MEDIA ARTS GROUP INC, DEF 14A, 2000-07-28

MEDIA ARTS GROUP INC
DEF 14A, 2000-07-28
COMMERCIAL PRINTING

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
</TABLE>

<TABLE>
<S> <C> <C>
MEDIA ARTS GROUP, INC.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]

JULY 24, 2000

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

DEAR FELLOW STOCKHOLDERS:

We cordially invite you to attend our 2000 Annual Meeting of Stockholders. The
meeting will be held on September 7, 2000 at 9:00 a.m. at 521 Charcot Avenue,
San Jose, California 95131.

At the meeting, we will elect nine (9) directors, vote on an amendment to the
1998 Stock Incentive Plan, ratify the selection of PricewaterhouseCoopers LLP as
our independent public accountants, report on our performance in fiscal 2000 and
answer your questions. Our products exhibit will be open before and after the
meeting.

We look forward to seeing you at the meeting.

Sincerely,

/s/ Craig A. Fleming

Craig A. Fleming
PRESIDENT & CHIEF EXECUTIVE OFFICER
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS............... 3
PROXY STATEMENT............................................. 4
QUESTIONS AND ANSWERS..................................... 5
PROPOSALS TO BE VOTED ON.................................. 9
THE BOARD OF DIRECTORS.................................... 10
BOARD AND COMMITTEE MEETINGS.............................. 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION........................................... 12
COMPENSATION OF DIRECTORS................................. 12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION............................................ 13
EXECUTIVE OFFICERS........................................ 16
EXECUTIVE COMPENSATION.................................... 18
OPTION GRANTS............................................. 19
OPTIONS EXERCISED......................................... 20
TEN-YEAR OPTION REPRICING................................. 21
EMPLOYMENT, SEVERANCE AND CHANGE-OF-CONTROL
ARRANGEMENTS............................................ 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 22
STOCK PERFORMANCE GRAPH................................... 25
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE... 25
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL
STOCKHOLDERS............................................ 26
STOCKHOLDER PROPOSALS..................................... 27
COSTS OF PROXY SOLICITATION............................... 27
TRANSACTION OF OTHER BUSINESS............................. 27
APPENDIX A................................................ 28
</TABLE>

2
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MEDIA ARTS GROUP, INC.
521 CHARCOT AVENUE
SAN JOSE, CA 95131

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 7, 2000

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

The 2000 Annual Meeting of Stockholders of Media Arts Group, Inc., will be
held on Thursday, September 7, 2000 at 9:00 a.m. at 521 Charcot Avenue, San
Jose, California for the following purposes:

1. To elect nine (9) directors to the board to serve for one (1) year terms
or until their respective successors are elected and qualified;

2. To approve an amendment to the Company's 1998 Stock Incentive Plan to
increase the shares reserved for issuance from 1,150,000 to 2,800,000;

3. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending March 31, 2001;
and

4. To transact other business properly coming before the Annual Meeting or
any related adjournments or postponements.

Holders of Company common stock at the close of business on July 10, 2000
are entitled to attend and vote at the meeting. A complete list of these
stockholders will be available at the Company's principal executive offices at
521 Charcot Avenue, San Jose, California, prior to the meeting.

BY ORDER OF THE BOARD,

/s/ Timothy S. Guster

Timothy S. Guster
SECRETARY

San Jose, California
July 24, 2000

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MEDIA ARTS GROUP, INC.
521 CHARCOT AVENUE
SAN JOSE, CA 95131

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

PROXY STATEMENT

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

Our board is soliciting proxies for the 2000 Annual Meeting of Stockholders
to be held on Thursday, September 7, 2000 at 9:00 a.m. at 521 Charcot Avenue,
San Jose, California. This Proxy Statement contains important information for
you to consider when deciding how to vote on the matters before the meeting.

The board set July 10, 2000 as the record date for the meeting. Stockholders
who owned Company common stock on that date are entitled to vote at and attend
the meeting, with each share entitled to one vote. There were 13,146,198 shares
of Company common stock outstanding on the record date.

Voting materials, which include the Proxy Statement, proxy card and 2000
Annual Report, will be mailed to stockholders on or about July 31, 2000.

In this Proxy Statement:

- "we," the "Company," "Media Arts," and "MAGI" mean Media Arts
Group, Inc., a Delaware corporation,

- "Profit Sharing Plan" means the Media Arts Group, Inc. Profit Sharing
Plan,

- "Stock Purchase Plan" means the Media Arts Group, Inc. Employee
Qualified Stock Purchase Plan,

- "Stock Incentive Plan" means the Media Arts Group, Inc. 1998 Stock
Incentive Plan,

- holding shares in "street name" means your Company shares are held in
an account at a brokerage firm, and

- "SEC" means the Securities and Exchange Commission.

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QUESTIONS AND ANSWERS

Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?

A: You are receiving this Proxy Statement and a proxy card from us because you
own shares of common stock in Media Arts. This Proxy Statement describes issues
on which we would like you, as a stockholder, to vote. It also gives you
information on these issues so that you can make an informed decision.

When you sign the proxy card, you appoint Timothy S. Guster and William C.
Morris, Jr. as your representatives at the meeting. Messrs. Guster and Morris
will vote your shares, as you have instructed them on the proxy card, at the
meeting. This way, your shares will be voted whether or not you attend the
meeting. Even if you plan to attend the meeting, it is a good idea to complete,
sign and return your proxy card in advance of the meeting just in case your
plans change.

If an issue comes up for vote at the meeting that is not on the proxy card,
Messrs. Guster and Morris will vote your shares, under your proxy, in accordance
with their best judgement.

Q: WHAT AM I VOTING ON?

A: You are being asked to vote on:

- the election of nine (9) directors,

- an amendment to our Stock Incentive Plan to increase the shares reserved
for issuance from 1,150,000 to 2,800,000, and

- the selection of PricewaterhouseCoopers LLP as the Company's independent
public accountants.

The section entitled "Proposals To Be Voted On" on page 9 of this Proxy
Statement gives you more information on the nominees for election to our board,
the amendment to the Stock Incentive Plan and the Company's independent public
accountants.

Q: HOW DO I VOTE?

A: (1) YOU MAY VOTE BY MAIL.

You do this by signing your proxy card and mailing it in the enclosed, prepaid
and addressed envelope. If you mark your voting instructions on the proxy card,
your shares will be voted as you instruct. If you return a signed card but do
not provide voting instructions, your shares will be voted:

- FOR the nine (9) named nominees,

- FOR an amendment to our Stock Incentive Plan to increase the shares
reserved for issuance from 1,150,000 to 2,800,000, and

- FOR the selection of PricewaterhouseCoopers LLP as the Company's
independent public accountants.

(2) YOU MAY VOTE IN PERSON AT THE MEETING.

We will pass out written ballots to anyone who wants to vote at the meeting. If
you hold your shares in street name, you must request a legal proxy from your
stockbroker in order to vote at the meeting.

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QUESTIONS AND ANSWERS

WE ENCOURAGE YOU TO EXAMINE YOUR PROXY CARD CLOSELY TO MAKE SURE YOU ARE VOTING
ALL OF YOUR SHARES IN THE COMPANY.

Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?

A: It means that you have multiple accounts at the transfer agent and/or with
stockbrokers. Please sign and return all proxy cards to ensure that all your
shares are voted.

FOR BETTER CUSTOMER SERVICE, WE RECOMMEND YOU WRITE TO YOUR BROKER(S) OR THE
TRANSFER AGENT, CHASEMELLON SHAREHOLDER SERVICES, LLC, TO CONSOLIDATE AS MANY OF
YOUR BROKERAGE OR TRANSFER AGENT ACCOUNTS AS POSSIBLE UNDER THE SAME NAME AND
ADDRESS. THIS CONSOLIDATION CAN NOT BE DONE WITHOUT YOUR WRITTEN AUTHORITY.

Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?

A: You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:

- signing another proxy with a later date, or

- voting again at the meeting.

Q: WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?

A: (1) If your shares are held in street name, your brokerage firm, under
certain circumstances, may vote your shares.

When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted for purposes of establishing a quorum to conduct
business at the meeting. A brokerage firm cannot vote customers' shares on
non-routine matters. Accordingly, these shares are considered not entitled to
vote on non-routine matters, rather than as a vote against the matter. You may
have granted to your stockbroker discretionary voting authority over your
account. Your stockbroker may be able to vote your shares depending on the terms
of the agreement you have with your broker.

(2) If your shares are in your name and you do not sign and return your proxy
card, your shares will not be voted unless you vote in person at the meeting. If
you hold your shares in street name, you must request a legal proxy from your
stockbroker in order to vote at the meeting.

Q: HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?

A: Shares are counted as present at the meeting if the stockholder either:

- is present and votes in person at the meeting, or

- has properly submitted a proxy card.

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QUESTIONS AND ANSWERS

A majority of the Company's outstanding shares as of the record date must be
present at the meeting in order to hold the meeting and conduct business. This
is called a quorum.

Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?

A: We use the phrase "yes vote" to mean a vote for a director.

The nine (9) nominees receiving the highest number of yes votes will be elected
as directors. This number is called a plurality.

Although a broker may "abstain" from voting because you prohibited the broker
from exercising discretionary authority, the non-vote will still be counted as
present for purposes of determining if a quorum is present.

Q: WHAT HAPPENS IF NOMINEES ARE UNABLE TO STAND FOR RE-ELECTION?

A: The board may, by resolution, provide for a lesser number of directors or
designate substitute nominees. In the latter event, shares represented by
proxies may be voted for substitute nominees. Proxies cannot be voted for more
than nine (9) nominees.

Q: HOW ARE VOTES COUNTED?

A: You may vote:

- either "for" a nominee or "withhold" your vote for a particular nominee.
- "for," "against," or "abstain" on the Stock Incentive Plan amendments.

- "for," "against," or "abstain" on the selection of PricewaterhouseCoopers
LLP as the Company's independent public accountants.

