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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3 )*
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Media Arts Group, Inc.
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(NAME OF ISSUER)
Common Stock
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(TITLE OF CLASS OF SECURITIES)
58439 C 10 2
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(CUSIP NUMBER)
Sue Edstrom, 521 Charcot Ave, San Jose, California 95131
(408) 922-1577
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS)
December 3, 1997
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(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
Check the following box if a fee is being paid with this statement / /. (A
fee is not required only if the reporting person: (1) has a previous statement
on file reporting beneficial ownership of more than five percent of the class
of securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
SCHEDULE 13D
CUSIP No. 58439 C 10 2 Page 1 of 6 Pages
------------ --- ---
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(1) NAME OF REPORTING PERSONS. S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE
PERSON
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Thomas Kinkade
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER (a) / /
OF A GROUP* (b) / /
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS*
PF
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(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
- -------------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
USA
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Number of Shares (7) SOLE VOTING
Beneficially Owned POWER 0
by Each Reporting --------------------------------------------------
Person With (8) SHARED VOTING
POWER 3,312,043
(excludes an option to purchase 600,000
shares of Issuer's Common Stock which is
not expected to be exercisable for more
than 60 days from December 3, 1997)
--------------------------------------------------
(9) SOLE DISPOSITIVE
POWER 0
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(10) SHARED DISPOSITIVE
POWER 3,312,043
(excludes an option to purchase 600,000
shares of Issuer's Common Stock which is
not expected to be exercisable for more
than 60 days from December 3, 1997)
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(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,312,043
(excludes an option to purchase 600,000 shares of Issuer's Common Stock
which is not expected to be exercisable for more than 60 days from
December 3, 1997)
- -------------------------------------------------------------------------------
(12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- -------------------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.9%
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(14) TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTENSTATION.
SCHEDULE 13D
CUSIP No. 58439 C 10 2 Page 2 of 6 Pages
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(1) NAME OF REPORTING PERSON. S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE
PERSON
Nanette Kinkade
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER (a) / /
OF A GROUP* (b) / /
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS*
PF
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(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
- -------------------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------------------------------------------------------------------------
Number of Shares (7) SOLE VOTING
Beneficially Owned POWER 0
by Each Reporting --------------------------------------------------
Person With (8) SHARED VOTING
POWER 3,312,043
(excludes an option to purchase 600,000
shares of Issuer's Common Stock which is
not expected to be exercisable for more
than 60 days from December 3, 1997)
--------------------------------------------------
(9) SOLE DISPOSITIVE
POWER 0
--------------------------------------------------
(10) SHARED DISPOSITIVE
POWER 3,312,043
(excludes an option to purchase 600,000
shares of Issuer's Common Stock which is
not expected to be exercisable for more than
60 days from December 3, 1997)
- -------------------------------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,312,043
(excludes an option to purchase 600,000 shares of Issuer's Common Stock
which is not expected to be exercisable for more than 60 days from
December 3, 1997)
- -------------------------------------------------------------------------------
(12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
29.9%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTENSTATION.
This Amendment No. 3 to Schedule 13D is being filed on behalf of the
undersigned reporting persons to amend the Schedule 13D filed with the
Securities and Exchange Commission (the "Commission") on November 15, 1995,
as amended by Amendment No. 1 thereto filed with the Commission on March 5,
1997 and Amendment No. 2 thereto filed with the Commission on April 1, 1997
(the "Schedule 13D"), relating to the common stock, par value $0.01 per share
of
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Media Arts Group, Inc., a Delaware corporation.
ITEM 1. SECURITY AND ISSUER
Item 1 to Schedule 13D is hereby amended and restated in its
entirety as follows:
This statement relates to shares of Common Stock par value of $0.01
per share, of Media Arts Group, Inc., a Delaware Corporation (the
"Issuer"). The address of Issuer's principal executive offices is
521 Charcot Avenue, San Jose, California 95131.
ITEM 2. IDENTITY AND BACKGROUND
Item 2 to Schedule 13D is hereby amended and restated in its
entirety as follows:
(a) The names of the persons filing are Thomas Kinkade and Nanette
Kinkade (collectively, the "Reporting Persons").
(b) The address if the principal business office of each Reporting
Person is 521 Charcot Ave. San Jose, California 95131.
(c) Thomas Kinkade is the Art Director and a Board Member of the Issuer.
Nanette Kinkade is a homemaker and the spouse of Thomas Kinkade.
(d) Neither Reporting Person has been convicted in any criminal
proceedings during the past five years.
(e) Neither Reporting Person has been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction during the
past five years.
