1









Exhibit

10.53




 




 




 




 




	

  MEDIA ARTS GROUP, INC.


  THOMAS KINKADE STORES, INC.


  LOAN AND SECURITY AGREEMENT


  





 




 




 













 




This LOAN AND SECURITY AGREEMENT is entered into as of

April 15, 2002, by and among COMERICA BANK-CALIFORNIA (“Bank”) and MEDIA ARTS

GROUP, INC., and THOMAS KINKADE STORES, INC. (individually, a “Borrower” and

collectively, the “Borrowers”).




RECITALS




Borrowers desire to obtain credit from time to time

from Bank, and Bank desires to provide credit to Borrowers.  This Agreement sets forth the terms on which

Bank will advance credit to Borrowers, and Borrowers will repay the amounts

owing to Bank.




AGREEMENT




The parties agree as follows:




1.             DEFINITIONS

AND CONSTRUCTION.




1.1           Definitions.  As used in this Agreement, the following

terms 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 arising

out of the sale or lease of goods (including, without limitation, the licensing

of 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 by

a Borrower, whether or not earned by performance, and any and all credit

insurance, guaranties, and other security therefor, as well as all merchandise

returned to or reclaimed by Borrower and Borrower’s Books relating to any of

the foregoing.  Notwithstanding the

foregoing, Accounts shall not include any presently existing and hereafter

arising accounts relating to any of the Excluded Artists.




“Advance” or “Advances” means a cash advance or cash advances under the

Revolving Facility.




“Affiliate” means, with respect to any Person, any Person that owns or

controls directly or indirectly such Person, any Person that controls or is

controlled by or is under common control with such Person, and each of such

Person’s senior executive officers, directors, and partners.




“Bank Expenses” means all reasonable costs or expenses (including

reasonable attorneys’ fees and expenses) incurred in connection with the

preparation, negotiation, administration, and enforcement of the Loan Documents;

reasonable Collateral audit fees; costs of appraisals; and Bank’s reasonable

attorneys’ fees and expenses incurred in amending, enforcing or defending the

Loan Documents (including fees and expenses of appeal), incurred before, during

and after an Insolvency Proceeding, whether or not suit is brought.




“Borrower’s Books” means all of a Borrower’s books and records

including:  ledgers; records concerning

Borrower’s assets or liabilities, the Collateral, business operations or

financial condition; and all computer programs, or tape files, and the

equipment, 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 Compliance

Period and seventy-five percent (75%) of Eligible Accounts during any Target

Covenant Compliance Period, in each case as determined by Bank with reference

to the most recent Borrowing Base Certificate delivered by Borrowers, plus




(b)           the aggregate amount

of cash pledged to Bank by Borrowers on terms acceptable to Bank (i)

specifically to support Advances on the Revolving Line in the event the

aggregate Credit




 




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Extensions exceed the

Borrowing Base and (ii) to support Borrowers’ obligations in respect of Letters

of Credit; plus




(c)           the aggregate amount

of the advance rate permitted by Bank and Comerica Securities, Inc. on funds

invested by Borrowers with Comerica Securities, Inc. (which advance rates shall

be determined by Bank in Bank’s sole discretion based on Bank policy and the

risk class of investments maintained by Borrowers with Comerica Securities,

Inc.); plus




(d)           during any Target

Covenant Compliance Period, and provided that Borrowers have achieved a pretax

profit of at least Three Million Five Hundred Thousand Dollars ($3,500,000) for

the quarter ending December 31, 2002, determined in accordance with GAAP, the

Borrowing Base shall include either:




(i)            raw

materials and finished goods inventory set forth in of subparts a), b), c) and

d) of part (d)(i) of this defined term “Borrowing Base” in an amount not to

exceed Five Million Dollars ($5,000,000) for the period between April 1 and

October 1 of each calendar year and in an amount not to exceed Three Million

Dollars ($3,000,000) for the period between October 2 and March 31 of each

calendar year;




a)             50%

of paper prints; plus




b)            30%

of canvasses; plus




c)             20%

of finished frames; plus




d)            10%

of giftware; or




(ii)           a

weighted average blended rate (the “Blended Rate”) of the items set forth in

subparts 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 the

Collateral and inventory rate in the Collateral and inventory report obtained

by Bank, provided that in any case additions to the Borrowing Base permitted

pursuant to the terms of this part (d) shall be net of applicable inventory

reserves.  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 due

and owing to Thomas Kinkade or any Affiliates of Thomas Kinkade by Borrowers

under the License Agreement or otherwise; and minus




                                (f)            in each case, inventory and/or

Accounts 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 the

Excluded Artists.




“Business Day” means any day that is not a Saturday, Sunday, or other

day on which banks in the State of California are authorized or required to

close.




“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 Securities

Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3

under the Securities Exchange Act of 1934), directly or indirectly, of a

sufficient number of shares of all classes of stock then outstanding of

Borrower ordinarily entitled to vote in the election of directors, empowering

such “person” or “group” to elect a majority of the Board of Directors of

Borrower, 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 A

attached hereto.




 




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“Contingent Obligation” means, as applied to any Person, any direct or

indirect liability, contingent or otherwise, of that Person with respect to

(i) any indebtedness, lease, dividend, letter of credit or other

obligation of another, including, without limitation, any such obligation

directly or indirectly guaranteed, endorsed, co-made or discounted or sold with

recourse by that Person, or in respect of which that Person is otherwise

directly or indirectly liable; (ii) any obligations with respect to

undrawn letters of credit, corporate credit cards, or merchant services issued

or provided for the account of that Person; and (iii) all obligations

arising under any interest rate, currency or commodity swap agreement, interest

rate cap agreement, interest rate collar agreement, or other agreement or

arrangement designed to protect such Person against fluctuation in interest

rates, currency exchange rates or commodity prices; provided, however, that the

term “Contingent Obligation” shall not include endorsements for collection or

deposit in the ordinary course of business. 

The amount of any Contingent Obligation shall be deemed to be an amount

equal to the stated or determined amount of the primary obligation in respect

of which such Contingent Obligation is made or, if not stated or determinable,

the maximum reasonably anticipated liability in respect thereof as determined

by such Person in good faith; provided, however, that such amount shall not in

any event exceed the maximum amount of the obligations under the guarantee or other

support arrangement.




“Copyrights” means any and all copyright rights, copyright

applications, copyright registrations and like protections in each work or

authorship and derivative work thereof, whether published or unpublished and

whether or not the same also constitutes a trade secret, now or hereafter

existing, created, acquired or held.




“Credit” means (a) all indebtedness for borrowed money, including

without limitation reimbursement and other obligations with respect to surety

bonds and letters of credit, (b) all obligations evidenced by notes,

bonds, debentures or similar instruments, (c) all capital lease

obligations and (d) the real property lease obligations owing by a

Borrower to its landlord for the Borrower’s headquarters facility.




“Credit Extension” means each Advance, Letter of Credit, FX Forward

Contract or any other extension of credit by Bank for the benefit of a Borrower

hereunder.




“Current Liabilities” means, as of any applicable date, all amounts

that should, in accordance with GAAP, be included as current liabilities on the

consolidated balance sheet of a Borrower and its Subsidiaries, as at such date,

plus, to the extent not already included therein, all outstanding Advances plus

the aggregate face amount of any drawn but unreimbursed Letters of Credit made

or issued, as applicable, under this Agreement, including all Indebtedness that

is payable upon demand or within one year from the date of determination

thereof unless such Indebtedness is renewable or extendible at the option of a

Borrower or any Subsidiary to a date more than one year from the date of

determination and including, to the extent not already included therein,

Indebtedness owed by Borrowers to Borrowers’ Affiliates that is not

Subordinated Debt.




