MEDIA ARTS GROUP INC, S-8, 1998-12-03

MEDIA ARTS GROUP INC
S-8, 1998-12-03
COMMERCIAL PRINTING

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998
REGISTRATION NO. 333-__________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
-------------------------------
FORM S-8

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
MEDIA ARTS GROUP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 77-0354419
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

-------------------------------
521 CHARCOT AVENUE
SAN JOSE, CALIFORNIA 95131
(Address of Principal Executive Offices including Zip Code)
-------------------------------
MEDIA ARTS GROUP, INC. EMPLOYEE QUALIFIED STOCK PURCHASE PLAN

MEDIA ARTS GROUP, INC. 1998 STOCK INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AGREEMENT BETWEEN THOMAS KINKADE AND MEDIA ARTS GROUP,
INC., DATED AS OF DECEMBER 3, 1997

(FULL TITLE OF THE PLAN)
-------------------------------

RAYMOND E. PETERSON

PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDIA ARTS GROUP, INC.
521 CHARCOT AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 324-2020
-------------------------------
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,

INCLUDING AREA CODE, OF AGENT FOR SERVICE)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
TITLE OF SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED REGISTERED OFFERING PRICE AGGREGATE OFFERING REGISTRATION
PER SHARE (1) PRICE (1) FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per 1,474,781 $13.74 $20,263,490 $5,634
share
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) Estimated for the purpose of calculating the registration fee (i) pursuant
to Rule 457(h) on the basis of a weighted average exercise price per share of
outstanding options for an aggregate of 358,500 shares at $11.75 per share and
(ii) pursuant to Rule 457(c) for the remaining 1,116,281 shares registered
hereunder based on the average high and low prices for the Registrant's Common
Stock as reported on the Nasdaq National Stock Market on December 1, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Page 1 of 69 Pages
Exhibit Index Appears on Page 8.

<PAGE>

PART I

INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS

The information required by Part I of the Form S-8 is not being filed with or
included in this Form S-8 (by incorporation by reference or otherwise) in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "Commission").

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE

The following documents filed by Media Arts Group, Inc. (the "Company")
with the Commission are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K and Amendment No. 1 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
March 31, 1998 (including items incorporated by reference from the
Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders);

2. The Company's Quarterly Report on Form 10-Q for the quarterly periods
ended June 30, 1998 and September 30, 1998; and

3. The description of the common stock, par value $.01 per share, of the
Company (the "Common Stock") contained in the Registration Statement
on Form 8-A, (No. 0-24294), filed on June 9, 1994 with the Commission
pursuant to Section 12 of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), including any subsequent amendment or
report filed for the purpose of updating such description.

In addition, all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Registration
Statement and prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be a part of it from the respective dates of
filing such documents.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Registration Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Registration
Statement.

2
<PAGE>

ITEM 4. DESCRIPTION OF SECURITIES

Not applicable.

ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL

Not applicable.

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Registrant's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) pursuant to Section 174 of the DGCL; or (iv) for any
transaction from which the director derived an improper personal benefit.

In addition, the Bylaws of the Registrant (the "Bylaws") provide that (i)
the Registrant shall indemnify any person who was or is a party or is threatened
to be made a party to any action, suit or proceeding by reason of the fact that
he or she is or was a director or officer of the registrant, or is or was
serving in certain capacities of other enterprises (including, for example,
subsidiaries of the Registrant) at the Registrant's request, including those
circumstances in which indemnification would otherwise be discretionary; (ii)
expenses incurred by a director or officer arising from a threatened or pending
action, suit, or proceeding shall be paid by the Registrant in advance of final
disposition of the action upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if he is not entitled to
indemnification; and (iii) the rights conferred in the Bylaws are not exclusive
and the Registrant is authorized to enter into indemnification agreements with
its directors, officers and employees. The Bylaws permit the Registrant to
maintain director and officer liability insurance for its directors and officers
whether or not the Registrant would have the power or the obligation to
indemnify them against such liability under the indemnification provisions of
the Bylaws.

The Registrant has obtained a policy of directors' and officers' liability
insurance for its directors and officers to insure directors and officers
against the costs of defense, settlement or payment of a judgment under certain
circumstances. The Registrant has entered into employment agreements with
certain of its executive officers and indemnity agreements with certain of its
directors that provide indemnity as allowed by Section 145 of the DGCL and the
Bylaws.

The inclusion of the above provisions in the Certificate of Incorporation,
the Bylaws and the employment agreements may have the effect of reducing the
likelihood of stockholder derivative suits against directors and may discourage
or deter stockholders or management from bringing a lawsuit against directors
for breach of their duty of care, even though such an action, if successful,
might otherwise have benefited the Company and its stockholders.

3
<PAGE>

ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED

Not applicable.

ITEM 8. EXHIBITS

See Index to Exhibits on page 8.

ITEM 9. UNDERTAKINGS

(a) The Company hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Securities Act");

(ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information
set forth in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and

(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;

PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the Company pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.

(2) That, for the purpose of determining any liability under the
securities act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.

4
<PAGE>

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
termination of the offering.

(b) The company hereby further undertakes that, for purposes of
determining any liability under the securities act, each filing of the company's
annual report pursuant to section 13(a) or section 15(d) of the exchange act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the exchange act) that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.

(c) Insofar as indemnification for liabilities arising under the
securities act may be permitted to directors, officers and controlling persons
of the company pursuant to the foregoing provisions, or otherwise, the company
has been advised that in the opinion of the commission such indemnification is
against public policy as expressed in the securities act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the company of expenses incurred or paid
by a director, officer or controlling person of the company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the securities act and will be governed by the final adjudication
of such issue.

5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the Company certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-8 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Jose, State of California, on December 1, 1998.

MEDIA ARTS GROUP, INC.

By:/s/ Raymond A. Peterson
-----------------------
Raymond A. Peterson, President and Chief
Executive Officer (Principal Executive
Officer)

By:/s/ Greg H.L. Nash
------------------
Greg H.L. Nash, Senior Vice President, and
Chief Financial Officer (Principal Financial
and Accounting Officer)

6
<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints James F. Landrum, Jr. and Raymond A. Peterson,
and each of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in order to effectuate
the same as fully, to all intents and purposes, as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated.

Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Raymond A. Peterson President & Chief Executive Officer December 1, 1998
- ----------------------- (Principal Executive Officer)
Raymond A. Peterson

/s/ Greg H.L. Nash Senior Vice President and Chief December 1, 1998
- ------------------ Financial Officer (Principal
Greg H.L. Nash Financial and Accounting Officer)

/s/ Kenneth E. Raasch Chairman December 1, 1998
- ----------------------
Kenneth E. Raasch

/s/ Michael L. Kiley Director December 1, 1998
- --------------------
Michael L. Kiley

/s/ Thomas Kinkade Director December 1, 1998
- ------------------
Thomas Kinkade

/s/ Norman T. Mahoney Director December 1, 1998
- ---------------------
Norman T. Mahoney

/s/ Norman A. Nason Director December 1, 1998
- -------------------
Norman A. Nason

/s/ W. Michael West Director December 1, 1998
- -------------------
W. Michael West

</TABLE>

7
<PAGE>

INDEX TO EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT
- -------
<S> <C>
5.1 Opinion of Latham & Watkins

10.1 Media Arts Group, Inc. Employee Qualified Stock
Purchase Plan

10.2 Form of Media Arts Group, Inc. Stock Purchase
Agreement Under Employee Qualified Stock Purchase
Plan

10.3 Media Arts Group, Inc., 1998 Stock Incentive Plan

10.4 Form of Media Arts Group, Inc., Incentive Stock
Option Agreement Under the 1998 Stock Incentive Plan

10.5 Form of Media Arts Group, Inc., Nonqualified Stock
Option Agreement Under the 1998 Stock Incentive Plan

10.6 Nonqualified Stock Option Agreement between Thomas
Kinkade and Media Arts Group, Inc., dated as of
December 3, 1997

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Latham & Watkins (included in Exhibit
5.1)

24.1 Power of Attorney (included in the signature page to
this Registration Statement)

</TABLE>

<PAGE>

EXHIBIT 5.1

December 2, 1998

FILE NO. 021336-0007

Media Arts Group, Inc.
521 Charcot Avenue
San Jose, California 95131

Re: Media Arts Group, Inc. Common Stock $0.01 Par Value
---------------------------------------------------

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-8
(the "Registration Statement") which Media Arts Group, Inc. (the "Company")
intends to file with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of an aggregate
of 1,474,781 shares of Common Stock, par value of $0.01 per share (the "Shares")
to be sold by the Company under the Media Arts Group, Inc. Employee Qualified
Stock Purchase Plan, the Media Arts Group, Inc. 1998 Stock Incentive Plan and
the Nonqualified Stock Option Agreement between Thomas Kinkade and Media Arts
Group, Inc., dated as of December 3, 1997 (collectively, the "Plans").

In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings undertaken and to be taken in
connection with the authorization, issuance and sale of the Shares. In addition,
we have made such legal and factual examinations and inquiries, including an
examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.

In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.

We are opining herein as to the effect on the subject transaction only of
the General Corporation Law of the State of Delaware, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of any other
laws.

Subject to the foregoing, we are of the opinion that the Shares have been
duly authorized, and upon issuance of the Shares under the terms of the Plans
and delivery and payment therefor of legal consideration in excess of the
aggregate par value of the Shares issued, such Shares will be validly issued,
fully paid and nonassessable.

This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent. We consent to your filing this opinion as an exhibit to the
Registration Statement.

Very truly yours,

/s/ Latham & Watkins

LATHAM & WATKINS

<PAGE>

EXHIBIT 10.1

MEDIA ARTS GROUP, INC.
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN

Media Arts Group, Inc., a Delaware corporation (the "Company"), hereby
adopts this Employee Qualified Stock Purchase Plan (the "Q.S.P. Plan").

1. PURPOSE. The purpose of the Q.S.P. Plan is to assist employees of the
Company in acquiring stock ownership interests in the Company, pursuant to a
plan which qualifies as an "employee stock purchase plan" under Code Section
423. The Q.S.P. Plan is intended to help employees provide for their future
security, and to encourage then to remain in the employ of the Company.

2. DEFINITIONS. Whenever one of the following terms is used in the Q.S.P.
Plan with the first letter or letters capitalized, it shall have the
following meaning, unless the context clearly indicates to the contrary (such
definitions to be equally applicable to the singular and plural forms of the
terms defined):

(a) "Administrator" shall mean the Company, acting through its
chief executive officer or his or her delegate.

(b) "Authorization Card" shall mean the form prescribed by the
Administrator, which shall include a form of stock purchase agreement
pursuant to which an Eligible Employee shall purchase shares of Stock under
the Q.S.P. Plan and a form of payroll deduction authorization pursuant to
which such Eligible Employee shall authorize the Company to deduct such
Eligible Employee's contributions under the Q.S.P. Plan.

(c) "Base Pay" shall mean gross pay received by an Employee on
each Payday as cash compensation for services to the Company, excluding
overtime payments, sales commissions, incentive compensation, bonuses, and
other special-payments, except to the extent that the inclusion of any such
item is specifically designated by the Administrator.

(d) "Board of Directors" shall mean the Board of Directors of the
Company.

(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(f) "Company" shall mean Media Arts Group, Inc., a Delaware
corporation.

(g) "Eligible Employee" shall mean any Employee who satisfies the
requirements of Section 4.

(h) "Employee" shall mean any person who renders services to the
Company in the status of an employee within the meaning of Code Section
3121(d). "Employee" shall not include any director of the Company who does
not render services to the Company in the status of an employee within the
meaning of Code Section 3121(d).

<PAGE>

(i) "Enrollment Period" shall mean the two week period preceding
each Offering Period determined in accordance with Subsection 6(b).

