<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Gemstar International Group Limited
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on March 12, 1998
A Special Meeting of the members (hereinafter, "shareholders") of Gemstar
International Group Limited, a British Virgin Islands corporation (the "Company"
or "Gemstar"), will be held at 2-29-18 Nishi-Ikebukuro, Toshima-KU, Tokyo 171
Japan on Thursday, March 12, 1998 at 7:00 a.m. California, U.S.A. time.
At the meeting, shareholders will act on the following matters:
(1) Approval of certain proposed amendments to and the restatement
of the Company's 1994 Stock Incentive Plan, as amended, to increase the
number of the Company's Ordinary Shares reserved for issuance thereunder,
extend the term thereof, and make certain other changes described in the
proxy statement;
(2) Approval of performance-based compensation provisions of the
Amended and Restated Employment Agreement for the Company's President and
Chief Executive Officer; and
(3) Any other matters that properly come before the meeting or any
postponements or adjournments thereof.
Your attention is directed to the accompanying proxy statement. Only
shareholders of record at the close of business on February 25, 1998 will be
entitled to notice of and to vote at the meeting and any adjournment thereof.
All shareholders are requested to sign, date and complete the enclosed
proxy and return it promptly in the accompanying postage-prepaid, pre-addressed
envelope whether or not they expect to attend the meeting, to assure that their
shares will be represented. Any shareholder giving a proxy has the right to
revoke it at any time before it is voted.
By Order of the Board of Directors,
/s/ LARRY GOLDBERG
-----------------------------------
Larry Goldberg
Secretary
February 26, 1998
Pasadena, California
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, IN
ORDER TO ENSURE THAT YOUR VOTES ARE COUNTED.
<PAGE>
GEMSTAR INTERNATIONAL GROUP LIMITED
135 North Los Robles Avenue, Suite 800
Pasadena, California 91101
PROXY STATEMENT
Special Meeting of Shareholders
March 12, 1998
GENERAL
Persons Making the Solicitation
This proxy statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Gemstar International Group Limited
(the "Company" or "Gemstar") of proxies for use at a Special Meeting of
Shareholders to be held at 2-29-18 Nishi-Ikebukuro, Toshima-KU, Tokyo 171 Japan
on Thursday, March 12, 1998 at 7:00 a.m. California, U.S.A. time and at any
adjournment thereof (the "Special Meeting"). This proxy statement is first
being mailed to shareholders on or about February 26, 1998. You are requested
to sign, date and return the enclosed proxy card in order to ensure that your
shares are represented at the Special Meeting.
A form of proxy is enclosed for your use. The shares represented by
each properly executed unrevoked proxy will be voted as directed by the
shareholder executing the proxy. If no direction is made, the shares
represented by each properly executed unrevoked proxy will be voted (i) "FOR"
the proposal to approve certain amendments to and the restatement of the
Company's 1994 Stock Incentive Plan, as amended (the "Existing Plan") to
increase the number of the Company's ordinary shares, par value $.01 per share
(the "Ordinary Shares" or the "shares") reserved for issuance thereunder from
9,100,000 to 20,000,000, to extend the term thereof, and to make certain other
changes described below under "Item 1--Stock Incentive Plan Proposal" (the
"Stock Incentive Plan Proposal"), and (ii) "FOR" the proposal to approve the
performance-based compensation provisions in the Amended and Restated Employment
Agreement for the Company's President and Chief Executive Officer (the "CEO
Compensation Proposal"). With respect to any other matter that may come before
the Special Meeting or any adjournment thereof, the proxy confers upon the proxy
holders discretionary authority to vote the proxy in accordance with their best
judgment.
In addition to solicitation by mail, regular employees of the Company
may solicit proxies in person or by telephone without additional compensation.
The Company also will pay persons holding shares in their names or in the names
of their nominees, but not owning such shares beneficially, for the expenses of
forwarding soliciting materials to the beneficial owners of such shares. The
Company will bear all expenses incurred in soliciting its shareholders. The
Company has retained Shareholder Communications Corporation for assistance in
connection with the solicitation of proxies for the Special Meeting at a cost of
$4,000 plus reimbursement for reasonable out-of-pocket expenses. Arrangements
will also be made with brokerage houses, custodians, nominees and fiduciaries
for forwarding of proxy solicitation materials to beneficial owners of shares
held of record by such brokerage houses, custodians, nominees and fiduciaries
for their reasonable expenses incurred in connection therewith. The total of
all expenses in connection with the proxy solicitation is estimated not to
exceed $25,000.
Revocability of Proxy
Any proxy given by a shareholder of the Company may be revoked by the
shareholder who executed it at any time before it is voted at the Special
Meeting.
Record Date
Only holders of record of Ordinary Shares at the close of business on
February 25, 1998 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting or any adjournment thereof. The outstanding voting
securities of the Company on that date consisted of 48,380,882 Ordinary Shares.
<PAGE>
Voting Rights and Requirements; Lau Voting Agreement
The presence, in person or by proxy, at the commencement of the
Special Meeting of not less than 50% of the Ordinary Shares entitled to vote is
required to constitute a quorum for the transaction of business at the Special
Meeting. However, if a quorum is not present within two hours from the time
appointed for the Special Meeting, the Special Meeting shall be adjourned to the
next business day at the same time and place or to such other time and place as
the directors may determine. If at the adjourned meeting there are present
within one hour from the time appointed for the meeting, in person or by proxy,
not less than one-third of the Ordinary Shares entitled to vote on the matters
being considered at the Special Meeting, those shares present will constitute a
quorum, but otherwise the Special Meeting will be dissolved.
Holders of the Ordinary Shares are entitled to one vote for each share
held as of the Record Date. The affirmative vote of a majority of the shares
present at the meeting, in person or by proxy, and entitled to vote and voting
and not abstaining, is required to approve each of the Stock Incentive Plan
Proposal and the CEO Compensation Proposal. Shares represented by proxies that
reflect abstentions will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but will not
constitute a vote "for" or "against" any matter, and thus will be disregarded in
the calculation of votes cast on any matter.
Shares referred to as "broker non-votes" (i.e., shares held by brokers
or nominees as to which instructions have not been received from the beneficial
owners or persons entitled to vote and as to which the broker has physically
indicated on the proxy that the broker or nominee does not have discretionary
power to vote on a particular matter) will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
However, for purposes of determining the outcome of any matter as to which the
broker has physically indicated on the proxy that it does not have discretionary
authority to vote, those shares will be treated as not present and not entitled
to vote with respect to that matter (even though those shares are considered
present for quorum purposes and may be entitled to vote on other matters).
Thus, "broker non-votes" will be disregarded in the calculation of votes cast on
any matter. Any unmarked proxies, including those submitted by brokers or
nominees, will be voted as indicated in the accompanying proxy card.
Thomas L.H. Lau, the Company's Chairman of the Board, and the
beneficial owner of 11,666,325 (including shares subject to options exercisable
within 60 days) of the Company's Ordinary Shares (representing approximately 24%
of the Company's aggregate outstanding shares as of January 31, 1998), has
entered into a Voting Agreement and Irrevocable Proxy (the "Lau Voting
Agreement"), dated as of January 7, 1998, with Henry C. Yuen, the Company's
President and Chief Executive Officer, pursuant to which, among other things,
(i) Mr. Lau has agreed to vote all of his shares in favor of the CEO
Compensation Proposal and any related proposal (including, without limitation,
the Stock Incentive Plan Proposal) and (ii) Mr. Lau has granted Dr. Yuen, with
full power of substitution, an irrevocable proxy to vote all of Mr. Lau's shares
as provided in the Lau Voting Agreement.
Principal Shareholders
The following table sets forth certain information regarding the
beneficial ownership of the Ordinary Shares as of January 31, 1998 by (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding Ordinary Shares; (ii) each of the Company's directors; (iii) each of
the Company's executive officers identified in the compensation table under
"Executive Compensation" (the "named executive officers"); and (iv) all
executive officers and directors of the Company as a group. All share amounts
give effect to a one-for-two reverse stock split effected in September, 1995.
2
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<TABLE>
<CAPTION>
Number of Percentage
Shares of
Beneficially Shares
Name and Address(1) Owned(2) Outstanding
------------------- ------------ -----------
<S> <C> <C>
Thomas L. H. Lau(3)........................... 11,666,325 24.1%
Henry C. Yuen(4).............................. 5,621,990 11.0
Viacom International Inc.
1515 Broadway
New York, New York 10036 (5).................. 3,394,713 7.0
Thomson multimedia S.A.
9 Place Des Vosqes
92050 Paris La Defense
Cedex, France................................. 2,020,666 4.2
Elsie Ma Leung(6)............................. 570,699 1.2
Roy J. Mankovitz(7)........................... 252,850 *
Larry Goldberg(8)............................. 180,850 *
Douglas Macrae(9)............................. 165,293 *
Brian Klosterman(10).......................... 90,930 *
George F. Carrier(11)......................... 6,000 *
Teruyuki Toyama(12)........................... 6,000 *
James E. Meyer(13)............................ 0 *
George Smith(14).............................. 0 *
Executive Officers and Directors as a group
(11 persons)(3)(4)(6)(7)(8)(9)(10)(11)(12)
(13)(14)...................................... 18,560,937 35.6
</TABLE>
_________________
*Less than 1%.
(1) The address of each listed shareholder other than Viacom International Inc.
and Thomson multimedia S.A. is 135 North Los Robles Avenue, Suite 800, Pasadena,
California 91101.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares subject to options held by that person that are exercisable as of January
31, 1998 or that become exercisable within 60 days following January 31, 1998
("Exercisable Options") are deemed outstanding. However, such shares are not
deemed outstanding for purposes of computing the percentage ownership of any
other person. Unless otherwise indicated, each of the shareholders named in
this table has sole voting and dispositive power with respect to the Ordinary
Shares shown as beneficially owned by such shareholder.
(3) Includes 11,522,575 shares held by Dynamic Core Holdings Limited, a British
Virgin Islands corporation, of which Thomas Lau is the sole shareholder.
Includes 143,750 shares issuable upon exercise of Exercisable Options.
(4) Includes 2,557,000 shares issuable upon exercise of Exercisable Options.
Does not include any of the 4,162,725 shares issuable upon exercise of options
granted to Dr. Yuen as of January 7, 1998 pursuant to the New Yuen Agreement (as
defined under "Item 2--CEO Compensation Proposal"), 832,545 of which will become
fully vested and exercisable on May 31, 1998. See "Item 2--CEO Compensation
Proposal--Initial and Annual Stock Option Grants."
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(5) Includes 681,475 shares held by Virgin Interactive Entertainment, a wholly-
owned subsidiary of Viacom International Inc.
(6) Includes 520,700 shares issuable upon exercise of Exercisable Options. Does
not include 94,650 shares issuable upon exercise of options which will become
exercisable on May 9, 1998.
(7) All of such shares are issuable upon exercise of Exercisable Options. Does
not include 47,325 shares issuable upon exercise of options which will become
exercisable on May 9, 1998.
(8) All of such shares are issuable upon exercise of Exercisable Options. Does
not include 47,325 shares issuable upon exercise of options which will become
exercisable on May 9, 1998.
(9) Includes 38,000 shares issuable upon exercise of Exercisable Options. Does
not include 25,000 shares issuable upon exercise of options which will become
exercisable on May 9, 1998.
(10) Includes 90,930 shares issuable upon exercise of Exercisable Options. Does
not include 25,000 shares issuable upon exercise of options which will become
exercisable on May 8, 1998.
(11) Includes 6,000 shares issuable upon exercise of Exercisable Options. Does
not include 16,000 shares issuable upon exercise of options which will become
exercisable on May 9, 1998.
(12) Includes 6,000 shares issuable upon exercise of Exercisable Options. Does
not include 16,000 shares issuable upon exercise of options which will become
exercisable on May 9, 1998.
(13) Does not include 10,000 shares issuable upon exercise of options which will
become exercisable on May 9, 1998.
(14) Does not include 10,000 shares issuable upon exercise of options which will
become exercisable on May 9, 1998.
ITEM 1
STOCK INCENTIVE PLAN PROPOSAL
On January 7, 1998, the Compensation Committee of the Board
("Compensation Committee") consisting solely of outside directors (as defined
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code")) and the Board (with Dr. Yuen abstaining from the Board vote) approved,
subject to shareholder approval, certain amendments (the "Amendments") to and
the restatement of the Gemstar International Group Limited 1994 Stock Incentive
Plan, as previously amended. (Hereinafter, such plan, as in effect immediately
prior to the Amendments thereto and restatement thereof, is referred to as the
"Existing Plan". The Existing Plan as amended by the Amendments and restated is
referred to as the "Restated Plan.") The principal Amendments reflected in the
Restated Plan include the following:
Share Limits. The Existing Plan provides for a limit on the
aggregate number of Ordinary Shares that may be delivered
pursuant to awards thereunder. The Amendments increase this
aggregate limit from 9,100,000 shares under the Existing Plan
(all of which were, as of the date hereof, issued pursuant to
previously exercised options or are, as of the date hereof,
subject to outstanding options granted under the Existing Plan)
to 20,000,000 shares under the Restated Plan, subject to certain
adjustments (see "--Summary Description of the Restated Plan--
Shares Available for Awards").
Individual Limits. The Existing Plan provides for a limit on the
number of Ordinary Shares that may be delivered pursuant to all
stock options granted thereunder during any one-year period to
any individual eligible person. The Amendments increase this
limit from 6,000,000 shares under the Existing Plan to 10,000,000
shares under the Restated Plan. The Amendments also incorporate
into the Restated Plan a provision that limits, to no more than
10,000,000 shares, the aggregate number of shares that may be
delivered pursuant to all awards granted thereunder (including,
without limitation, awards of stock options) during any one-year
period to any individual eligible person. The
4
<PAGE>
foregoing limits are subject to adjustment as described below
under "--Summary Description of the Restated Plan--Shares
Available for Awards."
Restated Plan - Stock Units and Dividend Equivalent Rights;
Deferrals. The Amendments would permit the grant of stock units,
dividend equivalent rights, and certain deferrals under the
Restated Plan. (Each such form of award is discussed in more
detail below under "--Summary Description of the Restated Plan--
Stock Units and Dividend Equivalent Rights; Deferrals" and under
"--Federal Income Tax Consequences").
Termination Date. The Amendments would extend the automatic
termination date of the Restated Plan (after which no new awards
may be granted thereunder) to January 6, 2008. The Existing Plan
would have automatically terminated by its terms on August 19,
2004.
The principal terms of the Restated Plan are summarized below. The
following summary is qualified in its entirety by reference to the full text of
the Restated Plan, which can be reviewed on the Securities and Exchange
Commission's Web site at http://www.sec.gov. Capitalized terms used in the
summary have the meanings given to them in the Restated Plan.
Summary Description of the Restated Plan
The Restated Plan incorporates the Amendments to the Existing Plan
which were adopted and approved by the Compensation Committee and the Board on
January 7, 1998. The Existing Plan was first adopted by the Board in 1994,
revised in 1995 in connection with the Company's initial public offering and
further revised in 1997 principally to increase the number of Ordinary Shares
available for issuance thereunder. Shareholders previously approved the
Existing Plan and the 1995 and 1997 amendments. The Existing Plan, as amended
in 1997, authorized 9,100,000 Ordinary Shares for issuance, all of which are
reserved for outstanding options or have been issued pursuant to options that
have been exercised; thus, no Ordinary Shares are currently available for
additional awards under the Existing Plan.
Purpose. The purpose of the Restated Plan is to promote the success
of the Company and its subsidiaries by providing a means of attracting,
rewarding and retaining individuals who provide services to the Company in
various capacities through awards of long-term incentives for high levels of
performance and efforts designed to improve the financial performance of the
Company and its subsidiaries.
Administration. The Restated Plan will be administered by the
Compensation Committee. The Compensation Committee is empowered to grant awards
(which include options to purchase Ordinary Shares, stock units, and/or dividend
equivalent rights) (collectively, "Awards") to any Eligible Person, interpret
the Restated Plan and make other determinations thereunder. The Compensation
Committee currently consists of directors Yuen, Carrier and Toyama. On January
7, 1998, the Compensation Committee consisted of directors Carrier and Toyama,
each of whom is disinterested within the meaning of Rule 16b-3 promulgated under
the Exchange Act and Section 162(m) of the Code. The Compensation Committee and
the Board have broad discretion under the Restated Plan to grant and (with the
concurrence of the Award holder) amend Awards and to structure their terms, as
well as to construe and interpret the Restated Plan.
Eligibility. The following persons are eligible for Awards under the
Restated Plan:
. any director, officer or key employee of the Company or any
subsidiary;
. any consultant or advisor who (directly or through an entity
with which he or she is associated) renders or has rendered bona
fide services to the Company or any subsidiary (other than in
connection with a capital-raising transaction for the Company or
any subsidiary); and
. certain non-employee agents of the Company providing bona fide
services to the Company (collectively, "Eligible Persons").
