**Exhibit10.53**

 

 

 

 
| **MEDIA ARTS GROUP, INC.**

**THOMAS KINKADE STORES, INC.**

**LOAN AND SECURITY AGREEMENT** |
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This LOAN AND SECURITY AGREEMENT is entered into as ofApril 15, 2002, by and among COMERICA BANK-CALIFORNIA (“Bank”) and MEDIA ARTSGROUP, INC., and THOMAS KINKADE STORES, INC. (individually, a “Borrower” andcollectively, the “Borrowers”).

RECITALS

Borrowers desire to obtain credit from time to timefrom Bank, and Bank desires to provide credit to Borrowers.  This Agreement sets forth the terms on whichBank will advance credit to Borrowers, and Borrowers will repay the amountsowing to Bank.

AGREEMENT

The parties agree as follows:

# 1.             DEFINITIONSAND CONSTRUCTION.

## 1.1           Definitions.  As used in this Agreement, the followingterms shall have the following definitions:

“Accounts” means all presently existing and hereafter arising accounts,contract rights, and all other forms of obligations owing to a Borrower arisingout of the sale or lease of goods (including, without limitation, the licensingof software and other technology, published works, derivative works, sketches,drawings, writings, paintings, art-based home decorative accessories,collectibles, canvas and paper lithographs, vases, trays, mugs, picture frames,ornaments and other artworks and gift products) or the rendering of services bya Borrower, whether or not earned by performance, and any and all creditinsurance, guaranties, and other security therefor, as well as all merchandisereturned to or reclaimed by Borrower and Borrower’s Books relating to any ofthe foregoing.  Notwithstanding theforegoing, Accounts shall not include any presently existing and hereafterarising accounts relating to any of the Excluded Artists.

“Advance” or “Advances” means a cash advance or cash advances under theRevolving Facility.

“Affiliate” means, with respect to any Person, any Person that owns orcontrols directly or indirectly such Person, any Person that controls or iscontrolled by or is under common control with such Person, and each of suchPerson’s senior executive officers, directors, and partners.

“Bank Expenses” means all reasonable costs or expenses (includingreasonable attorneys’ fees and expenses) incurred in connection with thepreparation, negotiation, administration, and enforcement of the Loan Documents;reasonable Collateral audit fees; costs of appraisals; and Bank’s reasonableattorneys’ fees and expenses incurred in amending, enforcing or defending theLoan Documents (including fees and expenses of appeal), incurred before, duringand after an Insolvency Proceeding, whether or not suit is brought.

“Borrower’s Books” means all of a Borrower’s books and recordsincluding:  ledgers; records concerningBorrower’s assets or liabilities, the Collateral, business operations orfinancial condition; and all computer programs, or tape files, and theequipment, containing such information.

“Borrowing Base” means an amount equal to the sum of:

(a)           seventy percent(70%) of Eligible Accounts before or after the Target Covenant CompliancePeriod and seventy-five percent (75%) of Eligible Accounts during any TargetCovenant Compliance Period, in each case as determined by Bank with referenceto the most recent Borrowing Base Certificate delivered by Borrowers, plus

(b)           the aggregate amountof cash pledged to Bank by Borrowers on terms acceptable to Bank (i)specifically to support Advances on the Revolving Line in the event theaggregate Credit

 

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Extensions exceed theBorrowing Base and (ii) to support Borrowers’ obligations in respect of Lettersof Credit; plus

(c)           the aggregate amountof the advance rate permitted by Bank and Comerica Securities, Inc. on fundsinvested by Borrowers with Comerica Securities, Inc. (which advance rates shallbe determined by Bank in Bank’s sole discretion based on Bank policy and therisk class of investments maintained by Borrowers with Comerica Securities,Inc.); plus

(d)           during any TargetCovenant Compliance Period, and provided that Borrowers have achieved a pretaxprofit of at least Three Million Five Hundred Thousand Dollars ($3,500,000) forthe quarter ending December 31, 2002, determined in accordance with GAAP, theBorrowing Base shall include either:

#### (i)            rawmaterials and finished goods inventory set forth in of subparts a), b), c) andd) of part (d)(i) of this defined term “Borrowing Base” in an amount not toexceed Five Million Dollars ($5,000,000) for the period between April 1 andOctober 1 of each calendar year and in an amount not to exceed Three MillionDollars ($3,000,000) for the period between October 2 and March 31 of eachcalendar year;

##### a)             50%of paper prints; plus

##### b)            30%of canvasses; plus

##### c)             20%of finished frames; plus

##### d)            10%of giftware; or

#### (ii)           aweighted average blended rate (the “Blended Rate”) of the items set forth insubparts a), b), c) and d) of part (d)(i) of this defined term “Borrowing Base”which Blended Rate shall be equal to or less than five percent (5%) above theCollateral and inventory rate in the Collateral and inventory report obtainedby Bank, provided that in any case additions to the Borrowing Base permittedpursuant to the terms of this part (d) shall be net of applicable inventoryreserves.  Part (d)(i) or part (d)(ii),when applicable, shall be selected by mutual agreement of Bank and Borrowers; minus

                                (e)           in each case, any current amounts dueand owing to Thomas Kinkade or any Affiliates of Thomas Kinkade by Borrowersunder the License Agreement or otherwise; and minus

                                (f)            in each case, inventory and/orAccounts arising from the published or unpublished works, derivative works,sketches, drawings, writings, paintings, art-based home decorative accessories,collectibles, canvas and paper lithographs, vases, trays, mugs, picture frames,ornaments and other artworks and gift products based on the works of theExcluded Artists.

“Business Day” means any day that is not a Saturday, Sunday, or otherday on which banks in the State of California are authorized or required toclose.

“Change in Control” shall mean a transaction in which any “person” or“group” (within the meaning of Section 13(d) and 14(d)(2) of the SecuritiesExchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3under the Securities Exchange Act of 1934), directly or indirectly, of asufficient number of shares of all classes of stock then outstanding ofBorrower ordinarily entitled to vote in the election of directors, empoweringsuch “person” or “group” to elect a majority of the Board of Directors ofBorrower, who did not have such power before such transaction.

“Closing Date” means the date of this Agreement.

“Code” means the California Uniform Commercial Code.

“Collateral” means the property described on Exhibit Aattached hereto.

 

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“Contingent Obligation” means, as applied to any Person, any direct orindirect liability, contingent or otherwise, of that Person with respect to(i) any indebtedness, lease, dividend, letter of credit or otherobligation of another, including, without limitation, any such obligationdirectly or indirectly guaranteed, endorsed, co-made or discounted or sold withrecourse by that Person, or in respect of which that Person is otherwisedirectly or indirectly liable; (ii) any obligations with respect toundrawn letters of credit, corporate credit cards, or merchant services issuedor provided for the account of that Person; and (iii) all obligationsarising under any interest rate, currency or commodity swap agreement, interestrate cap agreement, interest rate collar agreement, or other agreement orarrangement designed to protect such Person against fluctuation in interestrates, currency exchange rates or commodity prices; provided, however, that theterm “Contingent Obligation” shall not include endorsements for collection ordeposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amountequal to the stated or determined amount of the primary obligation in respectof which such Contingent Obligation is made or, if not stated or determinable,the maximum reasonably anticipated liability in respect thereof as determinedby such Person in good faith; provided, however, that such amount shall not inany event exceed the maximum amount of the obligations under the guarantee or othersupport arrangement.

“Copyrights” means any and all copyright rights, copyrightapplications, copyright registrations and like protections in each work orauthorship and derivative work thereof, whether published or unpublished andwhether or not the same also constitutes a trade secret, now or hereafterexisting, created, acquired or held.

“Credit” means (a) all indebtedness for borrowed money, includingwithout limitation reimbursement and other obligations with respect to suretybonds and letters of credit, (b) all obligations evidenced by notes,bonds, debentures or similar instruments, (c) all capital leaseobligations and (d) the real property lease obligations owing by aBorrower to its landlord for the Borrower’s headquarters facility.

“Credit Extension” means each Advance, Letter of Credit, FX ForwardContract or any other extension of credit by Bank for the benefit of a Borrowerhereunder.

“Current Liabilities” means, as of any applicable date, all amountsthat should, in accordance with GAAP, be included as current liabilities on theconsolidated balance sheet of a Borrower and its Subsidiaries, as at such date,plus, to the extent not already included therein, all outstanding Advances plusthe aggregate face amount of any drawn but unreimbursed Letters of Credit madeor issued, as applicable, under this Agreement, including all Indebtedness thatis payable upon demand or within one year from the date of determinationthereof unless such Indebtedness is renewable or extendible at the option of aBorrower or any Subsidiary to a date more than one year from the date ofdetermination and including, to the extent not already included therein,Indebtedness owed by Borrowers to Borrowers’ Affiliates that is notSubordinated Debt.

“Daily Balance” means the amount of the Obligations owed at the end ofa given day.

“Eligible Accounts” means those Accounts that arise in the ordinarycourse of a Borrower’s business that comply with all of the representations andwarranties to Bank set forth in Section 0.  Unless otherwise agreed to by Bank, Eligible Accounts shall notinclude the following:

(a)           Accounts that theaccount debtor has failed to pay within sixty (60) days of the due date;

### (b)           Accountsthat the account debtor has failed to pay within one hundred-twenty (120) daysof invoice date;

### (c)           Accountswith respect to an account debtor, twenty-five percent (25%) of whose Accountsthe account debtor has failed to pay within sixty (60) days of the due date;

### (d)           Accountswith respect to which the account debtor is an officer, employee, or agent ofBorrower;

 

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### (e)           Accountswith respect to which goods are placed on consignment, guaranteed sale, sale orreturn, sale on approval, bill and hold, or other terms by reason of which thepayment by the account debtor may be conditional;

### (f)            Accountswith respect to which the account debtor is an Affiliate of Borrower;

### (g)           Accountswith respect to which the account debtor does not have its principal place ofbusiness in the United States;

### (h)           Accountswith respect to which the account debtor is the United States or anydepartment, agency, or instrumentality of the United States;

### (i)            Accountswith respect to which Borrower is liable to the account debtor for goods soldor services rendered by the account debtor to Borrower, but only to the extentof any amounts owing to the account debtor against amounts owed to Borrower;

### (j)            Accountswith respect to an account debtor, including Subsidiaries and Affiliates, whosetotal obligations to one or more Borrowers exceed twenty-five percent (25%) ofall Accounts, to the extent such obligations exceed the aforementionedpercentage, except as approved in writing by Bank;

### (k)           Accountswith respect to which the account debtor disputes liability or makes any claimwith respect thereto as to which Bank believes, in its sole discretion, thatthere may be a basis for dispute (but only to the extent of the amount subjectto such dispute or claim), or is subject to any Insolvency Proceeding, or becomesinsolvent, or goes out of business; and

### (l)            Accountsthe collection of which Bank reasonably determines to be doubtful.

### (m)          Accountsarising from the published or unpublished works, derivative works, sketches,drawings, writings, paintings, art-based home decorative accessories,collectibles, canvas and paper lithographs, vases, trays, mugs, picture frames,ornaments and other artworks and gift products based on the works of theExcluded Artists

“Equipment” means all present and future machinery, equipment, tenantimprovements, furniture, fixtures, vehicles, tools, parts and attachments inwhich Borrower has any interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, asamended, and the regulations thereunder.

“Event of Default” has the meaning assigned in Article 8.

“Excluded Artists” means the artist Simon Bull, the artist HowardBehrens, and the artist Robert Lyn Nelson.

“FX Reserve” has the meaning assigned in Section 2.1(c).

“GAAP” means generally accepted accounting principles as in effect fromtime to time.

“Indebtedness” means (a) all indebtedness for borrowed money orthe deferred purchase price of property or services, including withoutlimitation reimbursement and other obligations with respect to surety bonds andletters of credit, (b) all obligations evidenced by notes, bonds,debentures or similar instruments, (c) all capital lease obligations and(d) all Contingent Obligations.

“Insolvency Proceeding” means any proceeding commenced by or againstany person or entity under any provision of the United States Bankruptcy Code,as amended, or under any other bankruptcy or 

 

 

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insolvency law, including assignments for the benefitof creditors, formal or informal moratoria, compositions, extension generallywith its creditors, or proceedings seeking reorganization, arrangement, orother relief.

“Intellectual Property Collateral” means all of Borrower’s right,title, and interest in and to the following:

### (a)           Copyrights,Trademarks and Patents;

### (b)           Anyand all trade secrets, and any and all intellectual property rights in computersoftware and computer software products now or hereafter existing, created,acquired or held;

### (c)           Anyand all design rights which may be available to Borrower now or hereafterexisting, created, acquired or held;

### (d)           Anyand all claims for damages by way of past, present and future infringement ofany of the rights included above, with the right, but not the obligation, tosue for and collect such damages for said use or infringement of theintellectual property rights identified above;

### (e)           Alllicenses or other rights to use any of the Copyrights, Patents or Trademarks,and all license fees and royalties arising from such use to the extentpermitted by such license or rights;

### (f)            Allamendments, renewals and extensions of any of the Copyrights, Trademarks orPatents; and

### (g)           Allproceeds and products of the foregoing, including without limitation allpayments under insurance or any indemnity or warranty payable in respect of anyof the foregoing.

Notwithstanding the foregoing, Intellectual PropertyCollateral shall not include any intellectual property relating to any of theExcluded Artists.

“Inventory” means all present and future inventory in which Borrowerhas any interest, including merchandise, raw materials, parts, supplies,packing and shipping materials, work in process and finished products intendedfor sale or lease or to be furnished under a contract of service, of every kindand description now or at any time hereafter owned by or in the custody orpossession, actual or constructive, of Borrower, including such inventory as istemporarily out of its custody or possession or in transit and including anyreturns upon any accounts or other proceeds, including insurance proceeds,resulting from the sale or disposition of any of the foregoing and anydocuments of title representing any of the above, and Borrower’s Books relatingto any of the foregoing.  Notwithstandingthe foregoing, Inventory shall not include any presently existing and hereafterarising inventory relating to any of the Excluded Artists.

“Investment” means any beneficial ownership (including stock,partnership interest or other securities) of any Person, or any loan, advanceor capital contribution to any Person.

“IRC” means the Internal Revenue Code of 1986, as amended, and theregulations thereunder.

“License Agreement” means that certain licensing agreement by andbetween Thomas Kinkade and Media Arts Group, Inc., dated as of December 3,1997, in the form presented by Borrowers to Bank as of the Closing Date.

“Lien” means any mortgage, lien, deed of trust, charge, pledge,security interest or other encumbrance.

 

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“Loan Documents” means, collectively, this Agreement, the assignment ofrights under the Licensing Agreement, any note or notes executed by Borrower,and any other agreement entered into between Borrower and Bank in connectionwith this Agreement, all as amended or extended from time to time.

“Material Adverse Effect” means a material adverse effect on(i) the current or future business operations or condition (financial orotherwise) of a Borrower and its Subsidiaries taken as a whole or (ii) theability of a Borrower to repay the Obligations or otherwise perform itsobligations under the Loan Documents or (iii) the value or priority ofBank’s security interests in the Collateral, in each case as determined by Bankin the reasonable exercise of its credit judgment.

“Negotiable Collateral” means all of Borrower’s present and futureletters of credit of which it is a beneficiary, notes, drafts, instruments,securities, documents of title, and chattel paper, and Borrower’s Booksrelating to any of the foregoing.

“Obligations” means all debt, principal, interest, Bank Expenses andother amounts owed to Bank by a Borrower pursuant to this Agreement or anyother agreement, whether absolute or contingent, due or to become due, nowexisting or hereafter arising, including any interest that accrues after thecommencement of an Insolvency Proceeding and including any debt, liability, orobligation owing from Borrower to others that Bank may have obtained byassignment or otherwise.

“Patents” means all patents, patent applications and like protectionsincluding without limitation improvements, divisions, continuations, renewals,reissues, extensions and continuations-in-part of the same.

“Periodic Payments” means all installments or similar recurringpayments that Borrower may now or hereafter become obligated to pay to Bankpursuant to the terms and provisions of any instrument, or agreement now orhereafter in existence between Borrower and Bank.

“Permitted Indebtedness” means:

### (a)           Indebtednessof Borrower in favor of Bank arising under this Agreement or any other LoanDocument;

### (b)           Indebtednessexisting on the Closing Date and disclosed in the Schedule;

### (c)           Indebtednesssecured by a lien described in clause 0 of the defined term “PermittedLiens,” provided (i) such Indebtedness does not exceed the lesser of thecost or fair market value of the equipment financed with such Indebtedness and(ii) such Indebtedness does not exceed $2,900,000 in the aggregate duringthe term of this Agreement;

### (d)           SubordinatedDebt; and

### (e)           Indebtednessto trade creditors incurred in the ordinary course of Borrowers’ businesses.

“Permitted Investment” means:

### (a)           Investmentsexisting on the Closing Date disclosed in the Schedule;

### (b)           (i) marketabledirect obligations issued or unconditionally guaranteed by the United States ofAmerica or any agency or any State thereof maturing within one (1) year fromthe date of acquisition thereof, (ii) commercial paper maturing no morethan one (1) year from the date of creation thereof and currently having ratingof at least A-2 or P-2 from either Standard & Poor’s Corporationor Moody’s Investors Service, (iii) certificates of deposit maturing nomore than one (1) year from the date of investment therein issued by Bank and(iv) Bank’s money market accounts; and

 

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### (c)           otherInvestments approved by Bank which approval shall not be unreasonably withheldand subject to the terms of this Agreement.