(j) "Offering Period" shall mean each six month period as provided
in Section 5. Options shall be granted on the first day of an Offering
Period and exercised on the last day of Offering Period, as provided in
Section 8.

(k) "Option" shall mean an option granted to an Eligible Employee
to purchase shares of Stock under the Q.S.P. Plan.

(l) "Option Price" shall mean the per share exercise price of
shares of Stock to be purchased pursuant to an Option, as provided in Section
9.

(m) "Parent Corporation" shall mean any corporation, other than
the Company, in an unbroken chain of corporations ending with the Company if,
at the time of the granting of the Option, each of the corporations other
than the Company own stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

(n) "Payday" of an Employee shall mean the regular and recurring
established day for payment of cash compensation to Employees in the same
classification or position.

(o) "Q.S.P. Plan" shall mean the Media Arts Group, Inc. Employee
Qualified Stock Purchase Plan.

(p) "Subsidiary Corporation" shall mean any corporation, other
than the Company, in an unbroken chain of corporations beginning with the
Company if, at the time of the granting of the Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

(q) "Stock" shall mean the shares of the Company's Common Stock,
$.01 par value.

3. STOCK SUBJECT TO THE Q.S.P. PLAN.

(a) Subject to Section 14, the shares of Stock which may be sold
pursuant to Options granted under the Q.S.P. Plan shall not exceed 125,000
shares.

(b) The Company shall reserve for issuance under the Q.S.P. Plan
125,000 shares of either the Company's authorized but unissued Stock or Stock
held in the Company's treasury.

(c) Any adjustment to the number of shares of Stock reserved for
issuance under the Q.S.P. Plan shall be made only in accordance with Sections
14 (relating to recapitalization) and 17 (relating to amendments of the
Q.S.P. Plan).

<PAGE>

4. ELIGIBILITY. Each Employee of the Company who on the first day of any
Enrollment Period:

(a) has been employed by the Company for not less than one (1) year;

(b) is customarily employed by the Company for more than twenty
(20) hours per week; and

shall become an Eligible Employee on such day.

5. OFFERING PERIODS. Options shall be granted under the Q.S.P. Plan in
successive six month Offering Periods, commencing on July 1 and January 1 of
each year, until the earlier of the maximum number of shares subject to sale
pursuant to Options have been sold, or the Q.S.P. Plan is terminated. The
First Offering Period shall commence on July 1, 1998.

6. PARTICIPATION IN THE Q.S.P. PLAN.

(a) Each Eligible Employee may elect to participate in the
Q.S.P. Plan for an Offering Period by submitting to the Administrator a
completed and executed Authorization Card in accordance with subsection (b).
An Eligible Employee who elects to participate in the Q.S.P. Plan for an
Offering Period shall elect on such Authorization Card a whole percentage of
Base Pay (such percentage not to exceed 10% of Base Pay) to be withheld by
payroll deduction, which upon the exercise of the Option granted to such
Eligible Employee with respect to such Offering Period, shall be contributed
to the Company as payment for shares of Stock purchased pursuant to the
Option.

(b) The Authorization Card must be submitted to the
Administrator during the two-week period commencing one month prior to the
first day of the Offering Period and ending two weeks prior to the first day
of the Offering Period in order to participate in the Q.S.P. Plan during such
Offering Period.

(c) Except as otherwise provided in subsection (b) and Section
11, an Employee's Authorization Card shall operate with respect to each
Offering Period commencing after delivery of the Authorization Card to the
Administrator for which such Employee is an Eligible Employee.

7. PAYROLL DEDUCTIONS.

(a) Cash compensation payable to an Eligible Employee who elects
to participate in the Q.S.P. Plan for an Offering Period shall be reduced
each Payday through payroll deductions by an amount equal to the whole
percentage of Base Pay payable on such Payday elected by the Eligible
Employee under Section 6.

<PAGE>

(b) The amount of each Eligible Employee's payroll deduction
shall be held by the Company and credited to an account established for such
Eligible Employee. The Company shall not pay any interest on the funds
credited to an Eligible Employee's account under the Q.S.P. Plan.

(c) An Eligible Employee participating in the Q.S.P. Plan may
change his or her payroll deduction percentage for any Offering Period by
submitting a new Authorization Card to the Administrator during the
Enrollment Period for such Offering Period. Such change in payroll deduction
percentage shall become effective on the first day of the Offering Period.

(d) During a leave of absence from the Company which is approved
by the Company and which meets the requirements of Treasury Regulation
Section 1.421-7(h)(2), an Eligible Employee may continue to participate in
the Q.S.P. Plan by making cash payments to the Company on each Payday equal
to the dollar amount of the payroll deduction made for such Eligible Employee
for the Payday next preceding the first day of such Eligible Employee's leave
of absence.

8. GRANT OF OPTIONS; EXERCISE OF OPTIONS.

(a) Each Eligible Employee participating in the Q.S.P. Plan
shall be granted an option on the first day of the Offering Period for each
Offering Period for which such Eligible Employee elects to participate. The
term of each Option shall end on the last day of the Offering Period for
which the Option is granted, and such Option shall expire immediately
thereafter. The number of shares of Stock subject to each Option shall be
the quotient of the total payroll deductions made for the Eligible Employee
during the Offering Period, divided by the Option Price, excluding fractional
shares of Stock; provided, however, that the number of shares of Stock
subject to each Option shall not exceed 250 shares.

(b) Except as otherwise provided in subsection (c), each
Eligible Employee participating in the Q.S.P. Plan shall be deemed to have
exercised his or her Option on the last day of the Offering Period, to the
extent that the balance of payroll deductions credited to such Eligible
Employee's account under the Q.S.P. Plan is sufficient to purchase, at the
Option Price, whole shares of Stock. No fractional shares of Stock shall be
purchased upon the exercise of the Option and any funds credited to such
Eligible Employee's account, remaining after the purchase of whole shares of
Stock upon exercise of an option, shall remain credited to such Eligible
Employee's account and carried forward for purchase of shares of Stock
pursuant to the Option, if any, granted to such Eligible Employee for the
next following Offering Period.

(c) An Eligible Employee's Option shall not be exercised on the
last day of the Offering Period if such Eligible Employee instructs the
Administrator in writing at least two weeks prior to the last day of the
Offering Period that such Option is not to be exercised. As soon as
practicable after receipt of such instruction, the Administrator shall pay to
such Eligible Employee in cash in one lump sum the balance of payroll
deductions credited to such Eligible Employee's account under the Q.S.P.
Plan, without the payment of any interest thereon.

<PAGE>

(d) If the total number of shares of Stock for which options are
to be exercised on any date exceeds the number of shares remaining unsold
under the Q.S.P. Plan (after deduction of all shares for which Options have
theretofore been exercised), the Administrator shall make a pro rata
allocation of the available remaining shares in as nearly a uniform manner as
shall be practicable and any balance of payroll deductions credited to the
accounts of Eligible Employees which have not been applied to the purchase of
shares of Stock shall be paid to such Eligible Employees in cash in one lump
sum as soon as practicable, without payment of any interest thereon.

(e) Notwithstanding any provision in this Section to the
contrary, an Eligible Employee shall not be granted an Option:

(i) if, immediately after the Option is granted, such
Employee would own stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company, any Parent
Corporation or any Subsidiary Corporation. For purposes of determining
stock ownership under this paragraph, the rules of Code Section 425(d)
shall apply and stock which an Eligible Employee may purchase under
outstanding options held by such Eligible Employee shall be treated as
stock owned by such Eligible Employee; or

(ii) which permits such Eligible Employee's rights to
purchase stock under all employee stock purchase plans of the Company,
any Parent Corporation or any Subsidiary Corporation, which qualify
under Code Section 423, to accrue at a rate which exceeds $25,000 of the
fair market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at
any time. For purpose of the limitations imposed by this paragraph, the
right to purchase stock under an option accrues when the option (or any
portion thereof) first becomes exercisable during the calendar year, the
right to purchase stock under an option accrues at the rate provided in
the option (but in no case may such rate exceed $25,000 of fair market
value of such stock determined at the time such option is granted for
any one calendar year), and a right to purchase stock which has accrued
under the option may not be carried over to any other option.

9. OPTION PRICE.

(a) The per share exercise price of each option (the "Option
Price") shall be an amount equal to the lesser of:

(i) 85% of the fair market value of a share of Stock on
the date the Option is granted (the first day of the Offering Period); or

(ii) 85% of the fair market value of a share of the Stock
on the date such option is exercised (the last day of the Offering
Period).

<PAGE>

(iii) For purposes of subsection (a), the fair market
value of a share of Stock as of a given date shall be:

(b) the closing price of a share of Stock on the principal
exchange on which shares of Stock are then trading, if any, on such date, or,
if shares were not traded on such date, then on the next preceding trading
day during which a sale occurred;

(i) if such Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, the last sales price
(if the Stock is then listed as a National Market issue under the NASD
National Market System) or the mean between the closing representative
bid and asked prices (in all other cases) for the Stock of such date as
reported by NASDAQ or a successor quotation system;

(ii) if such Stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the Stock on such date as
determined in good faith by the Committee; or

(iii) if the Stock is not publicly traded, the fair market
value established by the Administrator acting in good faith.

10. ISSUANCE OF CERTIFICATES.

(a) The Administrator shall, as soon as practicable after the
exercise of any Option, deliver to the Eligible Employee exercising the
Option a certificate evidencing the whole shares of Stock purchased by such
Eligible Employee under the Q.S.P. Plan from funds credited to such Eligible
Employee's account.

(b) In the event the Administrator is required to obtain
authority to issue certificates for any shares of Stock purchased by an
Eligible Employee under the Q.S.P. Plan from any commissioner or agency, the
Administrator will seek to obtain such authority. If the Administrator in
unable, after reasonable efforts, to obtain such authority, the Administrator
and the Company shall be relieved from all liability and shall pay to each
such Eligible Employee the balance of payroll deductions credited to each
such Eligible Employee's account under the Q.S.P. Plan in cash in one lump
sum as soon as practicable, without the payment of any interest thereon.

11. CESSATION OF PARTICIPATION.

(a) Except as otherwise provided in Subsection 7(d), an
Eligible Employee shall cease to participate in the Q.S.P. Plan in the event
that:

(i) the Administrator receives written instructions from
the Eligible Employee to terminate such Eligible Employee's
participation in the Q.S.P. Plan;

(ii) the Eligible Employee resigns or is discharged from
employment by the Company, or has a leave of absence from the Company; or

<PAGE>

(iii) the Employee dies.

(b) Upon cessation of participation by an Eligible Employee,
such Eligible Employee's payroll deductions shall cease. If such cessation
of participation occurs during the last two weeks of an Offering Period, such
Eligible Employee's Option shall be exercised on the last day of the Offering
Period in accordance with Section 8(b). Upon cessation of participation at
any other time, any balance of payroll deductions credited to such Eligible
Employee's account under the Q.S.P. Plan shall be paid to the Employee in
cash in one lump sum as soon as practicable after cessation of participation,
without payment of any interest thereon.

(c) An Eligible Employee shall not be eligible to participate
in the Q.S.P. Plan during the Offering Period which immediately follows the
Offering Period during which such Employee voluntarily terminated
participation in the Q.S.P. Plan under paragraph (a)(i).

12. TRANSFER OF OPTION. Options granted pursuant to the Q.S.P. Plan shall
not be transferable by an Eligible Employee, other than by will or the laws
of descent and distribution, and shall be exercisable during the Eligible
Employee's lifetime only by such Eligible Employee.