Approximately 300 persons are considered Eligible Persons under the Restated
Plan. The Restated Plan provides that no Award will be granted thereunder if
such Award would cause the Company to be (A) a controlled foreign corporation
5
<PAGE>
within the meaning of Section 957 of the Code, (B) a foreign personal holding
company within the meaning of Section 552 of the Code or (C) a personal holding
company of the Company, within the meaning of Section 542 of the Code.
Shares Available for Awards. The maximum aggregate number of Ordinary
Shares that may be issued upon the exercise or in payment of Awards under the
Restated Plan is 20,000,000. Shares relating to Awards which are not exercised
or which expire or are cancelled will again become available for grant purposes
under the Restated Plan, subject only to any applicable limitations for the
preservation of deductibility under Section 162(m) of the Code. The 10,900,000
shares which will be available under the Restated Plan (representing the
difference between the 20,000,000 maximum number of shares authorized for
issuance under the Restated Plan and the 9,100,000 shares previously issued
pursuant to option exercises or subject to currently outstanding options
(excluding the Contingent Options granted to Dr. Yuen on January 7, 1998 (see
"Item 2--CEO Compensation Proposal--Initial and Annual Stock Option Grants")))
represents approximately 23% of the Ordinary Shares which were issued and
outstanding as of January 31, 1998.
The number and kind of securities available under the Restated Plan
are subject to adjustment, in the discretion of the Compensation Committee, in
the event of recapitalizations, stock splits (including a stock split in the
form of a stock dividend), reverse stock splits, reorganizations, mergers,
consolidations, spin-offs, or similar extraordinary transactions or events in
respect of the Company or the Ordinary Shares. Adjustments may include changes
to the exercise prices of outstanding Awards or changes in the securities, cash
or other property deliverable upon exercise of outstanding Awards or, in the
case of reorganizations, cash settlement, conversion or exchange of outstanding
Awards. In addition, in the event of or in anticipation of a Change in Control
Event (as defined in the Restated Plan), the Compensation Committee may, in its
discretion, but subject to any applicable regulatory requirements, provide
acceleration of exercisability, vesting, payment or other benefits under some or
all Awards or for certain other limited benefits under some or all Awards. A
Change of Control Event generally will be deemed to occur under the Restated
Plan if, among other things:
. the shareholders approve a dissolution or liquidation of the
Company, certain agreements of merger or consolidation resulting
in the Company's shareholders, or entities associated or
affiliated with them, holding less than 50% of the voting stock
of the surviving entity, or the sale of substantially all of the
business and/or assets of Gemstar to a person or entity who or
which is not an affiliate or subsidiary of Gemstar;
. during any period not longer than two consecutive years, the
individuals who at the beginning of the period constituted the
Board cease to constitute at least a majority of the Board,
unless the election, or the nomination for election, by the
Company's shareholders, of each new Board member was approved by
a three-fourths vote of Board members then still in office who
were Board members at the beginning of such period; or
. any person (other than any person who beneficially owned more
than 50% of Gemstar's outstanding voting securities at the time
the Existing Plan was adopted, or any successor, affiliate,
associate or relative of such beneficial owner) becomes the
beneficial owner of Gemstar securities representing more than
50% of the combined voting power of Gemstar's outstanding
securities then entitled to vote generally in the election of
directors of the Company.
The Restated Plan also provides that if any Award is fully exercisable
or has been fully accelerated as permitted under the Restated Plan but is not
exercised prior to a dissolution of the Company, a reorganization event that the
Company does not survive, or the consummation of a reorganization event that
results in a Change of Control which has been approved by the Board, and no
provision has been made for the survival, substitution, exchange or settlement
of such Award, then the Award will terminate upon the occurrence of such
dissolution or reorganization.
Stock Options. Under the Restated Plan, an option represents the
right to purchase Ordinary Shares at a future date at a specified price (the
"Option Price"). The Option Price is generally the closing price for one
Ordinary Share reported on The Nasdaq National Market ("fair market value") on
the date of grant, but may be a greater or lesser amount as determined by the
Compensation Committee. Typically, the only consideration received by the
Company for the grant of an option under the Restated Plan will be services of
the optionee to or for the benefit of the Company, as reflected in the vesting
schedule for the option.
6
<PAGE>
An option may either be an incentive stock option ("ISO"), as defined
in the Code, or a nonqualified stock option. ISO benefits are taxed differently
from nonqualified stock options, as described under "--Federal Income Tax
Consequences" below. ISOs are also subject to more restrictive terms and are
limited in amount by the Code and the Restated Plan.
Full payment for shares purchased on the exercise of any option must
be made at the time of such exercise in cash; by check payable to the Company;
in exchange for a promissory note by the option holder in favor of Gemstar; by
notice and third-party payment; if expressly authorized by the Compensation
Committee, in Ordinary Shares that have been held by the optionee for at least
six months and that have a fair market value as of the time of exercise equal to
the option price; or any combination of the foregoing. In addition, option
holders may be permitted to reduce the number of shares to be delivered or to
obtain loans from Gemstar in order to satisfy applicable tax withholding
requirements.
Stock Units and Dividend Equivalent Rights; Deferrals. Stock units
may be granted by the Compensation Committee to any Eligible Person. A stock
unit is a non-voting unit of measurement which is deemed for bookkeeping
purposes to be equivalent to one outstanding Ordinary Share (subject to
adjustment) solely for purposes of the Restated Plan. The specific terms,
conditions and provisions relating to each award of stock units (including
vesting and payout provisions) will be determined by the Compensation Committee.
Vested stock units may be paid in the form of Ordinary Shares, another Award, or
a combination thereof.
The Compensation Committee may permit the deferral, in the form of
stock units, of all or a portion of the compensation that an Eligible Person
could otherwise elect to defer under any Gemstar plan or in respect of any
Award.
Dividend equivalent rights may also be granted to any Eligible Person
concurrently with the grant of any option or stock unit. A dividend equivalent
right is the right to receive payment (at the time specified in the Award) based
on all or part of the dividends declared on the Ordinary Shares underlying the
rights between the grant date and the date the rights are exercised or paid.
Transferability. Awards generally are nontransferable, unless the
Compensation Committee expressly otherwise provides.
Other Provisions
Termination of Employment. The Compensation Committee retains the
right to establish the effect of a termination of employment on the rights and
benefits under each Award granted to an Eligible Person, and the Compensation
Committee may make distinctions among such treatments based upon the cause of
termination.
Modification of Awards. The Compensation Committee may from time to
time authorize any adjustment in the exercise or purchase price, the number of
shares subject to, the restrictions upon or the term of, an option granted under
the Restated Plan. Such amendment or other action may result in, among other
things, an exercise price which is higher or lower than the exercise or purchase
price of the original or prior option, provide for a greater or lesser number of
shares subject to the option, or provide for a longer or shorter vesting or
exercise period. However, no amendment may be made to any outstanding option
without the written consent of the optionee if the amendment would change the
terms of the option in a manner materially adverse to the optionee.
Termination of or Changes to the Restated Plan. The Board may
terminate, amend or suspend the Restated Plan at any time. The amendment must
be approved by Gemstar's shareholders only if and to the extent required by
applicable law, or if deemed necessary or advisable by the Board or the
Compensation Committee. Unless sooner terminated by the Board, the Restated
Plan will terminate on January 6, 2008.
Non-Exclusivity. The Restated Plan does not limit the authority of
the Board to authorize other compensation under any other plan or authority.
The shareholder approval of the Stock Incentive Plan Proposal will not, however,
constitute advance approval of any such other compensation.
7
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Federal Income Tax Consequences
The federal income tax consequences of the Restated Plan under current
federal law, which is subject to change, are summarized in the following
discussion, which deals with the general tax principles applicable to the
Restated Plan. State, local and/or international tax consequences of the
Restated Plan are beyond the scope of this summary.
With respect to nonqualified stock options, the Company is generally
entitled to deduct, and the optionee recognizes as taxable income, an amount
equal to the difference between the option exercise price and the fair market
value of the shares at the time of exercise. With respect to ISOs, the Company
is generally not entitled to a deduction nor does the participant generally
recognize income at the time of exercise. Stock units and dividend equivalent
rights are generally subject to tax at the time of payment, and the Company will
generally have a corresponding deduction at the time the participant recognizes
income.
If an Award is accelerated under the Restated Plan in connection with
a change in control (as this term is used under the Code), the Company may not
be permitted to deduct the portion of the compensation attributable to the
acceleration ("parachute payments") if it exceeds certain threshold limits under
the Code (and certain related excise taxes may be triggered). Furthermore, if
the compensation attributable to Awards is not "performance-based" within the
meaning of Section 162(m) of the Code, the Company may not be permitted to
deduct the aggregate non-performance-based compensation in excess of $1 million
in certain circumstances.
Specific Benefits
Except for the option grants to Dr. Yuen pursuant to the New Yuen
Agreement (as defined under "Item 2--CEO Compensation Proposal" below), which
grants were approved by the Compensation Committee and the Board on January 7,
1998 and made to Dr. Yuen effective on the same date (see "Item 2--CEO
Compensation Proposal--Initial and Annual Stock Option Grants" below), Awards
under the additional share authority of the Restated Plan are subject to the
discretion of the Compensation Committee and are therefore not determinable.
The table below shows, with respect to the option grant to Dr. Yuen approved by
the Compensation Committee and the Board on January 7, 1998, and assuming that
shareholders approve the Stock Incentive Plan Proposal and the CEO Compensation
Proposal, (i) the number of shares underlying the Contingent Options included in
the Initial Option Grant (as defined under "Item 2-- CEO Compensation Proposal--
Initial and Annual Stock Option Grants"); (ii) the number of shares underlying
the Periodic Option Grant (as defined under "Item 2--CEO Compensation Proposal--
Initial and Annual Stock Option Grants") to be made to Dr. Yuen under the New
Yuen Agreement on June 1, 1998; and (iii) an estimate of the potential amount to
be realized by Dr. Yuen upon exercise of such Contingent Options, assuming
hypothetical rates of appreciation of the underlying Ordinary Shares as
described in footnote (1) to the table below.
8
<PAGE>
NEW PLAN BENEFITS
Restated Plan
-------------
<TABLE>
<CAPTION>
Potential
Realizable
Number of Value at
Securities Assumed Annual
Underlying Rates of
Options Exercise Stock Price
Granted Price Expiration Appreciation(1)(2)
(#) ($/sh) Date 5%($) 10%($)
---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Henry C. Yuen, Chief Executive
Officer and President
Contingent Options 3,062,725 $22.00 1/7/08 $42,374,889 $107,386,287
Included in Initial Option
Grant
Periodic Option Grant on 832,545 6/1/08
6/1/98
</TABLE>
(1) Represents the hypothetical value of the Contingent Options as of January 7,
1998, the date of grant, calculated by using the per-share closing market price
of the Ordinary Shares on such date as reported by the Nasdaq National Market
(which was $22.00) and assuming annual compound stock appreciation rates of 5%
and 10% over the full 10-year term of the Contingent Options. Subject to the
accelerated vesting provisions of the New Yuen Agreement, 534,940 of the
Contingent Options will vest and become exercisable on May 31, 1999, with an
additional 832,545 of such Contingent Options to vest each May 31 thereafter
until all of such options are fully vested and exercisable. The 5% and 10%
assumed rates of appreciation with respect to the Contingent Options are
designated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Ordinary Share prices.
The gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise of the
options or the sale of the underlying shares. The actual gains, if any, on the
exercises of options will depend on, among other factors, the future performance
of the Ordinary Shares and the date on which the options are exercised.
(2) Because the exercise price of the options subject to the Periodic Option
Grant to be made to Dr. Yuen on June 1, 1998 is not known, it is not possible to
estimate the potential realizable value of such options.
Required Vote
The affirmative vote of a majority of the Ordinary Shares present, in
person or by proxy, and entitled to vote and voting and not abstaining at the
Special Meeting is required to approve the Stock Incentive Plan Proposal. See
"Voting Rights and Requirements; Lau Voting Agreement."
Recommendation of the Board of Directors
The Board believes that it is in the best interest of the Company and
its shareholders for shareholders to approve the Restated Plan. The Board
believes that the Restated Plan will help to continue to promote the success of
the Company by providing an additional means to attract, retain, motivate and
reward key employees of the Company and its related subsidiaries by providing
incentives related to equity interests in and the financial performance of the
Company. As of the date hereof, all of the shares reserved for issuance under
the Existing Plan have either been issued pursuant to option exercises or are
subject to outstanding options granted under the Existing Plan. (See "Item 2--
CEO Compensation Proposal--Initial and Annual Stock Option Grants.")
Accordingly, the increase in the number of shares reserved for issuance as
provided in the Amendments is necessary to permit the Company to make stock-
based Awards (including options contemplated by the CEO Compensation Proposal).
The Board also believes that the increases in the annual individual option and
Award limits under the Restated Plan to 10,000,000 Ordinary Shares are advisable
in
9
<PAGE>
order to accommodate Awards which may be granted by the Company (including
options contemplated by the CEO Compensation Proposal). The Board believes that
the other proposed Amendments are advisable to provide the Company with added
flexibility (within the limits provided by the Restated Plan) to attract and
incentivize eligible persons. For all of the foregoing reasons, the Board
recommends that shareholders approve the Stock Incentive Plan Proposal.
Shareholders should note that because Dr. Yuen, the Company's
President and Chief Executive Officer and a director, will receive the stock
option grants described above and under "Item 2--CEO Compensation Proposal--
Initial and Annual Stock Option Grants", Dr. Yuen has a financial interest in
the outcome of the vote on the Stock Incentive Plan Proposal and thus did not
participate in the Board's action on the proposal.
ITEM 2 -- CEO COMPENSATION PROPOSAL
As noted below under "Employment Agreements," effective as of January
7, 1998, the Company and its wholly-owned subsidiary, Gemstar Development
Corporation ("GDC"), entered into an Amended and Restated Employment Agreement
(the "New Yuen Agreement") with Dr. Yuen, which superseded and replaced Dr.
Yuen's former employment agreement with GDC and provides for Dr. Yuen's service
to each of the Company and GDC as Chief Executive Officer and President through
October 31, 2002, subject to a three-year renewal term and to earlier
termination under certain circumstances. The principal terms (other than
certain performance-based compensation provisions) of the New Yuen Agreement are
described under "Employment Agreements--New Yuen Agreement" below. The
Performance-Based Provisions (as defined below) of the New Yuen Agreement are
subject to shareholder approval to satisfy one of the requirements of Section
162(m) of the Code, in order to permit the Company to deduct payments in excess
of $1 million in any fiscal year. The performance-based compensation provisions
(collectively, the "Performance-Based Provisions") include those provisions
pursuant to which Dr. Yuen's annual salary will be adjusted and his merit bonus,
annual incentive bonus and annual stock option grants will be calculated. The
Performance-Based Provisions are summarized below. The following summary is
qualified in its entirety by reference to the full text of such Performance-
Based Provisions (as excerpted from the New Yuen Agreement), which text can be
reviewed on the Securities and Exchange Commission's Web site at
http://www.sec.gov. For purposes of the New Yuen Agreement, "Compensation
Period" means each June 1st to May 31st annual period, or portion thereof,
during the term of the New Yuen Agreement and any other period during which the
Company has ongoing obligations to Dr. Yuen under the New Yuen Agreement.
Summary of Performance-Based Provisions
Base Salary and Adjustments. Under the New Yuen Agreement, Dr. Yuen's
annual base salary (the "Base Salary") initially is set at $1 million effective
as of October 1, 1997. Shareholder approval is being sought at the Special
Meeting for the provisions of the New Yuen Agreement that provide for annual
adjustments to Dr. Yuen's Base Salary, which would be determined on June 1 of
each Compensation Period, commencing on June 1, 1998, based on the growth of the
Company's consolidated revenues and consolidated net earnings. Under the New
Yuen Agreement, the annual adjustment to the Base Salary will be an amount equal
to the product of Dr. Yuen's Base Salary for the immediately preceding
Compensation Period (reflecting any previous adjustments) and the "adjusted
percentage," subject to the cumulative cap discussed below under "--Limitation
on Annual Compensation." The adjusted percentage will be calculated by
multiplying (i) the sum of (A) the percentage, if any, by which the Company's
consolidated revenues for the Company's most recently completed fiscal year
exceeded the Company's consolidated revenues for the fiscal year immediately
preceding such fiscal year and (B) the percentage, if any, by which the
Company's net earnings for the most recently completed fiscal year exceeded net
earnings for the fiscal year immediately preceding such fiscal year by (ii)
twenty-five hundredths (0.25). No adjustment will be made with respect to Dr.
Yuen's Base Salary for the Compensation Period commencing June 1, 1998 unless
the Company's consolidated revenues and consolidated earnings from operations
for the fiscal quarter ending March 31, 1998 exceed the Company's consolidated
revenues and consolidated earnings from operations, respectively, for the fiscal
quarter ended March 31, 1997. (Hereinafter, such requirement is referred to as
the "Fourth Fiscal Quarter Test.")
