<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
---------- ---------------
COMMISSION FILE NUMBER 0-26878
----------------
GEMSTAR INTERNATIONAL GROUP LIMITED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
BRITISH VIRGIN ISLANDS N/A
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
135 NORTH LOS ROBLES AVENUE, SUITE 800, PASADENA, CALIFORNIA 91101
(Address of Principal Executive Offices) (Zip Code)
(626) 792-5700
(Registrant's telephone number, including area code)
Securities registered or to be registered pursuant to Section 12(b) of the
Act: NONE
Securities registered or to be registered pursuant to Section 12(g) of the
Act:
ORDINARY SHARES, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of June 15, 1998, there were outstanding 48,507,739 shares of the
Registrant's ordinary shares, par value $.01 per share ("Ordinary Shares"),
which is the only class of Ordinary Shares of the Registrant. As of June 15,
1998, the aggregate market value of Ordinary Shares held by non-affiliates of
the Registrant, based on the closing sales price of $33 7/8 per share as
reported by Nasdaq, was approximately $1,142.4 million.
<PAGE>
This Amendment No. 1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 is filed (i) to correct a typographical error
contained in "Statement of Operations Data" which incorrectly reported that
the Registrant had a net loss of $(38.707) (in thousands) for the year ended
March 31, 1998, when instead the Registrant had net earnings of $38,707 (in
thousands) for the year ended March 31, 1998; and (ii) to include additional
detail regarding the terms of the Registrant's employment agreements with
certain of its executive officers. Accordingly, each of Item 7 of Part II and
Item 11 of Part III of the Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 are amended, and in accordance with applicable Securities
and Exchange Commission regulations, restated in their entirety as follows:
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company develops, markets and licenses proprietary technologies and
systems that simplify and enhance consumers' interaction with electronics
products and other platforms that deliver video, programming information and
other data. The Company generates revenues through licensing of their
technology and intellectual property to consumer electronics manufacturers,
service providers, software developers, microchip makers and Internet
appliance manufacturers, as well as to newspapers and television guide
publishers through a combination of upfront, non-refundable license payments
and per unit license fees. Historically, the primary source of revenues has
been license fees paid by consumer electronics manufacturers and publications
for the licensing of the VCR Plus+ technology and the right to print the
PlusCode numbers, respectively. Starting fiscal year 1998, the Company began
to derive significant license revenues from the Gemstar Guide Technology.
Revenues from up front license fees are recognized ratably over the term of
the particular license and revenues from on-going per unit license fees are
recognized when payments are due, and generally, when payments are actually
received from the licensee.
The Company acquired VideoGuide, Inc. ("VideoGuide") and StarSight Telecast,
Inc. ("StarSight") in December 1996 and May 1997, respectively. Both
acquisitions were accounted for under the pooling of interests method and
accordingly, the Company's historical consolidated financial statements were
restated for all periods to include the accounts and results of operations of
VideoGuide and StarSight.
Both VideoGuide and StarSight incurred substantial operating losses since
their inception through the date of acquisition by the Company. Due to these
losses, the restated financial results as reported contain significant
marketing, research and development, and general and administrative expenses
resulting in significant operating losses during certain periods. All of the
selling and marketing efforts and a portion of the research and development
effort expended by VideoGuide were directed toward marketing a subscription-
based electronic program guide service delivered through the 900 MHz paging
signal. After the acquisition, the VideoGuide service was terminated in
September 1997. A significant portion of the selling and marketing and
research and development effort of StarSight was directed toward marketing a
subscription-based electronic program guide service delivered through the
vertical blanking interval of the television signal. A significant portion of
the general and administrative expenses incurred by StarSight prior to the
acquisition was comprised of legal fees related to litigation with the
Company, which terminated upon the acquisition.
The fiscal year 1998 results show significant cost reductions after the
acquisitions of VideoGuide and StarSight which was due primarily to the
implementation of the Company's cost control measures. Such measures resulted
in lower payroll costs due to headcount reductions, cost savings from
combining marketing and development efforts and reduction of legal costs by
eliminating the litigation between the Company and StarSight. The Company also
realized synergies of the combined companies which resulted in further cost
savings.
1
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Recent Developments
The Company has integrated the technical expertise of VideoGuide and
StarSight to better serve the respective needs of consumer electronics
manufacturers and service providers, and combined the technologies developed
by VideoGuide and StarSight into the Gemstar Guide Technology. The Company
also developed significant strategic relationships in the consumer electronics
and computer/Internet appliance sectors.
. In November 1997, the Company entered into a multi-year license agreement
with Thomson for the Gemstar Guide Technology and entered into a joint
venture, TDN, Inc., for the exploration of advertising, promotion,
linking and transaction opportunities through interactive program guides
on consumer electronics platforms.
. In January 1998, the Company entered into a worldwide cross-licensing
agreement with Microsoft in which the two companies agreed to cross-
license their respective intellectual property in the interactive program
guide area and under which Microsoft agreed to license the Company's
intellectual property in all Microsoft interactive program guide
products.
The Company continued to add new license agreements for the Gemstar Guide
Technology with consumer electronics manufacturers, and licensees in the cable
and satellite industries.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto. The following table presents
the Company's results of operations for the years ended March 31, 1996, 1997
and 1998. Such results of operations have been restated for the effects of the
acquisitions of VideoGuide and StarSight accounted for under the pooling of
interests method. The table also presents unaudited pro forma results of
operations for the years ended March 31, 1996 and 1997, which reflect the
Company's reported results, excluding VideoGuide's results and StarSight's
results prior to the acquisitions. The Company has included the prior period
financial information on a pro forma basis for informational purposes and to
facilitate the understanding of the effects of the two acquisitions on the
Company's results of operations. The pro forma results do not purport to
present the Company's results of operations in accordance with generally
accepted accounting principles.
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
--------------------------- ---------------------
1996 1997 1998 1996 1997
-------- ------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 55,365 $82,997 $126,552 $ 53,436 $ 70,367
Operating costs and expenses:
Selling and marketing...... 68,923 45,924 30,993 15,496 20,661
Research and development... 17,462 16,286 13,372 8,428 10,699
General and administrative. 25,162 25,558 18,693 9,957 12,160
Merger costs............... -- -- 11,713 -- --
-------- ------- -------- ---------- ----------
Total operating costs and
expenses................ 111,547 87,768 74,771 33,881 43,520
-------- ------- -------- ---------- ----------
Earnings (loss from
operations.................. (56,182) (4,771) 51,781 19,555 26,847
Other income, net............ 2,650 5,156 7,359 2,025 4,162
-------- ------- -------- ---------- ----------
Earnings (loss) before income
tax expense................. (53,532) 385 59,140 21,580 31,009
Income tax expense........... 5,497 8,369 20,433 5,497 8,369
-------- ------- -------- ---------- ----------
Net earnings (loss)...... $(59,029) $(7,984) $ 38,707 $ 16,083 $ 22,640
======== ======= ======== ========== ==========
</TABLE>
2
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Revenues
Revenues were $126.6 million, $83.0 million and $55.4 million for fiscal
years 1998, 1997 and 1996, respectively. The increase in revenues of 52% in
fiscal 1998 and 50% in fiscal 1997 were due primarily to the continued
increase in unit shipments incorporating the VCR Plus+ technology worldwide
and an increase in revenues associated with the expansion of the Gemstar Guide
Technology from the consumer electronics industry into the cable, satellite
and personal computer industries.
Pro forma revenues were $70.4 million for fiscal 1997 and $53.4 million for
fiscal 1996. The increase in revenues of 80% in fiscal 1998 and 32% in fiscal
1997, when compared with pro forma revenues for the year-ago period, were due
to increased revenues associated with the VCR Plus+ technology and the Gemstar
Guide Technology.
Selling and Marketing Expenses
Selling and marketing expenses consist of advertising and marketing program
costs, contracted services and salaries of marketing personnel, as well as
operational costs required to support the interactive program guide data
broadcast system and content requirements.
Selling and marketing expenses were $31.0 million, $45.9 million and $68.9
million for fiscal years 1998, 1997 and 1996, respectively. The decrease of
33% in fiscal 1998 was due primarily to a reduction in marketing, selling and
support costs as well as personnel costs associated with activities related to
StarSight and VideoGuide services. The decrease of 33% in fiscal 1997 was
attributable to a decrease in marketing, promotional and product launch costs
related to the VideoGuide system, offset by an increase in marketing,
promotional and operational costs required to launch and support the Gemstar
Guide Technology.
Pro forma selling and marketing expenses were $20.7 million for fiscal 1997
and $15.5 million for fiscal 1996. The increases of 50% in fiscal 1998 and 33%
in fiscal 1997, when compared with pro forma selling and marketing expenses
for the year ago period, were attributable to the marketing and support costs
associated with the Gemstar Guide Technology, and costs associated with
StarSight's and VideoGuide's operations.
Research and Development Expenses
Research and development expenses were $13.4 million, $16.3 million and
$17.5 million for fiscal years 1998, 1997 and 1996, respectively. The
decreases of 18% in fiscal 1998 and 7% in fiscal 1997 were due to lower
development costs associated with realized synergies of the combined companies
and cost control measures implemented by the Company after the acquisitions.
Pro forma research and development expenses were $10.7 million for fiscal
1997 and $8.4 million for fiscal 1996. The increases of 25% in fiscal 1998 and
27% in fiscal 1997, when compared with pro forma research and development
expenses for the year ago period, were due primarily to increased activities
associated with the development and testing of the Gemstar Guide Technology.
General and Administrative Expenses
General and administrative expenses were $18.7 million, $25.6 million and
$25.2 million for fiscal year 1998, 1997 and 1996, respectively. The decrease
of 27% in fiscal 1998 is attributable to lower personnel and operational costs
associated with realized synergies of the combined companies; a reduction in
legal expenses due to the elimination of the litigation between the Company
and StarSight; and cost control measures implemented by the Company after the
acquisitions. The slight increase in fiscal 1997 was due primarily to
increased personnel costs to support the Company's licensing business on a
worldwide basis as well as increased legal expenses associated with the
litigation between the Company and StarSight. These increases were offset by a
reduction in operating expenses associated with VideoGuide's operations.
3
<PAGE>
Pro forma general and administrative expenses were $12.2 million for fiscal
1997 and $10.0 million for fiscal 1996. The increases of 54% in fiscal 1998
and 22% in fiscal 1997, when compared with pro forma general and
administrative expenses for the year ago period, were due primarily to an
increase in personnel cost to support the Company's licensing business on a
worldwide basis, and costs associated with StarSight's and VideoGuide's
operations in fiscal 1998.
Merger Costs
As a result of the acquisition of StarSight, the Company recorded merger
related costs totaling $11.7 million in fiscal 1998. These costs were
comprised of fees for financial advisors, attorneys, and accountants;
severance and other transaction costs.
Income Tax Expense
Income tax expense was $20.4 million, $8.4 million and $5.5 million for
fiscal years 1998, 1997 and 1996, respectively. Excluding merger costs, the
Company's effective tax rate was 29% in fiscal 1998. The overall effective tax
rate reported by the Company in any single period is impacted by, among other
things, the country in which earnings or losses arise, applicable statutory
tax rates and withholding tax requirements for particular countries, and the
availability of tax credits for taxes paid in certain jurisdictions. Because
of these factors, it is expected that the Company's future tax expense as a
percentage of earnings before income tax expense may vary from year to year.
Certain income tax benefits included in income tax expense for fiscal years
1997 and 1996 were limited due to uncertainty regarding the realization of net
operating loss carryforwards, tax credit carryforwards, and temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents and short-term
marketable securities totaling $157.9 million and working capital of $110.4
million. Net cash provided by operating activities was $55.5 million for
fiscal 1998 and $14.4 million for fiscal 1997. Net cash used in operating
activities was $15.0 million for fiscal 1996. The increases in net cash
provided by operating activities in fiscal years 1998 and 1997 were primarily
the result of increased earnings and timing of payments.
Net cash provided by investing activities was $33.4 million for fiscal 1998,
comprised of proceeds from net maturities of marketable securities of $46.1
million offset by additions to property and equipment and intangible assets of
$12.7 million. Additions to intangible assets consist primarily of a one-time
payment for the purchase of patents and invention rights related to the
interactive program guide technology. Net cash used in investing activities
was $50.1 million for fiscal 1997, comprised of net purchases of marketable
securities of $47.0 million and additions to property and equipment and
intangible assets of $3.2 million. Net cash provided by investing activities
was $13.8 million for fiscal 1996, comprised of proceeds from net maturities
of marketable securities of $18.4 million offset by additions to property and
equipment and intangible assets of $4.7 million.
Net cash provided by financing activities was $4.7 million, $33.5 million
and $48.8 million for fiscal years 1998, 1997 and 1996, respectively. The
Company received proceeds of $32.6 million in fiscal 1997 and $53.6 million in
fiscal 1996 from private and public sales of the Company's Ordinary Shares.
Proceeds from stock option exercises were $17.5 million in fiscal 1998 and
were not significant in fiscal years 1997 and 1996. The Company repurchased a
warrant to purchase 606,000 Ordinary Shares from the warrant holder for $12.8
million in fiscal 1998. Dividends of $5.0 million were paid in fiscal 1996.
The Company does not have any material commitments for capital expenditures.
However, the Company expects to incur significant marketing expenditures to
launch new systems and to market new services and expects to incur significant
research and development, and general and administrative expenses relating to
these new systems and services over the next two to three years.
4
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
The Company intends to adopt Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS No. 130") and Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131") in fiscal year 1999. Both
Standards will require additional disclosure, but will not have a material
effect on the Company's financial position or results of operations. SFAS No.
130 establishes standards for the reporting and display of comprehensive
income and is expected to first be reflected in the Company's first quarter of
fiscal year 1999 interim financial statements. Components of comprehensive
income include items such as net income and changes in value of available-for-
sale securities. SFAS No. 131 changes the way companies report segment
information and requires segments to be determined based on how management
measures performance and makes decisions about allocating resources. SFAS No.
131 will first be reflected in the Company's fiscal year 1999 Annual Report.
5
<PAGE>
PART III
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation paid by the Company for fiscal years 1998, 1997 and 1996 to the
Company's principal executive officer and the five other most highly
compensated executive officers during the 1998 fiscal year (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(2)(3) AWARDS
-------------------------- ------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS UNDERLYING COMPENSATION
POSITIONS(1) YEAR ($) ($) OPTIONS(#) ($)(4)
------------------ ------ -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas L. H. Lau........... 1998 $360,000 $ -- -- $ --
Chairman of the Board 1997 360,000 -- -- --
1996 270,000 -- 230,000 --
Henry C. Yuen.............. 1998 888,800 1,611,200 4,162,725 493,912
Chief Executive Officer 1997 648,000 518,400 -- 495,681
and President 1996 540,000 432,000 2,600,000 497,083
Elsie Ma Leung............. 1998 570,000 228,000 1,500,000 2,427
Chief Operating Officer 1997 475,000 190,000 -- 4,076
and Chief Financial 1996 326,875 130,750 410,000 --
Officer
Roy J. Mankovitz........... 1998 296,100 118,440 150,000 1,474
Asst. Secretary, Corporate 1997 423,000 169,200 -- 4,658
Counsel--Intellectual 1996 352,500 141,000 372,500 --
Property
Larry Goldberg............. 1998 388,800 155,520 300,000 2,248
Secretary and Corporate 1997 324,000 129,600 -- 4,427
Counsel 1996 270,000 108,000 372,500 --
Brian Klosterman(5)........ 1998 240,000 120,000 340,930 255
President, StarSight
Telecast, Inc.
</TABLE>
- --------
(1) All of the Named Executive Officers are or were employed in the indicated
positions with GDC, except Mr. Lau, who is employed by the Company and is
the Chairman of the Board, and Mr. Klosterman, who serves as President of
StarSight, a wholly owned subsidiary of the Company. Dr. Yuen also serves
as Chief Executive Officer and President of the Company and Ms. Leung also
serves as Chief Financial Officer of the Company.
(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 Named 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 the Company, GDC or StarSight, as the case may
be. The bonuses paid to Dr. Yuen represent the aggregate amounts of
Dr. Yuen's merit bonus and annual incentive bonus, calculated pursuant to
the applicable formulae set forth in the Employment Agreement between GDC
and Dr. Yuen, dated April 1, 1994, as amended, and the New 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 the
Company, as the case may be. The bonus paid to Mr. Klosterman represents
the amount of the annual performance bonus (or other special bonus) paid
to Mr. Klosterman pursuant to his employment agreement with StarSight.
6
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(4) The Company, GDC or StarSight, as the case may be, provide 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 the Company, GDC or StarSight, as the case
may be, 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, prior to January 1, 1998, GDC or the Company 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.
(b) Represents premiums paid for split dollar life insurance policies.
(5) Mr. Klosterman joined the Company following consumation of the Company's
acquisition of StarSight in May 1997.