If you just sign your proxy card without providing further instructions, your
shares will be counted as a yes vote FOR each director, FOR the amendment to the
Stock Incentive Plan and FOR PricewaterhouseCoopers LLP.

Voting results will be tabulated and certified by our transfer agent,
ChaseMellon Shareholder Services, LLC.

Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?

A: We will announce preliminary voting results at the meeting. We will publish
the final results in our quarterly report on Form 10-Q for the second quarter of
fiscal 2001 on or before November 14, 2000. We will file that report with the
SEC, and you can get a copy by calling Investor Relations at (408) 922-1564 or
the SEC at (800) SEC-0330 for location of the nearest public reference room, or
through the EDGAR system at www.sec.gov.

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QUESTIONS AND ANSWERS

Q: WHY IS THE COMPANY AMENDING THE STOCK INCENTIVE PLAN?

A: The amendment is necessary to ensure the Company will:
- Continue to be able to offer a stock incentive plan that attracts and
retains key employees in an extremely competitive market by offering such
employees appropriate equity incentives, and

- Continue to motivate high levels of performance by key employees in order
to increase stockholder value.

The Stock Incentive Plan was adopted by the board on June 22, 1998 and approved
by the stockholders on September 17, 1998. Further, it was amended and approved
by the stockholders on August 18, 1999. The plan provides for awards in the form
of options, which may constitute incentive stock options or non-statutory stock
options, stock units and stock appreciation rights ("SARs"), or any combination
thereof.

The purpose of the plan is to promote the long-term success of the Company and
the creation of stockholder value by (a) encouraging key employees and directors
to focus on critical long-range objectives, (b) encouraging the attraction and
retention of key employees and directors with exceptional qualifications,
including key executives and directors that may join the Company in the future
and (c) linking key employees and directors directly to stockholder interests
through increased stock ownership. However, the board believes that the number
of shares of common stock currently available for issuance under the Stock
Incentive Plan is inadequate to meet the purposes of the plan, and that the
number of shares issuable under the plan should be increased by 1,650,000
shares.

The total number of shares currently available for grant under the Stock
Incentive Plan is 150,178.

If you would like more information about the Stock Incentive Plan, a summary of
its terms is included as Appendix A to this Proxy Statement.

Any stockholder of the Company may obtain a complete copy of the Stock Incentive
Plan upon written request to the Secretary of the Company at the Company's
principal executive offices in San Jose, California.

Q: HOW MANY VOTES MUST THE AMENDMENT TO THE STOCK INCENTIVE PLAN HAVE TO PASS?

A: The amendment must receive a yes vote of a majority of the shares, present
and entitled to vote on this matter, at the meeting to pass.

If you abstain from voting on the Stock Incentive Plan amendment, it has the
same effect as a vote against the plan.

Broker non-votes are shares held by brokers for which no voting instructions are
given by the beneficial owner of such shares. These broker non-votes are not
entitled to vote on this matter, and will therefore not affect the outcome.

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PROPOSALS TO BE VOTED ON

PROPOSALS TO BE
VOTED ON

1. ELECTION OF DIRECTORS

Nominees for election this year are:

- Craig A. Fleming

- Michael L. Kiley

- Thomas Kinkade

- Herbert D. Montgomery

- Norman A. Nason

- Raymond A. Peterson

- Kenneth E. Raasch

- Anthony D. Thomopoulos

- W. Michael West

THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF
MESSRS. FLEMING, KILEY, KINKADE, MONTGOMERY, NASON, PETERSON, RAASCH,
THOMOPOULOS AND WEST.

Each nominee is presently a director of the Company and has consented to serve a
one-year term.

2. AMENDMENT TO THE STOCK INCENTIVE PLAN

The board has approved and recommends that the stockholders adopt an amendment
to the Stock Incentive Plan to increase the number of shares of common stock
available for issuance under the plan from 1,150,000 to 2,800,000 shares. The
board believes that stockholder approval of the amendment will allow the
purposes of the Stock Incentive Plan to be met by enabling the Company to
continue to attract and retain highly qualified individuals capable of
implementing the Company's long-term strategic goals and objectives. The board
also believes that approval of the amendment will provide the Company with the
means to motivate high levels of performance by key employees in order to
increase stockholder value.

THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF AN
AMENDMENT TO THE STOCK INCENTIVE PLAN TO INCREASE THE SHARES RESERVED FOR
ISSUANCE FROM 1,150,000 TO 2,800,000.

3. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS

The audit committee has selected PricewaterhouseCoopers LLP as the Company's
independent public accountants for the current fiscal year. They have served as
accountants for the Company since 1991. Representatives of
PricewaterhouseCoopers LLP are expected to attend the meeting in order to
respond to questions from stockholders and will have the opportunity to make a
statement.

THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF
THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.

4. OTHER BUSINESS

The board knows of no other business for consideration at the meeting. If other
matters are properly presented at the meeting, or for any adjournment or
postponement of the meeting, Messrs. Guster and Morris will vote, or otherwise
act, on your behalf in accordance with their judgment on such matters.

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THE BOARD OF DIRECTORS

The Board of Directors of the Company currently has nine (9) members, all of
which are nominees for re-election this year.

<TABLE>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
<S> <C> <C> <C>
Kenneth E. Raasch 40 Chairman of the Board of Directors and 1990
Independent Consultant
Thomas Kinkade 42 Member of the Board of Directors and Art 1990
Director
Norman A. Nason 59 Member of the Board of Directors 1993
Michael L. Kiley 55 Member of the Board of Directors and 1997
Independent Consultant
W. Michael West 50 Member of the Board of Directors 1998
Raymond A. Peterson 54 Vice Chairman of the Board of Directors 1999
Craig A. Fleming 45 Member of the Board of Directors and 1999
President and Chief Executive Officer
Herbert D. Montgomery 57 Member of the Board of Directors 2000
Anthony D. Thomopoulos 62 Member of the Board of Directors 2000
</TABLE>

KENNETH E. RAASCH co-founded Media Arts, through a preceding company in 1990
and has been the Chairman of the Board of Directors since its inception. In
addition, he was President and Chief Executive Officer of the Company from March
1990 to May 1997 and Chief Executive Officer from May 1997 until October 1997.
Mr. Raasch has been an independent consultant to the Company since May 1999.
Currently, Mr. Raasch is the Chairman of the Board of Directors of OnVANTAGE,
Inc. Prior to joining Media Arts, Mr. Raasch was the President and majority
shareholder of First Med Corp., Inc., a medical billing and management company,
from August 1988 until January 1990 when it was sold to Medaphis Corp., a public
company.

THOMAS KINKADE co-founded Media Arts through a preceding company in 1990 and
has been the Art Director and a member of the Board of Directors since its
inception. Mr. Kinkade has provided artwork to the Company for its productions
since the Company's inception. In addition, Mr. Kinkade's role includes
providing strategic vision for the Thomas Kinkade brand, assisting in product
development and communicating the Company's brand message through public
appearances and books. Prior to March 1990, Mr. Kinkade was a self-employed
artist.

NORMAN A. NASON has been a member of the Board of Directors of the Company
since April 1993. Mr. Nason is President of Saratoga Commercial Real Estate
Brokerage Corporation and Saratoga Management Corporation, companies that he
founded in 1976.

MICHAEL L. KILEY has been a member of the Board of Directors of the Company
since January 1997. He was Vice Chairman of the board from June 1997 to January
1999. Mr. Kiley has been an independent consultant to the Company since April
1997. In 1978, he founded Home Church and has served as Pastor since that time.
Prior to founding Home Church, Mr. Kiley co-owned Business Exchange, Inc., a
cooperative buying company servicing over 400 business owners.

W. MICHAEL WEST has been a member of the Board of Directors of the Company
since September 1998. Mr. West currently serves as Chairman of the Board of
Directors of VINA Technologies. In addition, he

10
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serves on the Boards of Directors of several private companies and on advisory
boards of three non-profit organizations. From September 1997 to January 1998,
he served as Executive Vice President of Lucent Technologies following its
acquisition of Octel Communications Corporation. From September 1986 to
September 1997, he served at Octel Communications Corporation as Vice Chairman
of the Board of Directors and President and Chief Operating Officer from 1995 to
1998 and Executive Vice President, Worldwide Sales and Marketing from 1986 to
1995. Prior to 1986 Mr. West served as an executive in the Rolm Corporation and
his last position held was General Manager of the National Sales Division.

RAYMOND A. PETERSON has been the Vice Chairman of the Board of Directors
since January 1999. He was interim Corporate Secretary from August 1999 to
November 1999 and interim Chief Financial Officer from December 1999 to
March 2000. He was the President and Chief Executive Officer of the Company from
June 1998 to July 1999. He was the Senior Vice President and Chief Financial
Officer of the Company from May 1993 to May 1998. Mr. Peterson was the Chief
Executive Officer of Peterson, Sense & Company, a certified public accounting
firm, for the previous 15 years, during which time he provided accounting, tax
and financial planning services for the Company. Prior to that, Mr. Peterson was
the Corporate Tax Manager for Raychem Corporation, a multi-national
manufacturing corporation, and a Senior Tax Accountant with Peat Marwick &
Mitchell, currently KPMG.

CRAIG A. FLEMING has been the President and Chief Executive Officer of the
Company since July 1999 and a member of the Board of Directors since August
1999. From June 1998 to July 1999, Mr. Fleming was the President and Chief
Executive Officer of Lightpost Publishing, Inc., and President of Thomas Kinkade
Stores, Inc., both of which are wholly-owned subsidiaries of the Company. He was
President of the Company from May 1997 to October 1997 and the President and
Chief Executive Officer from October 1997 to May 1998. He was the Vice President
of Sales for the Company from November 1996 to May 1997. Prior to joining the
Company, Mr. Fleming held executive positions with Dorling Kindersley, National
Motor Club, Fuller Brush, Kirby Company and Melaleuca, Inc.

