<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-24294
MEDIA ARTS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0354419
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
521 Charcot Ave, San Jose, California 95131
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 324-2020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock, $0.01
par value, was 12,940,117 at December 31, 1998.
This report consists of 15 pages of which this page is number 1.
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MEDIA ARTS GROUP, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C>
Part I: Financial Information
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1998 3
Condensed Consolidated Statements of Income for the Three
and Nine Month Periods Ended December 31, 1997 and 1998 4
Condensed Consolidated Statements of Cash Flows for
the Nine Month Periods Ended December 31, 1997 and 1998 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 12
Part II: Other Information
Item 1: Legal Proceedings 13
Item 2: Changes in Securities 13
Item 3: Defaults upon Senior Securities 13
Item 4: Submission of Matters to a Vote of Security Holders 13
Item 5: Other Information 13
Item 6: Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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MEDIA ARTS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,401 $ 11,777
Accounts receivable, net 15,919 21,577
Inventories 9,094 14,526
Prepaid expenses and other current assets 2,404 4,152
Deferred income taxes 1,878 2,173
--------- ---------
Total current assets 45,696 54,205
Property and equipment, net 5,397 10,228
Other assets 246 229
--------- ---------
$ 51,339 $ 64,662
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,804 $ 4,774
Commissions payable 1,003 1,645
Accrued royalties 653 1,414
Accrued compensation costs 3,881 3,059
Accrued expenses 2,469 2,992
Income taxes payable 2,210 2,670
--------- ---------
Total current liabilities 15,020 16,554
Convertible notes 1,200 1,200
--------- ---------
Total liabilities 16,220 17,754
--------- ---------
Stockholders' equity:
Common Stock 85 85
Additional paid-in capital 35,410 36,398
Retained earnings (accumulated deficit) (376) 13,670
Treasury stock -- (3,245)
--------- ---------
Total stockholders' equity 35,119 46,908
--------- ---------
$ 51,339 $ 64,662
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MEDIA ARTS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 26,796 $ 39,020 $ 57,209 $ 94,954
Cost of sales 8,920 12,872 18,812 31,146
--------- --------- --------- ---------
Gross profit 17,876 26,148 38,397 63,808
--------- --------- --------- ---------
Operating expenses:
Selling and marketing 5,337 10,026 13,103 24,774
General and administrative 5,516 6,428 11,430 16,548
--------- --------- --------- ---------
Total operating expenses 10,853 16,454 24,533 41,322
--------- --------- --------- ---------
Operating income 7,023 9,694 13,864 22,486
Interest income (expense) (275) 55 (1,438) 421
Foreign exchange losses (77) -- (93) --
Gain on sale and leaseback -- -- 997 --
--------- --------- --------- ---------
Income before income taxes 6,671 9,749 13,330 22,907
Provision for income taxes 2,482 3,847 4,937 8,861
--------- --------- --------- ---------
Net income $ 4,189 $ 5,902 $ 8,393 $ 14,046
========= ========= ========= =========
Net income per share:
Basic $ 0.38 $ 0.46 $ 0.76 $ 1.09
Diluted $ 0.35 $ 0.44 $ 0.73 $ 1.02
Shares used in net income per
share computation:
Basic 11,083 12,912 11,049 12,928
Diluted 12,004 13,466 11,532 13,813
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MEDIA ARTS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended December 31, 1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,393 $ 14,046
Adjustments to reconcile to net cash
provided by continuing operating activities:
Gain on sale and leaseback (997) --
Depreciation 826 1,544
Amortization of intangibles 689 19
Deferred income taxes (760) (295)
Provision for returns and allowances 281 1,588
Provision for losses on accounts receivable (329) (216)
Changes in assets and liabilities:
Accounts receivable (5,291) (6,943)
Receivables from related parties -- (29)
Inventories (1,070) (5,034)
Prepaid expenses and other assets (70) (1,750)
Accounts payable 1,287 (161)
Commissions payable 539 642
Accrued compensation costs 2,140 (822)
Income taxes payable and refundable, net 5,839 460
Accrued expenses (92) 514
Accrued royalties (719) 761
--------- ---------
Net cash provided by continuing operating activities 10,666 4,324
Net cash provided by discontinued operations 890 --
--------- ---------
Net cash provided by operations 11,556 4,324
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment (1,869) (6,370)
Proceeds from disposal of property and equipment 1,647 --
Acquisition of gallery, net of cash acquired -- (321)
--------- ---------
Net cash used in investing activities (222) (6,691)
--------- ---------
Cash flows from financing activities:
Repayments of borrowings under line of credit (2,631) --
Repayment of notes payable (4,140) --
Proceeds from issuance of common stock 162 988
Purchases of common stock -- (3,245)
--------- ---------
Net cash used in financing activities (6,609) (2,257)
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,725 (4,624)
Cash and cash equivalents at beginning of period 374 16,401
--------- ---------
Cash and cash equivalents at end of period $ 5,099 $ 11,777
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MEDIA ARTS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The consolidated financial statements of Media Arts Group, Inc. (the
"Company") include the accounts of its wholly owned subsidiaries,
Lightpost Publishing, Inc. and Thomas Kinkade Stores, Inc. The Company
designs, manufactures, markets and retails branded art-based home
accessories, collectibles and gift products based on the works of the
artist Thomas Kinkade. The Company's primary products are canvas and
paper lithographs that feature Mr. Kinkade's unique use of light and his
peaceful and inspiring themes.
The condensed interim consolidated financial statements of Media Arts
Group, Inc. have been prepared by the Company without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission. The information
included in this report should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all material adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial position, operating results and cash flows
for the periods presented. The results of the interim period ended
December 31, 1998 are not necessarily indicative of the results that may
be expected for the entire fiscal year which ends March 31, 1999.
NOTE 2 - Net income per share
The following summarizes the effects of the assumed issuance of dilutive
securities on weighted average shares for basic net income per share (in
thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of
shares - basic 11,083 12,912 11,049 12,928
Incremental shares from assumed
issuance of stock options 921 554 483 885
--------- --------- --------- ---------
Weighted average number of
shares - diluted 12,004 13,466 11,532 13,813
========= ========= ========= =========
</TABLE>
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NOTE 3 - Inventories
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
--------- ---------
<S> <C> <C>
Raw materials $ 993 $ 2,349
Work-in-process 8 6
Finished goods 8,093 12,171
--------- ---------
$ 9,094 14,526
========= =========
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth below should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto
included in Part I - Item 1 of this Quarterly Report and the Company's
Annual Report on Form 10-K for the year ended March 31, 1998 which
contains the audited financial statements and notes thereto for the years
ended March 31, 1996, 1997 and 1998 and Management's Discussion and
Analysis of Financial Condition and Results of Operations for those
respective periods.
Forward looking statements in this Quarterly Report on Form 10-Q as well
as the Company's Annual Report on Form 10-K for the year ended March 31,
1998, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Stockholders are cautioned
that all forward-looking statements pertaining to the Company involve
risks and uncertainties, including, without limitation, the risks
discussed below and other risks detailed from time to time in the
Company's periodic reports and other information filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended December 31, 1998 were $39.0 million, a
45.6% increase compared to the $26.8 million reported for the quarter
ended December 31, 1997. Wholesale sales increased by 44.9% to $29.7
million and retail sales increased by 49.1% to $9.3 million for the
December 1998 quarter as compared to the December 1997 quarter.
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Wholesale sales increased primarily due to the number of Signature
Galleries increasing from 67 at the end of December 1997 to 157 at the
end of December 1998, as well as increased promotional activities and
programs in the quarter. The remainder of the increase in wholesale
sales was primarily due to the opening of new dealers as well as upgrades
of some dealers to higher dealership levels. Retail sales increased due
to an increase in the number of company-owned stores from 18 as of
December 31, 1997 to 30 as of December 31, 1998, as well as increased
marketing efforts. Comparable store sales per square foot for
company-owned stores were $377 in the December 1998 quarter compared to
$362 for the December 1997 quarter. Net sales for the nine months ended
December 31, 1998 were $95.0 million, up 66.0% from $57.2 million during
the nine months ended December 31, 1997. Wholesale sales increased 79.1%
for the nine months ended December 31, 1998 as compared to the nine
months ended December 31, 1997 primarily as a result of the increase in
Signature Galleries and increased promotional activities. Retail sales
increased 32.5% for the nine months ended December 31, 1998 as compared
to the nine months ended December 31, 1997 primarily as a result of the
increase in company-owned stores, a shift towards higher priced products
and increased marketing efforts.