(f) Thomas Kinkade and Nanette Kinkade are United States Citizens.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Item 3 to Schedule 13D is hereby amended, in pertinent part, as
follows:
On December 3, 1997, Thomas Kinkade and the Issuer entered into a
License Agreement (the "License Agreement"). Pursuant to the License
Agreement, Thomas Kinkade granted the Issuer perpetual and exclusive
rights to each image produced by Mr. Kinkade under the License
Agreement as well as a library of over 160 existing Thomas Kinkade
images. Pursuant to the License Agreement, Mr. Kinkade was granted,
subject to stockholder approval, a 15-year option (the "Option") to
purchase up to 600,000 shares of Common Stock at a per share exercise
price of $12.375, which was the closing per share price of the
Issuer's Common Stock on December 3, 1997. The Company expects to
seek stockholder approval of the Option either at its annual meeting
of stockholders or special meeting of stockholders called for that
purpose. The Option is not exercisable until stockholder approval
has been obtained, and the meeting is not expected to occur for more
than sixty (60) days from the date of the Option grant under the
License Agreement. The information set forth in Item 4, Item 5 and
Item 6 and the provisions of the License Agreement (a copy of which
is attached as Exhibit 2 hereto) are incorporated by reference into
this Item 3.
ITEM 4. PURPOSE OF TRANSACTION
Item 4 to Schedule 13D is hereby amended, in pertinent part, as
follows:
On December 3, 1997, Thomas Kinkade and the Issuer entered into the
License Agreement. Pursuant to the License Agreement, Thomas Kinkade
granted the Issuer perpetual and exclusive rights to each image
produced by Mr. Kinkade under the License Agreement as well as a
library of over 160 existing Thomas Kinkade images. Pursuant to the
License Agreement, Mr. Kinkade was granted, subject to stockholder
approval, a 15-year option to purchase up to 600,000 shares of
Common Stock at a per share exercise price of $12.375, which was the
closing per share price of the Issuer's Common Stock on December 3,
1997. The Company expects to seek stockholder approval of the Option
either at its annual meeting of stockholders or special meeting of
stockholders called for that purpose. The Option is not exercisable
until stockholder approval has been obtained, and the meeting is not
expected to occur for more than sixty (60) days from the date of the
Option grant under the License Agreement. Under the License
Agreement, the Issuer has the exclusive right to produce, sell,
distribute and promote reproductions of Mr. Kinkade's artwork in any
form and the right to use the name and likeness of the artist in
promoting the sale of its products and development of any brand name
associated with Mr. Kinkade. The License Agreement requires Mr.
Kinkade to deliver 150 paintings to the Issuer during the period
commencing December 3, 1997 and ending 15 years thereafter, with at
least 10 paintings to be delivered during each of the first five
years. The information set forth in Item 3, Item 5 and Item 6 and
provisions of the License Agreement (a copy of which is attached as
Exhibit 2 hereto) are incorporated by reference into this Item 4.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
Item 5 to Schedule 13D is hereby amended, in pertinent part, as
follows:
(a) The aggregate number of shares of Common Stock beneficially,
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directly or indirectly, jointly owned by Thomas Kinkade and
Nanette Kinkade is 3,312,043 (excluding 600,000 shares of Common
Stock issuable upon exercise of the Option, which may not be
exercisable for more than 60 days following December 3, 1997, the
date of the Option's grant), which represents 29.9% of the shares of
Issuer's Common Stock outstanding.
(b) Neither Thomas Kinkade nor Nanette Kinkade has any shares as to
which he or she has sole power to vote or to direct the vote of such
shares.
Thomas Kinkade and Nanette Kinkade have 3,312,043 (excluding 600,000
shares of Common Stock issuable upon exercise of the Option, which
may not be exercisable for more than 60 days following December 3,
1997, the date of the Option's grant) shares as to which they have
shared voting power to vote or to direct the vote of such shares.
Neither Thomas Kinkade nor Nanette Kinkade has any shares to which
he or she has sole power to dispose or to direct the disposition of
such shares, which represents 29.9% of the shares of Issuer's Common
Stock outstanding.
Thomas Kinkade and Nanette Kinkade have 3,312,043 (excluding 600,000
shares of Common Stock issuable upon exercise of the Option, which
may not be exercisable for more than 60 days following December 3,
1997, the date of the Option's grant) shares as to which they have
shared power to dispose or to direct the disposition of such shares.
(c) Except as set forth in Items 4 and 5, to the best knowledge of each
of the Reporting Persons, within the past 60 days, none of the
Reporting Persons has engaged in any transaction of the Issuer's
Common Stock.
(d) Not applicable
(e) Not applicable
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Item 6 to Schedule 13D is hereby amended, in pertinent part, as
follows:
On December 3, 1997, Thomas Kinkade and the Issuer entered into the
License Agreement. Pursuant to the License Agreement, Thomas Kinkade
granted the Issuer perpetual and exclusive rights to each image
produced by Mr. Kinkade under the License Agreement as well as a
library of over 160 existing Thomas Kinkade images. Pursuant to the
License Agreement, Mr. Kinkade was granted, subject to stockholder
approval, a 15-year option to purchase up to 600,000 shares of
Common Stock at a per share exercise price of $12.375, which was the
closing per share price of the Issuer's Common Stock on December 3,
1997. The Company expects to seek stockholder approval of the Option
either at its annual meeting of stockholders or special meeting of
stockholders called for that purpose. The Option is not exercisable
until stockholder approval has been obtained, and the meeting is not
expected to occur for more than sixty (60) days from the date of the
Option grant under the License Agreement. Under the License
Agreement, the Issuer has the exclusive right to produce, sell,
distribute and promote reproductions of Mr. Kinkade's artwork in any
form and the right to use the name and likeness of the artist in
promoting the sale of its products and development of any brand name
associated with Mr. Kinkade. The License Agreement requires Mr.
