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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-26878
GEMSTAR INTERNATIONAL GROUP LIMITED
(Exact name of registrant as specified in its charter)
British Virgin Islands N/A
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
135 North Los Robles Avenue, Suite 800, Pasadena, California 91101
(Address of principal executive offices, including zip code)
(626) 792-5700
(Registrant's telephone number, including area code)
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 [ ]
As of June 30, 1999, there were outstanding 100,007,000 shares of the
registrant's Ordinary Shares, par value $0.01 per share.
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GEMSTAR INTERNATIONAL GROUP LIMITED
INDEX
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--June 30, 1999 and March 31, 1999................... 1
Condensed Consolidated Statements of Operations--Three Months Ended June 30, 1999
and 1998................................................................................ 2
Condensed Consolidated Statements of Cash Flows--Three Months Ended June 30, 1999 and
1998.................................................................................... 3
Notes to Condensed Consolidated Financial Statements...................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 8
Item 5. Other Information......................................................................... 10
Item 6. Exhibits and Reports on Form 8-K.......................................................... 11
SIGNATURE................................................................................................ 14
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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June 30, March 31,
1999 1999
-------- --------
(unaudited)
ASSETS
Current assets:
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Cash and cash equivalents.......................... $215,700 $184,334
Marketable securities.............................. 40,308 29,711
Prepaid expenses and other current assets.......... 12,164 12,899
-------- --------
Total current assets............................ 268,172 226,944
Property and equipment, net.......................... 3,263 2,719
Intangible assets, net............................... 17,961 16,978
Marketable securities................................ 17,125 4,002
Other assets......................................... 2,759 2,521
-------- --------
$309,280 $253,164
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 23,201 $ 23,527
Current portion of deferred revenue................ 33,737 13,476
-------- --------
Total current liabilities....................... 56,938 37,003
Deferred revenue, less current portion............... 465 550
Deferred income taxes................................ 28,793 30,429
Other liabilities.................................... 3,303 1,211
Shareholders' equity:
Ordinary Shares.................................... 1,014 1,005
Additional paid-in capital......................... 247,933 231,799
Accumulated deficit................................ (529) (20,166)
Accumulated other comprehensive loss............... (198) (228)
Treasury stock, at cost............................ (28,439) (28,439)
-------- --------
Net shareholders' equity........................ 219,781 183,971
-------- --------
$309,280 $253,164
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See accompanying Notes to Condensed Consolidated Financial Statements.
1
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GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
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Three Months Ended
June 30,
------------------------
1999 1998
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Revenues.................................................. $ 43,096 $ 33,899
Operating costs and expenses:
Selling and marketing................................... 9,499 7,697
Research and development................................ 3,618 3,381
General and administrative.............................. 5,850 4,945
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Operating income.......................................... 24,129 17,876
Other income, net......................................... 2,768 2,018
-------- --------
Income before income taxes................................ 26,897 19,894
Income taxes.............................................. 7,260 5,768
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Net income................................................ $ 19,637 $ 14,126
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Basic earnings per share.................................. $ 0.20 $ 0.15
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Diluted earnings per share................................ $ 0.17 $ 0.13
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Weighted average shares outstanding....................... 99,551 96,919
Dilutive effect of:
Stock options........................................... 19,346 12,726
Warrants................................................ -- 864
-------- --------
Weighted average shares outstanding, assuming dilution.... 118,897 110,509
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See accompanying Notes to Condensed Consolidated Financial Statements.
2
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GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
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Three Months Ended
June 30,
-----------------------------
1999 1998
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Cash flows from operating activities:
Net income............................................................ $ 19,637 $ 14,126
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization...................................... 1,272 1,155
Deferred income taxes.............................................. (1,636) 2,261
Tax benefit associated with stock options.......................... 7,050 1,200
Changes in assets and liabilities.................................. 22,439 (3,393)
-------- --------
Net cash provided by operating activities........................ 48,762 15,349
-------- --------
Cash flows from investing activities:
Net maturities (purchases) of marketable securities................... (23,720) 4,343
Additions to property and equipment................................... (977) (70)
Additions to intangible assets........................................ (1,822) (284)
-------- --------
Net cash provided by (used in) investing activities.............. (26,519) 3,989
-------- --------
Cash flows from financing activities -- proceeds from
exercise of stock options.............................................. 9,093 2,804
-------- --------
Effect of exchange rate changes on cash and cash equivalents............ 30 (53)
-------- --------
Net increase in cash and cash equivalents............................... 31,366 22,089
Cash and cash equivalents at beginning of period........................ 184,334 153,517
-------- --------
Cash and cash equivalents at end of period.............................. $215,700 $175,606
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</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The Condensed Consolidated Financial Statements have been prepared by
Gemstar International Group Limited and its wholly and majority owned
subsidiaries (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the Consolidated Financial Statements and
related Notes thereto contained in the Company's Annual Report on Form 10-K for
the year ended March 31, 1999.
The Condensed Consolidated Financial Statements reflect all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary to present fairly the financial position, results of
operations and cash flows for such periods. The results of operations for the
period ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the entire year ending March 31, 2000.
(2) Earnings Per Share
Basic earnings per share is computed using the weighted average number of
Ordinary Shares outstanding during the period. Diluted earnings per share
includes the dilutive effect of stock options and warrants using the treasury
stock method.
(3) Stock Split
In April 1999, the Company's Board of Directors approved a two-for-one stock
split in the form of a stock dividend which was paid in May 1999 to shareholders
of record as of April 30, 1999. All share and per share amounts herein have been
adjusted for the stock split.
(4) Comprehensive Income
The Company's comprehensive income consisted of net income and the equity
adjustment from foreign currency translation. Comprehensive income of
$19,667,000 and $14,073,000 for the three months ended June 30, 1999 and 1998,
respectively, was not materially different from reported net income. Accumulated
other comprehensive loss presented on the accompanying condensed consolidated
balance sheets consists of cumulative translation adjustments.
(5) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133") which establishes accounting
and reporting standards for derivative instruments and hedging activities. In
July 1999, the FASB issued Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 ("SFAS No. 137"). As amended by SFAS
No. 137, SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. The Company does not have any derivative instruments or hedging activities
and accordingly, believes that adoption of SFAS No. 133 will not have a
significant effect on its consolidated financial position or results of
operations.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto and the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section contained
in the Company's Annual Report on Form 10-K for the year ended March 31, 1999.
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 seeks to have its technologies widely licensed,
incorporated and accepted as the technologies and systems of choice by consumer
electronics manufacturers; service providers such as owners or operators of
cable systems, telephone networks, Internet service providers, direct broadcast
satellite providers, wireless systems and other multi-channel video programming
distributors; software developers; and consumers.
The Company's first proprietary system, VCR Plus+, was introduced in 1990 and
is widely accepted as a de facto industry standard for programming VCRs and is
currently incorporated into virtually every major brand of VCR sold worldwide.
VCR Plus+ enables consumers to record a television program by simply entering a
PlusCode Number (a proprietary one to eight digit number) into a VCR or
television equipped with the VCR Plus+ technology. PlusCode Numbers are printed
next to television program listings in over 1,800 publications worldwide, with a
combined circulation of over 330 million.
The Company has also developed and acquired a large portfolio of technologies
and intellectual property necessary to implement interactive program guides (the
"Gemstar Guide Technology"), which enable consumers to navigate through, sort,
select and record television programming. The Gemstar Guide Technology has been
licensed for, or incorporated into, televisions, VCRs, TV-VCR combination units,
cable set top boxes, integrated satellite receiver decoders, personal computers,
PCTVs and Internet appliances and interactive services provided thereon. The
Company believes that with the increase in programming content and number of
accessible channels, the Gemstar Guide Technology will become an increasingly
important tool for assisting consumers in sorting, selecting, and recording
television programming. The Company further believes that its interactive
program guides will provide an attractive vehicle for the delivery of
advertising and other content to consumers.
The Company pursues a licensing strategy for its VCR Plus+ system and Gemstar
Guide Technology wherein the Company is paid on-going per unit license fees and,
in certain instances, up-front license fees. In addition, the Company pursues a
recurring revenue model for its proprietary Gemstar Guide Technology wherein the
Company receives revenues from the delivery of advertising and promotion
displayed on the guides, from sponsorship of guide pages and from data services
and interactive transactions accessed through the guide. To date the Company has
not realized significant revenues from advertising and sponsorship.
Revenues from up front license fees and annual license fees are recognized
ratably over the term of the particular license. Revenues from on-going per unit
license fees are recognized when payments are due, and generally, when payments
are actually received from licensees. Revenues from nonrecurring engineering
fees are generally recognized ratably as the work is performed. Revenues from
advertising will be recognized generally when delivered on an "impression" based
program or ratably over the term of the agreement, in the case of charter
sponsorships.
Results of Operations
Revenues for the quarter ended June 30, 1999 were $43.1 million, an increase
of 27% when compared with revenues for the year-ago period of $33.9 million. The
increase in revenues was due primarily to the continued growth in worldwide
licensing income from the Company's proprietary technologies and intellectual
property in the electronic program guide and VCR Plus+ fields.