HERBERT D. MONTGOMERY has been a member of the Board of Directors of the
Company since July 19, 2000. Mr. Montgomery has been the Executive Vice
President, Chief Financial Officer and Treasurer of Industry Standard
Communications, Inc. since November 1999. Prior thereto, he was the Senior Vice
President, Chief Financial Officer and Treasurer of Cotelligent, Inc.
Mr. Montgomery has specialized in high growth, high technology environments, he
has taken three companies public and he has served as Chief Financial Officer of
technology and services companies over the last 20 years.

ANTHONY D. THOMOPOULOS has been a member of the Board of Directors of the
Company since July 19, 2000. Mr. Thomopoulos is currently Vice Chairman of
OnVANTAGE, Inc. Previously Mr. Thomopoulos was the Chief Executive Officer of
MTM Entertainment and President of The Family Channel, both subsidiaries of
International Family Entertainment, Inc. From 1991 to 1995 he was President of
Amblin Television, a division of Amblin Entertainment. In 1989 he founded
Thomopoulos Productions, an independent motion picture and television production
company. In 1986 he was named Chairman of the Board of Directors of United
Artist Pictures. Prior thereto, he spent 12 years at ABC in positions including
Vice President of Prime Time Programs and President of ABC Broadcast Group.

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BOARD AND COMMITTEE MEETINGS

The board held thirteen (13) meetings in fiscal 2000. Each director attended
all board and applicable committee meetings during fiscal 2000. The table below
describes the board's committees. The board does not have a nominating committee
or a committee serving an equivalent function. The board may establish other
committees to facilitate its business objectives.

<TABLE>
NUMBER OF
NAME OF COMMITTEE AND MEETINGS IN
MEMBERS FUNCTIONS OF THE COMMITTEE FISCAL 2000
<S> <C> <C>

AUDIT - Reviews the Company's financial 5
W. Michael West reporting
Norman A. Nason processes and internal accounting and
financial controls
- Reviews the reports of the independent
public accountants
- Approves all professional services
performed by the independent
public accountants
- Recommends the selection of independent
public accountants to the board,
subject
to ratification by the stockholders

COMPENSATION - Determines the compensation of the 5
Michael L. Kiley Chief
Norman A. Nason Executive Officer and other executive
W. Michael West officers
- Reviews and approves:
- Compensation philosophy
- Programs for annual and long-
term executive compensation
- Material employee benefit plans
- Has authority to grant options and
other
equity awards under the stock incentive
plan and bonus awards under cash-based
incentive plans
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 2000, no executive officer of the Company served on the board
or compensation committee of another company that had an executive officer serve
on the Company's board or its compensation committee.

COMPENSATION OF DIRECTORS

We do not pay directors who are also officers of the Company additional
compensation for their service as directors. In fiscal 2000, compensation for
directors who were not employees of the Company or any of its subsidiaries, also
called "non-employee directors," included the following:

- an annual retainer of $15,000,

- $2,000 for each board meeting attended,

- certain expenses of attending board meetings, and

- an option to purchase 5,000 shares of the Company's common stock.

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Under the Stock Incentive Plan, non-employee directors receive an annual,
automatic grant of an option to purchase 5,000 shares of common stock at 85% of
the fair market value of the Company's common stock on the date of grant. "Fair
market value" is defined in the Stock Incentive Plan as the closing price of the
Company's stock on the date the option is granted. In fiscal 2000, the annual,
automatic option grant to non-employee directors of 5,000 shares of common stock
was made on September 30, 1999, at an exercise price of $3.77 per share.

Two of the Company's non-employee directors have consulting agreements with
the Company. See "Certain Relationships and Related Transactions" on page 22.

REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

The compensation committee (the "Committee") of the Company's board consists
of Messrs. Kiley, West and Nason. No member of the Committee during 2000 was an
employee of the Company or any of its subsidiaries. The Committee has overall
responsibility for the Company's executive compensation policies and practices.
The Committee's functions include:

- determining the compensation of the President and Chief Executive Officer
of the Company,

- upon recommendation of the President and Chief Executive Officer reviewing
and approving all executive officers' compensation, including salary and
bonuses and

- granting awards under the Stock Incentive Plan.

The Committee has provided the following report on the compensation policies
of the Company as they apply to its executive officers and its Chairman, the
relationship of Company performance to executive compensation and the President
and Chief Executive Officer's compensation.

OVERVIEW OF COMPENSATION POLICIES

The Company's compensation policies are designed to address a number of
objectives, including rewarding financial performance and motivating executive
officers to achieve significant returns for stockholders. To promote these
policies, the Committee implemented a compensation program for fiscal 2000 that
was made up of (1) the Executive Management Bonus program, which is an annual
cash incentive program and which "pays for performance" and provides bonuses
based on the realization of the Company's annual financial goals and (2) the
grant of stock options that directly tied management's interests to those of
stockholders.

The Committee believes that executive compensation should be highly
leveraged toward the incentive-based programs described above. By placing much
of an officer's compensation "at risk" in this manner, the Company's
compensation program focuses management's efforts on improving financial
performance and effectively integrates executive compensation with the Company's
annual and long-term strategic objectives.

When establishing salaries, bonus levels and stock-based awards for
executive officers, the Committee considers the individual's role,
responsibilities and performance during the past year, and the amount of
compensation paid to executive officers in similar positions of comparable
companies, based on periodic reviews of competitive data obtained from
independent consultants. However, the Committee also makes discretionary and
subjective determinations of appropriate compensation amounts to reflect, for
example, the Company's philosophy of compensating executives for the success
they achieve in managing specific enterprises.

In the case of the compensation of executive officers other than the
President and Chief Executive Officer, the Committee places considerable weight
upon the recommendations of the President and Chief Executive Officer.

13
<PAGE>
THE IMPORTANCE OF OWNERSHIP--A fundamental tenet of the Company's
compensation policy is that significant equity participation creates a vital
long-term partnership between management and other stockholders. Through the
Stock Purchase Plan and the Stock Incentive Plan, the benefits of equity
ownership are extended to executive officers and employees of the Company and
its subsidiaries. As of July 10, 2000, the directors and executive officers of
the Company owned an aggregate of 6,815,367 shares and had the right to acquire
an additional 1,056,303 shares upon the exercise of employee stock options,
exercisable on or before July 10, 2000.

FISCAL 2000 EXECUTIVE OFFICER COMPENSATION PROGRAM

The components of the executive compensation program are described below:

BASE SALARY--The Company believes that base salary is frequently a
significant factor in attracting, motivating and retaining skilled executive
officers. Accordingly, the Committee reviews base salaries of executive officers
annually and generally sets the base salary of its executive officers at or near
the average of the levels paid by companies with comparable revenues either
engaged in the home decor/accessories industry or located in the Silicon Valley.
In addition, the Committee evaluates the specific job functions and past
performance of individual officers.

EXECUTIVE MANAGEMENT BONUS PROGRAM--The Committee administers the
discretionary Executive Management Bonus Program which is a pay-for-performance
program under which cash bonus awards are paid based upon (1) achievement of the
Company's earnings per share and revenues at or above fixed targets and (2) a
percentage of each executive officer's personal base salary, with the percentage
varying based on the executive's level of responsibility and management tier
classification. In addition, participants are not eligible to receive bonus
pay-outs unless they are employees of the Company on the day the bonus is
actually paid to all eligible employees.

The Committee sets target bonuses at the beginning of each year based upon
the recommendation of the President and Chief Executive Officer.

MANAGEMENT DEFERRED COMPENSATION--The Company has a nonqualified deferred
compensation plan which allows eligible employees and directors to annually
elect to defer a portion of their compensation within the meanings of the
related provisions under the Employee Retirement Income Security Act of 1974, as
amended. The deferred compensation together with accumulated earnings is
distributable in cash in specified future periods, on termination of employment,
or at any time subject to penalty. At March 31, 2000 the deferred compensation
and accumulated earnings totaled $3,011,000. The deferred compensation plan is
fully funded under a trust agreement whereby the Company pays to the trust
amounts necessary to pay premiums on life insurance policies carried to meet the
obligations under the plan. In fiscal 1999, no employer contributions were made.

STOCK OPTION GRANTS--In fiscal 2000, the Committee granted an aggregate of
670,000 stock options under the Stock Incentive Plan to the Company's executive
officers. The Committee determined the number of options granted to executive
officers primarily by evaluating each officer's (1) respective job
responsibilities, (2) past performance, (3) expected future contributions and
(4) management tier classification. The Committee believes that these stock
option grants will more closely align the long-term interests of senior
management with those of stockholders and assist in the retention of key
executives.

CHIEF EXECUTIVE OFFICER'S COMPENSATION--Craig A. Fleming

As of July 10, 2000, the Company's President and Chief Executive Officer,
Craig A. Fleming, receives a base salary of $392,000. There is no employment
agreement effective between the Company and Mr. Fleming as of July 10, 2000. The
Committee uses the same procedures described above in setting the annual salary,
bonus and stock option awards for the President and Chief Executive Officer.

14
<PAGE>
Mr. Fleming earned a cash bonus of $183,619 under the Executive Management
Bonus Program during fiscal 2000. Mr. Fleming's bonus was based on the Company
achieving certain earnings per share and revenue targets and a percentage of his
base salary.

In fiscal 2000, the Committee granted an aggregate of 275,000 stock options
to Mr. Fleming under the Stock Incentive Plan which will vest over three
(3) years. The Committee determined the size of the award by evaluating
Mr. Fleming's job responsibilities, past performance and expected future
contributions.

CHIEF EXECUTIVE OFFICER UNTIL JULY 1999--Raymond A. Peterson

During the period that Mr. Peterson was the President and Chief Executive
Officer in fiscal 2000, his compensation was based on an employment agreement
that was entered into between the Company and Mr. Peterson, effective as of
November 19, 1998. The Committee used the same procedures described above in
setting the annual salary, bonus and stock option awards for Mr. Peterson. Under
the terms of his employment agreement, Mr. Peterson received a base salary of
$230,000. Mr. Peterson earned a cash bonus of $140,774 under the Executive
Management Bonus Program during fiscal 2000. Mr. Peterson's bonus was based on
the Company achieving certain earnings per share and revenue targets and a
percentage of his base salary. No options were awarded to Mr. Peterson in fiscal
2000.