“Permitted Liens” meansthe following:

### (a)           AnyLiens existing on the Closing Date and disclosed in the Schedule or arisingunder this Agreement or the other Loan Documents;

### (b)           Liensfor taxes, fees, assessments or other governmental charges or levies, eithernot delinquent or being contested in good faith by appropriate proceedings,provided the same have no priority over any of Bank’s security interests;

### (c)           Liens(i) upon or in any equipment which was not financed by Bank acquired orheld by Borrower or any of its Subsidiaries to secure the purchase price ofsuch equipment or indebtedness incurred solely for the purpose of financing theacquisition of such equipment, or (ii) existing on such equipment at thetime of its acquisition, provided that the Lien is confined solely to theproperty so acquired and improvements thereon, and the proceeds of suchequipment;

### (d)           Liensincurred in connection with the extension, renewal or refinancing of theindebtedness secured by Liens of the type described in clauses (a) through (c)above, provided that any extension, renewal or replacement Lien shall belimited to the property encumbered by the existing Lien and the principalamount of the indebtedness being extended, renewed or refinanced does notincrease.

“Person” means any individual, sole proprietorship, partnership,limited liability company, joint venture, trust, unincorporated organization,association, corporation, institution, public benefit corporation, firm, jointstock company, estate, entity or governmental agency.

“Prime Rate” means the variable rate of interest, per annum, mostrecently announced by Bank, as its “prime rate,” whether or not such announcedrate is the lowest rate available from Bank.

“Quick Assets” means, at any date as of which the amount thereof shallbe determined, the unrestricted cash and cash-equivalents, net accounts receivable,unrestricted marketable securities, and Federal income tax refunds payable toBorrowers within one (1) year of the date of this Agreement, of Borrowersdetermined in accordance with GAAP.

“Responsible Officer” means each of the Chief Executive Officer and theChief Financial Officer of each Borrower.

“Revolving Facility” means the facility under which Borrowers mayrequest Bank to issue Advances, as specified in Section 2.1 hereof.

“Revolving Line” means a credit extension of up to Fifteen MillionDollars ($15,000,000), provided that “Revolving Line” shall mean a creditextension of up to Twenty Million Dollars ($20,000,000) during any TargetCovenant Compliance Period.

“Revolving Maturity Date” means the day 360 days following the ClosingDate.

“Schedule” means the schedule of exceptions attached hereto andapproved by Bank, if any.

“Subordinated Debt” means any debt incurred by Borrower that issubordinated to the debt owing by Borrower to Bank on terms acceptable to Bank(and identified as being such by Borrower and Bank).

“Subsidiary” means any corporation, company or partnership in which(i) any general partnership interest or (ii) more than 50% of thestock or other units of ownership which by the terms thereof has the 

 

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ordinary voting power to elect the Board of Directors,managers or trustees of the entity, at the time as of which any determinationis being made, be owned by a Borrower, either directly or through an Affiliate.

“Tangible Net Worth” means at any date as of which the amount thereofshall be determined, the sum of the capital stock and additional paid-incapital plus retained earnings (or minus accumulated deficit) of Borrower andits Subsidiaries minus intangible assets and minus amounts due to Borrowersfrom Borrowers’ Affiliates, plus Subordinated Debt, on a consolidated basisdetermined in accordance with GAAP.

“Target Covenants” means Borrowers’ compliance, on aconsolidated basis, with the following financial covenants and Slow PaymentAccount Reduction requirements:

 

(a)           Minimum QuarterlyProfitability.  Borrowers’ NetOperating Income shall be greater than Two Hundred Twenty-Five Thousand Dollars($225,000) for the fiscal quarter ending March 31 of each year and Borrowers’Net Operating Income shall be greater than One Million Two Hundred ThousandDollars ($1,200,000) for the fiscal quarters ending on June 30, September 30and December 31 in each year.  Inaddition to the foregoing, Borrowers shall show a Net Income of at least OneDollar ($1.00) for the fiscal quarters ending on June 30, September 30 andDecember 31 in each year, and in each fiscal quarter thereafter.  As used herein, “Net Operating Income” and“Net Income” means Borrowers’ net income and net operating income determined inaccordance with GAAP.

(b)           Quick Ratio.  Borrowers shall maintain, as of the last dayof each fiscal quarter, a ratio of Quick Assets to Current Liabilities plus,to the extent not already included therein, all Indebtedness (including withoutlimitation any Contingent Obligations) owing from Borrowers to Bank**,**less deferred revenue, of at least 2.00 to 1.00.

(c)           Adjusted TangibleNet Worth.  Borrowers shallmaintain, as of the last day of each fiscal quarter, a Tangible Net Worth ofmore than Fifty Eight Million Dollars ($58,000,000) (the “Minimum Tangible NetWorth”).  The Minimum Tangible Net Worthof Borrowers shall be increased by an amount equal to fifty percent (50%) ofBorrowers’ net income (but shall not be reduced by the amount of any net lossesincurred after March 31, 2002) in each fiscal quarter beginning with the fiscalquarter ended on March 31, 2002, and thereafter.

(d)           TotalLiabilities-Tangible Net Worth. Borrower shall maintain, as of the last day of each fiscal quarter, a ratioof Total Liabilities to Tangible Net Worth of not more than 0.50 to 1.00.

(e)           Slow PaymentAccount Reductions.  Borrowers’Accounts with respect to an account debtor, twenty-five percent (25%) of whoseAccounts the account debtor has failed to pay within sixty (60) days of the duedate, and Accounts relating to notes receivable resulting from receivablerepayment plans, shall constitute less than twenty percent (20%) of Borrowers’total accounts receivable (including notes receivable resulting from receivablerepayment plans, if any).

“Target Covenant Compliance Period” means each month followingBorrowers’ compliance with the Target Covenants for a period of not less thantwo (2) consecutive fiscal quarters (the “Initial Target Covenant CompliancePeriod”) provided that Borrowers’ failure to maintain such compliance with theTarget Covenants in any month following the Initial Covenant Compliance Periodshall mean that the Target Covenant Compliance Period shall immediately end,and Borrower must comply with the Target Covenants for an additional period ofnot less than two (2) consecutive fiscal quarters following any calendar monthfor which Borrowers fail to meet the Target Covenants to be reinstated into aTarget Covenant Compliance Period.

“Third Party License Agreements” means the license agreements by andbetween or among any Borrower and third parties, under which a Borrower is alicensor, as listed on Annex I attached hereto.   Notwithstanding the foregoing, Third PartyLicense Agreements shall not include any presently existing license agreements,under which a Borrower is a licensor, with respect to any of the ExcludedArtists.

 

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“Total Liabilities” means at any date as of which the amount thereofshall be determined, all obligations that should, in accordance with GAAP beclassified as liabilities on the consolidated balance sheet of Borrower,including in any event all Indebtedness that is not Subordinated Debt.

“Trademarks” means any trademark and servicemark rights, whetherregistered or not, applications to register and registrations of the same andlike protections, and the entire goodwill of the business of Borrower connectedwith and symbolized by such trademarks.

## 1.2           AccountingTerms.  All accounting terms notspecifically defined herein shall be construed in accordance with GAAP and allcalculations made hereunder shall be made in accordance with GAAP.  When used herein, the terms “financialstatements” shall include the notes and schedules thereto.

# 2.             LOANAND TERMS OF PAYMENT.

## 2.1           CreditExtensions.

Borrowers jointly and severally promise to pay to the order of Bank, inlawful money of the United States of America, the aggregate unpaid principalamount of all Credit Extensions made by Bank to Borrowers hereunder.  Borrowers shall also pay interest on theunpaid principal amount of such Credit Extensions at rates in accordance withthe terms hereof.

### (a)           RevolvingAdvances.

#### (i)            Subjectto and upon the terms and conditions of this Agreement, Borrower may requestAdvances in an aggregate outstanding amount not to exceed the lesser of(i) the Revolving Line or (ii) the Borrowing Base, minus, ineach case, the aggregate face amount of all outstanding Letters of Credit, theFX Reserve.  Subject to the terms andconditions of this Agreement, amounts borrowed pursuant to thisSection 2.1 may be repaid and reborrowed at any time prior to theRevolving Maturity Date, at which time all Advances under this Section 2.1shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium.

#### (ii)           WheneverBorrower desires an Advance, Borrower will notify Bank by facsimiletransmission or telephone no later than 3:00 p.m. Pacific time, on theBusiness Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/AdvanceForm in substantially the form of Exhibit B hereto.  Bank is authorized to make Advances underthis Agreement, based upon instructions received from a Responsible Officer ora designee of a Responsible Officer, or without instructions if in Bank’sdiscretion such Advances are necessary to meet Obligations which have becomedue and remain unpaid.  Bank shall beentitled to rely on any telephonic notice given by a person who Bank reasonablybelieves to be a Responsible Officer or a designee thereof, and Borrowers shallindemnify and hold Bank harmless for any damages or loss suffered by Bank as aresult of such reliance.  Bank willcredit the amount of Advances made under this Section 00 to Borrower’sdeposit account.

### (b)           Lettersof Credit.

#### (i)            Subjectto the terms and conditions of this Agreement, Bank agrees to issue or cause tobe issued letters of credit for the account of Borrowers (each, a “Letter ofCredit” and collectively, the “Letters of Credit”) in an aggregate outstandingface amount not to exceed the lesser of the Revolving Line or the BorrowingBase minus, in each case, the aggregate amount of the outstandingAdvances and the FX Reserve at any time, provided that the aggregate faceamount of all outstanding Letters of Credit shall not exceed Ten MillionDollars ($10,000,000).  All Letters ofCredit shall be, in form and substance, acceptable to Bank in its solediscretion and shall be subject to the terms and conditions of Bank’s form ofstandard application and letter of credit agreement (the “Application”), whichBorrower agrees to execute, including Bank’s standard fee equal to the greaterof (i) 1.50% per annum of the face amount of each Letter of Credit, which shallbe prorated for any Letter of Credit issued for a partial year on the date ofissuance, and (ii) Six Hundred Dollars ($600) for each Letter of Creditprovided that commercial Letters of Credit shall include any additionalstandard Bank fees applicable to commercial Letters of 

 

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#### Credit.  On any drawn but unreimbursed Letter ofCredit, the unreimbursed amount shall be deemed an Advance under Section2.1(a).  Each standby Letter of Creditwill have an expiration date not later than twelve (12) months from the date ofissuance, and each commercial Letter of Credit will have an expiration date notlater than ninety (90) days from the date of issuance.  Prior to the Revolving Maturity Date,Borrower shall secure in cash all obligations under any outstanding Letters ofCredit on terms acceptable to Bank.

#### (ii)           Theobligation of Borrowers to reimburse Bank for drawings made under Letters ofCredit shall be absolute, unconditional and irrevocable, and shall be performedstrictly in accordance with the terms of this Agreement, the Application, andsuch Letters of Credit, under all circumstances whatsoever.  Borrower shall indemnify, defend, protect,and hold Bank harmless from any loss, cost, expense or liability, including,without limitation, reasonable attorneys’ fees, arising out of or in connectionwith any Letters of Credit, except for expenses caused by Bank’s grossnegligence or willful misconduct.

### (c)           ForeignExchange Sublimit.  Provided thatthere is availability under the Revolving Line, the Borrowing Base, and the TwoHundred Thousand Dollar ($200,000) sublimit under the Revolving Facility (the“Foreign Exchange Sublimit”), Borrowers may enter into foreign exchange forwardcontracts with the Bank not to exceed an aggregate amount of Two HundredThousand Dollars ($200,000) under which Borrower commits to purchase from orsell to Bank a set amount of foreign currency more than one business day afterthe contract date (each, an “FX Forward Contract”).  Availability under the Revolving Line, the Borrowing Base, andthe Foreign Exchange Sublimit for the Revolving Facility shall be reduced bythe Bank’s exposure in connection with all outstanding FX Forward Contracts(collectively, the “FX Reserve”).  Bankmay terminate and/or demand cash security for the FX Forward Contracts if anEvent of Default occurs or upon or after the Revolving Maturity Date.  The terms and conditions (includingrepayment and fees) of such FX Forward Contracts shall be subject to the termsand conditions of the Bank’s standard forms of application and agreement for FXForward Contracts, which Borrower agrees to execute as a condition precedent toBank’s entry into any FX Forward Contract. Notwithstanding any of the foregoing, in no event shall the aggregateamount of all FX Forward Contracts entered into by Bank be such that the FXReserve exceeds an amount approved by Bank in Bank’s sole discretion.

## 2.2           Overadvances.  If the aggregate amount of the outstandingAdvances plus the aggregate face amount of all outstanding Letters ofCredit and the FX Reserve exceeds the lesser of the Revolving Line or theBorrowing Base at any time, Borrower shall immediately pay to Bank, in cash,the amount of such excess or immediately shall secure the amount of such excessin cash on terms acceptable to Bank in Bank’s sole discretion.  The foregoing provisions of this Section 2.2shall not constitute a consent to overadvances or overdrafts by Borrowers underthis Agreement or any other agreement by and between or among Borrowers andBank, and overadvances and overdrafts are not permitted under the terms of thisAgreement.

## 2.3           InterestRates.

### (a)           Advances.  Except as set forth in Section 2.3(b), theAdvances shall bear interest, on the outstanding Daily Balance thereof, at aper annum rate equal to one quarter of one percent (0.25%) above the PrimeRate.

### (b)           LateFee; Default Rate.  If any paymentis not made within ten (10) days after the date such payment is due, Borrowershall pay Bank a late fee equal to the lesser of (i) five percent (5%) ofthe amount of such unpaid amount or (ii) the maximum amount permitted tobe charged under applicable law.  AllObligations shall bear interest, from and after the occurrence and during thecontinuance of an Event of Default, at a per annum rate equal to five (5)percentage points above the interest rate applicable immediately prior to theoccurrence of the Event of Default.

### (c)           Payments.  Interest hereunder shall be due and payableon the first calendar day of each month during the term hereof.  Bank shall, at its option, charge suchinterest, all Bank Expenses, and all Periodic Payments against any ofBorrower’s deposit accounts or against the Revolving Line, in which case thoseamounts shall thereafter accrue interest at the rate then applicablehereunder.  Any interest not paid whendue shall be compounded by becoming a part of the Obligations, and suchinterest shall thereafter accrue interest at the rate then applicablehereunder.  All payments shall be freeand clear of any taxes, withholdings, duties, impositions or 

 

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### othercharges, to the end that Bank will receive the entire amount of any Obligationspayable hereunder, regardless of source of payment.

### (d)           Computation. In the event the Prime Rate is changedfrom time to time hereafter, the applicable rate of interest hereunder shall beincreased or decreased, effective as of the day the Prime Rate is changed, byan amount equal to such change in the Prime Rate.  All interest chargeable under the Loan Documents shall becomputed on the basis of a three hundred sixty (360) day year for the actualnumber of days elapsed.

## 2.4           CreditingPayments.  Prior to the occurrenceof an Event of Default, Bank shall credit a wire transfer of funds, check orother item of payment to such deposit account or Obligation as Borrowerspecifies.  After the occurrence of anEvent of Default, the receipt by Bank of any wire transfer of funds, check, orother item of payment shall be immediately applied to conditionally reduceObligations, but shall not be considered a payment on account unless suchpayment is of immediately available federal funds or unless and until suchcheck or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrarycontained herein, any wire transfer or payment received by Bank after12:00 noon Pacific time shall be deemed to have been received by Bank asof the opening of business on the immediately following Business Day.  Whenever any payment to Bank under the LoanDocuments would otherwise be due (except by reason of acceleration) on a datethat is not a Business Day, such payment shall instead be due on the nextBusiness Day, and additional fees or interest, as the case may be, shall accrueand be payable for the period of such extension.

## 2.5           Fees.  Borrower shall pay to Bank the following:

### (a)           UnusedFacility Fee.  On account of theRevolving Facility, Borrowers shall pay to Bank a fee equal to one quarter ofone percent (0.25%) per annum  of thedifference between the Revolving Line and the average daily balance ofoutstanding Revolving Advances (including the aggregate face amount ofoutstanding Letters of Credit) which fee shall be payable monthly, withinfifteen (15) days of the last day of each month provided that during any TargetCovenant Compliance Period Borrowers shall pay to Bank a fee equal to oneeighth of one percent (0.125%) per annum of the difference between theRevolving Line and the average daily balance of outstanding Revolving Advances(including the aggregate face amount of outstanding Letters of Credit) whichfee shall be payable monthly, within fifteen (15) days of the last day of eachmonth; and

### (b)           BankExpenses.  On the Closing Date, allBank Expenses incurred through the Closing Date, including reasonableattorneys’ fees and expenses and, after the Closing Date, all Bank Expenses,including reasonable attorneys’ fees and expenses, as and when they become due.

## 2.6           AdditionalCosts.  In case any law, regulation,treaty or official directive or the interpretation or application thereof byany court or any governmental authority charged with the administration thereofor the compliance with any guideline or request of any central bank or othergovernmental authority (whether or not having the force of law):

### (a)           subjectsBank to any tax with respect to payments of principal or interest or any otheramounts payable hereunder by Borrower or otherwise with respect to thetransactions contemplated hereby (except for taxes on the overall net income ofBank imposed by the United States of America or any political subdivisionthereof);

### (b)           imposes,modifies or deems applicable any deposit insurance, reserve, special deposit orsimilar requirement against assets held by, or deposits in or for the accountof, or loans by, Bank; or

### (c)           imposesupon Bank any other condition with respect to its performance under thisAgreement,

and the result of any of the foregoing is to increasethe cost to Bank, reduce the income receivable by Bank or impose any expenseupon Bank with respect to the Obligations, Bank shall notify Borrowerthereof.  Borrower agrees to pay to Bankthe amount of such increase in cost, reduction in income or additional expenseas and when 

 

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such cost, reduction or expense is incurred ordetermined, upon presentation by Bank of a statement of the amount and settingforth Bank’s calculation thereof, all in reasonable detail, which statementshall be deemed true and correct absent manifest error.