Gross Profit
Gross profit increased by $8.3 million, or 46.3%, to $26.1 million for
the quarter ended December 31, 1998 in comparison to the $17.9 million
reported for the quarter ended December 31, 1997. Gross profit was $63.8
million for the nine months ended December 31, 1998 compared to $38.4
million in the prior year. The Company's consolidated gross margin was
67.0% and 67.2% for the three month and nine month periods ended December
31, 1998, compared to 66.7% and 67.1% for the same periods in the prior
year. The increase in gross profit in absolute terms and as a percentage
of net sales was due to efficiencies gained due to higher sales.
Selling and Marketing Expenses
Selling and marketing expenses were $10.0 million and $24.8 million for
the three month and nine month periods ended December 31, 1998, compared
to $5.3 million and $13.1 million for the same periods in the prior year.
As a percentage of net sales, selling and marketing expenses were 25.7%
and 26.1% for the three month and nine month periods ended December 31 ,
1998, compared to 19.9% and 22.9% for the same periods in the prior year.
Selling and marketing expenses increased in absolute dollars and as a
percentage of net sales primarily due to increased sales compensation
costs resulting from increased net sales and the addition of sales
personnel and increases in advertising and promotional costs.
General and Administrative Expenses
General and administrative expenses were $6.4 million and $16.5 million
for the three month and nine month periods ended December 31, 1998,
compared to $5.5 million and $11.4 million for the same periods in the
prior year. Expressed as a percentage of net sales, general and
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administrative expenses were 16.5% and 17.4% for the three month and nine
month periods ended December 31, 1998, compared to 20.6% and 20.0% for
the same periods in the prior year. The increase in general and
administrative expenses in absolute terms was primarily due to increased
facility costs related to expansion of capacity. General and
administrative expenses for the three months and nine months ended
December 31, 1998 decreased as a percentage of sales from the same
periods in the prior year due to economies of scale from increased sales
levels.
Interest Income (Expense)
Interest income was $55,000 and $421,000 for the three months and nine
months ended December 31, 1998, compared to interest expense of $275,000
and $1.4 million for the same periods in the prior year. The increase in
interest income as compared to the prior year was due to increased cash
and cash equivalents and repayment of debt using proceeds from the
Company's February 1998 public offering.
Provision for Income Tax
The provision for income taxes was $3.8 million and $8.9 million for the
three months and nine months ended December 31, 1998, compared to $2.5
million and $4.9 million for the same periods in the prior year. The
Company's effective income tax rate for the three months and nine months
ended December 31, 1998 was 39.5% and 38.7%, compared to 37.2% and 37.0%
for the same periods in the prior year.
Seasonality; Fluctuations in Quarterly Results
The Company's business has experienced, and is expected to continue to
experience, significant seasonal fluctuations in net sales and income.
The Company's net sales historically have been highest in the December
quarter and lower in the subsequent March and June quarters. Despite
overall increases in annual net sales in fiscal 1997, net sales in the
December 1996 quarter were $15.5 million and net sales in the subsequent
March 1997 and June 1997 quarters were $11.5 million and $13.2 million,
respectively. Net sales in the December 1997 quarter were $26.8 million
and sales in the subsequent March 1998 and June 1998 quarters were $25.4
million and $26.3 million, respectively. Management believes that the
seasonal effect is due primarily to customer buying patterns,
particularly with respect to holiday purchases, and is typical of the
home decorative accessories, collectibles and gift product industries.
The Company expects these seasonal trends to continue in the foreseeable
future.
The Company's quarterly operating results have fluctuated significantly
in the past and may continue to fluctuate as a result of numerous
factors, including demand for the art of Thomas Kinkade and the Company's
Thomas Kinkade products (including new product categories and series),
the Company's ability to achieve its expansion plans, the timing, mix and
number of new product releases, the timing of the opening of new Thomas
Kinkade Stores and the expensing of the associated pre-opening costs, the
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successful implementation of the Thomas Kinkade Signature Gallery program
and expansion of distribution generally, the Company's ability to
implement strategic business alliances, the Company's ability to hire and
train new manufacturing, sales and administrative personnel, continued
implementation of manufacturing efficiencies, timing of product
deliveries and the incurrence of other operating costs. In addition,
since a significant portion of the Company's net sales are generated from
orders received in the quarter, net sales in any quarter are
substantially dependent on orders booked in that quarter. The Company's
results may also fluctuate based on extraordinary events. Accordingly,
the results of operations in any quarter will not necessarily be
indicative of the results that may be achieved for a full fiscal year or
any future quarter. Fluctuations in operating results may also result in
volatility in the price of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds in the first nine months of fiscal
1999 has been from its operations. The Company's working capital as of
December 31, 1998 was $37.7 million, compared to $30.7 million as of
March 31, 1998.
Net cash provided by operations for the first nine months of fiscal 1999
was $4.3 million consisting primarily of income from operations adjusted
by increases in accounts receivable and inventory. Accounts receivable
increased due to seasonal fluctuations as well as a result of an increase
in certain dealer categories which receive preferential payment terms.
The Company increased inventory due to increased distribution and the
increased number of company-owned stores. Net cash provided by
operations for the first nine months of fiscal 1998 was $11.6 million
consisting primarily of income from continuing operations adjusted by
increases in accounts receivable, income taxes payable and accrued
compensation costs.
Net cash used in investing activities was $6.7 million for the first nine
months of fiscal 1999 and primarily related to capital expenditures for
property and equipment of $6.4 million related to increases in
manufacturing and fulfillment capacity as well as store openings. Net
cash used in investing activities was $222,000 in the first nine months
of fiscal 1998. The Company anticipates that total capital expenditures
in fiscal 1999 will be approximately $8.0 million, and will relate
primarily to continued manufacturing and infrastructure investments, as
well as to the opening of new retail locations.
Net cash used in financing activities was $2.3 million in the first nine
months of fiscal 1999 compared to $6.6 million in the first nine months
of fiscal 1998. Cash used in financing activities during the first nine
months of fiscal 1999 related primarily to the purchase of shares of the
Company's Common Stock under the Company's continuing stock repurchase
program. During the nine months ended December 31, 1998, 243,600 shares
of Company Common Stock were purchased at an average price of $13.32.
Net cash used in financing activities during the first nine months of
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fiscal 1998 related primarily to the repayment of borrowings under credit
lines and notes payable.
The Company has a $10 million line-of-credit facility with a bank.
Borrowing capacity under the credit facility is based upon eligible
accounts receivable and inventory and aggregated $10.0 million as of
December 31, 1998. There were no outstanding borrowings under this
credit facility as of December 31, 1998.
The Company's working capital requirements in the foreseeable future will
change depending on the rate of the Company's expansion, the Company's
operating results and any other adjustments in its operating plan as
needed in response to competition, acquisition opportunities or
unexpected events. The Company believes that existing borrowing capacity
under its line of credit, together with revenues from operations, will be
sufficient to meet the Company's working capital requirements through
fiscal 1999. However, the Company may seek additional capital in the
future as a result of expansion or otherwise.
YEAR 2000 COMPLIANCE
The Company's Year 2000 Project (the "Project") is proceeding on schedule.
The Project is addressing the issue of computer programs and embedded
computer chips being unable to distinguish between the year 1900 and the
year 2000. The Company conducted a review of its information technology
("IT") and non-IT systems to identify those areas that could be affected
by the Year 2000 issue, and developed a comprehensive, risk-based plan.
This plan addresses both IT and non-IT systems and products, as well as
dependencies on those with whom the Company does significant business.
In connection with the Project, the Company completed an inventory and
risk-assessment of its computer systems and related technology, and
has begun the testing and remediation process. The Company's main IT
system consists of JD Edwards software, an IBM AS400 and a PC-based
network. In fiscal 1998 the Company upgraded its JD Edwards software to
be Year 2000 compliant, and in the September quarter of fiscal 1999
upgraded both the IBM AS400 and substantially all of its PC's to be Year
2000 compliant. The Company expects to complete the Project by mid-1999.
However, the Company's systems may encounter difficulties when attempting
to interface or interconnect with third party systems, whether or not
those systems are claimed to be "compliant" and a failure to interface or
interconnect could materially adverse affect the Company's operations.
The Company completed an inventory and risk assessment of its outside
vendors and identified those key vendors that represent a significant
risk to the Company. The Company is currently in the process of
communicating with these vendors to determine their Year 2000 readiness.
The Company is also preparing contingency plans in the event of
non-compliance by those key vendors. The Company believes the Year 2000
risk with its suppliers is low because many of the vendors are small
manufacturers with relatively simple business systems. The Company
expects to identify any significant vendor-compliance problems by March
31, 1999, and to resolve those issues before December 31, 1999. However,
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the systems of other companies on which the Company relies may not be
converted in a timely manner, and a failure by another company to convert
may materially adverse affect the Company.
