THQ 2010 Annual Report Download - page 73

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March 31, 2010. As long as any borrowings are outstanding under the line of credit, all interest, dividends,
distributions, premiums, and other income and payments received into our ARS investment account at UBS
will be automatically transferred to UBS as payments on the line of credit. Additionally, proceeds from any
liquidation, redemption, sale or other disposition of all or part of the ARS will be automatically transferred to
UBS as payments. If these payments are insufficient to pay all accrued interest on the borrowings by the
monthly due date, then UBS will either require us to make additional interest payments or, at UBS’ discretion,
capitalize unpaid interest as an additional advance. UBS’ intent is to cause the interest rate payable by us to
be equal to the weighted average interest or dividend rate payable to us on the ARS pledged as collateral.
Upon cancellation of the line of credit, we will be reimbursed for any amount paid in interest on the line of
credit that exceeds the income on the ARS. We had $13.2 million in borrowings outstanding, at an interest
rate of 0.6%, on this line of credit at March 31, 2010.
In December 2008, we obtained a margin account at Wells Fargo & Company for the purpose of borrowing
against our ARS; this account was terminated in the three months ended December 31, 2009.
11. Convertible Senior Notes
On August 4, 2009, we issued $100.0 million 5.00% convertible senior notes (“Notes”). After offering costs,
the net proceeds to THQ were $96.8 million. The Notes are due August 15, 2014, unless earlier converted,
redeemed or repurchased. The Notes pay interest semiannually, in arrears on February 15 and August 15 of
each year, beginning February 15, 2010, through maturity and are convertible at each holder’s option at any
time prior to the close of business on the trading day immediately preceding the maturity date. The Notes are
our unsecured and unsubordinated obligations.
The Notes are initially convertible into shares of our common stock at a conversion rate of 117.4743 shares
of common stock per $1,000 principal amount of Notes, equivalent to an initial conversion price of
approximately $8.51 per share. At this conversion rate and upon conversion of 100% of our Notes
outstanding at March 31, 2010, our Notes would convert into 11.7 million shares of common stock. The
conversion rate is subject to adjustment in certain events such as a stock split, the declaration of a dividend
or the issuance of additional shares. Also, the conversion rate will be subject to an increase in certain events
constituting a make-whole fundamental change; the maximum number of shares to be issued under which
cannot exceed 14.7 million. The Notes will be redeemable, in whole or in part, at our option, at any time after
August 20, 2012 for cash, at a redemption price of 100% of the principal amount of the Notes, plus accrued
but unpaid interest, if the price of a share of our common stock has been at least 150% of the conversion
price then in effect for specified periods. In the case of certain events such as acquisition or liquidation of
THQ, or delisting of our common stock from a U.S. national securities exchange, holders may require us to
repurchase all or a portion of the Notes for cash at a purchase price of 100% of the principal amount of the
Notes, plus accrued and unpaid interest.
Costs incurred related to the Notes offering amounted to $3.2 million and are classified as other long-term
assets, net in the consolidated balance sheet at March 31, 2010; these costs are being amortized on a
straight-line basis over the term of the Notes. Amortization expense associated with these costs was
$0.4 million in fiscal 2010 and is classified as interest and other income (expense), net in the consolidated
statements of operations. Additionally, interest expense related to the Notes was $3.1 million in fiscal 2010
and is classified as interest and other income (expense), net in the consolidated statement of operations.
The effective interest rate, including amortization of debt issuance costs, for fiscal 2010 was 5.35%. In fiscal
2010 we paid $2.7 million in interest on the Notes.
12. Credit Facilit y
On June 30, 2009, we entered into a Loan and Security Agreement (the “Credit Facility”) with Bank of
America, N.A. (“B of A”), as agent, and the lenders party thereto from time to time. The Credit Facility provides
for a $35.0 million revolving credit facility, which can be increased to $50.0 million, subject to lender consent,
pursuant to a $15.0 million accordion feature, and includes a $15.0 million letter of credit subfacility.
The Credit Facility has a three-year term and bears interest at a floating rate equivalent to, at our option,
either the base rate plus a spread of 1.0% to 2.5% or LIBOR plus 2.5% to 4.0%, depending on the fixed
charge coverage ratio. Borrowings under the Credit Facility are conditioned on our maintaining a certain fixed
charge coverage ratio and a certain liquidity level, as set forth in the Credit Facility. In fiscal 2010, we incurred
fees totaling $0.6 million related to the initiation of the Credit Facility, of which $0.4 million was a closing fee