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Total operating expenses for the quarter ended June 30, 1999 were $19.0
million, comprised of selling and marketing expenses of $9.5 million, research
and development expenses of $3.6 million, and general and administrative
expenses of $5.9 million. Compared with the year-ago period, total operating
expenses for the current quarter increased 18%. The increase in operating
expenses was due primarily to an increase in marketing and support costs
associated with the Gemstar Guide Technology, an increase in personnel cost to
support the Company's licensing business and an increase in legal expenses
associated with various litigation matters. Operating margins increased to 56%
for the quarter ended June 30, 1999 from 53% for the year-ago period.
Income taxes were $7.3 million for the quarter ended June 30, 1999 and $5.8
million for the year-ago period. The Company's effective tax rate was 27% for
the current quarter and 29% for the year-ago period. 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 income before income taxes may vary from year to year.
Liquidity and Capital Resources
At June 30, 1999, the Company had cash, cash equivalents and short-term
marketable securities totaling $256.0 million. Net cash provided by operating
activities was $48.8 million and $15.3 million for the three months ended June
30, 1999 and 1998, respectively. The increase in net cash provided by operating
activities was primarily the result of increases in net income, tax benefits
associated with stock options and deferred revenues. Net cash used in investing
activities was $26.5 million for the three months ended June 30, 1999, comprised
of net purchases of marketable securities of $23.7 million and additions to
property and equipment and intangible assets of $2.8 million. Net cash provided
by investing activities was $4.0 million for the three months ended June 30,
1998, comprised of net maturities of marketable securities of $4.3 million
offset by additions to property and equipment and intangible assets of $0.3
million. Net cash provided by financing activities was $9.1 million and $2.8
million for the three months ended June 30, 1999 and 1998, respectively,
comprised of proceeds from stock option exercises.
In August 1998, the Company's Board of Directors authorized the repurchase by
the Company of up to $100 million of its Ordinary Shares. As of June 30, 1999,
the Company has repurchased 1.4 million Ordinary Shares for $28.4 million, as
adjusted for the stock split completed in May 1999.
The Company does not have any material commitments for capital expenditures.
The Company believes that the anticipated cash flows from operations, and
existing cash, cash equivalents and short-term marketable securities balances,
will be sufficient to satisfy its expected working capital and capital
expenditure requirements in the foreseeable future.
Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in the Notes to Condensed
Consolidated Financial Statements.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. Significant uncertainty
exists concerning the potential effects associated with compliance.
Although the Company believes that its systems and products are Year 2000
compliant in all material respects, there can be no assurance that the Company's
current systems and products do not contain undetected errors or defects with
Year 2000 date functions that could result in a material adverse effect on the
Company's business,
6
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results of operations and financial condition. Although the Company is not aware
of any material operational issues or costs associated with its internal systems
for the Year 2000, there can be no assurances that the Company will not
experience unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used in its internal systems.
The Company's proprietary technologies and systems are licensed and
incorporated by third parties, such as consumer electronics manufacturers,
service providers and software developers into electronics products and
platforms that deliver video, programming information and other data. Failure of
such third party products, software or content to operate properly with regard
to the Year 2000 could require the Company to incur unanticipated expenses to
remedy any problems. There can be no assurance that the systems of other
companies on which the Company's products may rely will be Year 2000 compliant
or that such failure by other companies to become Year 2000 compliant would not
have an adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company utilizes third party equipment,
software and content that may not be Year 2000 compliant. Failure of such third
party equipment, software or content to operate properly with regard to the Year
2000 and thereafter, could require the Company to incur unanticipated expenses
to remedy any problems, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations and other portions of this report on Form 10-Q contain
various "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which represent the Company's expectations or beliefs
concerning future events, including the following: the statement that the
Company believes that with the increase in programming content and number of
accessible channels, the Gemstar Guide Technology will become an increasingly
important tool for assisting consumers in sorting, selecting, and recording
television programming; the statement that the Company believes that its
interactive program guides will provide an attractive vehicle for the delivery
of advertising and other content to consumers; the statement that the Company
believes that the anticipated cash flows from operations, and existing cash,
cash equivalents and short-term marketable securities balances, will be
sufficient to satisfy its expected working capital and capital expenditure
requirements in the foreseeable future; and the statement that the Company's
systems and products are believed to be Year 2000 compliant in all material
respects. In addition, statements containing expressions such as "believes,"
"anticipates," "plans" or "expects" used in the Company's periodic reports on
Forms 10-K and 10-Q filed with the Securities and Exchange Commission are
intended to identify forward-looking statements. The Company cautions that these
and similar statements included in this report and in previously filed periodic
reports including reports filed on Forms 10-K and 10-Q are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statement, including, without limitation, those
referred to in the "Certain Factors Affecting Business, Operating Results and
Financial Condition" section of the Company's Annual Report on Form 10-K for the
year ended March 31, 1999. This report on Form 10-Q should be read in
conjunction with the `Certain Factors Affecting Business, Operating Results and
Financial Condition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections contained in the Company's Annual
Report on Form 10-K for the year ended March 31, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to the "Quantitative and Qualitative Disclosures About
Market Risk" section of the Company's Annual Report on Form 10-K for the year
ended March 31, 1999.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
On October 19, 1993, United Video Satellite Group, Inc. ("United Video") and
its Tracker, Inc. subsidiary brought suit against StarSight Telecast, Inc.
("StarSight"), a now wholly owned subsidiary of the Company, in the United
States District Court for the Northern District of Oklahoma, seeking a
declaratory judgment that its interactive program guide products do not infringe
certain of StarSight's patents. StarSight counterclaimed charging infringement
of one of the patents. Through subsequent procedural motions, the lawsuit
expanded to include a total of ten patents to which StarSight has rights and to
federal antitrust claims. The Court has deferred consideration of all of the
other claims and counterclaims pending the resolution of the infringement,
validity and enforceability issues of one of the patents. A phased bench trial
began on May 8, 1996, with United Video essentially presenting its case in chief
on the validity and enforceability issues related to this patent. In subsequent
proceedings, StarSight presented witnesses relating to the validity,
enforceability and infringement of this patent. On February 19, 1999, the Court
issued an interloctory decision finding this patent enforceable over United
Video's claim that this patent was obtained through inequitable conduct. The
Court also ordered the parties to participate in settlement discussions. To date
there has been no settlement reached by the parties. The Court has not yet ruled
on the remaining issues of validity or infringement of this patent.
On May 17, 1997, StarSight filed a Demand for Arbitration with the American
Arbitration Association in San Francisco, California, and by such action
commenced an arbitration action against General Instrument Corporation ("GI").
The claims in the arbitration center upon GI's alleged delay in deploying
StarSight-capable set-top boxes and GI's development of a competing interactive
program guide which allegedly uses StarSight patented technology, confidential
information and technical information in violation of a License and Technical
Assistance Agreement executed by the parties on October 1, 1992. The arbitration
is bifurcated into two phases. The first phase generally covers issues related
to GI's manufacture and sale of analog cable set-top boxes, while the second
phase generally covers issues related to GI's manufacture and sale of digital
cable and satellite set-top boxes. The Arbitration Panel is required to issue a
separate decision for each of the two phases. The parties have completed a
hearing with respect to the first phase. A decision in connection with the first
phase is anticipated by the end of September 1999. The hearing on the second
phase is scheduled to commence in September 1999.
On July 24, 1998, the Company, together with SuperGuide Corporation and
StarSight, filed an action against Prevue Networks, Inc. and, as amended, TCI
Communications, Inc. in the United States District Court for the Northern
District of California (San Jose Division). The suit seeks damages and
injunctive relief based upon the alleged infringement of two patents by
defendants' interactive program guide known as "Preview Interactive." This case
was subsequently transferred to the United States District Court for the
Northern District of Oklahoma. On December 23, 1998, the Company filed a motion
with the Judicial Panel on Multi-district Litigation requesting that this case
be consolidated with the Scientific Atlanta, GI and Pioneer cases hereinafter
described and transferred to a single court through the discovery phase of these
cases. A hearing on the motion was held and in April 1999, the Judicial Panel
ordered that all of the actions pending outside the Northern District of
Georgia, except the action against Prevue Networks, Inc., be transferred to the
Northern District of Georgia for coordinated or consolidated pretrial
proceedings with the action pending in that district (the "MDL Transfer Order").
The parties are presently awaiting a case management order by the District Court
in Georgia.
On November 30, 1998, the Company filed a patent infringement action against
GI in the United States District Court for the Northern District of California.
The suit seeks damages and injunctive relief based upon the alleged infringement
of two patents by defendant's interactive program guide. This action is subject
to the MDL Transfer Order.
On December 1, 1998, the Company filed a patent infringement action against
Pioneer Electronic Corp., Pioneer North America, Inc. and Pioneer New Media
Technologies, Inc. (collectively "Pioneer") in the United States District Court
for the Central District of California. The suit seeks damages and injunctive
relief based upon
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the alleged infringement of two patents by defendants' interactive program
guide. This action is subject to the MDL Transfer Order.