## 2.7           Term.  This Agreement shall become effective on theClosing Date and, subject to Section 0, shall continue in full force andeffect for so long as any Obligations remain outstanding or Bank has anyobligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank shallhave the right to terminate its obligation to make Credit Extensions under thisAgreement immediately and without notice upon the occurrence and during thecontinuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remainin effect for so long as any Obligations are outstanding.

# 3.             CONDITIONSOF LOANS.

## 3.1           ConditionsPrecedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subjectto the condition precedent that Bank shall have received, in form and substancesatisfactory to Bank, the following:

### (a)           thisAgreement;

### (b)           acertificate of the Secretary of each Borrower with respect to incumbency andresolutions authorizing the execution and delivery of this Agreement;

### (c)           afinancing statement (Form UCC-1) with respect to each Borrower;

### (d)           anintellectual property security agreement with respect to each Borrower;

### (e)           apayoff letter from Bank of America confirming the termination and payment infull of all of Borrowers’ and Lightpost Publishing, Inc.’s obligations to Bankof America, and including a release of Bank of America’s security interest inBorrowers’ and Lightpost Publishing, Inc.’s assets and authorization toterminate any liens including but not limited to financing statements filed byBank of America on Borrowers’ and Lightpost Publishing, Inc.’s assets;

### (f)            acontrol agreement for Comerica Securities, Inc. for Media Arts Group, Inc.;

### (g)           anagreement consenting to Bank’s security interest and rights under the LicenseAgreement (which agreement shall be recorded by Bank at the United StatesCopyright Office) and any other licensing agreement(s) and material contracts,between or among the Borrowers and Thomas Kinkade, executed by Thomas Kinkadefor the benefit of Bank;

### (h)           aconsent to the grant of a security interest in Borrowers’ rights to and underthe Third Party License Agreements and any other licensing agreement(s) andmaterial contracts, between or among the Borrowers and third parties, to Bank,in each case as required by Bank;

### (i)            anopinion of counsel to each Borrower;

### (j)            evidenceof a key-man life insurance policy on Thomas Kinkade in the amount of$40,000,000;

### (k)           anagreement to provide insurance with respect to each Borrower;

### (l)            financialstatements of Borrowers, for the quarter ended March 31, 2002, includingbalance sheets, and income and cash flow statements, and a ComplianceCertificate certified by a Responsible Officer of the Borrowers demonstratingcompliance with all covenants, including the Financial Covenants for thequarter ended March 31, 2002, and as of the date of the request for the initialCredit Extension;

 

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### (m)          paymentof the fees and Bank Expenses then due specified in Section 2.5 hereof;

### (n)           completionby Bank’s counsel of a review of Borrowers’ licenses and intellectual property,which review shall be satisfactory to Bank in Bank’s sole discretion;

### (o)           amendmentsto UCC-1 financing statements and related security documents by and betweenMedia Arts Group, Inc. and Softech, and Exclaim Technologies and Softech,satisfactory to Bank in Bank’s sole discretion;

### (p)           aninternal audit of Borrowers’ Collateral (except Intellectual Property) andAccounts and inventory, the results of which shall be satisfactory to Bank; and

### (q)           suchother documents, and completion of such other matters, as Bank may reasonablydeem necessary or appropriate.

## 3.2           ConditionsPrecedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including theinitial Credit Extension, is further subject to the following conditions:

### (a)           timelyreceipt by Bank of the Payment/Advance Form as provided in Section 2.1;and

### (b)           therepresentations and warranties contained in Section 0 shall be true andcorrect in all material respects on and as of the date of such Payment/AdvanceForm and on the effective date of each Credit Extension as though made at andas of each such date, and no Event of Default shall have occurred and becontinuing, or would exist after giving effect to such Credit Extension(provided, however, that those representations and warranties expresslyreferring to another date shall be true, correct and complete in all materialrespects as of such date).  The makingof each Credit Extension shall be deemed to be a representation and warranty byBorrower on the date of such Credit Extension as to the accuracy of the factsreferred to in this Section 3.2.

# 4.             CREATIONOF SECURITY INTEREST.

## 4.1           Grantof Security Interest.  Each Borrowerhereby grants and pledges to Bank a continuing security interest in allpresently existing and hereafter acquired or arising Collateral in order tosecure prompt repayment of any and all Obligations and in order to secureprompt performance by each Borrower of each of its covenants and duties underthe Loan Documents.  Except as set forthin the Schedule, such security interest constitutes a valid, first prioritysecurity interest in the presently existing Collateral, and will constitute avalid, first priority security interest in Collateral acquired after the datehereof.

## 4.2           Deliveryof Additional Documentation Required. Each Borrower shall from time to time execute and deliver to Bank, atthe request of Bank, all Negotiable Collateral, all financing statements andother documents that Bank may reasonably request, in form satisfactory to Bank,to perfect and continue the perfection of Bank’s security interests in theCollateral and in order to fully consummate all of the transactionscontemplated under the Loan Documents.

## 4.3           Rightto Inspect.  Bank (through any ofits officers, employees, or agents) shall have the right, upon reasonable priornotice, from time to time during each Borrower’s usual business hours but nomore than twice a year (unless an Event of Default has occurred and iscontinuing), to inspect Borrower’s Books and to make copies thereof and tocheck, test, and appraise the Collateral, including but not limited toInventory, in order to verify a Borrower’s financial condition or the amount,condition of, or any other matter relating to, the Collateral provided thatsuch inspections and appraisals shall occur no more than once a year during anyTarget Covenant Compliance Period (unless an Event of Default has occurred andis continuing).

 

 

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## 4.4           CashCollateral.

                (a)          Each Borrower grants to Bank, asadditional security for the purpose of securing the Obligations, includingwithout limitation Borrowers’ Obligations in respect of Letters of Credit, theMinimum Account Balance requirements set forth in Section 6.9 hereof andoveradvances as described in Section 2.2 hereof, a valid, first prioritysecurity interest in each of the Borrowers’ deposit accounts and/orcertificates of deposit maintained with Bank together with all proceeds andsubstitutions thereof, any interest thereon, and all cash and noncash proceedsof the foregoing (the “Cash Collateral”). Each Borrower acknowledges that Bank may (i) place a “hold” on anydeposit account or certificate of deposit pledged as Collateral to secure theObligations and/or (ii) transfer funds between and among Borrowers’ depositaccounts for purposes of placing a “hold” on funds designated by Bank, and eachBorrower agrees to take such further action as may reasonably be requested byBank to effect the purposes of this Agreement.

                (b)          Prior to the maturity of anyCertificate of Deposit held by Bank pursuant hereto, Borrowers and Bank shallagree upon a security or instrument similar in form, quality and substance tothe original Certificate of Deposit in which the proceeds of the Certificate ofDeposit can be reinvested on maturity. Upon maturity of the Certificate of Deposit in accordance with itsterms, or in the event the Certificate of Deposit otherwise becomes payableduring the term of this Agreement, such maturing Certificate of Deposit may bepresented for payment, exchange, or otherwise marketed by Bank on behalf ofBorrowers and the proceeds therefrom used to purchase the security orinstrument agreed to by Borrowers and Bank in accordance with the immediatelypreceding sentence.  If no agreement hasbeen made, such proceeds shall be placed into an interest bearing accountoffered by Bank in which Bank has a first priority security interest until suchtime as an agreement as to the security replacing the original Certificate ofDeposit can be reached.  Bank may retainany such successor collateral and the proceeds therefrom as Collateral inaccordance with the terms of this Agreement.

# 5.             REPRESENTATIONS AND WARRANTIES.

Each Borrower representsand warrants as follows:

## 5.1           DueOrganization and Qualification. Each Borrower and each Subsidiary is a corporation duly existing underthe laws of its state of incorporation and qualified and licensed to dobusiness in any state in which the conduct of its business or its ownership ofproperty requires that it be so qualified.

## 5.2           DueAuthorization; No Conflict.  Theexecution, delivery, and performance of the Loan Documents are withinBorrower’s powers, have been duly authorized, and are not in conflict with norconstitute a breach of any provision contained in Borrower’s Certificate orArticles of Incorporation, as applicable, or Bylaws, nor will they constitutean event of default under any material agreement to which Borrower is a partyor by which Borrower is bound.  Borroweris not in default under any material agreement to which it is a party or bywhich it is bound.

## 5.3           NoPrior Encumbrances.  Borrower hasgood and marketable title to its property, free and clear of Liens, except forPermitted Liens.

## 5.4           BonaFide Eligible Accounts.  TheEligible Accounts are bona fide existing obligations.  The property and services giving rise to such Eligible Accountshas been delivered or rendered to the account debtor or to the account debtor’sagent for immediate and unconditional acceptance by the account debtor.  Borrower has not received notice of actualor imminent Insolvency Proceeding of any account debtor that is included in anyBorrowing Base Certificate as an Eligible Account.

## 5.5           MerchantableInventory.  All Inventory is in allmaterial respects of good and marketable quality, free from all materialdefects, except for Inventory for which adequate reserves have been made.

## 5.6           IntellectualProperty Collateral.  Borrower isthe sole owner of the Intellectual Property Collateral, except for (i)non-exclusive licenses granted by Borrower to its customers in the ordinarycourse of business (ii) Thomas Kinkade’s rights under the License Agreement,(iii) Thomas Kinkade’s rights in the copyrights 

 

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## of theIntellectual Property Collateral, and (iv) the intellectual property relating toany of the Excluded Artists.  Each ofthe Patents is valid and enforceable, and no part of the Intellectual PropertyCollateral has been judged invalid or unenforceable, in whole or in part, andno claim has been made that any part of the Intellectual Property Collateralviolates the rights of any third party. Except as set forth in the Schedule, Borrower’s rights as a licensee ofintellectual property do not give rise to more than five percent (5%) of itsgross revenue in any given quarter, including without limitation revenuederived from the sale, licensing, rendering or disposition of any product orservice.  Except as set forth in theSchedule, Borrower is not a party to, or bound by, any agreement that restrictsthe grant by Borrower of a security interest in Borrower’s rights under suchagreement.  The License Agreement is infull force and effect, no default has occurred thereunder, and all amounts dueand owing to Thomas Kinkade under the License Agreement, and any other materialagreement(s) between Borrowers and Thomas Kinkade, have been paid by Borrowersin full.

## 5.7           Name;Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done businessunder any name other than that specified on the signature page hereof.  The chief executive office of Borrower islocated at the address indicated in Section 10 hereof.  Except as set forth in the Schedule, allBorrower’s Inventory and Equipment is located only at the location set forth inSection 10 hereof.

## 5.8           Litigation.  Except as set forth in the Schedule, thereare no actions or proceedings pending by or against Borrower or any Subsidiarybefore any court or administrative agency in which an adverse decision couldhave a Material Adverse Effect, or a material adverse effect on Borrower’sinterest or Bank’s security interest in the Collateral.

## 5.9           NoMaterial Adverse Change in Financial Statements.  All consolidated and consolidating financial statements relatedto Borrower and any Subsidiary that Bank has received from Borrower fairlypresent in all material respects Borrower’s financial condition as of the datethereof and Borrower’s consolidated and consolidating results of operations forthe period then ended.  There has not beena material adverse change in the consolidated or the consolidating financialcondition of Borrower since December 31, 2001 other than as disclosed inwriting to Bank.

## 5.10         Solvency,Payment of Debts.  Borrower issolvent and able to pay its debts (including trade debts) as they mature.

## 5.11         RegulatoryCompliance.  Borrower and eachSubsidiary have met the minimum funding requirements of ERISA with respect toany employee benefit plans subject to ERISA, and no event has occurredresulting from Borrower’s failure to comply with ERISA that could result inBorrower’s incurring any material liability. Borrower is not an “investment company” or a company “controlled” by an“investment company” within the meaning of the Investment Company Act of 1940.  Borrower is not engaged principally, or asone of the important activities, in the business of extending credit for thepurpose of purchasing or carrying margin stock (within the meaning ofRegulations T and U of the Board of Governors of the Federal ReserveSystem).  Borrower has complied with allthe provisions of the Federal Fair Labor Standards Act.  Borrower has not violated any statutes,laws, ordinances or rules applicable to it, violation of which could have aMaterial Adverse Effect.

## 5.12         EnvironmentalCondition.  Except as disclosed inthe Schedule, none of Borrower’s or any Subsidiary’s properties or assets hasever been used by Borrower or any Subsidiary or, to the best of Borrower’sknowledge, by previous owners or operators, in the disposal of, or to produce,store, handle, treat, release, or transport, any hazardous waste or hazardoussubstance other than in accordance with applicable law; to the best ofBorrower’s knowledge, none of Borrower’s properties or assets has ever beendesignated or identified in any manner pursuant to any environmental protectionstatute as a hazardous waste or hazardous substance disposal site, or acandidate for closure pursuant to any environmental protection statute; no lienarising under any environmental protection statute has attached to any revenuesor to any real or personal property owned by Borrower or any Subsidiary; andneither Borrower nor any Subsidiary has received a summons, citation, notice,or directive from the Environmental Protection Agency or any other federal,state or other governmental agency concerning any action or omission byBorrower or any Subsidiary resulting in the releasing, or otherwise disposingof hazardous waste or hazardous substances into the environment.

 

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## 5.13         Taxes.  Borrower and each Subsidiary have filed orcaused to be filed all tax returns required to be filed, and have paid, or havemade adequate provision for the payment of, all taxes reflected therein.

## 5.14         Subsidiaries.  As of the Closing Date, Media Arts Group,Inc.’s sole Subsidiary is Thomas Kinkade Stores, Inc., and each Borrower doesnot own any stock, partnership interest or other equity securities of anyPerson or Subsidiary, except for as set forth in this Section 5.14 andPermitted Investments.

## 5.15         GovernmentConsents.  Borrower and eachSubsidiary have obtained all consents, approvals and authorizations of, madeall declarations or filings with, and given all notices to, all governmentalauthorities that are necessary for the continued operation of Borrower’sbusiness as currently conducted, the failure to obtain which could have aMaterial Adverse Effect.

## 5.16         Accounts.  Except as set forth in the Schedule none ofBorrower’s nor any Subsidiary’s property is maintained or invested with aPerson other than Bank.

## 5.17         ThirdParty License Agreements.  The ThirdParty License Agreements listed on Annex I attached hereto is a completeand correct list of each license currently in effect as of the Closing Date.

## 5.18         FullDisclosure.  No representation,warranty or other statement made by Borrower in any certificate or writtenstatement furnished to Bank contains any untrue statement of a material fact oromits to state a material fact necessary in order to make the statementscontained in such certificates or statements not misleading.

# 6.             AFFIRMATIVECOVENANTS.

Each Borrower covenants and agrees that, until payment in full of alloutstanding Obligations, and for so long as Bank may have any commitment tomake a Credit Extension hereunder, such Borrower shall do all of the following:

## 6.1           GoodStanding.  Borrower shall maintainits and each of its Subsidiaries’ corporate existence and good standing in itsjurisdiction of incorporation and maintain qualification in each jurisdictionin which it is required under applicable law. Borrower shall maintain, and shall cause each of its Subsidiaries tomaintain, in force all licenses, approvals and agreements, the loss of whichcould have a Material Adverse Effect.

## 6.2           GovernmentCompliance.  Borrower shall meet,and shall cause each Subsidiary to meet, the minimum funding requirements ofERISA with respect to any employee benefit plans subject to ERISA.  Borrower shall comply, and shall cause eachSubsidiary to comply, with all statutes, laws, ordinances and government rulesand regulations to which it is subject, noncompliance with which could have aMaterial Adverse Effect.

## 6.3           FinancialStatements, Reports, Certificates. Borrowers shall deliver the following to Bank:  (a) as soon as available, but in any event within thirty (30)days after the end of each fiscal quarter, company prepared unauditedconsolidated and consolidating balance sheets and income statements forBorrowers and a consolidated cash flow statement for Borrowers covering theirconsolidated and consolidating operations during such period, prepared inaccordance with GAAP, consistently applied, in a form acceptable to Bank andcertified by a Responsible Officer (subject to normal quarterly auditadjustments and the absence of footnotes); (b)  as soon as available, butin any event within one hundred twenty (120) days after the end of each fiscalyear, audited consolidated and consolidating financial statements of Borrowersprepared in accordance with GAAP, consistently applied, together with anunqualified opinion on such financial statements from the independent certifiedpublic accounting firm of Price Waterhouse Coopers or any other independentcertified public accounting firm reasonably acceptable to Bank; (c) ifapplicable, copies of all statements, reports and consolidating financialstatements prepared by any Borrowers and notices sent or made availablegenerally by Borrower to its security holders or to any holders of SubordinatedDebt and all reports on Forms 10-K and 10-Q filed with the Securities andExchange Commission; (d) promptly upon receipt of notice thereof, a reportof any legal actions pending or threatened in writing against Borrower or anySubsidiary that could result in damages or costs to Borrower or any Subsidiaryof 

 

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## FiveHundred Thousand Dollars ($500,000) or more; (e) such budgets, salesprojections, operating plans or other financial information as Bank mayreasonably request from time to time generally prepared by Borrower in theordinary course of business; (f) within thirty (30) days of the last dayof each fiscal quarter, a report signed by Borrower, in form reasonablyacceptable to Bank, listing any applications or registrations that Borrower hasmade or filed in respect of any Patents, Copyrights or Trademarks, the statusof any outstanding applications or registrations, information and documents tofacilitate the amendment and/or supplementation of Bank’s filings on eachBorrower’s Intellectual Property at the United States Copyright Office and theUnited States Patent Office, as well as any material change in Borrower’sintellectual property, including but not limited to any subsequent ownershipright (including rights under the License Agreement or any other exclusivelicense) of Borrower in or to any Trademark, Patent or Copyright not specifiedin Exhibits A, B, and C of the Intellectual PropertySecurity Agreement delivered to Bank by Borrower in connection with thisAgreement; and (g) promptly upon receipt of notice thereof, a report of anydispute, claim, default or other failure to perform under any real propertylease to which any Borrower is a party or by which it is bound that couldresult in damages or costs to Borrower or any Subsidiary of Five HundredThousand Dollars ($500,000) or more, or that could have a Material AdverseEffect.