Kinkade to deliver 150 paintings to the Issuer during the period
commencing December 3, 1997 and ending 15 years thereafter, with at
least 10 paintings to be delivered during each of the first five
years.
The principal terms of the License Agreement are as follows: Mr.
Kinkade is entitled to 4.5% of the Issuer's net sales through May 8,
2000, and thereafter, 5% of the Issuer's net sales, provided, that
if the Issuer's net sales should exceed $500 million, Mr. Kinkade
would also be entitled to receive 1% of any excess amount. To
encourage timely delivery of paintings, commencing April 1, 1998,
Mr. Kinkade will receive 25% of the Issuer's consolidated operating
margin in excess of 23%, if any, if Mr. Kinkade delivers all
paintings at least 12 weeks ahead of the applicable scheduled
release date during the subject fiscal year. Mr. Kinkade will also
receive 65% of the wholesale gross profit margin of any "Studio
Proof" products through May 8, 2000 and thereafter will receive 35%
of such margin. In addition, Mr. Kinkade is entitled to receive 50%
of the retail value of any "Masters Edition" products. The Issuer
must pay Mr. Kinkade $25,000 for each new painting and pay for his
studio rent and office support. The Issuer receives all of the
licensing income from the licensing of products that incorporate
Thomas Kinkade's images.
The License Agreement permits Mr. Kinkade to reproduce up to two
pieces annually to raise money for the City of Placerville,
California. Mr. Kinkade also retained the right to use his name,
likeness and certain artwork in association with non-profit
organizations. In addition, Mr. Kinkade retained the right to use
his name in connection with for-profit ventures with the Issuer's
prior consent and provided he first offers the Issuer the subject
opportunity.
The License Agreement is terminable by either party after failure by
the other party for 90 days to cure a material breach of the License
Agreement. In addition, Mr. Kinkade may terminate the License
Agreement in the event of the Issuer's insolvency or upon a change
of control of the Issuer. A change in control is defined to occur on
the date when any person or group (as defined in Rule 13(d)(3) under
the Securities Exchange Act of 1934) beneficially owns (as defined
in such Rule), a number of shares of Common Stock in excess of the
number of shares then beneficially owned by Mr. Kinkade. The
computation excludes stockholders as of December 3, 1997 to the
extent of their beneficial holdings of Common Stock as of such date.
The right of termination may not be invoked by Mr. Kinkade if it is
triggered as a result of Mr. Kinkade's transfer of shares. The
License Agreement supersedes the Issuer's previous license and
royalty arrangements with Mr. Kinkade.
Thomas Kinkade and Nanette Kinkade are married and residents of the
State of California, which is a community property state. The
information set forth in Item 3, Item 4 and Item 5 and provisions of
the License Agreement (a copy of which is attached as Exhibit 2
hereto) are incorporated by reference into this Item 6.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1. Joint Filing Agreement dated March 5, 1997 by and between
Thomas Kinkade and Nanette Kinkade, which was filed as Exhibit 1 to
Schedule 13D filed on March 5, 1997 and is incorporated herein by
reference.
Exhibit 2. License Agreement entered into as of December 3, 1997
by and between Media Arts Group, Inc. and Thomas Kinkade.
After reasonable inquiry and to the best of our knowledge and belief,
each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
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December 16, 1997
/s/ Thomas Kinkade
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Thomas Kinkade
/s/ Nanette Kinkade
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Nanette Kinkade
EXHIBIT INDEX
Exhibit
No. Document
1 Joint Filing Agreement dated March 5, 1997
by and between Thomas Kinkade and Nanette
Kinkade, which was filed as Exhibit 1 to
Schedule 13D filed on March 5, 1997 and
is incorporated herein by reference.
2 License Agreement entered into as of
December 3, 1997 by and between Media Arts Group, Inc.
and Thomas Kinkade.
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LICENSE AGREEMENT
This License Agreement, dated effective December 3, 1997 (the
"Effective Date"), is made between Thomas Kinkade ("Artist") and Media Arts
Group, Inc. ("Publisher" or the "Company"), a Delaware corporation.
RECITALS
WHEREAS, the Artist desires the Publisher to be, and the
Publisher desires to be, a company with a business strategy focused upon the
brand name Thomas Kinkade and/or the artwork of Artist;
WHEREAS, the Artist desires the Publisher to be, and the
Publisher desires to be, the exclusive manufacturer, sub-licensor, marketer
and distributor of reproductions of the Artist's original artwork in all
available derivative art-based products, such products to include but not be
limited to wall art, calendars, stationery items, three-dimensional
derivatives and books;
WHEREAS, Artist desires the Publisher to, and Publishers
desires to, develop the brand name of Thomas Kinkade, through the exclusive
manufacturing, sub-licensing, marketing and distributing of art-based and
non-art-based Products, with such non-art-based products to include but not
be limited to furniture, apparel, home decor and household furnishings;
WHEREAS, Artist desires Publisher to, and Publisher desires
to, continue to develop Company-owned and independently-owned galleries which
carry art-based and non-art-based Products relating to Artist, on an
exclusive or non-exclusive basis;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS
As used herein, the terms listed below shall have the following meanings:
"AFFILIATE" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with such Person.