On December 3, 1998, Scientific Atlanta, Inc. ("SA") filed an action against
the Company in the United States District Court for the Northern District of
Georgia. The action alleges that the Company violated federal anti-trust laws
and misused certain patents. SA seeks damages, injunctive relief and a
declaration that the certain patents are unenforceable, not infringed or
invalid. This case is being coordinated with the actions subject to the MDL
Transfer Order.
On December 4, 1998, the Company filed a patent infringement action against SA
in the United States District Court for the Central District of California. The
suit seeks damages and injunctive relief based upon the alleged infringement of
two patents by defendant's interactive program guide. This action is subject to
the MDL Transfer Order.
On January 21, 1999, Personalized Media Communications, LLC ("PMC") filed an
action against StarSight in the United States District Court for the Southern
District of New York seeking to rescind a patent license agreement between the
parties. PMC also seeks recovery of damages for the value of certain services it
alleges were performed under the license. In April 1999, StarSight filed a
motion to stay the action in the District Court and to compel arbitration
pursuant to the agreement. The motion to stay the action and compel arbitration
is currently pending before the District Court.
On April 22, 1999, SA filed an action against the Company in the United States
District Court for the Northern District of Georgia, alleging infringement of
three patents and seeking damages and injunctive relief. On July 21, 1999, the
Company filed a motion seeking pretrial coordination of this action with the
actions subject to the MDL Transfer Order.
On May 6, 1999, StarSight filed an action against SA in the United States
District Court for the District of Colorado, seeking a declaratory judgment that
SA breached a license and settlement agreement between the parties. SA
counterclaimed for a declaratory judgment that StarSight breached the agreement
and for unjust enrichment. The parties are currently in pretrail proceedings.
On June 25, 1999, SA filed an action against StarSight in the United States
District Court for the Northern District of Georgia, seeking a declaratory
judgement of invalidity and non-infringement of two patents. On August 2, 1999,
StarSight answered the complaint as to one of the patents and counterclaimed
against SA for infringement of this patent, seeking damages and injunctive
relief. StarSight also filed a motion to dismiss the complaint as to the other
patent for lack of subject matter jurisdiction.
On July 23, 1999, SA filed an action against StarSight in the United States
District Court for the Northern District of Georgia, alleging infringement of
three patents and seeking damages and injunctive relief. On August 4, 1999, SA
filed a motion seeking pretrial coordination between this case and SA's action
against the Company filed on April 22, 1999.
The United States Internal Revenue Service (the "IRS") has conducted an audit
of the federal tax returns for Gemstar Development Corporation ("GDC"), a U.S.
subsidiary of the Company, for the years ended March 31, 1991, 1992 and 1993.
The IRS has issued a 30-day letter to GDC in which it has proposed adjustments
to GDC's taxable income by reallocating income to GDC for revenue related to the
Company's VCR Plus+ technology. The Company has filed a protest with the IRS.
The Company believes that it has a reasonable basis for its tax position and
accordingly plans to vigorously defend its position. While there can be no
assurance as to the ultimate outcome
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of the audit, the Company believes that it has made adequate provision in its
consolidated financial statements with respect to the proposed adjustments.
The Company and its subsidiaries are from time to time also involved in
routine legal matters incidental to their businesses. In the opinion of the
Company, the resolution of such matters will not have a material effect on its
financial condition or results of operations.
Item 5. Other Information
The Company's 1999 Annual Meeting of Shareholders is scheduled for Friday,
September 17, 1999 at 7:00 a.m. California U.S.A. time at 2-29-18 Nishi-
Ikebukuro, Toshima-Ku, Tokyo 171, Japan. Shareholder proposals submitted
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended,
for inclusion in the Company's proxy statement and form of proxy for the 1999
Annual Meeting of Shareholders must have been received by the Company by July
23, 1999 (as previously disclosed in the 1998 proxy statement). A shareholder
otherwise desiring to bring matters before the 1999 Annual Meeting of
Shareholders must pursuant to the Company's Amended and Restated Articles of
Association, as amended, submit a proposal in writing that is received by the
Secretary of the Company at the principal executive offices of the Company by
August 26, 1999.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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<CAPTION>
Exhibit
Number Document Description
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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)
2.2 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.(2)
3.1 Amended and Restated Memorandum of Association of the Company.(5)
3.2 Amended and Restated Articles of Association of the Company.(5)
10.1 Patent Assignment Agreement, dated as of March 15, 1994, between Gemstar Development Corporation and
Roy J. Mankovitz. (Confidential treatment requested).(1)
10.2 Contract Engineering Agreement (undated) between Hilite, Inc. and Gemstar Development Corporation.
(Confidential treatment requested).(1)
10.3 Contract Engineering Agreement (undated) between Hilite, Inc. and Gemstar Holdings Limited.
(Confidential treatment requested).(1)
10.4 Contract Engineering Agreement (undated) between Hilite, Inc. and Index Systems, Inc. (Confidential
treatment requested).(1)
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.(1)
10.6(a) Exclusive Representation Agreement, dated July 30, 1990, between Gemstar Development Corporation and
United Feature Syndicate, Inc. (Confidential treatment requested).(1)
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).(1)
10.6(c) Exclusive Representation Agreement, dated March 21, 1994 between Gemstar Development Corporation and
United Feature Syndicate, Inc. (Confidential treatment requested).(1)
10.7 Registration Rights Agreement, dated August 16, 1995, between Gemstar International Group Limited
and the Shareholders of E Guide, Inc.(1)
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.(2)
</TABLE>
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<TABLE>
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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.(2)
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.(2)
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.(3)
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.(3)
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.(3)
10.14 Rescission Agreement, dated as of January 9, 1998, by and between StarSight Telecast, Inc., a
California corporation and Microsoft Corporation, a Washington corporation.(3)
27 Financial Data Schedule.(7)
99.1 1994 Stock Incentive Plan, as amended.(1)
99.2 Employment Agreement, dated April 1, 1994, between Gemstar Development Corporation and Henry C.
Yuen, as amended. (Confidential treatment requested).(1)
99.3 Employment Agreement, dated August 1995, between Gemstar International Group Limited and Thomas L.H.
Lau.(1)
99.4 Employment Agreement, dated April 1, 1994, between Gemstar Development Corporation and Daniel S.W.
Kwoh, as amended. (Confidential treatment requested).(1)
99.5 Employment Agreement, dated April 1, 1994, between Gemstar Development Corporation and Roy J.
Mankovitz, as amended. (Confidential treatment requested).(1)
99.6 Employment Agreement, dated August 16, 1995, between Pros Technology Limited and Wilson K.C. Cho.
(Confidential treatment requested).(1)
99.7 Employment Agreement, dated April 1, 1994, between Gemstar Development Corporation and Elsie Ma
Leung, as amended.(1)
99.8 Employment Agreement, dated April 1, 1994, between Gemstar Development Corporation and Larry
Goldberg, as amended.(1)
99.9 Amendment to Subsection 1.4(a) of 1994 Stock Incentive Plan, as amended.(1)
99.10 Amendment to 1994 Stock Incentive Plan, as amended, adopted on March 12, 1998.(4)
99.11 Amended and Restated Employment Agreement, effective as of January 7, 1998, among Gemstar
International Group Limited, Gemstar Development Corporation and Henry C. Yuen.(6)
</TABLE>
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99.12 Amended and Restated Employment Agreement, dated as of March 31, 1998, among Gemstar International
Group Limited, Gemstar Development Corporation and Elsie Leung.(6)
99.13 Employment Agreement, dated as of July 22, 1999, by and between Gemstar International Group Limited,
Gemstar Development Corporation and Stephen A. Weiswasser.(7)
</TABLE>
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(1) 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.
(2) 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.
(3) Previously filed as part of Form 8-K dated January 12, 1998, as amended on
June 11, 1998, and incorporated herein by reference. Certain information in
this exhibit has been omitted pursuant to a request for Confidential
Treatment granted by the Securities and Exchange Commission.
(4) Previously filed as part of Form 10-K for the fiscal year ended March 31,
1998, filed on June 29, 1998, and incorporated herein by reference.
(5) 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.
(6) Previously filed as part of Form 10-K/A for the fiscal year ended March 31,
1998, filed on November 17, 1998, and incorporated herein by reference.
Certain information in this exhibit has been omitted pursuant to a request
for Confidential Treatment which was filed with the Securities and Exchange
Commission.
(7) Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended June
30, 1999.
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SIGNATURE
Pursuant to the requirements 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.
Gemstar International Group Limited
(Registrant)
By: /s/ Elsie Ma Leung
--------------------
Elsie Ma Leung
Chief Financial Officer
Date: August 16, 1999
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EXHIBIT 99.13
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is entered into as of July 22,
1999, by and between Stephen A. Weiswasser (the "Executive"), Gemstar
Development Corporation, a California corporation (the "Company") and Gemstar
International Group Limited, a British Virgin Islands Corporation ("GIGL").
RECITALS
The Company desires that the Executive be employed by the Company in the
capacities described below, on the terms and conditions hereinafter set forth,
and the Executive is willing to accept such employment on such terms and
conditions.
