FOTOBALL USA INC
EMPLOYMENT AGREEMENT WITH MICHAEL FAVISH
<DOCUMENT>
<TYPE>EX-10.4(3)
<SEQUENCE>3
<FILENAME>file002.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT WITH MICHAEL FAVISH
<TEXT>
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EXHIBIT 10.4(3) EMPLOYMENT AGREEMENT WITH MICHAEL FAVISH DATED AUGUST 10,  2002

                              EMPLOYMENT AGREEMENT

                  This EMPLOYMENT AGREEMENT (the "Agreement") is dated as of
August 10, 2002 by and between FOTOBALL USA, INC., a Delaware corporation (the
"Company"), and Michael Favish ("Executive").

                              W I T N E S S E T H :
                              - - - - - - - - - -

                  WHEREAS, Executive is currently serving as the Chairman and
Chief Executive Officer of the Company under a three-year employment agreement
with the Company dated as of August 10, 1999 (the "Old Agreement");

                  WHEREAS, the Company and Executive desires to extend the
employment relationship upon the terms set forth in this Agreement;

                  NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
adequacy and receipt of which are hereby acknowledged, the parties agree as
follows:

                  1. Employment. (a) The Company hereby employs (the
"Employment") Executive as the Chairman and Chief Executive Officer of the
Company. It is the intention of the parties to vest full authority to control
the day-to-day operations of the Company with Executive, subject to the general
supervision, control and guidance of the Board of Directors of the Company (the
"Board"). Executive hereby accepts the Employment and agrees to (i) render such
executive services, (ii) perform such executive duties and (iii) exercise such
executive supervision and powers to, for and with respect to the Company, as may
be established by the Board, for the period and upon the terms set forth in this
Agreement.

                           (b)  Executive shall devote substantially all of his
business time and attention to the business and affairs of the Company
consistent with his executive positions with the Company, except for vacations
permitted pursuant to Section 3.5 and Disability (as defined in Section 6.2).
This Agreement shall not be construed as preventing Executive from engaging in
charitable and community affairs, or giving attention to his passive
investments, provided that such activities do not interfere with the regular
performance of his duties and responsibilities under this Agreement.

                  2. Term. Except as otherwise specifically provided in Section
6 below, the term of this Agreement (as may be extended, the "Term") shall
commence on the date hereof, and shall continue until August 9, 2005, subject to
the terms and conditions of this Agreement. The Term may be extended for
consecutive one-year renewal terms by written notice by either party to the
other between sixty (60) and ninety (90) days prior to the end of the original
three-year term or one-year renewal terms.


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                  3.       Compensation.

                           3.1      Base Salary.  Executive shall be paid a base
salary (the "Base Salary") at an annual rate of two hundred fifty thousand
dollars ($250,000), payable at such intervals as the other executive officers of
the Company are paid, but in any event at least on a monthly basis. The Base
Salary shall be reviewed by the Board on or before January 1 of each year during
the Term, with such reviews to commence prior to such date, and shall be subject
to increase in the discretion of the Board, taking into account merit, corporate
and individual performance and general business conditions, including changes in
the consumer price index published by the United States Bureau of Labor, Bureau
of Labor Statistics, for the San Diego, California metropolitan area. Such
increase, if any, in Executive's Base Salary shall be effective on January 1 of
each year during the Term commencing in 2003.

                           3.2      Bonus.  In addition to the Base Salary,
Executive shall be entitled to such bonus compensation ("Bonus Compensation") as
may be determined from time to time by the Compensation Committee of the Board,
in its sole discretion.

                           3.3      Stock Options.

                                    (a) During each year of this Agreement
(August-August), the Company shall cause the issuance to Executive of
non-qualified options (the "Options") to purchase not less than 10,000 shares of
common stock, $.01 par value (the "Common Stock"), of the Company at a per share
exercise price equal to the then-current fair market value of the Common Stock,
subject to three-year vesting and subject to and in accordance with the terms of
the 1998 Stock Option Plan of the Company or any successor stock option plan
(the "Plan").

                                    (b)  Executive's vested Options shall be
exercisable for a period of ten years from the date of issuance. Upon the
termination of this Agreement, any unvested Options shall lapse, except as
otherwise provided in Section 6 below, and Executive shall have ninety (90) days
from the date of termination in accordance with the terms of this Agreement to
exercise any vested Options (one year in the case of termination by reason of
death or Disability of Executive).

