Our ability to maintain sufficient liquidity could be affected by various risks and uncertainties described in
the subsection entitled “ Risk Factors”, below.