AGREEMENT
The Executive and the Company agree as follows:
1. Duties.
1.1 Retention. The Company does hereby hire, engage, and employ the Executive
as the Executive Vice President and General Counsel of the Company, and the
Executive does hereby accept and agree to such hiring, engagement, and
employment. During the Period of Employment (as defined in Section 2), the
Executive shall serve the Company in such position, and shall have duties
and authority consistent with such position (including primary general
authority over the Company's legal department), subject, however, to the
other provisions of this Agreement, directives of the Chief Executive
Officer of the Company (the "CEO") and/or the Chief Operating Officer of
the Company (the "COO"), and the corporate policies and budgets of the
Company as they presently exist, and as such policies and budgets may be
amended, modified, changed, or adopted during the Period of Employment.
During the Period of Employment, the Executive shall report to the COO.
1.2 No Other Employment. Throughout the Period of Employment, the Executive
shall devote substantially all of his business time, energy, and skill to
the performance of his duties for the Company. The foregoing
notwithstanding, the Executive shall be permitted to maintain an
association with the law firm of Covington & Burling in a special partner
or an of counsel or similar position (but the Executive shall not be
involved with the day-to-day operations of any firm); provided, however,
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that such association does not carry material compensation and does not
interfere with the performance of the Executive's duties hereunder, and
that such association does not interfere with the fiduciary duties owed by
the Executive to the Company. The Executive agrees that any appointment to
or continuing service on the board of directors of any corporation must be
approved in writing by the Company, such approval not to be unreasonably
withheld if the Company determines that such appointment should not
interfere with the performance of the Executive's duties hereunder.
The Company, by executing this Agreement, hereby
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approves the Executive's appointment and continuance as a member of the
Board of Directors of Next Level Communications, LLP, Greater Washington
Educational Television Association, Inc. ("WETA"), Fanfare Cable Channel
(as a representative of WETA) and the Woodrow Wilson National Fellowship
Foundation. The Executive's continued membership on any board of any
entity, on which he may now or in the future serve, is subject to the
conditions (a) that the Executive's membership on such board does not
materially interfere with the performance of the Executive's duties
hereunder, and (b) that no such entity or any related entity thereof
competes (within the meaning of Section 11) with the business of any entity
within the Gemstar Group (as defined in Section 9.3).
1.3 No Breach of Contract. The Executive hereby represents to the Company that
the execution and delivery of this Agreement by the Executive and the
Company and the performance by the Executive of the Executive's duties
hereunder shall not constitute a breach of, or otherwise contravene, the
terms of any employment or other agreement or policy to which the Executive
is a party or otherwise bound. The Company hereby represents to the
Executive that it is authorized to enter into this Agreement and that the
execution and delivery of this Agreement to the Executive and the
employment of the Executive hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any law, agreement or policy by which it
is bound.
1.4 Location. The Executive acknowledges that the Company's principal
executive offices are currently located in Pasadena, California. It is the
intent of the parties that in the normal course of performing his duties
under this Agreement, the Executive shall spend as much time in Pasadena as
reasonably possible; notwithstanding the foregoing, the Company agrees that
for as long as the Executive's principal residence remains in Washington,
D.C., the Executive shall be permitted and is expected to spend
approximately fifty percent (50%) of his working time at the Company's
offices in Washington, D.C.. However, the Executive also acknowledges that
due to his position as the Executive Vice President and General Counsel of
the Company and GIGL, he may for one or more periods of time be required to
spend all or a substantial portion of his working time in the Company's
principal executive offices in order to better discharge his duties
hereunder and that such service during any one or more of such periods
(either singly or in the aggregate) shall not be deemed to constitute a
breach of this Agreement by the Company. It is the parties' recognition
that, as work permits, over time such periods may be balanced by periods in
which the Executive spends more than 50% of his time in Washington, D.C.;
provided that such arrangement does not materially interfere with the
performance of the Executive's duties hereunder. The parties recognize
that a precise allocation of 50% of the Executive's time to each of
Pasadena and Washington, D.C. will be difficult and they agree to make
reasonable efforts to accommodate each other's needs and personal and
business obligations. The Company will be responsible for providing the
Executive with an appropriate office and secretarial and other support in
both Pasadena and Washington, D.C.; provided, however, that the Executive
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will use reasonable efforts to locate the Company's office in Washington,
D.C. at the offices of Covington & Burling and to utilize such offices'
support facilities.
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<PAGE>
2. Period of Employment.
The "Period of Employment" shall, unless sooner terminated as provided
herein, be a three (3) year period commencing on July 22, 1999 (the
"Effective Date") the Effective Date and ending on the close of business on
the day before the third (3rd) anniversary of the Effective Date.
Notwithstanding the preceding sentence, commencing with the third (3rd)
anniversary of the Effective Date (the "Extension Date"), the Period of
Employment shall be automatically extended through and shall end with the
close of business on the day before the fifth (5th) anniversary of the
Effective Date, unless the Company or the Executive provides the other at
least one hundred eighty (180) days' prior written notice before the
Extension Date that the Period of Employment shall not be so extended. The
term "Period of Employment" shall include any extension of this Agreement
pursuant to the preceding sentence. Provision of notice that this
Agreement shall not be extended shall not constitute a breach of this
Agreement.
3. Compensation.
3.1 Base Salary. The Executive's initial Base Salary shall be at a rate of
$750,000 annually, paid in accordance with the Company's regular payroll
practices in effect from time to time, but not less frequently than in
monthly installments. (As used in this Agreement, "Base Salary" shall mean
Base Salary as increased from time to time.) Commencing on or about July
1, 2000 and annually thereafter during the Period of Employment, the
Executive's Base Salary then in effect shall be increased by no less than a
percentage equal to any percentage increase in the CPI for the twelve-month
period preceding the date of such increase. For this purpose "CPI" means
the Consumer Price Index for the Los Angeles-Long Beach-Anaheim
Metropolitan Area, as reported by the U.S. Department of Labor - Bureau of
Labor Statistics or its successor. The Company may (but need not) award
the Executive larger, or more frequent, increases in his Base Salary based
upon his performance. Such merit increases should not, however, be
expected by the Executive. The Executive's Base Salary shall not be
decreased for any reason or for any purpose (including for purposes of
determining any amounts due to the Executive upon a termination of his
employment) during the Period of Employment.
3.2 Bonus. The Executive will be considered for an annual incentive bonus for
each fiscal year of the Company completed during his Period of Employment,
commencing with the Company's fiscal year ending March 31, 2000 (each a
"Bonus Year"). The actual amount of the Executive's annual incentive bonus
(if any) for each Bonus Year will be determined by the CEO and/or the COO
in their sole discretion subject to the provisions of the following
paragraph. The bonus (if any) for a Bonus Year shall be earned as of the
last day of that Bonus Year, but shall be paid on or about the immediately
following July 1 (commencing July 1, 2000), but no later than the
immediately following August 1, in accordance with the Company's general
payment policies for executive bonuses. The Executive's maximum award
opportunity for each Bonus Year shall be 33 1/3% of his annual Base Salary
in effect on the last day of such Bonus Year. A full 33 1/3% annual
incentive bonus will be paid only for excellent performance as determined
by the CEO and/or COO in their sole discretion.
3
<PAGE>
In the event the Company's earnings per share for any Bonus Year increase
by at least 10% over the Company's earnings per share for the immediately
preceding fiscal year, the Executive's minimum annual incentive bonus for
such Bonus Year shall be no less 10% of his Base Salary in effect on the
last day of such year.
3.3 Equity Compensation.
3.3.1 Initial Option Grant. No later than 5 days after the Effective
Date, the Executive shall be granted stock options to purchase
163,559 Ordinary Shares, par value $0.01 per share ("Ordinary
Shares"), of GIGL. To the maximum extent possible, such options
shall be incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended.
The per share exercise price of each option granted pursuant to
this Section 3.3.1 shall equal the fair market value of an Ordinary
Share as of the date of grant of the option. Such options shall
have a term of ten years and shall vest in accordance with the
following schedule, subject to the Executive's continued employment
by the Company: (i) 25% of the aggregate number of shares subject
to the options shall vest and become exercisable on the day before
each of the first, second and third anniversaries of the Effective
Date; and (ii) 12.5% of the aggregate number of shares subject to
the options shall vest and become exercisable on the day before
each of the fourth and fifth anniversaries of the Effective Date.
Each such option shall be granted under the Gemstar International
Group Limited 1994 Stock Incentive Plan, as Amended and Restated
(the "Stock Incentive Plan"), and, unless expressly provided
otherwise in this Agreement (A) shall be granted subject to the
terms of such plan and (B) shall be evidenced by a stock option
agreement containing terms no less favorable than the terms of
other stock option agreements with other senior level executives of
the Company other than the CEO and the COO/Chief Financial Officer
of the Company (the "COO/CFO").