“Daily Balance” means the amount of the Obligations owed at the end of

a given day.




“Eligible Accounts” means those Accounts that arise in the ordinary

course of a Borrower’s business that comply with all of the representations and

warranties to Bank set forth in Section 0.  Unless otherwise agreed to by Bank, Eligible Accounts shall not

include the following:




(a)           Accounts that the

account debtor has failed to pay within sixty (60) days of the due date;




(b)           Accounts

that the account debtor has failed to pay within one hundred-twenty (120) days

of invoice date;




(c)           Accounts

with respect to an account debtor, twenty-five percent (25%) of whose Accounts

the account debtor has failed to pay within sixty (60) days of the due date;




(d)           Accounts

with respect to which the account debtor is an officer, employee, or agent of

Borrower;




 




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(e)           Accounts

with respect to which goods are placed on consignment, guaranteed sale, sale or

return, sale on approval, bill and hold, or other terms by reason of which the

payment by the account debtor may be conditional;




(f)            Accounts

with respect to which the account debtor is an Affiliate of Borrower;




(g)           Accounts

with respect to which the account debtor does not have its principal place of

business in the United States;




(h)           Accounts

with respect to which the account debtor is the United States or any

department, agency, or instrumentality of the United States;




(i)            Accounts

with respect to which Borrower is liable to the account debtor for goods sold

or services rendered by the account debtor to Borrower, but only to the extent

of any amounts owing to the account debtor against amounts owed to Borrower;




(j)            Accounts

with respect to an account debtor, including Subsidiaries and Affiliates, whose

total obligations to one or more Borrowers exceed twenty-five percent (25%) of

all Accounts, to the extent such obligations exceed the aforementioned

percentage, except as approved in writing by Bank;




(k)           Accounts

with respect to which the account debtor disputes liability or makes any claim

with respect thereto as to which Bank believes, in its sole discretion, that

there may be a basis for dispute (but only to the extent of the amount subject

to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes

insolvent, or goes out of business; and




(l)            Accounts

the collection of which Bank reasonably determines to be doubtful.




(m)          Accounts

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 the

Excluded Artists




“Equipment” means all present and future machinery, equipment, tenant

improvements, furniture, fixtures, vehicles, tools, parts and attachments in

which Borrower has any interest.




“ERISA” means the Employee Retirement Income Security Act of 1974, as

amended, and the regulations thereunder.




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




“Excluded Artists” means the artist Simon Bull, the artist Howard

Behrens, 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 from

time to time.




“Indebtedness” means (a) all indebtedness for borrowed money or

the deferred purchase price of property or services, including without

limitation reimbursement and other obligations with respect to surety bonds and

letters 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 against

any 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 benefit

of creditors, formal or informal moratoria, compositions, extension generally

with its creditors, or proceedings seeking reorganization, arrangement, or

other relief.




“Intellectual Property Collateral” means all of Borrower’s right,

title, and interest in and to the following:




(a)           Copyrights,

Trademarks and Patents;




(b)           Any

and all trade secrets, and any and all intellectual property rights in computer

software and computer software products now or hereafter existing, created,

acquired or held;




(c)           Any

and all design rights which may be available to Borrower now or hereafter

existing, created, acquired or held;




(d)           Any

and all claims for damages by way of past, present and future infringement of

any of the rights included above, with the right, but not the obligation, to

sue for and collect such damages for said use or infringement of the

intellectual property rights identified above;




(e)           All

licenses or other rights to use any of the Copyrights, Patents or Trademarks,

and all license fees and royalties arising from such use to the extent

permitted by such license or rights;




(f)            All

amendments, renewals and extensions of any of the Copyrights, Trademarks or

Patents; and




(g)           All

proceeds and products of the foregoing, including without limitation all

payments under insurance or any indemnity or warranty payable in respect of any

of the foregoing.




Notwithstanding the foregoing, Intellectual Property

Collateral shall not include any intellectual property relating to any of the

Excluded Artists.




