THQ 2006 Annual Report Download - page 78

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risk-free rate of 4.87%, a volatility factor of 87% and the 10-year term as noted above. The fair value of
these warrants was $1.4 million.
At March 31, 2006, we had 390,000 warrants outstanding with weighted average exercise price of $12.32. In
fiscal 2006, 112,500 warrants expired unexercised. At March 31, 2005 we had 502,500 warrants outstanding
with weighted average exercise price of $13.91.
In accordance with EITF 96-18, we measure the fair value of the securities on the measurement date. The
fair value of each warrant is capitalized and amortized to expense when the related product is released and
the related revenue is recognized. Additionally, as more fully described in Note 1, the recoverability of
intellectual property licenses is evaluated on a quarterly basis with amounts determined as not recoverable
being charged to expense. In connection with the evaluation of capitalized intellectual property licenses,
any capitalized amounts for related third-party warrants are additionally reviewed for recoverability with
amounts determined as not recoverable being amortized to expense. For the years ended March 31, 2006,
2005 and 2004, $1.3 million, $2.2 million and $932,000, respectively, was amortized and included in license
amortization expense.
15.Stockholders Rights Plan
THQ’s stockholders hold their stock subject to an Amended and Restated Rights Agreement dated
August 22, 2001, as amended by the First Amendment to the Amended and Restated Rights Agreement,
dated as of April 9, 2002 (collectively, the “Rights Agreement”). Pursuant to the Rights Agreement, and as
adjusted pursuant to Section11(p) of the Rights Agreement as a result of the stock splits which occurred
on April 9, 2002 and on September 1, 2005, each share of THQ common stock is accompanied by four-
ninths (4/9) of a preferred stock purchase right (“Right”) which entitles the registered holder to purchase
four nine-thousandths (4/9000) of a share of Series A Junior Participating Preferred Stock at an exercise
price of $44.44. 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. If we are acquired in a merger or other business
combination, each registered holder of a Right will be entitled to purchase, at the exercise price, a number
of shares of common stock of the acquirer having a current market value equal to two times the exercise
price of the Right.
The Board may redeem the Rights at a redemption price of $0.001 per Right, subject to adjustment, at any
time until 10 days after the acquisition of 15% or more of the common stock of THQ. At any time after a
person or group has acquired 15% or more but less than 50% of the common stock, the Board may
exchange all or part of the Rights for shares of common stock at an exchange ratio of 4/9 shares of
common stock for each Right or four nine-thousandths (4/9000) of a share of Series A Junior Participating
Preferred Stock (“Preferred Stock”) per Right. The Rights expire on June21, 2010.
Pursuant to the Certificate of Designation, as amended (the “Certificate of Designation”), establishing the
Preferred Stock, effective as September 1, 2005: (i) each share of Preferred Stock is entitled to quarterly
dividends equal to 2,250 times the aggregate per share amount of all dividends declared on the common
stock, (ii) each share of Preferred Stock will be entitled to 2,250 votes on all matters submitted to a vote of
THQ’s stockholders, (iii)the “adjustment number” (as defined in the Certificate of Designation) used in
Section 6 of the Certificate of Designation for calculating the liquidation amount for Preferred Stock is
2,250 and (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 for which each share of common stock is exchanged or