13. BENEFICIARY. Each Eligible Employee shall designate on his or her
Authorization Card a beneficiary or beneficiaries and may, without such
beneficiaries consent, change such designation. Any designation shall be
effective only after it is received by the Administrator and shall be
controlling over any disposition by will or otherwise. Upon the death of an
Eligible Employee, the balance of payroll deductions credited to such
Eligible Employee's account shall be paid or distributed to the designated
beneficiary or beneficiaries, or in the absence of such designation, to the
executor or administrator of the Eligible Employee's estate, and in either
event the Administrator and the Company shall not be under any further
liability to anyone.

14. RECAPITALIZATION. If there shall be any change in the Stock subject to
the Q.S.P. Plan or the Stock subject to any Option, through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
split, stock dividend (in excess of 2% of the fair market value of the Stock)
or other change in the corporate structure of the Company, appropriate
adjustments shall be made by the Administrator to the aggregate number of
shares subject to the Q.S.P. Plan and the number of shares and the price per
share subject to outstanding Options in order to preserve, but not to
increase, the benefits of the Eligible Employees hereunder; provided,
however, that subject to any required action by the shareholders, if the
Company shall not be the surviving corporation in any such merger,
consolidation or reorganization, every Option outstanding shall terminate,
unless the surviving corporation shall (subject to applicable provisions of
the Code) issue a new option therefor or assume (with appropriate changes)
the existing Option. If the Option shall terminate by reason of such merger,
consolidation, or reorganization, then any provision herein to the contrary
notwithstanding, any option held by an Eligible Employee may be exercised, in
whole or in part, by such Eligible Employee at any time prior to or
concurrently with consummation of such merger, consolidation or
reorganization.

15. RIGHTS AS A SHAREHOLDER. An Eligible Employee shall have no rights as
a shareholder with respect to any shares of Stock covered by Options until
the date of the issuance of a

<PAGE>

certificate for such shares of Stock. No adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior
to the date such certificate is issued, except as otherwise expressly
provided herein.

16. COSTS; INDEMNIFICATIONS.

(a) All costs and expenses incurred in administering the
Q.S.P. Plan shall be paid by the Company.

(b) In addition to such other rights of indemnification as the
Administrator may have as a director or officer of the Company, the Company
shall indemnify and hold the Administrator harmless against any and all
liability, loss, costs, damages, attorneys' fees and other expenses the
Administrator may sustain or incur in connection with administration of the
Q.S.P. Plan, except for liability, loss, costs, damages, attorneys' fees and
other expenses caused by the negligence of the Administrator or his agent;
provided, that within 60 days after the institution of any action, suit or
proceeding the Administrator shall in writing offer the Company the
opportunity to handle, prosecute or defend the same, at the Company's own
expense. The Administrator shall have the right, but not the obligation, to
adjust, settle, or compromise any claim, obligation, debt, demand, suit or
judgment against the Administrator, and if such settlement is approved by
independent legal counsel selected by the Company then the Company shall
reimburse the Administrator for all sums of money the Administrator may pay
or become liable to pay against which the Administrator is indemnified
hereunder.

17. AMENDMENT OR TERMINATION OF THE Q.S.P. PLAN. The Board of Directors
may at any time, with respect to any shares of Stock not then subject to
Options suspend or terminate the Q.S.P. Plan, and may amend the Q.S.P. Plan
from time to time as the Board of Directors may deem advisable; provided,
however, that except as provided in Section 14 hereof, the Board of Directors
shall not amend the Q.S.P. Plan in the following respects without the
affirmative vote of approval by a majority of the outstanding shares of Stock
of the Company:

(a) To increase the maximum number of shares of Stock subject
to the Q.S.P. Plan;

(b) To change the designation or class of
employees eligible to receive Options under the Q.S.P. Plan; or

(c) In any manner which would cause the Q.S.P. Plan to no
longer be an employee stock purchase plan under Code Section 423.

18. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options shall be deposited in the
account of the general corporate funds of the Company.

19. APPROVAL OF SHAREHOLDERS. The Q.S.P. Plan will be submitted for the
approval of the Company's shareholders within twelve months after the date of
the Board's initial adoption of

<PAGE>

the Plan. Options may be granted prior to such shareholder approval,
provided that such options shall not be exercisable prior to the time when
the Q.S.P. Plan is approved by the shareholders, and provided further that if
such approval has not been obtained at the end of said twelve-month period,
all options previously granted under the Plan shall thereupon be canceled and
become null and void.

20. NO RIGHTS AS AN EMPLOYEE. Nothing in the Q.S.P. Plan shall be
construed to give any person the right to remain in the employ of the Company
or to affect the right of the Company to terminate the employment of any
person at any time with or without cause.

21. TITLES. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the Q.S.P. Plan.

22. CONFORMITY TO SECURITIES LAWS. The Plan is intended to conform to the
extent necessary with all provisions of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and Options
shall be granted and may be exercised, only in such a manner as to conform to
such laws, rules and regulations. To the extent permitted by applicable law,
the Q.S.P. Plan and Options granted hereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.

* * * * *
I hereby certify that the foregoing Q.S.P. Plan was adopted by the
Board of Directors of Media Arts Group, Inc. on the 28th day of May, 1998.

/s/ James F. Landrum, Jr.
---------------------------------
Name: James F. Landrum, Jr.
Title: Senior Vice President and General Counsel

I hereby certify that the foregoing Q.S.P. Plan was duly approved
by affirmative vote of a majority of the outstanding shares of Stock of the
Company at the Annual Meeting of Shareholders of Media Arts Group, Inc. on
September 17, 1998.

Executed on this 1st day of December, 1998.

/s/ James F. Landrum, Jr.
----------------------------
Name: James F. Landrum, Jr.
Title: Senior Vice President and General Counsel

<PAGE>

EXHIBIT 10.2
MEDIA ARTS GROUP, INC.
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
AUTHORIZATION AND STOCK PURCHASE AGREEMENT

Employee's
Name ---------------------------------------------------------------
(print or type) First Middle Last

Date of Hire Social Security No.
----------------- -------------------------

Address
---------------------------------------------------------------
Number Street

---------------------------------------------------------------
City State Zip

I have been advised of my eligibility to participate in the Media Arts
Group, Inc. Employee Qualified Stock Purchase Plan (the "Stock Plan"). I have
read and agree to be bound by the terms of the Stock Plan. Capitalized terms
used but not defined herein shall have the meanings ascribed to them in the
Stock Plan.

I hereby elect to participate in the Stock Plan for the Offering Period
beginning on July 1, ____/January 1, ____ (circle appropriate one and fill in
the year) and hereby authorize Media Arts Group, Inc. (the "Company") to
withhold ____% (whole percentage, not to exceed 10%) of my Base Pay on each
Payday. I understand and agree that such amounts shall be credited to my account
maintained under the Stock Plan and, upon the automatic exercise of the Option
granted to me with respect to such Offering Period, will be contributed from my
account to the Company in payment for whole shares of the Company's stock in
accordance with the terms of the Stock Plan.

I hereby agree that this Authorization shall supersede any Authorization
previously delivered to the Company and that this Authorization shall continue
to operate with respect to each Offering Period commencing after the Offering
Period described above in which I am eligible to participate.

BENEFICIARY DESIGNATION

Subject to the provisions of the Stock Plan, I designate the following
beneficiary(ies). This designation is to supersede any prior designation which I
may have made under the Stock Plan.

<PAGE>

Select P for primary beneficiary or C for contingent beneficiary and
complete the beneficiary's name and relationship. (A contingent beneficiary
receives all death benefits in the event the primary beneficiary is not alive at
the time of your death.) Unless otherwise specified herein or specified in the
Stock Plan, if more than one beneficiary is designated, payments will be made in
equal shares to those persons designated as beneficiaries who survive you.

Name Relationship
---- ------------

P C
- ----- ----- ------------------------- -----------------------------

- ------------------------------- ------------- -----------------------------
Employee's Signature Date Witness

2
<PAGE>

TERMINATION OF PARTICIPATION UNDER THE
MEDIA ARTS GROUP, INC.
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN

Employee's Name
---------------------------------------------------------------
(print or type) First Middle Last

I hereby terminate my participation in the Media Arts Group, Inc. Employee
Qualified Stock Purchase Plan ("Stock Plan") as of this date or as soon as
possible according to the provisions of the Stock Plan and the next available
pay period. Unless my termination of participation is during the last two weeks
of the Offering Period, all amounts credited to my account under the Stock Plan
shall be returned to me, without interest. If my termination of participation
occurs during the last two weeks of an Offering Period, the option granted to me
with respect to such Offering Period shall be exercised as of the last day of
such Offering Period.

I understand that I will not be eligible to participate in the Stock Plan
for the Offering Period first commencing after the effective date of my
termination under the Stock Plan.

- -------- ---------------------------------
Date Employee's Signature

<PAGE>

EXHIBIT 10.3

Media Arts Group, Inc.

1998
Stock Incentive Plan

1
<PAGE>

TABLE OF CONTENTS
<TABLE>

<S> <C> <C>
ARTICLE 1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Committee Composition. . . . . . . . . . . . . . . . . . . . . 4
2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . 5
3.1 Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Unused Shares Under This Plan. . . . . . . . . . . . . . . . . 5
3.3 Unused Shares Under Prior Plans. . . . . . . . . . . . . . . . 5
3.4 Dividend Equivalents . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 General Rules. . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Outside Directors. . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Incentive Stock Options. . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5 OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . 7
5.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4 Exercisability and Term. . . . . . . . . . . . . . . . . . . . 7
5.5 Expiration . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Effect of Change in Control. . . . . . . . . . . . . . . . . . 9
5.7 Modification or Assumption of Options. . . . . . . . . . . . . 9
ARTICLE 6 PAYMENT FOR OPTION SHARES. . . . . . . . . . . . . . . . . . . 10
6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Exercise/Sale. . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Exercise/Pledge. . . . . . . . . . . . . . . . . . . . . . . . 10
6.5 Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . 10
6.6 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 7 STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . . . . . 11
7.1 SAR Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Exercisability and Term. . . . . . . . . . . . . . . . . . . . 11
7.5 Effect of Change in Control. . . . . . . . . . . . . . . . . . 11
7.6 Exercise of SARs . . . . . . . . . . . . . . . . . . . . . . . 11
7.7 Modification or Assumption of SARs . . . . . . . . . . . . . . 12
ARTICLE 8 STOCK UNITS. . . . . . . . . . . . . . . . . . . . . . . . . . 12

2
<PAGE>

8.1 Time, Amount and Form of Awards. . . . . . . . . . . . . . . . 12
8.2 Vesting Conditions . . . . . . . . . . . . . . . . . . . . . . 12
8.3 Form and Time of Settlement of Stock Units . . . . . . . . . . 12
8.4 Death of Recipient . . . . . . . . . . . . . . . . . . . . . . 12
8.5 Creditors' Rights. . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 9 VOTING AND DIVIDEND RIGHTS . . . . . . . . . . . . . . . . . . 13
9.1 Stock Units. . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 10 PROTECTION AGAINST DILUTION. . . . . . . . . . . . . . . . . . 13
10.1 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.2 Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 11 AWARDS UNDER OTHER PLANS . . . . . . . . . . . . . . . . . . . 14
ARTICLE 12 PAYMENT OF DIRECTOR'S FEES IN SECURITIES . . . . . . . . . . . 14
12.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 14
12.2 Elections to Receive NSOs or Stock Units . . . . . . . . . . . 14
12.3 Number and Terms of NSOs or Stock Units. . . . . . . . . . . . 14
ARTICLE 13 LIMITATION ON RIGHTS . . . . . . . . . . . . . . . . . . . . . 14
13.1 Retention Rights . . . . . . . . . . . . . . . . . . . . . . . 14
13.2 Stockholders' Rights . . . . . . . . . . . . . . . . . . . . . 15
13.3 Regulatory Requirements. . . . . . . . . . . . . . . . . . . . 15
ARTICLE 14 LIMITATION ON PAYMENTS . . . . . . . . . . . . . . . . . . . . 15
14.1 Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.2 Reduction of Payments. . . . . . . . . . . . . . . . . . . . . 15
14.3 Overpayments and Underpayments . . . . . . . . . . . . . . . . 16
14.4 Related Corporations . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 15 WITHHOLDING TAXES. . . . . . . . . . . . . . . . . . . . . . . 16
15.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15.2 Sharing Withholding. . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 16 ASSIGNMENT OR TRANSFER OF AWARDS . . . . . . . . . . . . . . . 16
16.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 17 FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . 17
17.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . 17
17.2 Amendment or Termination . . . . . . . . . . . . . . . . . . . 17
ARTICLE 18 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 19 EXECUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 20

</TABLE>

3
<PAGE>

MEDIA ARTS GROUP, INC.

