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Gemstar CEO Offers Stock for Debt

Media: Henry Yuen pledges 7 million shares as loan collateral to avoid having to sell.

April 05, 2002|From Times Staff and Wire Reports

Gemstar-TV Guide International Inc., which disclosed this week that it booked as revenue money it hoped to win in a lawsuit, said Thursday that Chief Executive Henry Yuen pledged 7 million of his Gemstar shares to pay back money he borrowed in October to exercise stock options.

The deal will allow him to avoid having to sell stock, Yuen said.

With the bank loan coming due and the stock price falling 27% this week in the wake of the firm's accounting controversies, Yuen renegotiated the loan terms Wednesday to increase the number of shares being used as collateral and to give him up to two years to repay the debt.

The company did not disclose the amount of the loan or other details. Some of the proceeds from the loan were used for personal debts, which the company also declined to disclose.

Yuen owns or has options to buy 31.8 million shares of the Pasadena company, which publishes TV Guide magazine and makes software that runs on-screen television program guides.

Gemstar said Yuen's debts "are unrelated to and are not obligations of Gemstar."

Late Thursday Gemstar also said its board had extended its authorization for the company to buy back as much as $300 million of its stock.

Before Yuen's loan and the buyback were announced Gemstar shares rose $1.27 to $10.87 in regular Nasdaq trading.

Analyst Stacey Bingler Forbes at Janco Partners Inc. in Denver said the company was being cautious in releasing information the day after Yuen completed his new loan arrangements.

"The company didn't want to panic the market when it sees 7 million shares out there, and it also wanted to show that Henry is confident the stock price will come back," she said.

The stock has been particularly volatile this year. It started out the year at $28.04, lost about 40% in a month, rebounded and then slid by Monday to half its value from year's start.

The stock plummeted 37% on Tuesday to a three-year low of $9.01 after Gemstar disclosed it had booked as revenue $107.6 million in accounts receivable due from Scientific-Atlanta Inc., a maker of TV set-top boxes, that is the subject of a patent dispute with the company.

The receivables represent license fees that Gemstar says it's owed by Scientific-Atlanta. Scientific-Atlanta has said it doesn't owe any patent fees to Gemstar and hasn't paid them.

"This is very aggressive accounting," said analyst T.K. Mackay at Morningstar Inc. in Chicago. "That issue is much more of a concern for us than the chief executive's loans."

Analysts criticized Gemstar for failing to disclose the revenue sources sooner.

Investor concerns about accounting have increased after undisclosed debt led to Enron Corp. making the largest U.S. bankruptcy filing. KPMG audited and approved Gemstar's financial statements.

Gemstar said Thursday that it's in compliance with securities laws and will "vigorously defend" the actions brought against it.

On Thursday the company was hit with three more lawsuits filed by shareholders, claiming that Gemstar improperly booked revenue that it won't receive unless it wins litigation against a rival.

One suit, filed by Wolf Popper in U.S. District Court in Los Angeles, said Gemstar's financial results were "artificially inflated by the improper recognition" of the expected $107.6 million in revenue.

The lawsuit said the revenue was not assured and caused Gemstar's stock to "trade at inflated prices." The suit said the company improperly recorded more than $100 million in revenue associated with the litigation, citing a filing with the Securities and Exchange Commission.

Separate lawsuits were filed against Gemstar by firms Robbins, Umeda & Fink and by Schiffrin & Barroway. Those suits claim that Gemstar misled shareholders by booking $20 million in revenue last year from a swap of intellectual property for advertising on its on-screen program guides. Representatives of Robbins Umeda and Schiffrin & Barroway couldn't be reached to comment.

Another suit was filed against Gemstar on Wednesday by William Lerach, who also is the lead attorney for shareholders suing Enron.

Times staff writer James S. Granelli contributed to this report and Bloomberg News was used in compiling it.

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