SUMMARY OF OPTION GRANTS
The following table provides certain summary information concerning grants
of options to the Named Executive Officers of the Company during the 1998
fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE PRICE ----------------------
NAME GRANTED FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
---- ---------- --------------- -------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. H. Lau........ -- -- -- -- -- --
Henry C. Yuen........... 4,162,725 50.2% $22.00 01/06/08 57,594,138 145,954,855
Elsie Ma Leung.......... 300,000 3.6 15.38 05/08/07 2,901,720 7,353,528
1,200,000 14.5 30.00 03/30/08 22,640,207 57,374,729
Roy J. Mankovitz........ 150,000 1.8 15.38 05/08/07 1,450,860 3,676,764
Larry Goldberg.......... 150,000 1.8 15.38 05/08/07 1,450,860 3,676,764
150,000 1.8 30.00 03/30/08 2,830,026 7,171,841
Brian Klosterman........ 100,000 1.2 14.75 05/07/07 927,620 2,350,770
150,000 1.8 30.00 03/30/08 2,830,026 7,171,841
</TABLE>
SUMMARY OF OPTIONS EXERCISED
The following table provides certain summary information concerning the
exercise of stock options by the Named Executive Officers during the 1998
fiscal year together with the fiscal year-end value of unexercised options.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR-END (1)
SHARES ACQUIRED VALUE (1) ----------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. H. Lau........ -- -- 143,750 86,250 $ 2,601,875 $ 1,561,125
Henry C. Yuen........... 43,000 $ 488,050 3,389,545 3,330,180 52,942,060 26,651,440
Elsie Ma Leung.......... -- -- 815,350 1,094,650 10,423,217 1,383,783
Roy J. Mankovitz........ 175,000 1,971,434 300,175 47,325 5,075,859 691,892
Larry Goldberg.......... 247,000 2,371,485 228,175 197,325 3,772,659 691,892
Brian Klosterman........ -- -- 118,014 222,916 2,646,090 1,111,969
</TABLE>
7
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- --------
(1) Market value of the securities underlying the options at exercise date or
year-end, as the case may be, minus the exercise or base price of "in-the-
money" options and transaction costs.
COMPENSATION OF DIRECTORS
The Company will pay each director who is not an employee of the Company
$25,000 per year for services as a director of the Company and $1,000 per
Board or 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 Board of Directors or any
Board Committee. In addition, directors who are not full-time employees are
eligible to participate in, and each director has received awards pursuant to,
the Company's Stock Incentive Plan. See Item 12, "Security Ownership of
Certain Beneficial Owners and Management."
EMPLOYMENT AGREEMENTS
Amended and Restated Employment Agreement with Dr. Yuen
In January 1998, the Company's Compensation Committee and Board of Directors
approved the New Yuen Agreement. The New Yuen Agreement supersedes and
replaces 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 New Yuen Agreement
also provides that Dr. Yuen will serve as a director of each of the Company,
GDC and StarSight.
The New Yuen Agreement includes provisions (collectively, the "Performance-
Based Provisions") pursuant to which Dr. Yuen's annual base salary ("Base
Salary") is adjusted and his merit bonus, annual incentive bonus and annual
stock option grants are calculated. The Performance-Based Provisions of the
New Yuen Agreement were subject to shareholder approval to satisfy one of the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), in order to permit the Company to deduct payments in
excess of $1 million in any fiscal year. The Performance-Based Provisions of
the New Yuen Agreement were approved by the shareholders at a Special Meeting
of Members of the Company held on March 12, 1998 (the "March Special
Meeting").
Under the New Yuen Agreement, Dr. Yuen's Base Salary initially is set at $1
million. The New Yuen Agreement provides for annual adjustments to Dr. Yuen's
Base Salary based on the growth of the Company's consolidated revenues and
consolidated net earnings, as similar to his former employment agreement. The
New Yuen Agreement also provides for the payment to Dr. Yuen of a merit bonus
(the "Merit Bonus") which is equal to a percentage of Dr. Yuen's then-current
Base Salary (reflecting any prior adjustments), equal to the percentage
increase, if any, in the 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, as similar to his former employment
agreement. The New Yuen Agreement also provides for the payment to Dr. Yuen of
an additional bonus (the "Annual Incentive Bonus"), the amount of which, if
any, is tied to the annual rate of growth of the Company's consolidated
earnings per share, as similar to his former employment agreement. 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 an annual limitation, as similar to his former employment
agreement except with respect to the dollar amount of annual limitation. The
amount of the adjustment to Dr. Yuen's Base Salary, and the amounts of the
Merit Bonus and the Annual Incentive Bonus payable to Dr. Yuen under the New
Yuen Agreement for the fiscal year ended on March 31, 1998, were dependent
upon the Company's financial performance for such year and on whether the
Company's consolidated revenues and consolidated earnings from operations for
the fiscal quarter ended March 31, 1998 exceeded the Company's consolidated
revenues and consolidated earnings from operations, respectively, for the
fiscal quarter ended March 31, 1997, as similar to his former employment
agreement. The New Yuen Agreement provided for the immediate grant to Dr. Yuen
of options to purchase
8
<PAGE>
4,162,725 Ordinary Shares and annual grants of options to purchase 832,545
Ordinary Shares. The Company's shareholders approved these stock option grants
to Dr. Yuen at the March Special Meeting. Dr. Yuen is also entitled to a
$1,000 a month automobile allowance and other benefits, including, health
insurance and participation in bonus and incentive and stock option
compensation plans.
The New Yuen Agreement entitles Dr. Yuen to terminate the New Yuen Agreement
within 90 days following a change of control (as defined below), 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 following
such termination, all other elements of his compensation provided under the
New Yuen Agreement, (2) all unvested options granted to him pursuant to 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. A "change of
control" is defined as the occurrence of any of the following: (i) the
acquisition (other than from the Company directly or from any Company
shareholder who was, as of the effective date of the New Yuen Agreement, a 25%
shareholder of the Company) by any person or entity of beneficial ownership of
25% or more of the Company's outstanding shares; (ii) the acquisition (other
than from GDC directly or from any GDC shareholder who was, as of the
effective date of the New Yuen Agreement, a 25% shareholder of GDC) by any
person or entity of beneficial ownership of 25% or more of GDC's outstanding
shares; (iii) during any period of two consecutive years, individuals who, at
the beginning of such period, constituted the board of directors of the
Company or GDC (together with any new directors whose election or appointment
to such board of directors or whose nomination for election by the
shareholders of the Company or GDC was approved by Dr. Yuen or by a vote of a
majority of the directors then still in office who are either directors at the
beginning of such period or whose election, appointment or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the board of directors of the Company or GDC then in office; (iv)
approval by the board of directors or a majority of the shareholders of either
the Company or GDC of a merger, reorganization, combination or consolidation
whereby the shareholders of either the Company or GDC immediately prior to
such approval will not, immediately after consummation of such reorganization,
merger, combination or consolidation own more than 50% of the voting stock of
the surviving entity; or (v) a liquidation or dissolution of either the
Company or GDC or the sale of all or substantially all of the assets of either
the Company or GDC, unless the successor to the assets in any such
liquidation, dissolution or sale, is the Company or any of its subsidiaries.
Under the New Yuen Agreement, as similar to his former employment agreement
all inventions, designs, improvements, patents, copyrights, discoveries and
other intellectual property which (i) are developed by Dr. Yuen while
performing his duties for GDC or using GDC's equipment or trade secret
information, (ii) are related at the time of conception to GDC's business or
actual or demonstrably anticipated research, or (iii) result from any work
performed by Dr. Yuen for GDC, are the property of GDC, if and only to the
extent GDC can show by clear and convincing evidence that such property is
GDC's property.
Employment Agreement with Ms. Leung
The Company and GDC entered into an Amended and Restated Employment
Agreement with Ms. Leung, dated as of March 31, 1998 (the "New Leung
Agreement"), which supersedes and replaces Ms. Leung's former employment
agreement. The New Leung Agreement provides for an initial term effective from
January 1, 1998 through December 31, 2003 and will be automatically renewed
for a three-year period unless either party gives written notice of
termination.
Under the New Leung Agreement, Ms. Leung will serve as Chief Financial
Officer of the Company and Chief Operating Officer and Chief Financial Officer
of GDC. Ms. Leung will also serve as a director of the Company, GDC and
StarSight. Beginning April 1, 1998, Ms. Leung will receive a base salary of
$700,000 per year, with annual adjustments based upon the Company's
consolidated revenues, as similar to her former employment agreement. The New
Leung Agreement also provides that Ms. Leung may receive an annual incentive
bonus based upon the Company's consolidated earnings per share, as similar to
her former employment agreement. Under the New Leung Agreement, Ms. Leung
received options to purchase 1,200,000
9
<PAGE>
Ordinary Shares, scheduled to vest ratably over the six-year term of the New
Leung Agreement over the term of the Agreement, of which 200,000 became
exercisable upon the execution of the Agreement. Ms. Leung is also entitled to
a $750 per month automobile allowance and other benefits, including, health
insurance and participation in bonus and incentive and stock option
compensation plans.
The New Leung Agreement provides Ms. Leung the right to terminate the New
Leung Agreement within 90 days following a change of control (defined
substantially as defined above with respect to the New Yuen Agreement), in
which event (1) she would be entitled to receive (a) a lump-sum payment equal
to five times her then-current base salary, (b) for a period of 60 months
following such termination, all other elements of her compensation provided
under the New Leung Agreement, (2) all unvested options granted to her under
the New Leung 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.
All inventions, designs, improvements, patents, copyrights and discoveries
conceived by Ms. Leung during the term of the New Leung Agreement which are
competitive with or related to existing products or services of GDC shall be
assigned to GDC.
Other Agreements with the Other Executives
The Company has entered into an employment agreement with Mr. Lau and GDC
has entered into employment agreements with Messrs. Goldberg and Mankovitz,
all of which contain substantially similar provisions (hereinafter, these
employment agreements, as amended, 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 is from April 1, 1994 to March 31, 2001, with and will
be automatically renewed for a one-year period unless either party gives
written notice of termination.
Each of the Other Agreements provides for a base salary subject to an annual
adjustment based upon the Consumer Price Index and the Company's revenues and
net earnings. Each of the Other Executives is also entitled under his
employment agreement to an annual incentive bonus based upon the growth of the
Company.
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 such executive officers'
compensation as may be necessary to preserve, as nearly as practicable, the
payment of his base salary and certain other benefits under such agreements.
The Other Executives are also entitled under their employment agreements to
such other benefits, including, without limitation, health insurance.
Each of the Other Agreements provides that termination of the Other
Executives (or termination of any compensation or benefits payable to the
Other Executives under the Other Employment Agreements) may be effected upon
the occurrence of certain specified events. In addition, the Other Agreements
(other than the Mankovitz employment agreements) provide that all inventions,
patents, copyrights and other intellectual property developed or conceived by
the Other Executives during the term of the Other 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).
Under the Mankovitz employment agreement, all inventions, patents, copyrights
and other intellectual property which (i) are developed during the term of the
agreement while the inventor was performing duties for the Company (or GDC) or
using the Company's (or GDC's) equipment or trade secret information, (ii) are
related at the time of completion to the Company's (or GDC's) business or
actual or demonstrably anticipated research, or (iii) result from any work
performed by the inventor for the Company (or GDC), are the property of the
Company (or GDC) provided such entity can show by clear and convincing
evidence that such property is such entity's property. All other intellectual
property belongs to the Other Executives.
10
<PAGE>
StarSight entered into an employment agreement with Mr. Klosterman, as of
December 23, 1996 (the "Klosterman Employment Agreement"), which provides for
Mr. Klosterman's services as President of StarSight through December 22, 1999,
unless the Klosterman Employment Agreement is otherwise terminated in
accordance with its terms (the "Employment Period"). In addition, the
Klosterman Employment Agreement provides for an automatic one-year renewal
unless either of the parties thereto notifies the other of the termination
thereof. Pursuant to the Klosterman Employment Agreement, Mr. Klosterman
receives a base salary of $240,000 per year and is eligible to receive an
annual performance bonus (or other special bonus) in no event less than 50% of
his current base salary. Mr. Klosterman is also entitled to a $1,000 a month
automobile allowance and other benefits, including, without limitation, health
insurance.
If StarSight terminates Mr. Klosterman without Cause (as defined below)
during the Employment Period, then Mr. Klosterman is entitled to continue to
receive his salary from StarSight for the remainder of one Employment Period.
If he is terminated for Cause, StarSight shall have no further obligations to
pay any salary or other compensation to him. The Employment Period will also
terminate in the event of Mr. Klosterman's death or disability, and in each
such case, StarSight will be required to make certain limited payments. Mr.
Klosterman may be terminated for "Cause" if: (i) he has engaged in illegal or
other wrongful conduct substantially detrimental to the business or reputation
of StarSight or any affiliated company, or is charged with or convicted of a
felony; (ii) he refuses or fails to act in accordance with any reasonable
direction or order of the StarSight board of directors; provided that the
StarSight board of directors has given him written notice of such refusal or
failure and he fails to comply with such direction or order within thirty days
after the date of such notice; or (iii) he has engaged in any fraud,
embezzlement, misappropriation or similar conduct against StarSight.
In addition, the Klosterman Employment Agreement provides that Mr.
Klosterman will not (i) accept any other employment or (ii) engage in any
other business activity that is competitive with, or places him in a competing
position to that of, StarSight or any affiliated company. In addition, subject
to certain conditions, for a period of one year after the termination of the
Employment Period, Mr. Klosterman will not for himself or any third party,
directly or indirectly, including without limitation, (i) solicit or interfere
with any of StarSight's suppliers or customers; (ii) employ, solicit for
employment, or recommend for employment any person employed by StarSight,
during the period of his employment by StarSight and for one year thereafter;
or (iii) engage in any business activity that is competitive with StarSight;
provided that in no event shall Mr. Klosterman engage in such competitive
activities during the period which he continues to receive payments pursuant
to the termination provisions of the Klosterman Employment Agreement. The
Klosterman Employment Agreement also contains standard employee invention and
intellectual property confidentiality provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. George F. Carrier and
Mr. Teruyuki Toyama, neither of whom is an officer or employee of the Company
or was previously an officer or employee of the Company.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
See Index to Financial Statements on page F-1.
(a)(2) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
2.1** Parent Significant Shareholder Agreement, dated as of December 23,
1996 by and among StarSight Telecast, Inc., a California
corporation and certain significant shareholders of Gemstar
International Group Limited.
2.2** Agreement and Plan of Merger dated as of December 23, 1996 by and
among Gemstar International Group Limited, a British Virgin
Islands corporation, StarSight Telecast, Inc., a California
corporation, and G/S Acquisition Subsidiary, a California
corporation).
3.1******* Amended and Restated Memorandum of Association of the Company.
3.2******* Amended and Restated Articles of Association of the Company.
10.1* Patent Assignment Agreement, dated as of March 15, 1994, between
Gemstar Development Corporation and Roy J. Mankovitz.
(Confidential treatment requested).
10.2* Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Development Corporation. (Confidential treatment
requested).
10.3* Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Holdings Limited. (Confidential treatment requested).
10.4* Contract Engineering Agreement (undated) between Hilite, Inc. and
Index Systems, Inc. (Confidential treatment requested).
10.5* Form of Option Exercise and Assignment Agreement, dated March 16,
1994, between Gemstar Development Corporation and each of Henry C.
Yuen, Wilson K. C. Cho and Daniel S. W. Kwoh.
10.6(a)* Exclusive Representation Agreement, dated July 30, 1990, between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested).
10.6(b)* Exclusive Representation Agreement, dated May 20, 1991, between
Gemstar Development Corporation and United Feature Syndicate,
Inc., together with First Amendment to Exclusive Representation
Agreement, dated March 4, 1994. (Confidential treatment
requested).
10.6(c)* Exclusive Representation Agreement, dated March 21, 1994, between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested).
10.7* Registration Rights Agreement, dated August 16, 1995, between
Gemstar International Group Limited and the Shareholders of E
Guide, Inc.
10.8** Company Significant Shareholder Agreement, dated as of December
23, 1996, by and among Gemstar International Group Limited, a
British Virgin Islands corporation, and certain significant
shareholders of StarSight Telecast, Inc.
10.9** Company Option Agreement, dated as of December 23, 1996, by and
between StarSight Telecast, Inc., a California corporation, and
Gemstar International Group Limited, a British Virgin Islands
corporation.
10.10** Parent Option Agreement, dated as of December 23, 1996, by and
between StarSight Telecast, Inc., a California corporation, and
Gemstar International Group Limited, a British Virgin Islands
corporation (included as Appendix G to the Joint Proxy
Statement/Prospectus).
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
10.11**** TDN, Inc., Stockholders Agreement, dated as of October 31, 1997,
by and among TDN, Inc., a Delaware corporation, Gemstar Marketing,
Inc., a California corporation, and Thomson Consumer Electronics,
Inc., a Delaware corporation.
10.12**** Cost and Reimbursement Support Agreement, dated as of October 31,
1997, by and among TDN, Inc., a Delaware corporation, and Gemstar
International Group Limited.
10.13**** Definitive Agreement, dated as of January 9, 1998, by and among
Gemstar International Group Limited, StarSight Telecast, Inc., a
California corporation, and Microsoft Corporation, a Washington
corporation.
10.14**** Recission Agreement, dated as of January 9, 1998, by and between
StarSight Telecast, Inc., a California corporation and Microsoft
Corporation, a Washington corporation.