Merit Bonus. Shareholders will also be requested to approve at the
Special Meeting provisions of the New Yuen Agreement which provide for the
payment of a merit bonus (the "Merit Bonus") to Dr. Yuen. Subject to the
cumulative cap discussed below, the Merit Bonus, if any, will be equal to a
percentage of Dr. Yuen's then-current Base Salary (reflecting any prior
adjustments), which percentage will be equal to the percentage increase, if any,
in the
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<PAGE>
Company's consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA") for its most recently completed fiscal year from the
Company's EBITDA for the comparable period in the immediately preceding fiscal
year. No Merit Bonus will be paid to Dr. Yuen for the fiscal year ending March
31, 1998 unless the Fourth Fiscal Quarter Test is satisfied. Within 50 days
following the end of each of the Company's fiscal years during the term of the
New Yuen Agreement, the Compensation Committee will certify to the Board the
amount of the Merit Bonus, if any, payable to Dr. Yuen pursuant to the foregoing
formula, and the Board is then obligated to approve the payment of such amount
to Dr. Yuen.
Under the New Yuen Agreement, Dr. Yuen may elect to receive the Merit
Bonus in the form of cash or options to acquire Ordinary Shares ("Merit
Options"). Merit Options will be issued under the Restated Plan if the Stock
Incentive Plan Proposal is approved by shareholders and if sufficient options
are available thereunder. Otherwise, Merit Options will be awarded outside the
Restated Plan. Each Merit Option will represent an option to acquire one
Ordinary Share. The number of Merit Options to be issued to Dr. Yuen in respect
of the Merit Bonus for any fiscal year will be determined by taking the quotient
(i) the numerator of which is equal to the aggregate dollar amount of such Merit
Bonus and (ii) the denominator of which is equal to 25% of the closing sale
price per Ordinary Share as of the last day of the Compensation Period as
reported by The Nasdaq National Market. Subject to the accelerated vesting
provisions in the New Yuen Agreement (see "--Effect of Shareholder Vote" and
"Employment Agreements--New Yuen Agreement" below), one-third of the aggregate
number of Merit Options will be vested in full and fully exercisable on the date
of grant and one-third will become vested in full and fully exercisable as of
each of the first and second anniversaries of the last day of the Compensation
Period in which the fiscal year in which the Merit Options are granted, ends.
The exercise price per Ordinary Share of the Merit Options will be the most
recent closing sale price per Ordinary Share on the last day of the applicable
Compensation Period, and Merit Options will be exercisable through the 10th
anniversary of the last day of such Compensation Period.
Annual Incentive Bonus. Shareholder approval will also be sought at
the Special Meeting for the payment to Dr. Yuen of an additional bonus (the
"Annual Incentive Bonus"), the amount of which is tied to the annual rate of
growth of the Company's consolidated earnings per share (as determined pursuant
to the New Yuen Agreement). The Annual Incentive Bonus, if any, will be
determined, subject to the cumulative compensation cap, by multiplying Dr.
Yuen's then-current Base Salary by 2.5 and then multiplying the resulting
product by the annual growth rate in the Company's consolidated earnings per
share, which growth rate will be determined by comparing the consolidated
earnings per share for the fiscal year for which the Annual Incentive Bonus is
to be determined with the earnings per share for the fiscal year ended March 31,
1997 (the "Base Year"). No Annual Incentive Bonus will be paid in respect of any
fiscal year in which the consolidated earnings per share for such year are less
than or equal to the consolidated earnings per share for the Base Year.
"Consolidated earnings per share" is defined as the Company's consolidated
earnings per share as reported by the Company in its quarterly and annual
reports filed with the Securities and Exchange Commission, excluding, in any
year, any extraordinary, one-time charges (as so determined, "EPS"). If the New
Yuen Agreement is terminated prior to the end of a fiscal year (see "Employment
Agreements--New Yuen Agreement"), then the annual growth rate in the Company's
EPS will be determined, to the extent such determination is practicable, as the
annual growth rate implied by the Company's EPS for the portion of the fiscal
year prior to the termination of the New Yuen Agreement as compared with the EPS
for the corresponding portion of the fiscal year ended March 31, 1997. No Annual
Incentive Bonus will be paid with respect to the fiscal year ending March 31,
1998 unless the Fourth Fiscal Quarter Test is satisfied. The New Yuen Agreement
further provides that Dr. Yuen is entitled, at his own expense, to have the
relevant Company records audited to verify the calculation of the Annual
Incentive Bonus. If the audit reveals any error in such calculation equal to 3%
or more of the Annual Incentive Bonus actually paid for a given fiscal year, the
Company is required to pay any such shortfall and reimburse Dr. Yuen for his
out-of-pocket expenses in connection with the audit. The Annual Incentive Bonus
for each fiscal year will be payable to Dr. Yuen on the last day of the
Compensation Period in which such fiscal year ends.
In lieu of receiving the Annual Incentive Bonus in cash, Dr. Yuen may
elect to receive it in the form of options to acquire Ordinary Shares ("Annual
Incentive Options"). Annual Incentive Options will be issued under the Restated
Plan if the Stock Incentive Plan Proposal is approved by shareholders and if
sufficient options are available thereunder. Otherwise, Annual Incentive
Options will be awarded outside the Restated Plan. The number of Annual
Incentive Options to be issued to Dr. Yuen in lieu of an Annual Incentive Bonus
for any fiscal year will be determined by taking the quotient (i) the numerator
of which is equal to the aggregate dollar amount of the Annual Incentive Bonus
and (ii) the denominator of which is equal to 25% of the closing price per
Ordinary Share as of the last day of the applicable Compensation Period.
Subject to the accelerated vesting provisions in the New Yuen Agreement, one-
third of the
11
<PAGE>
aggregate number of Annual Incentive Options will be vested in full
and fully exercisable on the last day of the Compensation Period in which the
applicable fiscal year ends, and one-third will become vested in full and fully
exercisable as of each of the first and second anniversaries of the last day of
such Compensation Period. The exercise price per Ordinary Share under Annual
Incentive Options will be the most recent closing sale price per Ordinary Share
on the last day of the applicable Compensation Period, and Annual Incentive
Options will be exercisable through the 10th anniversary of the last day of such
Compensation Period.
Initial and Annual Stock Option Grants. Shareholders are also being
asked to approve (i) a portion of a grant (the "Initial Option Grant") to Dr.
Yuen of options to purchase a total of 4,162,725 Ordinary Shares and (ii) annual
grants of options to purchase 832,545 Ordinary Shares, in each case on the terms
and conditions in the New Yuen Agreement. Of the options comprising the Initial
Option Grant, options to purchase 1,130,150 Ordinary Shares (the "Non-Contingent
Options") were granted under the Existing Plan (using the remainder of the
unissued shares reserved for issuance thereunder), which option grant is not
subject to shareholder approval. The remainder of the options comprising the
Initial Option Grant -- options to purchase 3,032,575 shares (the "Contingent
options") -- were also granted to Dr. Yuen concurrently with the execution of
the New Yuen Agreement but are contingent upon shareholder approval. See "--
Effect of Shareholder Vote" below. The exercise price per share of all of the
options comprising the Initial Option Grant is $22.00, which was the closing
sale price per Ordinary Share on January 7, 1998 as reported on The Nasdaq
National Market.
In addition to the Initial Option Grant, the New Yuen Agreement
provides that on the first day of each Compensation Period following the date of
the New Yuen Agreement, commencing on June 1, 1998, the Company will grant to
Dr. Yuen options to acquire 832,545 Ordinary Shares (the "Periodic Option
Grants"). Each of the options granted as part of a Periodic Option Grant or the
Initial Option Grant represents the right to acquire one Ordinary Share. The
exercise price of each Ordinary Share subject to a Periodic Option Grant will be
equal to the closing price per Ordinary Share on The Nasdaq National Market on
the date of grant. Each option comprising the Initial Option Grant and the
Periodic Option Grants will be exercisable through the 10th anniversary of the
date of its grant.
Subject to the accelerated vesting provisions of the New Yuen
Agreement, the options comprising the Initial Option Grant and the Periodic
Option Grants will become fully vested and exercisable at the rate of 832,545
options each year on the last day of each of the Compensation Periods,
commencing on May 31, 1998, with the options granted earliest to vest first and
the Non-Contingent Options deemed to be granted earliest.
Limitation on Annual Compensation. Under the New Yuen Agreement, the
aggregate dollar amount of Dr. Yuen's Base Salary (as adjusted), Merit Bonus and
Annual Incentive Bonus for each Compensation Period is subject to the following
annual limitations (with the 1998 Compensation Period ending on May 31, 1998
and so forth): 1998 Compensation Period - $2.5 million; 1999 Compensation
Period - $4 million; 2000 Compensation Period - $5 million; 2001 Compensation
Period - $6.25 million; 2002 Compensation Period - $8 million; 2003
Compensation Period - $12 million; 2004 Compensation Period - $15 million; and
2005 Compensation Period - $22 million.
Federal Income Tax Consequences
Dr. Yuen will generally recognize ordinary income in the amount of the
cash compensation paid to him under the New Yuen Agreement at the time of
payment. The Company will be entitled to a deduction equal to the amount of
ordinary income recognized. The options contemplated by the New Yuen Agreement
are nonqualified stock options. The general tax effects of nonqualified stock
options are discussed above under "Item 1--Stock Incentive Plan Proposal--
Federal Income Tax Consequences."
Notwithstanding the general deductibility of cash and option-related
compensation to be paid to Dr. Yuen, Section 162(m) of the Internal Revenue Code
renders non-deductible to a publicly-held corporation certain compensation in
excess of $1 million paid in any year to certain of its executive officers
(including Dr. Yuen) unless the excess compensation is "performance-based" (as
defined) or is otherwise exempt from Section 162(m). Gemstar believes that the
options granted and to be granted and which may be granted to Dr. Yuen will
qualify for the "performance-based" exception to Section 162(m). However, no
assurance can be given as to the deductibility of any compensation paid under
the New Yuen Agreement to the extent that such compensation would, together
with any other nonexempt compensation paid to Dr. Yuen, exceed $1 million in any
year.
12
<PAGE>
Specific Benefits
The amount, if any, of the adjustment to Dr. Yuen's Base Salary, and
the amounts, if any, of the Merit Bonus and the Annual Incentive Bonus payable
to Dr. Yuen under the New Yuen Agreement for the fiscal year ending on March 31,
1998 are dependent upon the Company's financial performance for such year and on
whether the Fourth Fiscal Quarter Test is satisfied. Therefore, such amounts,
if any, are not determinable.
Except for information concerning the stock option grants provided for
under the New Yuen Agreement, the table below sets forth the amounts that would
be payable to Dr. Yuen under the Performance Based Provisions of the New Yuen
Agreement, based on the Company's consolidated revenues, net earnings, EBITDA
and EPS, as applicable, for fiscal year 1997. Information concerning the stock
option grants under the New Yuen Agreement is set forth above under "Item 1--
Stock Incentive Plan Proposal--Specific Benefits." The information in the table
below is based on the assumptions indicated in the applicable footnotes thereto
and is for illustrative purposes only. The actual amounts to be paid to Dr.
Yuen under the New Yuen Agreement for any fiscal year will depend upon the
actual financial performance of the Company for such year and may be materially
higher or lower than the amounts set forth in the table.
BENEFITS UNDER
NEW YUEN AGREEMENT
<TABLE>
<CAPTION>
Adjustment to Merit Annual Incentive
Name of Employee Base Salary ($)(1) Bonus ($)(2) Bonus ($)(3)
---------------- ------------------ ------------ ----------------
<S> <C> <C> <C>
Henry C. Yuen, Chief $113,860 $221,707 $96,154
Executive Officer and
President
</TABLE>
____________________
(1) Represents only the amount of the adjustment to Base Salary. Amount
determined by multiplying an assumed Base Salary of $1 million by 25% of
the sum of (A) the percentage by which the Company's consolidated
revenues for fiscal 1997 exceeded consolidated revenues for fiscal 1996
and (B) the percentage by which the Company's net earnings for fiscal
1997 exceeded net earnings for fiscal 1996.
(2) Amount is determined as the product of the assumed Base Salary of $1
million multiplied by the percentage increase in the Company's EBITDA
for fiscal 1997 over the EBITDA for fiscal 1996.
(3) Amount is determined by multiplying the assumed Base Salary of $1
million by 2.5 and then multiplying the resulting product by the
percentage growth in the Company's EPS for fiscal 1997 from the EPS for
fiscal 1996.
Effect of Shareholder Vote
If the CEO Compensation Proposal is not approved by shareholders on or
before March 15, 1998, then (A) as of 12:01 a.m., Los Angeles time, on March 16,
1998 (the "Termination Time"), the New Yuen Agreement would terminate; (B) all
of the Non-Contingent Options would, as of the Termination Time, become
immediately fully vested and exercisable for their full term; and (C) none of
the Contingent Options would be exercisable until and unless the New Yuen
Agreement were to be approved by shareholders, whereupon all options granted
under the New Yuen Agreement would become exercisable in accordance with their
terms.
If the Restated Plan is not approved by shareholders at the Special
Meeting, but the CEO Compensation Proposal is approved by shareholders at such
meeting, certain options granted or to be granted to Dr. Yuen pursuant to his
Amended and Restated Employment Agreement will be granted outside of the
Existing Plan to the extent such options exceed the current share limits of the
Existing Plan. In addition, if the Restated Plan is approved by shareholders
but the increases in the share limits thereunder (after reducing the Existing
Plan's share limits by the number of shares subject to other awards thereunder
after the date hereof) are not sufficient to cover any options contemplated by
the CEO Compensation Proposal, any options in excess of such limits will be
granted outside of the Restated Plan. See "Item 2--CEO Compensation Proposal--
Initial and Annual Stock Option Grants."
13
<PAGE>
Recommendation of Board of Directors
On January 7, 1998, following the approval of the New Yuen Agreement
(including the Performance-Based Provisions thereof) by the Compensation
Committee and the recommendation by the Compensation Committee that the Board
also approve the agreement, the Board (with Dr. Yuen abstaining from voting)
approved the New Yuen Agreement, including the Performance-Based Provisions
thereof. In approving the Performance-Based Provisions of the New Yuen
Agreement, the Compensation Committee and the Board took into account, among
other things, the Company's substantial dependence upon Dr. Yuen's continued
contributions and service to the Company, as well as Dr. Yuen's substantial
contributions to the Company to date; Dr. Yuen's considerable business
experience and technological expertise; the increased challenge faced by the
Company of sustaining its growth into the coming decade; challenges associated
with rapidly evolving technology and increasing global competition in the
businesses in which the Company operates; and the desirability of obtaining Dr.
Yuen's commitment to carry out the long-term future projects of the Company
beyond the term of the Former Yuen Agreement. For all of the foregoing reasons,
the Board recommends that shareholders vote "FOR" approval of the CEO
Compensation Proposal.
Shareholders should note that Dr. Yuen has a significant financial
interest in the outcome of the CEO Compensation Proposal and thus did not
participate in the Board's action on the proposal.
EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
Directors Carrier, Toyama and Yuen comprised the Company's
compensation committee during fiscal 1997. None of these directors was an
officer or employee of the Company during fiscal 1997 or was previously an
officer of the Company, except for Dr. Yuen, who has served as the Company's
Chief Executive Officer since August 19, 1994.
In connection with the 1995 acquisition of all of the outstanding
capital stock of GDC and another now-wholly-owned Gemstar subsidiary, E Guide,
Inc. ("E Guide"), and certain other corporate transactions pursuant to which the
current corporate structure of the Company was effected (the "Reorganization"),
the former shareholders of GDC, who included Dynamic Core Holdings Limited (the
sole shareholder of which is Thomas L.H. Lau), Dr. Yuen and Dr. Kwoh, entered
into a Subscription and Exchange Agreement with the Company pursuant to which
the GDC shareholders received 3,518,501 Ordinary Shares of the Company in
exchange for all of their shares of GDC. In connection with the acquisition of
GDC, Dr. Yuen received 355,918 Ordinary Shares of the Company.
Also as part of the Reorganization, all of the former shareholders of
E Guide, who included Dr. Yuen, entered into an Acquisition and Exchange
Agreement with the Company pursuant to which the E Guide shareholders received
3,511,494 Ordinary Shares of the Company in exchange for all of their shares of
E Guide. Dr. Yuen received 872,151 of such shares. The E Guide shareholders
also entered into a Registration Rights Agreement with the Company pursuant to
which they received certain demand and piggyback registration rights in
connection with the Ordinary Shares of the Company issued in the E Guide
acquisition.
The Company may in the future enter into negotiations with Dr. Yuen to
acquire rights to intellectual property to which Dr. Yuen is entitled under the
New Yuen Agreement. See "Employment Agreements--New Yuen Agreement." There can
be no assurance that the Company would be able to reach agreement with Dr. Yuen
concerning any such intellectual property rights.