“Inventory” means all present and future inventory in which Borrower

has any interest, including merchandise, raw materials, parts, supplies,

packing and shipping materials, work in process and finished products intended

for sale or lease or to be furnished under a contract of service, of every kind

and description now or at any time hereafter owned by or in the custody or

possession, actual or constructive, of Borrower, including such inventory as is

temporarily out of its custody or possession or in transit and including any

returns upon any accounts or other proceeds, including insurance proceeds,

resulting from the sale or disposition of any of the foregoing and any

documents of title representing any of the above, and Borrower’s Books relating

to any of the foregoing.  Notwithstanding

the foregoing, Inventory shall not include any presently existing and hereafter

arising 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, advance

or capital contribution to any Person.




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

regulations thereunder.




“License Agreement” means that certain licensing agreement by and

between 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 of

rights under the Licensing Agreement, any note or notes executed by Borrower,

and any other agreement entered into between Borrower and Bank in connection

with 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 or

otherwise) of a Borrower and its Subsidiaries taken as a whole or (ii) the

ability of a Borrower to repay the Obligations or otherwise perform its

obligations under the Loan Documents or (iii) the value or priority of

Bank’s security interests in the Collateral, in each case as determined by Bank

in the reasonable exercise of its credit judgment.




“Negotiable Collateral” means all of Borrower’s present and future

letters of credit of which it is a beneficiary, notes, drafts, instruments,

securities, documents of title, and chattel paper, and Borrower’s Books

relating to any of the foregoing.




“Obligations” means all debt, principal, interest, Bank Expenses and

other amounts owed to Bank by a Borrower pursuant to this Agreement or any

other agreement, whether absolute or contingent, due or to become due, now

existing or hereafter arising, including any interest that accrues after the

commencement of an Insolvency Proceeding and including any debt, liability, or

obligation owing from Borrower to others that Bank may have obtained by

assignment or otherwise.




“Patents” means all patents, patent applications and like protections

including without limitation improvements, divisions, continuations, renewals,

reissues, extensions and continuations-in-part of the same.




“Periodic Payments” means all installments or similar recurring

payments that Borrower may now or hereafter become obligated to pay to Bank

pursuant to the terms and provisions of any instrument, or agreement now or

hereafter in existence between Borrower and Bank.




“Permitted Indebtedness” means:




(a)           Indebtedness

of Borrower in favor of Bank arising under this Agreement or any other Loan

Document;




(b)           Indebtedness

existing on the Closing Date and disclosed in the Schedule;




(c)           Indebtedness

secured by a lien described in clause 0 of the defined term “Permitted

Liens,” provided (i) such Indebtedness does not exceed the lesser of the

cost or fair market value of the equipment financed with such Indebtedness and

(ii) such Indebtedness does not exceed $2,900,000 in the aggregate during

the term of this Agreement;




(d)           Subordinated

Debt; and




(e)           Indebtedness

to trade creditors incurred in the ordinary course of Borrowers’ businesses.




“Permitted Investment” means:




(a)           Investments

existing on the Closing Date disclosed in the Schedule;




(b)           (i) marketable

direct obligations issued or unconditionally guaranteed by the United States of

America or any agency or any State thereof maturing within one (1) year from

the date of acquisition thereof, (ii) commercial paper maturing no more

than one (1) year from the date of creation thereof and currently having rating

of at least A-2 or P-2 from either Standard & Poor’s Corporation

or Moody’s Investors Service, (iii) certificates of deposit maturing no

more 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)           other

Investments approved by Bank which approval shall not be unreasonably withheld

and subject to the terms of this Agreement.