21***** Material Subsidiaries of Gemstar.
23.1***** Consent of KPMG Peat Marwick LLP.
23.2***** Consent Deloitte & Touche LLP.
27.1***** Financial Data Schedule.
99.1* 1994 Stock Incentive Plan, as amended.
99.2* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Henry C. Yuen, as amended.
(Confidential treatment requested).
99.3* Employment Agreement, dated August 1995, between Gemstar
International Group Limited and Thomas L. H. Lau.
99.4* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Daniel S. W. Kwoh, as amended.
(Confidential treatment requested).
99.5* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Roy J. Mankovitz, as amended.
(Confidential treatment requested).
99.6* Employment Agreement, dated August 16, 1995, between Pros
Technology Limited and Wilson K. C. Cho. (Confidential treatment
requested).
99.7* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Elsie Ma Leung, as amended.
99.8* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Larry Goldberg, as amended.
99.10* Amendment to Subsection 1.4(a) of 1994 Stock Incentive Plan, as
amended.
99.11***** Amendment to 1994 Stock Incentive Plan, as amended, adopted on
March 12, 1998.
99.12****** Amended and Restated Employment Agreement, effective as of January
7, 1998 among Gemstar International Group Limited, Gemstar
Development Corporation and Henry C. Yuen.
99.13****** Amended and Restated Employment Agreement, dated as of March 31,
1998, among Gemstar International Group Limited, Gemstar
Development Corporation and Elsie Leung.
</TABLE>
13
<PAGE>
- --------
* Previously filed as part of Form F-1 Registration Statement of the
Company (33-79016) which was declared effective on October 10, 1995,
and incorporated herein by reference.
** Previously filed as part of Form F-4 Registration Statement of the
Company (333-6790) which was declared effective on April 15, 1997, and
incorporated herein by reference.
*** Previously filed as part of Form 20-F of the Company which was filed
on or about June 7, 1996, and incorporated herein by reference.
**** Previously filed as part of Form 8-K, dated January 12, 1998, as
amended on June 11, 1998, or Form 8-K dated February 6, 1998, as
amended on June 11, 1998. Certain information contained in these
exhibits has been omitted pursuant to a request for Confidential
Treatment granted by the Securities and Exchange Commission.
***** Previously filed as part of Form 10-K for the year ended March 31,
1998, filed on June 30, 1998.
****** Certain information contained in this exhibit, which has been filed
herewith, has been omitted pursuant to a request for Confidential
Treatment which was filed with the Securities and Exchange Commission.
******* Previously filed as part of Form F-1 Registration Statement of the
Company (33-79016), which was declared effective on October 10, 1995,
and incorporated herein by reference. Further amendments were filed in
connection with the Company's report on Form 8-K on July 13, 1998.
(b) Reports on Form 8-K
(1) The January 12, 1998 Report on Form 8-K, as amended on June 11, 1998, is
filed as part of and incorporated herein by reference into this Report.
(2) February 6, 1998 Report on Form 8-K, as amended on June 11, 1998, is
filed as part of and incorporated herein by reference into this Report.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on the 17th of November, 1998.
GEMSTAR INTERNATIONAL GROUP LIMITED
(Registrant)
By: /s/ Henry C. Yuen
Dated November 17th, 1998 __________________________________
Henry C. Yuen
Chief Executive Officer,
President and Director
(Principal Executive Officer)
By: /s/ Elsie Ma Leung
Dated November 17th, 1998 __________________________________
Elsie Ma Leung
Chief Financial Officer and
Director (Principal Accounting
Officer)
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
2.1** Parent Significant Shareholder Agreement, dated as of December 23,
1996 by and among StarSight Telecast, Inc., a California
corporation and certain significant shareholders of Gemstar
International Group Limited.
2.2** Agreement and Plan of Merger dated as of December 23, 1996 by and
among Gemstar International Group Limited, a British Virgin
Islands corporation, StarSight Telecast, Inc., a California
corporation, and G/S Acquisition Subsidiary, a California
corporation).
3.1******* Amended and Restated Memorandum of Association of the Company.
3.2******* Amended and Restated Articles of Association of the Company.
10.1* Patent Assignment Agreement, dated as of March 15, 1994, between
Gemstar Development Corporation and Roy J. Mankovitz.
(Confidential treatment requested).
10.2* Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Development Corporation. (Confidential treatment
requested).
10.3* Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Holdings Limited. (Confidential treatment requested).
10.4* Contract Engineering Agreement (undated) between Hilite, Inc. and
Index Systems, Inc. (Confidential treatment requested).
10.5* Form of Option Exercise and Assignment Agreement, dated March 16,
1994, between Gemstar Development Corporation and each of Henry C.
Yuen, Wilson K. C. Cho and Daniel S. W. Kwoh.
10.6(a)* Exclusive Representation Agreement, dated July 30, 1990, between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested).
10.6(b)* Exclusive Representation Agreement, dated May 20, 1991, between
Gemstar Development Corporation and United Feature Syndicate,
Inc., together with First Amendment to Exclusive Representation
Agreement, dated March 4, 1994. (Confidential treatment
requested).
10.6(c)* Exclusive Representation Agreement, dated March 21, 1994, between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested).
10.7* Registration Rights Agreement, dated August 16, 1995, between
Gemstar International Group Limited and the Shareholders of E
Guide, Inc.
10.8** Company Significant Shareholder Agreement, dated as of December
23, 1996, by and among Gemstar International Group Limited, a
British Virgin Islands corporation, and certain significant
shareholders of StarSight Telecast, Inc.
10.9** Company Option Agreement, dated as of December 23, 1996, by and
between StarSight Telecast, Inc., a California corporation, and
Gemstar International Group Limited, a British Virgin Islands
corporation.
10.10** Parent Option Agreement, dated as of December 23, 1996, by and
between StarSight Telecast, Inc., a California corporation, and
Gemstar International Group Limited, a British Virgin Islands
corporation (included as Appendix G to the Joint Proxy
Statement/Prospectus).
10.11*** TDN, Inc., Stockholders Agreement, dated as of October 31, 1997,
by and among TDN, Inc., a Delaware corporation, Gemstar Marketing,
Inc., a California corporation, and Thomson Consumer Electronics,
Inc., a Delaware corporation.
10.12*** Cost and Reimbursement Support Agreement, dated as of October 31,
1997, by and among TDN, Inc., a Delaware corporation, and Gemstar
International Group Limited.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
10.13*** Definitive Agreement, dated as of January 9, 1998, by and among
Gemstar International Group Limited, StarSight Telecast, Inc., a
California corporation, and Microsoft Corporation, a Washington
corporation.
10.14*** Recission Agreement, dated as of January 9, 1998, by and between
StarSight Telecast, Inc., a California corporation and Microsoft
Corporation, a Washington corporation.
21**** Material Subsidiaries of Gemstar.
23.1***** Consent of KPMG Peat Marwick LLP.
23.2 Consent Deloitte & Touche LLP.
27.1***** Financial Data Schedule.
99.1* 1994 Stock Incentive Plan, as amended.
99.2* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Henry C. Yuen, as amended.
(Confidential treatment requested).
99.3* Employment Agreement, dated August 1995, between Gemstar
International Group Limited and Thomas L. H. Lau.
99.4* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Daniel S. W. Kwoh, as amended.
(Confidential treatment requested).
99.5* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Roy J. Mankovitz, as amended.
(Confidential treatment requested).
99.6* Employment Agreement, dated August 16, 1995, between Pros
Technology Limited and Wilson K. C. Cho. (Confidential treatment
requested).
99.7* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Elsie Ma Leung, as amended.
99.8* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Larry Goldberg, as amended.
99.10* Amendment to Subsection 1.4(a) of 1994 Stock Incentive Plan, as
amended.
99.11***** Amendment to 1994 Stock Incentive Plan, as amended, adopted on
March 12, 1998.
99.12****** Amended and Restated Employment Agreement, effective as of January
7, 1998 among Gemstar International Group Limited, Gemstar
Development Corporation and Henry C. Yuen.
99.13****** Amended and Restated Employment Agreement, dated as of March 31,
1998, among Gemstar International Group Limited, Gemstar
Development Corporation and Elsie Leung.
</TABLE>
- --------
* Previously filed as part of Form F-1 Registration Statement of the
Company (33-79016) which was declared effective on October 10, 1995,
and incorporated herein by reference.
** Previously filed as part of Form F-4 Registration Statement of the
Company (333-6790) which was declared effective on April 15, 1997, and
incorporated herein by reference.
*** Previously filed as part of Form 20-F of the Company which was filed
on or about June 7, 1996, and incorporated herein by reference.
**** Previously filed as part of Form 8-K, dated January 12, 1998, or Form
8-K dated February 6, 1998 and Form 8-K/A, dated June 11, 1998.
Certain information contained in these exhibits has been omitted
pursuant to a request for Confidential Treatment granted by the
Securities and Exchange Commission.
***** Previously filed as part of Form 10-K for the year ended March 31,
1998, filed on June 30, 1998.
<PAGE>
****** Certain information contained in this exhibit has been omitted
pursuant to a request for Confidential Treatment which was filed with
the Securities and Exchange Commission.
******* Previously filed as part of Form F-1 Registration Statement of the
Company (33-79016), which was declared effective on October 10, 1995,
and incorporated herein by reference. Further amendments were filed in
connection with the Company's report on Form 8-K on July 13, 1998.
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of January 7, 1998, by and among Gemstar International Group Limited, a
British Virgin Islands corporation ("GIGL"), Gemstar Development Corporation, a
California corporation ("Company"), and Henry C. Yuen ("Employee").
WITNESSETH:
WHEREAS, Company and Employee are parties to an Employment Agreement,
entered into as of April 1, 1994, as amended August 16, 1995 and September 1,
1996 (collectively, the "Predecessor Agreement"), pursuant to which Employee has
served Company as President and Chief Executive Officer; and
WHEREAS, GIGL and Company desire to obtain the benefit of continued service
by Employee to Company and GIGL, and Employee desires to render services to
Company and GIGL; and
WHEREAS, Employee is very productive in the creation of new products,
designs and ideas, both in the line of Company's business, which thus become the
property of Company, and outside the Company's business, which remain the
property of Employee; and
WHEREAS, the Board of Directors of Company (the "Company Board") has
determined that because of Employee's substantial experience and business
relationships in connection with the business of Company and Employee's
familiarity with and creation of technologies used and exploited by Company, it
is in best interest of the Company and GIGL, the Company's sole shareholder, to
retain the services of Employee and to provide Employee certain additional
benefits; and
WHEREAS, GIGL, Company and Employee desire to set forth in this Agreement
the terms and conditions of Employee's future employment with Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree to terminate in its entirety the Predecessor
Agreement, and the parties further agree as follows:
1. Term and Renewals; Shareholder Approval.
---------------------------------------
(a) Initial Term; Shareholder Approval.
----------------------------------
(i) Company agrees to employ Employee and Employee agrees to serve
Company, in accordance with the terms of this Agreement, for an initial term
commencing with an effective date of October 1, 1997 and ending October 31, 2002
(the "Initial Term"), unless this Agreement is earlier terminated in accordance
with the provisions which follow.
1
<PAGE>
(ii) Notwithstanding the foregoing or any other provision of this
Agreement, (A) if this Agreement has not been approved on or before March 15,
1998 by the affirmative vote of holders of a majority of the ordinary shares,
par value $.01 per share (the "Ordinary Shares"), of GIGL voted on the matter in
person or by proxy at a duly held meeting of the holders of Ordinary Shares in
accordance with Section 162(m) of the Internal Revenue Code of 1986, as amended
("Shareholder Approval"), this Agreement shall automatically terminate at 12:01
a.m., Los Angeles time, on March 16, 1998 (the "Termination Time"), except that
Employee shall be entitled to retain all options (the "Current Options") to
acquire Ordinary Shares available to be granted to Employee pursuant to this
Agreement under GIGL's current employee stock option plan that was previously
approved by the holders of Ordinary Shares (the "Current Plan"), all of which
Current Options shall at the Termination Time immediately vest in full and shall
become fully exercisable for their full term, and (B) only the Current Options
shall be exercisable unless and until the Shareholder Approval has been
obtained, whereupon all options granted under this Agreement shall become
exercisable in accordance with the terms hereof.
(iii) Concurrently with its approval of this Agreement, the Board of
Directors of GIGL (the "GIGL Board") has amended the Current Plan (as amended,
the "New Plan") for GIGL pursuant to which all options to acquire Ordinary
Shares to be granted to Employee under this Agreement can and will be issued.
Promptly after execution and delivery of this Agreement by the parties, GIGL
shall prepare and file with the Securities and Exchange Commission (the "SEC")
proxy materials complying with the rules and regulations of the SEC for the
submission to the holders of Ordinary Shares of this Agreement and the New Plan
for their approval. GIGL shall use its best efforts to hold a special meeting
of holders of Ordinary Shares to approve this Agreement and the New Plan on or
before March 15, 1998, and the Board of GIGL shall unanimously recommend that
such holders vote in favor of approval of this Agreement and the New Plan.
(b) Renewal.
-------
Upon expiration of the Initial Term, this Agreement shall be
automatically renewed for a term of three additional years (the "Renewal Term"),
unless either party gives notice, in writing, at least twelve (12) months prior
to the expiration of the Initial Term of its desire to terminate this Agreement.
If Company delivers to Employee the written termination notice
contemplated by this Section 1(b), or if the Renewal Term expires without GIGL,
Company and Employee having reached an agreement for the continued employment of
Employee by GIGL and Company that is satisfactory to GIGL, Company and Employee
(in their sole and absolute discretion), such termination or expiration shall be
treated as a termination Without Cause pursuant to Section 4(d) of this
Agreement, and the date of such termination or expiration shall be deemed the
date of notice of termination for purposes of Section 4(d).
2
<PAGE>
(c) Compensation Period; Current Term.
---------------------------------
Each June 1- May 31 annual period (or portion thereof) during the term
of this Agreement and during any period following termination of Employee's
employment hereunder during which Company has ongoing obligations hereunder
shall be a distinct and separate compensation period ("Compensation Period").
The then-current term of this Agreement, whether it is the Initial Term
(together with the Renewal Term if the termination deadline under Section 1(b)
has passed without delivery of the termination notice contemplated thereunder)
or the Renewal Term, shall be known as the "Current Term."
2. Specific Position; Duties and Responsibilities.
----------------------------------------------
Company and Employee agree that, subject to the provisions of this
Agreement, Company will employ Employee and Employee will serve Company as
President and Chief Executive Officer of Company, and Employee shall have such
other additional duties and responsibilities befitting the foregoing positions
as the Company Board shall determine from time to time. GIGL and Employee agree
that, subject to the provisions of this Agreement, GIGL will employ Employee as
President and Chief Executive Officer of GIGL, and Employee shall have such
other additional duties and responsibilities befitting the foregoing positions
as the GIGL Board shall determine from time to time. GIGL and Company also
agree that Employee shall serve as a director of GIGL, Company and StarSight
Telecast, Inc. ("StarSight") during the entire term of this Agreement. GIGL and
Company also agree that Employee shall have the right, on behalf of GIGL, to
appoint and remove directors from any of GIGL's subsidiaries in which GIGL
holds, directly or indirectly, a majority of the shares entitled to vote in the
election of directors, or any entity for which GIGL has the right, directly or
indirectly, to appoint directors.
Employee agrees to devote substantially all of his time, energy and
ability to the business of Company and GIGL. Nothing herein shall prevent
Employee, upon approval of the GIGL Board, from serving as a director,
consultant or trustee of other corporations or businesses that are not in
competition with the business of GIGL or in competition with any affiliate of
GIGL. Such approval of the GIGL Board shall not be unreasonably withheld.
Nothing herein shall prevent Employee from continuing his relationship with TRW,
Inc. as a Technical Fellow devoted to scientific research in the general area of
wave theory and partial differential equations and their applications. Nothing
herein shall prevent Employee from (i) investing in real estate for his own
account, (ii) becoming a partner or a shareholder in any privately-held
corporation, partnership or other venture not in competition with the business
of GIGL or any affiliate of GIGL or (iii) becoming a partner or a shareholder
with an equity interest of not more than ten percent (10%) in any corporation,
partnership or other venture whose equity securities are publicly traded,
whether or not such corporation, partnership or other venture is in competition
with the business of GIGL or any affiliate of GIGL. Nothing in this Agreement
shall restrict the GIGL Board from paying and granting to Employee additional
cash compensation and/or grants of stock or stock options from entities created
as joint ventures between GIGL (or any of its affiliates) and third parties as a
means of providing further incentives for Employee.
3
<PAGE>
For the term of this Agreement, Employee shall report to the GIGL
Board. For purposes of this Agreement, the termination of Employee's employment
by Company shall also constitute termination of Employee's employment by GIGL.
3. Compensation.
------------
(a) Base Compensation and Adjustments.
---------------------------------
(i) During the term of this Agreement, Company agrees to pay Employee
a base salary at the rate of One Million Dollars (US$1,000,000.00) per year, as
adjusted as hereinafter provided (as in effect from time to time, the "Base
Salary"). Such salary shall be earned monthly and shall be payable in periodic
installments no less frequently than monthly in accordance with Company's
customary practices. Amounts payable shall be reduced by standard withholding
and other authorized deductions.