3.3.2 Subsequent Option Grants. In addition to the stock option grant
provided under Section 3.3.1, the Executive shall be granted, for
each fiscal year of the Company ending during the Period of
Employment (commencing with the fiscal year ending March 31, 2000),
stock options to purchase additional Ordinary Shares. The stock
option grant with respect to a fiscal year shall be granted no
later than the August 1 immediately following the end of that
fiscal year. The number of Ordinary Shares which shall be subject
to each such grant shall be determined by GIGL's Board of Directors
or its Compensation Committee according to the following guideline:
(i) an amount determined by GIGL's Board of Directors or its
Compensation Committee which is no less than 50%, and no greater
than 100%, of the Executive's aggregate cash compensation (which
term includes Base Salary but not annual incentive bonus) paid by
the Company to the Executive for the preceding twelve (12) month
period; divided by (ii) the value, calculated using a Black-Scholes
or similar valuation methodology as adopted by the Company's or the
GIGL's independent auditor, of the value of a stock option to
acquire one Ordinary Share, determined by the Company or GIGL as of
a date as close as
4
<PAGE>
administratively practicable to the actual grant date of the option
to the Executive and based on assumptions substantially similar to
those on which the grant to the Executive will be made.
The terms, exercise price, vesting period, post-termination of
employment provisions, and other provisions of each stock option
granted pursuant to this Section 3.3.2 shall, subject to the
express provisions of this Agreement, be determined by GIGL's Board
of Directors or its Compensation Committee at the time of grant of
the option and shall be no less favorable than the terms of other
stock options granted at such time to other senior level executives
of the Company (other than the CEO and the COO/CFO).
Notwithstanding the foregoing paragraph, if the Executive's
employment is (i) terminated by the Company for any reason other
than for Cause (as such term is defined in Section 6.1.1) or (ii)
terminated at the end of the Period of Employment because the
Company elects not to extend the Period of Employment in accordance
with Section 2 (other than a termination or a failure to extend by
the Company for Cause) or (iii) at or following the end of the
Period of Employment (if it is extended in accordance with Section
2) either by the Company or by the Executive and the Company fails
---
to offer to renew the Executive's employment on terms
substantially similar to those contained herein (in either case
except a termination, or failure to offer to renew, by the Company
for Cause), then if a stock option granted pursuant to this Section
3.3.2 is not then fully vested, a portion of such option shall
thereupon become vested in accordance with the following sentence.
The portion of the option which shall become vested shall equal the
positive result, if any, of: (a) the total number of shares subject
to such option multiplied by a fraction, the numerator of which is
the total number of whole months during the vesting period of the
option in which the Executive was employed by the Company and the
denominator of which is the total number of whole months during the
vesting period of the option; less (b) the total number of shares
subject to such option which vested prior to, or otherwise at the
time of or in connection with, the termination of the Executive's
employment with the Company.
4. Benefits.
4.1 Health and Welfare. During the Period of Employment, the Executive shall
be entitled to participate in all employee pension and welfare benefit
plans and programs made available to the Company's senior level executives
(other than the CEO, and the COO/CFO) or to its employees generally, as
such plans or programs may be in effect from time to time, including,
without limitation, pension, profit sharing, savings and other retirement
plans or programs, medical, dental, hospitalization, short-term and long-
term disability and life insurance plans, accidental death and
dismemberment protection, travel accident insurance, and any other pension
or retirement plans or programs and any other employee welfare benefit
plans or programs that may be sponsored by the Company from time to time,
including any plans that supplement the
5
<PAGE>
above-listed types of plans or programs, whether funded or unfunded. The
Executive shall, in all events, be entitled during the Period of Employment
to term life insurance with a face amount coverage of no less than
$1,000,000. Any such life insurance policy shall contain a feature
permitting the Executive to continue the policy at his cost (subject to the
Company's obligations under this Agreement) following any termination of
the Executive's employment.
4.2 Reimbursement of Business and Other Expenses; Perquisites
4.2.1 Expense Reimbursement. The Executive is authorized to incur
reasonable expenses in carrying out his duties and responsibilities under
this Agreement and the Company shall promptly reimburse him for all
business expenses incurred in connection with carrying out the business of
the Company, subject to documentation in accordance with the Company's
policy.
4.2.2 Perquisites. During the Period of Employment, the Executive shall be
entitled to participate in any of the Company's executive fringe benefits
arrangements provided to its senior level executives (other than the CEO
and the COO/CFO) including, without limitation, automobile, professional
and educational allowances, in accordance with the terms and conditions of
such arrangements as are generally in effect from time to time.
4.2.3 Signing Expenses. The Company shall promptly reimburse the Executive
for his expenses, up to a maximum of $25,000, incurred in negotiating and
documenting his employment arrangements with the Company.
4.3 Vacation and Other Leave. During the Period of Employment, the Executive
shall receive four (4) weeks paid vacation per year. The Executive shall
also be entitled to all other holiday and leave pay generally available to
other senior level executives of the Company (other than the CEO, the
COO/CFO).
4.4 Special Travel and Housing Allowance. For the Period of Employment, for as
long as the Executive's principal residence remains in Washington, D.C.,
the Company shall: (a) rent for the Executive's benefit or shall otherwise
provide the Executive with (or, in the Company's discretion, reimburse the
Executive for the costs that he incurs to maintain) living quarters in the
area of Pasadena, California (usual water, gas and electricity costs
included); provided, however, that the monthly rental cost (or equivalent
-------- -------
expense) to the Company shall not exceed $3,333 per month; (b) provide the
Executive with or otherwise reimburse him for round-trip first class air
transportation between the Company's offices in Los Angeles and Washington
D.C., as necessary in connection with the Executive's duties hereunder but
not to exceed 52 round-trip flights per year; and (c) provide the Executive
with reasonable transportation by car service to and from the airport in
Los Angeles and Washington D.C. for each flight provided in accordance with
the foregoing clause (b). For purposes of clause (b) above, the Executive
will use reasonable efforts to achieve first class accommodations through
"upgrades" so as to reduce the cost to the Company.
6
<PAGE>
5. Death or Disability.
5.1 Definition of Disabled and Disability. For purposes of this Agreement, the
terms "Disabled" and "Disability" shall mean the Executive's inability,
because of physical or mental illness or injury, to substantially perform
his customary duties pursuant to this Agreement, with or without reasonable
accommodation, and the continuation of such disabled condition for a period
of one hundred eighty (180) continuous days as determined by an approved
medical doctor. For purposes hereof, an approved medical doctor shall mean
a doctor selected by the Company and the Executive. If the Company and the
Executive cannot agree on a medical doctor, each shall select a medical
doctor and the two doctors shall select a third who shall be the approved
medical doctor for this purpose.
5.2 Termination Due to Death or Disability. If the Executive dies or becomes
Disabled during the Period of Employment, the Period of Employment and the
Executive's employment shall automatically cease and terminate as of the
date of the Executive's death or the date of Disability (which date shall
be determined under Section 5.1 above, and referred to as the "Disability
Date"), as the case may be. In the event of the termination of the
Executive's employment due to his death or Disability, the Executive (or,
in the event of his death, his estate) shall be entitled to receive:
(i) a lump sum cash payment, payable within ten (10) business days after
the date of death or the Disability Date, equal to the sum of (A) any
accrued but unpaid Base Salary as of the date of death or the
Disability Date, (B) any earned but unpaid annual incentive bonus in
respect of the most recently completed fiscal year preceding the date
of death or the Disability Date, and (C) the amount of the Executive's
annual incentive bonus for the Bonus Year containing the date of death
or the Disability Date, determined by the CEO and/or the COO in
accordance with Section 3.2 but pro-rated through the date of death or
the Disability Date.; and
(ii) such employee benefits described in Section 4.1 as the Executive or
his estate may be entitled to hereunder or under the employee benefit
plans, programs and arrangements of the Company;
provided that if the Executive's employment is terminated by reason of the
Executive's Disability, he shall, so long as his Disability continues,
remain eligible for all benefits provided under any long-term disability
programs of the Company in effect at the time of such termination, subject
to the terms and conditions of any such programs, as in effect at the time
of such termination.
In the event the Executive's employment is terminated by reason of the
Executive's death or Disability, the stock options granted pursuant to
Section 3.3.1 shall, notwithstanding the vesting schedule in Section 3.3.1,
thereupon automatically become fully vested and immediately exercisable as
follows: (i) if the date of death or the Disability Date occurs before the
third (3rd) anniversary of the Effective Date, such stock options shall
become
7
<PAGE>
vested in the aggregate as to seventy-five percent (75%) of the total
number of shares subject thereto and the remaining portion of such options
shall automatically terminate; and (ii) if the date of death or the
Disability Date occurs on or after the third (3rd) anniversary of the
Effective Date, such stock options shall become fully vested and
immediately exercisable; in either case such options, to the extent vested,
shall continue to be exercisable until the earlier of (a) the expiration of
the stated term of the options or (b) 2 years after the earlier of the
Executive's death or Disability Date.