“Permitted Liens” means

the following:




(a)           Any

Liens existing on the Closing Date and disclosed in the Schedule or arising

under this Agreement or the other Loan Documents;




(b)           Liens

for taxes, fees, assessments or other governmental charges or levies, either

not 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 or

held by Borrower or any of its Subsidiaries to secure the purchase price of

such equipment or indebtedness incurred solely for the purpose of financing the

acquisition of such equipment, or (ii) existing on such equipment at the

time of its acquisition, provided that the Lien is confined solely to the

property so acquired and improvements thereon, and the proceeds of such

equipment;




(d)           Liens

incurred in connection with the extension, renewal or refinancing of the

indebtedness secured by Liens of the type described in clauses (a) through (c)

above, provided that any extension, renewal or replacement Lien shall be

limited to the property encumbered by the existing Lien and the principal

amount of the indebtedness being extended, renewed or refinanced does not

increase.




“Person” means any individual, sole proprietorship, partnership,

limited liability company, joint venture, trust, unincorporated organization,

association, corporation, institution, public benefit corporation, firm, joint

stock company, estate, entity or governmental agency.




“Prime Rate” means the variable rate of interest, per annum, most

recently announced by Bank, as its “prime rate,” whether or not such announced

rate is the lowest rate available from Bank.




“Quick Assets” means, at any date as of which the amount thereof shall

be determined, the unrestricted cash and cash-equivalents, net accounts receivable,

unrestricted marketable securities, and Federal income tax refunds payable to

Borrowers within one (1) year of the date of this Agreement, of Borrowers

determined in accordance with GAAP.




“Responsible Officer” means each of the Chief Executive Officer and the

Chief Financial Officer of each Borrower.




“Revolving Facility” means the facility under which Borrowers may

request Bank to issue Advances, as specified in Section 2.1 hereof.




“Revolving Line” means a credit extension of up to Fifteen Million

Dollars ($15,000,000), provided that “Revolving Line” shall mean a credit

extension of up to Twenty Million Dollars ($20,000,000) during any Target

Covenant Compliance Period.




“Revolving Maturity Date” means the day 360 days following the Closing

Date.




“Schedule” means the schedule of exceptions attached hereto and

approved by Bank, if any.




“Subordinated Debt” means any debt incurred by Borrower that is

subordinated 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 the

stock 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 determination

is 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 thereof

shall be determined, the sum of the capital stock and additional paid-in

capital plus retained earnings (or minus accumulated deficit) of Borrower and

its Subsidiaries minus intangible assets and minus amounts due to Borrowers

from Borrowers’ Affiliates, plus Subordinated Debt, on a consolidated basis

determined in accordance with GAAP.




“Target Covenants” means Borrowers’ compliance, on a

consolidated basis, with the following financial covenants and Slow Payment

Account Reduction requirements:




 




(a)           Minimum Quarterly

Profitability.  Borrowers’ Net

Operating 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 Thousand

Dollars ($1,200,000) for the fiscal quarters ending on June 30, September 30

and December 31 in each year.  In

addition to the foregoing, Borrowers shall show a Net Income of at least One

Dollar ($1.00) for the fiscal quarters ending on June 30, September 30 and

December 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 in

accordance with GAAP.




(b)           Quick Ratio.  Borrowers shall maintain, as of the last day

of each fiscal quarter, a ratio of Quick Assets to Current Liabilities plus,

to the extent not already included therein, all Indebtedness (including without

limitation any Contingent Obligations) owing from Borrowers to Bank,

less deferred revenue, of at least 2.00 to 1.00.




(c)           Adjusted Tangible

Net Worth.  Borrowers shall

maintain, as of the last day of each fiscal quarter, a Tangible Net Worth of

more than Fifty Eight Million Dollars ($58,000,000) (the “Minimum Tangible Net

Worth”).  The Minimum Tangible Net Worth

of Borrowers shall be increased by an amount equal to fifty percent (50%) of

Borrowers’ net income (but shall not be reduced by the amount of any net losses

incurred after March 31, 2002) in each fiscal quarter beginning with the fiscal

quarter ended on March 31, 2002, and thereafter.




(d)           Total

Liabilities-Tangible Net Worth. 