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Year 2000 Project is
approximately $1 million, which includes upgrade of the Company's JD
Edwards software, IBM AS400 and PC-based network. The total amount
expended on the Project through December 31, 1998, was approximately
$800,000. The future cost of completing the Year 2000 Project is
estimated to be approximately $200,000.
The Company presently believes that with modification to existing
software and conversion to new software, the Year 2000 problem will not
pose significant operational issues. However, the Company cannot
accurately predict a "worst case scenario" with regard to its Year 2000
issues, and the failure by the Company and/or vendors to complete Year
2000 compliance work in a timely manner could materially adverse affect
the Company's operations.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not
Applicable
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PART II - Other Information
ITEM 1. LEGAL PROCEEDINGS - Not Applicable
ITEM 2. CHANGES IN SECURITIES - Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed as part of this Form 10-Q:
(a) Exhibit 10.29 - Employment Agreement entered into between the
Company and Raymond A. Peterson dated November 19, 1998.
(b) Exhibit 10.30 - Employment Agreement entered into between the
Company and Greg Nash dated November 19, 1998.
(c) Exhibit 27 - Financial Data Schedule (EDGAR version only)
(d) The following Current Report on Form 8-K was filed during the
period October 1, 1998 to December 31, 1998:
Date Event Reported
---------------- -------------------------------
December 7, 1998 New York Stock Exchange Listing
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MEDIA ARTS GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIA ARTS GROUP, INC.
(Registrant)
By /s/ Raymond A. Peterson
--------------------------------------
Raymond A. Peterson
Vice Chairman, President &
Chief Executive Officer
By /s/ Greg H.L. Nash
--------------------------------------
Greg H.L. Nash
Senior Vice President &
Chief Financial Officer
Date: February 16, 1999
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EXHIBIT INDEX
Exhibit Number
10.29 Employment Agreement entered into between the Company and
Raymond A. Peterson dated November 19, 1998.
10.30 Employment Agreement entered into between the Company and Greg
Nash dated November 19, 1998.
27 Financial Data Schedule
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is effective as of November 19, 1998 by and
between MEDIA ARTS GROUP, INC., a Delaware corporation (the "Employer"),
and RAYMOND A. PETERSON, of 822 Kolb Place, Santa Clara, California
95050 (the "Employee").
RECITALS
A. Employer is the parent company of various wholly owned subsidiaries
and divisions which are engaged in the business of the creation,
printing, reproduction, marketing, production, and selling of various
forms of artwork, including, without limitation, paintings, prints,
lithographs, posters, as well as licensing and wholesale distribution of
plates, figurines, and other two- and three-dimensional artwork. Employer
is also engaged in significant growth which may lead to the acquisition
and development of related and other businesses.
B. The Board of Directors of the Employer (the "Board"), and its
Compensation Committee, has approved and authorized the entry of this
Agreement with the Employee.
C. The parties to this Agreement desire to enter into this Agreement
setting forth the terms and conditions for the employment relationship of
the Employee with the Employer.
NOW, THEREFORE, IN CONSIDERATION OF THE COVENANTS, CONDITIONS AND
PROMISES OF THE PARTIES SET FORTH BELOW, Employer and Employee agree as
follows:
1. Employment. The Employee is employed as Chief Executive Officer
("CEO") of Media Arts Group, Inc., as of the date of this Agreement and
through and until the termination of this Agreement, as hereinafter
defined, with the duties and responsibilities and on the terms and
conditions hereinafter set forth.
2. Responsibilities and Duties of Employee. It is agreed that
Employee is employed on a full-time basis, which is defined to mean
Employee's entire productive time, ability and attention. It is further
agreed that for so long as the Employee is employed with the Employer,
Employee shall not engage in any other business duties or pursuits,
without the express written consent of the Board of the Employer (the
"Board"). In his capacity as CEO, Employee shall perform such duties and
responsibilities as the Board of the Employer shall designate as are not
inconsistent with the Employee's position with the Employer, including
the performance of duties with respect to any subsidiaries of the
Employer.
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Employee shall at all times perform the duties set forth herein
faithfully, industriously, and to the best of Employee's ability,
experience and talent. Employee shall report directly to the Board of the
Employer in regard to all matters unless otherwise mutually agreed to by
the parties.
3. Location of Employee's Work. The Employee shall be based in the
principal executive offices of the Employer in San Jose, California, or
in any city to which the principal executive offices of the Employer may
relocate. The Employee shall travel to such other locations as may be
reasonably required in the performance of his duties hereunder.
4. Duration of Employment. The Employer agrees to employ Employee in
the capacity set forth above for the period of time commencing as of the
date hereof and ending on November 19, 2001. In that regard, this
Agreement shall be binding on the parties as of the date hereof and shall
terminate at Midnight on November 19, 2001; provided, however, in the
event a Change of Control as defined herein, occurs prior to the
expiration of this Agreement, this Agreement shall not expire prior to
the last day of the sixtieth (60th) month following the date of such
Change in Control.
5. Compensation to Employee.
(a) Salary. The Employer agrees to pay the Employee a base
salary at an annual rate equal to $230,000.00, with such salary to be
increased, at such times, if any, as the Board may deem appropriate, to
an amount determined by the Board, which increases shall be consistent
with the normal historical business practices of the Employer and the
salary adjustments for other senior executives of the Employer.
Notwithstanding the foregoing, the salary of the Employee shall not be
decreased at any time from the amount of salary then in effect.
Participation in deferred compensation, discretionary bonus, retirement
and other employee benefit plans shall not reduce the salary payable to
the Employee under this Paragraph (a) of this Section 5. The salary
under this Paragraph (a) of this Section 5 shall be payable on a
semi-monthly basis and shall be subject to standard federal and
California tax withholding rules.
(b) Health Care, Disability and Life Insurance Benefits. The Employer
agrees to provide medical insurance coverage under the Employer's group
medical insurance plan for the Employee and his dependents, at no cost to
the Employee for such coverage of the Employee and his dependents.
Employer agrees to pay the premiums on the life insurance and disability
insurance policies which are in effect as of the date hereof and under
which Employee receives life insurance and disability insurance coverage.
(c) Bonuses. Employee shall be entitled to participate in any
Bonus program of the Employer that the Employer has adopted or may adopt
for the benefit of its senior executives.
(d) Retirement and Employee Benefit Plans. The Employee shall be
entitled to participate in any plan of the Employer relating to stock
options, stock purchases, pension, thrift, profit sharing, education, or
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other retirement or employee benefits that the Employer has adopted or
may adopt for the benefit of its senior executives.
(e) Fringe Benefits; Framed Lithographs; Automobile; Cellular Phone.
In addition to the benefit plans referred to above, the Employee shall be
entitled to participate in any other fringe benefits which are now or may
be or become applicable to the Employer's senior executives, and any
other benefits which are commensurate with the duties and
responsibilities to be performed by the Employee under this Agreement.
The Employee shall receive four (4) framed Standard Numbered lithographs,
which are produced and distributed by the Employer and for which the
Employee shall select the images, per year of employment, on an annual
basis. The Employer agrees to provide the Employee with an automobile
allowance of $500.00 per month. The Employee shall be responsible to pay
for all gasoline and maintenance as required under manufacturer's
specifications. The Employee agrees to maintain the condition of the car
in excellent shape; the Employee shall use the car from time to time as
needed by the Employer or any of its subsidiaries to transport and
entertain persons with whom the Employer or any of its subsidiaries does,
or desires to engage in, business. The Employer agrees to provide the
Employee with a cellular telephone. The Employer shall reimburse the
Employee for reasonable expenses incurred for the use of such cellular
telephone. Notwithstanding the foregoing, the benefits provided under
this paragraph shall not be decreased following a Change in Control, as
hereinafter defined, without the written consent of the Employee,
provided, however, that the benefits provided under this paragraph shall
cease upon termination of the Employee's employment with the Employer.
(f) Voluntary Absences: Vacations. The Employee shall be
entitled, without loss of pay, to be absent voluntarily for reasonable
periods of time from the performance of the duties and responsibilities
under this Agreement. All such voluntary absences shall count as paid
vacation time, unless the Board otherwise determines. The Employee shall
be entitled to an annual paid vacation of four (4) weeks per year or such
longer period as the Board may approve; such paid vacation shall accrue
at the rate of 13.33 hours per month. The timing of paid vacations shall
be scheduled in a reasonable manner by the Employee, subject to the
general approval of the Board.