Borrower shall deliver to Bank a Borrowing BaseCertificate signed by a Responsible Officer in substantially the form of Exhibit Chereto, together with aged listings of accounts receivable and accounts payableand, beginning with the month ending August 31, 2002, an inventory report, eachin form and substance acceptable to Bank, within one (1) days after the lastday of each week provided that each month-end inventory report provided to Bankshall carry over for the following month’s weekly reports.  During any Target Covenant Compliance PeriodBorrower shall deliver to Bank a Borrowing Base Certificate signed by aResponsible Officer in substantially the form of Exhibit C hereto,together with aged listings of accounts receivable and accounts payable and aninventory report, each in form and substance acceptable to Bank, within twenty(20) days after the last day of each month.

Borrower shall deliver to Bank with the quarterlyfinancial statements and calculations a Compliance Certificate signed by aResponsible Officer in substantially the form of Exhibit D hereto.

Bank shall have a right from time to time hereafter toaudit Borrower’s Accounts and appraise Collateral, including but not limited toInventory, at Borrower’s expense, provided that such audits will be conductedno more often than every six (6) months unless an Event of Default has occurredand is continuing and further provided that during any Target CovenantCompliance Period such audits will be conducted no more often than once eachyear unless an Event of Default has occurred and is continuing.

## 6.4           Inventory;Returns.  Borrower shall keep allInventory in good and marketable condition, free from all material defectsexcept for Inventory for which adequate reserves have been made.  Returns and allowances, if any, as betweenBorrower and its account debtors shall be on the same basis and in accordancewith the usual customary practices of Borrower, as they exist at the time ofthe execution and delivery of this Agreement. Other than returns and allowances as described in the precedingsentence, Borrower shall promptly notify Bank of all returns and recoveries andof all disputes and claims, where the return, recovery, dispute or claiminvolves more than Three Hundred Thousand Dollars ($300,000) individually or inthe aggregate in any calendar month.

## 6.5           Taxes.  Borrower shall make, and shall cause eachSubsidiary to make, due and timely payment or deposit of all material federal,state, and local taxes, assessments, or contributions required of it by law,and will execute and deliver to Bank, on demand, appropriate certificatesattesting to the payment or deposit thereof; and Borrower will make, and willcause each Subsidiary to make, timely payment or deposit of all material taxpayments and withholding taxes required of it by applicable laws, including,but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,and local, state, and federal income taxes, and will, upon request, furnishBank with proof satisfactory to Bank indicating that Borrower or a Subsidiaryhas made such payments or deposits; provided that Borrower or a Subsidiary neednot make any payment if the amount or validity of such payment is contested ingood faith by appropriate proceedings and is reserved against (to the extentrequired by GAAP) by Borrower.

## 6.6           Insurance.

### (a)           EachBorrower, at its expense, shall keep the Collateral insured against loss ordamage by fire, theft, explosion, sprinklers, and all other hazards and risks,and in such amounts, as ordinarily 

 

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### insuredagainst by other owners in similar businesses conducted in the locations whereBorrower’s business is conducted on the date hereof.  Each Borrower shall also maintain insurance relating toBorrower’s business, ownership and use of the Collateral in amounts and of atype that are customary to businesses similar to Borrower’s.

### (b)           Borrowersshall, at their expense, obtain and maintain a key-man life insurance policy inthe amount of $40,000,000 on Thomas Kinkade prior to the initial CreditExtension, and Borrowers shall, at their expense, obtain and maintain adisability policy on Thomas Kinkade or before June 30, 2002.

### (c)           Allsuch policies of insurance shall be in such form, with such companies, and insuch amounts as are reasonably satisfactory to Bank.  All such policies of property insurance shall contain a lender’sloss payable endorsement, in a form satisfactory to Bank, showing Bank as anadditional loss payee thereof, and all liability insurance policies shall showthe Bank as an additional insured and shall specify that the insurer must giveat least twenty (20) days notice to Bank before canceling its policy for any reason.  Upon Bank’s request, Borrower shall deliverto Bank certified copies of such policies of insurance and evidence of thepayments of all premiums therefor.  Allproceeds payable under any such policy shall, at the option of Bank, be payableto Bank to be applied on account of the Obligations.

## 6.7           Accountsand Banking Relationships.  Borrowershall maintain and shall cause each of its Subsidiaries to maintain its primarydepository, operating and investment accounts with Bank and/or ComericaSecurities, Inc.  Borrower may open andmaintain depository, operating and investment accounts with a Person other thanBank and/or Comerica Securities, Inc. provided that as a condition precedent tothe inclusion in the Borrowing Base of any amounts held in any depository,operating and investment accounts that are opened and/or maintained with aPerson other than Bank and/or Comerica Securities, Inc. any such accounts shallbe subject to the terms of a control agreement executed by Borrower and suchPerson for the benefit of Bank which agreement shall be acceptable to Bank inBank’s sole discretion.

## 6.8           FinancialCovenants.  Borrowers on aconsolidated basis shall maintain and comply with the following financialcovenants:

#### (i)            MaximumLosses / Minimum Profitability.  Borrowers’Cumulative Net Operating Losses shall be less than $12,000,000.  Borrowers shall not have a Net Loss of morethan $1,500,000 for the fiscal quarter ending June 30, 2002.  Borrowers shall have a Net Income and anOperating Profit of at least One Dollar ($1.00) in each fiscal quarterbeginning with the fiscal quarter ending September 30, 2002, andthereafter.  As used herein, “CumulativeNet Operating Losses” means the sum of Borrowers’ monthly net operating losses,including all deductions from revenue all as determined in accordance withGAAP, for the six (6) months ending on June 30, 2002.  As used herein, “Net Income,” “Net Loss” and “Net OperatingIncome” means Borrowers’ net income, net loss and net operating income,respectively, determined in accordance with GAAP.

#### (ii)           QuickRatio.  Borrowers shall maintain, asof the last day of each fiscal quarter, a Quick Ratio of at least the followingamounts for the following time periods: (i) 1.10 to 1.00 through the fiscal quarter ended March 31, 2002, and(ii) 1.50 to 1.00 from and after April 1, 2002.  As used herein, “Quick Ratio” means ratio of Quick Assets toCurrent Liabilities plus, to the extent not already included therein,all Indebtedness (including without limitation any Contingent Obligations)owing from Borrower to Bank**,**less deferred revenue.

#### (iii)          AdjustedTangible Net Worth.  Borrowers shallmaintain, as of the last day of each fiscal quarter, a Tangible Net Worth ofmore than Forty-Nine Million Dollars ($49,000,000) plus the amount of theeffect on Borrowers’ income statements of their 2001 Federal income tax andstate income tax benefits which amount shall be approved by Bank in Bank’s solediscretion(the “Minimum Tangible Net Worth”). The Minimum Tangible Net Worth of Borrowers shall be increased by anamount equal to forty percent (40%) of Borrowers’ net income (but shall not bereduced by the amount of any net losses incurred after March 31, 2002) in eachfiscal quarter beginning with the fiscal quarter ended on March 31, 2002, andthereafter.

#### (iv)          TotalLiabilities-Tangible Net Worth. Borrower shall maintain, as of the last day of each fiscal quarter, aratio of Total Liabilities to Tangible Net Worth of not more than 0.75 to 1.00.

 

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## 6.9           MinimumAccount Balance.  Borrowers shallmaintain at all times a minimum balance of not less than Two Million Dollars($2,000,000) (including cash pledged by Borrowers to support any Borrowing Baseshortfall) in Borrowers’ money market accounts maintained at Bank and/orComerica Securities, Inc.  During anyTarget Covenant Compliance Period, Borrowers shall maintain at all times aminimum balance of not less than One Million Dollars ($1,000,000) (including cashpledged by Borrowers to support any Borrowing Base shortfall)  in Borrowers’ money market accountsmaintained at Bank and/or Comerica Securities, Inc.

## 6.10         Registrationof Intellectual Property Rights.

### (a)           Borrowershall register or cause to be registered on an expedited basis (to the extentnot already registered) with the United States Patent and Trademark Office orthe United States Copyright Office, as applicable:  (i) those intellectual property rights listed on Exhibits A,B and C to the Intellectual Property Security Agreement deliveredto Bank by Borrower in connection with this Agreement, within sixty (60) daysof the date of this Agreement, (ii) all registerable intellectual propertyrights Borrower has developed or acquired (including rights under the LicenseAgreement or any other exclusive license) as of the date of this Agreement butheretofore failed to register, within sixty (60) days of the date of thisAgreement, and (iii) those additional intellectual property rightsdeveloped or acquired (including rights under the License Agreement or anyother exclusive license) by Borrower from time to time in connection with anyproduct or service, prior to the sale or licensing of such product or therendering of such service to any third party, and prior to Borrower’s use ofsuch product (including without limitation major revisions or additions to theintellectual property rights listed on such Exhibits A, Band C of the Intellectual Property Security Agreement).  Borrower shall give Bank notice of all suchapplications or registrations.

### (b)           Borrowershall execute and deliver such additional instruments and documents from timeto time as Bank shall reasonably request to perfect Bank’s security interest inthe Intellectual Property Collateral.

### (c)           Borrowershall (i) protect, defend and maintain the validity and enforceability ofthe Trademarks, Patents and Copyrights, (ii) use its best efforts todetect infringements of the Trademarks, Patents and Copyrights and promptlyadvise Bank in writing of material infringements detected and (iii) notallow any material Trademarks, Patents or Copyrights to be abandoned, forfeitedor dedicated to the public without the written consent of Bank, which shall notbe unreasonably withheld.

### (d)           Bankmay audit Borrower’s Intellectual Property Collateral to confirm compliancewith this Section, provided such audit may not occur more often than twice peryear, unless an Event of Default has occurred and is continuing provided thatduring any Target Covenant Compliance Period such audit may not occur more oftenthan once per year unless an Event of Default has occurred and iscontinuing.  Bank shall have the right,but not the obligation, to take, at Borrower’s sole expense, any actions thatBorrower is required under this Section to take but which Borrower fails totake, after fifteen (15) days’ notice to Borrower.  Borrower shall reimburse and indemnify Bank for all reasonablecosts and reasonable expenses incurred in the reasonable exercise of its rightsunder this Section.

### (e)           LicenseAgreement.  Maintain the LicenseAgreement in full force and effect and enforce Borrowers’ rights under theLicense Agreement.  Borrowers willexercise their rights and remedies under and relating to the License Agreementand as provided by law, in equity, or otherwise.  Borrowers will not waive terms, obligations or rights under orrelating to the License Agreement nor amend the License Agreement unlessapproved by Bank in writing which approval shall not be unreasonably withheld.

## 6.11         FurtherAssurances.  At any time and fromtime to time Borrower shall execute and deliver such further instruments andtake such further action as may reasonably be requested by Bank to effect thepurposes of this Agreement.

## 6.12         DisabilityPolicy.  On or before June 30, 2002,Borrower shall deliver to Bank evidence of a disability insurance policycovering Thomas Kinkade, in such amounts and with carriers as shall be mutuallyacceptable to Bank and Borrower.

 

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# 7.             NEGATIVECOVENANTS.

Each Borrower covenants and agrees that, so long as any credithereunder shall be available and until payment in full of the outstandingObligations or for so long as Bank may have any commitment to make any CreditExtensions, such Borrower will not do any of the following:

## 7.1           Dispositions.  Convey, sell, lease, transfer or otherwisedispose of (collectively, a “Transfer”), or permit any of its Subsidiaries toTransfer, all or any part of its business or property, other than:  (i) Transfers of Inventory in theordinary course of business; (ii) Transfers of non-exclusive licenses andsimilar arrangements for the use of the property of Borrower or itsSubsidiaries in the ordinary course of business; or (iii) Transfers ofworn-out or obsolete Equipment which was not financed by Bank.

## 7.2           Changein Business; Change in Control or Executive Office.  Engage in any business, or permit any of itsSubsidiaries to engage in any business, other than the businesses currentlyengaged in by Borrower and any business substantially similar or relatedthereto (or incidental thereto); or cease to conduct business in the mannerconducted by Borrower as of the Closing Date; or suffer or permit a Change inControl or a change in management, including but not limited to any Borrowers’respective chief executive officers and chief financial officers; or withoutthirty (30) days prior written notification to Bank, change its name; orrelocate its chief executive office or state of incorporation; or withoutBank’s prior written consent, change the date on which its fiscal year ends.

## 7.3           Mergersor Acquisitions.  Merge orconsolidate, or permit any of its Subsidiaries to merge or consolidate, with orinto any other business organization, or acquire, or permit any of itsSubsidiaries to acquire, all or substantially all of the capital stock orproperty of another Person.

## 7.4           Indebtedness.  Create, incur, assume or be or remain liablewith respect to any Indebtedness, or permit any Subsidiary so to do, other thanPermitted Indebtedness.

## 7.5           Encumbrances.  Create, incur, assume or suffer to exist anyLien with respect to any of its property, or assign or otherwise convey anyright to receive income, including the sale of any Accounts, or permit any ofits Subsidiaries so to do, except for Permitted Liens.  Agree with any Person other than Bank not togrant a security interest in, or otherwise encumber, any of its property, orpermit any Subsidiary to do so.

## 7.6           Distributions.  Pay any dividends or make any otherdistribution or payment on account of or in redemption, retirement or purchaseof any capital stock, or permit any of its Subsidiaries to do so, except thatBorrower may repurchase the stock of former employees pursuant to stockrepurchase agreements as long as an Event of Default does not exist prior tosuch repurchase or would not exist after giving effect to such repurchase.

## 7.7           Investments.  Directly or indirectly acquire or own, ormake any Investment in or to any Person, or permit any of its Subsidiaries soto do, other than Permitted Investments; or maintain or invest any of itsproperty with a Person other than Bank or permit any of its Subsidiaries to doso unless such Person has entered into an account control agreement with Bankin form and substance satisfactory to Bank; or suffer or permit any Subsidiaryto be a party to, or be bound by, an agreement that restricts such Subsidiaryfrom paying dividends or otherwise distributing property to Borrower.

## 7.8           Transactionswith Affiliates.  Directly orindirectly enter into or permit to exist any material transaction with anyAffiliate of Borrower except for transactions that are in the ordinary courseof Borrower’s business, upon fair and reasonable terms that are no lessfavorable to Borrower than would be obtained in an arm’s length transaction witha non-affiliated Person.

## 7.9           SubordinatedDebt.  Make any payment in respectof any Subordinated Debt, or permit any of its Subsidiaries to make any suchpayment, except in compliance with the terms of such Subordinated Debt, oramend any provision contained in any documentation relating to the SubordinatedDebt without Bank’s prior written consent.

 

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## 7.10         Inventoryand Equipment. Store the Inventory or the Equipment with a bailee,warehouseman, or other third party unless the third party has been notified ofBank’s security interest and Bank (a) has received an acknowledgment from thethird party that it is holding or will hold the Inventory or Equipment forBank’s benefit or (b) is in pledge possession of the warehouse receipt, wherenegotiable, covering such Inventory or Equipment. Store or maintain anyEquipment or Inventory at a location other than the location set forth inSection 10 of this Agreement.

## 7.11         Compliance.  Become an “investment company” or becontrolled by an “investment company,” within the meaning of the InvestmentCompany Act of 1940, or become principally engaged in, or undertake as one ofits important activities, the business of extending credit for the purpose ofpurchasing or carrying margin stock, or use the proceeds of any CreditExtension for such purpose.  Fail tomeet the minimum funding requirements of ERISA, permit a Reportable Event orProhibited Transaction, as defined in ERISA, to occur, fail to comply with theFederal Fair Labor Standards Act or violate any law or regulation, whichviolation could have a Material Adverse Effect, or a material adverse effect onthe Collateral or the priority of Bank’s Lien on the Collateral, or permit anyof its Subsidiaries to do any of the foregoing.

## 7.12         NegativePledge Agreements. Permit the inclusion in any contract to which it or aSubsidiary becomes a party of any provisions that could restrict or invalidatethe creation of a security interest in any of Borrower’s or such Subsidiary’sproperty.