COMPENSATION OF CHAIRMAN--Kenneth E. Raasch

As of May 27, 1999 Mr. Raasch is no longer an employee of the Company,
instead he is an independent contractor providing services to the Company, as
requested by the Chief Executive Officer. However, he remains the Chairman of
the Board of Directors. No options were awarded to Mr. Raasch in fiscal 2000.
See "Employment, Severance and Change of Control Arrangements" on page 21 and
"Certain Relationships and Related Transactions" on page 22.

TAX LAW LIMITS ON EXECUTIVE COMPENSATION AND POLICY ON DEDUCTIBILITY OF
COMPENSATION--Section 162(m) of the Internal Revenue Code of 1986, as amended,
provides that a company may not take a tax deduction for that portion of the
annual compensation paid to an executive officer in excess of $1 million, unless
certain exemption requirements are met. The Stock Incentive Plan was designed to
meet the exemption requirements of Section 162(m). The Committee has determined
at this time not to seek to qualify the Company's remaining executive officer
compensation programs under Section 162(m).

CONCLUSION--All aspects of the Company's executive compensation program are
subject to change at the discretion of the Committee. The Committee will monitor
the Company's executive compensation program on an ongoing basis to ensure that
it continues to support a performance-oriented environment and remains properly
integrated with the Company's annual and long-term strategic objectives.

Members of the Compensation Committee

Michael L. Kiley, Chairman
Norman A. Nason
W. Michael West

15
<PAGE>
EXECUTIVE OFFICERS

The following table sets forth certain information concerning the Company's
executive officers as of July 10, 2000.

<TABLE>
NAME AGE POSITION
<S> <C> <C>
Craig A. Fleming 45 President and Chief Executive Officer of Media Arts
Timothy S. Guster 42 Senior Vice President, General Counsel, Chief
Administration Officer and Corporate Secretary of
Media Arts
William C. Morris, Jr. 52 Executive Vice President and Chief Financial Officer of
Media Arts
Richard F. Barnett 46 Senior Vice President of Retail Development of MAGI
Sales, Inc.
Michael J. Catelani 33 Vice President of Finance of Media Arts
J. Edward Hollender 59 Executive Vice President and Chief Operating Officer of
Media Arts
John R. Lackner 60 Senior Vice President and Chief Operations Officer of
Lightpost Publishing, Inc.
</TABLE>

TIMOTHY S. GUSTER has been the Senior Vice President, General Counsel, Chief
Administration Officer and Corporate Secretary of the Company since November
1999. From July 1989 to November 1999, Mr. Guster was Vice President and General
Counsel for the Scott Fetzer Company, a wholly-owned subsidiary of Berkshire
Hathaway Inc. Prior thereto, he was an associate attorney with Roetzel & Andress
in Akron, Ohio where he specialized in trial and appellate work.

WILLIAM C. MORRIS, JR. has been the Executive Vice President and Chief
Financial Officer of the Company since June 2000. He was the Senior Vice
President and Chief Financial Officer of the Company from March 2000 to
June 2000. Prior to joining the Company, Mr. Morris served as the Senior
Managing Director of Matrix Capital Markets Group, an investment banking firm.
Previously, Mr. Morris served as the President and Chief Executive Officer of
Essex Computers, a technology solutions company. Prior thereto, he held senior
level management positions at Kidder Peabody and Shearson Lehman Brothers.

RICHARD F. BARNETT has been the Senior Vice President of Retail Development
for MAGI Sales, Inc., a wholly-owned subsidiary of the Company, since
February 2000. He was the Vice President of Retail Development for MAGI
Sales, Inc. from June 1998 to February 2000. Mr. Barnett was the Vice President
of Retail Development of the Company from October 1995 to May 1998. Prior
thereto, Mr. Barnett operated seven independently owned Thomas Kinkade Galleries
in California. He previously held various management positions over a 20 year
period with the Kirby Company.

MICHAEL J. CATELANI has been the Vice President of Finance of the Company
since August 1999 as well as the Principal Accounting Officer since
October 1999. In addition, he served as the Principal Financial Officer from
October 1999 to December 1999. He was Corporate Controller of the Company from
June 1999 to August 1999 and he was the Controller of Lightpost
Publishing, Inc. from May 1998 to

16
<PAGE>
June 1999. Prior to joining the Company, Mr. Catelani held various management
positions in finance and operations at Air Toxics Ltd., an environmental
laboratory, and Alldata Corporation, an automotive repair information database
developer. Prior thereto, he was a Senior Auditor with Ernst & Young LLP.

J. EDWARD HOLLENDER has been the Executive Vice President and Chief
Operating Officer of the Company since June 2000. He was the Senior Vice
President and Chief Information Officer/E-Business Officer of the Company from
November 1999 to June 2000. Prior to joining Media Arts, Mr. Hollender was a
private consultant specializing in e-business, technology and direct marketing
strategy. He has held the position of Vice President and Chief Information
Officer for The Franklin Mint, The Bradford Exchange, Metromail (now part of
Experian), an international direct marketing service business, and the Signature
Group, a direct marketing financial services business.

JOHN R. LACKNER has been the Senior Vice President and Chief Operations
Officer of Lightpost Publishing, Inc. since June 2000. He was the Senior Vice
President and Chief Operating Officer of Lightpost Publishing, Inc. from
June 1998 to June 2000. He was the Senior Vice President and Chief Operating
Officer of the Company from October 1997 to May 1998. Prior to joining the
Company, Mr. Lackner was employed for over 25 years with the Kirby Company, an
established manufacturer and retailer of quality vacuum cleaners. His most
recent position with the Kirby Company was as Senior Vice President of Research,
Product Development and Technology, which position he had held since 1990.
Mr. Lackner also served as a Vice President in manufacturing and production for
the Kirby Company from 1981 to 1990.

JAMES F. LANDRUM, JR. was the Senior Vice President, General Counsel and
Corporate Secretary of the Company from March 1998 to July 1999. He was Vice
President, General Counsel and Corporate Secretary of the Company from April
1997 to March 1998. From February 1995 to April 1997 he was the General Counsel
of the Company. He was self employed as an attorney and business consultant for
two years prior to joining the Company.

GREG H. L. NASH was the Senior Vice President and Chief Financial Officer of
the Company from July 1998 to September 1999. He was the Chief Financial Officer
of the Company from June 1998 to July 1998. He held the position of Vice
President and Corporate Controller of the Company from April 1998 to May 1998.
He was the Corporate Controller of the Company from May 1995 to April 1998 and
he was also the Principal Accounting Officer from November 1997 to
September 1999. From August 1988 until April 1995 he was employed by
PricewaterhouseCoopers LLP, most recently as an Audit and Business Services
Manager. Prior thereto, he held various management positions with companies in
the investment and retail industries.

BRIAN P. MAHONEY was the Senior Vice President of Sales for MAGI
Sales, Inc. from June 1998 until March 2000. He was Senior Vice President of
Sales of the Company from April 1998 to May 1998. He was Vice President of Sales
for the Company from July 1997 to April 1998. Prior to joining the Company, from
August 1994 to July 1997, Mr. Mahoney was the Vice President of Sales for
Natural World, a direct sales company. From July 1992 to August 1994 he was a
Region Vice President for Melaleuca, Inc., a direct sales company. For the 13
years prior to that, he was an independent contractor for the Kirby Company,
serving as a sales person, Assistant Divisional Supervisor and Factory
Distributor.

There are no family relationships among the officers and directors of the
Company.

17
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The table below shows, for the last three fiscal years, compensation
information for the Company's Chief Executive Officer, the next four most highly
compensated executive officers and individuals for whom disclosure would have
been required but for the fact that they were not executive officers. We refer
to all of these individuals as the "Named Officers." In June 1998, Raymond A.
Peterson replaced Craig A. Fleming as President and Chief Executive Officer of
the Company and Mr. Fleming was appointed President and Chief Executive Officer
of Lightpost Publishing, Inc. and President of Thomas Kinkade Stores, Inc., both
wholly owned subsidiaries of the Company. In July 1999, Craig A. Fleming
replaced Raymond A. Peterson and resumed his role as President and Chief
Executive Officer of the Company.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------- -------------------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) ($)(2) OPTIONS(#) ($)(3)
--------------------------- -------- ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Fleming ............. 2000 275,000 183,619 24,158 275,000 2,039
President & Chief Executive 1999 259,000 326,436 21,429 55,000 146
Officer 1998 214,583 364,532(4) 61,189(5) 75,000 --

Raymond A. Peterson .......... 2000 460,000(6) 140,774 26,367 -- 3,750
Vice Chairman 1999 220,737 276,925 14,563 30,000 550
1998 150,000 246,442 12,563 25,000 270

Richard F. Barnett ........... 2000 147,625 2,101,323(7) 10,529 -- 883
Senior Vice President of 1999 207,000 1,921,422(7) 11,533 -- 501
Retail Development of MAGI 1998 207,000 585,196(7) 9,473 -- 1,782
Sales, Inc.

Thomas Kinkade ............... 2000 472,300(8) -- 20,267 -- --
Art Director 1999 372,300(8) 100,000 21,870 -- --
1998 372,300(8) -- 25,868 600,000 --

John R. Lackner (9) .......... 2000 175,000 107,111 12,576 75,000 --
Senior Vice President and 1999 175,000 55,345 48,123 30,000 --
Chief Operations Officer of 1998 67,875 25,000 4,615 41,000 --
Lightpost Publishing, Inc.

Brian P. Mahoney (10) ........ 2000 206,667 137,714 14,206 37,500 1,962
Senior Vice President of 1999 169,999 366,533(11) 14,187 30,000 1,110
Sales and Marketing of MAGI 1998 127,500 232,693(11) 42,090(12) 25,000 --
Sales, Inc.
</TABLE>

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

(1) Includes deferred income for Messrs. Fleming, Barnett and Mahoney for 2000,
in the amounts of $106,000, $1,575,992 and $60,034, respectively and for
1999, in the amounts of $34,000; $518,206 and $0, respectively.