                           3.4      Employee Benefits.  In addition to the Base
Salary and the Bonus Compensation, Executive shall be entitled (i) to continue
to receive the fringe benefits now provided by the Company in addition to any
additional benefits hereafter provided to its executive offers, including, but
not limited to, life, hospitalization, surgical, major medical and disability
insurance and sick leave, (ii) to be a full participant in all of the Company's
other benefit plans, pension plans, retirement plans and profit-sharing plans
which may be in effect from time to time or may hereafter be adopted by the
Company and (iii) to all costs and expenses for the maintenance, including
insurance, and operation of Executive's automobile; provided, however, that such
costs and expenses shall not exceed $750 in any month.


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                           3.5      Vacation.  During the Term, Executive shall
be entitled to such vacation with pay during each calendar year of his
Employment hereunder consistent with his position as an executive officer of the
Company, but in no event less than four (4) weeks in any such calendar year
(pro-rated as necessary for partial calendar years during the Term). Such
vacation may be taken, in Executive's discretion, at such time or times as are
not inconsistent with the reasonable business needs of the Company. Executive
shall not be entitled to any additional compensation in the event that
Executive, for whatever reason, fails to take such vacation during any year of
his Employment hereunder. Executive shall also be entitled to all paid holidays
given by the Company to its executive officers.

                  4.       Indemnification.  Executive shall be entitled at all
times to the benefit of the maximum indemnification and advancement of expenses
available from time to time under the laws of the State of Delaware.

                  5.       Expenses.  During the Term, the Company shall
reimburse Executive upon presentation of appropriate vouchers or receipts in
accordance with the Company's expense reimbursement policies for executive
officers, for all out-of-pocket business travel and entertainment expenses
incurred or expended by Executive in connection with the performance of his
duties under this Agreement.

                  6.       Consequences of Termination of Employment.

                           6.1      Death.  In the event of the death of
Executive during the Term, Executive's Employment hereunder shall be terminated
as of the date of his death and Executive's designated beneficiary, or, in the
absence of such designation, the estate or other legal representative of
Executive (collectively, the "Estate"), shall be paid Executive's unpaid Base
Salary through the month in which the death occurs and any unpaid Bonus
Compensation for any fiscal year which has ended as of the date of such
termination or which was at least one half (1/2) completed as of the date of
death. In the case of such incomplete fiscal year, the Bonus Compensation shall
be pro-rated and all such Bonus Compensation payable as a result of this Section
6.1 shall be otherwise payable as determined by the Compensation Committee of
the Board, in its sole discretion. The Estate shall be entitled to all other
death benefits in accordance with the terms of the Company's benefit programs
and plans.

                           6.2      Disability.  In the event Executive shall be
unable to render the services or perform his duties hereunder by reason of
illness, injury or incapacity (whether physical, mental, emotional or
psychological) (any of the foregoing shall be referred to herein as a
"Disability") for a period of either (i) ninety (90) consecutive days or (ii)
one hundred eighty (180) days in any consecutive three hundred sixty-five (365)
day period, the Company shall have the right to terminate this Agreement by
giving Executive ten (10) days prior written notice. If Executive's Employment
hereunder is so terminated, Executive shall be paid, in addition to payments
under any disability insurance policy in effect, Executive's unpaid Base Salary
through the month in which


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the termination occurs, plus Bonus Compensation on the same basis as is set
forth in Section 6.1 above.

                           6.3      Termination of Employment of Executive by
the Company for Cause.

                                    (a)     Nothing herein shall prevent the
Company from terminating Executive's Employment for Cause (as defined below).
From and after the date of such termination, Executive shall no longer be
entitled to receive Base Salary and Bonus Compensation and the Company shall no
longer be required to pay premiums on any life insurance or disability policy
for Executive. Any rights and benefits which Executive may have in respect of
any other compensation or any employee benefit plans or programs of the Company,
whether pursuant to Section 3.4 or otherwise, shall be determined in accordance
with the terms of such other compensation arrangements or plans or programs. The
term "Cause," as used herein, shall mean that: (i) Executive shall embezzle
funds or misappropriate other property of the Company or any subsidiary; or (ii)
Executive shall willfully disobey a lawful directive of the Board, whether
through commission or omission; or (iii) Executive shall breach the Agreement in
a material manner or engage in fraudulent conduct as regards the Company.