6. Expenses Incurred by Employee. In addition to the compensation
structure set forth in Section 5, the Employer shall pay all direct
out-of-pocket expenses incurred by the Employee in connection with the
performance of his duties set forth herein including, but not limited to,
travel, lodging and long distance telephone expenses. The Employee shall
include in any request for reimbursement for such expenses a detailed
account with receipts of all expenses incurred by the Employee, and a
detailed account of the business relating to those expenses, in
connection with the performance of his duties as described in this
Agreement.
7. Termination.
(a) Disability. If, as a result of the Employee's incapacity due
to physical or mental illness, he shall have been absent from the
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<PAGE> 4
full-time performance of his duties with the Employer for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given, he shall not have returned to the full-time
performance of his duties, his employment may be terminated by the
Employer for "Disability."
(b) Cause. Subject to the notice provisions set forth below, the
Employer may terminate the Employee's employment for "Cause" at any time.
"Cause" shall mean termination upon (1) the failure by the Employee to
perform his material obligations or duties under this Agreement (other
than any such failure resulting from his incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to him by the Board, which demand specifically identifies the
manner in which the Board believes that he has not substantially
performed his duties and which provides a thirty (30) day period of time
to remedy such failure, (2) the willful engaging by the Employee in
conduct which is demonstrably and materially injurious to the Employer,
monetary or otherwise, or (3) if Employee shall be convicted of, or shall
plead guilty or nolo contendere to, a felony where such crime materially
interferes with Employee's ability to fulfill his duties under this
Agreement or is otherwise materially injurious to the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative
vote of not less than two-thirds (2/3) of the entire membership of the
Board at a meeting of such Board (after reasonable notice to him and an
opportunity for him, together with his counsel, to be heard before such
Board), finding that he has engaged in the conduct set forth above in
this paragraph (b) and specifying the particulars thereof in detail.
(c) Notice of Termination. Any termination of the Employee's
employment by the Employer or by the Employee shall be communicated by
written Notice of Termination to the other party hereto in accordance
with Section 11. "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for the termination of the Employee's
employment under the provision so indicated.
(d) Date of Termination. "Date of Termination" shall mean (i) if
the Employee's employment is terminated by his death, the date of his
death; (2) if the Employee's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that he
shall not have returned to the full-time performance of his duties during
such thirty (30) day period); (3) if the Employee's employment is
terminated for Cause, the date specified in the Notice of Termination
(which shall not be less than thirty (30) days from the date such Notice
of Termination is given), and (4) if the Employee's employment is
terminated for any other reason, the date specified in the Notice of
Termination.
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(e) Change in Control. A "Change in Control" shall be deemed to
have occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Employer; any trustee or other fiduciary holding
securities under an employee benefit plan of the Employer; any company
owned, directly or indirectly, by the stockholders of the Employer in
substantially the same proportions as their ownership of the stock of the
Employer; or Thomas Kinkade or Kenneth E. Raasch, their wives or widows,
their lineal descendants and their heirs, devisees and donees, and trusts
created by them, inter vivos or by will, for the benefit of such persons
or for the benefit of charitable or educational institutions), is or
becomes the "beneficial owner" (as defined in Rule 13d-j under the
Exchange Act), directly or indirectly, of securities of the Employer (not
including in the securities beneficially owned by such person any
securities acquired directly from the Employer, its affiliates or Thomas
Kinkade or Kenneth E. Raasch or acquired by convening any convertible
preferred stock of the Employer, par value $.01 per share) representing
51% or more of the combined voting power of the Employer's then
outstanding securities; or
(ii) during any period of two consecutive years (not including
any period prior to the date hereof), individuals who at the beginning of
such period constitute the Board and any new director (other than a
director designated by a person who has entered into an agreement with
the Employer to effect a transaction described in subsection (i), (iii)
or (iv) of this Section 7(e)) whose election by the Board or nomination
for election by the Employer's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority thereof, or
(iii) the shareholders of the Employer approve a merger or
consolidation of the Employer with any other corporation, other than (A)
a merger or consolidation which would result in the voting securities of
the Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Employer, at least 75% of the combined
voting power of the voting securities of the Employer or such surviving
entity outstanding immediately after such merger or consolidation, or (B)
a merger or consolidation effected to implement a recapitalization of the
Employer (or similar transaction) in which no person acquires more than
50% of the combined voting power of the Employer's then outstanding
securities; or
(iv) the shareholders of the Employer approve a plan of complete
liquidation of the Employer or an agreement for the sale or disposition
by the Employer of all or substantially all the Employer's assets.
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(f) Good Reason. At any time following a Change in Control, the
Employee may terminate his employment hereunder for "Good Reason." "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any one of the following acts by the Employer, or failures by
the Employer to act, unless, in the case of any act or failure to act
described in paragraph (i), (v), (vi) or (vii) below, such act or failure
to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof;
(i) the assignment to the Employee of any duties inconsistent
with the Employee's status as a senior executive of the Employer of a
substantially adverse alteration in the nature or status of the
Employee's responsibilities from those in effect immediately prior to the
Change in Control;
(ii) a reduction by the Employer in the Employee's annual base
salary which is prohibited by this agreement as in effect on the date
hereof or as the same may be increased from time to time;
(iii) the relocation of the Employer's principal office to a
location outside the Santa Clara County, California area (or, if
different, the metropolitan area in which such offices are located
immediately prior to the Change in Control) or the Employer's requiring
the Employee to be based anywhere other than the Employer's principal
executive offices (or, if different, the metropolitan area in which such
offices are located immediately prior to the Change in Control), except
for required travel on the Employer's or any of its subsidiaries'
business to an extent substantially consistent with the Employee's
present business travel obligations;
(iv) the failure by the Employer, without the Employee's consent,
to pay to the Employee any portion of the Employee's current
compensation, or to pay to the Employee any portion of an installment of
deferred compensation under any deferred compensation program of the
Employer, within seven (7) days of the date such compensation is due;
(v) the failure by the Employer to continue in effect any
compensation plan in which the Employee participates immediately prior to
the Change in Control which is material to the Employee's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan,
or the failure by the Employer to continue the Employee's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Employee's participation relative to other
participants, as existed immediately prior to the Change in Control;
(vi) the failure by the Employer to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Employer's pension, life insurance, medical,
health and accident, or disability plans in which the Employee was
participating immediately prior to the Change in Control, the taking of
any action by the Employer which would directly or indirectly materially
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<PAGE> 7
reduce any of such benefits or deprive the Employee of any material
fringe benefit enjoyed by the Employee immediately prior to the Change in
Control, or the failure by the Employer to provide the Employee with the
number of paid vacation days to which the Employee is entitled on the
basis of years of service with the Employer in accordance with the
Employer's normal vacation policy in effect immediately prior to the
Change in Control; or
(vii) any purported termination of the Employee's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective.
The Employee's right to terminate his employment for Good Reason shall
not be affected by his incapacity due to physical or mental illness.
Some or all of the above acts or failure to act constitutes a breach of
contract and the Employee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to
act constituting Good Reason hereunder.
8. Compensation Upon Termination or During Disability. The
Employee shall be entitled to the following benefits during a period of
disability, or upon termination of his employment, as the case may be,
provided that such period or termination occurs prior to the expiration
of this Agreement:
(a) During any period that the Employee fails to perform his
full-time duties with the Employer as a result of incapacity due to
physical or mental illness, he shall continue to receive his base salary
at the rate in effect at the commencement of any such period together
with all compensation payable to him under the Employer's disability plan
or program or other similar plan during such period, until his employment
is terminated pursuant to Section 7(a) hereof. Thereafter, or in the
event the Employee's employment shall be terminated by reason of his
death, his benefits shall be determined under the Employer's retirement,
insurance and other compensation programs then in effect in accordance
with the terms of such programs.
(b) If at any time the Employee's employment shall be terminated (i)
by reason of his death (ii) by the Employer for Cause or Disability or
(iii) by him for any reason (other than, following the occurrence of a
Change in Control, for Good Reason), the Employer shall pay him or the
appropriate payee, as the case may be (as determined in accordance with
Section 9(b) hereof) his full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus
all other amounts to which he is entitled under any compensation plan of
the Employer at the time such payments are due, and the Employer shall
have no further obligations to him under this Agreement.