1998 STOCK INCENTIVE PLAN

(Adopted Effective June 22, 1998)

ARTICLE 1. INTRODUCTION.

The Plan was adopted by the Board on June 22, 1998, subject to approval
by the Company's stockholders at the annual meeting on September 17, 1998.

The purpose of the Plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging Key Employees
to focus on critical long-range objectives, (b) encouraging the attraction and
retention of Key Employees with exceptional qualifications and (c) linking Key
Employees directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for awards in the form of
Stock Units, Options (which may constitute incentive stock options or
nonstatutory stock options) or stock appreciation rights.

The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of directors of the Company,
who shall be appointed by the Board. In addition, the composition of the
Committee shall satisfy:

(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under Plans intended
to qualify for exemption under Rule 16b-3 (or its successor) under the
Exchange Act; and

(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under Section 162(m) (4) (C) of the Code.

The Board may also appoint one or more separate Committees of the Board,
each composed of one or more directors of the Company who need not satisfy the
foregoing requirements, who may administer the Plan with respect to Key
Employees who are not considered officers or directors of the Company under
Section 16 of the Exchange Act, may grant Awards under the Plan to such Key
Employees and may determine all terms of such Awards.

4
<PAGE>

2.2 COMMITTEE RESPONSIBILITIES. The Committee shall:

(a) Select the Key Employees who are to receive Awards under
the Plan;

(b) Determine the type, number, vesting requirements and
other features and Conditions of such Awards;

(d) Make all other decisions relating to the operation of the
Plan.

The Committee may adopt such rules or guidelines, as it deems
appropriate to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan
may be authorized by unissued shares or treasury shares. The aggregate number
of Stock Units, Options and SARs awarded under the Plan shall not exceed 500,000
plus the number of Common Shares that remained available for issuance under the
Prior Plans at the time of the adoption of this Plan. (No additional awards
shall be made under the Prior Plans after the adoption of this Plan, unless the
Company's stockholders fail to approve this Plan as provided in Section 17.1.)
The limitation of this Section 3.1 shall be subject to adjustment pursuant to
Article 10.

3.2 UNUSED SHARES UNDER THIS PLAN. If Stock Units, Options or SARs
are forfeited or if Options or SARs terminate for any other reason before being
exercised, then the corresponding Common Shares shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
Common Shares (if any) actually issued in settlement of such Stock Units shall
reduce the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan. If SARs are exercised, then only the
number of Common Shares (if any) actually issued in settlement of such SARs
shall reduce the number available for Awards under the Plan. Common Shares
withheld or surrendered under Section 6.2 or 15.2 shall become available for
Awards under the Plan.

3.3 UNUSED SHARES UNDER PRIOR PLANS. If stock units, options or
SARs granted under the Prior Plans are forfeited after the adoption of this Plan
or if options or SARs granted under the Prior Plans terminate for any other
reason before being exercised, but after the adoption of this Plan, then the
corresponding Common Shares shall become available for Awards under this Plan.

3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents distributed
under the Plan shall not be applied against the number of Stock Units, Options
or SARs available for Awards, whether or not such dividend equivalents are
converted into Stock Units.

5
<PAGE>

ARTICLE 4. ELIGIBILITY.

4.1 GENERAL RULES. Only Key Employees (including, without
limitation, independent contractors) shall be eligible for designation as
Participants by the Committee.

4.2 OUTSIDE DIRECTORS. Any other provision of the plan
notwithstanding, the participation of Outside Directors in the Plan shall be
subject to the following restrictions:

(a) Outside Directors (acting in their capacity as directors)
shall receive no Awards except as described in this Section 4.2 and
Article 12.

(b) On the last business day in September of each year, each
Outside Director shall receive an NSO covering 5,000 Common Shares
(subject to adjustment under Article 10). Such NSO shall include an SAR
exercisable only during the 30-day period following Change in Control
with respect to the Company. Such NSO shall be cancelled to the extent
that such SAR is exercised, and such SAR shall be cancelled to the
extent that such NSO is exercised. Such SAR shall be settled only in
cash and shall be subject to the same terms and conditions (including
the Exercise Price and the expiration date) as the related NSO.

(c) All NSOs granted to an Outside Director under this
Section 4.2 shall be immediately exercisable on the date of grant.

(d) The Exercise price under all NSOs granted to an Outside
Director under this Section 4.2 shall be equal to 85% or more of the
Fair Market Value of a Common Share on the date of grant, payable in one
of the forms described in Sections 6.1, 6.2, 6.3 and 6.4.

(e) All NSOs granted to an Outside Director under this
Section 4.2 shall terminate on the earlier of:

(i) The tenth (10th) anniversary of the date of grant;
or

(ii) The first (1st) anniversary of the termination of
such Outside Director's service for any reason.

(f) Each Outside Director who first becomes a member of the
Board after the adoption of this plan may receive, at the discretion of
the Board, a one-time grant of 1,000 Stock Units (subject to adjustment
under Article 10). Such Stock Units may be granted on the date when
such Outside Director first joins the Board.

(g) All Stock Units granted to an Outside Director under this
Section 4.2 shall be settled by issuing an equal number of Common Shares
to such Outside Director. The issuance shall occur on the earliest of:

6
<PAGE>

(i) The first anniversary of the date of grant;

(ii) The date of Change in Control with respect to the
Company; or

(iii) The date of the termination of such Outside
Director's service for any reason.

4.3 INCENTIVE STOCK OPTIONS. Only Key Employees who are
common-law employees of the Company, a Parent or a Subsidiary shall be eligible
for the grant of ISOs. In addition, a Key Employee who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in Section 422 (c) (6) of the
Code are satisfied.

ARTICLE 5. OPTIONS.

5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. Options may be granted in consideration of a cash
payment or in consideration of a reduction in the Optionee's other compensation.
A Stock Option Agreement may provide that new Options will be granted
automatically to the Optionee when he or she exercises the prior Options.

5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Options granted to any
Optionee in a single calendar year shall in no event cover more than 200,000
Common Shares, subject to adjustment in accordance with Article 10.

5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 85% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.

5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. Options may be awarded in combination with SARs, and such
an Award may provide that the Options will not be exercisable unless the related
SARs are forfeited. NSOs may also be awarded in combination with Stock Units
and

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<PAGE>

such an Award may provide that the NSOs will not be exercisable unless the
related Stock Units are forfeited. Optionees may be required to comply with any
timing or other restrictions with respect to the settlement or exercise of an
Option, including a window-period limitation, as may be imposed in the
discretion of the Committee.

5.5 EXPIRATION

5.5.1 ISO grants.

An ISO may not be exercised to any extent after the first to occur of the
following events:

(a) The expiration of ten (10) years from the date the ISO
was granted; or

(b) If the employee owned (within the meaning of Section
424(d) of the Code), at the time the ISO was granted,
more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any
Subsidiary or Parent thereof, the expiration of five (5)
years from the date the ISO was granted; or

(c) The time of the employee's termination of employment
unless such termination of employment results from his
death, his retirement, his disability (within the meaning
of Section 22(e)(3) of the Code), his voluntary
termination or his being discharged not for good cause;
or

(d) The expiration of three (3) months from the date of the
employee's termination of employment by reason of his
retirement, his voluntary termination or his being
discharged not for good cause, unless the employee dies
within said three-month period; or

(e) The expiration of one (1) year from the date of the
employee's termination of employment by reason of his
disability (within the meaning of Section 22(e)(3) of the
Code); or

(f) The expiration of one (1) year from the date of the
employee's death.

5.5.2 NSO grants to consultants.

An NSO may not be exercised to any extent after the first to occur of the
following events:

(a) The expiration of ten (10) years from the date the NSO
was granted; or

(b) The time of the consultant's termination of employment
unless such termination of employment results from his
death, his retirement, his disability (within the meaning
of Section 22(e)(3) of the Code), his voluntary
termination or his being discharged not for good cause;
or

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<PAGE>

(c) The expiration of one (1) year from the date of the
consultant's termination of employment by reason of his
retirement, his voluntary termination or his being
discharged not for good cause, unless the consultant dies
within said one-year period; or

(d) The expiration of one (1) year from the date of the
consultant's termination of employment by reason of his
disability (within the meaning of Section 22(e)(3) of the
Code); or

(e) The expiration of one (1) year from the date of the
consultant's death.

5.5.3 NSO grants to employees

An NSO may not be exercised to any extent after the first to occur of the
following events:

(a) The expiration of ten (10) years from the date the NSO
was granted; or

(b) The time of the employee's termination of employment
unless such termination of employment results from his
death, his retirement, his disability (within the meaning
of Section 22(e)(3) of the Code), his voluntary
termination or his being discharged not for good cause;
or

(c) The expiration of six (6) months from the date of the
employee's termination of employment by reason of his
retirement, his voluntary termination or his being
discharged not for good cause, unless the employee dies
within said six-month period; or

(d) The expiration of one (1) year from the date of the
employee's termination of employment by reason of his
disability (within the meaning of Section 22(e)(3) of the
Code); or

(e) The expiration of one (1) year from the date of the
employee's death.

5.6 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at
the time of granting an Option or thereafter, that such Option shall become
fully exercisable as to all Common Shares subject to such Option in the event
that a Change in Control occurs with respect to the Company.

5.7 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
options or may accept the cancellation of outstanding options in return for the
grant of new options for the same or a different number of shares and at the
same or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such option.

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<PAGE>

ARTICLE 6. PAYMENT FOR OPTION SHARES.

6.1 GENERAL RULE. The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:

(a) In the case of an ISO granted under the plan, payment
shall be made only pursuant to the express provisions of the applicable
Stock Option Agreement. The Stock Option Agreement may specify that
payment may be made in any form(s) described in this Article 6.

(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.

6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for more than six
months. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan.

6.3 EXERCISE/SALE. To the extent that this Section 6.3 is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker approved by the
Company to sell Common Shares in payment of all or part of the Exercise Price
and any withholding taxes.

6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Common Shares to a securities
broker or lender approved by the Company, as security for a loan, and to deliver
all or part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.

6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, payment may be made with a full-recourse promissory note; provided
that the par value of the Common Shares shall be paid in cash.

6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6
is applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.

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<PAGE>

ARTICLE 7. STOCK APPRECIATION RIGHTS.

7.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by a SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.

7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number
of Common Shares to which the SAR pertains and shall provide for the adjustment
of such number in accordance with Article 10. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than 200,000 Common
Shares, subject to adjustment in accordance with Article 10.

7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.

7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the
date when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may
also be awarded in combination with Options or Stock Units, and such an Award
may provide that the SARs will not be exercisable unless the related Options or
Stock Units are forfeited. An SAR may be included in an ISO only at the time of
grant but may be included in an NSO at the time of grant or thereafter. An SAR
granted under the Plan may provide that it will be exercisable only in the event
of a Change in Control.