6. Termination by the Company.
6.1 Termination For Cause.
6.1.1 Procedures for Cause Termination. No termination of the Executive's
employment by the Company for Cause shall be effective unless the
provisions of this Section 6.1 shall have been complied with. The
Executive shall be given written notice by the Board of Directors of
the Company (the "Board") of the intention to terminate him for
Cause. Such notice shall state in detail the particular
circumstances that constitute the grounds on which the proposed
termination for Cause is based. The Executive shall have 15 days
after receiving such notice in which to cure such grounds, to the
extent such cure is possible. If he fails to cure such grounds, the
Executive shall then be entitled to a hearing before the Board. Such
hearing shall be held within 20 days of his receiving such notice,
provided that he requests such hearing within 15 days of receiving
such notice. If, within five days following such hearing, the Board
gives written notice to the Executive confirming that, in the
judgment of a majority of the members of the Board (excluding the
Executive if he is then a Board member), Cause for terminating his
employment on the basis set forth in the original notice exists, the
Period of Employment and his employment hereunder shall thereupon be
terminated for Cause, subject to de novo review, at the Executive's
-- ----
election, through arbitration in accordance with Section 24. The
term "Cause" for purposes of this Agreement shall mean:
(i) the Executive is convicted of, or has plead guilty to, a
felony (under the laws of the United States or any state
thereof) that has a material adverse effect on the business
of the Company;
(ii) the Executive has knowingly engaged in acts of fraud,
material dishonesty or other acts of willful gross misconduct
in the cause of his duties hereunder that have a material
adverse effect on the business of the Company, unless the
Executive believed in good faith that such acts were in the
best interests of the Company;
(iii) the Executive willfully and repeatedly fails to perform or
uphold his duties under this Agreement (including, without
limitation, his duties under Section 12) resulting in a
material adverse effect on the business of the Company;
8
<PAGE>
(iv) the Executive willfully fails to comply with reasonable
directives of the Board, the CEO, or the COO which are
communicated to him in writing; or
(v) the Executive has habitually abused any substance (such as
narcotics or alcohol) and such abuse has had a material
adverse effect on the business of the Company.
6.1.2 Entitlements Upon a Termination for Cause. In the event of the
termination of the Period of Employment and the Executive's
employment hereunder due to a termination by the Company for Cause,
then the Executive shall be entitled to receive:
(i) a lump sum cash payment, payable within ten (10) business
days after the date of termination of the Executive's
employment, equal to the sum of (A) any accrued but unpaid
Base Salary as of the date of such termination and (B) any
earned but unpaid annual incentive bonus in respect of the
most recently completed fiscal year preceding the date of
such termination; and
(ii) such employee benefits described in Section 4.1 as the
Executive or his estate may be entitled to hereunder or under
the employee benefit plans, programs and arrangements of the
Company; and
(iii) any stock options granted pursuant to Section 3.3.1 which are
not vested as of the date of such termination shall
immediately terminate and any stock options granted pursuant
to Section 3.3.1 which are then vested shall continue to be
exercisable until the earlier of the expiration of the stated
term of each such option or ninety (90) days after the date
of the termination of the Executive's employment.
6.2 Termination Without Cause. The Company may, with or without reason,
terminate the Period of Employment and the Executive's employment hereunder
without Cause at any time by providing the Executive written notice of such
termination. If the Executive's employment is terminated without Cause,
the termination shall take effect on the effective date (pursuant to
Section 27) of written notice of such termination to the Executive. In the
event of the termination of the Period of Employment and the Executive's
employment hereunder due to a termination by the Company without Cause
(other than due to the Executive's death or Disability), the Executive
shall be entitled to:
(i) a lump sum cash payment, payable within ten (10) business days after
the date of termination of the Executive's employment, equal to the
sum of (A) any accrued but unpaid Base Salary as of the date of such
termination, (B) any earned but unpaid annual incentive bonus in
respect of the most recently completed fiscal year preceding the date
of such termination, and (C) the amount of the Executive's annual
incentive bonus for the Bonus Year containing the date of
9
<PAGE>
such termination, determined by the CEO and/or the COO in accordance
with Section 3.2 but pro-rated through the date of such termination;
and
(ii) such employee benefits described in Section 4.1 as the Executive or
his estate may be entitled to hereunder or under the employee benefit
plans, programs and arrangements of the Company; and
(iii) a monthly severance payment payable in each of the twelve (12) months
following the date of termination of the Executive's employment, the
amount of each such payment to equal the Executive's monthly base
salary in effect immediately prior to such termination.
(iv) continued participation, through the expiration of the then current
Period of Employment, of the Executive and each of his dependents in
all employee welfare benefit plans, programs and arrangements in
which they were participating as of the date of termination, on terms
and conditions that are no less favorable than those that applied on
such date and with COBRA benefits commencing thereafter; provided,
--------
however, that the Company's obligation under this Section 6.2(iv)
-------
shall be reduced to the extent that equivalent coverages and benefits
(determined on a coverage-by-coverage and benefit-by-benefit basis)
are provided under the plans, programs and arrangements of a
subsequent employer. To the extent such participation is not
permitted under the terms of a plan, program or arrangement as a
result of the Executive's termination, the Company shall provide the
Executive with the economic equivalent of the benefit involved.
If the Executive's employment is terminated by the Company without Cause
(other than due to the Executive's death or Disability), the stock options
granted pursuant to Section 3.3.1 shall, notwithstanding the vesting
schedule in Section 3.3.1 hereof, become vested and exercisable as follows:
(i) if the termination occurs before the second (2nd) anniversary of the
Effective Date, such stock options shall become vested in the aggregate as
to seventy-five percent (75%) of the total number of shares subject thereto
and the remaining portion of such options shall automatically terminate;
and (ii) if the termination occurs on or after the second (2nd) anniversary
of the Effective Date, such stock options shall become fully vested and
immediately exercisable; in either case such options, to the extent vested,
shall continue to be exercisable until the earlier of the expiration of the
stated term of the option or 2 years after the date of the termination of
the Executive's employment.
10
<PAGE>
7. Termination by the Executive.
7.1 Termination Without Good Reason. The Executive shall have the right to
terminate the Period of Employment and the Executive's employment hereunder
at any time without Good Reason (as defined below) upon one-hundred twenty
(120) days prior written notice of such termination to the Company. A
voluntary termination by the Executive in accordance with this Section 7.1
shall not be deemed a breach of this Agreement. Upon any voluntary
termination of employment by the Executive pursuant to this Section 7.1, he
shall have the same entitlements as provided in Section 6.1.2 in the case
of a termination by the Company for Cause.
7.2 Termination With Good Reason.
7.2.1 Procedure For Good Reason Termination. The Executive may terminate
the Period of Employment and resign from employment hereunder for Good
Reason. For purposes hereof, "Good Reason" shall mean:
(i) a reduction in the Executive's Base Salary or any failure to
provide the Executive with the compensation and benefits called
for by this Agreement; or
(ii) the failure to elect or re-elect the Executive to any of the
positions specified in Section 1.1 or his removal from any such
position; or
(iii) Henry C. Yuen ceases, for any reason, to be the Chief Executive
Officer of the Company or GIGL; or
(iv) a material diminution in the Executive's duties, the assignment
to the Executive of duties which are materially inconsistent
with his duties or which materially impair his ability to
function as Executive Vice President and General Counsel of GIGL
and the Company, or the failure of the Executive to continue to
report directly to the CEO or the COO; or
(v) the termination of, or a material reduction in, any employee
benefit or perquisite enjoyed by the Executive (other than as
part of an across-the-board reduction applying generally to the
senior executives of the Company (other than the CEO and the
COO/CFO)); or
(vi) the relocation of either of the Executive's offices, as assigned
to him by the Company, more than 25 miles from either Pasadena,
California or Washington, D.C.; or
(vii) the failure of the Company to obtain the assumption in writing
of its obligations to perform this Agreement by any successor to
all or substantially all of the assets or business of the
Company within 15 days upon a merger, consolidation, sale or
similar transaction;
11
<PAGE>
provided, however, that none of the events specified in clause
-------- -------
(i), (iv), (v) or (vi) above shall constitute Good Reason unless
the Executive shall have notified the Company in writing
describing the events which constitute Good Reason and the
Company shall have failed to cure such event within thirty (30)
days after the Company's receipt of such written notice.
7.2.2 Entitlements Upon a Termination for Good Reason. Upon the
Executive's termination of his employment for Good Reason in
accordance with Section 7.2.1 hereof, the Executive shall have
the same entitlements as provided under Section 6.2 for a
termination by the Company without Cause.
8. Expiration of Period of Employment.
8.1 Benefits Upon Expiration of Period of Employment. If the Executive's
employment is terminated effective upon or following the expiration of the
Period of Employment (with or without extension in accordance with Section
2), unless the Executive's employment is earlier terminated pursuant to
Section 5, 6 or 7, then the Executive shall be entitled to:
(i) a lump sum cash payment, payable within ten (10) business days
after the date of termination of the Executive's employment,
equal to the sum of (A) any accrued but unpaid Base Salary as of
the date of such termination and (B) any earned but unpaid
annual incentive bonus in respect of the most recently completed
fiscal year preceding the date of such termination; and
(ii) such employee benefits described in Section 4.1 as the Executive
or his estate may be entitled to hereunder or under the employee
benefit plans, programs and arrangements of the Company.
If the Executive's employment terminates as provided above in this Section
8, any stock options granted pursuant to Section 3.3.1 which are not vested
as of the date of such termination shall immediately terminate and any
stock options granted pursuant to Section 3.3.1 which are then vested shall
continue to be exercisable until the earlier of the expiration of the
stated term of each such option or 2 years after the termination of the
Executive's employment.