(c) If, prior to a Change in Control, the Employee's employment
shall be terminated by the Employer other than for Cause or Disability,
he shall be entitled to the benefits provided below:
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(i) the Employer shall pay to the Employee his full base salary
through the Date of Termination at the rate in effect at the time the
Notice of Termination is given, no later than the fifth (5th) day
following the Date of Termination, plus all other amounts to which he is
entitled under any compensation plan of the Employer, at the time such
payments are due;
(ii) the Employer shall pay the Employee, at the time such
payments would have been made had the Employee's employment not been
terminated hereunder, all salary, bonus payments and vested portions of
retirement and employee benefit plans that would have been payable to the
Employee pursuant to this Agreement had the Employee continued to be
employed for the remaining duration of this Agreement, assuming for the
purpose of such continuing payments that the Employee's salary for each
year of such remaining duration is equal to his salary at the Date of
Termination and that his annual bonus for each year of such remaining
duration is equal to the average of the annual bonuses paid to him by the
Employer with respect to the three (or, if less, the number of years the
Employee has been employed by the Employer) fiscal years ended
immediately prior to the fiscal year in which the Date of Termination
occurs; and
(iii) the Employer shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and
defense of officers or directors of the Employer which are in effect on
the date the Notice of Termination is sent to the Employee with respect
to all of his acts and omissions while an officer or director as fully
and completely as if such termination had not occurred, and until the
final expiration or running of all periods of limitation against actions
which may be applicable to such acts or omissions.
(d) If, following a Change in Control, the Employee's employment
should be terminated by the Employer other than for Cause or Disability
or by the Employee for Good Reason, he shall be entitled to the benefits
below:
(i) the Employer shall pay to the Employee his full base salary
through the Date of Termination at the rate in effect at the time Notice
of Termination is given; plus all salary and bonus payments that would
have been payable to the Employee pursuant to this Agreement had the
Employee continued to be employed for the duration of this Agreement,
assuming for the purpose of such payments that his salary for each year
of such duration is equal to his salary at the Date of Termination and
that his annual bonus for each year of such duration is equal to the
average of the annual bonuses paid to him by the Employer (or its
predecessors) with respect to the three (or, if less, the number of years
the Employee has been employed with the Employer and its predecessors)
fiscal years ended immediately prior to the fiscal year in which the Date
of Termination occurs; plus all other amounts to which he is entitled
under any compensation plan of the Employer, including but not limited to
vested portions of retirement and employee benefit plans in cash in a
lump sum no later than the fifteenth (15th) day following the Date of
Termination; and
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(ii) the Employer shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and
defense of officers or directors of the Employer which are in effect on
the date the Notice of Termination is sent to the Employee with respect
to all of his acts and omissions while an officer or director as fully
and completely as if such termination had not occurred, and until the
final expiration or running of all periods of limitation against actions
which may be applicable to such acts or omissions.
(e) The Employee shall not be required to mitigate the amount of any
payment provided for in this Section 8 by seeking other employment or
otherwise.
(f) In the event the employment of the Employee is terminated by
the Employer without Cause or the Employee's employment is terminated by
the Employee under conditions entitling him to payment hereunder and the
Employer fails to make timely payment of the amounts then owed to the
Employee under this Agreement, the Employee shall be entitled to interest
on such amounts at the rate of one percent (1%) above the prime rate
(defined as the base rate on corporate loans at large U.S. money center
commercial banks as published by the Wall Street Journal), compounded
monthly, for the period from the date such amounts were otherwise due
until payment is made to the Employee (which interest shall be in
addition to all rights which the Employee is otherwise entitled to under
this Agreement).
9. No Assignments. This Agreement is personal to each of the
parties hereto. No party may assign or delegate any rights or obligations
hereunder without first obtaining the written consent of all of the other
parties hereto, except that this Agreement shall be binding upon and
inure to the benefit of any successor corporation to the Employer.
(a) This Agreement shall inure to the benefit of and be enforceable
by the Employee and his personal or legal representatives, executors,
administrators. successors, heirs, distributees, devisees and legatees.
If the Employee should die while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee, if there is no such
designee, to his estate.
10. (a) Noncompetition. The Employee agrees that while this
Agreement is in effect, he will not, directly or indirectly, without the
prior written consent of the Employer, provide consultative service with
or without pay, own, manage, operate, join, control, participate in, or
be connected as a stockholder, partner, or otherwise with any business
individual, partner, firm, corporation, or other entity which is then in
competition with the Employer or any subsidiary of affiliate of the
Employer. It is further expressly agreed that the Employer will or would
suffer irreparable injury if the Employee were to compete with the
Employer or any subsidiary or affiliate of the Employer in violation of
this Agreement and that the Employer would by reason of such competition
be entitled to injunctive relief in a court of appropriate jurisdiction,
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and the Employee further consents and stipulates to the entry of such
injunctive relief in such a court prohibiting the Employee from competing
with the Employer or any subsidiary or affiliate of the Employer, in the
areas set forth above, in violation of this Agreement.
(b) Right to Company Materials. The Employee agrees that
all styles, designs, lists, materials, books, files, reports,
correspondence, records, and other documents ("Company Material") used,
prepared, or made available to the Employee, shall be and shall remain
the property of the Employer, its subsidiary, or its affiliate, as the
case may be. Upon termination of employment or the expiration of this
Agreement, all Company Materials shall be returned immediately to the
Employer, its subsidiary, or its affiliate, as the case may be; provided,
however, that the Employee shall be entitled to make and retain any
copies thereof with respect to matters involving the Employee, such
copies to be used for personal record keeping purposes only and not for
use for any other purpose. In no event shall such copies of Company
Materials be used in conjunction with any subsequent employer.
(c) Antisolicitation. The Employee promises and agrees that
while this Agreement continues in effect, he will not influence or
attempt to influence customers or suppliers of the Employer or any of its
present or future subsidiaries or affiliates, either directly or
indirectly, to divert their business to any individual, partnership,
firm, corporation or other entity then in competition with the business
of the Employer, or any subsidiary or affiliate of the Employer.
(d) Soliciting Employees. The Employee promises and agrees
that while this Agreement continues in effect and for two years
thereafter, he will not directly or indirectly solicit any of the
employees of the Employer, its subsidiaries or its affiliates to work for
or invest in, as the case may be, any business, individual, partnership,
firm, corporation, or other entity then in competition with the business
of the Employer or any subsidiary or affiliate of the Employer.
(e) Restriction on Use or Disclosure of Trade Secrets.
It is expressly understood that the Employee may be dealing with trade
secrets of the Employer, its subsidiaries and its affiliates, including
but not limited to information, system(s), inventions, and processes,
all of a confidential nature, that concern the operations of the
Employer, its subsidiaries or affiliates and that are the Employer's
property and are used in the course of the Employer's business or that of
its subsidiaries or affiliates. The Employee promises and agrees that he
will not disclose to anyone, directly or indirectly, either while this
Agreement is in effect or at any time thereafter, any of such trade
secrets, or use them other than in the course of his employment. The
Employee acknowledges that the Employer may use all remedies, including
injunctive relief, in order to enforce the provisions of this paragraph
(e).
11. Notice. For the purpose of this Agreement, notices provided
for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
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registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as any
party may have furnished to the other in writing in accordance herewith,
except that notice of a change of address shall be effective only upon
actual receipt:
Employer: MEDIA ARTS GROUP, INC.
521 Charcot Ave.
San Jose, CA 95131
Attn. Chairman of the Board
Employee: RAYMOND A. PETERSON
822 Kolb Place
Santa Clara, California 95050
12. Indemnification. If the Employee is made or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was an officer of the Employer, or is or
was an officer of the Employer serving at the request of the Employer as
a director or officer, employee or agent of another corporation
partnership, joint venture, trust, employee benefit plan or other
enterprise, then the Employer shall indemnify the Employee against
expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with
such action suit or proceeding if he acted in good faith, as such term is
defined in the Bylaws of the Employer, and in a manner he reasonably
believed to be in or not opposed to the best interests of the Employer,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful; provided, however, that with
respect to actions, suit or proceedings by or in the right of the
Employer, the Employer shall not indemnify the Employee in respect of any
claim, issue or matter as to such which Employee shall have been adjudged
to be liable to the Employer unless and only to the extent that the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such Employee is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Employer, and, with
respect to any criminal action or proceeding, any reasonable cause to
believe that his conduct was unlawful.
13. Entire Agreement. This Agreement represents the entire
agreement of the parties hereto. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter
hereof have been made by any of the parties which are not expressly set
forth in this Agreement.
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14. Amendments, Additions, Modification, Waiver or Discharge. No
amendments or additions to this Agreement shall be binding unless in
writing and signed by all parties hereto. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by all parties hereto.
15. Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of California and
any applicable federal laws.
16. Cautions and Section Numbers. The captions and numbers to the
sections and paragraphs of this Agreement are inserted for convenience
only and shall not affect the construction or interpretation hereof.
17. Triplicate Originals: Counterparts. This Agreement and all
amendments shall be fully executed in triplicate and each triplicate
shall constitute an original of the same instrument. This Agreement may
be executed in several counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
18. Arbitration. Any controversy or claim arising out of or relating
to this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in San Jose, California in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
19. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
20. Numbers. Unless the context clearly indicates otherwise, words
used herein in the singular include the plural and words in the plural
include the singular.