7.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at
the time of granting an SAR or thereafter, that such SAR shall become fully
exercisable as to all Common Shares subject to such SAR in the event that a
Change in Control occurs with respect to the Company.

7.6 EXERCISE OF SARS. The exercise of an SAR shall be subject to
the restrictions imposed by Rule 16b-3 (or its successor) under the Exchange
Act, if applicable. If, on the date when an SAR expires, the Exercise Price
under such SAR is less than the Fair Market Value on such date but any portion
of such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of an SAR, the Optionee (or any person having the right
to exercise the SAR after his or her death) shall receive from the Company (a)
Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the
Committee shall determine. The amount of cash and/or the Fair Market Value of
Common Shares received upon exercise of SARs shall, in

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<PAGE>

the aggregate, be equal to the amount by which the Fair Market Value (on the
date of surrender) of the Common Shares subject to the SARs exceeds the Exercise
Price.

7.7 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs in return for the grant of new SARs
for the same or a different number of shares and at the same or a different
exercisable price. The foregoing notwithstanding, no modification of an SAR
shall, without the consent of the Optionee, alter or impair his or her rights or
obligations under such SAR.

ARTICLE 8. STOCK UNITS.

8.1 TIME, AMOUNT AND FORM OF AWARDS. Awards under the Plan may be
granted in the form of Stock Units. Stock Units may also be awarded in
combination with NSOs or SARs, and such an Award may provide that the Stock
Units will be forfeited in the event that the related NSOs or SARs are
exercised.

8.2 VESTING CONDITIONS. Each Award of Stock Units shall become
vested, in full or in installments, upon satisfaction of the conditions
specified in the Stock Award Agreement. A Stock Award Agreement may provide for
accelerated vesting in the event of the Participant's death, disability or
retirement or other events. The Committee may determine, at the time of making
an Award or thereafter, that such Award shall become fully vested in the event
that a Change in Control occurs with respect to the Company.

8.3 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of
vested Stock Units may be made in the form of (a) cash, (b) Common Stock or
(c) any combination of both, as determined by the Committee. The actual number
of Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Common Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may
be increased by an interest factor or by dividend equivalents. Until an Award
of Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to the Article 10.

8.4 DEATH OF RECIPIENT. Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award that
becomes payable after the recipient's death shall be distributed to the
recipient's estate.

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<PAGE>

8.5 CREDITOR'S RIGHTS. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Award Agreement.

ARTICLE 9. VOTING AND DIVIDEND RIGHTS.

9.1 STOCK UNITS. The holders of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded under the
Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of Common Shares, or in a combination of both. Prior to distribution, any
dividend equivalents, which are not paid, shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.

ARTICLE 10. PROTECTION AGAINST DILUTION.

10.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclarification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of:

(a) The number of Options, SARs and Stock Units available for
future Awards under Article 3;

(f) The limitations set forth in Sections 5.2 and 7.2;

(g) The number of NSOs and Stock Units to be granted to Outside
Directors under Section 4.2;

(h) The number of Stock Units included in any prior Award which
has not yet been settled;

(i) The number of Common Shares covered by each outstanding
Option and SAR; or

(j) The Exercise Price under each outstanding Option and SAR.

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<PAGE>

Except as provided in this Article 10, a Participant shall have no
rights by reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.

10.2 REORGANIZATIONS. In the event that the Company is a party
to a merger or other reorganization, outstanding Options, SARs, and Stock Units
shall be subject to the agreement of merger or reorganization. Such agreement
may provide, without limitation, for the assumption of outstanding Awards by the
surviving corporation or its parent, for their continuation by the Company (if
the Company is a surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash.

ARTICLE 11. AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.

ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

12.1 EFFECTIVE DATE. No provision of this Article 12 shall be
effective unless and until the Board has determined to implement such provision.

12.2 ELECTIONS TO RECEIVE NSOS OR STOCK UNITS. An Outside Director
may elect to receive his or her meeting fees from the Company in the form of
cash, NSOs, Stock Units, or a combination thereof, as determined by the Board.
Such NSOs and Stock Units shall be issued under the Plan. An election under
this Article 12 shall be filed with the Company on the prescribed form.

12.3 NUMBER AND TERMS OF NSOS OR STOCK UNITS. The number of NSOs
or Stock Units to be granted to Outside Directors in lieu of meeting fees that
would otherwise be paid in cash shall be calculated in a manner determined by
the Board. The terms of such NSOs or Stock Units shall also be determined by
the Board.

ARTICLE 13. LIMITATION ON RIGHTS.

13.1 RETENTION RIGHTS. Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain an
employee, consultant or director of the Company, a Parent or a Subsidiary. The
Company and its Subsidiaries reserve the right to terminate the service of any
employee, consultant or director at any time, with or without cause, subject to
applicable laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).

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<PAGE>

13.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date when
such certificate is issued, except as expressly provided in Articles 8, 9 and
10.

13.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.

ARTICLE 14. LIMITATION ON PAYMENTS.

14.1 BASIC RULE. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in Section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount; provided that the Committee, at the time of
making an Award under this Plan or at any time thereafter, may specify in
writing that such Award shall not be so reduced and shall not be subject to this
Article 14. For purposes of this Article 14, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of Section 280G of the Code.

14.2 REDUCTION OF PAYMENTS. If the Auditors determine that any
Payment would be nondeductible by the Company because of Section 280G of the
Code, then the Company shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the participant within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 14, present
value shall be determined in accordance with Section 280G (d) (4) of the Code.
All determinations made by the Auditors under this Article 14 shall be binding
upon the Company and the Participant and shall be made within 60 days of the
date when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts

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<PAGE>

as are then due to him or her under the Plan and shall promptly pay or transfer
to or for the benefit of the Participant in the future such amounts as become
due to him or her under the Plan.

14.3 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in
the application of Section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment") or
that additional Payments which will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
Section 7872(f) (2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under Section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in Section 7872(f) (2) of the Code.

14.4 RELATED CORPORATIONS. For purposes of this Article 14, the
term "Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with Section 280G(d) (5) of the Code.

ARTICLE 15. WITHHOLDING TAXES.

15.1 GENERAL. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not
be required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.

15.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued
at their Fair Market Value on the date when taxes otherwise would be withheld in
cash. Any payment of taxes by assigning Common Shares to the Company may be
subject to restrictions, including any restrictions required by rules of the
Securities and Exchange Commission.

ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.

16.1 GENERAL. Except as provided in Article 15, an Award granted
under the Plan shall not be anticipated, assigned, attached, garnished,
optioned, transferred or made subject to

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<PAGE>

any creditor's process, whether voluntarily, involuntarily or by operation of
law. An Option or SAR may be exercised during the lifetime of the Optionee only
by him or her or by his or her guardian or legal representative. Any act in
violation of this Article 16 shall be void. However, this Article 16 shall not
preclude a Participant from designating a beneficiary who will receive any
outstanding Awards in the event of the Participant's death, nor shall it
preclude a transfer of Awards by will or by the laws of descent and
distribution.

ARTICLE 17. FUTURE OF THE PLAN.

17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on June 22, 1998, subject to approval by the Company's stockholders at
the annual meeting on September 17, 1998. In the event that the Company's
stockholders fail to approve the Plan at such meeting, the Plan and all Awards
granted under the Plan shall be rescinded, but the Prior Plans shall remain in
effect and available for making grants. This Plan shall remain in effect until
it is terminated under Section 17.2, except that no ISOs shall be granted after
June 21, 2008.

17.2 AMENDMENT OR TERMINATION. The Board may, at any time and for
any reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be granted
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Award previously granted under the
Plan.

ARTICLE 18. DEFINITIONS.

18.1 "AWARD" means any award of an Option, an SAR or a Stock Unit
under the Plan.

18.2 "BOARD" means the Company's Board of Directors, as constituted
from time to time.

18.3 "CHANGE IN CONTROL" means:

(a) That the holders of the voting securities of the Company
have approved a merger of consolidation of the Company with any other
entity unless:

(i) The proposed merger or consolidation would result
in the voting securities of the Company
outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or
by being converted into voting securities of the
surviving entity) at least 50% of the total voting
power represented by the voting securities of the
Company or such surviving entity outstanding
immediately after such merger or consolidation; or

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<PAGE>

(ii) Prior to the effective date of such merge or
consolidation, the Board (as constituted
immediately prior to such effective date) adopts a
resolution that for purposes of the Plan no Change
in Control shall be occurred;

(b) That a plan of complete liquidation of the Company has
been adopted or the holders of voting securities of the Company have
proved an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of
the Company's assets;

(c) That any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act)(excluding current 15%+
stockholders), directly or indirectly, of 15% or more of the combined
voting power of the Company's then outstanding shares, unless, within 30
business days after notice to the Company of such event, the Board (as
constituted immediately prior to such event) adopts a resolution that
for purposes of the Plan no Change in Control shall have occurred (which
resolution may be revoked by the Board at any time, in which case a
Change in Control shall be deemed to have occurred as of the date such
revocation becomes effective);

(d) That, during any period of two consecutive years, members
who at the beginning of such period constituted the Board have ceased
for any reason to constitute a majority thereof, unless the election, or
nomination for election by the Company's stockholders, of each director
has been approved by the vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period;
or

(e) The occurrence of any other change in control of a nature
that would be required to be reported in accordance with Item 1(a) of
Form 8-K pursuant to Sections 13 or 15(d) of the Exchange Act or in the
Company's proxy statement in accordance with Schedule 14A of the
Regulation 14A promulgated under the Exchange Act (or in any successor
forms or regulations to the same effect), unless, within 30 business
days after notice to the Company of such events, the Board (as
constituted immediately prior to such event) adopts a resolution that
for purposes of the Plan no Change in Control shall have occurred (which
resolution may be revoked at any time, in which case a Change in Control
shall be deemed to have occurred as of the date such revocation becomes
effective).

18.4 "CODE" means the Internal Revenue Code of 1986, as amended.

18.5 "COMMITTEE" means a Committee of the Board, as described in
Article 2.

18.6 "COMMON SHARE" means one share of the common stock of the
Company.

18.7 "COMPANY" means Media Arts Group, Inc., a Delaware corporation.

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<PAGE>

18.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

18.9 "EXERCISE PRICE," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.

18.10 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee as follows:

(a) If the Common Shares were traded over-the-counter on the
date in question but were not classified as a national market issue,
then the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted by the Nasdaq system
for such date;

(b) If the Common Shares were traded over-the-counter on the
date in question and were classified as a national market issue, then
the Fair Market Value shall be equal to the last transaction price
quoted by the NASDAQ system for such date;

(c) If the Common Shares were traded on a stock exchange on
the date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions report
for such date; and

(d) If none of the forgoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good faith
on such basis as it deems appropriate.

18.11 "ISO" means an incentive stock option described in Section 422
(b) of the Code.

18.12 "KEY EMPLOYEE" means (a) a common-law employee of the Company, a
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or advisor
who provides services to the company, a Parent or a Subsidiary as an independent
contractor. Service as an Outside Director or as an independent contractor
shall be considered employment for all purposes of the Plan, except as provided
in Sections 4.2 and 4.3.

18.13 "NSO" means a stock option not described in Sections 422 and 423
of the Code.

18.14 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.

18.15 "OPTIONEE" means an individual or estate that holds an Option or
SAR.

19
<PAGE>

18.16 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not a
common-law-employee of the Company, a Parent or a Subsidiary.

18.17 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
such date.

18.18 "PARTICIPANT" means an individual or estate that holds an Award.

18.19 "PLAN" means this Media Arts Group, Inc., 1998 Stock Incentive
Plan, as amended from time to time.

18.20 "PRIOR PLANS" means the Media Arts Group, Inc. Employee Stock
Option Plan and Stock Option Plan for Directors.