(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.
(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
4
<PAGE>
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 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.
5
<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.
(e) Additional Benefits.
-------------------
Employee shall also be entitled to all rights and benefits for which
Employee is otherwise eligible under any bonus, incentive, participation, stock
option or extra compensation plan, pension plan, profit-sharing plan, life,
medical, dental, disability, or insurance plan or policy or other plan or
benefit that Company its subsidiaries or affiliates may provide for Employee or
(provided Employee is eligible to participate therein) for employees of Company
generally, as from time to time in effect, during the term of this Agreement.
In order to maximize Employee's time availability to the Company, the Company
shall also promptly reimburse Employee for the Grossed-Up Value (as defined
below) of all professional fees and expenses incurred by Employee in connection
with (A) the negotiation and documentation of this Agreement and any amendment
thereto, (B) income tax planning and preparation, (C) income tax audits and the
defense of income tax claims and (D) estate planning and the creation and
modification of wills, codicils and trusts. All of the benefits described in
this Section 3(e) are collectively referred to herein as the "Additional
Benefits." The Additional Benefits shall be provided at the level commensurate
with the office held at the time and shall recognize for vesting and eligibility
purposes (but not for purposes of calculating Employee's age or for benefit
6
<PAGE>
accrual purposes) Employee's prior service with Company to the extent (if any)
that such prior service is recognized under any such plans.
As used in this Agreement, the "Grossed-Up Value" of an amount shall
equal the result obtained by dividing (A) such amount by (B) the difference of
one (1) minus the sum of the highest marginal federal and state personal income
tax rates, the highest Medicare tax rate (expressed as a decimal), the
additional effective income tax rate (expressed as a decimal) resulting from the
receipt of such amount reducing available deductions of Employee, and any other
income, payroll or similar rate of tax (expressed as a decimal) imposed on the
receipt by Employee of such amount.
(f) Vacation.
--------
In each Compensation Period, Employee shall be entitled to an amount
of paid vacation equal to the sum of four (4) weeks plus an additional three (3)
days for each Compensation Period (or portion thereof) previously completed
during the term of this Agreement. Up to sixty (60) unused vacation days may be
carried over from any Compensation Period to the ensuing Compensation Period,
and Employee shall be paid in cash, on the last day of each Compensation Period,
for any unused vacation days that cannot be carried over to the ensuing
Compensation Period at a rate per day equal to the quotient of Employee's Base
Salary for the just-completed Compensation Period divided by two hundred twenty
(220) (the number of working days in the year).
(g) Professional Organizations and Education.
----------------------------------------
Company shall promptly reimburse Employee for the Grossed-Up Value of
(A) the professional and membership fees and dues incurred by Employee to
maintain a membership in, or to belong to, such professional organizations and
societies as may be designated by Employee from time to time and one (1) social
or country club in the vicinity of each geographic location of an office of GIGL
or any of its subsidiaries and (B) the fees and costs incurred by Employee in
attending professional education courses selected by Employee.
(h) Automobile Allowance.
--------------------
Company shall provide Employee with a car allowance of one thousand
dollars (US$1,000.00) per month to be used for the purchase, lease and
maintenance of an appropriate automobile for his use during the term of
Employee's employment hereunder. If Company leases or purchases an automobile
for Employee's use, Employee shall have the ability to assume the lease at the
end of the term thereof or purchase the automobile at its residual or
depreciated value upon termination of his employment.
(i) Life Insurance.
--------------
(i) The Company has entered into split dollar life insurance
agreements with the trustee of a trust of which Employee is a trustor. The
split dollar life insurance agreements obligate the Company to pay all of the
premiums with respect to, and otherwise maintain in full force and effect, one
or more life insurance policies on the life of Employee. Except in the event
7
<PAGE>
Employee is terminated for Cause, as defined in Section 4(c) hereof, the Company
shall pay the premiums and maintain such policies until the death of Employee.
Such policy or policies shall provide (in the aggregate) that, at all times, the
death benefits minus the aggregate of all premiums paid by the Company, shall be
at least twenty million dollars (US$20,000,000.00). The policy or policies
shall be in such form and scope, and issued by insurers satisfactory to
Employee. Such a policy is currently in effect under the Predecessor Agreement,
and Employee has been advised by the Company and GIGL and their professional
advisors that no tax is due or payable. However, in the event Employee is
instructed by his tax advisor or required by a taxing authority to pay any tax,
interest, penalty or addition to tax with respect to the split-dollar life
insurance arrangement described in this Section 3(i), the Company shall pay
Employee the Grossed-Up Value of such amounts, as well as the Grossed-Up Value
of all reasonable expenses incurred by Employee in connection with such tax
issues, including professional fees and expenses of accountants, attorneys and
other advisors.
(ii) The split dollar agreements shall provide that the trustee of the
trust shall be the owner of the policy or policies, and shall contain such
further provisions as are acceptable to the parties, provided, however, the
split dollar agreement shall provide that the beneficiaries of Employee, upon
the death of Employee, whether or not Employee is employed by the Company at the
time of death, are entitled to a death benefit in the amount of twenty million
dollars (US$20,000,000.00). The Company shall be entitled to receive any death
benefit paid by the policies in excess of twenty million dollars
(US$20,000,000.00).
(j) Other Benefits.
--------------
Employee will, from time to time, receive such other benefits as he
may reasonably request that are commensurate with Employee's position and
facilitate performance of his duties under this Agreement.
(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
-----------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Compensation Period
Ending May 31, Cash Maximum
-----------------------------------------------------------
<S> <C>
2004 15,000,000
-----------------------------------------------------------
2005 22,000,000
-----------------------------------------------------------
</TABLE>
4. Termination. The compensation and other benefits provided to Employee
-----------
pursuant to this Agreement, and the employment of Employee by Company, shall be
terminated prior to expiration of the term of this Agreement only as provided in
this Section 4:
(a) Disability.
----------
In the event that Employee shall fail, because of illness, incapacity
or injury which is determined to be total and permanent by a physician selected
by Company or its insurers and acceptable to Employee or Employee's legal
representative (such agreement as to acceptability not to be withheld
unreasonably) to render for three consecutive months or for shorter periods
aggregating seventy five (75) or more business days in any twelve (12) month
period, the services contemplated by this Agreement, Employee's employment
hereunder may be terminated by written notice of termination from Company to
Employee. Thereafter, Company shall pay Employee all of his previously earned
Base Salary and Additional Benefits and shall continue for sixty (60) months
after the date of such notice or until expiration of the Current Term, whichever
period is longer, to pay Base Salary to Employee at a rate and time and in an
amount and manner equal to one hundred percent (100%) of the Base Salary payable
immediately prior to the termination. Thereafter, no further salary shall be
paid except to the extent otherwise expressly provided in Section 4(b). Upon
any such employment termination pursuant to this Section 4(a), all options to
acquire Ordinary Shares previously granted to Employee shall immediately vest in
full and shall become fully exercisable for their full term, and all previously
vested options to acquire Ordinary Shares shall remain fully exercisable for
their full term.
(b) Death.
-----
In the event of Employee's death during the term or during the
extended benefit period contemplated by Section 4(a), Company shall pay to such
person or persons as Employee shall have directed in writing or, in the absence
of a designation, the estate of Employee (the "Beneficiary") all of Employee's
previously earned Base Salary and Additional Benefits and shall continue for
sixty (60) months (less any period during which post-termination payments were
made under Section 4(a) above) after the date of Employees death or until
expiration of the Current Term, whichever period is longer, to pay Employee's
Base Salary to the Beneficiary at a rate and time and in an amount and manner
equal to one hundred percent (100%) of the Base Salary payable immediately prior
to death. If Employee's death occurs while receiving payments under Section
4(a) above, such payments shall cease and the Beneficiary shall be entitled only
to payments and benefits under this Section 4(b) at one hundred percent (100%)
of the rate of Base Salary in effect immediately prior to the disability. Upon
Employee's death, all options to acquire Ordinary Shares previously granted to
Employee shall immediately vest in full and shall become fully exercisable for
their full term, and all previously vested options to acquire Ordinary Shares
shall remain fully exercisable for their full term. This Agreement in all other
respects will terminate upon the death of Employee except as otherwise expressly
provided.
9
<PAGE>
(c) For Cause, Right to Appeal.
--------------------------
Employee's employment hereunder shall be terminated, and all of his
unearned rights to receive Base Salary and (subject to the terms of any plans
relating thereto) Additional Benefits hereunder in respect of any period after
such termination shall immediately terminate upon a reasonable determination by
the GIGL Board, acting in good faith based upon actual knowledge at such time,
that Employee (i) is engaging or has engaged in acts of fraud, material
dishonesty or other acts of willful misconduct that have had a material adverse
effect on the business of Company, (ii) has repeatedly and willfully refused to
perform his significant duties hereunder after notice, (iii) has habitually
abused any substance (such as narcotics or alcohol) and such abuse has had a
material adverse effect on the business of Company or (iv) has been convicted
of, or plead guilty to, an act constituting a felony that has a material adverse
effect on the business of Company (any of the conduct described in the foregoing
clauses being referred to in this Agreement as "Cause").
Notwithstanding the foregoing, Employee's employment hereunder shall
not be terminated for Cause pursuant to this Section 4(c) unless and until
Employee has received notice of a proposed termination for Cause and Employee
has had an opportunity to be heard before at least a majority of the members of
the GIGL Board. Employee shall be deemed to have had such opportunity if given
written notice by any director acting on behalf of the GIGL Board at least
seventy two (72) hours in advance of a meeting if scheduled in California or
ninety six (96) hours in advance if such meeting is scheduled outside
California. After Employee's hearing before the GIGL Board pursuant to this
Section, the GIGL Board shall decide to uphold or rescind Employee's termination
for Cause (the "Final Action").
If the Final Action upholds Employee's termination for Cause, Employee
shall have the right to appeal the Final Action pursuant to Section 9(f) of this
Agreement; provided, however, that Employee shall prevail in such appeal, and
-------- -------
Cause shall not be deemed to exist, unless GIGL and Company establish in such
appeal by "clear and convincing evidence" that Cause existed for such
termination. If Employee elects to appeal the Final Action, Company shall
continue for a period of six (6) months after the date of the Final Action, or
until final resolution of such appeal (the "Decision"), whichever period is
shorter, to pay Base Salary and Additional Benefits to Employee at a rate and
time and in an amount and manner equal to one hundred percent (100%) of the Base
Salary and Additional Benefits payable immediately prior to the Final Action.
If Employee is the nonprevailing party in the Decision, Employee shall
pay the costs of such action as provided in Section 9(f) and shall reimburse
Company for any Base Salary and Additional Benefits paid to Employee since the
Final Action.
If Employee is the prevailing party in the Decision, Company shall pay
the costs of such action as provided in Section 9(f), reimburse Employee for all
professional fees and expenses in connection with the Final Act and the
Decision, reinstate Employee as President and Chief Executive Officer and treble
Employee's Base Salary and Additional Benefits retroactive to October 1, 1997;
provided, however, that Company shall not be required to pay treble Employee's
- -------- -------
Base Salary and Additional Benefits retroactive to October 1, 1997, and shall
instead
10
<PAGE>
pay Employee's Base Salary and Additional Benefits retroactive to October 1,
1997, if the Decision is in response to the first attempt by the GIGL Board to
terminate Employee for Cause and the Decision includes a finding that the GIGL
Board acted in good faith in taking the Final Action relating to such
termination. Employee shall be entitled to receive in a lump sum payment, within
thirty (30) days after the Decision, the difference between (x) the trebled
amount of Base Salary and Additional Benefits that would have been paid and (y)
the amount of Base Salary and Additional Benefits actually paid, for the period
from November 1, 1997 through the date of the Decision. Any proceedings by the
GIGL Board pursuant to this Section 4(c) shall be conducted in a confidential
manner and all steps shall be taken to prevent any harm to Employee's
reputation.
Upon any such employment termination pursuant to this Section 4(c),
all options to acquire Ordinary Shares previously granted to Employee and then
remaining unvested shall be forfeited, and all previously vested options to
acquire Ordinary Shares shall remain fully exercisable for their full term.
(d) Without Cause.
-------------
Notwithstanding any other provision of this Section 4, the GIGL Board
shall have the right to terminate Employee's employment with Company at any
time, but in the event of any such termination, other than as expressly provided
in Section 4(a), (b) or (c) herein, or in the event Company elects not to renew
the term of this Agreement by giving notice of termination under Section 1(b)
hereof, (any such termination of Employee's employment under this Section 4(d)
being referred to in this Agreement as a termination "Without Cause") Company
shall thereafter pay and grant to Employee, in addition to any other amounts due
under this Agreement, on the last day of Employee's employment, an amount equal
to the product of Employee's then-current Base Salary multiplied by five (5),
and Company shall thereafter continue to provide to Employee the Additional
Benefits for sixty (60) months from such last day of employment. Upon any such
employment termination pursuant to this Section 4(d), all options to acquire
Ordinary Shares previously granted to Employee shall immediately vest in full
and shall become fully exercisable for their full term, and all previously
vested options to acquire Ordinary Shares shall remain fully exercisable for
their full term.
(e) Limited Succession of Additional Benefits Upon Termination.
----------------------------------------------------------
If Employee's services are terminated hereunder pursuant to Sections
4(a) or 4(b) and Employee is no longer eligible for Additional Benefits (under
the terms of any plans relating thereto) because of such termination Employee
(or in event of death, the Beneficiary) shall be entitled to and Company shall
provide benefits substantially equivalent to those benefits in the nature of
health and welfare type benefits to which Employee was entitled immediately
prior to such termination for the period (if any) during which Employee (or
Beneficiary, as the case may be) remains entitled to receive the Base Salary
under such sections. During such period, however, Employee shall not be
entitled to option, equity, appreciation, profit sharing, deferred compensation,
savings, bonus, participation, pension, extra compensation and other incentive
plan benefits (except to the extent otherwise expressly provided in any then
outstanding awards to such Employee).
11
<PAGE>
(f) Constructive Termination.
------------------------
A Constructive Termination (defined below) shall be treated as a
termination Without Cause pursuant to Section 4(d) of this Agreement.
For purposes of this Agreement, "Constructive Termination" means the
removal of Employee from any of the positions of President or Chief Executive
Officer of Company or GIGL or from his position as a director of GIGL, Company
or StarSight, assignment to Employee of duties or responsibilities inconsistent
with such positions, relocation of Employee's principal office to another
geographic location without Employee's written consent, or requiring Employee to
report to any other person or entity other than the full Board of Directors of
the GIGL, in any case other than as a result of grounds for termination of
employment for Cause under Section 4(c), for disability under Section 4(a) or
because of death or retirement.
(g) Termination by Employee.
-----------------------
(i) Subject to Section 4(h), Employee shall have the right, in his
sole discretion, to terminate his employment under this Agreement at any time
after expiration of the period ending eighteen (18) months after the date of
this Agreement, by providing notice, in writing, at least six (6) months prior
to Employee's termination of employment, but in the event of any such
termination Company shall thereafter pay and grant to Employee, in addition to
any other amounts due under this Agreement, on the last day of Employee's
employment, an amount equal to the product of Employee's then-current Base
Salary multiplied by one and one-half (1.5), and Company shall thereafter
continue to provide to Employee all other elements of compensation under Section
3 (including, without limitation, the vesting of options to acquire Ordinary
Shares) for eighteen (18) months from such last day of employment. Upon the
expiration of such eighteen (18) month period, all options to acquire Ordinary
Shares previously granted to Employee and then remaining unvested shall be
forfeited, and all previously vested options to acquire Ordinary Shares shall
remain fully exercisable for their full term.
(ii) Employee shall have the right to reduce his employment by GIGL
and the Company from full time to part time at any time following expiration of
the eighteen (18) month period immediately following the date of this Agreement
by providing written notice, at least three (3) months prior to such reduction
of employment, to GIGL and the Company that Employee will reduce the number of
his working days per week for the Company and GIGL from five (5) to any number
not less than one (1) working day per week. Upon the effectiveness of such
reduction, all elements of Employee's compensation or benefits under Section 3
and 4 (except Sections 3(e), 3(g) through (j), 4(c), 4(e) and 4(f) and any cost
or expense reimbursements required under this Agreement) shall be reduced by a
fraction thereof, the numerator of which is the difference of one (1) minus
Employee's reduced number of working days per week, and the denominator of which
is five (5). Upon the effectiveness of such reduction of employment, the
Company and GIGL shall be specifically relieved of their obligations under
Section 4(f), and Employee shall have the right to accept other employment that
is not in direct competition with the business of GIGL or its affiliates in
relation to the matters identified on Exhibits A and B attached hereto.
12
<PAGE>
(h) Change of Control.