# 8.             EVENTSOF DEFAULT.

Any one or more of the following events shall constitute an Event ofDefault by Borrowers under this Agreement:

## 8.1           PaymentDefault.  If a Borrower fails topay, when due, any of the Obligations;

## 8.2           CovenantDefault.  If Borrower fails toperform any obligation under Section 6.3, 6.6, 6.7, 6.8, 6.9 or 6.10 ofArticle 6 or violates any of the covenants contained in Article 7 ofthis Agreement, or fails or neglects to perform, keep, or observe any othermaterial term, provision, condition, covenant (provided that Borrowers’ failureto meet and/or maintain the Target Covenants shall not constitute an Event ofDefault under this Agreement), or agreement contained in this Agreement, in anyof the Loan Documents, or in any other present or future agreement betweenBorrower and Bank and as to any default under such other term, provision,condition, covenant or agreement that can be cured, has failed to cure suchdefault within ten (10) days after Borrower receives notice thereof or anyofficer of Borrower becomes aware thereof; provided, however, that if thedefault cannot by its nature be cured within the ten (10) day period or cannotafter diligent attempts by Borrower be cured within such ten (10) day period,and such default is likely to be cured within a reasonable time, then Borrowershall have an additional reasonable period (which shall not in any case exceedthirty (30) days) to attempt to cure such default, and within such reasonabletime period the failure to have cured such default shall not be deemed an Eventof Default (provided that no Credit Extensions will be required to be madeduring such cure period)  );

## 8.3           MaterialAdverse Effect.  If there occurs anycircumstance or circumstances that could have a Material Adverse Effect;

## 8.4           Attachment.  If any material portion of Borrower’s assetsis attached, seized, subjected to a writ or distress warrant, or is leviedupon, or comes into the possession of any trustee, receiver or person acting ina similar capacity and such attachment, seizure, writ or distress warrant orlevy has not been removed, discharged or rescinded within ten (10) days, or ifBorrower is enjoined, restrained, or in any way prevented by court order fromcontinuing to conduct all or any material part of its business affairs, or if ajudgment or other claim becomes a lien or encumbrance upon any material portionof Borrower’s assets, or if a notice of lien, levy, or assessment is filed ofrecord with respect to any material portion of Borrower’s assets by the UnitedStates Government, or any department, agency, or instrumentality thereof, or byany state, county, municipal, or governmental agency, and the same is not paidwithin ten (10) days after Borrower receives notice thereof, provided that noneof the foregoing shall constitute an Event of Default where such action orevent is stayed or an adequate bond has been posted pending a good faithcontest by Borrower (provided that no Credit Extensions will be required to bemade prior to the posting of an adequate bond or stay of such action or event);

 

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## 8.5           Insolvency.  If a Borrower becomes insolvent, or if anInsolvency Proceeding is commenced by Borrower, or if an Insolvency Proceedingis commenced against Borrower and is not dismissed or stayed within thirty (30)days (provided that no Credit Extensions will be made prior to the dismissal ofsuch Insolvency Proceeding);

## 8.6           ArtistAgreements.  If there is a defaultor any other failure to perform by a Borrower or Thomas Kinkade relating to orunder the terms of (i) the License Agreement or (ii) any material agreement towhich a Borrower and Thomas Kinkade are parties; or which could have a materialadverse effect under the License Agreement or any other material agreement towhich a Borrower and Thomas Kinkade are parties; or the discontinuance of anyBorrower’s business associations and/or any material agreements, including butnot limited to the License Agreement with Thomas Kinkade;

## 8.7           OtherAgreements.  If there is a defaultor other failure to perform in any agreement to which any Borrower is a partyor by which it is bound resulting in a right by a third party or parties,whether or not exercised, to accelerate the maturity of any Credit in an amountin excess of Five Hundred Thousand Dollars ($500,000) individually or in theaggregate; or which could have a Material Adverse Effect;

## 8.8           SubordinatedDebt.  If Borrower makes any paymenton account of Subordinated Debt, except to the extent such payment is allowedunder any subordination agreement entered into with Bank;

## 8.9           Judgments.  If a judgment or judgments for the paymentof money in an amount, individually or in the aggregate, of at least FiveHundred Thousand Dollars ($500,000) shall be rendered against Borrower andshall remain unsatisfied and unstayed for a period of ten (10) days (providedthat no Credit Extensions will be made prior to the satisfaction or stay ofsuch judgment); or

## 8.10         Misrepresentations.  If any material misrepresentation ormaterial misstatement exists now or hereafter in any warranty or representationset forth herein or in any certificate delivered to Bank by any ResponsibleOfficer pursuant to this Agreement or to induce Bank to enter into thisAgreement or any other Loan Document.

# 9.             BANK’SRIGHTS AND REMEDIES.

## 9.1           Rightsand Remedies.  Upon the occurrenceand during the continuance of an Event of Default, Bank may, at its election,without notice of its election and without demand, do any one or more of thefollowing, all of which are authorized by Borrowers:

### (a)           Declareall Obligations, whether evidenced by this Agreement, by any of the other LoanDocuments, or otherwise, immediately due and payable (provided that upon theoccurrence of an Event of Default described in Section 8.5, allObligations shall become immediately due and payable without any action byBank);

### (b)           Ceaseadvancing money or extending credit to or for the benefit of Borrower underthis Agreement or under any other agreement between Borrower and Bank;

### (c)           Uponthe occurrence and during the continuance of an Event of Default that has beendeclared in writing by Bank, settle or adjust disputes and claims directly withaccount debtors for amounts, upon terms and in whatever order that Bankreasonably considers advisable;

### (d)           Makesuch payments and do such acts as Bank considers necessary or reasonable toprotect its security interest in the Collateral.  Borrower agrees to assemble the Collateral if Bank so requires,and to make the Collateral available to Bank as Bank may designate.  Borrower authorizes Bank to enter thepremises where the Collateral is located, to take and maintain possession ofthe Collateral, or any part of it, and to pay, purchase, contest, or compromiseany encumbrance, charge, or lien which in Bank’s determination appears to beprior or superior to its security interest and to pay all expenses incurred inconnection therewith.  With respect toany of Borrower’s owned premises, Borrower hereby grants Bank a license toenter into possession of such 

 

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### premisesand to occupy the same, without charge, in order to exercise any of Bank’srights or remedies provided herein, at law, in equity, or otherwise;

### (e)           Setoff and apply to the Obligations any and all (i) balances and deposits ofBorrower held by Bank, or (ii) indebtedness at any time owing to or forthe credit or the account of Borrower held by Bank;

### (f)            Ship,reclaim, recover, store, finish, maintain, repair, prepare for sale, advertisefor sale, and sell (in the manner provided for herein) the Collateral.  Bank is hereby granted a license or otherright, solely pursuant to the provisions of this Section 0, to use,without charge, Borrower’s labels, patents, copyrights, rights of use of anyname, trade secrets, trade names, trademarks, service marks, and advertisingmatter, or any property of a similar nature, as it pertains to the Collateral,in completing production of, advertising for sale, and selling any Collateraland, in connection with Bank’s exercise of its rights under thisSection 0, Borrower’s rights under all licenses and all agreements shallinure to Bank’s benefit;

### (g)           Disposeof the Collateral by way of one or more contracts or transactions, for cash oron terms, in such manner and at such places (including Borrower’s premises) asBank determines is commercially reasonable, and apply any proceeds to theObligations in whatever manner or order Bank deems appropriate;

### (h)           Bankmay credit bid and purchase at any public sale; and

### (i)            Anydeficiency that exists after disposition of the Collateral as provided abovewill be paid immediately by Borrowers.

## 9.2           Powerof Attorney. Effective only upon the occurrence and during the continuanceof an Event of Default that has been declared in writing by Bank, each Borrowerhereby irrevocably appoints Bank (and any of Bank’s designated officers, oremployees) as Borrower’s true and lawful attorney to:  (a) send requests for verification of Accounts or notify accountdebtors of Bank’s security interest in the Accounts; (b) endorse Borrower’sname on any checks or other forms of payment or security that may come intoBank’s possession; (c) sign Borrower’s name on any invoice or bill of ladingrelating to any Account, drafts against account debtors, schedules andassignments of Accounts, verifications of Accounts, and notices to accountdebtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claimsunder and decisions with respect to Borrower’s policies of insurance; (f) settleand adjust disputes and claims respecting the accounts directly with accountdebtors, for amounts and upon terms which Bank determines to be reasonable; (g)to file, in its sole discretion, one or more financing or continuationstatements and amendments thereto, relative to any of the Collateral withoutthe signature of Borrower where permitted by law; and (h) to transfer theIntellectual Property Collateral into the name of Bank or a third party to theextent permitted under the California Uniform Commercial Code; provided Bankmay exercise such power of attorney to sign the name of Borrower on any of thedocuments described in Section 4.2 regardless of whether an Event of Defaulthas occurred, including without limitation to modify, in its sole discretion,any intellectual property security agreement entered into between Borrower andBank without first obtaining Borrower’s approval of or signature to suchmodification by amending Exhibits A, B, and C, thereof, as appropriate, toinclude reference to any right, title or interest in any Copyrights, Patents orTrademarks acquired by Borrower after the execution hereof or to delete anyreference to any right, title or interest in any Copyrights, Patents orTrademarks in which Borrower no longer has or claims to have any right, titleor interest.  The appointment of Bank asBorrower’s attorney in fact, and each and every one of Bank’s rights andpowers, being coupled with an interest, is irrevocable until all of the Obligationshave been fully repaid and performed and Bank’s obligation to provide CreditExtensions hereunder is terminated.

## 9.3           AccountsCollection.  At any time during theterm of this Agreement, Bank may notify any Person owing funds to a Borrower ofBank’s security interest in such funds and verify the amount of suchAccount.  Upon the occurrence and duringthe continuance of an Event of Default that has been declared in writing byBank Borrower shall collect all amounts owing to Borrower for Bank, receive intrust all payments as Bank’s trustee, and immediately deliver such payments toBank in their original form as received from the account debtor, with properendorsements for deposit.

 

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## 9.4           BankExpenses.  Upon the occurrence andduring the continuance of an Event of Default that has been declared in writingby Bank, if Borrower fails to pay any amounts or furnish any required proof ofpayment due to third persons or entities, as required under the terms of thisAgreement, then Bank may do any or all of the following after reasonable noticeto Borrower:  (a) make payment ofthe same or any part thereof; (b) set up such reserves under a loanfacility in Section 2.1 as Bank deems necessary to protect Bank from theexposure created by such failure; or (c) obtain and maintain insurancepolicies of the type discussed in Section 6.6 of this Agreement, and takeany action with respect to such policies as Bank deems prudent.  Any amounts so paid or deposited by Bankshall constitute Bank Expenses, shall be immediately due and payable, and shallbear interest at the then applicable rate hereinabove provided, and shall besecured by the Collateral.  Any paymentsmade by Bank shall not constitute an agreement by Bank to make similar paymentsin the future or a waiver by Bank of any Event of Default under this Agreement.

## 9.5           Bank’sLiability for Collateral.  So longas Bank complies with reasonable banking practices, Bank shall not in any wayor manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damagethereto occurring or arising in any manner or fashion from any cause;(c) any diminution in the value thereof; or (d) any act or default ofany carrier, warehouseman, bailee, forwarding agency, or other personwhomsoever.  All risk of loss, damage ordestruction of the Collateral shall be borne by Borrower.

## 9.6           RemediesCumulative.  Bank’s rights andremedies under this Agreement, the Loan Documents, and all other agreementsshall be cumulative.  Bank shall haveall other rights and remedies not inconsistent herewith as provided under theCode, by law, or in equity.  No exerciseby Bank of one right or remedy shall be deemed an election, and no waiver byBank of any Event of Default on Borrower’s part shall be deemed a continuingwaiver.  No delay by Bank shallconstitute a waiver, election, or acquiescence by it.  No waiver by Bank shall be effective unless made in a writtendocument signed on behalf of Bank and then shall be effective only in thespecific instance and for the specific purpose for which it was given.

## 9.7           Demand;Protest.  Borrower waives demand,protest, notice of protest, notice of default or dishonor, notice of paymentand nonpayment, notice of any default, nonpayment at maturity, release,compromise, settlement, extension, or renewal of accounts, documents,instruments, chattel paper, and guarantees at any time held by Bank on whichBorrower may in any way be liable.

# 10.           NOTICES;CO-BORROWING PROVISIONS.

## 10.1         Unlessotherwise provided in this Agreement, all notices or demands by any partyrelating to this Agreement or any other agreement entered into in connectionherewith shall be in writing and (except for financial statements and otherinformational documents which may be sent by first-class mail, postage prepaid)shall be personally delivered or sent by a recognized overnight deliveryservice, certified mail, postage prepaid, return receipt requested to Borroweror to Bank, as the case may be, at its addresses set forth below:

| If to Borrower: |   | Media Arts Group, Inc.          |
|-----------------|--------|---------------------------------|
|            |   | 900 Lightpost Way               |
|            |   | Morgan Hill, CA 95037           |
|            |   | Attn:   Herbert Montgomery |
|            |   | Chief Financial Officer         |
|            |   |                            |
|            |   | Thomas Kinkade Stores, Inc.     |
|            |   | 900 Lightpost Way               |
|            |   | Morgan Hill, CA 95037           |
|            |   | Attn:   Herbert Montgomery |
|            |   | Chief Financial Officer         |

 

 

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| If to Bank: |   | Comerica Bank-California                |
|-------------|--------|-----------------------------------------|
|        |   | 333 W. Santa Clara St.                  |
|        |   | Fifth Floor, MC 4820                    |
|        |   | San Jose, CA 95113                      |
|        |   | Attn:  Loan  Group Manager         |
|        |   | San Jose Corporate Headquarters         |
|        |   |                                    |
|        |   | Comerica Bank-California                |
|        |   | with a copy to:                         |
|        |   | 333 W. Santa Clara St.                  |
|        |   | San Jose, CA 95113                      |
|        |   | Attn:  Kathy  Rosner-Galitz        |
|        |   | First Vice President — Team Leader |

 

The parties hereto may change the address at whichthey are to receive notices hereunder, by notice in writing in the foregoingmanner given to the other.

## 10.2         Subrogationand Similar Rights.  Notwithstandingany other provision of this Agreement or any other Loan Document, until paymentin full of all Credit Extensions and termination of the commitment to makeCredit Extensions, each Borrower irrevocably waives all rights that it may haveat law or in equity (including, without limitation, any law subrogating aBorrower to the rights of Bank under the Loan Documents) to seek contribution,indemnification, or any other form of reimbursement from any other Borrower, orany other Person now or hereafter primarily or secondarily liable for any ofthe Obligations, for any payment made by a Borrower with respect to theObligations in connection with the Loan Documents or otherwise and all rightsthat it might have to benefit from, or to participate in, any security for theObligations as a result of any payment made by a Borrower with respect to theObligations in connection with the Loan Documents or otherwise.  Any agreement providing for indemnification,reimbursement or any other arrangement prohibited under this Section shall benull and void.  If any payment is madeto a Borrower in contravention of this Section, such Borrower shall hold suchpayment in trust for Bank and such payment shall be promptly delivered to Bankfor application to the Obligations, whether matured or unmatured.

## 10.3         Waiversof Notice.  To the extent permittedby law, each Borrower waives notice of acceptance hereof; notice of theexistence, creation or acquisition by any other Borrower of any of theObligations; notice of an Event of Default by any other Borrower; notice of theamount of the Obligations outstanding at any time; notice of intent toaccelerate with respect to the Obligations of any other Borrower; notice ofacceleration of the Obligations of any other Borrower; notice of any adversechange in the financial condition of any other Borrower or of any other factthat might increase the Borrower’s risk; presentment for payment; demand;protest and notice thereof as to any instrument; notice of any other Borrower’sdefault; and all other notices and demands to which the Borrower wouldotherwise be entitled with respect to the Obligations of any otherBorrower.  Each Borrower waives anydefense arising from any defense of any other Borrower, or by reason of thecessation from any cause whatsoever of the liability of any otherBorrower.  Bank’s failure at any time torequire strict performance by any Borrower of any provision of the LoanDocuments shall not waive, alter or diminish any right of Bank thereafter todemand strict compliance and performance therewith.  Nothing contained herein shall prevent Bank from foreclosing onthe Lien of any deed of trust, mortgage or other security instrument, or exercisingany rights available thereunder, and the exercise of any such rights shall notconstitute a legal or equitable discharge of any Borrower.  Each Borrower also waives any defensearising from any act or omission of Bank that changes the scope of theBorrower’s risks hereunder.  EachBorrower hereby waives any right to assert against Bank any defense (legal orequitable), setoff, counterclaim, or claims that such Borrower individually maynow or hereafter have against another Borrower or any other Person liable toBank with respect to the Obligations in any manner or whatsoever.

## 10.4         SubrogationDefenses.  To the extent permittedby law, each Borrower hereby waives any defense based on impairment ordestruction of its subrogation or other rights against any other Borrower andwaives all benefits which might otherwise be available to it under CaliforniaCivil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726,as those statutory provisions are now in effect and hereafter amended, andunder any other similar statutes now and hereafter in effect.

 

25

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## 10.5         Rightto Settle, Release.

                                (a)          The liability of Borrowershereunder shall not be diminished by (i) any agreement, understanding orrepresentation that any of the Obligations is or was to be guaranteed byanother Person or secured by other property, or (ii) any release orunenforceability, whether partial or total, of rights, if any, which Bank maynow or hereafter have against any other Person, including another Borrower, orproperty with respect to any of the Obligations.

                                (b)          Without notice to (1) any otherBorrower and without affecting the liability of any other such Borrowerhereunder, Bank may (i) compromise, settle, renew, extend the time for payment,change the manner or terms of payment, discharge the performance of, decline toenforce, or release all or any of the Obligations with respect to such Borrower,(ii) grant other indulgences to such Borrower in respect of the Obligations,(iii) modify in any manner any documents relating to the Obligations withrespect to such Borrower, or (2) (i) release, surrender or exchange anydeposits or other property securing the Obligations, whether pledged by suchBorrower or any other Person, or (ii) without notice to any such Borrower,compromise, settle, renew, or extend the time for payment, discharge theperformance of, decline to enforce, or release all or any obligations of anyguarantor, endorser or other Person who is now or may hereafter be liable withrespect to any of the Obligations.

## 10.6         PrimaryObligation.  This Agreement is aprimary and original obligation of each Borrower and shall remain in effectnotwithstanding future changes in conditions, including any change of law orany invalidity or irregularity in the creation or acquisition of anyObligations or in the execution or delivery of any agreement between Bank andany Borrower.  Each Borrower shall beliable for existing and future Obligations as fully as if all of the Loan wereadvanced to such Borrower.  Bank mayrely on any certificate or representation made by any Borrower as made onbehalf of, and binding on, all Borrowers, including without limitationBorrowing Certificates, Borrowing Base Certificates and ComplianceCertificates.

## 10.7         Subordination.  All indebtedness of a Borrower now orhereafter arising held by another Borrower is subordinated to the Obligationsand the Borrower holding the indebtedness shall take all actions reasonablyrequested by Bank to effect, to enforce and to give notice of suchsubordination.