Borrower shall maintain, as of the last day of each fiscal quarter, a ratio

of Total Liabilities to Tangible Net Worth of not more than 0.50 to 1.00.




(e)           Slow Payment

Account Reductions.  Borrowers’

Accounts with respect to an account debtor, twenty-five percent (25%) of whose

Accounts the account debtor has failed to pay within sixty (60) days of the due

date, and Accounts relating to notes receivable resulting from receivable

repayment plans, shall constitute less than twenty percent (20%) of Borrowers’

total accounts receivable (including notes receivable resulting from receivable

repayment plans, if any).




“Target Covenant Compliance Period” means each month following

Borrowers’ compliance with the Target Covenants for a period of not less than

two (2) consecutive fiscal quarters (the “Initial Target Covenant Compliance

Period”) provided that Borrowers’ failure to maintain such compliance with the

Target Covenants in any month following the Initial Covenant Compliance Period

shall mean that the Target Covenant Compliance Period shall immediately end,

and Borrower must comply with the Target Covenants for an additional period of

not less than two (2) consecutive fiscal quarters following any calendar month

for which Borrowers fail to meet the Target Covenants to be reinstated into a

Target Covenant Compliance Period.




“Third Party License Agreements” means the license agreements by and

between or among any Borrower and third parties, under which a Borrower is a

licensor, as listed on Annex I attached hereto.   Notwithstanding the foregoing, Third Party

License Agreements shall not include any presently existing license agreements,

under which a Borrower is a licensor, with respect to any of the Excluded

Artists.




 




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“Total Liabilities” means at any date as of which the amount thereof

shall be determined, all obligations that should, in accordance with GAAP be

classified 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, whether

registered or not, applications to register and registrations of the same and

like protections, and the entire goodwill of the business of Borrower connected

with and symbolized by such trademarks.




1.2           Accounting

Terms.  All accounting terms not

specifically defined herein shall be construed in accordance with GAAP and all

calculations made hereunder shall be made in accordance with GAAP.  When used herein, the terms “financial

statements” shall include the notes and schedules thereto.




2.             LOAN

AND TERMS OF PAYMENT.




2.1           Credit

Extensions.




Borrowers jointly and severally promise to pay to the order of Bank, in

lawful money of the United States of America, the aggregate unpaid principal

amount of all Credit Extensions made by Bank to Borrowers hereunder.  Borrowers shall also pay interest on the

unpaid principal amount of such Credit Extensions at rates in accordance with

the terms hereof.




(a)           Revolving

Advances.




(i)            Subject

to and upon the terms and conditions of this Agreement, Borrower may request

Advances in an aggregate outstanding amount not to exceed the lesser of

(i) the Revolving Line or (ii) the Borrowing Base, minus, in

each case, the aggregate face amount of all outstanding Letters of Credit, the

FX Reserve.  Subject to the terms and

conditions of this Agreement, amounts borrowed pursuant to this

Section 2.1 may be repaid and reborrowed at any time prior to the

Revolving Maturity Date, at which time all Advances under this Section 2.1

shall be immediately due and payable. 

Borrower may prepay any Advances without penalty or premium.




(ii)           Whenever

Borrower desires an Advance, Borrower will notify Bank by facsimile

transmission or telephone no later than 3:00 p.m. Pacific time, on the

Business Day that the Advance is to be made. 

Each such notification shall be promptly confirmed by a Payment/Advance

Form in substantially the form of Exhibit B hereto.  Bank is authorized to make Advances under

this Agreement, based upon instructions received from a Responsible Officer or

a designee of a Responsible Officer, or without instructions if in Bank’s

discretion such Advances are necessary to meet Obligations which have become

due and remain unpaid.  Bank shall be

entitled to rely on any telephonic notice given by a person who Bank reasonably

believes to be a Responsible Officer or a designee thereof, and Borrowers shall

indemnify and hold Bank harmless for any damages or loss suffered by Bank as a

result of such reliance.  Bank will

credit the amount of Advances made under this Section 00 to Borrower’s

deposit account.