"AGREEMENT" shall mean this License Agreement, as amended and
modified from time to time.
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"ARTIST" shall mean Thomas Kinkade and his heirs, agents,
estate and personal representatives.
"ARTWORK" shall mean any and all original sketches, drawings,
writings (including but not limited to books, advertising copy, slogans and
painting titles), paintings and any other works of art created by Artist
which are (i) completed as of the Effective Date and which are used for any
commercial purpose by Publisher at any time heretofore or hereafter, and (ii)
created after the Effective Date and delivered to Publisher under this
Agreement as the One Hundred Twenty (120) studio works and Thirty (30)
Plein-Air works.
"NEW PRODUCT TERM" shall mean the time period required for
Artist to create and provide to Publisher no less than One Hundred Fifty
(150) pieces of Artwork, One Hundred Twenty (120) of which Artwork shall be
"studio works" and Thirty (30) of which shall be Plein-Air works, such period
not to exceed Fifteen (15) years.
"PERSON" shall mean any person or entity, whether an
individual, trustee, corporation, general partnership, limited partnership,
trust, unincorporated organization, business association, firm, joint
venture, governmental agency or authority.
"PLACERVILLE PROJECT" shall mean the reproduction,
manufacture, marketing, distribution and sale of any products based upon one
or two pieces of Artwork annually, which art products are sold in and around
the City of Placerville, California, and shall also include the sale of
Products purchased from Publisher or its licensees.
"PRODUCTS" shall mean any and all art-based or non-art-based
products or services associated directly or indirectly with the Artwork or
the Artist, whether such Artwork or Products are known or unknown, and
whether or not currently in existence at the beginning of this Agreement,
such Products including, but not limited to, wall art, calendars, stationery
items, ornaments, three-dimensional derivatives (e.g. sculptures based on
Artwork), books, furniture, media properties, themed real estate, apparel,
home decor products and household furnishings.
"PUBLISHER" shall mean Media Arts Group, Inc., a Delaware
corporation, and its subsidiaries, successors and assigns.
2. EXCLUSIVE LICENSE
a. Commencing on the Effective Date of this Agreement,
Artist hereby grants to Publisher the complete, unencumbered, exclusive and
perpetual rights to reproduce, adapt, manufacture, sub-license, publish,
market, distribute, sell and display all Products based on Artwork for all
manners of commercial use, excluding such rights with respect to the Artwork
used in the Placerville Project or for works of art created after the New
Product Term which are not defined as Artwork.
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b. In addition to such rights, the Artist hereby grants
the Publisher:
1. the perpetual right to print, vend, sell,
reproduce, distribute and otherwise use the
Artwork or image thereof in any manner and by
any means, whether or not now known, invented,
used or contemplated, to promote and advertise
the sale of the Products,
2. the perpetual right to use and publish, and to
permit others to use and publish, Artist's name
(including any professional name heretofore or
hereinafter adopted by Artist), likeness,
signature and biographical material or any
reproduction or simulation thereof, in order to
promote and advertise the sale of the Products
and/or develop any brand name associated with
Artist, and
3. the perpetual right, but not the obligation, to
assert, and to defend against any actual or
threatened infringement of the Artwork,
copyrights and/or trademarks.
c. The perpetual aspects of this Agreement shall in no
way be construed to restrict the entering of any Artwork into the public
domain by operation of the Copyright Act or other State or Federal laws,
shall not be rendered invalid due to the operation of such laws, and in
perpetuity, shall be upheld to the maximum extent possible within the
parameters of such laws.
d. Artist shall own the original Artwork produced under
this Agreement and shall, without limitation, have all rights to the original
Artwork, except as otherwise provided in this Agreement.
e. Notwithstanding the grants under this Section 2,
Artist reserves the right to use or license, on a royalty free basis, the
name "Thomas Kinkade" and Artist's likeness in association with non-profit
organizations and activities, including but not limited to the development of
museums and Artist's founding or support of organizations with religious
and/or secular missions. This right shall include the right to display,
promote and exhibit Artwork in connection with these non-profit organizations
or activities and, after the New Product Term, the right to permit such
non-profit organizations to sell products based on works of art created after
the New Product Term which have not otherwise been used commercially by
Publisher. Artist shall not derive any economic benefit as a result of such
non-profit activities (except for tax benefits related to charitable
contributions). If Artist desires to permit use of the name "Thomas Kinkade"
in association with a for-profit venture (which shall include a non-profit
from which Artist derives an economic benefit), Artist shall first present
the opportunity to Publisher. If Publisher does not wish to participate in
the for-profit venture, Artist shall then seek Publisher's approval to permit
Artist the right to participate in such for-profit venture, and such approval
shall not be unreasonably withheld by Publisher. If approval permitting
Artist to participate in the for-profit venture is granted, Publisher shall
in good faith negotiate an arms length license arrangement with Artist to
allow for the use of the Thomas Kinkade name. Reservation of the right to use
the name "Thomas Kinkade" in association with a for-profit venture as
described
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above does not include the right to manufacture, distribute sell, or
otherwise use Artwork or other works of art created after the New Product
Term in any for-profit venture, except for promotional purposes.