21. Gender. The use of the feminine, masculine or neuter pronoun
shall not be restrictive as to gender and shall be interpreted in all
cases as the context may require.
22. Representations of Employee. The Employee represents that he is
not under contract of any kind with any entity or business that would
prohibit him from entering into this Agreement. The Employee further
represents that he is entirely free to enter into this Agreement and that
he neither has nor will enter into any agreement or other obligation
while this Agreement is in effect which might conflict with this
Agreement or interfere or conflict with any of the terms hereof.
23. Representations of Employer. The Employer represents that it is
a corporation in good standing by and under the laws of the State of
Delaware and that its Chairman of the Board has the authority to properly
execute this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement on the date first indicated above.
/s/ Kenneth E. Raasch
- --------------------------------
KENNETH E. RAASCH
CHAIRMAN OF THE BOARD
MEDIA ARTS GROUP, INC.
/s/ Raymond A. Peterson
- --------------------------------
RAYMOND A. PETERSON
Employee
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is effective as of November 19, 1998 by and
between MEDIA ARTS GROUP, INC., a Delaware corporation (the "Employer"),
and GREG NASH, of 731 Henrietta Avenue, Sunnyvale, California 94086 (the
"Employee").
RECITALS
A. Employer is the parent company of various wholly owned subsidiaries
and divisions which are engaged in the business of the creation,
printing, reproduction, marketing, production, and selling of various
forms of artwork, including, without limitation, paintings, prints,
lithographs, posters, as well as licensing and wholesale distribution of
plates, figurines, and other two- and three-dimensional artwork. Employer
is also engaged in significant growth which may lead to the acquisition and
development of related and other businesses.
B. The Board of Directors of the Employer (the "Board"), and its
Compensation Committee, has approved and authorized the entry of this
Agreement with the Employee.
C. The parties to this Agreement desire to enter into this Agreement
setting forth the terms and conditions for the employment relationship of
the Employee with the Employer.
NOW, THEREFORE, IN CONSIDERATION OF THE COVENANTS, CONDITIONS AND
PROMISES OF THE PARTIES SET FORTH BELOW, Employer and Employee agree as
follows:
1. Employment. The Employee is employed as Chief Financial Officer
("CFO") of Media Arts Group, Inc., as of the date of this Agreement and
through and until the termination of this Agreement, as hereinafter
defined, with the duties and responsibilities and on the terms and
conditions hereinafter set forth.
2. Responsibilities and Duties of Employee. It is agreed that
Employee is employed on a full-time basis, which is defined to mean
Employee's entire productive time, ability and attention. It is further
agreed that for so long as the Employee is employed with the Employer,
Employee shall not engage in any other business duties or pursuits,
without the express written consent of the Board of the Employer (the
"Board"). In his capacity as CFO, Employee shall perform such duties and
responsibilities as the Board of the Employer shall designate as are not
inconsistent with the Employee's position with the Employer, including
the performance of duties with respect to any subsidiaries of the
Employer.
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<PAGE> 2
Employee shall at all times perform the duties set forth herein
faithfully, industriously, and to the best of Employee's ability,
experience and talent. Employee shall report directly to the Chief
Executive Officer of the Employer in regard to all matters unless
otherwise mutually agreed to by the parties.
3. Location of Employee's Work. The Employee shall be based in the
principal executive offices of the Employer in San Jose, California, or
in any city to which the principal executive offices of the Employer may
relocate. The Employee shall travel to such other locations as may be
reasonably required in the performance of his duties hereunder.
4. Duration of Employment. The Employer agrees to employ Employee in
the capacity set forth above for the period of time commencing as of the
date hereof and ending on November 19, 2001. In that regard, this
Agreement shall be binding on the parties as of the date hereof and shall
terminate at Midnight on November 19, 2001; provided, however, in the
event a Change of Control as defined herein, occurs prior to the
expiration of this Agreement, this Agreement shall not expire prior to
the last day of the sixtieth (60th) month following the date of such
Change in Control.
5. Compensation to Employee.
(a) Salary. The Employer agrees to pay the Employee a base
salary at an annual rate equal to $160,000.00, with such salary to be
increased, at such times, if any, as the Board may deem appropriate, to
an amount determined by the Board, which increases shall be consistent
with the normal historical business practices of the Employer and the
salary adjustments for other senior executives of the Employer.
Notwithstanding the foregoing, the salary of the Employee shall not be
decreased at any time from the amount of salary then in effect.
Participation in deferred compensation, discretionary bonus, retirement
and other employee benefit plans shall not reduce the salary payable to
the Employee under this Paragraph (a) of this Section 5. The salary
under this Paragraph (a) of this Section 5 shall be payable on a
semi-monthly basis and shall be subject to standard federal and
California tax withholding rules.
(b) Health Care. The Employer agrees to provide medical insurance
coverage under the Employer's group medical insurance plan for the
Employee and his dependents, at no cost to the Employee for such coverage
of the Employee and his dependents.
(c) Bonuses. Employee shall be entitled to participate in any
Bonus program of the Employer that the Employer has adopted or may adopt
for the benefit of its senior executives.
(d) Retirement and Employee Benefit Plans. The Employee shall be
entitled to participate in any plan of the Employer relating to stock
options, stock purchases, pension, thrift, profit sharing, education, or
other retirement or employee benefits that the Employer has adopted or
may adopt for the benefit of its senior executives.
2
<PAGE> 3
(e) Fringe Benefits; Framed Lithograph; Cellular Phone. In
addition to the benefit plans referred to above, the Employee shall be
entitled to participate in any other fringe benefits which are now or may
be or become applicable to the Employer's senior executives, and any
other benefits which are commensurate with the duties and
responsibilities to be performed by the Employee under this Agreement.
The Employee shall receive four (4) framed Standard Numbered lithographs,
which are produced and distributed by the Employer and for which the
Employee shall select the images, per year of employment, on an annual
basis. The Employer agrees to provide the Employee with a cellular
telephone. The Employer shall reimburse the Employee for reasonable
expenses incurred for the use of such cellular telephone. Notwithstanding
the foregoing, the benefits provided under this paragraph shall not be
decreased following a Change in Control, as hereinafter defined, without
the written consent of the Employee, provided, however, that the benefits
provided under this paragraph shall cease upon termination of the
Employee's employment with the Employer.
(f) Voluntary Absences: Vacations. The Employee shall be
entitled, without loss of pay, to be absent voluntarily for reasonable
periods of time from the performance of the duties and responsibilities
under this Agreement. All such voluntary absences shall count as paid
vacation time, unless the Board otherwise determines. The Employee shall
be entitled to an annual paid vacation of four (4) weeks per year or such
longer period as the Board may approve; such paid vacation shall accrue
at the rate of 13.33 hours per month. The timing of paid vacations shall
be scheduled in a reasonable manner by the Employee, subject to the
general approval of the Board.
6. Expenses Incurred by Employee. In addition to the compensation
structure set forth in Section 5, the Employer shall pay all direct
out-of-pocket expenses incurred by the Employee in connection with the
performance of his duties set forth herein including, but not limited to,
travel, lodging and long distance telephone expenses. The Employee shall
include in any request for reimbursement for such expenses a detailed
account with receipts of all expenses incurred by the Employee, and a
detailed account of the business relating to those expenses, in
connection with the performance of his duties as described in this
Agreement.
7. Termination.
(a) Disability. If, as a result of the Employee's incapacity due
to physical or mental illness, he shall have been absent from the
full-time performance of his duties with the Employer for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given, he shall not have returned to the full-time
performance of his duties, his employment may be terminated by the
Employer for "Disability."
(b) Cause. Subject to the notice provisions set forth below, the
Employer may terminate the Employee's employment for "Cause" at any time.
"Cause" shall mean termination upon (1) the failure by the Employee to
perform his material obligations or duties under this Agreement (other
3
<PAGE> 4
than any such failure resulting from his incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to him by the Board, which demand specifically identifies the
manner in which the Board believes that he has not substantially
performed his duties and which provides a thirty (30) day period of time
to remedy such failure, (2) the willful engaging by the Employee in
conduct which is demonstrably and materially injurious to the Employer,
monetary or otherwise, or (3) if Employee shall be convicted of, or shall
plead guilty or nolo contendere to, a felony where such crime materially
interferes with Employee's ability to fulfill his duties under this
Agreement or is otherwise materially injurious to the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative
vote of not less than two-thirds (2/3) of the entire membership of the
Board at a meeting of such Board (after reasonable notice to him and an
opportunity for him, together with his counsel, to be heard before such
Board), finding that he has engaged in the conduct set forth above in
this paragraph (b) and specifying the particulars thereof in detail.