## 10.8         Enforcementof Rights.  Borrowers are jointlyand severally liable for the Obligations and Bank may proceed against one ormore of the Borrowers to enforce the Obligations without waiving its right toproceed against any of the other Borrowers.

## 10.9         MediaArts Group, Inc. as Agent.  EachBorrower appoints Media Arts Group, Inc. as its agent with all necessary powerand authority to give and receive notices, certificates or demands for and onbehalf of each Borrower, to act as disbursing agent for receipt of any CreditExtensions on behalf of each Borrower and to apply to Bank on behalf of anyBorrower for Credit Extensions, any waivers and any consents.  This authorization cannot be revoked, andBank need not inquire as to Media Arts Group Inc.’s authority to act for or onbehalf of any Borrower.

# 11.           CHOICEOF LAW AND VENUE; JURY TRIAL WAIVER.

This Agreement shall be governed by, and construed in accordance with,the internal laws of the State of California, without regard to principles ofconflicts of law.  Each of Borrower andBank hereby submits to the exclusive jurisdiction of the state and Federalcourts located in the County of Santa Clara, State of California.  BORROWER AND BANK EACH HEREBY WAIVE THEIRRESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON ORARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONSCONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTYCLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVERCONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT.  EACH PARTY REPRESENTS AND WARRANTS THAT ITHAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY ANDVOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGALCOUNSEL.

 

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# 12.           GENERALPROVISIONS.

## 12.1         Successorsand Assigns.  This Agreement shallbind and inure to the benefit of the respective successors and permittedassigns of each of the parties; provided, however, that neither this Agreementnor any rights hereunder may be assigned by Borrowers without Bank’s priorwritten consent, which consent may be granted or withheld in Bank’s solediscretion.  Bank shall have the rightwithout the consent of or notice to Borrowers to sell, transfer, negotiate, orgrant participation in all or any part of, or any interest in, Bank’sobligations, rights and benefits hereunder.

## 12.2         Indemnification.  Borrower shall defend, indemnify and holdharmless Bank and its officers, employees, and agents against:  (a) all obligations, demands, claims,and liabilities claimed or asserted by any other party in connection with thetransactions contemplated by this Agreement; and (b) all losses or BankExpenses in any way suffered, incurred, or paid by Bank as a result of or inany way arising out of, following, or consequential to transactions betweenBank and Borrower whether under this Agreement, or otherwise (including withoutlimitation reasonable attorneys’ fees and expenses), except for losses causedby Bank’s gross negligence or willful misconduct.

## 12.3         Timeof Essence.  Time is of the essencefor the performance of all obligations set forth in this Agreement.

## 12.4         Severabilityof Provisions.  Each provision ofthis Agreement shall be severable from every other provision of this Agreementfor the purpose of determining the legal enforceability of any specificprovision.

## 12.5         Amendmentsin Writing, Integration.  Neitherthis Agreement nor the Loan Documents can be amended or terminated orally.  All prior agreements, understandings,representations, warranties, and negotiations between the parties hereto withrespect to the subject matter of this Agreement and the Loan Documents, if any,are merged into this Agreement and the Loan Documents.

## 12.6         Counterparts.  This Agreement may be executed in any numberof counterparts and by different parties on separate counterparts, each ofwhich, when executed and delivered, shall be deemed to be an original, and allof which, when taken together, shall constitute but one and the same Agreement.

## 12.7         Survival.  All covenants, representations andwarranties made in this Agreement shall continue in full force and effect solong as any Obligations remain outstanding or Bank has any obligation to makeCredit Extensions to Borrower.  The obligationsof Borrower to indemnify Bank with respect to the expenses, damages, losses,costs and liabilities described in Section 12.2 shall survive until allapplicable statute of limitations periods with respect to actions that may bebrought against Bank have run.

 

27

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IN WITNESS WHEREOF, the parties hereto have causedthis Agreement to be executed as of the date first above written.
|   |   | MEDIA ARTS GROUP, INC.           |
|--------|--------|----------------------------------|
|   |   |                             |
|   |   |                             |
|   | By:    | /s/ Herbert D.  Montgomery       |
|   |   |                             |
|   | Title: | CFO                              |
|   |   |                             |
|   |   | THOMAS KINKADE STORES,  INC.     |
|   |   |                             |
|   |   |                             |
|   | By:    | /s/ Herbert D.  Montgomery       |
|   |   |                             |
|   | Title: | CFO                              |
|   |   |                             |
|   |   |                             |
|   |   | COMERICA BANK —  CALIFORNIA |
|   |   |                             |
|   |   |                             |
|   | By:    | /s/ Kathy Rosner-Galitz          |
|   |   |                             |
|   | Title: | First Vice President             |
|        |        |                                  |  |  |  |  |  |  |

 

28

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**DEBTORS:                                           MEDIAARTS GROUP, INC.**

**                                                                THOMASKINKADE STORES, INC.**

 

**SECURED PARTY:                             COMERICABANK-CALIFORNIA**

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENTTO LOAN AND SECURITY AGREEMENT

All personal property of each Borrower (hereinreferred to as “Borrowers” or “Debtors”) whether presently existing orhereafter created or acquired, and wherever located, including, but not limitedto:

(a)           all accounts,chattel paper (including tangible and electronic chattel paper), depositaccounts, documents (including negotiable documents), equipment (including allaccessions and additions thereto), general intangibles (including paymentintangibles and software), goods (including fixtures), instruments (includingpromissory notes), inventory (including all goods held for sale or lease or tobe furnished under a contract of service, and including returns andrepossessions), investment property (including securities and securitiesentitlements), letter of credit rights, money, and all of Debtors’ books andrecords with respect to any of the foregoing, and the computers and equipmentcontaining said books and records;

(b)           all common law andstatutory copyrights and copyright registrations, applications forregistration, now existing or hereafter arising, in the United States ofAmerica or in any foreign jurisdiction, obtained or to be obtained on or inconnection with any of the forgoing, or any parts thereof or any underlying orcomponent elements of any of the forgoing, together with the right to copyrightand all rights to renew or extend such copyrights and the right (but not theobligation) of Secured Party to sue in its own name and/or in the names of theDebtors for past, present and future infringements of copyright;

(c)           all trademarks,service marks, trade names and service names and the goodwill associatedtherewith, together with the right to trademark and all rights to renew orextend such trademarks and the right (but not the obligation) of Secured Partyto sue in its own name and/or in the names of the Debtors for past, present andfuture infringements of trademark;

(d)           all (i) patentsand patent applications filed in the United States Patent and Trademark Officeor any similar office of any foreign jurisdiction, and interests under patentlicense agreements, including, without limitation, the inventions andimprovements described and claimed therein, (ii) licenses pertaining toany patent whether the applicable Debtor is licensor or  licensee, (iii) income, royalties,damages, payments, accounts and accounts receivable now or hereafter due and/orpayable under and with respect thereto, including, without limitation, damagesand payments for past, present or future infringements thereof, (iv) right(but not the obligation) to sue in the names of the Debtors and/or in the nameof Secured Party for past, present and future infringements thereof,(v) rights corresponding thereto throughout the world in all jurisdictionsin which such patents have been issued or applied for, and (vi) reissues,divisions, continuations, renewals, extensions and continuations-in-part withrespect to any of the foregoing; and

(e)           any and all cashproceeds and/or noncash proceeds of any of the foregoing, including, withoutlimitation, insurance proceeds, and all supporting obligations and the securitytherefor or for any right to payment. All terms above have the meanings given to them in the CaliforniaUniform Commercial Code, as amended or supplemented from time to time,including revised Division 9 of the Uniform Commercial Code-SecuredTransactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July1, 2001.

Notwithstanding the foregoing, the Collateral shall not include (i)deferred compensation owing to employees of Borrower pursuant to that certainMedia Arts Group Management Deferred Compensation Plan held in account number33-0042-33 with First American Trust, or (ii) any accounts receivable,inventory or intellectual property relating to the artist Simon Bull, theartist Howard Behrens, and the artist Robert Lyn Nelson.

 

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EXHIBIT B

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., PACIFIC TIME

TO:  COMERICA BANK - CALIFORNIA                                                                                                                                            DATE:              

FAX #:  408-556-5224      Attn:  Compliance                                                                                                                                          TIME:              
| FROM:   MEDIA ARTS GROUP, INC.  and BORROWERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| CLIENT NAME  (BORROWERS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| REQUESTED BY:                                                                                                                                                                                                                                                                                                                                                                                                   |
| AUTHORIZED  SIGNER’S NAME                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| AUTHORIZED SIGNATURE:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| PHONE NUMBER:                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| FROM ACCOUNT #  ______________________     TO ACCOUNT  #                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| REQUESTED TRANSACTION  TYPE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | REQUEST DOLLAR AMOUNT |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $                                                                                                                                   |
| PRINCIPAL INCREASE  (ADVANCE)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $                                                                                                                                   |
| PRINCIPAL PAYMENT  (ONLY)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $                                                                                                                                   |
| INTEREST PAYMENT (ONLY)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $                                                                                                                                   |
| PRINCIPAL AND INTEREST  (PAYMENT)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| OTHER INSTRUCTIONS:                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| All representations and  warranties of Borrower stated in the Loan and Security Agreement are true,  correct and complete in all material respects as of the date of the telephone  request for an Advance confirmed by this Borrowing Certificate; provided,  however, that those representations and warranties expressly referring to  another date shall be true, correct and complete in all material respects as  of such date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| BANK USE ONLY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| TELEPHONE REQUEST:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The following person is  authorized to request the loan payment transfer/loan advance on the advance  designated account and is known to me.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                              |
| Authorized  Requester                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Phone # |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                              |
| Received By  (Bank)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Phone # |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| _____________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Authorized  Signature (Bank)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |

 

 

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EXHIBIT C

BORROWING BASE CERTIFICATE
| Borrower:   MEDIA ARTS GROUP, INC. and BORROWERS                                             Lender:  Comerica Bank-California

Commitment Amount:  $15,000,000 (or $20,000,000 during any  Target Covenant Compliance Period) |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ACCOUNTS RECEIVABLE                                                                                                                                              |         |         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|
| 1.             Accounts Receivable Book Value as  of ___                                             |         | $___________ |
| 2.             Additions (please explain on  reverse)                                                |         | $___________ |
| 3.             TOTAL ACCOUNTS RECEIVABLE                                                             |         | $___________ |
|                                                                                                                                                             |         |         |
| ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)                                                                                                             |         |         |
| 4.             Amounts over 60 days due                                                              | $___________ |         |
| 5.            Amounts over 120 days from  invoice date                                                    |         |         |
| 5.             Balance of 25% over 60 days due  Accounts                                             | $___________ |         |
| 6.             Concentration Limits                                                                  |         |         |
| 7.             Foreign Accounts                                                                      | $___________ |         |
| 8.             Governmental Accounts                                                                 | $___________ |         |
| 9.             Contra Accounts                                                                       | $___________ |         |
| 10.           Demo Accounts                                                                                    | $___________ |         |
| 11.           Intercompany/Employee Accounts                                                                   | $___________ |         |
| 12.           Other (please explain on reverse)                                                                | $___________ |         |
| 13.           TOTAL ACCOUNTS RECEIVABLE  DEDUCTIONS                                                            |         | $___________ |
| 14.           Eligible Accounts (#3 minus #13)                                                                 |         | $___________ |
| 15.           LOAN VALUE OF ACCOUNTS

(70% of #14 or  75% of #14 during any Target Covenant Compliance Period) |         | $___________ |
|                                                                                                                                                             |         |         |
| BALANCES                                                                                                                                                         |         |         |
| 16.           Maximum Loan Amount                                                                              |         | $___________ |
| 17.           Total Funds Available [Lesser of  #16 or #15]                                                    |         | $___________ |
| 18.           Present balance owing on Line of  Credit                                                         |         | $___________ |
| 19.           Outstanding under Sublimits  (Letters of Credit and Foreign Exchange)                            |         | $___________ |
| 20.           RESERVE POSITION (#17 minus #18 and  #19)                                                        |         | $___________ |
|                                                                                                                                                             |         |         |

*Theundersigned represents and warrants that the foregoing is true, complete andcorrect, and that the information reflected in this Borrowing Base Certificatecomplies with the representations and warranties set forth in the Loan andSecurity Agreement between the undersigned and Comerica Bank-California.*
| MEDIA ARTS GROUP, INC.,  for itself and the Borrowers                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| By:                                                                                      |   |   |
| Authorized Signer

(Title: Chief Executive  Officer/Chief Financial Officer)                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |

 

 

31

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**EXHIBITDCOMPLIANCE CERTIFICATE**

TO:                                                                            COMERICA BANK-CALIFORNIA

FROM:                                                         MEDIA ARTS GROUP, INC. and the BORROWERS

The undersigned authorized officer hereby certifies onbehalf of MEDIA ARTS GROUP, INC. and Borrowers that in accordance with theterms and conditions of the Loan and Security Agreement between Borrowers andBank (the “Agreement”), (i) Borrowers are in complete compliance for theperiod ending _______________ with all required covenants except as noted belowand (ii) all representations and warranties of Borrowers stated in theAgreement are true and correct as of the date hereof.  Attached herewith are the required documents supporting the abovecertification.  The Officer furthercertifies that these are prepared in accordance with Generally AcceptedAccounting Principles (GAAP) and are consistently applied from one period tothe next except as explained in an accompanying letter or footnotes.

**Please indicate compliance status bycircling Yes/No under “Complies” column.**
| **Reporting  Covenant**                                                                                                  | **Required**                                                                              | **Complies** |
|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|--------------|
|                                                                                                                     |                                                                                      |         |   |
| Quarterly financial statements                                                                                           | Quarterly within 30 days                                                                  | Yes          | No |
| Annual (CPA Audited)                                                                                                     | FYE within 120 days                                                                       | Yes          | No |
| 10-K and 10-Q                                                                                                            | When filed with S.E.C.                                                                    | Yes          | No |
| A/R & A/P Agings, Borrowing Base Cert.                                                                               | Weekly within 1 day (Quarterly within 20 days during  Target Covenant Compliance Periods) | Yes          | No |
| A/R and Collateral Audit (including inventory)                                                                           | Initial and Semi-Annual  *A                                                          | Yes          | No |
| IP Report                                                                                                                | Quarterly within 30 days                                                                  | Yes          | No |
| Total amount of Borrowers’ cash and investments                                                                     | Amount:   $________                                                                  | Yes          | No |
| Total amount of Borrowers’ cash and investments  maintained with Bank                                               | Amount:   $________                                                                  | Yes          | No |
|                                                                                                                     |                                                                                      |         |   |
| **Financial  Covenant**                                                                                                  | **Required**                                                                              | **Actual**   | **Complies** |
|                                                                                                                     |                                                                                      |         |   |   |
| Maintain on a Quarterly Basis:                                                                                           |                                                                                      |         |   |   |
| Minimum Quick Ratio                                                                                                      |          :1.00   *B                          | _____:1.00   | Yes | No |
| Maximum Total  Liabilities to TNW                                                                                        | 0.75 :1.00   *C                                                                      | _____:1.00   | Yes | No |
| Minimum Tangible Net  Worth                                                                                              | $49,000,000   *D                                                                     | $________    | Yes | No |
| Minimum Account  Balances in money market accounts with Bank and Comerica Securities,  Inc.  (please explain below) | $2,000,000   *E                                                                      | $________    | Yes | No |
| *Amount in Comerica Securities, Inc. Account*                                                                            |                                                                                      | *$________*  |   |   |
| *_____________________*                                                                                                  |                                                                                      | *$________*  |   |   |
| *_____________________*                                                                                                  |                                                                                      | *$________*  |   |   |
| *Borrower’s Total Liquidity*                                                                                        |                                                                                      | *$________*  |   |   |
|                                                                                                                     |                                                                                      |         |   |   |
| Cumulative Net Operating Losses                                                                                          | Less than ($12,000,000) (6 months ending 6/30/02  only)                                   | $________    | Yes | No |
| Net Losses                                                                                                               | Not more than ($1,500,000) (Quarter ending June 30,  2002)                                |         |   |   |
| Profitability (Operating Profit and Net Income)                                                                          | $1.00   (Beginning 9/30/02 and quarterly thereafter)  *F                        | $________    | Yes | No |
|                                                                                                                     |                                                                                      |         |   |   |
| *  See Annex A attached hereto.                                                                                     |

 

 

32

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| **Comments Regarding Exceptions:**   See Attached.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | **BANK USE ONLY**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Received by:                                                                                                                                                                          |
| Sincerely,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | AUTHORIZED  SIGNER                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Date:                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                             | Verified:                                                                                                                                     |
| SIGNATURE            (Chief Executive Officer/Chief  Financial Officer)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | AUTHORIZED  SIGNER                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                             | Date:                                                                                                                |
| TITLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Compliance Status                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Yes | No |
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| DATE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

 

33

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**ANNEX A**

 

A.            Audits will beconducted annually during any Target Covenant Compliance Period.

 

B.            Borrowers shallmaintain, as of the last day of each fiscal quarter, a Quick Ratio of at leastthe following amounts for the following time periods:  (i) 1.10 to 1.00 through the period ended March 31, 2002, and(ii) 1.50 to 1.00 from and after April 1, 2002.  Target Covenant Quick Ratio is 2.0 to 1.00.

 

C.            The Target Covenantfor Total Liabilities to TNW is 0.50 to 1.00.

 

D.            The stated amount of$49,000,000 shall be increased as set forth in the Agreement.  The Target Covenant for TNW is $58,000,000,which amount shall be increased as set forth in the Agreement.

 

E.             Minimum AccountBalance to be decreased to $1,000,000 during Target Covenant CompliancePeriods.

 

F.             The Target Covenantfor Operating Profit is an amount greater than $225,000 during the firstcalendar quarter of each year and an amount greater than $1,200,000 in thesecond, third and fourth calendar quarters of each year and the Target Covenantfor Net Income is One Dollar ($1.00).