3. ARTWORK CREATION AND DELIVERY
a. Artist agrees to create and provide to Publisher no
less than One Hundred Fifty (150) pieces of Artwork during the New Product
Term, One Hundred Twenty (120) of which Artwork shall be "studio works" and
Thirty (30) of which shall be Plein-Air works. Artwork shall be regularly
delivered during each 12 month period following this Agreement based upon a
schedule to be reasonably agreed to between Artist and Publisher, but which
shall not exceed 12 studio works per year and which shall require a minimum
of at least ten (10) studio works per year for at least the first five (5)
years of this Agreement. For purposes of clarification, in addition to the
Artwork delivered under this section 3(a), Publisher shall also have
exclusive rights to any and all original sketches, drawings, writings,
paintings and any other works of art created by Artist prior to the date of
this Agreement, including any "archive" images to which Artist secures access
to, during the New Product Term and which Publisher uses for commercial
purposes during the New Product Term. Size, subject, titles, color,
composition, style, method of execution and themes of Artwork delivered to
Publisher pursuant to this paragraph shall be determined exclusively by the
Artist after consultation with the Publisher; further, while Artist shall
take into consideration the reasonable requests of the Publisher, Artist
shall, in his sole discretion, determine all manners of an artistic nature,
including but not limited to size, subject, titles, color, composition,
style, method of execution and themes of the Artwork.
b. The Artist (i) shall cause his signature to be
affixed to the Artwork by the Artist's actual hand signing of the Artwork,
and (ii) shall, as determined by Artist, cause his signature to be affixed to
Products either by the Artist's actual hand signing of the Products or by the
use of an official signature block, which the Artist shall undertake promptly
to develop, or by a mechanical means such as the DNA signature method
currently utilized by the Publisher. In the event of the incapacity of the
Artist to sign the Products, the Artist's spouse, namely Nanette Kinkade,
shall have the right to sign the Artwork and/or Products on behalf of the
Artist. Artist shall keep supervision and creative control of all Artwork and
Products produced under this License Agreement.
c. Artist shall at all times be the sole owner of all
copyrights associated with the Artwork. Publisher will take all necessary
steps to protect Artist's copyright in and to Artwork created and utilized
under this Agreement. Publisher may develop, and if applicable, register in
any jurisdiction, any trademark (including both words and designs), service
marks, trade dress, etc, based on the name "Thomas Kinkade", any Artwork,
Artwork titles, or Products, and Publisher shall own all right, title and
interest in such trademarks.
4. ARTIST APPROVAL RIGHTS
Artist shall have the reasonable right to review and approve
any master copies of any Product bearing his name, likeness or Artwork, which
is manufactured, marketed, licensed, used and/or sold by Publisher. Artist
shall also have the right to review and approve any advertising,
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advertising copy, slogans, sales information, Product marketing and/or
business plans, ethical and moral codes, corporate vision and mission
statements, and strategic relationships relating to the Products or use of
Artist's name or likeness. Artist will have 30 days to review and approve any
such information sent to Artist, such approval not to be unreasonably
withheld. Artist must disapprove of any item in writing within said 30 day
period or such item will be considered approved. Artist shall also have the
reasonable right to review and approve any market in which any Product shall
be sold, including but not limited to approval of Products manufactured or
licensed for sale into the Christian market and the mass markets, such
approval not to be unreasonably withheld. Artist and the Company shall
mutually agree on the number of reproductions included in any limited edition
Product.
5. ARTIST PAYMENTS
a. PERCENTAGE OF CONSOLIDATED NET REVENUES.
1. From the Effective Date of this Agreement
through May 8, 2000, Artist shall receive 4.5%
of Consolidated Net Revenues, calculated and
payable 20 days from the last day of the month
in which such Consolidated Net Revenue is
earned, as determined in accordance with
Generally Accepted Accounting Principles
(GAAP);
2. Commencing May 9, 2000, Artist shall receive
5.0% of Consolidated Net Revenues, calculated
and payable 20 days from the last day of the
month in which such Consolidated Net Revenue is
earned, as determined in accordance with GAAP;
and
3. Should Consolidated Net Revenues of Publisher
exceed $500 million dollars, Artist shall
receive an additional 1% of all Consolidated
Net Revenues in excess of $500 million
calculated and payable 20 days from the last
day of the month in which such Consolidated Net
Revenue is earned.
4. Consolidated Net Revenues shall be all revenues
of any Product relating, in any degree, to any
use of Artist's name, Artwork, copyrights,
slogans, painting titles, and/or trademarks,
less any returns and allowances. Artist shall
not be entitled to receive a percentage of
Consolidated Net Revenues from products,
business divisions or other enterprises which
do not relate to Artist in any manner. Use of
the name "Thomas Kinkade" or any other names,
titles, or other Artwork related uses on any
products, business divisions or other
enterprises shall be deemed related to such
products, business divisions or other
enterprises.