Dr. Yuen was formerly a partner of Schneider, Goldberg, Rohatiner and
Yuen. Schneider, Goldberg has provided, and may continue to provide, legal
services for the Company from time to time. Dr. Yuen no longer has any
affiliation with the firm.
Director Compensation
Each director who is not an employee of the Company is paid $25,000
per year for services as a director of the Company and $1,000 per Board or Board
committee meeting attended. All directors are reimbursed for their out-of-
pocket expenses incurred in connection with attendance at meetings of, and other
activities relating to service on, the
14
<PAGE>
Board of Directors or any Board committee. In addition, directors are eligible
to participate in the Restated Plan. All directors except Messrs. Meyer and
Smith have received stock options under the Existing Plan. See "Item 1--Stock
Incentive Plan Proposal--Summary Description of Restated Plan--Eligibility."
Employment Agreements
Former Yuen Agreement. Until January 7, 1998, Dr. Yuen served GDC as
its President and Chief Executive Officer pursuant to an Employment Agreement
entered into as of April 1, 1994 and amended August 16, 1995 (the "Former Yuen
Agreement"). The Former Yuen Agreement provided for an initial term of three
years ending March 31, 1998, with two automatic two-year renewals unless either
GDC or Dr. Yuen were to give written notice of termination at least six months
prior to the expiration of the initial term or any renewal term. GDC did not
receive any notice from Dr. Yuen seeking to terminate the Former Yuen Agreement.
Dr. Yuen's initial base salary under the Former Yuen Agreement was $450,000 per
year, subject to an annual adjustment to his then-current base salary multiplied
by the greater of (i) the percentage increase in the Consumer Price Index for
the Los Angeles-Long Beach metropolitan area since the date of the last
adjustment or (ii) 25% of the sum of the percentage changes from the previous
year in Gemstar's revenues and net earnings. In no event could such adjustment
exceed 20% of his base salary in any one year. Immediately prior to the
effective date of the New Yuen Agreement, Dr. Yuen's base salary, as so adjusted
under the Former Yuen Agreement, was $648,000.
The Former Yuen Agreement also provided for the payment to Dr. Yuen of
a merit bonus and an annual incentive bonus, and provided for GDC to establish
for Dr. Yuen a non-qualified deferred compensation plan. The merit bonus was
payable in the discretion of the GDC board of directors, based on its good faith
consideration of Dr. Yuen's performance during the relevant year during the term
of the Former Yuen Agreement. The Former Yuen Agreement provided that it was
anticipated that the merit bonus would not exceed 15% of Dr. Yuen's base salary
as in effect for the relevant year. The annual incentive bonus under the Former
Yuen Agreement was based on the compound growth rate of Gemstar's EBITDA (as
adjusted to include any annual incentive bonus accrued but not paid during the
relevant year less any annual incentive bonus paid in cash during such year)
from its EBITDA from continuing operations for the fiscal year ended March 31,
1994. The maximum annual incentive bonus equal to 80% of his base salary was
earned for an EBITDA growth rate of 35% or greater, while no annual incentive
bonus was paid for an EBITDA growth rate of 15% or less. If the EBITDA growth
rate were between 15% and 35%, the annual incentive bonus would be calculated
pro rata using the appropriate multiple between 0% and 80%. The annual
incentive bonus, if any, was payable to Dr. Yuen within 90 days following the
end of the relevant fiscal year (the "Due Date"). If only unaudited financial
statements were available when the calculation of the annual incentive bonus was
made, Dr. Yuen had the right, exercisable within 12 months after the Due Date,
to audit the determination of the bonus and, if an error equal to 3% or more of
the amount actually paid were determined, to be paid the amount of such
shortfall and to be reimbursed for his out-of-pocket expenses incurred in the
audit. The Former Yuen Agreement also provided for GDC to establish a non-
qualified deferred compensation plan pursuant to which Dr. Yuen could, prior to
the beginning of each calendar year, elect to defer up to 100% of his total cash
compensation for such year, up to a maximum of $500,000. Dr. Yuen did not elect
to defer any of his cash compensation under that plan.
The Former Yuen Agreement also provided for GDC to enter into a split
dollar life insurance arrangement with Dr. Yuen, under which GDC would obtain
and pay all premiums with respect to a life insurance policy covering Dr. Yuen
with a death benefit equal to at least $20,000,000. Under the split dollar life
insurance agreement entered into with Dr. Yuen's trust, his beneficiaries are
entitled to receive all death benefits under the policy up to $20,000,000, with
GDC receiving any excess payments, unless, prior to Dr. Yuen's death, his
employment were to be terminated for cause (as defined in the Former Yuen
Agreement). Dr. Yuen was also entitled under the Former Yuen Agreement to a
$1,000 per month automobile allowance and to such other benefits, including,
without limitation, health insurance and participation in bonus, incentive,
stock option or extra compensation plans, as GDC may have provided to him or to
GDC employees generally (such benefits, together with the annual incentive
bonus, being referred to as the "Additional Benefits"). During fiscal 1997, the
Additional Benefits (other than the annual incentive bonus) consisted only of
coverage under the Company's medical insurance plan. In addition, Dr. Yuen was
entitled under the Former Yuen Agreement to receive such other benefits (the
"Other Benefits") as he may have reasonably requested which were commensurate
with his position and would facilitate the performance of his duties to GDC.
Under the Former Yuen Agreement, the GDC board of directors could,
after notice to Dr. Yuen and a hearing before the board, terminate Dr. Yuen's
employment for "cause", whereupon all of Dr. Yuen's unearned rights to receive
15
<PAGE>
base salary and Additional Benefits under the agreement would terminate.
"Cause" was defined under the Former Yuen Agreement to include the following:
(i) acts of fraud, material dishonesty or other acts of willful misconduct by
Dr. Yuen that have a material adverse effect on GDC's business, (ii) Dr. Yuen's
repeated and willful refusal, after notice, to perform his significant duties,
(iii) Dr. Yuen's habitual abuse of any substance, which abuse has a material
adverse effect on GDC's business, or (iv) Dr. Yuen's conviction of, or pleading
guilty to, an act constituting a felony. Dr. Yuen had the right under the
Former Yuen Agreement to appeal the board's decision to terminate him for cause
to an arbitrator and, during the pendency of such appeal (not to exceed six
months), to receive his base salary and Additional Benefits. If GDC were to
prevail on appeal, Dr. Yuen's employment would be terminated and he would be
required to reimburse GDC for any base salary and Additional Benefits paid to
him during the pendency of the appeal. If Dr. Yuen were to prevail on appeal,
GDC would be required to reinstate Dr. Yuen as President and Chief Executive
Officer and (A) treble his base salary and Additional Benefits retroactive to
April 1, 1994 and (B) pay him the difference between such trebled base salary
and Additional Benefits for the period from April 1, 1994 to the date of the
resolution of the appeal and the amounts actually paid to him in respect of base
salary and Additional Benefits for such period.
The GDC board of directors also had the right under the Former Yuen
Agreement to terminate Dr. Yuen's employment without cause, in which event Dr.
Yuen was entitled to receive his base salary and Additional Benefits for the
longer of 18 months from the date of such termination or through the expiration
of the remainder of the initial or renewal term in which such termination were
to occur. The failure by GDC to acknowledge the commencement of a renewal term
under the Former Yuen Agreement (and the resulting termination of the agreement)
was deemed under the Former Yuen Agreement to constitute a termination of Dr.
Yuen's employment without cause.
The Former Yuen Agreement could also be terminated by GDC upon the
death or total disability of Dr. Yuen, or, within the first 18 months of the
agreement, by Dr. Yuen in his discretion. If GDC terminated the Former Yuen
Agreement based on Dr. Yuen's total disability, GDC was obligated to continue
paying Dr. Yuen his base salary and Additional Benefits for the longer of 18
months following such termination or the expiration of the then-current term of
the agreement. If the Former Yuen Agreement were terminated upon Dr. Yuen's
death, GDC was obligated to pay Dr. Yuen's beneficiaries all of his previously
earned (but unpaid) base salary and Additional Benefits and to continue paying
Dr. Yuen's base salary and Additional Benefits to Dr. Yuen's beneficiaries for
the longer of 18 months or the expiration of the then-current term of the
agreement, less any period during which any post-termination salary and
Additional Benefits were paid to Dr. Yuen by reason of his total disability. If
Dr. Yuen's death were to have occurred while he was receiving disability
payments as described in this paragraph, such disability payments were to be
discontinued, and his beneficiaries would have been entitled to receive only the
base salary (as in effect immediately prior to his disability) and Additional
Benefits payable after his death as described herein. Dr. Yuen also had the
right, upon six months' prior written notice to GDC, to terminate the agreement
within the first 18 months of the initial term of the agreement, in which event
he was entitled to receive his base salary and Additional Benefits for nine
months following such termination. Dr. Yuen also had the right to terminate the
Former Yuen Agreement at any time within 90 days following a change of control
of Gemstar (as defined in the Former Yuen Agreement), in which event he was
entitled to receive his base salary and Additional Benefits for the longer of 18
months following such termination or the remainder of the then-current term of
the agreement. Under the Former Yuen Agreement, a "change of control" of GDC was
defined as the occurrence of any of the following:
. the acquisition (other than from Gemstar directly or from any
Gemstar shareholder who was, as of the effective date of the
Former Yuen Agreement, a 25% shareholder of Gemstar) by any
person or entity of beneficial ownership of 25% or more of
Gemstar's outstanding shares;
. the failure of the Gemstar directors as of the effective date of
the Former Yuen Agreement to constitute a majority of Gemstar's
Board (counting new directors who were appointed by at least a
majority of the board members as of the date of the Former Yuen
Agreement or who were elected or nominated at Dr. Yuen's request
as directors as of the date of the Former Yuen Agreement);
. the approval by the Gemstar shareholders of a merger,
reorganization or consolidation involving Gemstar as a result of
which the shareholders of Gemstar immediately prior to such
approval would not, immediately after such merger,
reorganization or consolidation, own more than 50% of the voting
stock of the surviving entity; or
. the liquidation or dissolution of Gemstar or the sale of all or
substantially all of Gemstar's assets.
16
<PAGE>
Under the Former Yuen Agreement, all inventions, patents, copyrights
and other intellectual property which GDC could show, by clear and convincing
evidence, (i) were developed by Dr. Yuen while performing his duties for GDC or
using GDC's equipment or trade secret information, (ii) related at the time of
conception to GDC's business or actual or demonstrably anticipated research, or
(iii) resulted from any work performed by Dr. Yuen for GDC, were the property of
GDC. The Company's business or research referred to itemized activities of the
Company that could be modified or augmented from time to time; provided,
however, that any changes to such definition in the Former Yuen Agreement had to
be approved by the non-management directors of the Company. The Former Yuen
Agreement also required GDC to indemnify Dr. Yuen to the maximum extent
permitted by law and GDC's bylaws for any liability arising out of any acts or
decisions made by Dr. Yuen in good faith while performing his duties for GDC.
New Yuen Agreement. The Company, GDC and Dr. Yuen executed the New
Yuen Agreement as of January 7, 1998, which supersedes and replaces the Former
Yuen Agreement. Under the New Yuen Agreement, Dr. Yuen will continue to serve
as the President and Chief Executive Officer of GDC and will also serve as
President and Chief Executive Officer of the Company. The New Yuen Agreement
also provides that Dr. Yuen will serve as a director of each of the Company, GDC
and Star Sight Telecast, Inc. during the entire term of the New Yuen Agreement.
The New Yuen Agreement is effective as of October 1, 1997, and provides for a
five-year initial term of employment at a base salary (subject to annual
adjustment) of $1 million, subject to automatic renewal for one additional term
of three years and to earlier termination as described below. Dr. Yuen's Base
Salary adjustments, bonus compensation, and right to receive stock options under
the New Yuen Agreement is described under "Item 2--CEO Compensation Proposal"
above, which proposal is being submitted to the Company's shareholders for
approval.
The New Yuen Agreement provides that Dr. Yuen is entitled to all of
the same rights and benefits included among the Additional Benefits and the
Other Benefits under the Former Yuen Agreement, except that the Annual Incentive
Bonus under the New Yuen Agreement is based on a different formula than that
used to calculate the annual incentive bonus under the Former Yuen Agreement.
See "Item 2--CEO Compensation Proposal--Annual Incentive Bonus" and "Employment
Agreements--Former Yuen Agreement". In addition, the New Yuen Agreement
obligates GDC to reimburse Dr. Yuen (with such reimbursement to be calculated on
an after-tax basis) for all professional fees and expenses incurred by Dr. Yuen
in connection with (i) the negotiation and documentation of the New Yuen
Agreement and any amendments to that agreement, (ii) income tax planning and
preparation, (iii) income tax audits and the defense of any income tax claims
against Dr. Yuen, and (iv) estate planning and the creation and modification of
wills, codicils and trusts (such right to reimbursement, together with the
Additional Benefits (but excluding the Annual Incentive Bonus), being referred
to as the "New Additional Benefits"). To date, neither GDC nor the Company has
provided any reimbursement to Dr. Yuen as described above.
The New Yuen Agreement permits the Gemstar Board to terminate Dr.
Yuen's employment if it reasonably determines, based on clear and convincing
evidence, that "cause" exists for such termination, with cause being defined
substantially as defined under the Former Yuen Agreement. Under the New Yuen
Agreement, Dr. Yuen has the right to appeal a termination for cause and, during
the pendency of such appeal (not to exceed six months), to receive his Base
Salary and the New Additional Benefits. If Gemstar prevails on appeal, Dr.
Yuen's employment would be terminated and he would be required to reimburse GDC
for any Base Salary and New Additional Benefits paid to him during the pendency
of the appeal. If Dr. Yuen prevails on appeal, GDC would be required to
reinstate him as President and Chief Executive Officer of GDC and (A) reimburse
him for all professional fees and expenses in connection with the appeal, (B)
treble his Base Salary and New Additional Benefits retroactive to October 1,
1997, and (C) pay Dr. Yuen the difference between such trebled Base Salary and
New Additional Benefits for the period from October 1, 1997 to the date of the
resolution of the appeal and the amounts actually paid to Dr. Yuen in respect of
Base Salary and New Additional Benefits for such period. Upon termination of Dr.
Yuen's employment for cause, all options previously granted to Dr. Yuen which
are not then vested will be forfeited, and all previously vested options granted
to Dr. Yuen will remain exercisable for their full term.
The Board also retains the right under the New Yuen Agreement to
terminate Dr. Yuen's employment without cause, in which event (i) Dr. Yuen is
entitled to receive (A) a lump sum payment equal to five times his then-current
Base Salary and (B) for a period of 60 months following such termination without
cause, all of his New Additional Benefits, and (ii) all unvested options to
acquire Ordinary Shares previously granted to Dr. Yuen will immediately vest in
full and will become fully exercisable for their full term, and all previously
vested options granted to Dr. Yuen will remain fully exercisable for their full
term. The failure to renew the New Yuen Agreement is deemed under the New Yuen
Agreement to constitute a termination without cause.
17
<PAGE>
The New Yuen Agreement contains provisions substantially similar to
those contained in the Former Yuen Agreement relating to termination by reason
of Dr. Yuen's death or total disability, except that GDC would be obligated to
continue paying Dr. Yuen his Base Salary and New Additional Benefits for the
longer of 60 months (rather than 18 months under the Former Yuen Agreement)
following such termination for death or disability or the expiration of the
then-current term of the agreement. Dr. Yuen retains his right, upon six
months' prior written notice to GDC, to terminate the agreement within the first
18 months of the initial term of the agreement, in which event Dr. Yuen is
entitled to receive (i) a lump-sum payment equal to 1.5 times his then-current
Base Salary and (ii) for 18 months following such termination, all other
elements of his compensation. Upon termination of the New Yuen Agreement based
on Dr. Yuen's death or disability, all unvested options previously granted to
Dr. Yuen will immediately vest in full and become exercisable for their full
term, and all previously vested options granted to Dr. Yuen will remain fully
exercisable for their full term.