 

 

34

----

 

SCHEDULE OF EXCEPTIONS

Permitted Indebtedness (Section 1.1)

                Indebtednessexisting on the Closing Date and associated with the liens set forth under“Permitted Liens” (Section 1.1) below in an aggregate amount of not more than$584,000

 

                Contingentobligations with respect to retail leases set forth on Annex 1 attachedhereto and contained in the Company’s financial statements as of December 31,2001

 

                Loans to KenRaasch pursuant to the terms of convertible promissory notes in an aggregateamount not to exceed a principal amount of $1,200,000, as disclosed in theCompany’s financial statements

 

 

Permitted Investments (Section 1.1)

                Stock in ThomasKinkade Stores, Inc.

 

                Checking, depositand other bank accounts as disclosed by Borrowers to Bank in that certain sideletter from the Borrowers to Bank

 

 

Permitted Liens (Section 1.1)

Existing Liens related to:

UCC filing against Exclaim Technologies for SecuredParty 3Com Credit Corporation (filed January 11, 2000 with California Secretaryof State)

 

UCC filing against Exclaim Technologies for SecuredParty Bankers/Softech/Mid-States a Division of EAB Leasing Corp (filed April 5,2000 with California Secretary of State), which lien shall be terminated oramended to the satisfaction of Bank in Bank’s sole discretion prior to theinitial Credit Extension

 

UCC filing against Media Arts Group, Inc. for SecuredParty LMA Capital Group, LLC (filed February 4, 1997 with California Secretaryof State)

 

UCC filing against Media Arts Group, Inc. for SecuredParty Caltronics Business Systems, Inc. (filed November 17, 1999 withCalifornia Secretary of State)

 

UCC filing against Media Arts Group, Inc. for SecuredParty Caltronics Business Systems, Inc. (filed September 5, 2000 withCalifornia Secretary of State)

 

UCC filing against Media Arts Group, Inc. for SecuredParty Bankers/Softech Divisions of EAB Leasing Corp. (filed April 2, 2001 withCalifornia Secretary of State), which lien shall be terminated or amended tothe satisfaction of Bank in Bank’s sole discretion prior to the initial CreditExtension

 

UCC filing against Media Arts Group, Inc. for SecuredParty Bankers/Softech Divisions of EAB Leasing Corp. (filed April 2, 2001 withCalifornia Secretary of State),which lien shall be terminated or amended to thesatisfaction of Bank in Bank’s sole discretion prior to the initial CreditExtension

 

UCC filing against Media Arts Group, Inc. for SecuredParty Caltronics Business Systems, Inc. (filed June 28, 2001 with CaliforniaSecretary of State)

 

 

Inbound Licenses (Section 5.6)

License Agreement as defined in the Loan and Security Agreement

 

 

Prior Names; Location of Inventory (Section 5.7)

Media Arts Group, Inc. (sometimes abbreviated as “MAGI”)

 

 

35

----

 

Names of Current Subsidiaries:

                Thomas KinkadeStores, Inc. (formerly known as Thomas Kinkade Galleries, Inc. (formerly knownas Commemorative Press))

                Thomas KinkadeStores, Inc. has fictitious name filing in Pennsylvania as Thomas KinkadeGallery.

 

Names Used By Former Subsidiaries or Purchased Companies:

                Lightpost Group,Inc.; Lightpost Publishing, Inc.; MAGI Sales, Inc.; Officewise.com, Inc.;Exclaim Technologies; John Hine Studios, Inc.; John Hine Limited; John HineNorth America; John Hine Canada; Studio & Workshop of John Hine; FatherTime, Ltd.; Dove, Ltd.; Guild, Ltd.; Serendipity Limited; California CoastGalleries; Cornerstone Galleries, Inc.; Direct Product Partners, Inc.;D.R.T.V.; MAGI Entertainment Products, Inc.; Thomas Kinkade Media, Inc.

 

Borrower has inventory at:

Valley Fair Shopping Center #2217; 2855 Stevens Creek Boulevard.; SantaClara, CA 95050

400 Cannery Row, Suite E; Monterey, CA 93940

1000 Ross Park Mall Drive; Pittsburg, PA 15237

18675 Madrone Parkway; Morgan Hill, CA 95037

901 Lightpost Way, Morgan Hill, CA 95037

 

 

Litigation (Section 5.8)

Limar Realty #19 v. Media Arts Group, Inc. (Santa Clara County SuperiorCourt — Case No. CV806096)

 

 

Accounts (Section 5.16)

                Checking, depositand other bank accounts as disclosed by Borrowers to Bank in that certain sideletter from the Borrowers to Bank

 

 

36

----

 

**Annex 1 to Schedule of Exceptions**

 

**Retail Leases**

 
| 1.     |   | Retail lease for location at Del Monte Center,  Monterey, California with landlord, landlord, Del Monte Regional Mall, LLC.          |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                 |   |
| 2.     |   | Retail lease for location at Florida Mall, Orlando,  Florida with landlord, landlord, Simon Property Group.                          |   |
|   |   |                                                                                                                                 |   |
| 3.     |   | Retail lease for location at The Galleria at Fort  Lauderdale, Fort Lauderdale, Florida with landlord, Kravco Company.               |   |
|   |   |                                                                                                                                 |   |
| 4.     |   | Retail lease for location at Harborplace, Baltimore,  Maryland with landlord, The Rouse Company.                                     |   |
|   |   |                                                                                                                                 |   |
| 5.     |   | Retail lease for location at 2 Harris Court,  Monterey, California with landlord, Stockman & Associates.               |   |
|   |   |                                                                                                                                 |   |
| 6.     |   | Retail lease for location at Kailua-Kona Village,  Kailua-Kona, Hawaii with landlord, Kailua-Kona Village Development Group.         |   |
|   |   |                                                                                                                                 |   |
| 7.     |   | Retail lease for location at Mall of America,  Bloomington, Minnesota with landlord, Simon Property Group.                           |   |
|   |   |                                                                                                                                 |   |
| 8.     |   | Retail lease for location at The Court at King of  Prussia, King of Prussia, Pennsylvania with landlord, Kravco Company.             |   |
|   |   |                                                                                                                                 |   |
| 9.     |   | Retail lease for location at Valley Fair, Santa  Clara, California with landlord, Westfield Corporation.                             |   |
|   |   |                                                                                                                                 |   |
| 10.    |   | Retail lease for location at Woodland Hills Mall,  Tulsa, Oklahoma with landlord, Urban Retail Properties.                           |   |
|   |   |                                                                                                                                 |   |
| 11.    |   | Retail lease for location at Wave Street (upstairs  & downstairs), Monterey, California with landlord, Jack Hakim.               |   |
|   |   |                                                                                                                                 |   |
| 12.    |   | Retail lease for location at Monterey Plaza Hotel,  Monterey, California with landlord, Monterey Plaza Hotel Ltd.                    |   |
|   |   |                                                                                                                                 |   |
| 13.    |   | Retail lease for location at Monterey Plaza Hotel  (Howard Behrens), Monterey, California with landlord, Monterey Plaza Hotel  Ltd.  |   |
|   |   |                                                                                                                                 |   |
| 14.    |   | Retail lease for location at Nagamine Center,  Lahaina, Maui, Hawaii with landlord, Honings Enterprises, Inc.                        |   |
|   |   |                                                                                                                                 |   |
| 15.    |   | Retail lease for location at Old Orchard, Skokie,  Illinois, with landlord, Urban Retail Properties.                                 |   |
|   |   |                                                                                                                                 |   |
| 16.    |   | Retail lease for location at Perimeter Mall,  Atlanta, Georgia with landlord, The Rouse Company.                                     |   |
|   |   |                                                                                                                                 |   |
| 17.    |   | Retail lease for location at Ross Park Mall,  Pittsburgh, Pennsylvania with landlord, Simon Property Group.                          |   |
|   |   |                                                                                                                                 |   |
| 18.    |   | Retail lease for location at South Street Seaport,  New York City, New York with landlord, The Rouse Company.                        |   |
|   |   |                                                                                                                                 |   |
| 19.    |   | Retail lease for location at Stamford Town Center,  Stamford, Connecticut with landlord, Rich-Taabman Associates.                    |   |
|   |   |                                                                                                                                 |   |
| 20.    |   | Retail lease for location at The Avenues,  Jacksonville, Florida with landlord, Jacksonville Avenues (Simon Property  Group).        |   |
|   |   |                                                                                                                                 |   |
| 21.    |   | Retail lease for location at 780 Front Street,  Lahaina, Hawaii with landlord, Estate of Mary Kunewa.                                |   |
|   |   |                                                                                                                                 |   |
| 22.    |   | Retail lease for location at 855 C Front Street,  Lahaina, Hawaii with landlord, Kurisu & Fergus.                                |   |
|   |   |                                                                                                                                 |   |
| 23.    |   | Retail lease for location at 781 Beach Street, San  Francisco, California with landlord, 781 Beach Street Properties, LTD.           |   |
|   |   |                                                                                                                                 |   |
| 24.    |   | Retail lease for location at Bridgewater Commons,  Bridgewater, New Jersey with landlord, The Rouse Company.                         |   |
|   |   |                                                                                                                                 |   |
| 25.    |   | Retail lease for location at Catalina Island,  Avalon, California with landlord, Metropole Marketplace Avalon Development  Co., Inc. |   |
|   |   |                                                                                                                                 |   |
| 26.    |   | Retail lease for location at Citrus Park Town  Center, Tampa, Florida with landlord, Urban Retail Properties.                        |   |
|   |   |                                                                                                                                 |   |
| 27.    |   | Retail lease for location at Dadeland Mall, Miami,  Florida with landlord, Simon Property Group.                                     |   |

 

 

37

----

 

**Annex I**

**ThirdParty License Agreements**

 

| 1.  |   | Agreement with Abbeville Press dated August 1,  1995.                                                                                                                               |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.  |   | Agreement with Amcal dated October 1, 1996.                                                                                                                                         |
| 3.  |   | Agreement with Arley Corporation dated April 1,  2001.                                                                                                                              |
| 4.  |   | Agreement with Avon dated August 1, 2001.                                                                                                                                           |
| 5.  |   | Agreement with Beverly Enterprises dated  April 1, 2002.                                                                                                                            |
| 6.  |   | Agreement with Bits ‘n Pieces dated February 1,  1999.                                                                                                                         |
| 7.  |   | Agreement with Bradford (Hawthorne, Van Hygen,  Hamilton, Adleigh Elliott,Ashton-Drake,       Bradford Editions, Bradford Exchange) dated  April 13, 1991. |
| 8.  |   | Agreement with Brownlow Corporation dated  June 15, 1999.                                                                                                                           |
| 9.  |   | Agreement with Candamar Designs dated March 1,  1995.                                                                                                                               |
| 10. |   | Agreement with Ceaco dated November 1, 1995.                                                                                                                                        |
| 11. |   | Agreement with Cresswell Lighting dated  February 15, 1999.                                                                                                                         |
| 12. |   | Agreement with CWR/Broadman & Holman dated  October 7, 1997.                                                                                                                    |
| 13. |   | Agreement with Dakin (Applause) dated  November 23, 1999.                                                                                                                           |
| 14. |   | Agreement with Deluxe, Paper Payment Services, LLC  dated April 1, 2001.                                                                                                            |
| 15. |   | Agreement with Direct Checks Unlimited dated  July 1, 1999.                                                                                                                         |
| 16. |   | Agreement with D. Parks & Assoc. (COSMO) dated  October 1, 1993.                                                                                                                |
| 17. |   | Agreement with Emerson Creek Pottery dated  June 1, 2000.                                                                                                                           |
| 18. |   | Agreement with EMI Christian Music Group Sparrow  Records dated March 13, 2000.                                                                                                     |
| 19. |   | Agreement with Gibsons & Sons Ltd. dated  September 1, 2000.                                                                                                                    |
| 20. |   | Agreement with Giftco dated October 31, 2001.                                                                                                                                       |
| 21. |   | Agreement with Glassmasters dated July 1, 2000.                                                                                                                                     |
| 22. |   | Agreement with Gregg Gifts dated November 13,  1997.                                                                                                                                |
| 23. |   | Agreement with Hallmark dated April 1, 1995.                                                                                                                                        |
| 24. |   | Agreement with Harvest House (#1) dated  October 13, 1995.                                                                                                                          |
| 25. |   | Agreement with Harvest House (#2) dated  March 29, 1996.                                                                                                                            |
| 26. |   | Agreement with Harvest House (#3) dated May 21,  1996.                                                                                                                              |
| 27. |   | Agreement with Harvest House (#4) dated  August 20, 1996.                                                                                                                           |
| 28. |   | Agreement with Harvest House (#5) dated  August 20, 1996.                                                                                                                           |
| 29. |   | Agreement with Harvest House (#6) dated  December 5, 1996.                                                                                                                          |
| 30. |   | Agreement with Harvest House (#7) dated May 13,  1997.                                                                                                                              |
| 31. |   | Agreement with Harvest House (#8) dated May 13,  1997.                                                                                                                              |
| 32. |   | Agreement with Harvest House (#9) dated May 13,  1997.                                                                                                                              |
| 33. |   | Agreement with Harvest House (#10) dated  May 13, 1997.                                                                                                                             |
| 34. |   | Agreement with Harvest House (#11) dated  May 13, 1997.                                                                                                                             |
| 35. |   | Agreement with Harvest House (#12) dated  January 13, 1998.                                                                                                                         |
| 36. |   | Agreement with Harvest House (#13) dated May 3,  2000.                                                                                                                              |
| 37. |   | Agreement with Harvest House (#14) dated  May 30, 2000.                                                                                                                             |
| 38. |   | Agreement with Harvest House (#15) dated  December 21, 2000.                                                                                                                        |
| 39. |   | Agreement with Harvest House (#16) dated  October 16, 2001.                                                                                                                         |
| 40. |   | Agreement with Imperial Wall Coverings dated  March 16, 1998.                                                                                                                       |
| 41. |   | Agreement with Kincaid Furniture dated June 1,  1998.                                                                                                                               |
| 42. |   | Agreement with La-Z-Boy dated July 1, 1998.                                                                                                                                         |
| 43. |   | Agreement with Leisure Arts.                                                                                                                                                             |
| 44. |   | Agreement with Lenox dated September 1, 1999.                                                                                                                                       |
| 45. |   | Agreement with Little, Brown & Co. dated  September 8, 1999.                                                                                                                    |
| 46. |   | Agreement with Mohawk dated May 1, 1998.                                                                                                                                            |
| 47. |   | Agreement with Multnomah Publishers dated  August 1, 2001.                                                                                                                          |
| 48. |   | Agreement with Our America Gift dated.                                                                                                                                                   |
| 49. |   | Agreement with Parachute Publishing dated  March 28, 2000.                                                                                                                          |
| 50. |   | Agreement with Printwick Papers dated June 25,  1997.                                                                                                                               |
| 51. |   | Agreement with Quality Artworks dated  September 12, 1996.                                                                                                                          |
| 52. |   | Agreement with Renaissance Publishing (Messenger  Corp.) dated July 1, 2000.                                                                                                        |

 

 

38

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53.           Agreementwith Rocky Mountain Chocolate Factory dated October 1, 2000.

54.           Agreementwith Taylor Corporation dated April 1, 2001.

55.           Agreementwith Taylor Woodrow Homes dated April 30, 2001.

56.           Agreementwith Teleflora dated February 1, 2001.

57.           Agreementwith Thomas Nelson dated March 17, 1998.

58.           Agreementwith Tommy Nelson dated April 15, 1998.

59.           Agreementwith Warner Books dated July 20, 1998.

60.           Agreementwith Willow Road dated April 1, 1997.

61.           Agreementwith Wrebbit dated April 1, 2001.

 

39

----

 

**CORPORATERESOLUTIONS TO BORROW**
| **Borrower**:             MEDIA  ARTS GROUP, INC. |
|---------------------------------------------------------------------------------------------------------------|

 

I, the undersigned Secretary or Assistant Secretary ofMEDIA ARTS GROUP, INC. (the “Corporation”), HEREBY CERTIFY that the Corporationis organized and existing under and by virtue of the laws of the State ofDelaware.

I FURTHER CERTIFY that attached hereto asAttachments 1 and 2 are true and complete copies of the Certificate ofIncorporation, as amended, and the Restated Bylaws of the Corporation, each ofwhich is in full force and effect on the date hereof.

I FURTHER CERTIFY that at a meeting of the Directorsof the Corporation, duly called and held, at which a quorum was present andvoting (or by other duly authorized corporate action in lieu of a meeting), thefollowing resolutions were adopted.

BE IT RESOLVED, that any one (1) of the followingnamed officers, employees, or agents of this Corporation, whose actualsignatures are shown below:
| **NAMES**                                                                                                                                                                                                                                                                                                                                                                                                                                              | **POSITION** | **ACTUAL SIGNATURES**                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |

acting for and on behalf of this Corporation and asits act and deed be, and they hereby are, authorized and empowered:

**BorrowMoney**.  To borrow from time to time from ComericaBank-California (“Bank”), on such terms as may be agreed upon between theofficers, employees, or agents of the Corporation and Bank, such sum or sums ofmoney as in their judgment should be borrowed, without limitation.

**ExecuteLoan Documents**.  To execute and deliver to Bank that certain Loanand Security Agreement dated as of April 15, 2002 (the “Loan Agreement”) andany other agreement entered into between Corporation and Bank in connectionwith the Loan Agreement, including any amendments, all as amended or extendedfrom time to time (collectively, with the Loan Agreement, the “LoanDocuments”), and also to execute and deliver to Bank one or more renewals,extensions, modifications, refinancings, consolidations, or substitutions forthe Loan Documents, or any portion thereof.