-----------------
(i) As used in this Agreement, "CHANGE OF CONTROL" is defined as any
of the following acts:
(A) The acquisition (other than from GIGL directly or from any
stockholder of GIGL who on the date hereof owns twenty five percent (25%)
or more of GIGL's outstanding Ordinary Shares) after the date hereof by any
person, entity, or group, within the meaning of (S)13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), of
beneficial ownership of twenty-five percent (25%) or more of GIGL's
outstanding Ordinary Shares; or
(B) The acquisition by any person, entity, or group, within the
meaning of (S)13(d) or 14(d) of the Exchange Act, of beneficial ownership
of twenty-five percent (25%) or more of Company's outstanding shares of its
common stock, par value $.01 per share (the "COMMON STOCK") (excluding any
such acquisition by GIGL or any of its subsidiaries); or
(C) During any period of two (2) consecutive years, individuals who,
at the beginning of such period, constituted the board of directors of
Company or GIGL (together with any new directors whose election or
appointment to such board of directors or whose nomination for election by
the stockholders of Company or GIGL was approved by Employee or by a vote
of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election, appointment or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of Company or GIGL then in
office; or
(D) Approval by the board of directors or a majority of the
stockholders of either Company or GIGL of a merger, reorganization,
combination or consolidation whereby the stockholders of either Company or
GIGL immediately prior to such approval will not, immediately after
consummation of such reorganization, merger, combination or consolidation
own more than fifty percent (50%) of the voting stock of the surviving
entity; or
(E) A liquidation or dissolution of either Company or GIGL or the sale
of all or substantially all of the assets of either Company or GIGL, unless
the successor to the assets in any such liquidation, dissolution or sale is
GIGL or any of its subsidiaries.
(ii) Employee's Base Salary and other compensation shall be reviewed
promptly following any Change of Control and increased (but not decreased) to
reflect any expansion of Employee's duties or areas of responsibility, as
determined in good faith by the GIGL Board.
(iii) Employee shall have the right, in his sole discretion, to
terminate his employment under this Agreement at any time during the ninety (90)
days following notice of a Change of Control, and in the event of any such
termination Company shall thereafter pay and grant to Employee, in addition to
any other amounts due under this Agreement, on the last day of Employee's
employment, an amount equal to the product of Employee's Base Salary multiplied
by five (5), and Company shall thereafter continue to provide to Employee all
other elements of compensation under Section 3 for sixty (60) months from such
last day of employment, except that upon such termination, all unvested options
to acquire Ordinary Shares previously granted to Employee shall immediately vest
in full and shall become fully exercisable for their full term, and all
previously vested options to acquire Ordinary Shares shall remain fully
exercisable for their full term.
(iv) In the event a transaction described in Section 280G(b)(2)(A)(i)
of the Internal Revenue Code of 1986, as amended, occurs with respect to
Company, GIGL, any predecessor, successor, direct or indirect subsidiary or
affiliate of Company or GIGL, the provisions of Schedule II shall apply.
13
<PAGE>
5. Business Expenses.
-----------------
During the term of this Agreement, Company shall reimburse Employee
promptly for reasonable business expenditures, whether or not Company can fully
deduct such expenses according to federal income tax laws.
6. Inventions and Patents.
----------------------
(a) During the term of Employee's employment under this Agreement, all
inventions, designs, improvements, patents, copyrights, and discoveries ("IP
Products") conceived or reduced to practice by Employee shall be the property of
Company if and only to the extent that Company can establish, by clear and
convincing evidence, that such IP Products (i) were developed by Employee while
performing his duties for Company under this Agreement or using Company's
equipment, supplies, facilities or trade secret information, unless such usage
is not substantial, in which case, if Employee reimburses Company for the
reasonable cost of such usage, such IP Products shall not belong to Company,
(ii) relate at the time of conception or reduction to practice (as those terms
have been interpreted by the Federal courts in connection with the Patent Act
(35 U.S.C. (S)(S) 101, et seq.)) to Company's business or to actual or
demonstrably anticipated research or development of Company, or (iii) result
from any work performed by Employee for Company. Employee hereby assigns all
right, title and interest in IP Products owned by Company pursuant to the
preceding sentence. For the purpose of this Agreement, Company's business and
research or development referred to in (ii) above shall be as described in
Exhibits A and B respectively attached hereto, which may, from time to time, be
- ---------- -
modified or augmented, but only by resolution of the Company Board in meetings
to which Employee shall be invited to attend, but at which only non-management
directors applying the standard referred to in (ii) above can vote. Employee
will promptly and fully disclose to Company all such inventions, designs,
improvements, and discoveries (whether developed individually or with other
persons) and shall take all steps necessary and reasonably required to assure
Company's ownership thereof and to assist Company in protecting or defending
Company's proprietary rights therein.
14
<PAGE>
(b) All IP Products conceived or reduced to practice by Employee prior to,
during or after the term of Employee's employment under this Agreement that are
not owned by Company pursuant to Section 6(a) shall be the property of Employee
("Employee IP Products") and, subject to the provisions of this Section 6(b),
may be exploited in any manner as Employee, in his uncontrolled discretion, may
determine. Upon Employee's conception or reduction to practice of a new
Employee IP Product during Employee's employment by Company, Employee shall so
notify Company in writing, describing the nature of such Employee IP Product,
and, for the six (6) month period following such notice, Company shall have the
exclusive right to negotiate with Employee for the acquisition of such Employee
IP Product; provided, however, that neither party shall have any obligation
whatsoever to enter into any agreement for Company's acquisition of such
Employee IP Product. In consideration for such exclusive right, Company shall
bear the cost and expense of patent or copyright investigation, prior art
research, filing, prosecution and registration relating to such Employee IP
Product and all associated costs for such Employee IP Product, whether or not
Company acquires such Employee IP Product from Employee and without compromise
to Employee's absolute ownership of such Employee IP Product.
(c) Notwithstanding anything to the contrary, including the provisions of
Section 2870 of the California Labor Code and the provisions of this Section 6,
Exhibit C attached hereto lists those inventions and other intellectual property
- ---------
rights that, as of the date hereof, are acknowledged by Company to be the
property of Employee. Employee acknowledges hereby receipt of written notice
from Company pursuant to California Labor Code Section 2872 that this Agreement
(to the extent it requires an assignment or offer to assign rights to any
invention of Employee) does not apply to an invention that qualifies fully under
California Labor Code Section 2870.
7. Indemnity.
---------
To the maximum extent permitted by applicable law, Company shall
indemnify Employee and hold Employee harmless from and against any and all
claims, liabilities, judgments, fines, penalties, costs and expenses (including,
without limitation, reasonable attorneys' fees, costs of investigation and
experts, settlements and other amounts actually incurred by Employee in
connection with the defense of any action, suit or proceeding, and in connection
with any appeal thereon) incurred by Employee in any and all threatened, pending
or completed actions, suits or proceedings, whether civil, criminal,
administrative or investigative (including, without limitation, actions, suits
or proceedings brought by or in the name of Company), arising, directly or
indirectly, by reason of Employee's status, actions or inaction as a director,
officer, employee or agent of Company or of an affiliate of Company so long as
Employee's conduct was in good faith. Company shall promptly advance to
Employee upon request any and all expenses incurred by Employee in defending any
and all such actions, suits or proceedings to the maximum extent permitted by
applicable law.
8. GIGL Agreement.
--------------
GIGL agrees to perform, and to cause Company to perform, their
respective obligations under this Agreement so as to give full force and effect
to the provisions hereof.
15
<PAGE>
9. Miscellaneous.
-------------
(a) Succession; Survival.
--------------------
This Agreement shall inure to the benefit of and shall be binding upon
Company and GIGL and their respective successors and assigns, but without the
prior written consent of Employee this Agreement may not be assigned other than
in connection with a merger or sale of substantially all the assets of Company
or GIGL or a similar transaction in which the successor or assignee assumes
(whether by operation of law or express assumption) all obligations of Company
or GIGL hereunder. The obligations and duties of Employee hereunder are
personal and otherwise not assignable.
(b) Notices.
-------
Any notice or other communication provided for in this Agreement shall
be in writing and sent, if to GIGL or Company, to its office at:
Gemstar Development Corp.
Suite 800
135 North Los Robles Ave.
Pasadena, California 91101
Facsimile: (818) 792-4051
Attention: General Counsel
or at such other address as GIGL or Company may from time to time in writing
designate, and, if to Employee, at such address as Employee may from time to
time in writing designate (or Employee's business address of record in the
absence of such designation). Each such notice or other communication shall be
effective (i) if given by telecommunication, when transmitted to the applicable
number so specified in (or pursuant to) this Section 9(b) and an appropriate
answerback is received, (ii) if given by mail, three days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when actually
delivered at such address.
(c) Entire Agreement; Amendments.
----------------------------
This Agreement contains the entire agreement of the parties relating
to the subject matter hereof and it supersedes any prior agreements,
undertakings, commitments and practices relating to Employee's employment by
Company or its affiliates except for any and all other agreements necessary to
give effect to the provisions of this Agreement or the Predecessor Agreement (to
the extent not modified by this Agreement), including, without limitation, stock
option agreements, life insurance agreements, and agreements relating to
Additional Benefits. No amendment or modification of the terms of this
Agreement shall be valid unless made in writing and signed by Employee and, on
behalf of Company and GIGL, by senior executive officers after approval thereof
by their respective boards of directors.
16
<PAGE>
(d) Waiver.
------
No failure on the part of any party to exercise or delay in exercising
any right hereunder shall be deemed a waiver thereof or of any other right, nor
shall any single or partial exercise preclude any further or other exercise of
such right or any other right.
(e) Choice of Law.
-------------
This Agreement, the legal relations between the parties and any
action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, the relationship of the parties or the subject matter
hereof shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines.
(f) Arbitration.
-----------
Any controversy or claim arising out of or relating to this Agreement,
its enforcement or interpretation, or because of an alleged breach, default, or
misrepresentation in connection with any of its provisions, shall be submitted
to arbitration, to be held in Los Angeles County, California in accordance with
California Code of Civil Procedure Sections 1282-1284.2. In the event either
party institutes arbitration under this Agreement, the party prevailing in any
such arbitration shall be entitled, in addition to all other relief, to
reasonable attorneys' fees relating to such arbitration. The nonprevailing
party shall be responsible for all costs of the arbitration, including but not
limited to, the arbitration fees, court reporter fees, etc.
(g) Confidentiality, Proprietary Information.
----------------------------------------
Employee agrees to not make use of, divulge or otherwise disclose,
directly or indirectly, any trade secret or other confidential or proprietary
information concerning the business (including, but not limited to its products,
employees, services, practices or policies) of Company or any of its affiliates
of which Employee may learn or be aware as a result of Employee's employment
during the term of this Agreement or prior thereto as shareholder, employee,
officer or director of or consultant to Company and its predecessors, except to
the extent such use or disclosure is (i) necessary to the performance of this
Agreement and in furtherance of Company's best interests, (ii) required by
applicable law, (iii) lawfully obtainable from other sources, or (iv) authorized
in writing by Company. The provisions of this Section 9(g) shall survive the
expiration, suspension or termination, for any reason, of this Agreement.
(h) Trade Secrets.
-------------
Employee, prior to and during the term of employment, has had and will
have access to and become acquainted with various trade secrets, consisting of
software, plans, formulas, patterns, devices, secret inventions, processes,
customer lists, contracts, and compilations of information, records and
specifications that are owned by Company or by its affiliates and regularly used
in the operation of their respective businesses and that may give
17
<PAGE>
Company an opportunity to obtain an advantage over competitors who do not know
or use such trade secrets. Employee agrees and acknowledges that Employee has
been granted access to these valuable trade secrets only by virtue of the
confidential relationship created by Employee's employment and Employee's prior
relationship to, interest in and fiduciary relationships to Company and its
predecessors. Employee shall not disclose any of the aforesaid trade secrets,
directly or indirectly, or use them in any way, either during the term of this
Agreement or at any time thereafter, except as required in the course of
employment by Company and for its benefit.
All records, files, documents, drawings, specifications, software,
equipment, and similar items relating to the business of Company or its
affiliates, including without limitation all records relating to customers (the
"Documents"), whether prepared by Employee or otherwise coming into Employee's
possession, shall remain the exclusive property of Company or such affiliates
and shall not be removed from the premises of Company or its affiliates under
any circumstances whatsoever without the prior consent of a senior executive
officer of Company. Upon termination of employment, Employee agrees to promptly
deliver to Company all Documents in the possession or under the control of
Employee.
(i) Severability.
------------
If any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect, and if any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances, to the fullest extent permitted by law.
(j) Withholding; Deductions.
-----------------------
All compensation payable hereunder, including salary and other
benefits, shall be subject to applicable taxes, withholding and other required,
normal or elected employee deductions.
(k) Section Headings.
----------------
Section and other headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(l) Counterparts.
------------
This Agreement and any amendment hereto may be executed in several
counterparts. All of such counterparts shall constitute one and the same
agreement and shall become effective when a copy signed by each party has been
delivered to the other party.
(m) Representation By Counsel; Interpretation.
-----------------------------------------
Each party hereto acknowledges that it or he has been represented by
counsel in connection with this Agreement and the matters contemplated by this
Agreement. Accordingly, any rule of law, including but not limited to Section
1654 of the California Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement
18
<PAGE>
against the party that drafted it has no application and is expressly waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of the parties.
(n) Antidilution Adjustments.
------------------------
All amounts of shares, options and option exercise prices referred to
in this Agreement shall be subject to appropriate adjustment for stock splits,
reverse stock splits, stock dividends, restructurings and recapitalizations
occurring after the date hereof.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"GIGL"
GEMSTAR INTERNATIONAL GROUP LIMITED
By:/s/ ELSIE M. LEUNG
-----------------------------------------------
Elsie M. Leung, Chief Operating Officer and
Chief Financial Officer
By:/s/ LARRY GOLDBERG
-----------------------------------------------
Larry Goldberg, Secretary
"Company"
GEMSTAR DEVELOPMENT CORPORATION
By:/s/ ELSIE M. LEUNG
-----------------------------------------------
Elsie M. Leung, Chief Operating Officer and
Chief Financial Officer
By:/s/ LARRY GOLDBERG
-----------------------------------------------
Larry Goldberg, Assistant Secretary
"Employee"
HENRY C. YUEN
/s/ HENRY C. YUEN
----------------------------------------------
20
<PAGE>
EXHIBIT A
COMPANY'S BUSINESS
(for purposes of this exhibit Company
shall include [*])
[*]
Includes the following disclosures, patent applications, patents,
continuations, continuations-in-part and foreign counterparts thereto:
[*] [*]
PATENT NO. 5,335,079 PATENT NO. 5,382,983
[*] [*]
PATENT NO. 5,307,173
[*]
1
LC973100.078
___________
[*] Omitted. Confidential treatment requested.
<PAGE>
EXHIBIT B
ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT OF GEMSTAR
[*]
- -----------------
[*] Omitted, confidential treatment requested.
<PAGE>
EXHIBIT C
LIST OF THE INTELLECTUAL PROPERTY OF HENRY C. YUEN
[*]Includes the following disclosures, patent applications, patents,
continuations, continuations-in-part and foreign counterparts thereto:
[*]
TAIWAN PATENT NO. 66638
[*]
[*]Includes the following patent applications, continuations,
continuations-in-part and foreign counterparts thereto:
[*]Includes the invention disclosure in the following file:
[*]Includes the following disclosures, patent applications, continuations,
continuations-in-part and foreign counterparts thereto:
[*]Includes the invention disclosure in the following file:
[*]Includes the invention disclosure in the following file:
[*]Includes the invention disclosure in the following file:
[*]Includes the invention disclosure in the following file:
___________
[*] Omitted, confidential treatment requested
C-1
<PAGE>
[*] Includes the invention disclosure in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosures and patent applications and
continuations, continuations-in-part and foreign counterparts thereto in the
following:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
___________
[*] Omitted, confidential treatment requested
C-2
<PAGE>
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
___________
[*] Omitted, confidential treatment requested
C-3
<PAGE>
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
[*] Includes the invention disclosed in the following file:
note: Docket and file numbers relate to files at the law firm of [*]
___________
[*] Omitted, confidential treatment requested
C-4
<PAGE>
<TABLE>
<CAPTION>
YUEN FILE REPORT
03-Dec-97
================================================================================================================================
FILE NO. COUNTRY TITLE SERIAL NO. FILING DATE REGISTRATION NO. PATENT NO.
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
[*] GENERAL [*] [*] [*] [*]
TRADEMARK SEARCHES
US [*]
US
US
US
US
US
US
US
US
US
US
<CAPTION>
========================================================
STATUS CLIENT REF. NO.
========================================================
[*] [*]
</TABLE>
___________
[*] Omitted, confidential treatment requested
C-5
<PAGE>
<TABLE>
<CAPTION>
FILE NO. COUNTRY TITLE SERIAL NO. FILING DATE REGISTRATION NO. PATENT NO.
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
[*] US [*] [*] [*] [*] [*]
US
US
US
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================
STATUS CLIENT REF. NO.
========================================================
[*] [*]
</TABLE>
- ------------
[*] Omitted, confidential treatment requested
C-6
<PAGE>
[*]
- ----------
[*] Omitted, confidential treatment requested
C-7
<PAGE>
[*]
- ------------
[*] Omitted, confidential treatment requested
C-8
<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);
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
-----------------------------------------------------
: :
-----------------------------------------------------
2004 n=7
-----------------------------------------------------
: :
-----------------------------------------------------
2010 n=13
-----------------------------------------------------
: :
-----------------------------------------------------
</TABLE>
S.= Base Salary as of the last day of such Fiscal Year.