The New Yuen Agreement also permits Dr. Yuen, upon six months' prior
written notice to GDC Company, to terminate the New Yuen Agreement at any time
beginning after 18 months following the date of the New Yuen Agreement and to
elect, upon three months' prior written notice to GDC, to reduce his employment
from full-time to part-time (but not less than one day per week). If Dr. Yuen
voluntarily terminates the New Yuen Agreement, he is entitled to receive a lump-
sum payment of an amount equal to 1.5 times his then-current Base Salary, and
GDC will continue to provide Dr. Yuen with all other elements of compensation
provided under the New Yuen Agreement (including, without limitation, the
vesting of options to acquire Ordinary Shares) for 18 months from Dr. Yuen's
last day of empoyment. If Dr. Yuen elects to reduce his employment from full-
time to part-time, (A) all elements of his compensation and benefits (other than
the New Additional Benefits, the Other Benefits, any payments to Dr. Yuen during
the pendency of an appeal of a termination for cause or thereafter, and certain
other benefits as specified in the New Yuen Agreement, which would not be
reduced) would be reduced by the fraction the numerator of which is equal to one
minus the reduced number of working days per week, and the denominator of which
is equal to five and (B) Dr. Yuen will have the right to accept other employment
that is not in direct competition with the business of Gemstar or its
affiliates. Dr. Yuen also retains the right to terminate the New Yuen Agreement
within 90 days following a change of control (defined substantially as defined
in the Former Yuen Agreement), in which event (1) he would be entitled to
receive (a) a lump-sum payment equal to five times his then-current Base Salary,
(b) for a period of 60 months (as compared with 18 months under the Former Yuen
Agreement) following such termination, all other elements of his compensation
provided under the New Yuen Agreement, (2) all unvested options granted to him
under the New Yuen Agreement would immediately vest in full and would be
exercisable for their full term and all previously granted vested options to
acquire Ordinary Shares will remain fully exercisable for their full term.
The New Yuen Agreement contains provisions substantially similar to
those contained in the Former Yuen Agreement relating to inventions, patents,
copyrights and other intellectual property developed or obtained by Dr. Yuen
during his employment with GDC, except that Dr. Yuen has agreed to negotiate
exclusively with GDC for a six-month period for GDC to acquire the rights to any
intellectual property developed by Dr. Yuen and which he is entitled to retain
under the New Yuen Agreement. With respect to any intellectual property with
respect to which GDC enters into such exclusive negotiations with Dr. Yuen, GDC
is required to bear all costs and expenses of patent or copyright investigation,
filing, prosecution and registration relating to such intellectual property and
all associated costs, whether or not GDC acquires the rights to such
intellectual property. The New Yuen Agreement also contains provisions
substantially identical to those of the Former Yuen Agreement requiring GDC to
indemnify Dr. Yuen with respect to Dr. Yuen's good faith performance of his
duties for GDC, as well as a new provision requiring GDC to pay Dr. Yuen an
amount sufficient on an after-tax basis to reimburse Dr. Yuen for any excise tax
incurred by Dr. Yuen due to any payment, distribution, transfer or benefit
received by Dr. Yuen from the Company or GDC.
Other Employment Agreements With Executives. The Company has entered
into an employment agreement with Mr. Lau, and GDC has entered into employment
agreements with each of Ms. Leung and Messrs. Goldberg and Mankovitz, all of
which agreements contain substantially similar provisions. (Hereinafter, these
employment agreements are sometimes collectively referred to as the "Other
Agreements," and the named executive officers who have entered into these
agreements are sometimes collectively referred to as the "Other Executives").
The term of the employment agreements with Messrs. Lau, Goldberg and Mankovitz
extends until March 31, 2001, with no provision for renewal. The term of the
employment agreement with Ms. Leung runs through March 31, 1999, at which time
her agreement will be automatically renewed for an additional two-year term
unless, at least six months prior to the expiration of the term of the
agreement, either Ms. Leung or GDC gives written notice to terminate the
agreement.
18
<PAGE>
Each of the Other Agreements provides for a base annual salary which
is lower than that provided under the Former Yuen Agreement and is subject to
annual adjustment to become effective each June 1. The amount of the salary
adjustment for any year is calculated using a formula substantially similar to
the formula used to calculate Dr. Yuen's base salary adjustment under the Former
Yuen Agreement. Each of the Other Agreements provides for the same 20% cap on
the amount by which the base salary of the applicable Other Executive may be
increased in any year. Each of the Other Executives is also entitled under his
or her employment agreement to an annual incentive bonus equal to a percentage
of his or her adjusted base salary in effect for the year in which such bonus is
to be calculated. The annual incentive bonus is to be calculated using the same
formula used to calculate Dr. Yuen's annual incentive bonus under the Former
Yuen Agreement, except that the formula in the Other Agreements with each of Ms.
Leung and Messrs. Goldberg and Mankovitz provides for a maximum bonus equal to
40% of each such officer's then-base salary, rather than 80% as provided under
the Former Yuen Agreement and in Mr. Lau's employment agreement. The Other
Agreements further provide that the compensation and benefits payable to the
Other Executives under such agreements will be reviewed promptly following a
change of control (defined substantially as in the Former Yuen Agreement) to
reflect any expansion of the duties of such Other Executives, as determined in
good faith by the board of directors of the Company or GDC, as applicable. The
Other Agreements with each of Ms. Leung and Messrs. Goldberg and Mankovitz
provides for GDC to establish a non-qualified deferred compensation plan
pursuant to which such officers may, prior to the beginning of each calendar
year, elect to defer up to 100% of their total cash compensation for such year,
up to a maximum of $250,000. None of such officers has elected to defer any of
his or her cash compensation under such plan.
The Other Agreements provide that, in the event the Company (or GDC,
as applicable) is involved in a merger or a sale of all or substantially all of
its assets to another entity, The Company (or GDC) will (or will cause a
successor to) provide for such adjustment to the Other Executives' compensation
as may be necessary to preserve, as nearly as practicable, the payment of their
base salary and certain other benefits under such agreements. Each of the
Other Executives is entitled under his or her employment agreement to an
automobile allowance and to such other benefits, including, without limitation,
health insurance and participation in bonus, incentive, stock option or extra
compensation plans, to which he or she would otherwise be entitled by virtue of
his or her employment with the Company (or GDC). During fiscal 1997, these
other benefits consisted only of coverage under the Company's medical insurance
plan.
The Other Agreements prohibit the termination of the Other Executives
(or the termination of any compensation or benefits payable to the Other
Executives under such agreements) except as expressly provided in the Other
Agreements. Each of the Other Executives also has the right, upon 90 days'
prior written notice, to terminate his or her employment agreement.
The Other Agreements (except the agreement with Mr. Mankovitz) provide
that all inventions, patents, copyrights and other intellectual property
developed or conceived by the Other Executives during the term of their
employment agreements which are competitive with any existing products or
services of the Company or its affiliates, are the property of the Company (or
GDC, as the case may be). The employment agreement with Mr. Mankovitz contains
provisions relating to intellectual property that are similar to those contained
in the Former Yuen Agreement. See "Employment Agreements--Former Yuen
Agreement." All other intellectual property belongs to the Other Executives. The
Other Agreements also contain provisions substantially identical to those of the
Former Yuen Agreement requiring the Company (or GDC) to indemnify the Other
Executives with respect to their good faith performance of their duties.
Summary Compensation Table
The following table sets forth information concerning total
compensation earned or paid to the Chief Executive Officer and the four most
highly compensated executive officers of the Company who served in such
capacities on March 31, 1997 (the "named executive officers") for services
rendered to the Company during each of the last three fiscal years.
19
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation(2)(3) Awards
------
Securities All Other
Fiscal Salary Bonus Underlying Compensation
Name and Principal Positions(1) Year ($) ($) options(#) ($)(5)
- -------------------------------
<S> <C> <C> <C> <C> <C>
Henry C. Yuen
Chief Executive Officer and President................. 1997 $648,000 $518,400 $ -- $495,681
1996 540,000 432,000 2,600,000 495,681
1995 450,000 360,000 -- --
Elsie Ma Leung
Chief Operating Officer and Chief Financial Officer... 1997 475,000 190,000 -- 4,076
1996 326,875 130,750 410,000 --
1995 231,250 92,500 -- --
Roy J. Mankovitz
Asst. Secretary, Corporate Counsel - Intellectual
Property............................................. 1997 423,000 169,200 -- 4,658
1996 352,500 141,000 372,500 --
1995 293,750 117,500 -- --
Larry Goldberg
Secretary and Corporate Counsel....................... 1997 324,000 129,600 -- 4,427
1996 270,000 108,000 372,500 --
1995 225,000 90,000 -- --
Thomas L.H. Lau
Chairman.............................................. 1997 360,000 0 -- --
1996 270,000 0 230,000 --
1995 225,000 240,000 -- --
Daniel Kwoh(4)
Senior Vice President - Technology.................... 1997 396,000 158,400 -- 4,338
1996 330,000 132,000 115,000 --
1995 275,000 110,000 -- --
</TABLE>
___________________________________
(1) Other than Mr. Lau, who is employed by Gemstar as Chairman of the Board,
all of the other named executive officers are or were employed in the
indicated positions with GDC.
(2) No individual listed in the table received aggregate other compensation
exceeding $50,000 or 10% of the compensation reported in the table for
such individual.
(3) The salary paid to each of the listed executive officers represents each
such officer's adjusted base salary for each of the indicated fiscal
years, calculated pursuant to the applicable formula under such
officer's employment agreement with GDC. The bonuses paid to Dr. Yuen
represent the amounts of Dr. Yuen's annual incentive bonus for each of
the indicated fiscal years, calculated pursuant to the applicable
formula under the Former Yuen Agreement. The bonuses paid to each of
Messrs. Lau, Mankovitz and Goldberg and Ms. Leung represent the amount
of the annual incentive bonus paid to each such officer for each of the
indicated fiscal years, calculated pursuant to the applicable formula in
such officer's employment agreement with GDC or Gemstar, as the case may
be. See "Employment Agreements" above.
(4) Mr. Kwoh resigned as Senior Vice President - Technology of GDC effective
as of April 1, 1997.
(5) GDC provides the named executive officers with certain group life,
health, medical and other non-cash benefits generally available to all
salaried employees and not included in this column pursuant to the
Securities and Exchange Commission's rules. The amounts shown in this
column include the following:
(a) Matching contributions by GDC under the Gemstar Employees 401(k)
and Profit Sharing Plan, which permits salaried employees to make
tax-deferred contributions of a portion of their base compensation
pursuant to Section 401(k) of the Code. Under the Plan, GDC will
match 100% of 3% of a participant's compensation up to $16,667
contributed as elective deferrals and 50% of 3% of a participant's
compensation in excess of $16,667 contributed as elective deferrals
up to applicable limits under the Code. (Effective January 1, 1998,
GDC's matching contribution will be an amount equal to 100% of up
to 2% of a participant's compensation contributed, up to applicable
limits under the Code.) During fiscal 1997,
20
<PAGE>
the Company's matching contributions were $4,076, $4,338, $4,658
and $4,427 for Ms. Leung, Mr. Kwoh, Mr. Mankovitz and Mr. Goldberg,
respectively.
(b) The amounts shown for Dr. Yuen represent premiums paid for split
dollar life insurance policies. See the description of the split
dollar life insurance arrangement with Dr. Yuen under "Employment
Agreements -- Former Yuen Agreement."
Option Grants for Fiscal 1997
The Company did not grant stock options to any of the named executive
officers during fiscal 1997. On May 9, 1997, the Company granted Ms. Leung and
Messrs. Goldberg and Mankovitz options to purchase 300,000, 150,000, and 150,000
shares, respectively. The exercise price per share of all of such options is
$15.38, which represents the closing sale price of an Ordinary Share on May 8,
1997 as reported by the Nasdaq National Market.
Aggregate Option Exercises in the Fiscal Year Ended March 31, 1997 and Year-End
Values
During fiscal 1997, none of the named executive officers exercised any
options granted to them by the Company. The table below sets information
concerning the number of unexercised Company options held by the named executive
officers and the aggregate dollar value of in-the-money exercisable options at
March 31, 1997.
FISCAL YEAR-END OPTION HOLDINGS AND VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised options Value of Unexercised
(#) In-the-Money Options
at March 31, 1997 at March 31, 1997 ($)(1)
Name Exercisable Unexercisable(2) Exercisable Unexercisable
<S> <C> <C> <C> <C>
Thomas L.H. Lau.... 86,250 143,750 $ 30,188 $ 50,312
Henry C. Yuen...... 1,950,000 650,000 682,500 227,500
Elsie Ma Leung..... 292,500 117,500 102,375 41,125
Roy J. Mankovitz... 255,000 117,500 89,250 41,125
Larry Goldberg..... 255,000 117,500 89,250 41,125
</TABLE>
_____________________
(1) In accordance with the Securities and Exchange Commission's rules, the
information with respect to value of exercisable and unexercisable options
is presented as of March 31, 1997. Values are calculated by subtracting the
total exercise price from the fair market value of the underlying Ordinary
Shares. For purposes of this table, value is deemed to be $12.25 per
underlying share, the closing sale price per Ordinary Share on March 31,
1997 as reported on The Nasdaq National Market. All options reflected in
the table above have an exercise price of $11.90 per share, which
represents the closing sale price on August 16, 1995, the date such options
were granted.
(2) All options listed as unexercisable became fully vested and exercisable on
August 16, 1997. The value as of January 31, 1998 of all options held by
each of the named executive officers as of March 31, 1997 (using $31.375,
the closing sale price per Ordinary Share on January 30, 1998 as reported
on The Nasdaq National Market, as the per-share value of the shares subject
to such options) was as follows: Mr. Lau -- $4,479,250; Dr. Yuen --
$50,635,000; Ms. Leung --$7,984,750; Mr. Mankovitz -- $7,254,438; and Mr.
Goldberg -- $7,254,438.
21
<PAGE>
Other Matters
If any matters not referred to in this proxy statement should properly come
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment, and discretionary
authority to vote under such circumstances is included in the proxy. Management
is not aware of any such matters which may be presented for action at the
meeting. Matters incident to the conduct of the meeting may be voted upon
pursuant to the proxies.
By Order of the Board of Directors,
/s/ LARRY GOLDBERG
-----------------------------------
LARRY GOLDBERG
Secretary
February 26, 1998
22
<PAGE>
Appendix A
----------
GEMSTAR INTERNATIONAL GROUP LIMITED
1994 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED
Note: The following copy of the Gemstar International Group
Limited 1994 Stock Incentive Plan is filed as an appendix to
the proxy materials filed with the Securities and Exchange
Commission pursuant to Instruction 3 to Item 10 of Schedule
14A, but is not part of the proxy statement and does not
otherwise constitute soliciting material.
<PAGE>
GEMSTAR INTERNATIONAL GROUP LIMITED
1994 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. THE PLAN........................................... 1
1.1 Purpose....................................... 1
1.2 Administration and Authorization; Power and
Procedure..................................... 1
1.3 Participation................................. 3
1.4 Shares Available for Awards................... 3
1.5 Grant of Awards............................... 4
1.6 Award Period.................................. 4
1.7 Limitations on Exercise and Vesting of
Awards........................................ 4
1.8 Acceptance of Notes to Finance Exercise....... 4
1.9 No Transferability............................ 5
1.10 Restrictions on Transfer of Shares............ 6
II. OPTIONS............................................ 7
2.1 Grants........................................ 7
2.2 Option Price.................................. 7
2.3 Limitations on Grant and Terms of Incentive
Stock Options................................. 8
2.4 Option Repricing/Cancellation and
Regrant/Waiver of Restrictions................ 9
III. STOCK UNITS AND DIVIDEND EQUIVALENT RIGHTS......... 9
3.1 Stock Units................................... 9
3.2 Dividend Equivalent Rights.................... 10
IV. OTHER PROVISIONS................................... 10
4.1 Rights of Eligible Persons and Beneficiaries.. 10
4.2 Adjustments; Acceleration..................... 11
4.3 Effect of Termination of Employment........... 12
4.5 Tax Withholding............................... 13
4.6 Plan Amendment, Termination and Suspension.... 14
4.7 Privileges of Stock Ownership................. 15
4.8 Effective Date of the Plan.................... 15
4.9 Term of the Plan.............................. 15
4.10 Governing Law/Construction/Severability....... 15
4.11 Captions...................................... 16
4.12 Effect of Change of Subsidiary Status......... 16
4.13 Non-Exclusivity of Plan....................... 16
V. DEFINITIONS........................................ 16
5.1 Definitions................................... 16
</TABLE>
i
<PAGE>
GEMSTAR INTERNATIONAL GROUP LIMITED
1994 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED
(January 7, 1998)
I. THE PLAN
1.1 Purpose.
-------
The purpose of this Plan is to promote the success of the Corporation
and its Subsidiaries (the "Company") by providing a means of attracting,
-------
rewarding and retaining individuals who provide services to the Company in
various capacities. It is intended that this purpose be achieved by extending to
employees (including officers) of the Corporation and its Subsidiaries and
certain other Eligible Persons added long-term incentives for high levels of
performance and unusual efforts designed to improve the financial performance of
the Corporation and its Subsidiaries through the grant of Options to purchase
shares of its Common Stock and other Awards hereunder. Capitalized terms are
defined in Article V.
1.2 Administration and Authorization; Power and Procedure.
-----------------------------------------------------
(a) Committee. This Plan shall be administered by and all Awards
---------
shall be authorized by the Committee. Action of the Committee with respect to
the administration of this Plan shall be taken pursuant to a majority vote or by
written consent of its members.