                                    (b)     The Company shall provide Executive
with written notice stating that it intends to terminate Executive's Employment
for Cause under this Section 6.3 and specifying the particular act or acts on
the basis of which the Board intends to so terminate Executive's Employment.
Executive shall then be given the opportunity, within fifteen (15) days of his
receipt of such notice, to have a meeting with the Board to discuss such act or
acts (other than with respect to an action described in Section 6.3(a)(i) above
as to which the Board may immediately terminate Executive's Employment for
Cause). Other than with respect to an action described in Section 6.3(a)(i)
above, Executive shall be given seven (7) days after his meeting with the Board
to take reasonable steps to cease or correct the performance (or nonperformance)
giving rise to such written notice. In the event Board determines that Executive
has failed within such seven-day period to take reasonable steps to cease or
correct such performance (or nonperformance), Executive shall be given the
opportunity, within ten (10) days of his receipt of written notice to such
effect, to have a meeting with the Board to discuss such determination.
Following that meeting, if the Board believes that Executive has failed to take
reasonable steps to cease or correct his performance (or nonperformance) as
above described, the Board may thereupon terminate the Employment of Executive
for Cause.

                           6.4      Termination of Employment Other than for
Cause, Death or Disability.

                                    (a)  Termination.  This Agreement may be
terminated by the Company (in addition to termination pursuant to Sections 6.1,
6.2 or 6.3 above) at any time and for any reason or upon the expiration of the
Term.


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                                    (b)  Severance and Non-Competition Payments.

                                            (1)      If this Agreement is
terminated by the Company, including a Constructive Termination (as defined
below), other than as a result of death or Disability of Executive or for Cause
(and other than in connection with a change in control (as defined below) of the
Company), the Company shall pay Executive a severance and non-competition
payment equal to the sum of (x) an amount equal to the Base Salary for the
remainder of the Term plus (y) an amount equal to the Bonus Compensation earned
by Executive in respect of the last full fiscal year immediately preceding the
year of termination multiplied by the number of full fiscal years remaining in
the Term; provided, however, that a termination during the last twelve (12)
months of the Term shall be governed by Section 6.4(b)(5) below. Such severance
and non-competition payment shall be payable, in Executive's sole discretion,
either (i) in a lump sum on the first day of the month following the termination
or (ii) in equal monthly installments commencing on the first day of the month
following termination and continuing for the remainder of the Term. In addition,
all unvested Options shall be deemed to have vested on the date of such
termination.

                                            (2)      For purposes of this
Agreement, a "change in control" of the Company shall be deemed to have occurred
if (i) the Company shall have merged or consolidated with an unaffiliated entity
in which (A) the Company is not the surviving corporation or (B) the Company
shall have transferred or sold all or substantially all of its assets to an
unaffiliated entity (other than a transaction which would cause the stockholders
immediately prior to such transaction to own at least fifty (50%) of the voting
securities of the Company immediately after such transaction), or (ii) there
shall be a change in the constituency of a majority of the members of the Board
within any twelve (12) month period (other than a change of which a majority of
the existing directors voted in favor).

                                            (3)      For purposes of this
Agreement, "Constructive Termination" shall be deemed to have occurred upon (x)
the removal of Executive from, or a failure of Executive to continue as,
Chairman and Chief Executive Officer of the Company and (y)(i) any material
diminution in the nature or scope of the authorities, powers, functions, duties
or responsibilities attached to such positions or (y)(ii) the material breach by
the Company of this Agreement and, in any such case, Executive does not agree to
such change and elects to terminate his Employment.

                                            (4)      In the event of a
termination of Employment (including a Constructive Termination) within six (6)
months following a change in control of the Company, the Company shall pay
Executive a severance and non-competition payment equal to the greater of (x)
the sum of (i) an amount equal to the Base Salary for the remainder of the Term
plus (ii) an amount equal to the Bonus Compensation earned by Executive in
respect of the last full fiscal year immediately preceding the year of
termination multiplied by the number of full fiscal years remaining in the Term;
or (y) 2.99 times the sum of the Base Salary plus the Bonus Compensation in
respect of the year immediately preceding the year of termination. Such
severance and


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non-competition payment shall be payable, in Executive's sole discretion, either
(i) in a lump sum on the first day of the month following the termination or
(ii) in equal monthly installments commencing on the first day of the month
following termination and continuing for the remainder of the Term. In addition,
all unvested Options shall be deemed to have vested on the date of such change
in control.