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b. PAYMENTS BASED ON STUDIO PROOF PRODUCT.
From the Effective Date of this Agreement through May 8, 2000,
Artist shall receive 65% of Wholesale Gross Profit Margin of Studio Proof
("S/P") product, as determined in accordance with GAAP. Commencing May 9,
2000, Artist shall receive 35% of Wholesale Gross Profit Margin of S/P
product, calculated and payable 20 days from the last day of the month in
which such S/P product is delivered, as determined in accordance with GAAP.
c. PAYMENTS BASED ON MASTERS EDITION PRODUCT.
From the Effective Date of this Agreement, Artist shall
receive 50% of Retail Value of Masters Edition ("M/E") product, calculated
and payable 20 days from the last day of the month in which such M/E product
is delivered, as determined in accordance with GAAP.
d. INCENTIVE BASED COMPENSATION.
The Publisher and the Artist recognize the extreme importance
of timely delivery of the Artwork. As a result, the Publisher wishes to
offer incentives to encourage timely delivery of Artwork. Commencing April 1,
1998, provided that:
1. The Company's Consolidated Operating Margin
exceeds a 23% Consolidated Operating Margin (as
determined in accordance with GAAP), AND
2. Artist delivers all Artwork at least twelve
(12) weeks ahead of each of the Company's
scheduled release date during that fiscal year,
then Artist shall receive 25% of any additional Consolidated Operating Margin
in excess of the 23% Consolidated Operating Margin. For example, should the
Company achieve a 27% Consolidated Operating Margin, and should Artist
deliver all Artwork on time, Artist shall receive 1% of the Consolidated
Operating Margin, calculated and payable 20 days from the last day of each
quarter in which such additional Consolidated Operating Margin is earned, as
determined in accordance with GAAP.
e. PAINTING PAYMENTS
Artist shall be paid Twenty Five Thousand Dollars ($25,000.00)
for each piece of Artwork delivered (the "Price") pursuant to section 3(a)
above. The Price shall be reviewed annually by the Publisher, and may be
increased by Publisher based upon such review. As an advance toward the
price, Artist shall be paid the sum of Twelve Thousand Five Hundred Dollars
($12,500.00) per month, payable semi-monthly. Upon delivery of Artwork to
the Publisher pursuant to paragraph 3 hereof, the Artist shall be paid the
difference between the total amount advanced to Artist as of the date and the
Price of such Artwork. If the amount advanced to such date exceeds the Price
for such Artwork, there shall be no payment made to Artist and no amount
owing toward such Artwork.
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f. PER SIGNATURE FEE
Except for S/P products, Master Edition or original Artwork,
Artist shall receive a fee of One Hundred Dollars ($100.00) per signature
for each signature applied by Artist with Artist's own hand, provided such
hand signature is applied at the request of the Publisher. Such amount shall
be reviewed periodically. Signing of any Products, except original Artwork,
shall be at Artist's own discretion. This section shall apply to signing of
Products and will not include signings relating to collector or employee
events.
g. STOCK OPTIONS
Artist shall be granted an option, for a period of fifteen
(15) years, to purchase 600,000 shares of Media Arts Group, Inc. stock at the
closing share price of the stock on the Effective Date. Subject to
applicable corporate law, the Publisher agrees that the shares subject to the
options may be purchased from Publisher with an agreed upon promissory note,
payable to the Publisher. It is understood that should Artist exercise with a
promissory note, Artist will still be obligated to pay par value ($0.01 per
share) of the stock at the time of exercise.
h. LICENSING REVENUE
Artist shall receive no revenue generated from Publisher's
licensing activities, except as part of the payments set forth above.
i. STAFF SUPPORT AND STUDIO FOR ARTIST
Publisher shall provide reasonable support staff for Artist,
including secretarial assistance and other support staff required to make
Artist's time as efficient as possible, as is reasonably determined by
Artist. Publisher shall also pay reasonable rent, utilities and other
miscellaneous expenses related to Artist's studio and the performance of his
duties. Publisher agrees to pay reasonable costs related to preparation of
Artist's tax returns.
j. PROMOTIONAL ACTIVITY
Artist shall be available to appear at and participate in
activities in connection with the promotion of the Products, provided that
Artist's schedule of painting production and family activities allows, as
determined solely by the Artist. Publisher shall reimburse Artist for all
reasonable expenses incurred in connection with such activities, including
the travel and accommodation costs of his family.
6. COVENANTS AND REPRESENTATIONS AND WARRANTIES THE ARTIST
a. Artist represents and warrants to Publisher that he
is the owner of all copyrights in the Artwork and is the sole author of the
Artwork furnished to Publisher, that said copyrights have not in any way been
previously assigned or granted away, that said Artwork is original, is not
copied from any other copyrighted artwork or photographs, does not violate any
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rights, including trademark, copyrights, or other licensed rights of any
Person, and that Artist has no knowledge of any claim to the contrary.
b. Artist has not and will not during the term of this
Agreement, grant the rights described in this Agreement to any other Person.