(b) Awards; Interpretation; Powers of Committee. Subject to the
-------------------------------------------
express provisions of this Plan, the Committee shall have the authority:
(i) to determine eligibility and, from among those persons
determined to be Eligible Persons, those to whom Awards will be granted;
(ii) to grant Awards to Eligible Persons (provided, however, that any
grant to a member of the Committee shall be subject to ratification by the
Board), determine the price at which securities will be offered or awarded
and the amount of securities to be offered or awarded to any of such
persons, and determine the other specific terms and conditions of such
Awards consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
2
<PAGE>
required, and establish the events of termination, conversion or reversion
of such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Eligible Persons);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Corporation and Eligible Persons under
this Plan, further define the terms used in this Plan, and prescribe, amend
and rescind rules and regulations relating to the administration of this
Plan;
(v) to cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Persons, subject to any required
consent under Section 4.6;
(vi) to accelerate the exercisability or the vesting of any Awards
under such circumstances as the Committee shall determine, including a
Change in Control Event, or to extend the exercisability or extend the term
of any or all such outstanding Awards within the term limits on Awards
under Section 1.6;
(vii) to determine the circumstances that constitute a termination of
services for purposes of this Plan; and
(viii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) Binding Determinations. Any action taken by, or inaction of, the
----------------------
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
(d) Reliance on Experts. In making any determination or in taking or
-------------------
not taking any action under this Plan, the Committee or the Board, as the case
may be, may obtain and may rely upon the advice of experts,
3
<PAGE>
including employees of and professional advisors to the Corporation. No
director, officer or agent of the Company shall be liable for any such action or
determination taken or made or omitted in good faith.
(e) Delegation. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or employees of the
Company.
1.3 Participation.
-------------
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Persons. An Eligible Person who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.
1.4 Shares Available for Awards.
---------------------------
Subject to the provisions of Section 4.2, the capital stock that may
be delivered under this Plan shall be shares of the Corporation's authorized but
unissued Common Stock and any shares of its Common Stock held as treasury
shares.
(a) Number of Shares; Individual Limit. The maximum number of shares
----------------------------------
of Common Stock that may be delivered pursuant to Awards (including Incentive
Stock Options) granted to Eligible Persons under this Plan shall not exceed
20,000,000 shares, subject to adjustments contemplated by Section 4.2. The
maximum number of shares of the Corporation's Common Stock which may be
delivered pursuant to all Options granted during any one-year period to any
individual Eligible Person under this Plan shall not exceed 10,000,000 shares
and the maximum number of shares of the Corporation's Common Stock which may be
delivered pursuant to all Awards (including Options) granted during any one-year
period to any individual Eligible Person under this Plan shall not exceed
10,000,000 shares, subject to adjustments contemplated by Section 4.2.
(b) Calculation of Available Shares and Replenishment. Shares subject
-------------------------------------------------
to outstanding Awards shall be reserved for issuance. If any Option or any
right to acquire Common Stock under or to receive shares in respect of an Award
shall expire or be cancelled or terminated without having been exercised or paid
in full, the unpurchased, unvested, or undelivered shares subject thereto shall
again be available for the purposes of the Plan, subject only to any applicable
limitations for the preservation of deductibility under Section 162(m) of the
Code. If the Corporation withholds shares of Common Stock pursuant to Section
4.5, the number of shares that would
4
<PAGE>
have been deliverable with respect to an Award but that are withheld may not be
issued under this Plan.
1.5 Grant of Awards.
---------------
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award, and the
price (if any) to be paid for the shares or the Award and the other terms of the
Award. Each Award shall be evidenced by an Award Agreement signed by the
Corporation and, if required by the Committee, by the Eligible Person.
1.6 Award Period.
------------
Any Option shall expire and any other Award shall either vest or be
forfeited not more than ten (10) years after the date of grant; provided,
however, that any delivery of stock pursuant to an Award may be delayed until a
future date through the award of Stock Units or any other deferral mechanism if
specifically authorized by the Committee in writing.
1.7 Limitations on Exercise and Vesting of Awards.
---------------------------------------------
(a) Provisions for Exercise. No Award shall be exercisable or shall
-----------------------
vest until at least six months after the initial Award Date, and once
exercisable an Award shall remain exercisable until the expiration or earlier
termination of the Award, unless the Committee otherwise provides.
(b) Procedure. Any exercisable Award shall be deemed to be exercised
---------
when the Secretary of the Corporation receives written notice of such exercise
from the Participant together with any required payment made in accordance with
Section 2.2.
(c) Fractional Shares/Minimum Issue. Fractional share interests shall
-------------------------------
be disregarded, but may be accumulated. The Committee, however, may determine
that cash, other securities, or other property will be paid or transferred in
lieu of any fractional share interests. No fewer than 50 shares may be
purchased on exercise of any Award at any time unless the number purchased is
the total number at the time available for purchase under the Award.
1.8 Acceptance of Notes to Finance Exercise.
---------------------------------------
The Corporation may, with the Committee's approval, accept one or more
promissory notes from any Participant in connection with the exercise, receipt
or vesting of any outstanding Award; provided that any such note shall be
subject to the following terms and conditions:
5
<PAGE>
(a) The principal of the note shall not exceed the amount required to
be paid to the Corporation upon the exercise, receipt or vesting of one or
more Awards under the Plan and the note shall be delivered directly to the
Corporation in consideration of such exercise, receipt or vesting.
(b) The initial term of the note shall be determined by the
Committee; provided that the term of the note, including extensions, shall
--------
not exceed a period of ten (10) years.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less than
the applicable imputed interest rate specified by the Code.
(d) If the Participant's services to the Company terminate, the
unpaid principal balance of the note shall become due and payable on the
10th business day after such termination unless the Committee otherwise
provides; provided, however, that if a sale of such shares would cause the
-------- -------
Participant to incur liability under Section 16(b) of the Exchange Act, the
unpaid balance shall become due and payable on the 10th business day after
the first day on which a sale of such shares could have been made without
incurring such liability assuming for these purposes that there are no
other transactions by the Eligible Person subsequent to such termination.
(e) If required by the Committee or by applicable law, the note shall
be secured by a pledge of any shares or rights financed thereby in
compliance with applicable law.
(f) The authorization, terms, repayment provisions, and collateral
release provisions of the note and the pledge securing the note shall
conform with applicable laws, including rules and regulations of the
Federal Reserve Board as then in effect.
1.9 No Transferability.
------------------
Awards may be exercised only by, and amounts payable or shares
issuable pursuant to an Award shall be paid only to (or registered only in the
name of), the Participant or, if the Participant has died, the Participant's
Beneficiary or, if the Participant has suffered a Total Disability, the
Participant's Personal Representative, if any, or if there is none, the
Participant, or (to the extent permitted by applicable law and the other
provisions of this Plan and, if applicable, Rule 16b-3) to a third party
pursuant to such conditions and
6
<PAGE>
procedures as the Committee may establish in the Award Agreement or by amendment
thereto. Other than by will or the laws of descent and distribution (or
pursuant to a QDRO or other exception to transfer restrictions so authorized by
the Committee and consistent with Rule 16b-3, if applicable, or, in the case of
an Incentive Stock Option, with the Code), no right or benefit under this Plan
or any Award, shall be transferrable by the Participant or shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge (other than to the Corporation) and any such attempted
action shall be void. The Corporation shall disregard any attempt at transfer,
assignment or other alienation prohibited by the preceding sentences and shall
pay or deliver such shares of Common Stock in accordance with the provisions of
this Plan. The designation of a Beneficiary hereunder shall not constitute a
transfer for these purposes. The restrictions set forth herein shall not apply
to shares actually issued on exercise of Awards, except to the extent required
by Sections 1.10 and 4.4 or by the Committee in the Award Agreement.
1.10 Restrictions on Transfer of Shares.
----------------------------------
(a) Restrictions. If any Award is exercised or if shares become
------------
payable in respect of an Award at a time when there is not in effect a current
and effective regis tration statement with respect to the shares to be received,
the Participant shall become a "Restricted Stockholder" and the shares acquired
----------------------
upon exercise or payment of shares in respect of any Award by the Participant
(or, in the event of the Participant's death or Total Disability, his
Beneficiary or Personal Representative, as applicable) shall be deemed
"Restricted Shares". The Restricted Stockholder and Restricted Shares shall be
-----------------
subject to the restrictions contemplated by Section 4.4(a). Any permitted
transferee shall agree (at the request of the Corporation) to the same
restrictions on all subsequent transfers. Each Restricted Stockholder (or his
or her Beneficiary or Personal Representative, as applicable) and any permitted
transferee shall execute and deliver such representations and further agreements
or documents as the Corporation may reasonably request to enforce restrictions
imposed hereunder and under all applicable securities laws.
(b) Legend. All certificates evidencing shares subject to the
------
restrictions of this Section 1.10 shall bear the following legends and/or any
other appropriate or required legends under applicable laws so long as the
transfer of the shares, in the judgment of the Committee, remains restricted
thereunder or hereunder:
"OWNERSHIP OF THIS CERTIFICATE AND THE SHARES EVIDENCED BY THIS
CERTIFICATE AND ANY INTEREST
7
<PAGE>
THEREIN ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFER UNDER
APPLICABLE LAW AND UNDER AGREEMENTS WITH THE COMPANY, INCLUDING
RESTRICTIONS ON THE SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER
DISPOSITION UNDER SECTIONS 1.9, 1.10 and 4.4 OF THE CORPORATION'S
1994 STOCK OPTION PLAN, AS AMENDED AND RESTATED, COPIES OF WHICH ARE
AVAILABLE FOR REVIEW AT THE OFFICE OF THE SECRETARY OF THE
CORPORATION."
"THESE SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. NEITHER THESE
SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
AND QUALIFICATION UNDER SUCH LAWS AND AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR
QUALIFICATION ARE NOT REQUIRED."
II. OPTIONS.
2.1 Grants.
------
One or more Options may be granted under this Article to any Eligible
Person, subject to Section 1.4. Each Option granted may be either an Option
intended to be an Incentive Stock Option (if the optionee is eligible for such
an award under the Code), or not so intended, and such intent shall be indicated
in the applicable Award Agreement. Each Option shall be evidenced by an Award
Agreement signed by the Corporation, and, if required by the Committee, by the
Eligible Person.
2.2 Option Price.
------------
(a) Pricing Limits. The purchase price per share of the Common Stock
---------------
covered by each Option shall be determined by the Committee at the time of the
grant, but in the case of Incentive Stock Options shall not be less than 100%
(110% in the case of an Eligible Person who owns or is deemed to own under
Section 424(d) of the Code more than 10% of the total combined voting power of
all classes of stock of the Corporation) of the Fair Market Value of the Common
Stock on the date of grant and in all cases shall not be less than the par value
thereof.
(b) Payment Provisions. The purchase price of any shares purchased on
-------------------
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
money, including by electronic funds transfer; (ii) by check
8
<PAGE>
payable to the order of the Corporation; (iii) if expressly authorized by the
Committee or specified in the applicable Award Agreement, by a promissory note
of the Participant consistent with the requirements of Section 1.8; or (iv) to
the extent permitted by and consistent with the Corporation's Articles of
Association (as amended) and applicable law, by notice and third party payment
in such manner, if any, as may be authorized by the Committee or by the delivery
of shares of Common Stock of the Corporation already owned by the Participant,
provided, however, that the Committee may in its absolute discretion limit the
- -------- -------
Participant's ability to exercise an Option by delivering such shares. Shares
of Common Stock that are permitted to be used to satisfy the exercise price of
an Option shall be valued at their Fair Market Value on the date of exercise and
shall have been beneficially owned by the Optionee for at least six months prior
to such delivery.
2.3 Limitations on Grant and Terms of Incentive Stock Options.
---------------------------------------------------------
(a) $100,000 Limit. To the extent that the aggregate "fair market
--------------
value" of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking into
account both Common Stock subject to Incentive Stock Options under this Plan and
stock subject to incentive stock options under all other plans of the Company,
such options shall be treated as nonqualified stock options. For this purpose,
the "fair market value" of the stock subject to options shall be determined as
of the date the options were awarded. In reducing the number of options treated
as incentive stock options to meet the $100,000 limit, the most recently granted
options shall be reduced first. To the extent a reduction of simultaneously
granted options is necessary to meet the $100,000 limit, the Committee may, in
the manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.
(b) Option Period. Subject to the proviso in Section 1.6, each Option
-------------
and all rights thereunder shall expire no later than ten (10) years after the
Option Date or, in the case of an Incentive Stock Option granted to any 10%
Holder (as defined below), five (5) years after the Option Date.
(c) Other Code Limits; Limits on 10% Holders. No Incentive Stock
----------------------------------------
Option may be granted to any person who, at the time the Option is granted, owns
(or is deemed to own under Section 424(d) of the Code) shares of outstanding
Common Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation
9
<PAGE>
("10% Holder"), unless the exercise price of such Option is at least 110% of the
----------
Fair Market Value of the stock subject to the Option and such Option by its
terms is not exercisable after the expiration of five years from the date such
Option is granted. There shall be imposed in any Award Agreement relating to an
Incentive Stock Option such terms and conditions as from time to time are
required in order that the Option be an "incentive stock option" as that term is
defined in Section 422 of the Code.
2.4 Option Repricing/Cancellation and Regrant/Waiver of Restrictions.
----------------------------------------------------------------
Subject to Section 1.4 and Section 4.6 and the specific limitations on
Options contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person any
adjustment in the exercise or purchase price, the number of shares subject to,
the restrictions upon or the term of, an Option granted under this Article by
cancellation of an outstanding Option and a subsequent regranting of an Option,
by amendment, by substitution of an outstanding Option, by waiver or by other
legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original or prior Option, provide for a
greater or lesser number of shares subject to the Option, or provide for a
longer or shorter vesting or exercise period.
III. STOCK UNITS AND DIVIDEND EQUIVALENT RIGHTS.
3.1 Stock Units.
-----------
(a) Grants. Subject to Section 3.1(d), and such rules and procedures
------
as the Committee may establish from time to time, the Committee may, in its
discretion, authorize Awards of Stock Units and permit an Eligible Person to
elect to defer or receive in Stock Units all or a portion of the compensation
the Eligible Person could otherwise elect to defer under any other Company plan,
or in respect of any Award hereunder, or may grant Awards in the form of Stock
Units in lieu of or in addition to any other Award under this Plan. The
specific terms, conditions and provisions relating to each Stock Unit Award or
election, including the form of payment to be made at or following the vesting
thereof, shall be set forth in or pursuant to the Participant's Award Agreement
in respect thereof.
(b) Other Provisions. The Committee shall determine, among other
----------------
terms of a Stock Unit Award, the form of payment of the Stock Units, whether in
Common Stock, another Award, or any combination thereof, and the
10
<PAGE>
applicable vesting and payout provisions of the Award. The Committee in the
Award Agreement may permit the Participant to elect the form and time of payout
of vested Stock Units on such conditions or subject to such procedures as the
Committee may impose.
(c) Stock Units. Each Award Agreement for an Award of Stock Units
-----------
shall include the applicable benefit distribution and termination provisions,
which may include elective features, for such Award and shall specify the form
of payment.
(d) Limit on Certain Stock Unit Awards. Notwithstanding anything
----------------------------------
contained herein to the contrary, any Stock Unit Award or Stock Unit Awards
which individually or in the aggregate would constitute an "employee pension
benefit plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) shall be made only to Eligible
Persons who are members of "a select group of management or highly compensated
employees" (as provided in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA) of
the Company.
3.2 Dividend Equivalent Rights. In its discretion, the Committee may
--------------------------
grant to any Eligible Person DERs concurrently with the grant of any Option or
Stock Unit, on such terms as set forth by the Committee in the Award Agreement.
DERs shall be based on all or part of the amount of dividends declared on shares
of Common Stock underlying the Award and shall be credited in respect of the
period between the date of grant (or such later date as the Committee may set)
and the date the Option or Stock Unit is exercised or expires (or such earlier
date as the Committee may set) or is settled, as determined by the Committee.
DERs shall be payable in shares or other Awards and (to the extent permitted by
law) may be subject to such conditions, not inconsistent with Section 162(m) of
the Code (in the case of Options or other Awards intended to satisfy its
conditions with respect to deductibility), as may be determined by the
Committee.
IV. OTHER PROVISIONS.
4.1 Rights of Eligible Persons and Beneficiaries.
--------------------------------------------
(a) Employment Status. Status as an Eligible Person or Participant
-----------------
shall not be construed as a commitment that any Award or additional Award will
be made under this Plan.
(b) No Employment Contract. Nothing contained in this Plan (or in any
----------------------
other documents related to this Plan or to any Award) shall confer upon any
Eligible Person or
11
<PAGE>
Participant any right to continue in the employ or other service of the Company
or constitute any contract or agreement of employment or other service, nor
shall interfere in any way with the right of the Company to change such person's
compensation or other benefits or to terminate the employment or services of
such person, with or without cause, but nothing contained in this Plan or any
document related hereto shall adversely affect any independent contractual right
of such person without his or her consent thereto.