18.21 "SAR" means a stock appreciation right granted under the Plan.

18.22 "SAR AGREEMENT" means the agreement between the Company and an
Optionee, which contains the terms, conditions and restrictions pertaining to
his or her SAR.

18.23 "STOCK AWARD AGREEMENT" means the agreement between the Company
and the recipient of a Stock Unit, which contains the terms, conditions and
restrictions pertaining to such Stock Unit.

18.24 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee, which contains the terms, conditions and restrictions
pertaining to his or her Option.

18.25 "STOCK UNIT" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.

18.26 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.

ARTICLE 19. EXECUTION.

To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to affix the corporate name and seal hereto.

20
<PAGE>

MEDIA ARTS GROUP, INC.

BY: /s/ James F. Landrum, Jr.
-----------------------------------
James F. Landrum, Jr.
Senior Vice President and
General Counsel

<PAGE>

EXHIBIT 10.4
MEDIA ARTS GROUP, INC.
1998 STOCK INCENTIVE PLAN (THE "PLAN")
INCENTIVE STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Incentive Stock Option Agreement. You have been
granted an option to purchase Common Stock of the Company, subject to the terms
and conditions of the Plan and this Incentive Stock Option Agreement, as
follows:

I. NOTICE OF STOCK OPTION GRANT

<S> <C> <C>
1. NAME: ("Grantee")

2. ADDRESS:

3. DATE OF GRANT: ("Grant Date")

4. TOTAL NUMBER OF COMMON SHARES
GRANTED: ("Option")

5. EXERCISE PRICE PER COMMON ("Exercise Price")
SHARE:

6. TOTAL EXERCISE PRICE: ("Total Exercise Price")

7. TERM OF STOCK Ten (10) years from the Grant Date ("Option Term")
OPTION/EXPIRATION DATE:

8. VESTING SCHEDULE: Date % of Stock Options as to which Option is Vested
per year

</TABLE>

Media Arts Group, Inc. Grantee:

By:
------------------------------ ----------------------
Raymond A. Peterson (insert name)
President & Chief Executive Officer

<PAGE>

II. AGREEMENT

1. GRANT OF OPTION The Committee of the Plan hereby grants to the Grantee
named in the Notice of Grant attached as Part I of this
Incentive Stock Option Agreement (the "Grantee") an
option (the "Option") to purchase the number of Common
Shares, as set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of
Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by
reference. In the event of a conflict between the
terms and conditions of the Plan and the terms and
conditions of this Incentive Stock Option Agreement,
the terms and conditions of the Plan shall prevail.

This Option is intended to qualify as an Incentive
Stock Option under Section 422 of the Code. However,
to the extent that this Option exceeds the $100,000
rule of Code Section 422(d), it shall be treated as a
Nonstatutory Stock Option ("NSO").

2. VESTING The Option is exercisable during its term in accordance
with the Vesting Schedule set out in the Notice of
Grant and the applicable provisions of the Plan and
this Incentive Stock Option Agreement.

3. EXERCISE OF OPTION (a) The Grantee may exercise the
Option with respect to all or any part of the
number of Option Shares then exercisable hereunder
by providing to the Secretary of the Company
written notice of intent to exercise. The notice
of exercise (in substantially the form attached
hereto as EXHIBIT A or in such other form as shall
then be acceptable to the Company (the "Exercise
Form")) shall specify the number of Common Shares
in respect of which the Option is being exercised
(the "Exercised Shares"), and such other
representations and agreements as may be required
by the Company pursuant to the provisions of the
Plan. The Exercise Form shall be accompanied by
payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to
be exercised upon receipt by the Company of such
fully executed Exercise Form accompanied by such
aggregate Exercise Price.

(b) Payment by the Grantee of the
aggregate Exercise Price shall be made pursuant to
Article 6 of the Plan.

2
<PAGE>

and exercise complies with all applicable local,
state and federal laws. Assuming such compliance,
for income tax purposes the Exercised Shares shall
be considered transferred to the Grantee on the
date the Option is exercised with respect to such
Exercised Shares.

4. TERMINATION

(a) The Option and all rights
hereunder with respect thereto, to the extent such
rights shall not have been exercised, shall
terminate and become null and void after the
expiration of the Option Term.

(b) Upon the occurrence of the
Grantee's ceasing for any reason to be employed by
the Company (such occurrence being a "termination"
of the Grantee's employment"), the Option, to the
extent not previously exercised, shall terminate
and become null and void immediately upon such
termination of the Grantee's employment, except in
a case where the termination of the Grantee's
employment is by reason of retirement, disability,
death, voluntary termination or his or her being
discharged not for good cause. Upon a termination
of the Grantee's employment by reason of
retirement, disability, death, voluntary
termination or his or her being discharged not for
good cause, the Option may be exercised during the
following periods, but only to the extent that the
Option was outstanding and exercisable on any such
date of retirement, disability, death, voluntary
termination or his or her being discharged not for
good cause: (i) the one-year period following the
date of such termination of the Grantee's
employment in the case of a disability (within the
meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), (ii) the
one-year period following Grantee's death, and
(iii) the three-month period following the date of
such termination in the case of the Grantee's
termination of employment by reason of his or her
retirement, his or her voluntary termination or
his or her being discharged not for good cause,
unless the Grantee dies within said three-month
period. In no event, however, shall any such
period extend beyond the Option Term.

(c) In the event of the death of
the Grantee, the Option may be exercised by the
Grantee's legal representative(s), but only to the
extent that the Option would otherwise have been
exercisable by the Grantee.

(d) A transfer of the Grantee's
employment between the Company and any subsidiary
of

3
<PAGE>

the Company, or between any subsidiaries of the
Company, shall not be deemed to be a termination
of the Grantee's employment.

(e) Notwithstanding any other
provisions set forth herein or in the Plan, if, as
determined by the Committee within its sole
discretion, the Grantee shall (i) commit any act
of malfeasance or wrongdoing affecting the Company
or any subsidiary of the Company, (ii) breach any
covenant not to compete, or employment contract,
with the Company or any subsidiary of the Company,
or (iii) engage in conduct that would warrant the
Grantee's discharge for cause (excluding general
dissatisfaction with the performance of the
Grantee's duties, but including any act of
disloyalty or any conduct clearly tending to bring
discredit upon or any subsidiary of the Company),
then immediately upon the Committee's
determination, any unexercised portion of the
Option as of the date of such determination shall
terminate and be void.

5. RESTRICTIONS ON SALE
By signing this Incentive Stock Option Agreement, the
Grantee agrees not to sell any Exercised Shares at a
time when any applicable law, regulation or Company
policy prohibits a sale. This restriction will apply
as long as the Grantee is an employee of the Company
(or a subsidiary).

6. TRANSFER OF STOCK OPTIONS
During the Grantee's lifetime, the Option hereunder
shall be exercisable only by the Grantee or any
guardian or legal representative of the Grantee, and
the Option shall not be transferable except, in cases
of the death of the Grantee, by will or the laws of
descent and distribution, nor shall the Option be
subject to attachment, execution or other similar
process. The terms of the Plan and this Incentive
Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and
assigns of the Grantee.

7. EMPLOYMENT The granting of the Option or its exercise shall not be
construed as granting to the Grantee any right with
respect to continuance of employment of the Company.
Except as may otherwise be limited by a written
agreement between the Company and the Grantee, the
right of the Company to terminate at will the Grantee's
employment at any time with or without cause (whether
by dismissal, discharge, retirement or otherwise) is
specifically reserved by the Company, as the employer
or on behalf of the employer (whichever the case may
be), and acknowledged by the Grantee.

4
<PAGE>

8. NOTICE
All notices and other communications under this
Incentive Stock Option Agreement shall be in writing.
Unless and until the Grantee is notified in writing to
the contrary, all notices, communications and documents
directed to the Company and related to the Incentive
Stock Option Agreement, if not delivered by hand, shall
be mailed, addressed as follows:

MEDIA ARTS GROUP, INC.
521 Charcot Avenue
San Jose, California 95131
Attn: James F. Landrum, Jr.
Snr. Vice President & General
Counsel

Unless and until the Company is notified in writing to
the contrary, all notices, communications and documents
intended for the Grantee and related to this Incentive
Stock Option Agreement, if not delivered by hand, shall
be mailed to Grantee's last known address as shown on
the Company's payroll records. Notices and
communications shall be mailed by first class mail,
postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage
prepaid. All mailings and deliveries related to this
Incentive Stock Option Agreement shall be deemed
received only when actually received.

9. APPLICABLE LAW
This Incentive Stock Option Agreement shall be
construed and interpreted pursuant to the internal
substantive laws, but not the choice of law rules, of
the State of California, and the parties hereto submit
and consent to the jurisdiction of the courts of the
State of California, including Federal Courts located
therein, should Federal jurisdiction requirements exist
in any action brought to enforce (or otherwise relating
to) this Incentive Stock Option Agreement.
Notwithstanding the proceeding sentence, nothing
contained in this Incentive Stock Option Agreement
shall preclude the Company from bringing an action in
any appropriate forum to enforce the terms and
provisions of this Incentive Stock Option Agreement.
Grantee hereby consents to the exclusive jurisdiction
of any State or Federal court empowered to enforce this
Incentive Stock Option Agreement in the State of
California, Santa Clara County, and waives any
objection thereto on the basis of personal jurisdiction
or venue.

10. ENTIRE AGREEMENT
This Incentive Stock Option Agreement and the Plan
constitute the entire understanding between the Grantee
and the Company with respect to the subject matter
hereof and supersede in their entirety all prior
undertakings and agreements of the Company and the
Grantee with respect to the subject matter hereof.
This Incentive

5
<PAGE>

Stock Option Agreement may be amended only in writing
signed by the Grantee and an authorized officer of the
Company.

By the Grantee's signature and the signature of the Company's representative on
the Notice of Grant, the Grantee and the Company agree that this Option is
granted under and governed by the terms and conditions of the Plan and this
Incentive Stock Option Agreement. The Grantee has reviewed the Plan and this
Incentive Stock Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Incentive Stock Option
Agreement and fully understands all provisions of the Plan and Incentive Stock
Option Agreement. The Grantee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Plan Committee upon any
questions relating to the Plan and the Incentive Stock Option Agreement.

<PAGE>

EXHIBIT 10.5
MEDIA ARTS GROUP, INC.
1998 STOCK INCENTIVE PLAN (THE "PLAN")
NONSTATUTORY STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Nonstatutory Stock Option Agreement. You have
been granted an option to purchase Common Stock of the Company, subject to the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement,
as follows:

I. NOTICE OF STOCK OPTION GRANT
<TABLE>
<S> <C> <C>
1. NAME: ("Grantee")

2. ADDRESS:

3. DATE OF GRANT: ("Grant Date")

4. TOTAL NUMBER OF COMMON
SHARES GRANTED: ("Option")

5. EXERCISE PRICE PER ("Exercise Price")
COMMON SHARE:

6. TOTAL EXERCISE PRICE: ("Total Exercise
Price")

7. TERM OF STOCK ("Option Term")
OPTION/EXPIRATION DATE:

8. VESTING SCHEDULE:
</TABLE>

Media Arts Group, Inc. Grantee:

By:
------------------------------------- ------------------------------
Raymond A. Peterson (insert name)
President & Chief Executive Officer

<PAGE>

II. AGREEMENT

1. GRANT OF OPTION The Committee of the Plan hereby grants to the Grantee
named in the Notice of Grant attached as Part I of this
Nonstatutory Stock Option Agreement (the "Grantee") an
option (the "Option") to purchase the number of Common
Shares, as set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of Grant
(the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by
reference. In the event of a conflict between the terms
and conditions of the Plan and the terms and conditions of
this Nonstatutory Stock Option Agreement, the terms and
conditions of the Plan shall prevail.