(2) Includes Profit Sharing Plan payments to Messrs. Fleming, Peterson,
Barnett, Kinkade, Lackner and Mahoney for 2000, in the amounts of $11,070,
$22,340, $5,779, $18,533, $6,576 and $8,206, respectively; for 1999, in the
amounts of $10,578, $12,055, $7,033, $19,692, $42,123 and $8,187,
respectively; and for 1998, in the amounts of $12,559, $9,423, $4,711,
$22,512, $4,615 and $7,590, respectively.

(3) Consists of Company matching of 401(k) Plan contributions.

(4) Includes commission payments to Mr. Fleming in the amount of $24,421.

18
<PAGE>
(5) Includes the cost to the Company of certain benefits provided to
Mr. Fleming during 1998, aggregating $38,630, including relocation and
living allowance incurred during the year.

(6) Includes a severance payment of $230,000. See "Employment, Severance and
Change of Control Arrangements" on page 21.

(7) In 2000, 1999 and 1998, Mr. Barnett received commissions in the amounts of
$2,101,323, $1,921,422 and $585,196, respectively, (based upon sales to
Thomas Kinkade Signature Galleries-TM-) under his employment agreement. See
"Employment, Severance and Change-of-Control Arrangements" on page 21.

(8) Includes $300,000 for payment for delivery of original paintings for
reproduction by the Company, but does not include $9,792,976, $10,147,488
and $5,047,441 earned by Thomas Kinkade in 2000, 1999 and 1998,
respectively, under certain licensing royalty and other arrangements with
the Company. See "Certain Relationships and Related Transactions" on
page 22.

(9) Mr. Lackner joined the Company in October 1997.

(10) Mr. Mahoney resigned from the Company in March 2000.

(11) Includes commission payments to Mr. Mahoney in 1999 and 1998 in the
amounts of $366,533 and $232,693, respectively.

(12) Includes the cost to the Company of certain benefits provided to
Mr. Mahoney during 1998, aggregating $34,500, including a living allowance
of $12,000, a signing bonus of $10,000, an art bonus of $10,000 and an
automobile allowance of $2,500.

OPTION GRANTS

The table below shows stock option grants to the Named Officers during the
2000 fiscal year.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION ----------------------
NAME (#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ----------- ----------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Fleming........ 25,000 2.2 4.63 7/1/09 72,795 184,476
125,000 11.2 4.44 8/5/09 349,037 884,527
125,000 11.2 4.69 2/4/10 368,689 934,332

Raymond A. Peterson..... -- -- -- -- -- --

Richard F. Barnett...... -- -- -- -- -- --

Thomas Kinkade.......... -- -- -- -- -- --

John R. Lackner......... 25,000 2.2 4.44 8/5/09 69,807 176,905
50,000 4.5 4.69 2/4/10 147,476 373,733

Brian P. Mahoney........ 12,500 1.1 4.63 7/1/09 36,397 92,238
25,000 2.2 4.44 8/5/09 69,807 176,905
</TABLE>

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

(1) These options become exercisable in equal annual installments over a
three-year period. In the event of a change of control, the options listed
above may become immediately exercisable.

19
<PAGE>
(2) All options were granted at no less than fair market value on the date of
grant.

(3) We are required by the SEC to use a 5% and 10% assumed rate of appreciation
over the ten-year option term. This does not represent the Company's
estimate or projection of the future common stock price. If the Company's
common stock does not appreciate, the Named Officers will receive no benefit
from the options.

OPTIONS EXERCISED

This table shows stock option exercises during fiscal year 2000 and the
value of unexercised stock options held by the Named Officers on March 31, 2000.

AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
ACQUIRED MARCH 31, 2000(1) MARCH 31, 2000(2)
ON VALUE ----------------------------- -----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($)(3) (#)(4)(5) (#)(5)(6) ($)(4) ($)(6)
--------------------- --------- ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Fleming..... -- -- 90,450 339,550 244,928 776,322
Raymond A. Peterson.. 70,725 105,919 26,950 28,050 35,678 17,573
Richard F. Barnett... -- -- -- -- -- --
Thomas Kinkade....... -- -- 600,000 -- -- --
John R. Lackner...... -- -- 37,670 108,330 6,332 192,369
Brian P. Mahoney..... -- -- 18,950 65,550 26,863 123,820
</TABLE>

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

(1) Company stock options vest either at the rate of one-third or one-fifth on
the first anniversary of the date of grant and one-third or one-fifth per
year, as applicable, thereafter. These options are exercisable only to the
extent vested.

(2) The value of the unexercised in-the-money options is based on the closing
price of $7.13 of the Company's common stock, as reported on the New York
Stock Exchange, on March 31, 2000 and is net of the exercise price of such
options. The amounts in this column may not represent amounts actually
realized by the Named Officers.

(3) The value realized on stock option exercises represents the difference
between the grant price of the options exercised and the market price of the
underlying shares of common stock as of the date of exercise multiplied by
the number of options exercised. The amounts in this column may not
represent amounts actually realized by the Named Officers.

(4) Represents shares which are immediately exercisable and/or vested.

(5) Includes unexercised out-of-the-money options.

(6) Represents shares which are not vested and not immediately exercisable.

20
<PAGE>
TEN-YEAR OPTION REPRICING

<TABLE>
SECURITIES
UNDERLYING LENGTH OF
NUMBER OF MARKET PRICE OF EXERCISE PRICE ORIGINAL OPTION
OPTIONS/SARS STOCK AT TIME OF AT TIME OF NEW TERM REMAINING AT
REPRICED OR REPRICING OR REPRICING OR EXERCISE DATE OF REPRICING
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) OR AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
Craig A. Fleming 9/17/98 30,000 12.00 20.75 12.00 9 years 9 months

Raymond A. Peterson 9/17/98 30,000 12.00 20.75 12.00 9 years 9 months

John R. Lackner 9/17/98 30,000 12.00 20.75 12.00 9 years 9 months

Brian P. Mahoney 9/17/98 17,500 12.00 19.19 12.00 9 years 10 months
</TABLE>

EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS

The Company has entered into employment agreements with the following
executive officers.

The Company entered into a Separation and Consulting Agreement with Kenneth
E. Raasch, effective as of May 27, 1999, whereby Mr. Raasch is no longer an
employee of the Company. Instead he is an independent contractor who will
provide consulting services to the Company. Nevertheless, Mr. Raasch will
continue to serve in his capacity as a director as Chairman of the Board of
Directors. The agreement, which terminates on December 31, 2000, provides for a
monthly fee of $110,000 and the reimbursement of certain expenses. Previously,
Mr. Raasch had entered into a five-year employment agreement with the Company in
January 1994, to serve as Chairman, President and Chief Executive Officer of the
Company. In May 1997, Mr. Raasch relinquished the position of President and
became Chairman and Chief Executive Officer of the Company; in October 1997,
Mr. Raasch also relinquished the position of Chief Executive Officer. The
Separation and Consulting Agreement provides that Mr. Raasch will enter into a
Stock Sale Agreement which provides that the Company has certain rights of first
refusal relating to the sale of his shares. See "Certain Relationships and
Related Transactions" on page 22.

Mr. Peterson's employment agreement was amended in July 1999 to accelerate
the termination date to December 31, 1999. The term of the original employment
agreement was for a period of three (3) years ending November 19, 2001. Provided
that Mr. Peterson fulfilled his responsibilities under the amended employment
agreement, he would receive one year's base salary ($230,000) in a lump sum on
January 15, 2000. In addition, Mr. Peterson entered into a consulting agreement
with the Company for a period of six (6) months after the termination of the
amended employment agreement for a monthly fee of $38,300 and the reimbursement
of certain expenses. He was previously engaged by the Company as its Chief
Financial Officer at an annual base salary of $100,000 ($150,000 effective
January 1, 1997 and increased to $180,000 as of April 6, 1998). Effective June
1, 1998, Raymond A. Peterson replaced Craig A. Fleming as President and Chief
Executive Officer of the Company. In July 1999 Craig A. Fleming replaced
Mr. Peterson and resumed his role as President and Chief Executive Officer of
the Company.

Mr. Fleming, President and Chief Executive Officer of the Company
(previously President and Chief Executive Officer of Lightpost Publishing, Inc.
and President of Thomas Kinkade Stores, Inc.) entered into a three-year
employment agreement with the Company effective as of May 8, 1997 that
supersedes a prior employment agreement. The agreement provides for an annual
base salary of $225,000 ($300,000 effective August 1, 1999 and increased to
$392,000 as of April 1, 2000), the opportunity to participate in any bonus plan
adopted for the benefit of senior executives, a monthly living allowance through
December 1997, a $10,000 art allowance, a relocation expense payment and a
twelve-month living allowance, in addition to other benefits. The Company also
granted to Mr. Fleming under the agreement an option to purchase

21
<PAGE>
50,000 shares of the Company's common stock at fair market value on the date of
formal board approval of such options; an option to purchase 25,000 shares of
the Company's common stock at fair market value on July 1,1998; and an option to
purchase 25,000 shares of the Company's common stock at fair market value on
July 1, 1999.

Mr. Barnett, Senior Vice President of Retail Development of MAGI
Sales, Inc. entered into a three year employment agreement effective as of
April 1, 1996. The agreement provides for four options of three years each to
extend the term of the employment agreement. Mr. Barnett developed the branded
Thomas Kinkade Signature Gallery-TM- retail concept as an independent
entrepreneur, and the Company purchased his galleries in Carmel and Monterey,
California in March 1996. See "Certain Relationships and Related Party
Transactions" on page 24. The Company employed Mr. Barnett to develop the
independently owned Thomas Kinkade Signature Gallery-TM- retail concept
nationally. The agreement provides for an annual base salary of $228,000 during
the initial term of the employment agreement and an annual base salary of
$132,000 during any renewal term. The agreement provides for, among other
benefits, a commission plan which pays Mr. Barnett a commission based on the
Company's sales to Thomas Kinkade Signature Galleries-TM- as well as the annual
growth in such sales.