Artist agrees, during and after the term of this Agreement, to keep
confidential the terms of this Agreement, information related to the
performance hereof, the business practices and marketing strategy of
Publisher or its Affiliates, and any concepts disclosed by Publisher or its
Affiliates for prospective Products. Artist acknowledges that Publisher owns
significant trade secrets in connection with its business practices and
marketing strategies.
c. Artist hereby agrees to indemnify Publisher, its
Affiliates, agents, assigns and licensees from all costs, losses, liabilities
and damages (including reasonable attorneys' fees) arising from or related to
any misrepresentation or breach of any of the foregoing representations and
warranties or any of his agreements or covenants contained in this Agreement.
Artist acknowledges that Artist's failure to provide Artwork as provided
herein, may result in lost sales and damages to the Publisher.
d. These representations and warranties shall survive
the termination of this Agreement.
7. COVENANTS AND REPRESENTATIONS AND WARRANTIES OF THE COMPANY
a. The Publisher represents and warrants to the Artist
that it has full corporate power and authority to enter into and perform this
Agreement and that this Agreement has been fully and validly authorized by
all necessary corporate action.
b. Publisher agrees to use reasonable efforts to
market, distribute and promote the Products. Publisher will take all
necessary steps to protect Artist's copyright in and to Artwork created and
utilized under this Agreement. Publisher agrees to conduct itself in a manner
which reflects positively upon Artist, the Thomas Kinkade brand name and the
family oriented values represented in his Artwork, writings and other message
based Products. Publisher acknowledges that, because of Artist's close
relationship with Publisher, Publisher's association with certain products,
individuals, companies or enterprises could reflect poorly upon Artist and,
if such associations were unreasonable, would constitute a breach of this
Agreement.
c. Publisher agrees that Artist shall not be liable for
any legal actions arising from Publisher's marketing, financial or business
activities. Publisher hereby agrees to indemnify Artist from all costs,
losses, liabilities and damages (including reasonable attorneys' fees)
arising from or related to any misrepresentations or breach of any of the
foregoing representations and warranties or any of its agreements or
covenants contained in this Agreement.
d. These representations and warranties shall survive
the termination of this Agreement.
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8. TERMINATION OF THE AGREEMENT
a. This Agreement is a perpetual license for the
Artwork, and may be terminated only by one of the following events:
1. by Publisher upon the material breach of any
agreement, covenant or representation or
warranty of Artist, if such breach has not been
cured 90 days after written notice to Artist of
such breach.
2. by Artist upon the material breach of any
agreement, covenant or representation or
warranty of Publisher, if such breach has not
been cured 90 days after written notice to
Publisher of such breach:
3. by Artist if any Person or group (as defined in
Rule 13(d)(3) under the Securities Exchange Act
of 1934), but excluding present shareholders to
the extent of their ownership as of the
Effective Date, beneficially owns (as defined
in Rule 13(d)(3) under the Securities Exchange
Act of 1934) a number of shares of common stock
of Media Arts Group, Inc. in excess of the
number of shares of common stock of Media Arts
Group, Inc. beneficially owned by Artist;
notwithstanding the preceding language, Artist
shall not be permitted to terminate this
Agreement if any Person or group owns a number
of shares of common stock of Media Arts Group,
Inc. in excess of the number of shares of
common stock of Media Arts Group, Inc.
beneficially owned by Artist as a result of
Artist's transfer or selling of shares;
4. by Artist upon the bankruptcy or insolvency of the
Publisher.
b. The parties acknowledge that Artist has granted an
exclusive, perpetual license for the Artwork and Products to Publisher in
part due to the Publisher's expressed business strategy being to focus upon
the name brand Thomas Kinkade and/or the artwork of Artist. Should
Publisher, without the prior consent of Artist, engage in any material
business enterprises unrelated to the Artwork, Artist or the Thomas Kinkade
brand name, then Artist shall have 90 days from the date he becomes aware of
such enterprise to object to that particular material business enterprise.
Artist's objection must be reasonable and Artist's consent to any material
business enterprise shall not be unreasonably withheld. Should Artist make a
timely objection to the material business enterprise, Artist may terminate
the perpetual aspects of this Agreement if such breach has not been cured
within 90 days of written notice to Publisher. It is agreed that Publisher's
participation in any material business enterprises unrelated to the Artwork,
Artist or the Thomas Kinkade brand name shall not in and of itself constitute
a material breach permitting immediate termination of this Agreement. In the
event of termination under this section 8(b), the termination date of the
Agreement shall instead become the later of either:
1. 15 years from the Effective Date, or
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2. 5 years from the date of written notice by Artist of
his objection to such material business enterprise.
c. Terminations under this paragraph 8(a) shall be
effective 90 days following written notice to a party of the other party's
election to terminate this Agreement. Upon the termination of this Agreement
under section 8(a), the Publisher shall nor undertake to produce any
additional Products; provided however, that the Publisher may dispose of any
then existing inventory of Products.
d. Upon the termination of this Agreement under section
8(b), the Publisher shall retain all rights until the end of the termination
date as modified; after such termination date, the Publisher shall nor
undertake to produce any additional Products but may dispose of any then
existing inventory of Products.
e. In the event of termination for any reason, all
rights for Product and Artwork shall revert back to the Artist.