I-1
<PAGE>
(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.
(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.
I-2
<PAGE>
(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>
SCHEDULE II
Excise Tax Gross-Up
(Capitalized terms not defined herein have the meanings
ascribed thereto in the attached Amended and Restated
Employment Agreement)
(a) In the event it is determined (pursuant to (b) below) or finally
determined (as defined in (c)(iii) below) that any payment, distribution,
transfer, benefit or other event with respect to the GIGL, the Company or a
predecessor, successor, direct or indirect subsidiary or affiliate of
either the Company or GIGL (or any predecessor, successor of affiliate of
any of them, and including any benefit plan of any of them), to or for the
benefit of Employee or Employee's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event
occurs pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Schedule II)
(each a "Payment" and collectively the "Payments") is or was subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended, and any successor provision or any comparable provision of state
or local income tax law (collectively, "Section 4999"), or any interest,
penalty or addition to tax is or was incurred by Employee with respect to
such excise tax (such excise tax, together with any such interest, penalty,
addition to tax, and costs (including professional fees) hereinafter
collectively referred to as the "Excise Tax"), then, within 10 days after
such determination or final determination, as the case may be, the Company
shall pay to Employee an additional cash payment (hereinafter referred to
as the "Gross-Up Payment") in an amount such that after payment by Employee
of all taxes, interest, penalties, additions to tax and costs imposed or
incurred with respect to the Gross-Up Payment (including, without
limitation, any income and excise taxes imposed upon the Gross-Up Payment),
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon such Payment or Payments. This provision is intended to put
Employee in the same position as Employee would have been had no Excise Tax
been imposed upon or incurred as a result of any Payment.
(b) Except as provided in subsection (c) below, the determination that
a Payment is subject to an Excise Tax shall be made in writing by a
certified public accounting firm selected by Employee ("Employee's
Accountant"). Such determination shall include the amount of the Gross-Up
Payment and detailed computations thereof, including any assumptions used
in such computations (the written determination of the Employee's
Accountant, hereinafter, the "Employee's Determination"). The Employee's
Determination shall be reviewed on behalf of the Company by a certified
public accounting firm selected by the Company (the "Company's
Accountant"). The Company shall notify Employee within 10 business days
after receipt of the Employee's Determination of any disagreement or
dispute therewith, and failure to so notify within that period shall be
considered an agreement by the Company with the Employee's Determination,
obligating the Company to make payment as provided in subsection (a) above
within 10 days from the expiration of such 10 business-day period. In the
event of an objection by the Company to the Employee's Determination, any
amount not in dispute shall be paid within 10 days following the 10
business-day period referred to herein, and with respect to the amount in
dispute the Employee's Accountant and the Company's Accountant shall
jointly select a third nationally recognized certified public accounting
firm to resolve the dispute and the decision of such third firm shall be
final, binding and conclusive upon the Employee and the
II-1
<PAGE>
Company. In such a case, the third accounting firm's findings shall be
deemed the binding determination with respect to the amount in dispute,
obligating the Company to make any payment as a result thereof within 10
days following the receipt of such third accounting firm's determination.
All fees and expenses of each of the accounting firms referred to in this
Schedule II shall be borne solely by the Company.
(c) (i) Employee shall notify the Company in writing of any claim by
the Internal Revenue Service (or any successor thereof) or any state or
local taxing authority (individually or collectively, the "Taxing
Authority") that, if successful, would require the payment by the Company
of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 30 days after Employee receives written
notice of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid; provided,
however, that failure by Employee to give such notice within such 30-day
period shall not result in a waiver or forfeiture of any of Employee's
rights under this Schedule II except to the extent of actual damages
suffered by the Company as a result of such failure. Employee shall not
pay such claim prior to the expiration of the 15-day period following the
date on which Employee gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes, interest, penalties or
additions to tax with respect to such claim is due). If the Company
notifies Employee in writing prior to the expiration of such 15-day period
that it desires to contest such claim (and demonstrates to the reasonable
satisfaction of Employee its ability to make the payments to Employee which
may ultimately be required under this section before assuming
responsibility for the claim), Employee shall:
(A) give the Company any information reasonably requested by the
Company relating to such claim;
(B) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney selected by the Company that is
reasonably acceptable to Employee;
(C) cooperate with the Company in good faith in order effectively
to contest such claim; and
(D) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly all attorneys fees, costs and expenses (including additional
interest, penalties and additions to tax) incurred in connection with
such contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for all taxes (including, without limitation, income
and excise taxes), interest, penalties and additions to tax imposed in
relation to such claim and in relation to the payment of such costs
and expenses or indemnification. Without limitation on the foregoing
provisions of this Schedule II, and to the extent its actions do not
unreasonably interfere with or prejudice Employee's disputes with the
Taxing Authority as to other issues, the Company shall control all
proceedings taken in connection with such contest and, in its
reasonable discretion, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct Employee to
II-2
<PAGE>
pay the tax, interest or penalties claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs Employee to pay such claim and sue for a
refund, the Company shall advance an amount equal to such payment to
Employee, on an interest-free basis, and shall indemnify and hold
Employee harmless, on an after-tax basis, from all taxes (including,
without limitation, income and excise taxes), interest, penalties and
additions to tax imposed with respect to such advance or with respect
to any imputed income with respect to such advance, as any such
amounts are incurred; and, further, provided, that any extension of
the statute of limitations relating to payment of taxes, interest,
penalties or additions to tax for the taxable year of Employee with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount; and, provided, further, that any
settlement of any claim shall be reasonably acceptable to Employee and
the Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and
Employee shall be entitled to settle or contest, as the case may be,
any other issue.
(ii) If, after receipt by Employee of an amount advanced by the
Company pursuant to paragraph (c)(i), Employee receives any refund with
respect to such claim, Employee shall (subject to the Company's complying
with the requirements of this Schedule II) promptly pay to the Company an
amount equal to such refund (together with any interest paid or credited
thereon after taxes applicable thereto), net of any taxes (including
without limitation any income or excise taxes), interest, penalties or
additions to tax and any other costs incurred by Employee in connection
with such advance, after giving effect to such repayment. If, after the
receipt by Employee of an amount advanced by the Company pursuant to
paragraph (c)(i), it is finally determined that Employee is not entitled to
any refund with respect to such claim, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance shall
be treated as a Gross-Up Payment and shall offset, to the extent thereof,
the amount of any Gross-Up Payment otherwise required to be paid.
(iii) For purposes of this Schedule II, whether the Excise Tax is
applicable to a Payment shall be deemed to be "finally determined" upon the
earliest of: (A) the expiration of the 15-day period referred to in
paragraph (c)(i) above if the Company has not notified Employee that it
intends to contest the underlying claim, (B) the expiration of any period
following which no right of appeal exists, (C) the date upon which a
closing agreement or similar agreement with respect to the claim is
executed by Employee and the Taxing Authority (which agreement may be
executed only in compliance with this Schedule II), (D) the receipt by
Employee of notice from the Company that it no longer seeks to pursue a
contest (which notice shall be deemed received if the Company does not,
within 15 days following receipt of a written inquiry from Employee,
affirmatively indicate in writing to Employee that the Company intends to
continue to pursue such contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is
due, it may be possible that in making the calculations required to be made
hereunder, the parties or their accountants shall determine that a Gross-Up
Payment need not be made (or shall make no determination with respect to a
Gross-Up Payment) that properly should be made ("Underpayment"), or that a
Gross-Up
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<PAGE>
Payment not properly needed to be made should be made ("Overpayment"). The
determination of any Underpayment shall be made using the procedures set
forth in paragraph (b) above and shall be paid to Employee as an additional
Gross-Up Payment. The Company shall be entitled to use procedures similar
to those available to Employee in paragraph (b) to determine the amount of
any Overpayment (provided that the Company shall bear all costs of the
accountants as provided paragraph (b)) . In the event of a determination
that an Overpayment was made, any such Overpayment shall be treated for all
purposes as a loan to Employee with interest at the applicable Federal rate
provided for in Section 1274(d) of the Code; provided, however, that the
amount to be repaid by Employee to the Company shall be subject to
reduction to the extent necessary to put Employee in the same after-tax
position as if such Overpayment were never made.
II-4
LC973100.078
<PAGE>
EXHIBIT 99.13
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of March 31, 1998, by and among Gemstar International Group Limited, a
British Virgin Islands corporation ("GIGL"), Gemstar Development Corporation, a
California corporation ("Company"), and Elsie Leung ("Employee").
WITNESSETH:
WHEREAS, Company and Employee are parties to an Employment Agreement,
entered into as of April 1, 1994, as amended August 16, 1995 and September 1,
1996 (collectively, the "Predecessor Agreement"), pursuant to which Employee has
served Company as Chief Financial Officer; and
WHEREAS, GIGL and Company desire to obtain the benefit of continued service
by Employee to Company and GIGL, and Employee desires to render services to
Company and GIGL; and
WHEREAS, Employee possesses expertise in the financial and operational
areas of Company, which expertise has been and is expected to continue to be
critical to public offerings of stock of GIGL, acquisitions by Company and the
integration of acquired products and workforces into Company, the continued
maintenance of the public company status by GIGL and the future operations of
Company; and
WHEREAS, the Board of Directors of Company (the "Company Board") and the
Board of Directors of GIGL (the "GIGL Board") have determined that because of
Employee's substantial experience and expertise in connection with the financial
and operational matters of Company, it is in the best interest of Company and
GIGL, Company's sole shareholder, to retain the services of Employee and to
provide Employee certain additional benefits; and
WHEREAS, GIGL, Company and Employee desire to set forth in this Agreement
the terms and conditions of Employee's future employment with Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree to terminate in its entirety the Predecessor
Agreement, and the parties further agree as follows:
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<PAGE>
1. Term and Renewals; Shareholder Approval.
---------------------------------------
(a) Initial Term.
------------
Company agrees to employ Employee and Employee agrees to serve
Company, in accordance with the terms of this Agreement, for an initial term
commencing with an effective date of April 1, 1998 and ending December 31, 2003
(the "Initial Term"), unless this Agreement is earlier terminated in accordance
with the provisions which follow.
(b) Renewal.
-------
Upon expiration of the Initial Term, this Agreement shall be
automatically renewed for a term of three additional years (the "Renewal Term"),
unless either party gives notice, in writing, at least twelve (12) months prior
to the expiration of the Initial Term of its desire to terminate this Agreement.
If Company delivers to Employee the written termination notice
contemplated by this Section 1(b), or if the Renewal Term expires without GIGL,
Company and Employee having reached an agreement for the continued employment of
Employee by GIGL and Company that is satisfactory to GIGL, Company and Employee
(in their sole and absolute discretion), such termination or expiration shall be
treated as a termination Without Cause pursuant to Section 4(d) of this
Agreement, and the date of such termination or expiration shall be deemed the
date of notice of termination for purposes of Section 4(d).
(c) Compensation Period; Current Term.
---------------------------------
Each June 1- May 31 annual period (or portion thereof) during the term
of this Agreement and during any period following termination of Employee's
employment hereunder during which Company has ongoing obligations hereunder
shall be a distinct and separate compensation period ("Compensation Period").
The then-current term of this Agreement, whether it is the Initial Term
(together with the Renewal Term if the termination deadline under Section 1(b)
has passed without delivery of the termination notice contemplated thereunder)
or the Renewal Term, shall be known as the "Current Term."
2. Specific Position; Duties and Responsibilities.
----------------------------------------------
Company and Employee agree that, subject to the provisions of this
Agreement, Company will employ Employee and Employee will serve Company as Chief
Operating Officer and Chief Financial Officer of Company, and Employee shall
have such other additional duties and responsibilities befitting the foregoing
positions as Company Board shall determine from time to time. GIGL and Employee
agree that, subject to the provisions of this Agreement, GIGL will employ
Employee as Chief Financial Officer of GIGL, and Employee shall have such other
additional duties and responsibilities befitting the foregoing positions as the
GIGL Board shall determine from time to time. GIGL and Company also agree that
Employee shall serve as a
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<PAGE>
director of GIGL, Company and StarSight Telecast, Inc. ("StarSight") during the
entire term of this Agreement.
Employee agrees to devote substantially all of her time, energy and
ability to the business of Company and GIGL. Nothing herein shall prevent
Employee, upon approval of the GIGL Board, from serving as a director,
consultant or trustee of other corporations or businesses that are not in
competition with the business of GIGL or in competition with any affiliate of
GIGL. Such approval of the GIGL Board shall not be unreasonably withheld.
Nothing herein shall prevent Employee from (i) investing in real estate for her
own account, (ii) becoming a partner or a shareholder in any privately-held
corporation, partnership or other venture not in competition with the business
of GIGL or any affiliate of GIGL or (iii) becoming a partner or a shareholder
with an equity interest of not more than ten percent (10%) in any corporation,
partnership or other venture whose equity securities are publicly traded,
whether or not such corporation, partnership or other venture is in competition
with the business of GIGL or any affiliate of GIGL. Nothing in this Agreement
shall restrict the GIGL Board from paying and granting to Employee additional
cash compensation and/or grants of stock or stock options from entities created
as joint ventures between GIGL (or any of its affiliates) and third parties as a
means of providing further incentives for Employee.
For the term of this Agreement, Employee shall report to the Chief
Executive Officer of Company and the Chief Executive Officer of GIGL. For
purposes of this Agreement, the termination of Employee's employment by Company
shall also constitute termination of Employee's employment by GIGL.
3. Compensation.
------------
(a) Base Compensation and Adjustments.
---------------------------------
(i) Until March 31, 1997, Company agrees to pay Employee her current
base salary of Five Hundred Seventy Thousand Dollars (US$570,000.00) per year.
Beginning April 1,1998 and during the remaining term of this Agreement, Company
agrees to pay Employee a base salary at the rate of Seven Hundred Thousand
Dollars (US$700,000.00) per year, as adjusted as hereinafter provided (as in
effect from time to time, the "Base Salary"). Such salary shall be earned
monthly and shall be payable in periodic installments no less frequently than
monthly in accordance with Company's customary practices. Amounts payable shall
be reduced by standard withholding and other authorized deductions.
(ii) On June 1 of each Compensation Period, commencing June 1, 1999,
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
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<PAGE>
in no event should the Adjusted Percentage applicable to any one Compensation
Period exceed thirty percent (30%).
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 consolidated financial statements of GIGL (the "Financial Statements"); and
"P" is the percentage increase, if any, from the previous fiscal year in GIGL's
consolidated positive net earnings, if any, as shown on the Financial
Statements.
(b) Annual Incentive Bonus.
----------------------
Company shall pay to Employee in respect of each fiscal year of
Company ("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;
(c) 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 one million two hundred thousand (1,200,000)
Ordinary Shares (the "Option Grant"). Options to acquire two hundred thousand
(200,000) Ordinary Shares shall vest and become exercisable immediately upon
execution of this Agreement; and subject to other accelerated vesting provisions
of this Agreement, options to acquire two hundred thousand (200,000) Ordinary
Shares shall vest and become immediately exercisable on each March 31, beginning
March 31, 1999, that follows the date of this Agreement. The exercise price per
Ordinary Share under the Option Grant shall equal the Market Price per Ordinary
Share as of the date of this Agreement. As used herein, 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 are traded. Each of the options issued under the Option Grant shall be
exercisable through the tenth (10th) anniversary of the date of its grant. Such
options shall be granted under GIGL's employee stock option plan previously
approved by GIGL's shareholders. GIGL represents that sufficient shares are
available under such plan for issuance of the Option Grant and that the Option
Grant is permissible under such plan. On before May 31, 2001 Employee, Company
and GIGL shall attempt to agree on an additional number of options that would
vest during the Renewal Term.
(d) Additional Benefits.
-------------------
Employee shall also be entitled to all rights and benefits for which
Employee is otherwise eligible under any bonus, incentive, participation, stock
option or extra compensation plan, pension plan, profit-sharing plan, life,
medical, dental, disability, or insurance plan or
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<PAGE>
policy or other plan or benefit that Company its subsidiaries or affiliates may
provide for Employee or (provided Employee is eligible to participate therein)
for employees of Company generally, as from time to time in effect, during the
term of this Agreement. In order to maximize Employee's time availability to
Company, Company shall also promptly reimburse Employee for the Grossed-Up Value
(as defined below) of all professional fees and expenses incurred by Employee in
connection with (A) the negotiation and documentation of this Agreement and any
amendment thereto, (B) income tax planning and preparation, and (C) income tax
audits and the defense of income tax claims. All of the benefits described in
this Section 3(d) are collectively referred to herein as the "Additional
Benefits." The Additional Benefits shall be provided at the level commensurate
with the office held at the time and shall recognize for vesting and eligibility
purposes (but not for purposes of calculating Employee's age or for benefit
accrual purposes) Employee's prior service with Company to the extent (if any)
that such prior service is recognized under any such plans.