(c) Plan Not Funded. Awards payable under this Plan shall be payable
---------------
in shares of Common Stock and no special or separate reserve (except as provided
in Section 1.4(b)), fund or deposit shall be made to assure payment of such
Awards. No Participant, Beneficiary or other person shall have any right, title
or interest in any fund or in any specific asset (including shares of Common
Stock, except as expressly otherwise provided) of the Company by reason of any
Award hereunder. Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company and any
Eligible Person, Participant, Beneficiary or other person. To the extent that
an Eligible Person, Beneficiary or other person acquires a right to receive
payment pursuant to any Award hereunder, such right shall be no greater than the
right of any unsecured general creditor of the Company and shall be subject to
any prior or senior rights of creditors to the assets of the Company under
applicable law.
4.2 Adjustments; Acceleration.
-------------------------
(a) Adjustments. If there shall occur any extraordinary dividend or
-----------
other extraordinary distribution in respect of the Common Stock (whether in the
form of cash, Common Stock, other securities, or other property), or any
recapitalization, stock split (including a stock split in the form of a stock
dividend), reverse stock split, reorganization, merger, combination,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Corporation, issuance of warrants or
other rights to purchase shares, or any other like corporate transaction or
event in respect of the Common Stock or a sale of substantially all the assets
of the Corporation as an entirety, then the Committee shall, in such manner and
to such extent (if any) as it deems appropriate and equitable (1)
proportionately adjust any or all of (a) the number and type of shares of Common
Stock (or other securities) or other consideration which thereafter may be made
the subject of Awards (including the specific limits, maxima and numbers of
shares set forth elsewhere in
12
<PAGE>
this Plan), (b) the number, amount and type of shares of Common Stock (or other
securities or property) or other consideration subject to any or all outstanding
Awards, (c) the grant, purchase, or exercise price of any or all outstanding
Awards, (d) the securities, cash or other property deliverable upon exercise of
any outstanding Awards, or (2) in the case of an extraordinary dividend or other
distribution, merger, reorganization, consolidation, combination, sale of
assets, split up, exchange, or spin off, make provision for a cash payment or
for the substitution or exchange of any or all outstanding Awards or the cash,
securities or property deliverable to the holder of any or all outstanding
Awards based upon the distribution or consideration payable to holders of the
Common Stock of the Corporation upon or in respect of such event; provided,
--------
however, in each case, that with respect to Incentive Stock Options, no such
- -------
adjustment shall be made which would cause this Plan to violate Section 422 or
424 of the Code or any successor provisions thereto without provision for
compensatory adjustment to Optionees adversely affected thereby.
(b) Possible Acceleration of Awards Upon Change in Control. In the
------------------------------------------------------
event of or in anticipation of a Change in Control Event, the Committee may
provide acceleration of exercisability, vesting, payment or other benefits under
some or all Awards or for certain other limited benefits under some or all
Awards and may determine the extent and duration of such limited rights,
including (in the discretion of the Committee) stock appreciation rights. Any
acceleration of Awards shall comply with any applicable regulatory requirements.
(c) Possible Early Termination of Accelerated Awards. If any Award or
------------------------------------------------
other right to acquire Common Stock under this Plan is fully exercisable or has
been fully accelerated as permitted by Section 4.2(b) but is not exercised prior
to (i) a dissolution of the Corporation, or (ii) a reorganization event
described in Section 4.2(a) that the Corporation does not survive, or (iii) the
consummation of reorganization event described in Section 4.2(a) that results in
a Change of Control approved by the Board, and no provision has been made for
the survival, substitution, exchange or other settlement of such Award or right,
such Award or right shall terminate upon the occurrence of such dissolution or
reorganization.
4.3 Effect of Termination of Employment.
-----------------------------------
The Committee shall establish in respect of each Award granted to an
Eligible Person the effect of a termination of employment or services on the
rights and benefits thereunder and in so doing may make distinctions based upon
the cause of termination.
13
<PAGE>
4.4 Compliance with Laws.
--------------------
(a) General. This Plan, the grant, exercise and vesting of Awards
-------
under this Plan and the issuance and delivery of shares of Common Stock and/or
any other value under this Plan or under Awards granted hereunder are subject to
compliance with all applicable laws, rules and regulations (including but not
limited to securities law and margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of counsel
for the Corporation, be necessary or advisable in connection therewith. Any
securities delivered under this Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Corporation,
provide such assurances and representations to the Corporation as the
Corporation may deem necessary or desirable to assure compliance with all
applicable legal requirements.
(b) Controlled Foreign Corporation. No Award shall be granted by the
------------------------------
Corporation if the grant of such Award would cause the Corporation to be a
controlled foreign corporation within the meaning of Section 957 of the Code.
(c) Foreign Personal Holding Company. No Award shall be granted by
--------------------------------
the Corporation if the grant of such Award would cause the Corporation to be a
foreign personal holding company within the meaning of Section 552 of the Code.
(d) Personal Holding Company. No Award shall be granted by the
------------------------
Corporation if the grant of such Award would cause the Corporation to be a
personal holding company within the meaning of Section 542 of the Code.
4.5 Tax Withholding.
---------------
(a) Cash or Shares. Upon the exercise, vesting, or payment of any
--------------
Award or upon the disposition of shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option prior to the satisfaction of the holding
requirements of Section 422 of the Code, the Company shall have the right at its
option to (i) require the Eligible Person (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment in cash of the
amount of any taxes which the Company may be required to withhold with respect
to such transaction or (ii) deduct from any amount payable the amount (or
equivalent value) of any taxes which the Company may be required to withhold
with respect to such amount payable or (iii) require the Participant to satisfy
any withholding obligation through any combination of the foregoing methods. In
any case where a tax is required to be withheld in connection with the delivery
of shares of Common Stock under this Plan, the
14
<PAGE>
Committee may grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares to satisfy such withholding obligation. Any shares offset or
delivered to satisfy withholding shall be valued at their then Fair Market
Value.
(b) Tax Loans. The Company may, in its discretion and to the extent
---------
permitted by law, authorize a loan to an Eligible Person in the amount of any
taxes which the Company may be required to withhold with respect to shares of
Common Stock to be issued on exercise for a term, at a rate of interest and
pursuant to such other terms and conditions as the Corporation or its
Subsidiary, under applicable law, may establish and such loan need not comply
with the provisions of Section 1.8.
4.6 Plan Amendment, Termination and Suspension.
------------------------------------------
(a) Board Authorization. The Board may, at any time, terminate or,
-------------------
from time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after termination of
this Plan, but the Committee shall retain jurisdiction as to Awards then
outstanding in accordance with the terms of this Plan.
(b) Shareholder Approval. If an amendment would (i) materially
--------------------
increase the benefits accruing to Participants under this Plan, (ii) materially
increase the aggregate number of securities that may be issued under this Plan,
or (iii) materially modify the requirements as to eligibility for participation
in this Plan, then to the extent required by applicable law, or deemed necessary
or advisable by the Committee or the Board, such amendment shall be subject to
shareholder approval.
(c) Amendments to Awards. Without limiting any other express
--------------------
authority of the Committee hereunder, but subject to the express limits of this
Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Participants that the Committee in the prior exercise
of its discretion has imposed, without the consent of a Participant and may make
other changes to the terms and conditions of Awards that do not affect in any
manner materially adverse to the Participant, his or her rights and benefits
under an Award.
(d) Limitations on Amendments to Plan and Awards. No amendment,
--------------------------------------------
suspension or termination of the Plan or change of or affecting any outstanding
Award shall, without
15
<PAGE>
written consent of the Participant, affect in any manner materially adverse to
the Participant any rights or benefits of the Participant or obligations of the
Corporation under any Award granted under this Plan prior to the effective date
of such change. Changes contemplated by Section 4.2 shall not be deemed to
constitute changes or amendments for purposes of this Section 4.6.
4.7 Privileges of Stock Ownership.
-----------------------------
Except as otherwise expressly authorized by the Committee or this
Plan, a Participant shall not be entitled to any privilege of stock ownership as
to any shares of Common Stock not actually delivered to and held of record by
him or her. No adjustment will be made for dividends or other rights as a
shareholders for which a record date is prior to such date of delivery.
4.8 Effective Date of the Plan.
--------------------------
This amendment and restatement of the Plan is effective upon its
approval by the Board (the "Effective Date"), subject to approval by the holders
of not less than an absolute majority of the votes of the outstanding shares of
the Corporation entitled to vote.
4.9 Term of the Plan.
----------------
No Award shall be granted after the day before the 10th anniversary of
the Effective Date (the "Termination Date"). Unless otherwise expressly
provided in this Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond such date, and all authority of the Committee with
respect to Awards hereunder shall continue during any suspension of this Plan
and in respect of outstanding Awards on such Termination Date.
4.10 Governing Law/Construction/Severability.
---------------------------------------
(a) Choice of Law. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California except to the extent the law
of the British Virgin Islands applies as the jurisdiction of incorporation of
the Corporation.
(b) Severability. If any provision shall be held by a court of
------------
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
16
<PAGE>
4.11 Captions.
--------
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
4.12 Effect of Change of Subsidiary Status.
-------------------------------------
For purposes of this Plan and any Award hereunder, if an entity ceases
to be a Subsidiary, a termination of employment or services shall be deemed to
have occurred with respect to each Participant who does not otherwise remain an
Eligible Person after giving effect to such event.
4.13 Non-Exclusivity of Plan.
-----------------------
Nothing in this Plan shall limit or be deemed to limit the authority
of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
V. DEFINITIONS.
5.1 Definitions.
-----------
(a) "Award" shall mean an award of any Option, Stock Unit, or DER, or
-----
any combination thereof, whether alternative, sequential, or cumulative,
authorized by and granted under this Plan.
(b) "Award Agreement" shall mean any writing setting forth the terms
---------------
of an Award that has been authorized by the Committee.
(c) "Award Date" shall mean the date upon which the Committee took the
----------
action granting an Award or such later date as the Committee designates as the
Award Date at the time of the Award.
(d) "Beneficiary" shall mean the person, persons, trust or trusts
-----------
validly designated by the Participant or in the absence of a valid designation
entitled by will or the laws of descent and distribution to receive the benefits
specified in the Award Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or administrator
if no other Beneficiary is so designated and able to act under the
circumstances.
17
<PAGE>
(e) "Board" shall mean the Board of Directors of the Corporation.
-----
(f) "Change in Control Event" shall mean any of the following (other
-----------------------
than as a direct result of a public offering of shares of the Corporation):
(1) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation;
(2) Approval by the shareholders of the Corporation of an
agreement to merge or consolidate, or otherwise recapitalize or reorganize,
with or into one or more entities that are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving
or resulting entity immediately after the event are, or will be, owned by
the shareholders of the Corporation and/or Related Parties immediately
before such event (assuming for purposes of such determination that there
is no change in the record ownership of the Corporation's securities from
the record date for such approval until such event but taking into
consideration securities of the other parties to such transaction held by
such record holders);
(3) Approval by the shareholders of the Corporation of the sale
of substantially all of the Corporation's business and/or assets to a
person or entity which is not a Subsidiary or Related Party;
(4) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) (other than a Related Party or other person
having beneficial ownership of more than 50% of the outstanding voting
securities at the time of adoption of this Plan, or any successor,
affiliate or associate of such owner) becomes the "beneficial owner" (as
----------------
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 50% of the combined
voting power of the Corporation's then outstanding securities entitled to
then vote generally in the election of directors of the Corporation; or
(5) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the Board cease
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Corporation's shareholders, of each new
Board member was approved by a vote of at least three-fourths of the Board
members then still in office who were Board members at the
18
<PAGE>
beginning of such period, including for these purposes (but without
duplication of predecessors and successors), new members whose election or
nomination was so approved.
(g) "Code" shall mean the United States Internal Revenue Code of 1986,
----
as amended from time to time.
(h) "Commission" shall mean the United States Securities and Exchange
----------
Commission.
(i) "Committee" shall mean the Board or a committee appointed by the
---------
Board to administer this Plan, which committee shall be comprised only of two or
more directors or such greater number of directors as may be required under
applicable law, each of whom, during such time as one or more Eligible Persons
may be subject to Section 16 of the Exchange Act, shall be Disinterested.
(j) "Common Stock" shall mean the Ordinary Shares of the Corporation,
------------
subject to any adjustments made under Section 4.2 of this Plan.
(k) "Company" shall mean, collectively, the Corporation and its
-------
Subsidiaries.
(l) "Corporation" shall mean Gemstar Inter-national Group Limited and
-----------
its successors.
(m) "Disinterested" shall mean disinterested within the meaning of
-------------
Rule 16b-3.
(n) "Dividend Equivalent Right" or "DER" shall mean a right authorized
------------------------- ---
under Section 3.2 of this Plan.
(o) "Eligible Person" shall mean (subject to the proviso below) (1) a
---------------
director, officer or key employee of the Corporation or a Subsidiary, or (2) any
consultant or advisor who (directly or through an entity with which he or she is
associated) renders or has rendered bona fide services (other than services in
---- ----
connection with the offering or sale of securities of the Corporation or any
Subsidiary in a capital raising transaction) to the Company, and who is selected
to participate in this Plan by the Committee, or (3) a non-employee agent of the
Corporation or any Subsidiary providing such bona fide services to the Company
---------
(other than as an eligible advisor or consultant) if such agent's participation
in this Plan would not adversely affect (x) the Corporation's eligibility in the
future to use Form S-8 to register under the Securities Act of 1933, as amended,
the offering of shares issuable under this Plan, or (y) the Corporation's
compliance with any other applicable securities or other laws; provided,
--------
however, in any case that if the Corporation's officers and directors
- -------
19
<PAGE>
become subject to Section 16 of the Exchange Act, a member of the Committee
shall not during his or her service in such capacity (and during the applicable
period prior thereto under Rule 16b-3) be an Eligible Person.
(p) "ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
(q) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time.
(r) "Fair Market Value" shall mean (i) if the stock is listed or
-----------------
admitted to trade on a United States national securities exchange, the closing
price of the stock on the Composite Tape, as published in the Western Edition of
The Wall Street Journal, of the principal national securities exchange on which
the stock is so listed or admitted to trade, on such date, or, if there is no
trading of the stock on such date, then the closing price of the stock as quoted
on such Composite Tape on the next preceding date on which there was trading in
such shares; (ii) if the stock is not listed or admitted to trade on such a
national securities exchange, the last price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar organization if
the NASD is no longer reporting such information; (iii) if the stock is not
listed or admitted to trade on a national securities exchange and is not
reported on the National Market Reporting System, the mean between the bid and
asked price for the stock on such date, as furnished by the NASD or a similar
organization; or (iv) if the stock is not listed or admitted to trade on a
national securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by the NASD
or a similar organization, the value as established by the Board at such time
for purposes of this Plan.
(s) "Incentive Stock Option" shall mean an Option which is designated
----------------------
as an incentive stock option within the meaning of Section 422 of the Code, the
award of which contains such provisions as are necessary to comply with that
section.
(t) "Nonqualified Stock Option" shall mean an Option that is
-------------------------
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.
20
<PAGE>
(u) "Option" shall mean an option to purchase Common Stock under this
------
Plan. The Committee shall designate any Option granted to an Eligible Person as
a Nonqualified Stock Option or an Incentive Stock Option.
(v) "Participant" means an Eligible Person who has been granted an
-----------
Award.
(w) "Personal Representative" shall mean the person or persons who,
-----------------------
upon the disability or incompetence of a Participant, shall have acquired on
behalf of the Eligible Person, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Eligible Person.
(x) "Plan" shall mean this 1994 Stock Incentive Plan, as amended and
----
restated.
(y) "QDRO" shall mean a qualified domestic relations order as defined
----
in Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the
same extent as if this Plan were subject thereto), or the applicable rules
thereunder.
(z) "Related Party" means a person or entity related (by blood or
-------------
marriage in the case of individuals) to, or associated or affiliated with, the
subject person or entity.
(aa) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
----------
Commission pursuant to the Exchange Act, as amended from time to time but
subject to any applicable transition rules.
(bb) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended from time to time.
(cc) "Stock Unit" shall mean a non-voting unit of measurement which is
----------
deemed for bookkeeping purposes to be equivalent to one outstanding share of
Common Stock (subject to adjustment) solely for purposes of this Plan.
(dd) "Stock Unit Account" shall mean the bookkeeping account
------------------
maintained by the Company on behalf of each Participant which is credited with
Stock Units in accordance with Section 3.1(c) and which is payable in stock or
another Award.
21
<PAGE>
(ee) "Subsidiary" shall mean any corporation or other entity a
----------
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.
(ff) "Total Disability" or "Disability" shall mean a "permanent and
---------------- ----------
total disability" within the meaning of Section 22(e)(3) of the Code and such
other disabilities, infirmities, afflictions or conditions as the Committee by
rule may include.