(c) Notice of Termination. Any termination of the Employee's
employment by the Employer or by the Employee shall be communicated by
written Notice of Termination to the other party hereto in accordance
with Section 11. "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for the termination of the Employee's
employment under the provision so indicated.
(d) Date of Termination. "Date of Termination" shall mean (i) if
the Employee's employment is terminated by his death, the date of his
death; (2) if the Employee's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that he
shall not have returned to the full-time performance of his duties during
such thirty (30) day period); (3) if the Employee's employment is
terminated for Cause, the date specified in the Notice of Termination
(which shall not be less than thirty (30) days from the date such Notice
of Termination is given), and (4) if the Employee's employment is
terminated for any other reason, the date specified in the Notice of
Termination.
(e) Change in Control. A "Change in Control" shall be deemed to
have occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Employer; any trustee or other fiduciary holding
securities under an employee benefit plan of the Employer; any company
owned, directly or indirectly, by the stockholders of the Employer in
substantially the same proportions as their ownership of the stock of the
Employer; or Thomas Kinkade or Kenneth E. Raasch, their wives or widows,
4
<PAGE> 5
their lineal descendants and their heirs, devisees and donees, and trusts
created by them, inter vivos or by will, for the benefit of such persons
or for the benefit of charitable or educational institutions), is or
becomes the "beneficial owner" (as defined in Rule 13d-j under the
Exchange Act), directly or indirectly, of securities of the Employer
(not including in the securities beneficially owned by such person any
securities acquired directly from the Employer, its affiliates or Thomas
Kinkade or Kenneth E. Raasch or acquired by convening any convertible
preferred stock of the Employer, par value $.01 per share) representing
51% or more of the combined voting power of the Employer's then
outstanding securities; or
(ii) during any period of two consecutive years (not including
any period prior to the date hereof), individuals who at the beginning of
such period constitute the Board and any new director (other than a
director designated by a person who has entered into an agreement with
the Employer to effect a transaction described in subsection (i), (iii)
or (iv) of this Section 7(e)) whose election by the Board or nomination
for election by the Employer's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to onstitute a majority thereof, or
(iii) the shareholders of the Employer approve a merger or
consolidation of the Employer with any other corporation, other than (A)
a merger or consolidation which would result in the voting securities of
the Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Employer, at least 75% of the combined
voting power of the voting securities of the Employer or such surviving
entity outstanding immediately after such merger or consolidation, or (B)
a merger or consolidation effected to implement a recapitalization of the
Employer (or similar transaction) in which no person acquires more than
50% of the combined voting power of the Employer's then outstanding
securities; or
(iv) the shareholders of the Employer approve a plan of complete
liquidation of the Employer or an agreement for the sale or disposition
by the Employer of all or substantially all the Employer's assets.
(f) Good Reason. At any time following a Change in Control, the
Employee may terminate his employment hereunder for "Good Reason." "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any one of the following acts by the Employer, or failures by
the Employer to act, unless, in the case of any act or failure to act
described in paragraph (i), (v), (vi) or (vii) below, such act or failure
to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof;
5
<PAGE> 6
(i) the assignment to the Employee of any duties inconsistent
with the Employee's status as a senior executive of the Employer of a
substantially adverse alteration in the nature or status of the
Employee's responsibilities from those in effect immediately prior to the
Change in Control;
(ii) a reduction by the Employer in the Employee's annual base
salary which is prohibited by this agreement as in effect on the date
hereof or as the same may be increased from time to time;
(iii) the relocation of the Employer's principal office to a
location outside the Santa Clara County, California area (or, if
different, the metropolitan area in which such offices are located
immediately prior to the Change in Control) or the Employer's requiring
the Employee to be based anywhere other than the Employer's principal
executive offices (or, if different, the metropolitan area in which such
offices are located immediately prior to the Change in Control), except
for required travel on the Employer's or any of its subsidiaries'
business to an extent substantially consistent with the Employee's
present business travel obligations;
(iv) the failure by the Employer, without the Employee's consent,
to pay to the Employee any portion of the Employee's current
compensation, or to pay to the Employee any portion of an installment of
deferred compensation under any deferred compensation program of the
Employer, within seven (7) days of the date such compensation is due;
(v) the failure by the Employer to continue in effect any
compensation plan in which the Employee participates immediately prior to
the Change in Control which is material to the Employee's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan,
or the failure by the Employer to continue the Employee's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Employee's participation relative to other
participants, as existed immediately prior to the Change in Control;
(vi) the failure by the Employer to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Employer's pension, life insurance, medical,
health and accident, or disability plans in which the Employee was
participating immediately prior to the Change in Control, the taking of
any action by the Employer which would directly or indirectly materially
reduce any of such benefits or deprive the Employee of any material
fringe benefit enjoyed by the Employee immediately prior to the Change in
Control, or the failure by the Employer to provide the Employee with the
number of paid vacation days to which the Employee is entitled on the
basis of years of service with the Employer in accordance with the
Employer's normal vacation policy in effect immediately prior to the
Change in Control; or
6
<PAGE> 7
(vii) any purported termination of the Employee's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective.
The Employee's right to terminate his employment for Good Reason shall
not be affected by his incapacity due to physical or mental illness.
Some or all of the above acts or failure to act constitutes a breach of
contract and the Employee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to
act constituting Good Reason hereunder.
8. Compensation Upon Termination or During Disability. The
Employee shall be entitled to the following benefits during a period of
disability, or upon termination of his employment, as the case may be,
provided that such period or termination occurs prior to the expiration
of this Agreement:
(a) During any period that the Employee fails to perform his
full-time duties with the Employer as a result of incapacity due to
physical or mental illness, he shall continue to receive his base salary
at the rate in effect at the commencement of any such period together
with all compensation payable to him under the Employer's disability plan
or program or other similar plan during such period, until his employment
is terminated pursuant to Section 7(a) hereof. Thereafter, or in the
event the Employee's employment shall be terminated by reason of his
death, his benefits shall be determined under the Employer's retirement,
insurance and other compensation programs then in effect in accordance
with the terms of such programs.
(b) If at any time the Employee's employment shall be terminated
(i) by reason of his death (ii) by the Employer for Cause or Disability
or (iii) by him for any reason (other than, following the occurrence of a
Change in Control, for Good Reason), the Employer shall pay him or the
appropriate payee, as the case may be (as determined in accordance with
Section 9(b) hereof) his full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus
all other amounts to which he is entitled under any compensation plan of
the Employer at the time such payments are due, and the Employer shall
have no further obligations to him under this Agreement.
(c) If, prior to a Change in Control, the Employee's employment
shall be terminated by the Employer other than for Cause or Disability,
he shall be entitled to the benefits provided below:
(i) the Employer shall pay to the Employee his full base salary
through the Date of Termination at the rate in effect at the time the
Notice of Termination is given, no later than the fifth (5th) day
following the Date of Termination, plus all other amounts to which he is
entitled under any compensation plan of the Employer, at the time such
payments are due;
7
<PAGE> 8
(ii) the Employer shall pay the Employee, at the time such
payments would have been made had the Employee's employment not been
terminated hereunder, all salary, bonus payments and vested portions of
retirement and employee benefit plans that would have been payable to the
Employee pursuant to this Agreement had the Employee continued to be
employed for the remaining duration of this Agreement, assuming for the
purpose of such continuing payments that the Employee's salary for each
year of such remaining duration is equal to his salary at the Date of
Termination and that his annual bonus for each year of such remaining
duration is equal to the average of the annual bonuses paid to him by the
Employer with respect to the three (or, if less, the number of years the
Employee has been employed by the Employer) fiscal years ended
immediately prior to the fiscal year in which the Date of Termination
occurs; and
(iii) the Employer shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and
defense of officers or directors of the Employer which are in effect on
the date the Notice of Termination is sent to the Employee with respect
to all of his acts and omissions while an officer or director as fully
and completely as if such termination had not occurred, and until the
final expiration or running of all periods of limitation against actions
which may be applicable to such acts or omissions.