Mr. Lackner, Senior Vice President and Chief Operations Officer of Lightpost
Publishing, Inc. entered into a five year employment agreement effective October
10, 1997. The agreement provides for an annual base salary of $175,000, the
opportunity to participate in any bonus plan adopted for the benefit of senior
executives, a $5,000 art allowance, a relocation expense payment and a four
month living allowance, in addition to other benefits. The Company also granted
to Mr. Lackner under the agreement an option to purchase 15,000 shares of the
Company's common stock at fair market value on the effective date of the
agreement and an option to purchase 18,000 shares of the Company's common stock
at fair market value on October 29, 1997.

The employment agreements of Messrs. Peterson, Fleming, Barnett and Lackner
each provide for the officer to receive all salary and bonus payments that would
have been payable to him for the remaining term of the agreement after a "Change
in Control" which provides "Good Reason" for the officer to terminate his
employment. "Good Reason" is defined to include, among other things, the
assignment to the officer of duties inconsistent with his senior executive
status, a reduction in his base salary, a relocation of the officer or the
Company's principal office and the termination of any compensation or other
employee benefits plans in which he was eligible to participate.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LICENSE AGREEMENT WITH THOMAS KINKADE. Effective December 3, 1997, the
Company entered into a new license agreement with Thomas Kinkade, a director,
employee and principal stockholder of the Company. The new license agreement
supersedes a previous license agreement under which Mr. Kinkade received a flat
fee of $18,750 per painting delivered to the Company for reproduction, a royalty
agreement under which the Company paid Mr. Kinkade a royalty of 5.0% of net
sales of Company-owned stores using his name and certain other arrangements.
Under the new license agreement, Mr. Kinkade receives a flat fee of $25,000 per
painting delivered to the Company for reproduction and he is paid a royalty of
4.5% of the net sales of Thomas Kinkade branded artwork and products through May
8, 2000 and 5.0% of the net sales of Thomas Kinkade branded artwork and products
thereafter. Mr. Kinkade is also employed by the Company as Art Director.
Mr. Kinkade and Mr. Raasch have an understanding whereby Mr. Kinkade will,
through May 8, 2000, pay to Mr. Raasch 45.5% of royalty payments payable to
Mr. Kinkade by the Company from the sale of studio proofs. In the past
Mr. Kinkade paid Mr. Raasch 50% of the royalty payments payable to Mr. Kinkade
by the Company from the sale of studio proofs. In fiscal 2000, Mr. Kinkade and
Mr. Raasch shared approximately $3,212,000 in royalty payments from the sale of
studio proofs.

22
<PAGE>
Under the new license agreement Thomas Kinkade granted the Company perpetual
and exclusive rights to each image produced by Mr. Kinkade under the new license
agreement, as well as to the library of over 170 existing Thomas Kinkade images,
subject to certain exceptions. In particular, the Company has the exclusive
right to produce, sell, distribute and promote reproductions of Mr. Kinkade's
artwork in any form and the right to use the name and likeness of the artist in
promoting the sale of its products and development of any brand name associated
with Mr. Kinkade. The new license agreement requires Mr. Kinkade to deliver 150
paintings to the Company during the period commencing December 3, 1997 and
ending 15 years thereafter, with at least 10 paintings to be delivered during
each of the first five years. Mr. Kinkade has the right to approve the Company's
products based upon his artwork, as well as promotional materials, business
plans and strategic relationships relating to such products or the use of his
name or likeness. Mr. Kinkade retains ownership of the original paintings he
produces.

The new license agreement permits Mr. Kinkade to reproduce up to two pieces
annually to raise money for the City of Placerville, California. Mr. Kinkade
also retained the right to use his name, likeness and certain artwork in
association with non-profit organizations. In addition, Mr. Kinkade retained the
right to use his name in connection with for-profit ventures with the Company's
prior consent, provided that he first offers the opportunity to the Company.
Mr. Kinkade is otherwise subject to a non-compete agreement with the Company
under the new license agreement.

The new license agreement is terminable by either party after failure by the
other party for 90 days to cure a material breach of the agreement. In addition,
Mr. Kinkade may terminate the new license agreement in the event of the
Company's insolvency or upon a change of control of the Company. A change in
control is defined to occur on the date when any person or group (as defined in
Rule 13(d)(3) under the Securities Exchange Act of 1934) beneficially owns (as
defined in such Rule) a number of shares of common stock of the Company in
excess of the number of shares then beneficially owned by Mr. Kinkade. The
computation excludes stockholders as of December 3, 1997, to the extent of their
beneficial holdings of Common Stock as of such date. The right of termination
may not be invoked by Mr. Kinkade if it is triggered as a result of
Mr. Kinkade's transfer of shares. After December 3, 2012, the perpetual nature
of the new license agreement may be terminated by Mr. Kinkade if the Company
engages in any material business enterprises unrelated to his work or brand name
to which he objects. Upon any termination of the new license agreement by
Mr. Kinkade, the Company would be prohibited from selling any products based
upon Mr. Kinkade's artwork, other than the Company's then existing product
inventory.

In addition, pursuant to the new license agreement, the Company and Thomas
Kinkade entered into a stock option agreement as of December 3, 1997, wherein
the Company granted to Mr. Kinkade a fifteen-year non-statutory option to
purchase 600,000 shares of common stock of the Company at $12.375, the closing
price on the date of grant.

SEPARATION AND CONSULTING AGREEMENT. The Company entered into a Separation
and Consulting Agreement with Kenneth E. Raasch as of May 27, 1999. Under the
agreement, Mr. Raasch is no longer an employee of the Company. Instead, he is an
independent contractor who will provide consulting services to the Company, as
requested by the President and Chief Executive Officer, for a monthly fee of
$110,000 and the reimbursement of certain expenses. Upon a majority vote of the
board, the agreement is terminable by the Company for good cause, with
sixty (60) days prior written notice to Mr. Raasch. Good cause is defined to
mean Mr. Raasch's failure to substantially perform his duties after a written
demand for substantial performance has been made by the board or if he willfully
engages in conduct which is demonstrably or materially injurious to the Company.
However, Mr. Raasch's termination as a consultant will not be final until the
parties have arbitrated the issues. In addition, Mr. Raasch is subject to a non-
compete clause with the Company under the agreement, although he will be
reasonably permitted by the Company to conduct business in areas identified by
the parties under confidentiality or nondisclosure agreements.

23
<PAGE>
In addition, under a separate but related Stock Sale Agreement dated as of
May 27, 1999, Mr. Raasch, Mrs. Raasch and the Raasch Family Trust gave a right
of first refusal to the Company with respect to the purchase or other transfer
of shares of the Company's common stock they hold. Under this agreement, as long
as Mr. Raasch remains a ten percent or more stockholder, he will continue to
have access to certain financial information about the Company beyond that
normally given to stockholders. Both the Separation and Consulting Agreement and
the Stock Sale Agreement terminate on December 31, 2000.

OWNERSHIP AND SALE OF THOMAS KINKADE GALLERY, VALLEY FAIR. On June 30,
1995, the Company purchased the Thomas Kinkade Gallery, Valley Fair from
Linda L. Raasch, spouse of Kenneth E. Raasch, who was President, Chairman and
Chief Executive Officer of the Company at the time, for an aggregate purchase
price of approximately $1,500,000, of which $1,200,000 was paid in the form of
an 8.0% subordinated convertible promissory note due October 10, 2002. The note
is convertible into common stock of the Company at a price of $7.25 per share.
The entire principal amount of the note is due at maturity, unless converted
prior to maturity. Prior to the consummation of the sale transaction, an
independent appraisal of the gallery was performed and the terms of the purchase
were approved by a special committee of the board.

OWNERSHIP AND SALE OF THOMAS KINKADE GALLERIES, MONTEREY AND CARMEL,
CALIFORNIA. Effective March 31, 1996, the Company acquired six galleries ("the
Monterey Galleries") located in Monterey and Carmel, California from Richard F.
Barnett, an independent art dealer of Thomas Kinkade artwork. Consideration for
this acquisition consisted of 444,483 shares of the Company's Common Stock. Upon
the purchase and sale of the Monterey Galleries, Mr. Barnett entered into an
employment agreement with the Company. See "Employment, Severance and Change of
Control Agreements" on page 21.

OTHER AGREEMENTS WITH CERTAIN DIRECTORS. On April 1, 1997, the Company
entered into a one-year consulting agreement with Michael L. Kiley, a director
of the Company. In the consulting agreement, Mr. Kiley agreed to act as a
liaison between Thomas Kinkade and the Company and to provide various other
consulting services in exchange for a fee of $6,000 per month and an option to
purchase 25,000 shares of the Company's common stock priced at the then fair
market value of the shares. Effective August 1, 1997, the consulting agreement
was amended to provide for consulting fees of $10,000 per month. In June 1997
and September 1997, the Company granted to Mr. Kiley options to purchase 20,000
and 30,000 shares of common stock, respectively, at the then-fair market value
of the common stock. In October 1997, the board awarded Mr. Kiley a consulting
bonus of $90,000 (payable in the amount of $45,000 immediately and $45,000
payable in April 1998) in connection with various consulting services provided
by Mr. Kiley. On June 22, 1998, the board approved another amendment to the
consulting agreement whereby Mr. Kiley's bonus would be tied to earnings per
share growth of consolidated net earnings of the Company. On March 4, 1999, the
board authorized (1) the extension of the consulting agreement for an additional
year and (2) the grant of an option to purchase 20,000 shares of common stock
with a grant date of April 1, 1999, at the then-fair market value of the common
stock. On April 1, 2000, the Company entered into a new one-year consulting
agreement with Mr. Kiley. In the new consulting agreement, Mr. Kiley agreed to
assist Thomas Kinkade on Company matters and to provide various other consulting
services in exchange for a fee of $6,000 per month.

