Exhibit 10.59

 

 

 

 

 

July 17, 2001

 

VIA FACSIMILE

 

Creative Brands Group, Inc.

c/o Ken Raasch

239 Forrester

Los Gatos, CA 95032

 

                RE:          Letter Agreement

 

Dear Ken:

 

                The purpose of this Letter Agreement (“Agreement”) is to set
forth the basic terms of the agreement by which Creative Brands Group, Inc.
(“CBG”) will manage and develop the licensing, key account and certain new
business initiatives for Media Arts Group, Inc. (“MAGI” or the “Company”). 
Certainly, it will be necessary to work out the details of the relationship,
including policies and procedures for CBG to follow in carrying out its
responsibilities, so this Agreement contemplates that those policies and
procedures will be established during the early stages of the relationship.

 

PURPOSE OF CONTRACTUAL RELATIONSHIP

 

                It is the belief of MAGI that by outsourcing its licensing and
key accounts business to CBG, MAGI will not only receive better and more
professional services in these areas, but will realize both an increase in
revenues and a decrease in relative operating expenses.  With respect to new
business initiatives, it is also contemplated that, through the experience of
CBG representatives in the industry, MAGI will be presented with additional
business opportunities that will provide revenue growth and enhance the overall
value of the Company.

 

NATURE OF SERVICES TO BE PROVIDED

 

                CBG shall manage and service MAGI’s existing licensing and key
account relationships.  Existing licensing relationships will be provided to CBG
by MAGI, along with any necessary documentation, including license agreements,
following the execution of this Agreement at a mutually agreed upon time and
place.  The key account relationships are presently defined as:  Avon Products,
Inc. and QVC.

 

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                CBG shall also be responsible for growing and developing the
licensing and key accounts businesses of MAGI.  New licensing relationships
shall be those with new licensees or with existing licensee for products or
articles not previously licensed by MAGI to such licensees.  In fulfilling this
responsibility, CBG shall adhere to MAGI’s policies and procedures, to be
established, consistent with MAGI’s overall annual and strategic business plans.

 

                With respect to new business initiatives, CBG shall take
direction from MAGI as to the types of new business initiatives desired by MAGI,
and CBG shall also provide advice and recommendations for new business
initiatives which, in the opinion of CBG, are consistent with MAGI’s annual and
strategic business plans.

 

COMPENSATION TO CBG; TERM OF AGREEMENT

 

                CBG shall be compensated for existing licensing relationships at
the rate of 7.5% of current revenues therefrom.  This rate is determined by MAGI
to provide cost savings to MAGI for the management of such existing licensing
relationships when compared to the overall costs of in-house management of such
relationships.  Current revenues from existing licensing relationships are
estimated to be $8 million.  To the extent that CBG is able, through its
management and development of existing licensing relationships, to increase
revenues to MAGI from the existing licensing relationships, then CBG shall be
entitled to be compensated at the rate of 20% of the increase in revenues from
existing licensing relationships.  To the extent that CBG, through its
development efforts, causes MAGI to receive revenue from new licensing
relationships, then CBG shall be entitled to be compensated at the rate of 20%
of the revenue from new licensing relationships.  In the event that licensing
revenues received by MAGI decrease or otherwise fall below the current revenues
from existing licenses, CBG shall be compensated at the rate of 7.5% of the
licensing revenues, even if such revenues are received from new licensing
relationships (ensuring that MAGI receives the cost savings contemplated by this
Agreement).

 

                CBG shall be compensated for existing key account relationships
at the rate of 5% of net wholesale revenues.  This rate is determined by MAGI to
provide cost savings to MAGI for the management of such existing key account
relationships when compared to the overall costs of in-house management of such
relationships.  To the extent that CBG, through its development efforts, causes
MAGI to receive revenue from new key account relationships, then CBG shall be
entitled to be compensated at the rate of 8% of net wholesale revenues from new
key account relationships.  The parties agree to establish an appropriate
baseline for revenues from key accounts in the event of changes to current key
accounts or business strategies.

 

                On revenues from new business initiatives developed by CBG, CBG
shall be compensated at the rate of 8% of net wholesale revenues.  In the event
the new business initiative developed by CBG is of a nature that the
compensation rate of 8% of net wholesale revenues is inappropriate, then MAGI
and CBG shall negotiate an appropriate rate, consistent with the purpose of this
Agreement.  For all new business initiatives

 

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developed by CBG, the compensation rate, whether at 8% or at another rate, shall
be determined by MAGI and CBG in advance of the formal establishment of the new
business initiative.

 

                The initial term of this Agreement shall be five (5) years, with
an automatic renewal of five years in the event CBG meets mutually agreed upon
performance criteria. Terms of any renewal period, to the extent the terms are
different than those contained herein, shall be determined by agreement between
MAGI and CBG prior to the beginning of the renewal period.  If the parties
cannot come to agreement on the terms of the renewal period, then the Agreement
shall expire at the end of the initial five-year term.

 

ADDITIONAL TERMS

 

                The parties shall establish minimum performance criteria for CBG
which CBG must meet during the term of this Agreement.  In the event of CBG’s
failure to meet such minimum performance criteria, then, after a reasonable
period to cure such failure and a failure to cure, MAGI shall be entitled to
terminate this Agreement without further obligation to CBG.  Should CBG cure its
failure of performance, then the Agreement shall remain in full force and
effect.  When establishing the minimum performance criteria, the parties shall
also agree upon the duration of the period in which CBG may cure any failure of
performance.  These terms shall be included in the policies and procedures to be
established by MAGI and CBG, as contemplated above.

 

                The parties agree all legal issues, including contract terms of
licensing agreements, key accounts and new business initiatives, shall be
determined by MAGI.

 

                MAGI shall provide support personnel for product development
undertakings required by this Agreement.  The use of such product development
personnel shall be governed by the policies and procedures to be established by
the parties.

 

                CBG shall provide on-site personnel for management of licensing
issues and approvals, with MAGI having final approval on all such issues.  MAGI
shall provide access to digital files and other assets necessary for CBG’s
performance hereunder.

 

                MAGI shall provide a reasonable budget for trade shows and
advertising.  CBG shall provide estimates on such budgetary requirements, with
MAGI having final approval.  Travel expenses associated with CBG’s performance
hereunder (including international travel expenses, when appropriate) shall be
subject to MAGI’s prior approval and shall be consistent with MAGI’s own travel
policies and procedures.

 

                CBG shall be responsible for its own staffing, overhead and
general expenses associated with the performance of its responsibilities
hereunder.

 

                Provided this Agreement accurately sets forth the substance of
our discussions, please indicate your acceptance by signing in the space
provided below.  We at Media

 

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Arts Group, Inc. look forward to a mutually rewarding relationship which will
provide great value to our shareholders.

 

 

Respectfully submitted,

 

 

 

/s/ Anthony D. Thomopoulos

 

 

 

Media Arts Group, Inc.

 

Anthony D. Thomopoulos

 

Interim Chief Executive Officer

 

Chairman of the Board

 

 

Accepted:

 

 

 

Creative Brands Group, Inc.

 

 

 

By:

/s/ Kenneth Raasch

 

 

Kenneth E. Raasch

 

 

 

 

Date:

7/17/01

 

 

 

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