**GrantSecurity**.  To grant a security interest to Bank in theCollateral described in the Loan Documents, which security interest shallsecure all of the Corporation’s Obligations, as described in the LoanDocuments.

**NegotiateItems**.  To draw, endorse, and discount with Bank alldrafts, trade acceptances, promissory notes, or other evidences of indebtednesspayable to or belonging to the Corporation or in which the Corporation may havean interest, and either to receive cash for the same or to cause such proceedsto be credited to the account of the Corporation with Bank, or to cause suchother disposition of the proceeds derived therefrom as they may deem advisable.

**Warrants**. To issue Bank warrants to purchase the Corporation’s capital stock.

**Lettersof Credit**.  To execute letter of credit applications andother related documents pertaining to Bank’s issuance of letters of credit.

**ForeignExchange. **To execute foreign exchange agreementsand other related documents pertaining to Bank’s issuance of foreign exchangecontracts.

**FurtherActs**.  In the case of lines of credit, to designateadditional or alternate individuals as being authorized to request advancesthereunder, and in all cases, to do and perform such other acts and things, topay any and all fees and costs, and to execute 

 

40

----

 

and deliver such other documents and agreements asthey may in their discretion deem reasonably necessary or proper in order tocarry into effect the provisions of these Resolutions.

BE IT FURTHER RESOLVED, that any and all actsauthorized pursuant to these resolutions and performed prior to the passage ofthese resolutions are hereby ratified and approved, that these Resolutionsshall remain in full force and effect and Bank may rely on these Resolutionsuntil written notice of their revocation shall have been delivered to andreceived by Bank.  Any such notice shallnot affect any of the Corporation’s agreements or commitments in effect at thetime notice is given.

I FURTHER CERTIFY that the officers, employees, andagents named above are duly elected, appointed, or employed by or for theCorporation, as the case may be, and occupy the positions set forth oppositetheir respective names; that the foregoing Resolutions now stand of record onthe books of the Corporation; and that the Resolutions are in full force andeffect and have not been modified or revoked in any manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand onApril 15, 2002 and attest that the signatures set opposite the names listedabove are their genuine signatures.
|   |   | CERTIFIED AND ATTESTED  BY:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | X                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

 

41

----

 
| **Borrower**:             THOMAS  KINKADE STORES, INC. |
|--------------------------------------------------------------------------------------------------------------------|

 

I, the undersigned Secretary or Assistant Secretary ofTHOMAS KINKADE STORES, INC. (the “Corporation”), HEREBY CERTIFY that theCorporation is organized and existing under and by virtue of the laws of theState of California.

I FURTHER CERTIFY that attached hereto asAttachments 1 and 2 are true and complete copies of the Articles ofIncorporation, as amended, and the Restated Bylaws of the Corporation, each ofwhich is in full force and effect on the date hereof.

I FURTHER CERTIFY that at a meeting of the Directorsof the Corporation, duly called and held, at which a quorum was present andvoting (or by other duly authorized corporate action in lieu of a meeting), thefollowing resolutions were adopted.

BE IT RESOLVED, that any one (1) of the followingnamed officers, employees, or agents of this Corporation, whose actualsignatures are shown below:
| **NAMES**                                                                                                                                                                                                                                                                                                                                                                                                                                              | **POSITION** | **ACTUAL SIGNATURES**                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                           |         |                                                                          |   |                                                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                             |

acting for and on behalf of this Corporation and asits act and deed be, and they hereby are, authorized and empowered:

**BorrowMoney**.  To borrow from time to time from ComericaBank-California (“Bank”), on such terms as may be agreed upon between theofficers, employees, or agents of the Corporation and Bank, such sum or sums ofmoney as in their judgment should be borrowed, without limitation.

**ExecuteLoan Documents**.  To execute and deliver to Bank that certainLoan and Security Agreement dated as of April 15, 2002 (the “Loan Agreement”)and any other agreement entered into between Corporation and Bank in connectionwith the Loan Agreement, including any amendments, all as amended or extendedfrom time to time (collectively, with the Loan Agreement, the “LoanDocuments”), and also to execute and deliver to Bank one or more renewals,extensions, modifications, refinancings, consolidations, or substitutions forthe Loan Documents, or any portion thereof.

**GrantSecurity**.  To grant a security interest to Bank in theCollateral described in the Loan Documents, which security interest shallsecure all of the Corporation’s Obligations, as described in the LoanDocuments.

**NegotiateItems**.  To draw, endorse, and discount with Bank alldrafts, trade acceptances, promissory notes, or other evidences of indebtednesspayable to or belonging to the Corporation or in which the Corporation may havean interest, and either to receive cash for the same or to cause such proceedsto be credited to the account of the Corporation with Bank, or to cause suchother disposition of the proceeds derived therefrom as they may deem advisable.

**Warrants**. To issue Bank warrants to purchase the Corporation’s capital stock.

**Lettersof Credit**.  To execute letter of credit applications andother related documents pertaining to Bank’s issuance of letters of credit.

**ForeignExchange. **To execute foreign exchange agreementsand other related documents pertaining to Bank’s issuance of foreign exchangecontracts.

**FurtherActs**.  In the case of lines of credit, to designateadditional or alternate individuals as being authorized to request advancesthereunder, and in all cases, to do and perform such other acts and things, topay any and all fees and costs, and to execute and deliver such other documentsand agreements as they may in their discretion deem reasonably necessary orproper in order to carry into effect the provisions of these Resolutions.

 

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BE IT FURTHER RESOLVED, that any and all actsauthorized pursuant to these resolutions and performed prior to the passage ofthese resolutions are hereby ratified and approved, that these Resolutionsshall remain in full force and effect and Bank may rely on these Resolutionsuntil written notice of their revocation shall have been delivered to andreceived by Bank.  Any such notice shallnot affect any of the Corporation’s agreements or commitments in effect at thetime notice is given.

I FURTHER CERTIFY that the officers, employees, andagents named above are duly elected, appointed, or employed by or for theCorporation, as the case may be, and occupy the positions set forth oppositetheir respective names; that the foregoing Resolutions now stand of record onthe books of the Corporation; and that the Resolutions are in full force andeffect and have not been modified or revoked in any manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand onApril 15, 2002 and attest that the signatures set opposite the names listedabove are their genuine signatures.
|   |   | CERTIFIED AND ATTESTED  BY:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | X                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

 

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**COMERICA BANK-CALIFORNIA**

**Member FDIC**

**ITEMIZATION OF AMOUNT FINANCED**

**DISBURSEMENT INSTRUCTIONS**

**Revolver**
| Name(s):  MEDIA ARTS GROUP, INC. and BORROWERS                                         Date:  April 15, 2002 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                           |   |
| $15,000,000   *                                                                                                                                                                                                                                                                                                           | credited to deposit  account number  1892270008 when  Advances are requested by Borrower |
|                                                                                                                                                                                                                                                                                                                           |
| Amounts paid to others  on your behalf:                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                           |
| $                                                                                                                                                                                                                                                                                                                              | to Comerica  Bank-California for accounts receivable audit and appraisals (estimate) |
|                                                                                                                                                                                                                                                                                                                           |   |
| $                                                                                                                                                                                                                                                                                                                              | to Bank counsel fees  and expenses |
|                                                                                                                                                                                                                                                                                                                           |   |
| $                                                                                                                                                                                                                                                                                                                              | to _______________ |
|                                                                                                                                                                                                                                                                                                                           |   |
| $                                                                                                                                                                                                                                                                                                                              | to _______________ |
|                                                                                                                                                                                                                                                                                                                           |   |
| $15,000,000    *                                                                                                                                                                                                                                                                                                     | TOTAL (AMOUNT FINANCED) |
|                                                                                                                                                                                                                                                                                                                           |   |
|                                                                                                                                                                                                                                                                                                                           | * The Revolving Line  shall be increased to $20,000,000 during any Target Covenant Compliance  Period subject to the terms of the Agreement |

 

Upon consummation of this transaction, this documentwill also serve as the authorization for Comerica Bank-California to disbursethe loan proceeds as stated above.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                   |   |                                                                                                  |
| Signature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Signature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

 

44

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**AGREEMENTTO PROVIDE INSURANCE**

TO:         COMERICA BANK-CALIFORNIA                                                  Date:  April 15, 2002

attn:  Collateral Operations, M/C 4604

9920 South La CienegaBlvd, 14th Floor

              Inglewood, CA  90301

                                                                                                                                Borrowers:     MEDIA ARTS GROUP, INC. and                                                                                                                                                         BORROWERS

In consideration of a loan in the amount of$15,000,000 (to be increased to $20,000,000 during any Target CovenantCompliance Period), secured by all tangible personal property includinginventory and equipment.

I/We agree to obtain adequate insurance coverage toremain in force during the term of the loan.

I/We also agree to advise the below named agent to addComerica Bank-California as lender’s loss payable on the new or existinginsurance policy, and to furnish Bank at above address with a copy of saidpolicy/endorsements and any subsequent renewal policies.

I/We understand that the policy must contain:

1.             Fireand extended coverage in an amount sufficient to cover:

(a)        The amount of the loan, OR

(b)        All existing encumbrances, whichever isgreater,

But not in excess of the replacement value of theimprovements on the real property.

2.             Lender’s“Loss Payable” Endorsement Form 438 BFU in favor of ComericaBank-California, or any other form acceptable to Bank.

**INSURANCEINFORMATION**

Insurance Co./Agent: AON/Vince Mantione, Representative    TelephoneNo.: (415) 486-7248

Agent’s Address: 199 Fremont Street, 14th Floor, SanFrancisco, CA 94105
| MEDIA ARTS GROUP, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | MEDIA ARTS GROUP, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| By:                                                                                      | By:                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Title:                                                                                                  | Title:                                                                                                  |

 

| FOR BANK USE  ONLY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| INSURANCE  VERIFICATION: Date:                                                                                                                                                                                                                                                                                                                           |
| Person Spoken  to:                                                                                                                                                                       |
| Policy Number:                                                                                                                                             |
| Effective From:                     To:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Verified by:                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

 

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| **COMERICA  BANK-CALIFORNIA**                                                                                                                                                                |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Member FDIC**                                                                                                                                                                              | **AUTOMATIC DEBIT AUTHORIZATION** |
|                                                                                                                                                                                         | **Revolver** |
|                                                                                                                                                                                         |   |
|                                                                                                                                                                                         |   |
| To:  **Comerica  Bank-California**                                                                                                                                                      |
|                                                                                                                                                                                         |
| Re:  **Loan #**  ___________________________________                                                                                                                                    |
|                                                                                                                                                                                         |
| You are hereby authorized and instructed to charge  account No. _________________________ in the name of

MEDIA ARTS GROUP, INC. and BORROWERS                                               |
| for principal and interest payments due on above  referenced loan as set forth below and credit the loan referenced above.                                                                   |
|                                                                                                                                                                                         |
|    X           Debit each interest payment as it  becomes due according to the terms of the note and any renewals or amendments  thereof.  |
|                                                                                                                                                                                         |
|    X           Debit each principal payment as it  becomes due according to the terms of the note and any renewals or amendments  thereof. |
|                                                                                                                                                                                         |
| This Authorization is to remain in full force and  effect until revoked in writing.                                                                                                          |
|                                                                                                                                                                                         |
|                                                                                                                                                                                         |
| Borrower Signature                                                                                                                                                                           | Date |
|                                                                                                                                                                                         | April 15, 2002 |
|                                                                                                                                                                                         |   |
|                                                                                                                                                                                              |  |  |

 

 

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**DEBTOR:****                                       ****               **                **MEDIA ARTSGROUP, INC.**

 

**SECUREDPARTY:                             COMERICABANK-CALIFORNIA**

 

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENTTO UCC-1 FINANCING STATEMENT

All personal property of Borrower (herein referred to as “Borrower” or“Debtor”) whether presently existing or hereafter created or acquired, andwherever located, including, but not limited to:

(a)           all accounts,chattel paper (including tangible and electronic chattel paper), depositaccounts, documents (including negotiable documents), equipment (including allaccessions and additions thereto), general intangibles (including paymentintangibles and software), goods (including fixtures), instruments (includingpromissory notes), inventory (including all goods held for sale or lease or tobe furnished under a contract of service, and including returns andrepossessions), investment property (including securities and securitiesentitlements), letter of credit rights, money, and all of Debtors’ books andrecords with respect to any of the foregoing, and the computers and equipmentcontaining said books and records;

(b)           all common law andstatutory copyrights and copyright registrations, applications forregistration, now existing or hereafter arising, in the United States ofAmerica or in any foreign jurisdiction, obtained or to be obtained on or in connectionwith any of the forgoing, or any parts thereof or any underlying or componentelements of any of the forgoing, together with the right to copyright and allrights to renew or extend such copyrights and the right (but not theobligation) of Secured Party to sue in its own name and/or in the names of theDebtors for past, present and future infringements of copyright;

(c)           all trademarks,service marks, trade names and service names and the goodwill associatedtherewith, together with the right to trademark and all rights to renew orextend such trademarks and the right (but not the obligation) of Secured Partyto sue in its own name and/or in the names of the Debtors for past, present andfuture infringements of trademark;

(d)           all (i) patentsand patent applications filed in the United States Patent and Trademark Officeor any similar office of any foreign jurisdiction, and interests under patentlicense agreements, including, without limitation, the inventions andimprovements described and claimed therein, (ii) licenses pertaining toany patent whether the applicable Debtor is licensor or  licensee, (iii) income, royalties,damages, payments, accounts and accounts receivable now or hereafter due and/orpayable under and with respect thereto, including, without limitation, damagesand payments for past, present or future infringements thereof, (iv) right(but not the obligation) to sue in the names of Debtors and/or in the name ofSecured Party for past, present and future infringements thereof, (v) rightscorresponding thereto throughout the world in all jurisdictions in which suchpatents have been issued or applied for, and (vi) reissues, divisions,continuations, renewals, extensions and continuations-in-part with respect toany of the foregoing; and

(e)           any and all cashproceeds and/or noncash proceeds of any of the foregoing, including, withoutlimitation, insurance proceeds, and all supporting obligations and the securitytherefor or for any right to payment. All terms above have the meanings given to them in the CaliforniaUniform Commercial Code, as amended or supplemented from time to time,including revised Division 9 of the Uniform Commercial Code-SecuredTransactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July1, 2001.

Notwithstanding the foregoing, the Collateral shall not include (i)deferred compensation owing to employees of Borrower pursuant to that certainMedia Arts Group Management Deferred Compensation Plan held in account number33-0042-33 with First American Trust, or (ii) any accounts receivable,inventory or intellectual property relating to the artist Simon Bull, theartist Howard Behrens, and the artist Robert Lyn Nelson.

 

47

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**DEBTOR:****                                       ****                                THOMASKINKADE STORES, INC.**

 

**SECUREDPARTY:                             COMERICABANK-CALIFORNIA**

 

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENTTO UCC-1 FINANCING STATEMENT

All personal property of Borrower (herein referred to as “Borrower” or“Debtor”) whether presently existing or hereafter created or acquired, andwherever located, including, but not limited to:

(a)           all accounts,chattel paper (including tangible and electronic chattel paper), depositaccounts, documents (including negotiable documents), equipment (including allaccessions and additions thereto), general intangibles (including paymentintangibles and software), goods (including fixtures), instruments (includingpromissory notes), inventory (including all goods held for sale or lease or tobe furnished under a contract of service, and including returns andrepossessions), investment property (including securities and securitiesentitlements), letter of credit rights, money, and all of Debtors’ books andrecords with respect to any of the foregoing, and the computers and equipmentcontaining said books and records;

(b)           all common law andstatutory copyrights and copyright registrations, applications forregistration, now existing or hereafter arising, in the United States ofAmerica or in any foreign jurisdiction, obtained or to be obtained on or inconnection with any of the forgoing, or any parts thereof or any underlying orcomponent elements of any of the forgoing, together with the right to copyrightand all rights to renew or extend such copyrights and the right (but not theobligation) of Secured Party to sue in its own name and/or in the names of theDebtors for past, present and future infringements of copyright;

(c)           all trademarks,service marks, trade names and service names and the goodwill associatedtherewith, together with the right to trademark and all rights to renew orextend such trademarks and the right (but not the obligation) of Secured Partyto sue in its own name and/or in the names of the Debtors for past, present andfuture infringements of trademark;

(d)           all (i) patentsand patent applications filed in the United States Patent and Trademark Officeor any similar office of any foreign jurisdiction, and interests under patentlicense agreements, including, without limitation, the inventions andimprovements described and claimed therein, (ii) licenses pertaining toany patent whether the applicable Debtor is licensor or  licensee, (iii) income, royalties,damages, payments, accounts and accounts receivable now or hereafter due and/orpayable under and with respect thereto, including, without limitation, damagesand payments for past, present or future infringements thereof, (iv) right(but not the obligation) to sue in the names of Debtors and/or in the name ofSecured Party for past, present and future infringements thereof,(v) rights corresponding thereto throughout the world in all jurisdictionsin which such patents have been issued or applied for, and (vi) reissues,divisions, continuations, renewals, extensions and continuations-in-part withrespect to any of the foregoing; and

(e)           any and all cashproceeds and/or noncash proceeds of any of the foregoing, including, withoutlimitation, insurance proceeds, and all supporting obligations and the securitytherefor or for any right to payment. All terms above have the meanings given to them in the CaliforniaUniform Commercial Code, as amended or supplemented from time to time,including revised Division 9 of the Uniform Commercial Code-SecuredTransactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July1, 2001.

Notwithstanding the foregoing, the Collateral shall not include (i)deferred compensation owing to employees of Borrower pursuant to that certainMedia Arts Group Management Deferred Compensation Plan held in account number33-0042-33 with First American Trust, or (ii) any accounts receivable,inventory or intellectual property relating to the artist Simon Bull, theartist Howard Behrens, and the artist Robert Lyn Nelson.

 

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