8.2 General Termination Provisions.
8.2.1 Other Termination Benefits. In the case of any of the foregoing
terminations or the Expiration of the Period of Employment, the Executive
or his estate shall also be entitled to (without duplication of benefits):
(i) the balance of any annual incentive bonus earned but not
yet paid the Executive;
(ii) any reimbursements or allowances due but not yet paid the
Executive;
(iii) other benefits, if any, in accordance with applicable
plans and programs of the Company;
12
<PAGE>
provided, further, that all amounts due the Executive shall be paid
promptly following their becoming due as provided hereunder.
8.2.2 Other Termination Provisions. In the event of any termination of
employment under this Agreement, the Executive shall be under no obligation
to seek other employment and there shall be no offset against amounts due
the Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that he may obtain except (i) as
specifically provided in Section 6.2(iv) or (ii) on account of any claims
the Company or GIGL may have against the Executive. Any amounts due under
Sections 5, 6, 7 or 8 are in the nature of severance payments considered to
be reasonable by the Company and are not in the nature of a penalty.
9. Change in Control Provisions.
9.1 Definition of Change in Control Event. For purposes of this Agreement,
"Change in Control Event" shall have the meaning given to such term in
Section 5.1 of the Stock Incentive Plan, as in effect on the Effective
Date, except that such term shall also include (x) any event described in
such Section 5.1 that occurs with respect to the Company (as opposed to
GIGL) and (y) any event whereby GIGL ceases to be a registered company
under Section 12 of the Securities Exchange Act of 1934.
For the purpose of this Section 9, a "Friendly Change in Control Event"
shall be one which is either (i) approved by the CEO and a majority of all
members of the Board of Directors of the Company or GIGL, as the case may
be, who are then also employees of the Company or GIGL, or (ii) described
in clause (y) of the preceding paragraph.
9.2 Effect of a Friendly Change in Control Event. Upon a Friendly Change in
Control Event (i) all amounts or benefits, and all stock options or other
equity based awards, in which the Executive is not yet vested shall become
fully vested, and (ii) the Executive shall have ninety (90) days after the
occurrence of the event to terminate his employment. If the Executive
terminates his employment by written notice received by the Company within
such ninety (90) day period and before the Period of Employment has
expired, the Executive's termination shall be deemed to be a termination
for Good Reason in accordance with Section 7.2 above. In the event of a
Change in Control Event other than a Friendly Change in Control Event, the
CEO may deem the Change in Control Event to be a Friendly Change in Control
Event for purposes of this Section 9.2 by providing the Executive with a
written notice to such effect.
9.3 Section 280G Provisions. Notwithstanding anything contained in this
Agreement to the contrary, to the extent that any payment or distribution
of any type to or for the Executive by the Company, GIGL, or any subsidiary
or affiliate of the Company or GIGL (collectively, the Company, GIGL, and
any subsidiary or affiliate of the Company or GIGL are referred to as the
"Gemstar Group"), whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (including, without
limitation, any accelerated vesting of stock options or restricted stock
granted pursuant to this Agreement or otherwise) (collectively, the "Total
Payments") is or will be subject to
13
<PAGE>
the excise tax ("Excise Tax") imposed under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), (or any successor to such
Section), the Company shall pay to the Executive, prior to the time any
Excise Tax is payable with respect to any of such Total Payments (through
withholding or otherwise), an additional amount not in excess of $500,000
(a "Gross-Up Payment") which is, after the imposition of all income,
employment, excise and other taxes, penalties and interest thereon but
subject to the preceding $500,000 limitation, equal to the sum of (i) the
Excise Tax on such Total Payments plus (ii) any penalty and interest
assessments associated with such Excise Tax. The determination of whether
any portion of the Total Payments is subject to an Excise Tax and, if so,
the amount and time of any Gross-Up Payment pursuant to this Section 9.3
shall be made by an independent auditor (the "Auditor") jointly selected by
the Executive and the Company and paid by the Company. If the Executive and
the Company cannot agree on the firm to serve as the Auditor, then they
shall each select one accounting firm and those two firms shall jointly
select the accounting firm to serve as the Auditor. Unless the Executive
agrees otherwise in writing, the Auditor shall be a nationally recognized
United States public accounting firm that has not during the two years
preceding the date of its selection, acted in any way on behalf of the
Gemstar Group. The Parties shall cooperate with each other in connection
with any proceeding or claim relating to the existence or amount of any
liability for Excise Tax. All expenses relating to any such proceeding or
claim (including attorneys' fees and other expenses incurred by the
Executive in connection therewith) shall be paid by the Company promptly
upon demand by the Executive, and any such payment shall be subject to a
Gross-Up Payment under this Section 9.3 in the event that the Executive is
subject to Excise Tax on it, subject to the $500,000 Gross-Up Payment limit
which shall be applied on an aggregate basis. This Section 9.3 shall apply
irrespective of whether a Change in Control Event has occurred.
10. Means and Effect of Termination.
Any termination of the Executive's employment under this Agreement shall be
communicated by written notice of termination from the terminating party to
the other party. The notice of termination shall indicate the specific
provision(s) of this Agreement relied upon in effecting the termination and
shall set forth in reasonable detail the facts and circumstances alleged to
provide a basis for termination, if any such basis is required by the
applicable provision(s) of this Agreement.
11. Non-Competition.
The Executive acknowledges and recognizes the highly competitive nature of
the businesses of the Gemstar Group, the amount of sensitive and
confidential information involved in the discharge of the Executive's
position as Executive Vice President and General Counsel of the Company,
and the harm to the Gemstar Group that would result if such knowledge or
expertise was disclosed or made available to a competitor, and accordingly
agrees as follows:
14
<PAGE>
(i) In addition to any rules of professional conduct governing attorneys,
during the Period of Employment and, as a result of the particular
nature of the Executive's relationship with the Company as its
Executive Vice President and General Counsel, for the two (2) year
period immediately following the termination of the Period of
Employment, the Executive will not, directly or indirectly, (A) engage
in any business for the Executive's own account that competes with the
business of any entity within the Gemstar Group (for purposes of this
Agreement, businesses in competition with the Gemstar Group shall mean
(X) businesses which any entity within the Gemstar Group has specific
plans to conduct in the future and as to which the Executive is aware
of such planning, (Y) other businesses that are in the electronic
programming guide industry, and (Z) businesses that are then or within
the preceding two (2) year period have litigated against any entity
within the Gemstar Group or have threatened in writing litigation
against any entity within the Gemstar Group, (B) enter the employ of,
or render any services to, any person engaged in any business that
competes with the business of any entity within the Gemstar Group, (C)
acquire a financial interest in any person engaged in any business
that competes with the business of any entity within the Gemstar
Group, directly or indirectly, as an individual, partner, shareholder,
officer, director, principal, agent, trustee or consultant, or (D)
interfere with business relationships (whether formed before or after
the date of this Agreement) between the Company, GIGL, any of their
respective affiliates or subsidiaries, and any customers, suppliers,
officers, employees, partners, members or investors of any entity
within the Gemstar Group. Notwithstanding the foregoing, the
Executive shall not be in violation of Section 11 or Section 13 if he
is a partner in, or otherwise affiliated with, a law firm so long as
(a) he shall not personally be involved in advising or providing
services for any client of such firm that competes with any entity
within the Gemstar Group, and (b) such firm does not advise or
represent any client in connection with any litigation against any
member of the Gemstar Group.
(ii) Notwithstanding anything to the contrary in this Agreement, the
Executive may, directly or indirectly, own, solely as an investment,
securities of any person engaged in the business of the Company or its
affiliates which are publicly traded on a national or regional stock
exchange or on an over-the-counter market if the Executive (A) is not
a controlling person of, or a member of a group which controls, such
person and (B) does not, directly or indirectly, own five percent (5%)
or more of any class of securities of such person.
12. Confidentiality.
The Executive will not at any time (whether during or after his employment
with the Company), other in the course of his duties hereunder or unless
compelled by lawful process, disclose or use for his own benefit or
purposes or the benefit or purposes of any other person, firm, partnership,
joint venture, association, corporation or other business organization,
entity or enterprise other than an entity within the Gemstar Group, any
trade
15
<PAGE>
secrets, or other confidential data or information relating to customers,
development programs, costs, marketing, trading, investment, sales
activities, promotion, credit and financial data, financing methods, or
plans of any entity within the Gemstar Group; provided that the
--------
foregoing shall not apply to information which is generally known to the
industry or the public other than as a result of the Executive's breach of
this covenant. The Executive agrees that upon termination of his
employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and
other data, and all copies thereof or therefrom, in any way relating to the
business of any entity within the Gemstar Group, except that he may retain
personal notes, notebooks and diaries that do not contain confidential
information of the type described in the preceding sentence. The Executive
further agrees that he will not retain or use for his account at any time
any trade names, trademark or other proprietary business designation used
or owned in connection with the business of any entity within the Gemstar
Group.