As used in this Agreement, the "Grossed-Up Value" of an amount shall
equal the result obtained by dividing (A) such amount by (B) the difference of
one (1) minus the sum of the highest marginal federal and state personal income
tax rates, the highest Medicare tax rate (expressed as a decimal), the
additional effective income tax rate (expressed as a decimal) resulting from the
receipt of such amount reducing available deductions of Employee, and any other
income, payroll or similar rate of tax (expressed as a decimal) imposed on the
receipt by Employee of such amount.
(e) Vacation.
--------
In each Compensation Period, Employee shall be entitled to an amount
of paid vacation equal to the sum of four (4) weeks plus an additional three (3)
days for each Compensation Period (or portion thereof) previously completed
during the term of this Agreement. Up to sixty (60) unused vacation days may be
carried over from any Compensation Period to the ensuing Compensation Period,
and Employee shall be paid in cash, on the last day of each Compensation Period,
for any unused vacation days that cannot be carried over to the ensuing
Compensation Period at a rate per day equal to the quotient of Employee's Base
Salary for the just-completed Compensation Period divided by two hundred twenty
(220) (the number of working days in the year).
(f) Professional Organizations and Education.
----------------------------------------
Company shall promptly reimburse Employee for the Grossed-Up Value of
(A) the professional and membership fees and dues incurred by Employee to
maintain a membership in, or to belong to, such professional organizations and
societies as may be designated by Employee from time to time and one (1) social
or country club; and (B) the fees and costs incurred by Employee in attending
professional education courses selected by Employee.
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<PAGE>
(g) Automobile Allowance.
--------------------
Company shall provide Employee with a car allowance of seven hundred
and fifty dollars (US$750.00) per month to be used for the purchase, lease and
maintenance of an appropriate automobile for her use during the term of
Employee's employment hereunder. If Company leases or purchases an automobile
for Employee's use, Employee shall have the ability to assume the lease at the
end of the term thereof or purchase the automobile at its residual or
depreciated value upon termination of her employment.
(h) Disability Insurance. During the Initial Term and any Renewal Term,
--------------------
Company agrees to purchase and keep in effect, or reimburse Employee for the
cost of, one or more policies of disability insurance reasonably satisfactory to
Employee and Company, with maximum annual premiums not to exceed Twenty-Two
Thousand Dollars (US$22,000.00). Such purchase or reimbursement shall include
payment to Employee of such amount as is necessary to ensure that Employee
receives the Grossed-Up Value of the premiums on such disability policy (less
any amounts paid directly by Company to the carrier). Such policy will contain
a feature permitting Employee to continue the policy at her cost (subject to
other provisions in this Agreement requiring Company to fund such amounts
following termination of employment) following any termination of Employee's
employment.
(i) Life Insurance. During the Initial Term and any Renewal Term, Company
--------------
agrees to purchase and keep in effect, or reimburse Employee for the cost of, a
policy of life insurance reasonably satisfactory to Employee and Company, with
maximum annual premiums not to exceed Ten Thousand Dollars (US$10,000.00). Such
purchase or reimbursement shall include payment to Employee of such amount as is
necessary to ensure that Employee receives the Grossed-Up Value of the premiums
on such life insurance policy (less any amounts paid directly by Company to the
carrier). Such policy will contain a feature permitting Employee to continue
the policy at her cost (subject to other provisions in this Agreement requiring
Company to fund such amounts following termination of employment) following any
termination of Employee's employment.
(j) Other Benefits.
--------------
Employee will, from time to time, receive such other benefits as she
may reasonably request that are commensurate with Employee's position and
facilitate performance of her duties under this Agreement.
4. Termination. The compensation and other benefits provided to Employee
-----------
pursuant to this Agreement, and the employment of Employee by Company, shall be
terminated prior to expiration of the term of this Agreement only as provided in
this Section 4:
6
<PAGE>
(a) Disability.
----------
In the event that Employee shall fail, because of illness, incapacity
or injury which is determined to be total and permanent by a physician selected
by Company or its insurers and acceptable to Employee or Employee's legal
representative (such agreement as to acceptability not to be withheld
unreasonably) to render for three consecutive months or for shorter periods
aggregating seventy five (75) or more business days in any twelve (12) month
period, the services contemplated by this Agreement, Employee's employment
hereunder may be terminated by written notice of termination from Company to
Employee. Thereafter, Company shall pay Employee all of her previously earned
Base Salary and Additional Benefits and shall continue for twenty four (24)
months after the date of such notice or until expiration of the Current Term,
whichever period is longer, to pay Base Salary to Employee at a rate and time
and in an amount and manner equal to one hundred percent (100%) of the Base
Salary payable immediately prior to the termination. Thereafter, no further
salary shall be paid except to the extent otherwise expressly provided in
Section 4(b). Upon any such employment termination pursuant to this Section
4(a), all previously vested options to acquire Ordinary Shares shall remain
fully exercisable for their full term, all options to acquire Ordinary Shares
granted to Employee which would become vested and exercisable for the then
current Compensation Period and the next Compensation Period (and which would
not otherwise become vested and exercisable) shall immediately vest in full and
shall become fully exercisable for their full term, and any remaining options
that have not otherwise become vested or exercisable shall be forfeited.
(b) Death.
-----
In the event of Employee's death during the term or during the
extended benefit period contemplated by Section 4(a), Company shall pay to such
person or persons as Employee shall have directed in writing or, in the absence
of a designation, the estate of Employee (the "Beneficiary") all of Employee's
previously earned Base Salary and Additional Benefits and shall continue for
twenty four (24) months after the date of Employees death or until expiration of
the Current Term, whichever period is longer, to pay Employee's Base Salary to
the Beneficiary at a rate and time and in an amount and manner equal to one
hundred percent (100%) of the Base Salary payable immediately prior to death.
If Employee's death occurs while receiving payments under Section 4(a) above,
such payments shall cease and the Beneficiary shall be entitled only to payments
and benefits under this Section 4(b) at one hundred percent (100%) of the rate
of Base Salary in effect immediately prior to the disability. Upon Employee's
death, all previously vested options to acquire Ordinary Shares shall remain
fully exercisable for their full term, any options that would have vested on a
date within one year following Employees death (assuming Employee had satisfied
the other vesting conditions of such options) shall vest as to that percentage
equal to the percentage of the one-year period ending on such date prior to
Employee's death, and any remaining options that did not otherwise become vested
or exercisable shall be forfeited. This Agreement in all other respects will
terminate upon the death of Employee except as otherwise expressly provided.
7
<PAGE>
(c) For Cause, Right to Appeal.
--------------------------
Employee's employment hereunder shall be terminated, and all of her
unearned rights to receive Base Salary and (subject to the terms of any plans
relating thereto) Additional Benefits hereunder in respect of any period after
such termination shall immediately terminate upon a reasonable determination by
the GIGL Board, acting in good faith based upon actual knowledge at such time
and following the meeting described in the immediately succeeding paragraph,
that Employee (i) is engaging or has engaged in acts of fraud, material
dishonesty or other acts of willful misconduct that have had a material adverse
effect on the business of Company, (ii) has repeatedly and willfully refused to
perform her significant duties hereunder after notice, (iii) has habitually
abused any substance (such as narcotics or alcohol) and such abuse has had a
material adverse effect on the business of Company or (iv) has been convicted
of, or plead guilty to, an act constituting a felony that has a material adverse
effect on the business of Company (any of the conduct described in the foregoing
clauses being referred to in this Agreement as "Cause").
Notwithstanding the foregoing, Employee's employment hereunder shall
not be terminated for Cause pursuant to this Section 4(c) unless and until
Employee has received notice of a proposed termination for Cause and Employee
has had an opportunity to be heard before at least a majority of the members of
the GIGL Board. Employee shall be deemed to have had such opportunity if given
written notice by any director acting on behalf of the GIGL Board at least
seventy two (72) hours in advance of a meeting if scheduled in California or
ninety six (96) hours in advance if such meeting is scheduled outside
California. Any actions or proceedings by Company pursuant to this subparagraph
4(c) shall be conducted in a confidential manner and all steps shall be taken to
prevent any harm to Employee's reputation.
Upon any such employment termination pursuant to this Section 4(c),
all options to acquire Ordinary Shares previously granted to Employee and then
remaining unvested shall be forfeited, and all previously vested options to
acquire Ordinary Shares shall remain fully exercisable for their full term.
(d) Without Cause.
-------------
Notwithstanding any other provision of this Section 4, the GIGL Board
shall have the right to terminate Employee's employment with Company at any
time, but in the event of any such termination, other than as expressly provided
in Section 4(a), (b) or (c) herein, or in the event Company elects not to renew
the term of this Agreement by giving notice of termination under Section 1(b)
hereof, (any such termination of Employee's employment under this Section 4(d)
being referred to in this Agreement as a termination "Without Cause"), Company
shall thereafter pay and grant to Employee, in addition to any other amounts due
under this Agreement, on the last day of Employee's employment, an amount equal
to the greater of (a) the product of Employee's then-current Base Salary
multiplied by a factor of three (3), and (b) the product of Employee's then-
current Base Salary multiplied by the number of years, rounded up, remaining in
the Current Term, and Company shall thereafter continue to provide to Employee
8
<PAGE>
the Additional Benefits for sixty (60) months from such last day of employment.
Upon any such employment termination pursuant to this Section 4(d), all options
to acquire Ordinary Shares previously granted to Employee shall immediately vest
in full and shall become fully exercisable for their full term, and all
previously vested options to acquire Ordinary Shares shall remain fully
exercisable for their full term.
(e) Limited Succession of Additional Benefits Upon Termination.
----------------------------------------------------------
If Employee's services are terminated hereunder pursuant to Sections
4(a) or 4(b) and Employee is no longer eligible for Additional Benefits (under
the terms of any plans relating thereto) because of such termination Employee
(or in event of death, the Beneficiary) shall be entitled to and Company shall
provide the Grossed-Up Value of benefits substantially equivalent to those
benefits in the nature of health and welfare type benefits to which Employee was
entitled immediately prior to such termination for the period (if any) during
which Employee (or Beneficiary, as the case may be) remains entitled to receive
the Base Salary under such sections. During such period, however, Employee
shall not be entitled to option, equity, appreciation, profit sharing, deferred
compensation, savings, bonus, participation, pension, extra compensation and
other incentive plan benefits (except to the extent otherwise expressly provided
in any then outstanding awards to such Employee).
(f) Constructive Termination.
------------------------
A Constructive Termination (defined below) shall be treated as a
termination Without Cause pursuant to Section 4(d) of this Agreement.
For purposes of this Agreement, "Constructive Termination" means the
change of Employee's position, without Employee's written consent, so that
Employee is neither the Chief Operating Officer nor the Chief Financial Officer
of Company and GIGL, or the removal from her position as a director of GIGL or
Company, assignment to Employee of duties or responsibilities inconsistent with
the positions of Chief Operating Officer or Chief Financial Officer of Company
and GIGL, relocation of Employee's principal office to another geographic
location without Employee's written consent, in any case other than as a result
of grounds for termination of employment for Cause under Section 4(c), for
disability under Section 4(a) or because of death or retirement, or the
requirement that Employee to report to any person or entity other than the
current (as of the date of this Agreement) Chief Executive Officer of GIGL or
the current (as of the date of this Agreement) Chief Executive Officer of
Company, or the removal, termination (including constructive termination) or
resignation, reduction in duties or responsibilities of such current Chief
Executive Officer of GIGL or the Company.
(g) Termination by Employee.
-----------------------
Subject to Section 4(h), Employee shall have the right, in her sole
discretion, to terminate her employment under this Agreement at any time after
expiration of the period ending eighteen (18) months after the date of this
Agreement, by providing notice, in writing, at least six
9
<PAGE>
(6) months prior to Employee's termination of employment, but in the event of
any such termination Company shall thereafter pay and grant to Employee, in
addition to any other amounts due under this Agreement, on the last day of
Employee's employment, an amount equal to the Employee's then-current Base
Salary. Upon termination by Employee, all options to acquire Ordinary Shares
previously granted to Employee and then remaining unvested shall be forfeited,
and all previously vested options to acquire Ordinary Shares shall remain fully
exercisable for their full term.
(h) Change of Control.
-----------------
(i) As used in this Agreement, "CHANGE OF CONTROL" is defined as any
of the following acts:
(A) The acquisition (other than from GIGL directly or from any
stockholder of GIGL who on the date hereof owns twenty five percent (25%)
or more of GIGL's outstanding Ordinary Shares) after the date hereof by any
person, entity, or group, within the meaning of (S)13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), of
beneficial ownership of twenty-five percent (25%) or more of GIGL's
outstanding Ordinary Shares; or
(B) The acquisition by any person, entity, or group, within the
meaning of (S)13(d) or 14(d) of the Exchange Act, of beneficial ownership
of twenty-five percent (25%) or more of Company's outstanding shares of its
common stock, par value $.01 per share (the "COMMON STOCK") (excluding any
such acquisition by GIGL or any of its subsidiaries); or
(C) During any period of two (2) consecutive years, individuals who,
at the beginning of such period, constituted the board of directors of
Company or GIGL (together with any new directors whose election or
appointment to such board of directors or whose nomination for election by
the stockholders of Company or GIGL was approved by Employee or by a vote
of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election, appointment or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of Company or GIGL then in
office; or
(D) Approval by the board of directors or a majority of the
stockholders of either Company or GIGL of a merger, reorganization,
combination or consolidation whereby the stockholders of either Company or
GIGL immediately prior to such approval will not, immediately after
consummation of such reorganization, merger, combination or consolidation
own more than fifty percent (50%) of the voting stock of the surviving
entity; or
(E) A liquidation or dissolution of either Company or GIGL or the sale
of all or substantially all of the assets of either Company or GIGL, unless
the successor to the assets in any such liquidation, dissolution or sale is
GIGL or any of its subsidiaries.
(ii) Employee's Base Salary and other compensation shall be reviewed
promptly following any Change of Control and increased (but not decreased) to
reflect any expansion of Employee's duties or areas of responsibility, as
determined in good faith by the GIGL Board.
(iii) Employee shall have the right, in her sole discretion, to
terminate her employment under this Agreement at any time during the ninety (90)
days following notice of a Change of Control, and in the event of any such
termination Company shall thereafter pay and grant to Employee, in addition to
any other amounts due under this Agreement, on the last day of Employee's
employment, an amount equal to the product of Employee's Base Salary multiplied
by five (5), and Company shall thereafter continue to provide to Employee all
other elements of compensation under Section 3 for sixty (60) months from such
last day of employment, except that upon such termination, all unvested options
to acquire Ordinary Shares previously granted to Employee shall immediately vest
in full and shall become fully exercisable for their full term, and all
previously vested options to acquire Ordinary Shares shall remain fully
exercisable for their full term.
(iv) In the event a transaction described in Section 280G(b)(2)(A)(i)
of the Internal Revenue Code of 1986, as amended, occurs with respect to
Company, GIGL, any predecessor, successor, direct or indirect subsidiary or
affiliate of Company or GIGL, the provisions of Schedule II shall apply.
10
<PAGE>
5. Business Expenses.
-----------------
During the term of this Agreement, Company shall reimburse Employee
promptly for reasonable business expenditures, whether or not Company can fully
deduct such expenses according to federal income tax laws.
6. Inventions and Patents.
----------------------
Subject to exceptions under Section 2870 of the California Labor Code, all
inventions, designs, improvements, patents, copyrights, and discoveries
conceived by Employee during the term of this Agreement which are competitive
with or related to existing products or services of Company or its affiliates or
products or services under active development by Company or its affiliates,
shall be assigned to Company. Exhibits A and B attached hereto contain a
description of Company's business and the products and services currently under
active development by Company and its affiliates. Employee will promptly and
fully disclose to Company all such inventions, designs, improvements, and
discoveries (whether developed individually or with other persons) and shall
take all reasonable steps necessary and required to assure Company's
11
<PAGE>
ownership thereof and to assist Company in protecting or defending Company's
proprietary rights therein.
Employee acknowledges hereby receipt of written notice from Company
pursuant to California Labor Code Section 2872 that this Agreement (to the
extent it requires an assignment or offer to assign rights to any invention of
Employee) does not apply to an invention that qualifies fully under California
Labor Code Section 2870.
7. Indemnity.
---------
To the maximum extent permitted by applicable law, Company shall
indemnify Employee and hold Employee harmless from and against any and all
claims, liabilities, judgments, fines, penalties, costs and expenses (including,
without limitation, reasonable attorneys' fees, costs of investigation and
experts, settlements and other amounts actually incurred by Employee in
connection with the defense of any action, suit or proceeding, and in connection
with any appeal thereon) incurred by Employee in any and all threatened, pending
or completed actions, suits or proceedings, whether civil, criminal,
administrative or investigative (including, without limitation, actions, suits
or proceedings brought by or in the name of Company), arising, directly or
indirectly, by reason of Employee's status, actions or inaction as a director,
officer, employee or agent of Company or of an affiliate of Company so long as
Employee's conduct was in good faith. Company shall promptly advance to
Employee upon request any and all expenses incurred by Employee in defending any
and all such actions, suits or proceedings to the maximum extent permitted by
applicable law.