9. NO ASSIGNMENT
a. Except as stated hereunder, neither this Agreement
nor any of the rights or obligations hereunder may be assigned by Artist or
Publisher without the prior written consent of the other, except that
Publisher may, without such consent, assign this Agreement and its rights and
obligations hereunder to an Affiliate, provided such affiliate shall continue
to be an Affiliate of Publisher. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, and no other Person shall have any
right, benefit or obligation hereunder, except that the Persons entitled to
indemnification under paragraphs 6 and 7 hereof.
b. This Agreement shall inure to the benefit of
and be enforceable by the Artist and his personal or legal representatives,
executors, administrators. successors, heirs, distributees, devisees and
legatees. If Artist should die while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to his devisee, legatee or other designee, if there is no such designee, to
his estate. Death or disability shall not be construed as a breach of this
Agreement by Artist.
10. NOTICES
For the purpose of this Agreement, notices provided for in
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed to the respective
addresses set forth below, or to such other address as any party may have
provided to the other in writing in accordance herewith, except that notice
of a change of address shall be effective only upon actual receipt:
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Publisher: Artist:
MEDIA ARTS GROUP, INC. THOMAS KINKADE
521 Charcot Ave. 521 Charcot Ave.
San Jose, CA 95131 San Jose, CA 95131
Attn.: Corporate Secretary
11. AMENDMENTS, ADDITIONS, MODIFICATIONS, WAIVERS OR DISCHARGE.
No amendments or additions to this Agreement shall be binding
unless in writing and signed by all parties hereto. No provision of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by all parties
hereto.
12. GOVERNING LAW
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of California and any applicable
federal laws.
13. CAPTIONS AND SECTION NUMBERS
The captions and numbers to the sections and paragraphs of
this Agreement are inserted for convenience only and shall not affect the
construction or interpretation hereof.
14. DUPLICATE ORIGINALS
This Agreement and all amendments shall be fully executed in
duplicate and each duplicate shall constitute an original of the same
instrument.
15. ARBITRATION
Any controversy or claim arising out of or relating to this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three (3) arbitrators in San Jose, California, with Artist and
Publisher each selecting one (1) arbitrator and those two arbitrators
selecting the third arbitrator. Such arbitration shall be conducted in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators award in any court having
jurisdiction. The prevailing party, as determined by the arbitrators, shall
be entitled to recover reasonable attorneys' fees.
16. ANTISOLICITATION
Artist promises and agrees that while this Agreement continues
in effect, he will not influence or attempt to influence customers or
suppliers of the Publisher or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in
competition with any business of Publisher, or any subsidiary or affiliate of
the Publisher.
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17. SOLICITING EMPLOYEES
Artist promises and agrees that while this Agreement continues
in effect, and for five years thereafter, he will not directly or indirectly
solicit any of the employees of the Publisher, its subsidiaries or its
affiliates to work for or invest in, as the case may be, any business,
individual, partnership, firm, corporation, or other entity then in
competition with the business of the Publisher or any subsidiary or affiliate
of the Publisher.
18. COVENANT NOT TO COMPETE
Artist agrees that, unless this Agreement is terminated, he
will not, directly or indirectly, without the prior written consent of the
Publisher, provide consultative service with or without pay, own, manage,
operate, join, control, participate in, or be connected as a stockholder,
partner, or otherwise with any business, individual, partner, firm,
corporation, or other entity which is then in competition with the Publisher
or any subsidiary or affiliate of the Publisher, or directly or indirectly
participate in any business utilizing any works of art by Artist, except as
provided otherwise herein at section 2(e). It is further expressly agreed
that the Publisher will or would suffer irreparable injury if Artist were to
compete with the Publisher or any subsidiary or affiliate of the Publisher in
violation of this Agreement, except as provided otherwise herein, and that
the Publisher would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction. The Artist further consents
and stipulates to the entry of such injunctive relief in such a court
prohibiting the Artist from competing with the Publisher or any subsidiary or
affiliate of the Publisher, in the areas set forth above, in violation of
this Agreement.
19. SEVERABILITY
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof
20. NUMBERS
Unless the context clearly indicates otherwise, words used
herein in the singular include the plural and words in the plural include the
singular.
21. GENDER
The use of the feminine, masculine or neuter pronoun shall not
be restrictive as to gender and shall be interpreted in all cases as the
context may require.
22. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties
hereto. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by any of
the parties which are not expressly set forth in this Agreement. With
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the exception of the employment agreement between Publisher and Artist, any
and all agreements between the Parties, in existence as of the Effective Date
of this Agreement, shall terminate upon the signing of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement on the date first indicated above.
MEDIA ARTS GROUP, INC.
BY: /s/ Bud Peterson BY: /s/ Thomas Kinkade
---------------------------------- -------------------------
BUD PETERSON, C.F.O. THOMAS KINKADE
Artist
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