                                            (5)      If this Agreement is not
renewed beyond the Term by the parties hereto or if this Agreement is terminated
by the Company, including a Constructive Termination, other than as a result of
death or Disability of Executive or for Cause (and other than in connection with
a change in control) in accordance with this Section 6, during the last twelve
(12) months of the Term, the Company shall pay Executive a severance and
non-competition payment equal to the sum of (x) an amount equal to the Base
Salary in respect of the calendar year immediately preceding the year of
termination plus (y) an amount equal to the Bonus Compensation earned by
Executive in respect of the calendar year immediately preceding the year of
termination. Such severance and non-competition payment shall be payable, in
Executive's sole discretion, either (i) in a lump sum of the first day of the
month following the termination or (ii) in twelve (12) equal monthly
installments commencing on the first day of the month following termination. In
addition, all unvested Options shall be deemed to have vested on the date of
such termination.

                                            (6)      Executive shall not be
required to mitigate the amount of any severance and non-competition payment
provided for under this Agreement by seeking other employment or otherwise.

                                            (7)      In the event that Executive
becomes entitled to any payments or benefits under this Agreement and any
portion of such payments or benefits, when combined with any other payments or
benefits provided to Executive (including, without limiting the generality of
the foregoing, by reason of the exercise of any stock options or the receipt of
any shares of stock of the Company), which in the absence of this Section
6(b)(7), would be subject to the tax (the "Excise Tax") imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), then the amount
payable to Executive under this Agreement shall be reduced such that none of the
amounts payable to Executive under this Agreement and any other payments or
benefits received or to be received by Executive as a result of, or in
connection with, an event constituting a change in the ownership or effective
control of the Company or in the ownership of a substantial portion of the
assets of the Company (within the meaning of Section 280G(b)(2)(A) of the Code)
(collectively, a "Control Change") or the termination of Employment (including a
Constructive Termination, and whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Control Change or any person having such a relationship with
the Company or such person as to require attribution of stock ownership between
the parties under Section 318(a) of the Code) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code.


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                  7.       Confidential Information.

                           7.1      Executive covenants and agrees that he will
not at any time, either during the Term or thereafter, use, disclose or make
accessible to any other person, firm, partnership, corporation or any other
entity any Confidential Information (as defined below) pertaining to the
business of the Company except (i) while employed by the Company, in the
business of and for the benefit of the Company or (ii) when required to do so by
a court of competent jurisdiction, by any governmental agency having supervisory
authority over the business of the Company, or by any administrative body or
legislative body (including a committee thereof) with jurisdiction to order the
Company to divulge, disclose or make accessible such information. For purposes
of this Agreement, "Confidential Information" shall mean non-public information
concerning the Company's financial data, statistical data, strategic business
plans, product development (or other proprietary product data), customer and
supplier lists, customer and supplier information, information relating to
practices, processes, methods, trade secrets, marketing plans and other
non-public, proprietary and confidential information of the Company; provided,
however, that Confidential Information shall not include any information which
(x) is known generally to the public other than as a result of unauthorized
disclosure by Executive, (y) becomes available to the Executive on a
non-confidential basis from a source other than the Company or (z) was available
to Executive on a non-confidential basis prior to its disclosure to Executive by
the Company. It is specifically understood and agreed by Executive that any
Confidential Information received by Executive during his Employment by the
Company is deemed Confidential Information for purposes of this Agreement. In
the event Executive's Employment is terminated hereunder for any reason, he
immediately shall return to the Company all Confidential Information in his
possession.

                           7.2      Executive and the Company agree that this
covenant regarding Confidential Information is a reasonable covenant under the
circumstances, and further agree that if, in the opinion of any court of
competent jurisdiction, such covenant is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended. Executive
agrees that any breach of the covenant contained in this Section 7 would
irreparably injure the Company. Accordingly, Executive agrees that the Company,
in addition to pursuing any other remedies it may have in law or in equity, may
obtain an injunction against Executive from any court having jurisdiction over
the matter, restraining any further violation of this Section 7.