8. GIGL Agreement.
--------------
GIGL agrees to perform, and to cause Company to perform, their
respective obligations under this Agreement so as to give full force and effect
to the provisions hereof.
9. Miscellaneous.
-------------
(a) Succession; Survival.
--------------------
This Agreement shall inure to the benefit of and shall be binding upon
Company and GIGL and their respective successors and assigns, but without the
prior written consent of Employee this Agreement may not be assigned other than
in connection with a merger or sale of substantially all the assets of Company
or GIGL or a similar transaction in which the successor or assignee assumes
(whether by operation of law or express assumption) all obligations of Company
or GIGL hereunder. The obligations and duties of Employee hereunder are
personal and otherwise not assignable.
(b) Notices.
-------
Any notice or other communication provided for in this Agreement shall
be in writing and sent, if to GIGL or Company, to its office at:
12
<PAGE>
Gemstar Development Corp.
Suite 800
135 North Los Robles Ave.
Pasadena, California 91101
Facsimile: (818) 792-4051
Attention: General Counsel
or at such other address as GIGL or Company may from time to time in writing
designate, and, if to Employee, at such address as Employee may from time to
time in writing designate (or Employee's business address of record in the
absence of such designation). Each such notice or other communication shall be
effective (i) if given by telecommunication, when transmitted to the applicable
number so specified in (or pursuant to) this Section 9(b) and an appropriate
answerback is received, (ii) if given by mail, three days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when actually
delivered at such address.
(c) Entire Agreement; Amendments.
----------------------------
This Agreement contains the entire agreement of the parties relating
to the subject matter hereof and it supersedes any prior agreements,
undertakings, commitments and practices relating to Employee's employment by
Company or its affiliates except for any and all other agreements necessary to
give effect to the provisions of this Agreement or the Predecessor Agreement (to
the extent not modified by this Agreement), including, without limitation, stock
option agreements, and agreements relating to Additional Benefits. No amendment
or modification of the terms of this Agreement shall be valid unless made in
writing and signed by Employee and, on behalf of Company and GIGL, by the Chief
Executive Officer or authorized representatives of the respective boards of
directors.
(d) Waiver.
------
No failure on the part of any party to exercise or delay in exercising
any right hereunder shall be deemed a waiver thereof or of any other right, nor
shall any single or partial exercise preclude any further or other exercise of
such right or any other right.
(e) Choice of Law.
-------------
This Agreement, the legal relations between the parties and any
action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, the relationship of the parties or the subject matter
hereof shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines.
13
<PAGE>
(f) Arbitration.
-----------
Any controversy or claim arising out of or relating to this Agreement,
its enforcement or interpretation, or because of an alleged breach, default, or
misrepresentation in connection with any of its provisions, shall be submitted
to arbitration, to be held in Los Angeles County, California in accordance with
California Code of Civil Procedure Sections 1282-1284.2. In the event either
party institutes arbitration under this Agreement, the party prevailing in any
such arbitration shall be entitled, in addition to all other relief, to
reasonable attorneys' fees relating to such arbitration. The nonprevailing
party shall be responsible for all costs of the arbitration, including but not
limited to, the arbitration fees, court reporter fees, etc.
(g) Confidentiality, Proprietary Information.
----------------------------------------
Employee agrees to not make use of, divulge or otherwise disclose,
directly or indirectly, any trade secret or other confidential or proprietary
information concerning the business (including, but not limited to its products,
employees, services, practices or policies) of Company or any of its affiliates
of which Employee may learn or be aware as a result of Employee's employment
during the term of this Agreement or prior thereto as shareholder, employee,
officer or director of or consultant to Company and its predecessors, except to
the extent such use or disclosure is (i) necessary to the performance of this
Agreement and in furtherance of Company's best interests, (ii) required by
applicable law, (iii) lawfully obtainable from other sources, or (iv) authorized
in writing by Company. The provisions of this Section 9(g) shall survive the
expiration, suspension or termination, for any reason, of this Agreement.
(h) Trade Secrets.
-------------
Employee, prior to and during the term of employment, has had and will
have access to and become acquainted with various trade secrets, consisting of
software, plans, formulas, patterns, devices, secret inventions, processes,
customer lists, contracts, and compilations of information, records and
specifications that are owned by Company or by its affiliates and regularly used
in the operation of their respective businesses and that may give Company an
opportunity to obtain an advantage over competitors who do not know or use such
trade secrets. Employee agrees and acknowledges that Employee has been granted
access to these valuable trade secrets only by virtue of the confidential
relationship created by Employee's employment and Employee's prior relationship
to, interest in and fiduciary relationships to Company and its predecessors.
Employee shall not disclose any of the aforesaid trade secrets, directly or
indirectly, or use them in any way, either during the term of this Agreement or
at any time thereafter, except as required in the course of employment by
Company and for its benefit.
All records, files, documents, drawings, specifications, software,
equipment, and similar items relating to the business of Company or its
affiliates, including without limitation all records relating to customers (the
"Documents"), whether prepared by Employee or otherwise coming into Employee's
possession, shall remain the exclusive property of Company or such
14
<PAGE>
affiliates and shall not be removed from the premises of Company or its
affiliates under any circumstances whatsoever without the prior consent of a
senior executive officer of Company. Upon termination of employment, Employee
agrees to promptly deliver to Company all Documents in the possession or under
the control of Employee.
(i) Severability.
------------
If any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect, and if any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances, to the fullest extent permitted by law.
(j) Withholding; Deductions.
-----------------------
All compensation payable hereunder, including salary and other
benefits, shall be subject to applicable taxes, withholding and other required,
normal or elected employee deductions.
(k) Section Headings.
----------------
Section and other headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(l) Counterparts.
------------
This Agreement and any amendment hereto may be executed in several
counterparts. All of such counterparts shall constitute one and the same
agreement and shall become effective when a copy signed by each party has been
delivered to the other party.
(m) Representation By Counsel; Interpretation.
-----------------------------------------
Each party hereto acknowledges that it or she has been represented by
counsel in connection with this Agreement and the matters contemplated by this
Agreement. Accordingly, any rule of law, including but not limited to Section
1654 of the California Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of the parties.
(n) Antidilution Adjustments.
------------------------
All amounts of shares, options and option exercise prices referred to
in this Agreement shall be subject to appropriate adjustment for stock splits,
reverse stock splits, stock dividends, restructurings and recapitalizations
occurring after the date hereof.
15
<PAGE>
(o) No Duty to Mitigate.
-------------------
All amounts payable pursuant to this Agreement shall be paid without
regard to whether Employee has taken actions to mitigate damages.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"GIGL"
GEMSTAR INTERNATIONAL GROUP LIMITED
By: /s/ HENRY C. YUEN
-------------------------------------
Henry C. Yuen, President and CEO
By: /s/ LARRY GOLDBERG
-------------------------------------
Larry Goldberg, Secretary
"Company"
GEMSTAR DEVELOPMENT CORPORATION
By: /s/ HENRY C. YUEN
------------------------------------
Henry C. Yuen, President and CEO
By: /s/ LARRY GOLDBERG
------------------------------------
Larry Goldberg, Assistant Secretary
"Employee"
ELSIE MA LEUNG
/s/ ELSIE MA LEUNG
----------------------------------------
16
<PAGE>
EXHIBIT A
COMPANY'S BUSINESS
(for purposes of this exhibit Company
shall include [*])
[*]
[*]Includes the following disclosures, patent applications, patents,
continuations, continuations-in-part and foreign counterparts thereto:
<TABLE>
<S> <C>
[*] [*]
PATENT NO. 5,335,079 PATENT NO. 5,382,983
[*] [*]
PATENT NO. 5,307,173
[*]
</TABLE>
___________
[*] Omitted, confidential treatment requested
1
<PAGE>
EXHIBIT B
ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT OF GEMSTAR
[*]
___________
[*] Omitted, confidential treatment requested
C-2
<PAGE>
SCHEDULE I
ANNUAL INCENTIVE BONUS COMPENSATION
(a) Subject to the terms and conditions of this Agreement, and in
addition to the Base Salary 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 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), commencing
with the Compensation Period ending May 31, 1998, calculated according to the
following formula:
(i) if C/E is less than or equal to 1.00, then B = 0.00;
(ii) if C/E = (1.35)(to the power of n), or more, then B = 0.40 x S
(iii) if 1 is less than C/E less than (1.35)(to the power of n), then B is
calculated pro-rata using the appropriate multiple between 0.00 x S,
and 0.40 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);
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
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
2004 n=7
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
2010 n=13
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
I-1
<PAGE>
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 her 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 her direct, reasonable out-of-
pocket expenses incurred in conducting such audit.
(d) 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.
(e) All accounting terms or concepts used herein have the meanings
assigned or applied under generally accepted accounting principles, consistently
applied.
I-2
<PAGE>
SCHEDULE II
Excise Tax Gross-Up
(Capitalized terms not defined herein have the meanings
ascribed thereto in the attached Amended and Restated
Employment Agreement)
(a) In the event it is determined (pursuant to (b) below) or finally
determined (as defined in (c)(iii) below) that any payment, distribution,
transfer, benefit or other event with respect to the GIGL, Company or a
predecessor, successor, direct or indirect subsidiary or affiliate of
either Company or GIGL (or any predecessor, successor of affiliate of any
of them, and including any benefit plan of any of them), to or for the
benefit of Employee or Employee's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event
occurs pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Schedule II)
(each a "Payment" and collectively the "Payments") is or was subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended, and any successor provision or any comparable provision of state
or local income tax law (collectively, "Section 4999"), or any interest,
penalty or addition to tax is or was incurred by Employee with respect to
such excise tax (such excise tax, together with any such interest, penalty,
addition to tax, and costs (including professional fees) hereinafter
collectively referred to as the "Excise Tax"), then, within 10 days after
such determination or final determination, as the case may be, Company
shall pay to Employee an additional cash payment (hereinafter referred to
as the "Gross-Up Payment") in an amount such that after payment by Employee
of all taxes, interest, penalties, additions to tax and costs imposed or
incurred with respect to the Gross-Up Payment (including, without
limitation, any income and excise taxes imposed upon the Gross-Up Payment),
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon such Payment or Payments. This provision is intended to put
Employee in the same position as Employee would have been had no Excise Tax
been imposed upon or incurred as a result of any Payment.
(b) Except as provided in subsection (c) below, the determination that
a Payment is subject to an Excise Tax shall be made in writing by a
certified public accounting firm selected by Employee ("Employee's
Accountant"). Such determination shall include the amount of the Gross-Up
Payment and detailed computations thereof, including any assumptions used
in such computations (the written determination of the Employee's
Accountant, hereinafter, the "Employee's Determination"). The Employee's
Determination shall be reviewed on behalf of Company by a certified public
accounting firm selected by Company (the "Company's Accountant"). The
Company shall notify Employee within 10 business days after receipt of the
Employee's Determination of any disagreement or dispute therewith, and
failure to so notify within that period shall be considered an agreement by
Company with the Employee's Determination, obligating Company to make
payment as provided in subsection (a) above within 10 days from the
expiration of such 10 business-day period. In the event of an objection by
Company to the Employee's Determination, any amount not in dispute shall be
paid within 10 days following the 10 business-day period referred to
herein, and with respect to the amount in dispute the Employee's Accountant
and Company's Accountant shall jointly select a third nationally recognized
certified public accounting firm to resolve the dispute and the decision of
such third firm shall be final, binding and conclusive upon the Employee
and Company. In such a case, the third accounting firm's findings shall be
deemed the binding determination with
II-1
<PAGE>
respect to the amount in dispute, obligating Company to make any payment as
a result thereof within 10 days following the receipt of such third
accounting firm's determination. All fees and expenses of each of the
accounting firms referred to in this Schedule II shall be borne solely by
Company.
(c) (i) Employee shall notify Company in writing of any claim by the
Internal Revenue Service (or any successor thereof) or any state or local
taxing authority (individually or collectively, the "Taxing Authority")
that, if successful, would require the payment by Company of a Gross-Up
Payment. Such notification shall be given as soon as practicable but no
later than 30 days after Employee receives written notice of such claim and
shall apprise Company of the nature of such claim and the date on which
such claim is requested to be paid; provided, however, that failure by
Employee to give such notice within such 30-day period shall not result in
a waiver or forfeiture of any of Employee's rights under this Schedule II
except to the extent of actual damages suffered by Company as a result of
such failure. Employee shall not pay such claim prior to the expiration of
the 15-day period following the date on which Employee gives such notice to
Company (or such shorter period ending on the date that any payment of
taxes, interest, penalties or additions to tax with respect to such claim
is due). If Company notifies Employee in writing prior to the expiration
of such 15-day period that it desires to contest such claim (and
demonstrates to the reasonable satisfaction of Employee its ability to make
the payments to Employee which may ultimately be required under this
section before assuming responsibility for the claim), Employee shall:
(A) give Company any information reasonably requested by Company
relating to such claim;
(B) take such action in connection with contesting such claim as
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney selected by Company that is
reasonably acceptable to Employee;
(C) cooperate with Company in good faith in order effectively to
contest such claim; and
(D) permit Company to participate in any proceedings relating to
such claim; provided, however, that Company shall bear and pay
directly all attorneys fees, costs and expenses (including additional
interest, penalties and additions to tax) incurred in connection with
such contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for all taxes (including, without limitation, income
and excise taxes), interest, penalties and additions to tax imposed in
relation to such claim and in relation to the payment of such costs
and expenses or indemnification. Without limitation on the foregoing
provisions of this Schedule II, and to the extent its actions do not
unreasonably interfere with or prejudice Employee's disputes with the
Taxing Authority as to other issues, Company shall control all
proceedings taken in connection with such contest and, in its
reasonable discretion, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct Employee to pay the tax, interest or penalties claimed and sue
for a refund or contest the claim in any permissible manner, and
Employee agrees to prosecute such contest to a determination before
any
II-2
<PAGE>
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as Company shall determine; provided,
however, that if Company directs Employee to pay such claim and sue
for a refund, Company shall advance an amount equal to such payment to
Employee, on an interest-free basis, and shall indemnify and hold
Employee harmless, on an after-tax basis, from all taxes (including,
without limitation, income and excise taxes), interest, penalties and
additions to tax imposed with respect to such advance or with respect
to any imputed income with respect to such advance, as any such
amounts are incurred; and, further, provided, that any extension of
the statute of limitations relating to payment of taxes, interest,
penalties or additions to tax for the taxable year of Employee with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount; and, provided, further, that any
settlement of any claim shall be reasonably acceptable to Employee and
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and
Employee shall be entitled to settle or contest, as the case may be,
any other issue.
(ii) If, after receipt by Employee of an amount advanced by Company
pursuant to paragraph (c)(i), Employee receives any refund with respect to
such claim, Employee shall (subject to Company's complying with the
requirements of this Schedule II) promptly pay to Company an amount equal
to such refund (together with any interest paid or credited thereon after
taxes applicable thereto), net of any taxes (including without limitation
any income or excise taxes), interest, penalties or additions to tax and
any other costs incurred by Employee in connection with such advance, after
giving effect to such repayment. If, after the receipt by Employee of an
amount advanced by Company pursuant to paragraph (c)(i), it is finally
determined that Employee is not entitled to any refund with respect to such
claim, then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall be treated as a Gross-Up
Payment and shall offset, to the extent thereof, the amount of any Gross-Up
Payment otherwise required to be paid.
(iii) For purposes of this Schedule II, whether the Excise Tax is
applicable to a Payment shall be deemed to be "finally determined" upon the
earliest of: (A) the expiration of the 15-day period referred to in
paragraph (c)(i) above if Company has not notified Employee that it intends
to contest the underlying claim, (B) the expiration of any period following
which no right of appeal exists, (C) the date upon which a closing
agreement or similar agreement with respect to the claim is executed by
Employee and the Taxing Authority (which agreement may be executed only in
compliance with this Schedule II), (D) the receipt by Employee of notice
from Company that it no longer seeks to pursue a contest (which notice
shall be deemed received if Company does not, within 15 days following
receipt of a written inquiry from Employee, affirmatively indicate in
writing to Employee that Company intends to continue to pursue such
contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is
due, it may be possible that in making the calculations required to be made
hereunder, the parties or their accountants shall determine that a Gross-Up
Payment need not be made (or shall make no determination with respect to a
Gross-Up Payment) that properly should be made ("Underpayment"), or that a
Gross-Up Payment not properly needed to be made should be made
("Overpayment"). The determination of any Underpayment shall be made using
the procedures set forth in paragraph (b) above and
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<PAGE>
shall be paid to Employee as an additional Gross-Up Payment. The Company
shall be entitled to use procedures similar to those available to Employee
in paragraph (b) to determine the amount of any Overpayment (provided that
Company shall bear all costs of the accountants as provided paragraph (b)).
In the event of a determination that an Overpayment was made, any such
Overpayment shall be treated for all purposes as a loan to Employee with
interest at the applicable Federal rate provided for in Section 1274(d) of
the Code; provided, however, that the amount to be repaid by Employee to
Company shall be subject to reduction to the extent necessary to put
Employee in the same after-tax position as if such Overpayment were never
made.
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