(b)           Letters

of Credit.




(i)            Subject

to the terms and conditions of this Agreement, Bank agrees to issue or cause to

be issued letters of credit for the account of Borrowers (each, a “Letter of

Credit” and collectively, the “Letters of Credit”) in an aggregate outstanding

face amount not to exceed the lesser of the Revolving Line or the Borrowing

Base minus, in each case, the aggregate amount of the outstanding

Advances and the FX Reserve at any time, provided that the aggregate face

amount of all outstanding Letters of Credit shall not exceed Ten Million

Dollars ($10,000,000).  All Letters of

Credit shall be, in form and substance, acceptable to Bank in its sole

discretion and shall be subject to the terms and conditions of Bank’s form of

standard application and letter of credit agreement (the “Application”), which

Borrower agrees to execute, including Bank’s standard fee equal to the greater

of (i) 1.50% per annum of the face amount of each Letter of Credit, which shall

be prorated for any Letter of Credit issued for a partial year on the date of

issuance, and (ii) Six Hundred Dollars ($600) for each Letter of Credit

provided that commercial Letters of Credit shall include any additional

standard Bank fees applicable to commercial Letters of 




 




9





























 




Credit.  On any drawn but unreimbursed Letter of

Credit, the unreimbursed amount shall be deemed an Advance under Section

2.1(a).  Each standby Letter of Credit

will have an expiration date not later than twelve (12) months from the date of

issuance, and each commercial Letter of Credit will have an expiration date not

later 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 of

Credit on terms acceptable to Bank.




(ii)           The

obligation of Borrowers to reimburse Bank for drawings made under Letters of

Credit shall be absolute, unconditional and irrevocable, and shall be performed

strictly in accordance with the terms of this Agreement, the Application, and

such 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 connection

with any Letters of Credit, except for expenses caused by Bank’s gross

negligence or willful misconduct.




(c)           Foreign

Exchange Sublimit.  Provided that

there is availability under the Revolving Line, the Borrowing Base, and the Two

Hundred Thousand Dollar ($200,000) sublimit under the Revolving Facility (the

“Foreign Exchange Sublimit”), Borrowers may enter into foreign exchange forward

contracts with the Bank not to exceed an aggregate amount of Two Hundred

Thousand Dollars ($200,000) under which Borrower commits to purchase from or

sell to Bank a set amount of foreign currency more than one business day after

the contract date (each, an “FX Forward Contract”).  Availability under the Revolving Line, the Borrowing Base, and

the Foreign Exchange Sublimit for the Revolving Facility shall be reduced by

the Bank’s exposure in connection with all outstanding FX Forward Contracts

(collectively, the “FX Reserve”).  Bank

may terminate and/or demand cash security for the FX Forward Contracts if an

Event of Default occurs or upon or after the Revolving Maturity Date.  The terms and conditions (including

repayment and fees) of such FX Forward Contracts shall be subject to the terms

and conditions of the Bank’s standard forms of application and agreement for FX

Forward Contracts, which Borrower agrees to execute as a condition precedent to

Bank’s entry into any FX Forward Contract. 

Notwithstanding any of the foregoing, in no event shall the aggregate

amount of all FX Forward Contracts entered into by Bank be such that the FX

Reserve exceeds an amount approved by Bank in Bank’s sole discretion.




2.2           Overadvances.  If the aggregate amount of the outstanding

Advances plus the aggregate face amount of all outstanding Letters of

Credit and the FX Reserve exceeds the lesser of the Revolving Line or the

Borrowing 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 excess

in cash on terms acceptable to Bank in Bank’s sole discretion.  The foregoing provisions of this Section 2.2

shall not constitute a consent to overadvances or overdrafts by Borrowers under

this Agreement or any other agreement by and between or among Borrowers and

Bank, and overadvances and overdrafts are not permitted under the terms of this

Agreement.