22
<PAGE>
APPENDIX B
----------
Note: The following excerpt from the Amended and Restated Employment
Agreement of Henry C. Yuen containing the Performance-Based Provisions
thereof is filed as an appendix to the proxy materials filed with the
Securities and Exchange Commission pursuant to Instruction 3 to Item
10 of Schedule 14A, but is not part of the proxy statement and does
not otherwise constitute soliciting material.
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
3. Compensation.
------------
(a) Base Compensation and Adjustments.
---------------------------------
(ii) On June 1 of each Compensation Period, commencing June 1, 1998,
if "R" or "P" (as defined below) for the fiscal year ending on the immediately
preceding March 31 is positive, the Base Salary for such Compensation Period and
each Compensation Period thereafter shall be adjusted by adding to the Base
Salary for the previous Compensation Period the amount obtained by multiplying
the Base Salary for the previous Compensation Period by the positive percentage,
if any, equal to the Adjusted Percentage (as defined below); provided, however,
-------- -------
that no such adjustment shall be made with respect to Base Salary for the
Compensation Period commencing June 1, 1998 unless GIGL's consolidated revenues
and consolidated earnings from operations for the fiscal quarter ending March
31, 1998 exceed GIGL's consolidated revenues and consolidated earnings from
operations, respectively, for the fiscal quarter ended March 31, 1997, in each
case as shown on the consolidated financial statements of GIGL (the "FINANCIAL
STATEMENTS").
For purposes of this Section 3(a)(ii), the "ADJUSTED PERCENTAGE" means
the percentage equal to the product of (1) the sum of "R" plus "P," multiplied
by (2) twenty-five hundredths (0.25), where "R" is the percentage increase, if
any, from the previous fiscal year in GIGL's consolidated revenues, as shown on
the Financial Statements; and "P" is the percentage increase, if any, from the
previous fiscal year in GIGL's consolidated net earnings, as shown on the
Financial Statements.
2
<PAGE>
(b) Merit Bonus.
-----------
(i) Within fifty (50) days following the end of each fiscal year
ending March 31 of the Company (or portion thereof) during the term of this
Agreement ("FISCAL YEAR"), the Company shall determine the amount of the merit
bonus (the "MERIT BONUS") payable to Employee equal to a percentage of the Base
Salary, which percentage shall equal the percentage increase, if any, in GIGL's
consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") for its most recently completed Fiscal Year from GIGL's EBITDA for
the comparable period in the immediately preceding Fiscal Year; provided,
--------
however, that no Merit Bonus shall be paid with respect to the percentage
- -------
increase in EBITDA for the Fiscal Year ending March 31, 1998 unless GIGL's
consolidated revenues and consolidated earnings from operations for the fiscal
quarter ending March 31, 1998 exceed GIGL's consolidated revenues and
consolidated earnings from operations, respectively, for the fiscal quarter
ended March 31, 1997, in each case as shown on the Financial Statements. GIGL
shall immediately inform Employee of the amount, if any, of the Merit Bonus.
(ii) Within ten (10) days following notice to Employee of the amount
of the Merit Bonus, Employee may elect in writing to receive such Merit Bonus in
the form of options to acquire Ordinary Shares (the "MERIT OPTIONS"), which
Merit Options shall be issued under GIGL's employee stock option plan if
sufficient options are available thereunder and shall be issued outside of such
plan if insufficient options are available thereunder. If Employee does not
elect to receive Merit Options for a given Fiscal Year, the Company shall
promptly pay to Employee the Merit Bonus in cash. If Employee elects to receive
Merit Options in respect of a Fiscal Year, such Merit Options shall be issued on
the last day of the Compensation Period in which such Fiscal Year ends, and (A)
each Merit Option shall represent an option to acquire one (1) Ordinary Share,
and the number of Merit Options to be issued to Employee shall equal the
quotient of (1) the aggregate dollar amount of such Merit Bonus divided by (2)
the product of the Market Price (as defined below) per Ordinary Share as of the
last day of the Compensation Period in which such Fiscal Year ends multiplied by
twenty-five hundredths (0.25), (B) subject to the accelerated vesting provisions
of this Agreement, one-third (1/3) of the aggregate number of such Merit Options
shall be immediately vested in full and fully exercisable, and one-third (1/3)
of the aggregate number of such Merit Options shall become vested in full and
fully
3
<PAGE>
exercisable as of each of the first (1st) and second (2nd) anniversaries of the
last day of the Compensation Period in which such Fiscal Year ends, (C) the
exercise price per Ordinary Share under such Merit Options shall equal the
Market Price (as defined below) per Ordinary Share as of the last day of the
Compensation Period in which such Fiscal Year ends, and (D) such Merit Options
shall be exercisable through the tenth (10th) anniversary of the last day of the
Compensation Period in which such Fiscal Year ends.
As used in this Agreement, the "MARKET PRICE" per Ordinary Share as of
any date shall equal the most recent closing price per Ordinary Share on the
principal securities exchange or market on which Ordinary Shares then trade.
(c) Annual Incentive Bonus.
----------------------
Company shall pay to Employee in respect of each Fiscal Year (or
portion thereof) during the term of this Agreement, the incentive bonus
compensation benefits described in, and in accordance with the terms of,
Schedule I to this Agreement (the "ANNUAL INCENTIVE BONUS"), which is
incorporated herein by reference as though set forth in full; provided, however,
-------- -------
that no Annual Incentive Bonus shall be paid with respect to the Compensation
Period ending May 31, 1998 unless GIGL's consolidated revenues and consolidated
earnings from operations for the fiscal quarter ending March 31, 1998 exceed
GIGL's consolidated revenues and consolidated earnings from operations,
respectively, for the fiscal quarter ended March 31, 1997, in each case as shown
on the Financial Statements.
4
<PAGE>
(d) Annual Stock Options.
--------------------
(i) Concurrently with the execution of this Agreement, GIGL shall
grant to Employee, subject to the vesting provisions described in this
Agreement, options to acquire four million one hundred sixty-two thousand seven
hundred and twenty-five (4,162,725) Ordinary Shares (the "INITIAL GRANT"). On
the first day of each Compensation Period that commences after the date of this
Agreement, GIGL shall grant to Employee, subject to the vesting provisions
described in this Agreement, options to acquire eight hundred thirty-two
thousand five hundred forty-five (832,545) Ordinary Shares ("PERIODIC GRANTS").
All such options granted under this Section 3(d) are referred to in this
Agreement as the "ANNUAL OPTIONS." Each Annual Option shall represent the right
to acquire one (1) Ordinary Share. Subject to Section 1(a)(ii) and to the other
accelerated vesting provisions of this Agreement, eight hundred thirty-two
thousand five hundred forty-five (832,545) Annual Options shall vest in full and
become immediately exercisable on the last day of each of the Compensation
Periods (or portion thereof) that follow the date of this Agreement, with the
options granted earliest to vest first and the options available under the
Current Plan to vest earliest. The exercise price per Ordinary Share under each
Annual Option shall equal the Market Price per Ordinary Share as of the date of
grant of such Annual Option. Each Annual Option shall be exercisable through the
tenth (10th) anniversary of the date of its grant.
(ii) All Annual Options shall be issued under GIGL's employee stock
option plan if sufficient options are available thereunder and shall be issued
outside of such plan if insufficient options are available thereunder. GIGL
represents and warrants to Employee that, as of the date hereof, only one
million one hundred thirty thousand one hundred fifty (1,130,150) options and
the same number of underlying Ordinary Shares remain available for issuance
under the Current Plan, and all of such options and underlying Ordinary Shares
have been included in the Initial Grant.
5
<PAGE>
(k) Maximum Compensation.
--------------------
Notwithstanding the foregoing provisions of this Section 3, the
aggregate amount of Base Salary, Merit Bonus and Annual Incentive Bonus payable
in cash under this Agreement for each of the Compensation Periods described in
the table below shall not exceed the dollar amount set forth opposite such
Compensation Period in such table:
<TABLE>
<CAPTION>
COMPENSATION PERIOD
ENDING MAY 31, CASH MAXIMUM
<S> <C>
1998 $ 2,500,000
---------------------------------------------------------------
1999 4,000,000
---------------------------------------------------------------
2000 5,000,000
---------------------------------------------------------------
2001 6,250,000
---------------------------------------------------------------
2002 8,000,000
---------------------------------------------------------------
2003 12,000,000
---------------------------------------------------------------
2004 15,000,000
---------------------------------------------------------------
2005 22,000,000
---------------------------------------------------------------
</TABLE>
6
<PAGE>
SCHEDULE I
ANNUAL INCENTIVE BONUS COMPENSATION
(a) Subject to the terms and conditions of this Agreement, and in addition
to the Base Salary, Merit Bonus and other Additional Benefits to which Employee
may otherwise be entitled from Company, at the end of each Fiscal Year (or
portion thereof) during the term of this Agreement, Employee shall be deemed to
have earned a bonus (the "Annual Incentive Bonus" or "B"), payable by the
Company to Employee on the last day of the Compensation Period in which such
Fiscal Year ends (or such sooner date as of which this Agreement terminates),
calculated according to the following formula:
(i) if C/E LESS THAN OR EQUAL TO 1.00, then B = 0.00;
(ii) if C/E GREATER THAN 1.00, then B = [(C/E)/1/n/ - 1.00] x 2.5 x S
Where:
C = The sum of GIGL's consolidated earnings per share for each of the
four (4) fiscal quarters in such Fiscal Year (or, if this
Agreement terminates prior to the end of a Fiscal Year, the
portion of such Fiscal Year preceding the date of such
termination) as reflected, with respect to the first three (3) of
such quarters, in the respective quarterly reports on Form 10-Q
filed by GIGL with the SEC and, with respect to the fourth
quarter, in the annual report on Form 10-K filed by GIGL with the
SEC, in each case excluding the effect of one-time charges
("EPS");
E = EPS of GIGL for the Fiscal Year ended March 31, 1997 (or, if this
Agreement terminates prior to the end of a Fiscal Year, the
portion of the Fiscal Year ended March 31, 1997 comparable to the
portion of such Fiscal Year preceding the date of such
termination);
I-1
<PAGE>
n = the number of the then-completed Fiscal Years, numbering them
consecutively considering the Fiscal Year ended March 31, 1997 as
n=0, determined as follows:
<TABLE>
<CAPTION>
-------------------------
FISCAL YEAR ENDING
MARCH 31, N
--------------------------
<S> <C>
1998 n=1
--------------------------
1999 n=2
--------------------------
2000 n=3
--------------------------
M M
--------------------------
2004 n=7
--------------------------
M M
--------------------------
2010 n=13
--------------------------
M M
--------------------------
</TABLE>
S.= Base Salary as of the last day of such Fiscal Year.
(b) In the event that Employee's employment with Company terminates during
a Fiscal Year and it is impracticable to calculate "C" or "E" for a portion of a
Fiscal Year, Employee's Annual Incentive Bonus shall be calculated based on what
would have been payable for a full Fiscal Year and prorating that amount based
upon the number of days during the Fiscal Year that Employee was employed by
Company.
(c) The Annual Incentive Bonus amount due for each Fiscal Year shall be
paid by Company to Employee at the end of each Compensation Period (or such
sooner date as of which this Agreement terminates) (the "Due Date"). Employee
may, at his own expense, audit the applicable records at the place where Company
maintains the same in order to verify the calculation of the Annual Incentive
Bonus. Any such audit shall be conducted only by a reputable public accountant
during reasonable business hours in such manner as not to interfere with
Company's normal business activities. in no event shall an audit with respect to
the calculation of the Annual Incentive Bonus commence later than twelve (12)
months after the Due Date.
If any audit of Company's records by Employee reveals that Company has
failed to properly account for and pay Employee the Annual Incentive Bonus that
should have been paid for that Fiscal Year, and the amount of any Annual
Incentive Bonus which Company has failed to properly account and pay for in
respect of any Fiscal Year exceeds by at least three percent (3%) the amount of
Annual Incentive Bonus actually accounted for and paid to Employee for such
Fiscal Year, Company shall, in addition to paying Employee such overdue amount
of Annual Incentive Bonus, reimburse Employee for his direct, reasonable out-of-
pocket expenses incurred in conducting such audit.
I-2
<PAGE>
(d) In lieu of receiving his Annual Incentive Bonus in cash, Employee may
elect to receive such Annual Incentive Bonus in the form of options to acquire
Ordinary Shares (the "ANNUAL INCENTIVE OPTIONS"), which Annual Incentive Options
shall be issued under GIGL's employee stock option plan if sufficient options
are available thereunder and shall be issued outside of such plan if
insufficient options are available thereunder. If Employee elects to receive
Annual Incentive Options in respect of a Fiscal Year, (A) each Annual Incentive
Option shall represent an option to acquire one (1) Ordinary Share, and the
number of Annual Incentive Options to be issued to Employee shall equal the
quotient of (1) the aggregate dollar amount of such Annual Incentive Bonus
divided by (2) the product of the Market Price per Ordinary Share as of the last
day of the Compensation Period in which such Fiscal Year ends multiplied by
0.25, (B) subject to the accelerated vesting provisions of this Agreement, one-
third (1/3) of the aggregate number of such Annual Incentive Options shall be
vested in full and fully exercisable as of the last day of the Compensation
Period in which such Fiscal Year ends, and one-third (1/3) of the aggregate
number of such Annual Incentive Options shall become vested in full and fully
exercisable as of each of the first (1st) and second (2nd) anniversaries of the
last day of the Compensation Period in which such Fiscal Year ends, (C) the
exercise price per Ordinary Share under such Annual Incentive Options shall
equal the Market Price per Ordinary Share as of the last day of the Compensation
Period in which such Fiscal Year ends, and (D) such Annual Incentive Options
shall be exercisable through the tenth (10th) anniversary of the last day of the
Compensation Period in which such Fiscal Year ends.
(e) The provisions of this Schedule I shall not be deemed to restrict in
any way any rights of GIGL or the GIGL Board, acting in good faith, during the
term of this Agreement to dissolve, reorganize or take any other action or make
any other change (fundamental or otherwise) affecting the structure, existence,
organization, operations or business of Company or any of its subsidiaries. If
at any time during any Fiscal Year Company shall be dissolved, the right to
Annual Incentive Bonus payments pursuant to this Agreement shall terminate. If
at any time during any Compensation Period, Company shall be a party to a merger
or sale of all or substantially all of its assets to another entity, Company
shall (or shall cause a successor to) provide for adjustment as nearly
equivalent as practicable to preserve to Employee the benefits of this Agreement
relating to payment of Annual Incentive Bonus amounts in respect of the business
of Company or such successor. Such adjustments by the GIGL Board made in good
faith shall be conclusive.
(f) All accounting terms or concepts used herein have the meanings assigned
or applied under generally accepted accounting principles, consistently applied.
I-3
<PAGE>
IMPORTANT NOTICE TO SHAREHOLDERS
--------------------------------
OF GEMSTAR INTERNATIONAL GROUP LIMITED
A SPECIAL MEETING OF SHAREHOLDERS WILL BE HELD ON
MARCH 12, 1998 AT 7:00 A.M. CALIFORNIA, U.S.A. TIME
AT 2-29-18 NISHI-IKEBUKURO,
TOSHIMA-KU,
TOKYO 171 JAPAN
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
PROXY
GEMSTAR INTERNATIONAL GROUP LIMITED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Dale Araki and Kazuo Nagasaka
proxies, with the power to act without the other and with power of substitution,
and hereby authorizes each of them to represent and vote, as designated on the
other side, all the shares of stock of Gemstar International Group Limited
standing in the name of the undersigned with all powers which the undersigned
would possess if present at the Special Meeting of the shareholders of the
Company to be held March 12, 1998 or any adjournment of that meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE>
Dear Shareholder:
A Special Meeting of the shareholders of Gemstar International Group
Limited (the "Company") will be held on Thursday, March 12, 1998 at 7:00 a.m.
California, U.S.A time at 2-29-18 Nishi-Ikebukuro, Toshima-KU, Tokyo 171 Japan.
The enclosed notice of the meeting and accompanying proxy statement cover
the formal business of the meeting.
Your continued interest in the Company is appreciated and we hope that you
will find it convenient to attend the meeting. However, whether or not you plan
to attend in person, please assure representation of your shares by marking,
signing and mailing in the accompanying proxy card.
Sincerely,
/s/ Larry Goldberg
Larry Goldberg
Secretary
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
[X] Please mark your
votes as in this
example
The Board of Directors recommends a vote FOR the proposals described in Item 1
and in Item 2.
Item 1. Proposal to approve certain amendments to and the restatement of the
Gemstar International Group Limited 1994 Stock Incentive Plan, as
amended.
Item 2. Proposal to approve the performance-based compensation provisions of the
Amended and Restated Employment Agreement for the Company's President
and Chief Executive Officer.
Item 3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
[_] [_] [_]
If this Proxy Card is signed and returned but is not marked,
it will be voted FOR the proposals described in Item 1 and
Item 2.
Signature(s)________________________________________Date________________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
