THQ 2009 Annual Report Download - page 96

to expense when the related product is released and the related revenue is recognized. Additionally, as
more fully described in ‘‘Note 1—Description of Business and Summary of Significant Accounting
Policies,’’ 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 stock warrants are
additionally reviewed for recoverability with amounts determined as not recoverable being amortized to
expense. For the years ended March 31, 2009, 2008 and 2007, $0.4 million, $0.5 million and $0.7 million,
respectively, was amortized and included in cost of sales—license amortization and royalties expense.
As a result of the stock option grant practices inquiry, as discussed more fully in our March 31, 2006
Amendment No. 2 on Form 10-K/A, certain of our stock options were found to have been granted with an
exercise price below the fair market value of our common stock on the date determined to be the correct
measurement date. Those that vested subsequent to December 2004 result in nonqualified deferred
compensation for purposes of Section 409A of the Internal Revenue Code, and holders are subject to an
excise tax on the value of the options in the year in which the options vest. We have determined that
options to purchase 1.1 million shares of our common stock held by current and former employees may be
subject to adverse tax consequences under Section 409A. All of the affected shares pertained to grants
made to non-executive employees.
In order to mitigate the unfavorable personal tax consequences under Section 409A, in December 2006 the
Compensation Committee of our Board of Directors, pursuant to the terms and conditions of our
compensatory stock plans under which our stock options had been granted, unilaterally corrected the
exercise price of affected options that remained outstanding to increase the exercise price to the fair
market value of our common stock on the revised measurement date. In January 2007, the Compensation
Committee determined to give each affected option holder, subject to certain conditions, a cash payment
equal to the aggregate difference between the initial exercise price and the increased exercise price of each
holder’s affected options (‘‘Cash Payment’’). As of March 31, 2007, $2.3 million was paid out to affected
employees, and there were no additional amounts paid in fiscal 2008 and 2009. We accounted for the
impact of the corrected options as a stock option modification under FAS 123R. As a result of this partial
cash settlement of these options and the application of the modification accounting, we recognized
$0.7 million in additional compensation cost due to the increase in the fair value of these options and
$0.6 million in accelerated compensation cost in fiscal year ended March 31, 2007.
We also compensated individuals who had exercised affected options prior to December 2006 for excise tax
liability and certain other adverse consequences under Section 409A. We incurred additional
compensation expense of $0.9 million in the three months ended December 31, 2006 based upon our best
estimate of this liability at that point in time. In the three months ended March 31, 2007 we increased our
estimate of this liability by $1.2 million based upon our review of the IRS Compliance Resolution Program
(the ‘‘Program’’), announced in February 2007 (IRS Announcement 2007-18). At March 31, 2007, it was
our intent to participate in this Program, and we estimated our total liability under this Program would be
approximately $2.1 million. This amount was included in accrued and other current liabilities in our
consolidated balance sheet at March 31, 2007. In fiscal 2008, we completed the program and the entire
$2.1 million of excise tax liability was paid out to the respective individuals.
17. 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 Section 11(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
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