                  8.       Non-Competition; Non-Solicitation.

                           8.1      Executive agrees that during the
Non-Competition Period (as defined in Section 8.4 below), without the prior
written consent of the Company: (i) he shall not be a principal, manager, agent,
consultant, officer, director or employee of, or, directly or indirectly, own
more than one (1%) percent of any class or series of equity securities in, any
partnership, corporation or other entity, which, now or at such time, has
material operations which are engaged in any business activity competitive
(directly or


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indirectly) with the business of the Company; and (ii) he shall not, on behalf
of any competing entity, directly or indirectly, have any dealings or contact
with any suppliers or customers of the Company.

                           8.2      During the Non-Competition Period, Executive
agrees that, without the prior written consent of the Company (and other than on
behalf of the Company), Executive shall not, on his own behalf or on behalf of
any person or entity, directly or indirectly hire or solicit the employment of
any employee who has been employed by the Company at any time during the six (6)
months immediately preceding such date of hiring or solicitation.

                           8.3      Executive and the Company agree that the
covenants of non-competition and non-solicitation are reasonable covenants under
the circumstances, and further agree that if, in the opinion of any court of
competent jurisdiction such covenants are not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of these covenants as to the court shall appear not
reasonable and to enforce the remainder of these covenants as so amended.
Executive agrees that any breach of the covenants contained in this Section 8
would irreparably injure the Company. Accordingly, Executive agrees that the
Company, in addition to pursuing any other remedies it may have in law or in
equity, may obtain an injunction against Executive from any court having
jurisdiction over the matter, restraining any further violation of this
Section 8.

                           8.4      The provisions of this Section 8 shall
extend for the Term and survive the termination of this Agreement for one year
from the date of such termination (herein referred to as the "Non-Competition
Period").

                  9. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered
personally or sent by facsimile transmission, overnight courier, or certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally or sent by facsimile transmission (provided
that a confirmation copy is sent by overnight courier), one day after deposit
with an overnight courier, or if mailed, five (5) days after the date of deposit
in the United States mails, as follows:

If to the Company, to:     Fotoball USA, Inc.
                                    6740 Cobra Way
                                    San Diego, California  92121
                                    Telecopy:   (858) 812-8661
                                    Attention:   Chief Financial Officer

If to Executive, to:                Mr. Michael Favish


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                  10.      Entire Agreement.  This Agreement and the Plan
contain the entire agreement between the parties hereto with respect to the
matters contemplated herein and supersede all prior agreements or understandings
among the parties related to such matters, including the Old Agreement.

                  11.      Binding Effect. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the Company and
its successors and assigns and upon Executive. "Successors and assigns" shall
mean, in the case of the Company, any successor pursuant to a merger,
consolidation, or sale, or other transfer of all or substantially all of the
assets or Common Stock of the Comp-any.

                  12.      No  Assignment.  Except as contemplated by Section 11
above, this Agreement shall not be assignable or otherwise transferable by
either party.

                  13.      Amendment or Modification; Waiver.  No provision of
this Agreement may be amended or waived unless such amendment or waiver is
authorized by the Board and is agreed to in writing, signed by Executive and by
a duly authorized officer of the Company (other than Executive). Except as
otherwise specifically provided in this Agreement, no waiver by either party
hereto of any breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar provision or condition at the same or at any prior or
subsequent time.

                  14.      Fees and Expenses.  If either party institutes any
action or proceedings to enforce any rights the party has under this Agreement,
or for damages by reason of any alleged breach of any provision of this
Agreement, or for a declaration of each party's rights or obligations hereunder
or to set aside any provision hereof, or for any other judicial remedy, the
prevailing party shall be entitled to reimbursement from the other party for its
costs and expenses incurred thereby, including but not limited to, reasonable
attorneys' fees and disbursements.

                  15.      Governing Law.  The validity, interpretation,
construction, performance and enforcement of this Agreement shall be governed by
the internal laws of the State of California, without regard to its conflicts of
law rules.

                  16.      Titles.  Titles to the Sections in this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any Section.

                  17.      Counterparts.  This Agreement may be executed in one
or more counter-parts, which together shall constitute one agreement. It shall
not be necessary for each party to sign each counterpart so long as each party
has signed at least one counterpart.

                  18.      Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective


<PAGE>


to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms and provisions of
this Agreement in any other jurisdiction.

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

                                         FOTOBALL USA, INC.


                                         By: /s/ Scott Dickey
                                         ------------------------------------
                                                 Scott Dickey
                                                 President and Chief Operating
                                                 Officer


                                         /s/ Michael Favish
                                         ------------------------------------
                                         Michael Favish



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