2. VESTING The Option is exercisable during its term in accordance
with the Vesting Schedule set out in the Notice of Grant
and the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.

3. EXERCISE OF OPTION
(a) The Grantee may exercise the Option with
respect to all or any part of the number of Option
Shares then exercisable hereunder by providing to the
Secretary of the Company written notice of intent to
exercise. The notice of exercise (in substantially the
form attached hereto as EXHIBIT A or in such other form
as shall then be acceptable to the Company (the
"Exercise Form")) shall specify the number of Common
Shares in respect of which the Option is being
exercised (the "Exercised Shares"), and such other
representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The
Exercise Form shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares.
This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise
Notice accompanied by such aggregate Exercise Price.

(b) Payment by the Grantee of the aggregate
Exercise Price shall be made pursuant to Article 6 of
the Plan.

(c) No Common Shares shall be issued
pursuant to the exercise of this Option unless such
issuance and exercise complies with all applicable
local, state and federal laws. Assuming such
compliance, for income tax purposes the Exercised
Shares shall be considered transferred to the Grantee
on the date the Option is exercised with respect to
such Exercised Shares.

2
<PAGE>

4. TERMINATION
(a) The Option and all rights hereunder with
respect thereto, to the extent such rights shall not
have been exercised, shall terminate and become null
and void after the expiration of the Option Term.

(b) Upon the occurrence of the Grantee's
ceasing for any reason to be employed by the Company
(such occurrence being a "termination" of the Grantee's
employment"), the Option, to the extent not previously
exercised, shall terminate and become null and void
immediately upon such termination of the Grantee's
employment, except in a case where the termination of
the Grantee's employment is by reason of retirement,
disability, death, voluntary termination or his or her
being discharged not for good cause. Upon a
termination of the Grantee's employment by reason of
retirement, disability, death, voluntary termination or
his or her being discharged not for good cause, the
Option may be exercised during the following periods,
but only to the extent that the Option was outstanding
and exercisable on any such date of retirement,
disability, death, voluntary termination or his or her
being discharged not for good cause: (i) the one-year
period following the date of such termination of the
Grantee's employment in the case of a disability
(within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), (ii) the one-year
period following Grantee's death, and (iii) the one-
year period following the date of such termination in
the case of the Grantee's termination of employment by
reason of his or her retirement, his or her voluntary
termination or his or her being discharged not for good
cause. In no event, however, shall any such period
extend beyond the Option Term.

(c) In the event of the death of the
Grantee, the Option may be exercised by the Grantee's
legal representative(s), but only to the extent that
the Option would otherwise have been exercisable by the
Grantee.

5. RESTRICTIONS ON SALE
By signing this Nonstatutory Stock Option Agreement, the
Grantee agrees not to sell any Exercised Shares at a time
when any applicable law, regulation or Company policy
prohibits a sale. This restriction will apply as long as the
Grantee is an employee of the Company (or a subsidiary).

3
<PAGE>

6. TRANSFER OF STOCK OPTIONS
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal
representative of the Grantee, and the Option shall not be
transferable except, in cases of the death of the Grantee, by
will or the laws of descent and distribution, nor shall the
Option be subject to attachment, execution or other similar
process. The terms of the Plan and this Nonstatutory Stock
Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Grantee.

7. NOTICE
All notices and other communications under this Nonstatutory
Stock Option Agreement shall be in writing. Unless and
until the Grantee is notified in writing to the contrary,
all notices, communications and documents directed to the
Company and related to the Nonstatutory Stock Option
Agreement, if not delivered by hand, shall be mailed,
addressed as follows:

MEDIA ARTS GROUP, INC.
521 Charcot Avenue
San Jose, California 95131
Attn: James F. Landrum, Jr.
Snr. Vice President & General Counsel

Unless and until the Company is notified in writing to the
contrary, all notices, communications and documents intended
for the Grantee and related to this Nonstatutory Stock Option
Agreement, if not delivered by hand, shall be mailed to
Grantee's last known address as shown on the Company's
payroll records. Notices and communications shall be mailed
by first class mail, postage prepaid; documents shall be
mailed by registered mail, return receipt requested, postage
prepaid. All mailings and deliveries related to this
Nonstatutory Stock Option Agreement shall be deemed received
only when actually received.

8. SAR/CHANGE
OF CONTROL In connection with the grant of the Option, the Grantee has
been granted an SAR (the "Tandem SAR") which may be
exercisable in lieu of all or part of the Option. The number
of Common Shares to which the Tandem SAR pertains shall be
equal to the number of Common Shares subject to the Option,
determined as of the date the Tandem SAR is exercised. The
Tandem SAR shall have an Exercise Price of $7.76 per Common
Share to which it pertains. The Tandem SAR granted hereunder
shall only be exercisable in the event of a Change in Control
of the Company, and shall only be exercisable within the
thirty (30) day period following such Change in Control. The
Tandem SAR shall immediately terminate and be canceled upon
the earlier of (i) the expiration of such thirty (30) day
period following a

4
<PAGE>

Change in Control; (ii) the exercise of the Option for all of
the Common Shares subject to the Option or (iii) the
termination of the Option pursuant to the provisions of this
Agreement and the Plan. The Tandem SAR may only be exercised
in whole for all of the Common Shares to which it pertains as
of the date of exercise, and notwithstanding any other
provision of this Agreement or the Plan to the contrary, any
unexercised portion of the Option shall immediately terminate
and be canceled upon the exercise of the Tandem SAR. Upon
exercise of the Tandem SAR, the Grantee shall receive from
the Company cash in an amount equal to (i) the excess of the
Fair Market Value of the Common Shares over (ii) the Tandem
SAR exercise price, multiplied by the number of Common Shares
to which the Tandem SAR pertains as of the date of exercise.

9. APPLICABLE LAW
This Nonstatutory Stock Option Agreement shall be construed
and interpreted pursuant to the internal substantive laws,
but not the choice of law rules, of the State of California,
and the parties hereto submit and consent to the jurisdiction
of the courts of the State of California, including Federal
Courts located therein, should Federal jurisdiction
requirements exist in any action brought to enforce (or
otherwise relating to) this Nonstatutory Stock Option
Agreement. Notwithstanding the proceeding sentence, nothing
contained in this Nonstatutory Stock Option Agreement shall
preclude the Company from bringing an action in any
appropriate forum to enforce the terms and provisions of this
Nonstatutory Stock Option Agreement. Grantee hereby consents
to the exclusive jurisdiction of any State or Federal court
empowered to enforce this Nonstatutory Stock Option Agreement
in the State of California, Santa Clara County, and waives
any objection thereto on the basis of personal jurisdiction
or venue.

10. ENTIRE AGREEMENT
This Nonstatutory Stock Option Agreement and the Plan
constitute the entire understanding between the Grantee and
the Company with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the
subject matter hereof. This Nonstatutory Stock Option
Agreement may be amended only in writing signed by the
Grantee and an authorized officer of the Company.

By the Grantee's signature and the signature of the Company's representative on
the Notice of Grant, the Grantee and the Company agree that this Option is
granted under and governed by the terms and conditions of the Plan and this
Nonstatutory Stock Option Agreement. The Grantee has reviewed the Plan and this
Nonstatutory Stock Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Nonstatutory Stock Option
Agreement and fully understands all provisions of the Plan and Nonstatutory
Stock Option Agreement. The Grantee hereby

5
<PAGE>

agrees to accept as binding, conclusive and final all decisions or
interpretations of the Plan Committee upon any questions relating to the Plan
and the Nonstatutory Stock Option Agreement.

<PAGE>

EXHIBIT 10.6

MEDIA ARTS GROUP, INC.
EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT

THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement"), is made
and entered into as of December 3, 1997 between MEDIA ARTS GROUP, INC., a
Delaware corporation (the "Company"), and Thomas Kinkade("Optionee").

THE PARTIES AGREE AS FOLLOWS:

1. GRANT OF OPTION; EFFECTIVE DATE.

1.1 GRANT. The Company hereby grants to Optionee a NONQUALIFIED
stock option (the "NQO") to purchase all or any part of an aggregate of 600,000
shares (the "NQO Shares") of the Company's common stock ("Common Stock") on the
terms and conditions set forth herein.

1.2 EFFECTIVE DATE. The effective date of this NQO is December 3,
1997("Effective Date").

2. EXERCISE PRICE. The exercise price for purchase of the shares of
Common Stock covered by this NQO shall be $12.375 per share.

3. TERM. Subject to Section 5.2, this NQO shall expire on the
fifteenth anniversary of the Effective Date.

4. ADJUSTMENT OF NQOS. The Company shall adjust the number and kind
of shares and the exercise price thereof in the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
spin-off, sale of substantial assets, or other change in corporate structure
affecting the Common Stock; provided, that the number of shares subject to this
NQO shall always be rounded down to the nearest whole number.

5. EXERCISE OF OPTIONS.

<PAGE>

5.1 TIME OF EXERCISE. This NQO shall be exercisable with respect
to 100% of the NQO Shares commencing on December 3, 1997.

5.2 EXERCISE AFTER TERMINATION OF EMPLOYEE STATUS. In the event
that Optionee ceases to be an employee of the Company or any of its subsidiaries
for any reason other than death or permanent disability, this NQO may be
exercised at any time within twelve (12) months after the date of termination
(but in no event after the expiration date of this NQO), but not thereafter. If
Optionee's termination is due to death or permanent disability, or Optionee dies
or becomes disabled within the period that this NQO remains exercisable after
termination, this NQO may be exercised by the Optionee in the case of
disability, by the Optionee's personal representative or by the person to whom
this NQO is transferred by will or the laws of descent and distribution, at any
time within two years after the death or two years after the disability, as the
case may be, of Optionee (but in no event after the expiration of this NQO).

5.3 MANNER OF EXERCISE. Optionee may exercise this NQO, or any
portion of this NQO, by giving written notice to the Company at its principal
executive office, to the attention of the Secretary of the Company, accompanied
by a copy of the Stock Purchase Agreement in substantially the form attached
hereto as Exhibit 1 executed by Optionee (or at the option of the Company such
other form of stock purchase agreement as shall then be acceptable to the
Company), payment of the exercise price and payment of any applicable
withholding taxes. The date the Company receives written notice of an exercise
hereunder accompanied by payment will be considered as the date this NQO was
exercised.

Promptly after receipt of written notice of exercise of the NQO, the
Company shall, without stock issue or transfer taxes to the Optionee or other
person entitled to exercise, deliver to the Optionee or other person a
certificate or certificates for the requisite number of Shares. The Optionee or
transferee of the Optionee shall not have any privileges as a shareholder with
respect to any NQO Shares covered by this NQO until the date of issuance of a
stock certificate.

<PAGE>

5.4 PAYMENT. Payment in full, shall be made for all NQO Shares
purchased at the time written notice of exercise of the NQO is given to the
Company, either (i) in cash or (ii) pursuant to a loan evidenced by a promissory
note; provided that the par value of the Common Stock shall be paid in cash.
Proceeds of any payment shall constitute general funds of the Company. At the
time of exercise of the NQO (or at such later time(s) as the Company may
prescribe), the Optionee shall remit to the Company all United States federal
and state withholding taxes determined by the Company to be applicable.

6. NONASSIGNABILITY OF NQO. This NQO is not assignable or transferable
by Optionee except by will, the laws of descent and distribution and to the
extent approved by the Committee, pursuant to a qualified domestic relations
order as defined by the Code or the rules thereunder. Except as otherwise
provided in Section 5.2 in the event of an Optionee's death or disability, only
the Optionee may exercise the NQO. Any attempt to assign, pledge, transfer,
hypothecate or otherwise dispose of this NQO in a manner not herein permitted,
and any levy of execution, attachment or similar process on this NQO, shall be
null and void.