24
<PAGE>
STOCK PERFORMANCE GRAPH

The following graph shows a five-year comparison of cumulative total returns
for the Company's common stock, the Standard & Poor's 500 Index and a peer group
constructed by the Company composed of Bed Bath & Beyond, Inc., Bombay
Company, Inc., Coldwater Creek, Inc., Department 56, Inc., Linens 'n
Things, Inc., Michaels Stores, Inc., Pier 1 Imports, Inc., Restoration
Hardware, Inc., Tiffany & Company and Williams-Sonoma, Inc. (the "Peer Group"),
each of which assumes an initial value of $100 and reinvestment of dividends.
Historic stock price performance is not necessarily indicative of future stock
price performance.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
MAGI PEERS S&P 500
<S> <C> <C> <C>
3/31/96 $100 $100 $100
3/31/97 $177 $119 $117
3/31/98 $718 $202 $171
3/31/99 $327 $262 $199
3/31/00 $259 $388 $232
</TABLE>

TOTAL RETURNS--WITH DIVIDENDS REINVESTED--
--------------------------------------------------------------------------------
MARCH 31, 1996 TO MARCH 31, 2000
--------------------------------------------------------------------------------

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

During fiscal 2000, all of the officers, directors and 10% stockholders of
the Company complied with requirements for reporting ownership and changes in
ownership of Company Common Stock under Section 16(a) of the Securities Act of
1934 except for the following:

During fiscal 2000, J. Edward Hollender filed a Form 3 late. Mr. Hollender
commenced employment with the Company as an executive officer on November 5,
1999, and as such, a Form 3 was required to be filed by November 15, 1999.
Mr. Hollender filed Form 3 on April 5, 2000.

During fiscal 2000, Timothy S. Guster filed a Form 3 late. Mr. Guster
commenced employment with the Company as an executive officer on November 15,
1999, and as such, a Form 3 was required to be filed by November 25, 1999.
Mr. Guster filed Form 3 on March 29, 2000.

During fiscal 2000, Raymond A. Peterson filed one Form 4 late. On
November 12, 1999 Mr. Peterson sold 70,000 shares of Company Common Stock and
exercised options and sold 70,725 shares of Company Common Stock. The filing of
this transaction on Form 4 was required by December 10, 1999. Mr. Peterson filed
the required Form 4 on February 15, 2000.

25
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS

The table below shows how much Company common stock is owned by the
directors, the Named Officers and owners of more than 5% of the Company's
outstanding common stock, as of July 10, 2000.

Except as otherwise indicated below, the persons listed below have advised
the Company that they have sole voting and investment power with respect to the
securities shown as owned by them. On July 10, 2000, there were 13,146,198
shares of the Company's common stock outstanding.

<TABLE>
TOTAL AMOUNT AND PERCENTAGE
NUMBER OF NATURE OF OF
NAME OF BENEFICIAL OWNERS AND SHARES RIGHT TO BENEFICIAL OUTSTANDING
ADDRESSES(1) OWNED(2) ACQUIRE(3) OWNERSHIP(4) SHARES
<S> <C> <C> <C> <C>
Thomas Kinkade 3,140,651(5) 600,000 3,740,651 27.2%
Kenneth E. Raasch 3,371,691(6) 180,517(7) 3,552,208 26.7%
Richard F. Barnett 259,525(8) -- 259,525 2.0%
Craig A. Fleming 1,000 127,200 128,200 *
Michael L. Kiley -- 51,500 51,500 *
Raymond A. Peterson 28,000 20,380 48,380 *
John R. Lackner 2,000 37,670 39,670 *
Norman A. Nason -- 26,681 26,681 *
W. Michael West 10,000 10,000 20,000 *
Herbert D. Montgomery -- -- -- 0.0%
Anthony D. Thomopoulos -- -- -- 0.0%
Directors and executive
officers as
a group (16 persons)(9) 6,815,367 1,056,303 7,871,670 55.4%
</TABLE>

* Less than one (1) percent.

(1) All addresses are 521 Charcot Avenue, San Jose, California 95131.

(2) Excludes shares that may be acquired through stock option exercises.

(3) Shares that can be acquired through stock option exercises through July 10,
2000.

(4) Beneficial ownership is determined according to the rules of the SEC which
generally attribute beneficial ownership of securities to persons who
possess sole or shared voting power and/or investment power with respect to
(a) securities actually owned and/or (b) shares of common stock acquired
through stock option exercises within sixty (60) days from the record date,
which is July 10, 2000.

(5) The shares owned by Mr. Kinkade are jointly held in the names of Mr. Thomas
Kinkade and Mrs. Nanette Kinkade.

(6) The shares owned by Mr. Raasch are held by Mr. Kenneth E. Raasch and
Mrs. Linda L. Raasch, as Trustees of the Raasch Family Trust, May 18, 1993.

(7) Includes 165,517 shares of common stock which may be acquired upon the
conversion of a $1,200,000 promissory note issued to Linda L. Raasch, the
wife of Mr. Raasch, on June 30, 1995. Also includes 15,000 shares subject to
options held by Mr. Raasch.

26
<PAGE>
(8) The shares owned by Mr. Barnett are held by Mr. Richard F. Barnett and
Mrs. Loretta K. Barnett, as Trustees of the Barnett Family Trust.

(9) Messrs. Kinkade, Raasch, Barnett, Fleming, Kiley, Peterson, Lackner, Nason,
West, Montgomery and Thomopoulos and other executive officers are members of
the group.

STOCKHOLDER PROPOSALS

If you want us to consider including a proposal in our 2001 Proxy Statement,
you must (1) deliver it to the Company's Corporate Secretary at our principal
executive office no later than March 1, 2001 and (2) must satisfy the conditions
established by the SEC for stockholder proposals to be included in the Company's
Proxy Statement for that meeting. New SEC rules regarding stockholder proposals
became effective on June 29, 1998. Under these new rules, if the Company
receives notice later than June 16, 2001, which is 45 days before the
anniversary of the mailing of the proxy materials for the last annual meeting,
of any matter a stockholder intends to propose for a vote at the 2001 Annual
Meeting of Stockholders, then a proxy solicited by the board of the Company may
be voted on such matter in the discretion of the proxy holder, without
discussion of the matter in the proxy statement soliciting such proxy and
without such matter appearing as a separate item on the proxy card.

COSTS OF PROXY SOLICITATION

The Company pays for distributing and soliciting proxies and reimburses
brokers, nominees, fiduciaries and other custodians reasonable fees and expenses
in forwarding proxy materials to stockholders. The Company is not using an
outside proxy solicitation firm this year.

TRANSACTION OF OTHER BUSINESS

At the date of this Proxy Statement, the board knows of no other business
that will be conducted at the 2000 Annual Meeting of Stockholders other than as
described in this Proxy Statement.

An annual report for the fiscal year ended March 31, 2000 is enclosed with
this Proxy Statement.

By Order of the Board,

/s/ Timothy S. Guster

Timothy S. Guster
Secretary

July 24, 2000
San Jose, California

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

(408) 324-2020 WWW.MEDIAARTS.COM NYSE Stock Symbol: MDA

27
<PAGE>
APPENDIX A
1998 STOCK INCENTIVE PLAN

The following is a summary of the principal provisions of the 1998 Stock
Incentive Plan.

ADMINISTRATION

The plan is administered by the Compensation Committee (the "Committee")
which is comprised of at least two non-employee directors. The Committee selects
the key employees of the Company or any subsidiary who will receive awards,
determines the size of any award and establishes any vesting or other
conditions.

ELIGIBILITY

Key employees including independent contractors of the Company are eligible
to receive awards under the plan. Directors who are not employees of the Company
or any of its subsidiaries, also known as non-employee directors, are eligible
to receive automatic grants under the plan. As of July 10, 2000, approximately
75 persons had received approximately 1,690,000 option awards under the plan, of
this amount, options to purchase 800,000 shares were granted to the executive
officers and directors as a group. It is not possible to determine how many
eligible employees will participate in the plan in the future.

OPTIONS AND STOCK APPRECIATION RIGHTS

Options may include incentive stock options, also known as ISOs, intended to
qualify for special tax treatment under Section 422 of the Internal Revenue
Code, as well as nonstatutory stock options, also known as NSOs. The exercise
price of ISOs must be equal to or greater than 100% (110% for 10% stockholders)
of the fair market value of the common stock on the date of grant. The exercise
price of NSOs must be equal to or greater than 85% of the fair market value of
the common stock on the date of grant. On July 10, 2000, the Company's common
stock closed at $4.00 per share. The term of an ISO cannot exceed
ten (10) years (or five (5) years for 10% stockholders), and all options and
SARs are nontransferable prior to the optionee's death. The exercise price of an
option may be paid in any lawful form permitted by the Committee, including cash
or the surrender of shares of common stock already owned by the optionee.

A stock appreciation right, or SAR permits the participant to elect to
receive any appreciation in the value of the optioned stock directly from the
Company, either in shares of common stock or in cash or a combination of the
two, in lieu of exercising the option, with the Committee having the discretion
to determine the form in which such payment will be made. The amount payable on
exercise of an SAR is measured by the difference between the market value of the
optioned stock at exercise and the exercise price. SARs may be granted in
combination with options or on a stand-alone basis. Upon exercise of an SAR, the
corresponding portion of the related option must be surrendered and cannot
thereafter be exercised. Conversely, upon exercise of an option to which an SAR
is attached, the SAR may no longer be exercised to the extent that the
corresponding option has been exercised. The Committee has no present intention
to issue SARs under the plan except under the non-employee director automatic
grant provisions as described below.

STOCK UNITS

Stock unit awards consist of grants of stock units for no consideration,
subject to such terms, conditions and restrictions as the Committee may
determine. A stock unit is an unfunded bookkeeping entry representing the
equivalent of one share of common stock, and it is nontransferable prior to the
holder's death. A holder of stock units has no voting rights or other privileges
as a stockholder but may be entitled to receive dividend equivalents.