13. Antisolicitation.
The Executive promises and agrees that during the Period of Employment and
for a period of two (2) years thereafter, he will not influence or attempt
to influence customers of any entity within the Gemstar Group (as it may
now or in the future be composed), either directly or indirectly, to divert
their business away from the Gemstar Group to any individual, partnership,
firm, corporation or other entity then in competition with the business of
any entity within the Gemstar Group.
14. Soliciting Employees.
The Executive promises and agrees that for a period of one year following
termination of his employment he will not directly or indirectly solicit
any person who is then, or at any time within six months prior thereto was,
an employee of an entity within the Gemstar Group who earned annually
$25,000 or more as an employee of such entity during the last six months of
his or her own employment to work for any business, individual,
partnership, firm, corporation, or other entity then in competition with
the business of any entity within the Gemstar Group.
15. Cooperation in Litigation.
The Executive agrees that he will reasonably cooperate with the Company
and/or GIGL, subject to his reasonable personal and business schedules, in
any litigation which arises out of events occurring prior to the
termination of his employment, including but not limited to, serving as a
witness or consultant and producing documents and information relevant to
the case or helpful to the Company and/or GIGL. The Company and GIGL agree
to reimburse the Executive for all reasonable costs and expenses he incurs
in connection with his obligations under this Section 15 and, in addition,
to compensate the Executive at his usual hourly billing rate for time
actually spent in connection therewith.
16
<PAGE>
16. Indemnification.
(i) The Company agrees that (a) if the Executive is made a party, or is
threatened to be made a party, to any threatened or actual action,
suit or proceeding whether civil, criminal, administrative,
investigative, appellate or other (a "Proceeding") by reason of the
fact that he is or was a director, officer, employee, agent, manager,
consultant or representative of any member of the Gemstar Group or is
or was serving at the request of any member of the Gemstar Group as a
director, officer, member, employee, agent, manager, consultant or
representative of another person or (b) if any claim, demand,
request, investigation, controversy, threat, discovery request or
request for testimony or information (a "Claim") is made, or
threatened to be made, that arises out of or relates to the
Executive's service in any of the foregoing capacities, then the
Executive shall promptly be indemnified and held harmless by the
Company to the fullest extent legally permitted or authorized by the
Company's certificate of incorporation, bylaws or Board resolutions
or, if greater, by the laws of the State of California, against any
and all costs, expenses, liabilities and losses (including, without
limitation, attorney's fees, judgments, interest, expenses of
investigating, defending or obtaining indemnity with respect to any
Proceeding or Claim, penalties, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) incurred or
suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if he has
ceased to be a director, member, employee, agent, manager, consultant
or representative of the Company, GIGL or other person or entity and
shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all costs
and expenses incurred by him in connection with any such Proceeding
or Claim within 15 days after receiving written notice requesting
such an advance. Such notice shall include, to the extent required by
applicable law, an undertaking by the Executive to repay the amount
advanced if he is ultimately determined not to be entitled to
indemnification against such costs and expenses.
(ii) Neither the failure of the Company (including its Board of Directors,
independent legal counsel or stockholders) to have made a
determination in connection with any request for indemnification or
advancement under Section 16(i) that the Executive has satisfied any
applicable standard of conduct, nor a determination by the Company
(including its Board of Directors, independent legal counsel or
stockholders) that the Executive has not met any applicable standard
of conduct, shall create a presumption that the Executive has not met
an applicable standard of conduct.
(iii) During the period of Employment and for a period of six years
thereafter, the Company and GIGL shall keep in place a directors and
officers' liability insurance policy (or policies) providing
comprehensive coverage to the Executive to the extent that the
Company and GIGL provide such coverage for any other present or
former senior executive or director of the Company and/or GIGL.
17
<PAGE>
17. Assignment.
This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement
or any rights or obligations hereunder; provided, however, that, in the
-------- -------
event of a merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other
individual(s) or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties,
and obligations of the Company hereunder, and; provided, further, that the
-------- -------
Executive may assign his rights to compensation and benefits by will or by
operation of law or pursuant to Section 30.
18. Governing Law.
This Agreement and the legal relations hereby created between the parties
hereto shall be governed by and construed under and in accordance with the
internal laws of the State of California, without regard to conflicts of
laws principles thereof.
19. Entire Agreement.
This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all
prior agreements of the parties hereto on the subject matter hereof. Any
prior negotiations, correspondence, agreements, proposals or understandings
relating to the subject matter hereof shall he deemed to be merged into
this Agreement and to the extent inconsistent herewith, such negotiations,
correspondence, agreements, proposals, or understandings shall be deemed to
be of no force or effect. There are no representations, warranties, or
agreements, whether express or implied, or oral or written, with respect to
the subject matter hereof, except as set forth herein.
20. Modifications.
This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by
the parties hereto.
21. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such term, covenant,
or condition, nor shall any waiver or relinquishment of, or failure to
insist upon strict compliance with, any right or power hereunder at any one
or more times be deemed a waiver or relinquishment of such right or power
at any other time or times.
22. Number and Gender.
Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.
18
<PAGE>
23. Section Headings.
The section headings in this Agreement are for the purpose of convenience
only and shall not limit or otherwise affect any of the terms hereof.
24. Resolution of Disputes.
Any controversy arising out of or relating to the Executive's employment,
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 in Los Angeles County,
California, before a sole arbitrator (the "Arbitrator") selected from
Judicial Arbitration and Mediation Services, Inc., Los Angeles County,
California, or its successor ("JAMS"), or if JAMS is no longer able to
supply the arbitrator, such arbitrator shall be selected from the American
Arbitration Association, and shall be conducted in accordance with the
provisions of California Civil Procedure Code (S)(S) 1280 et seq. as the
-- ---
exclusive remedy of such dispute; provided, however, that provisional
--------- -------
injunctive relief may, but need not, be sought in a court of law while
arbitration proceedings are pending, and any provisional injunctive relief
granted by such court shall remain effective until the matter is finally
determined by the Arbitrator. Final resolution of any dispute through
arbitration may include any remedy or relief which the Arbitrator deems
just and equitable. Any award or relief granted by the Arbitrator
hereunder shall be final and binding on the parties hereto and may be
enforced by any court of competent jurisdiction.
The parties acknowledge that they are hereby waiving any rights to trial by
jury in any action, proceeding or counterclaim brought by either of the
parties against the other in connection with any matter whatsoever arising
out of or in any way connected with this Agreement or the Executive's
employment.
25. Severability.
In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy,
then only the portions of this Agreement which violate such statute or
public policy shall be stricken, and all portions of this Agreement which
do not violate any statute or public policy shall continue in full force
and effect. Furthermore, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give
as much effect as possible to the intentions of the parties under this
Agreement.
26. Notices.
All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:
(i) if to the Company:
Gemstar Development Corporation
19
<PAGE>
135 North Los Robles Avenue, Suite 800
Pasadena, California 91101
Attention: Chief Executive Officer
(ii) if to the Executive:
Stephen A. Weiswasser
2718 32nd Street, N.W.
Washington, D.C. 20008
Either party may change its address set forth above by written notice given
to the other party in accordance with the foregoing. Any notice shall be
effective when personally delivered, or five (5) business days after being
mailed in accordance with the foregoing.
27. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument.
28. Withholding Taxes.
The Company may withhold from any amounts payable under this Agreement such
federal, state and local income, employment, or other taxes as may be
required to be withheld pursuant to any applicable law or regulation.
29. Beneficiaries.
The Executive shall be entitled, to the extent permitted under any
applicable law and to the extent permitted under any benefit plan or
program maintained by the Company or GIGL, to select and change a
beneficiary or beneficiaries to receive any compensation or benefit
hereunder following the Executive's death by giving the Company written
notice thereof in accordance with the terms of such plan or program. In
the event of the Executive's death or a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative.
30. GIGL Agreement.
GIGL agrees to cause the Company to perform its obligations so as to give
full force and effect to the provisions hereof.
[Remainder of Page Intentionally Left Blank]
20
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Employment Agreement as of the date first above written.
THE COMPANY
Gemstar Development Corporation,
a California corporation
By: /s/ Henry C. Yuen
-------------------------------
Henry C. Yuen
Chief Executive Officer
By:
-------------------------------
Print Name:
-----------------------
Title:
----------------------------
GIGL
Gemstar International Group Limited
By: /s/ Henry C. Yuen
-------------------------------
Henry C. Yuen
Chief Executive Officer
THE EXECUTIVE
/s/ Stephen A. Weiswasser
----------------------------------
Stephen A. Weiswasser
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 215,700
<SECURITIES> 40,308
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 268,172
<PP&E> 14,227
<DEPRECIATION> 10,964
<TOTAL-ASSETS> 309,280
<CURRENT-LIABILITIES> 56,938
<BONDS> 0
0
0
<COMMON> 1,014
<OTHER-SE> 218,767
<TOTAL-LIABILITY-AND-EQUITY> 309,280
<SALES> 0
<TOTAL-REVENUES> 43,096
<CGS> 0
<TOTAL-COSTS> 18,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,897
<INCOME-TAX> 7,260
<INCOME-CONTINUING> 19,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,637
<EPS-BASIC> .20
<EPS-DILUTED> .17
</TABLE>