7. MARKET STANDOFF. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters in connection with any
registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Act"), Optionee shall not sell or
otherwise transfer any shares acquired upon exercise of this NQO (the "Exercised
Shares") for a period of up to 365 days following the effective date of a
Registration Statement filed under the Act. The Company may impose stop-transfer
instructions with respect to the Exercised Shares subject to the foregoing
restrictions until the end of each such 365-day period.

8. RESTRICTION ON ISSUANCE OF SHARES.

8.1 LEGALITY OF ISSUANCE. The Company shall not be obligated to
sell or issue any Exercised Shares pursuant to this Agreement if such sale or
issuance, in the opinion of the Company and the Company's counsel, might
constitute a violation

<PAGE>

by the Company of any provision of law, including without limitation the
provisions of the Act.

8.2 REGISTRATION OR QUALIFICATION OF SECURITIES. The Company may,
but shall not be required to, register or qualify the sale of this NQO or any
Exercised Shares under the Act or any other applicable law. The Company shall
not be obligated to take any affirmative action in order to cause the grant or
exercise of this option or the issuance or sale of any Exercised Shares pursuant
thereto to comply with any law.

9. RESTRICTION ON TRANSFER. Regardless of whether the sale of the
Exercised Shares has been registered under the Act or has been registered or
qualified under the securities laws of any state, the Company may impose
restrictions upon the sale, pledge or other transfer of Exercised Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and the Company's counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Act, the securities laws of any state, or any other law.

10. STOCK CERTIFICATE RESTRICTIVE LEGENDS. Stock certificates
evidencing Exercised Shares may bear such restrictive legends as the Company and
the Company's counsel deem necessary or advisable under applicable law or
pursuant to this Agreement, including, without limitation, the following
legends:

"The offering and sale of the securities represented hereby have
not been registered under the Securities Act of 1933, as amended (the
"Act"). Any transfer of such securities will be invalid unless a
Registration Statement under the Act is in effect as to such transfer
or in the opinion of counsel for the Company such registration is
unnecessary in order for such transfer to comply with the Act."

"The securities represented hereby are subject to restrictions on
transfer for a period of 365 days following the effective date of a
registration statement under the Act for an offering of the Company's
securities as more fully provided in an

<PAGE>

agreement relating to the option to purchase such securities."

11. INFORMATION TO OPTIONEE. During the period this NQO is outstanding,
the Company shall provide Optionee on an annual or other periodic basis
financial and other information regarding the Company in accordance with Rule
260.140.41.2 promulgated under the California Corporate Securities Law of 1968,
if applicable.

12. ASSIGNMENT; BINDING EFFECT. Subject to the limitations set forth in
this Agreement, this Agreement shall be binding upon and inure to the benefit of
the executors, administrators, heirs, legal representatives and successors of
the parties hereto; provided, however, that Optionee may not assign any of
Optionee's rights under this Agreement.

13. DAMAGES. Optionee shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of shares which is not in conformity with the provisions of this
Agreement.

14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed within the State of California by
California residents. The parties agree that the exclusive jurisdiction and
venue of any action with respect to this Agreement shall be in the Superior
Court of California for the County of San Jose or the United States District
Court for the Northern District of California, and each of the parties hereby
submits to the exclusive jurisdiction and venue of such courts for the purpose
of such action. The parties agree that service of process in any such action may
be effected by delivery of the summons to the parties in the manner provided for
delivery of notices set forth in Section 15.

15. NOTICES. All notices and other communications under this Agreement
shall be in writing. Unless and until the Optionee is notified in writing to the
contrary, all notices, communications and documents directed to the Company and
related

<PAGE>

to the Agreement, if not delivered by hand, shall be mailed, addressed as
follows:

MEDIA ARTS GROUP, INC.
521 Charcot Avenue
San Jose, California 95131
Attn: James F. Landrum, Jr.
Snr. Vice President & General Counsel

Unless and until the Company is notified in writing to the contrary, all
notices, communications and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to Optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received only when actually
received.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.

MEDIA ARTS GROUP, INC.

By: /s/James F. Landrum
---------------------------------
Vice President & General Counsel

The Optionee hereby accepts and agrees to be bound by all of the terms
and conditions of this Agreement.

/s/ Thomas Kinkade
---------------------------------
Thomas Kinkade

Optionee's spouse indicates by the execution of this NONQUALIFIED Stock
Option Agreement his/her consent to be bound by the terms thereof as to his/her
interests, whether as community property or otherwise, if any, in the options
granted hereunder, and in any Exercised Shares purchased pursuant to this
Agreement.

/s/ Nanette Kinkade
---------------------------------
Nanette N. Kinkade

EXHIBITS

Exhibit 1 from Section 5.3 Stock Purchase Agreement

<PAGE>

EXHIBIT 1 FROM SECTION 5.3 OF THE
MEDIA ARTS GROUP, INC.
NONQUALIFIED STOCK OPTION AGREEMENT

MEDIA ARTS GROUP, INC.
STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of _________________, 199_, between MEDIA ARTS GROUP, INC., a California
corporation doing business in the State of California under the name MAGI (the
"Company"), and ___________ ("Purchaser").

THE PARTIES AGREE AS FOLLOWS:

1. PURCHASE OF SHARES. Pursuant to an NONQUALIFIED stock option
agreement ("Option Agreement") between the parties attached hereto as Exhibit 1,
the Company hereby sells to Purchaser, and Purchaser hereby buys from the
Company, ______________ shares (the "Exercised Shares") of the Company's Common
Stock ("Common Stock") on the terms and conditions set forth herein and in the
Option Agreement, the terms and conditions of the Option Agreement being hereby
incorporated into this Agreement by reference.

2. PURCHASE PRICE. Purchaser shall purchase the Exercised Shares from
the Company, and the Company shall sell the Exercised Shares to Purchaser, at a
price of $_______ per share (the "Exercise Price"), for a total purchase price
of $_____ (the "Purchase Price").

3. MANNER OF PAYMENT. Purchaser shall pay the Purchase Price of the
Exercised Shares in cash.

4. STOCK CERTIFICATE RESTRICTIVE LEGENDS. Stock certificates evidencing
Exercised Shares may bear such restrictive legends as the Company and the
Company's counsel deem necessary or advisable under applicable law or pursuant
to this Agreement, including without limitation, the following legends:

<PAGE>

5. REPRESENTATIONS, WARRANTIES, COVENANTS, AND ACKNOWLEDGMENTS OF
PURCHASER. Purchaser hereby represents, warrants, covenants, acknowledges and
agrees that:

5.1 INVESTMENT. Purchaser is acquiring the Exercised Shares for
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the Exercised Shares for investment and not with a view to
distribution or resale thereof except in compliance with applicable laws
regulating securities.

5.2 BUSINESS EXPERIENCE. Purchaser is capable of evaluating the
merits and risks of Purchaser's investment in the Company evidenced by the
purchase of the Exercised Shares.

5.3 RELATION OF COMPANY. Purchaser is presently an employee or
advisor to, the Company and in such capacity has become personally familiar with
the business, affairs, financial condition and results of operations of the
Company.

<PAGE>

5.4 ACCESS TO INFORMATION. Purchaser has had the opportunity to
ask questions of, and to receive answers from, appropriate executive officers of
the Company with respect to the terms and conditions of the transactions
contemplated hereby and with respect to the business, affairs, financial
condition, and results of operations of the Company. Purchaser has had access to
such financial and other information as is necessary in order for Purchaser to
make a fully-informed decision as to investment in the Company by way of
purchase of the Exercised Shares, and has had the opportunity to obtain any
additional information necessary to verify any of such information to which
Purchaser has had access.

5.5 SPECULATIVE INVESTMENT. Purchaser's investment in the Company
represented by the Exercised Shares is highly speculative in nature and is
subject to a high degree of risk of loss in whole or in part. The amount of such
investment is within Purchaser's risk capital means and is not so great in
relation to Purchaser's total financial resources as would jeopardize the
personal financial needs of Purchaser or Purchaser's family in the event such
investment were lost in whole or in part.

5.6 REGISTRATION. Purchaser may bear the economic risk of
investment for an indefinite period of time in the event the sale to Purchaser
of the Exercised Shares is not registered under the Securities Act of 1933, as
amended (the "Act"), and the Exercised Shares cannot be transferred by Purchaser
unless such transfer is registered under the Act or an exemption from such
registration is available. The Company has made no agreements or covenants to
register the transfer of any of the Shares under the Act. The Company has made
no representations, warranties, or covenants whatsoever as to whether any
exemption from the Act, including without limitation any exemption for limited
sales in routine brokers' transactions pursuant to Rule 144, will be available;
if the exemption under Rule 144 is available at all, it will not be available
until at least two years after payment of cash for the Exercised Shares and not
then unless: (a) a public trading market then exists in the Company's common
stock; (b) adequate information as to the Company's financial and other affairs
and operations is then

<PAGE>

available to the public; and (c) all other terms and conditions of Rule 144 have
been satisfied.

5.7 PUBLIC TRADING. The Company has made no representation,
covenant or agreement as to whether there will continue to be a public market
for its Common Stock.

5.8 TAX ADVICE. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by this Agreement or the Option Agreement and
Purchaser is in no manner relying on the Company or its representatives for an
assessment of such tax consequences.

6. BINDING EFFECT. Subject to the limitations set forth in this
Agreement, this Agreement shall be binding upon, and inure to the benefit of,
the executors, administrators, heirs, legal representatives, successors and
assigns of the parties hereto.

7. TAXES. The Company may require Purchaser to pay to the Company,
any applicable withholding taxes resulting from the purchase of Exercised Shares
hereunder or from the lapse of any restrictions imposed on the Exercised Shares.

8. DAMAGES. Purchaser shall be liable to the Company for all
costs and damages, including incidental and consequential damages, resulting
from a disposition of Exercised Shares which is not in conformity with the
provisions of this Agreement.

9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed within the State of California by
California residents. The parties agree that the exclusive jurisdiction and
venue of any action with respect to this Agreement shall be in the Superior
Court of California for the County of San Jose or the United States District
Court for the Northern District of California, and each of the parties hereby
submits to the exclusive jurisdiction and venue of such courts for the purpose
of such action. The parties agree that service of process in any such action may
be effected by delivery of the summons to the

<PAGE>

parties in the manner provided for delivery of notices set forth in Section 10.

10. NOTICES. All notices and other communications under this Agreement
shall be in writing. Unless and until Purchaser is notified in writing to the
contrary, all notices, communications and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:

MEDIA ARTS GROUP, INC.
521 Charcot Ave.
San Jose, California 95131
Attn: James F. Landrum, Jr.
Snr. Vice President & General Counsel

Unless and until the Company is notified in writing to the contrary, all
notices, communications and documents intended for Purchaser and related to this
Agreement, if not delivered by hand, shall be mailed to Purchaser's last known
address as shown on the Company's books. Notices and communications shall be
mailed by registered mail, return receipt requested, postage prepaid. All
mailings and deliveries related to this Agreement shall be deemed received only
when actually received.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

MEDIA ARTS GROUP, INC.

By
---------------------------------------
Title
------------------------------------

Purchaser hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement.

------------------------------------

Purchaser's spouse indicates by the execution of this Agreement her
consent to be bound by the terms herein as to her interests, whether as
community property or otherwise, if any, in the Exercised Shares hereby
purchased.

------------------------------------
Purchaser's Spouse

EXHIBITS

Exhibit 1 from Section 1 Option Agreement

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated April 27, 1998 which appears on
page 21 of Media Arts Group, Inc.'s Annual Report on Form 10-K
for the year ended March 31, 1998.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

San Jose, California
December 2, 1998