28
<PAGE>
Stock units, when vested, may be settled by distributing shares of common
stock or by a cash payment corresponding to the fair market value of an
equivalent number of shares of common stock, or a combination of both. Vested
stock units will be settled at the time determined by the Committee. With the
Committee's consent, the recipient of stock units may pay all projected
withholding taxes relating to the award with common stock rather than cash.

VESTING CONDITIONS

The Committee determines the number of options, SARs and stock units to be
included in the award as well as the vesting and other conditions. The vesting
conditions may be based on the employee's service, his or her individual
performance, the Company's performance or other appropriate criteria. In
general, the vesting conditions will be based on the employee's service after
the date of grant. Vesting may be accelerated in the event of the employee's
death, disability or retirement or in the event of a change of control.

The events which constitute a change of control for purposes of the plan are
(1) when a person or entity becomes the beneficial owner of 15% or more of the
voting power of Media Arts' shares, (excluding current 15% stockholders) or
(2) during any two consecutive years, members of the board at the beginning of
such period cease to constitute a majority thereof, unless the election or
nomination of each director is approved by the vote of at least two-thirds of
the directors still in office who were directors at the beginning of such
period, or (3) the occurrence of any other change of control reportable under
the Exchange Act, or (4) stockholder approval of a merger or consolidation of
Media Arts, or (5) the adoption of a plan of complete liquidation of Media Arts,
or stockholder approval of the sale by Media Arts of all or substantially all of
its assets. The events described under subparagraphs (1), (3) and (4) above will
not be deemed a change of control if so determined by the board.

AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS

The plan provides that non-employee directors will automatically receive an
NSO covering 5,000 shares annually at an exercise price equal to 85% or more of
the fair market value of common stock on the date of grant. In fiscal 2000, the
annual, automatic option grant to four non-employee directors of 5,000 shares
each of common stock was made on September 30, 1999, at an exercise price of
$3.77 per share. NSOs granted to non-employee directors become immediately and
fully exercisable as of their respective grant dates. The NSOs expire ten
(10) years after grant, except that they expire on the first anniversary after
the non-employee director's service terminates, if sooner. All NSOs granted to
non-employee directors include an SAR that is exercisable for cash only during
the 30-day period following a change of control with respect to the Company.

The plan also provides that all new non-employee directors may receive, at
the discretion of the Committee, 1,000 stock units when they first become
elected to the Board. These stock units will be settled by issuing an equal
number of shares of common stock. Settlement occurs on the earliest of (1) the
date one year after the date of grant, (2) the date of a change of control with
respect to the Company or (3) the date when the non-employee director's service
terminates for any reason.

LIMITATION ON PAYMENTS

Any provision of the plan to the contrary notwithstanding, in the event that
the Company's current independent auditors determine that any payment or
transfer by the Company under the plan to or for the benefit of a participant
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" set forth in Section 280G
of the Internal Revenue Code, then the aggregate present value of all payments
shall be reduced (but not below zero) to the reduced amount, as defined below;
provided that the Committee, at the time of making an award under the plan or at
any time after that, may specify in writing that such award shall not be so
reduced and

29
<PAGE>
shall not be subject to Article 14 of the plan. "Reduced amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the payments without causing any payment to be nondeductible by the
Company because of Section 280G of the Internal Revenue Code, present value
shall be determined in accordance with Section 280G(d)(4) of the Internal
Revenue Code. Any such reductions shall be made in accordance with the
procedures set forth in Section 14.2 of the plan. All determinations made by the
auditors under Article 14 of the plan shall be binding on the Company and
participants in the plan and shall be made within sixty (60) days of the date
when a payment becomes payable or transferable.

In connection with the calculation of the reduced amount under Article 14 of
the plan, payments may be made which should not have been made, known as an
overpayment, or payments which should have been made may not be made, known as
an underpayment. If the auditors determine, based upon the assertion of a
deficiency by the Internal Revenue Service against the Company or a participant
in the plan which the auditors believe has a high probability of success,
determine that an overpayment has been made, such overpayment shall be treated
for all purposes as a loan to the participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Internal Revenue Code; provided, however, that no
amount shall be payable by the participant to the Company if and to the extent
that such payment would not reduce the amount which is subject to taxation under
Section 4999 of the Internal Revenue Code. In the event that the auditors
determine that an underpayment has occurred, such underpayment shall promptly be
paid or transferred by the Company to or for the benefit of the participant,
together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Internal Revenue Code.

OTHER PROVISIONS

The Committee is authorized, within the provisions of the plan, to amend the
terms of outstanding stock units, to modify or extend outstanding options or to
exchange new options for outstanding options, including outstanding options with
a higher exercise price than the new options. The Committee has no present
intention to modify the terms of any outstanding stock-based incentive awards.

NUMBER OF AVAILABLE SHARES

The total number of shares available for grant under the plan is 150,178,
plus 1,650,000 additional shares of common stock if the amendment to the plan is
adopted by the stockholders. In addition, if awards under the prior employee and
director stock option plans are forfeited or terminated before being exercised
or vested, the corresponding common shares become available for awards under
this plan. The total number of shares available for grant under the plan shall
be subject to adjustment in the event of stock splits, stock dividends and other
similar recapitalization transactions. If any options, SAR's, stock units are
forfeited, or if options terminate for any other reason prior to exercise, then
the underlying shares again become available for awards.

The Committee has full discretion to determine the number of options, SARs
and stock units to be granted to employees under the plan; provided, however,
that no individual may receive option or SAR grants in a single calendar year
covering more than 200,000 shares. Awards to non-employee directors under the
plan are fixed. See "Compensation of Directors" on page 12.

TERM OF THE PLAN, AMENDMENT AND TERMINATION

The board may at any time amend, modify or terminate the plan. An amendment
of the plan shall be subject to the approval of the Company's stockholders only
to the extent required by applicable law. The plan shall remain in effect until
it is terminated except that no ISOs may be granted after June 21, 2008.

GENERAL FEDERAL TAX CONSEQUENCES. Under current federal laws, in general,
recipients of awards and grants of NSOs, ISOs, SARs and stock units under the
Plan are taxable under Section 83 of the Internal

30
<PAGE>
Revenue Code upon their receipt of common stock or cash with respect to such
awards or grants and, subject to Section 162(m) of the Internal Revenue Code,
the Company will be entitled to an income tax deduction with respect to the
amounts taxable to such recipients. Under Sections 421 and 422 of the Internal
Revenue Code, recipients of ISOs are generally not taxable on their receipt of
Common Stock upon their exercises of ISOs if the ISOs and option stock are held
for certain minimum holding periods and, in such event, the Company is not
entitled to any income tax deductions with respect to such exercises.
Participants in the plan will be provided with detailed information regarding
the tax consequences relating to the various types of awards and grants under
the plan.

SECTION 162(M) LIMITATION. In general, under Section 162(m) of the Internal
Revenue Code, income tax deductions of publicly-held corporations may be limited
to the extent total compensation (including base salary, annual bonus, stock
option exercises and non-qualified benefits paid) for certain executive officers
exceeds $1 million (less the amount of any "excess parachute payments" as
defined in Section 280G of the Internal Revenue Code) in any one year. However,
under Section 162(m), the deduction limit does not apply to certain
"performance-based compensation" established by an independent compensation
committee which is adequately disclosed to, and approved by, stockholders. In
particular, stock options and SARs will satisfy the "performance-based
compensation" exception if the awards are made by a qualifying compensation
committee, the plan sets the maximum number of shares that can be granted to any
person within a specified period and the compensation is based solely on an
increase in the stock price after the grant date (i.e. the option exercise price
is equal to or greater than the fair market value of the stock subject to the
award on the grant date).

The Company has structured the plan in such a manner that, the remuneration
attributable to stock options and SARs which meet the other requirements of
Section 162(m) will not be subject to the $1,000,000 limitation. The Company has
not, however, requested a ruling from the IRS or an opinion of counsel regarding
this issue.

31
<PAGE>

MEDIA ARTS GROUP, INC.
521 CHARCOT AVENUE, SAN JOSE, CA 95131

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Timothy S. Guster and William C. Morris, Jr.
(the "Proxies"), and each of them, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and vote as
designated below, all the shares of Common Stock of Media Arts Group, Inc.
(the "Company") held of record by the undersigned on July 10, 2000, at the
Annual Meeting of Stockholders to be held on September 7, 2000 or any
adjournment or postponement thereof.

--------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --

<PAGE>

Please mark /X/
your votes
as indicated
in this
example.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
Item 1 ELECTION OF DIRECTORS - To elect the following directors as directors
of the Company to hold office for one year terms or until their
successors are elected and
qualified.
Nominees: FOR WITHHELD
Craig A. Fleming / / / /
Michael L. Kiley / / / /
Thomas Kinkade / / / /
Herbert D. Montgomery / / / /
Norman A. Nason / / / /
Raymond A. Peterson / / / /
Kenneth E. Raasch / / / /
Anthony D. Thomopoulos / / / /
W. Michael West / / / /

Item 2 To approve an amendment of the 1998 Stock FOR AGAINST ABSTAIN
Incentive Plan to increase the shares / / / / / /
reserved for issuance from 1,150,000 to
2,800,000.

Item 3 To ratify the appointment of / / / / / /
PricewaterhouseCoopers LLP as the
independent public accountants of the
Company for the fiscal year ending March 31,
2001.

Item 4 In their discretion the proxies are authorized / / / / / /
to vote upon such other business as may
properly come before the meeting.

WITHHELD FOR: (Write that nominee's name in the space
provided below)

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

This Proxy when properly executed will be voted in the manner herein by the
undersigned stockholder. If no direction is made, the Proxy will be voted for
Proposals 1, 2, and 3.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO DATE,
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED TO ASSURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU
MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.

Signature ____________ Signature if held jointly ____________ Dated: _____, 2000
Please sign exactly as your name appears on your stock certificates. When shares
are held by joint tenants, both should sign. When signing as an attorney, as
executor, administrator, trustee or guardian, please give your full title. If a
corporation, please sign in full corporate name, by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.

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