(d) If, following a Change in Control, the Employee's employment
should be terminated by the Employer other than for Cause or Disability
or by the Employee for Good Reason, he shall be entitled to the benefits
below:
(i) the Employer shall pay to the Employee his full base salary
through the Date of Termination at the rate in effect at the time Notice
of Termination is given; plus all salary and bonus payments that would
have been payable to the Employee pursuant to this Agreement had the
Employee continued to be employed for the duration of this Agreement,
assuming for the purpose of such payments that his salary for each year
of such duration is equal to his salary at the Date of Termination and
that his annual bonus for each year of such duration is equal to the
average of the annual bonuses paid to him by the Employer (or its
predecessors) with respect to the three (or, if less, the number of years
the Employee has been employed with the Employer and its predecessors)
fiscal years ended immediately prior to the fiscal year in which the Date
of Termination occurs; plus all other amounts to which he is entitled
under any compensation plan of the Employer, including but not limited to
vested portions of retirement and employee benefit plans in cash in a
lump sum no later than the fifteenth (15th) day following the Date of
Termination; and
(ii) the Employer shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and
defense of officers or directors of the Employer which are in effect on
the date the Notice of Termination is sent to the Employee with respect
to all of his acts and omissions while an officer or director as fully
and completely as if such termination had not occurred, and until the
8
<PAGE> 9
final expiration or running of all periods of limitation against actions
which may be applicable to such acts or omissions.
(e) The Employee shall not be required to mitigate the amount of any
payment provided for in this Section 8 by seeking other employment or
otherwise.
(f) In the event the employment of the Employee is terminated by
the Employer without Cause or the Employee's employment is terminated by
the Employee under conditions entitling him to payment hereunder and the
Employer fails to make timely payment of the amounts then owed to the
Employee under this Agreement, the Employee shall be entitled to interest
on such amounts at the rate of one percent (1%) above the prime rate
(defined as the base rate on corporate loans at large U.S. money center
commercial banks as published by the Wall Street Journal), compounded
monthly, for the period from the date such amounts were otherwise due
until payment is made to the Employee (which interest shall be in
addition to all rights which the Employee is otherwise entitled to under
this Agreement).
9. No Assignments. This Agreement is personal to each of the
parties hereto. No party may assign or delegate any rights or obligations
hereunder without first obtaining the written consent of all of the other
parties hereto, except that this Agreement shall be binding upon and
inure to the benefit of any successor corporation to the Employer.
(a) This Agreement shall inure to the benefit of and be enforceable
by the Employee and his personal or legal representatives, executors,
administrators. successors, heirs, distributees, devisees and legatees.
If the Employee should die while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee, if there is no such
designee, to his estate.
10. (a) Noncompetition. The Employee agrees that while this
Agreement is in effect, he will not, directly or indirectly, without the
prior written consent of the Employer, provide consultative service with
or without pay, own, manage, operate, join, control, participate in, or
be connected as a stockholder, partner, or otherwise with any business
individual, partner, firm, corporation, or other entity which is then in
competition with the Employer or any subsidiary of affiliate of the
Employer. It is further expressly agreed that the Employer will or would
suffer irreparable injury if the Employee were to compete with the
Employer or any subsidiary or affiliate of the Employer in violation of
this Agreement and that the Employer would by reason of such competition
be entitled to injunctive relief in a court of appropriate jurisdiction,
and the Employee further consents and stipulates to the entry of such
injunctive relief in such a court prohibiting the Employee from competing
with the Employer or any subsidiary or affiliate of the Employer, in the
areas set forth above, in violation of this Agreement.
9
<PAGE> 10
(b) Right to Company Materials. The Employee agrees that
all styles, designs, lists, materials, books, files, reports,
correspondence, records, and other documents ("Company Material") used,
prepared, or made available to the Employee, shall be and shall remain
the property of the Employer, its subsidiary, or its affiliate, as the
case may be. Upon termination of employment or the expiration of this
Agreement, all Company Materials shall be returned immediately to the
Employer, its subsidiary, or its affiliate, as the case may be; provided,
however, that the Employee shall be entitled to make and retain any
copies thereof with respect to matters involving the Employee, such
copies to be used for personal record keeping purposes only and not for
use for any other purpose. In no event shall such copies of Company
Materials be used in conjunction with any subsequent employer.
(c) Antisolicitation. The Employee promises and agrees that
while this Agreement continues in effect, he will not influence or
attempt to influence customers or suppliers of the Employer or any of its
present or future subsidiaries or affiliates, either directly or
indirectly, to divert their business to any individual, partnership,
firm, corporation or other entity then in competition with the business
of the Employer, or any subsidiary or affiliate of the Employer.
(d) Soliciting Employees. The Employee promises and agrees
that while this Agreement continues in effect and for two years
thereafter, he will not directly or indirectly solicit any of the
employees of the Employer, its subsidiaries or its affiliates to work for
or invest in, as the case may be, any business, individual, partnership,
firm, corporation, or other entity then in competition with the business
of the Employer or any subsidiary or affiliate of the Employer.
(e) Restriction on Use or Disclosure of Trade Secrets.
It is expressly understood that the Employee may be dealing with trade
secrets of the Employer, its subsidiaries and its affiliates, including
but not limited to information, system(s), inventions, and processes, all
of a confidential nature, that concern the operations of the Employer,
its subsidiaries or affiliates and that are the Employer's property and
are used in the course of the Employer's business or that of its
subsidiaries or affiliates. The Employee promises and agrees that he will
not disclose to anyone, directly or indirectly, either while this
Agreement is in effect or at any time thereafter, any of such trade
secrets, or use them other than in the course of his employment. The
Employee acknowledges that the Employer may use all remedies, including
injunctive relief, in order to enforce the provisions of this paragraph
(e).
11. Notice. For the purpose of this Agreement, notices provided
for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as any
party may have furnished to the other in writing in accordance herewith,
except that notice of a change of address shall be effective only upon
actual receipt:
10
<PAGE> 11
Employer: MEDIA ARTS GROUP, INC.
521 Charcot Ave.
San Jose, CA 95131
Attn. Chief Executive Officer
Employee: Greg Nash
731 Henrietta Avenue
Sunnyvale, California 94086
12. Indemnification. If the Employee is made or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was an officer of the Employer, or is or
was an officer of the Employer serving at the request of the Employer as
a director or officer, employee or agent of another corporation
partnership, joint venture, trust, employee benefit plan or other
enterprise, then the Employer shall indemnify the Employee against
expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with
such action suit or proceeding if he acted in good faith, as such term is
defined in the Bylaws of the Employer, and in a manner he reasonably
believed to be in or not opposed to the best interests of the Employer,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful; provided, however, that with
respect to actions, suit or proceedings by or in the right of the
Employer, the Employer shall not indemnify the Employee in respect of any
claim, issue or matter as to such which Employee shall have been adjudged
to be liable to the Employer unless and only to the extent that the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such Employee is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Employer, and, with
respect to any criminal action or proceeding, any reasonable cause to
believe that his conduct was unlawful.
13. Entire Agreement. This Agreement represents the entire
agreement of the parties hereto. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter
hereof have been made by any of the parties which are not expressly set
forth in this Agreement.
14. Amendments, Additions, Modification, Waiver or Discharge. No
amendments or additions to this Agreement shall be binding unless in
writing and signed by all parties hereto. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by all parties hereto.
11
<PAGE> 12
15. Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of California and
any applicable federal laws.
16. Cautions and Section Numbers. The captions and numbers to the
sections and paragraphs of this Agreement are inserted for convenience
only and shall not affect the construction or interpretation hereof.
17. Triplicate Originals: Counterparts. This Agreement and all
amendments shall be fully executed in triplicate and each triplicate
shall constitute an original of the same instrument. This Agreement may
be executed in several counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
18. Arbitration. Any controversy or claim arising out of or relating
to this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in San Jose, California in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
19. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
20. Numbers. Unless the context clearly indicates otherwise, words
used herein in the singular include the plural and words in the plural
include the singular.
21. Gender. The use of the feminine, masculine or neuter pronoun
shall not be restrictive as to gender and shall be interpreted in all
cases as the context may require.
22. Representations of Employee. The Employee represents that he is
not under contract of any kind with any entity or business that would
prohibit him from entering into this Agreement. The Employee further
represents that he is entirely free to enter into this Agreement and that
he neither has nor will enter into any agreement or other obligation
while this Agreement is in effect which might conflict with this
Agreement or interfere or conflict with any of the terms hereof.
23. Representations of Employer. The Employer represents that it is
a corporation in good standing by and under the laws of the State of
Delaware and that its Chairman of the Board has the authority to properly
execute this Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement on the date first indicated above.
/s/ Kenneth E. Raasch
- --------------------------------
KENNETH E. RAASCH
CHAIRMAN OF THE BOARD
MEDIA ARTS GROUP, INC.
/s/ Greg Nash
- --------------------------------
GREG NASH
Employee
13
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<TOTAL-REVENUES> 94,954
<CGS> 31,146
<TOTAL-COSTS> 41,322
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,907
<INCOME-TAX> 8,861
<INCOME-CONTINUING> 14,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,046
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.02
</TABLE>