2.3           Interest

Rates.




(a)           Advances.  Except as set forth in Section 2.3(b), the

Advances shall bear interest, on the outstanding Daily Balance thereof, at a

per annum rate equal to one quarter of one percent (0.25%) above the Prime

Rate.




(b)           Late

Fee; Default Rate.  If any payment

is not made within ten (10) days after the date such payment is due, Borrower

shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of

the amount of such unpaid amount or (ii) the maximum amount permitted to

be charged under applicable law.  All

Obligations shall bear interest, from and after the occurrence and during the

continuance of an Event of Default, at a per annum rate equal to five (5)

percentage points above the interest rate applicable immediately prior to the

occurrence of the Event of Default.




(c)           Payments.  Interest hereunder shall be due and payable

on the first calendar day of each month during the term hereof.  Bank shall, at its option, charge such

interest, all Bank Expenses, and all Periodic Payments against any of

Borrower’s deposit accounts or against the Revolving Line, in which case those

amounts shall thereafter accrue interest at the rate then applicable

hereunder.  Any interest not paid when

due shall be compounded by becoming a part of the Obligations, and such

interest shall thereafter accrue interest at the rate then applicable

hereunder.  All payments shall be free

and clear of any taxes, withholdings, duties, impositions or 




 




10





























 




other

charges, to the end that Bank will receive the entire amount of any Obligations

payable hereunder, regardless of source of payment.




(d)           Computation.

 In the event the Prime Rate is changed

from time to time hereafter, the applicable rate of interest hereunder shall be

increased or decreased, effective as of the day the Prime Rate is changed, by

an amount equal to such change in the Prime Rate.  All interest chargeable under the Loan Documents shall be

computed on the basis of a three hundred sixty (360) day year for the actual

number of days elapsed.




2.4           Crediting

Payments.  Prior to the occurrence

of an Event of Default, Bank shall credit a wire transfer of funds, check or

other item of payment to such deposit account or Obligation as Borrower

specifies.  After the occurrence of an

Event of Default, the receipt by Bank of any wire transfer of funds, check, or

other item of payment shall be immediately applied to conditionally reduce

Obligations, but shall not be considered a payment on account unless such

payment is of immediately available federal funds or unless and until such

check or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrary

contained herein, any wire transfer or payment received by Bank after

12:00 noon Pacific time shall be deemed to have been received by Bank as

of the opening of business on the immediately following Business Day.  Whenever any payment to Bank under the Loan

Documents would otherwise be due (except by reason of acceleration) on a date

that is not a Business Day, such payment shall instead be due on the next

Business Day, and additional fees or interest, as the case may be, shall accrue

and be payable for the period of such extension.




2.5           Fees.  Borrower shall pay to Bank the following:




(a)           Unused

Facility Fee.  On account of the

Revolving Facility, Borrowers shall pay to Bank a fee equal to one quarter of

one percent (0.25%) per annum  of the

difference between the Revolving Line and the average daily balance of

outstanding Revolving Advances (including the aggregate face amount of

outstanding Letters of Credit) which fee shall be payable monthly, within

fifteen (15) days of the last day of each month provided that during any Target

Covenant Compliance Period Borrowers shall pay to Bank a fee equal to one

eighth of one percent (0.125%) per annum of the difference between the

Revolving Line and the average daily balance of outstanding Revolving Advances

(including the aggregate face amount of outstanding Letters of Credit) which

fee shall be payable monthly, within fifteen (15) days of the last day of each

month; and




(b)           Bank

Expenses.  On the Closing Date, all

Bank Expenses incurred through the Closing Date, including reasonable

attorneys’ 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           Additional

Costs.  In case any law, regulation,

treaty or official directive or the interpretation or application thereof by

any court or any governmental authority charged with the administration thereof

or the compliance with any guideline or request of any central bank or other

governmental authority (whether or not having the force of law):




(a)           subjects

Bank to any tax with respect to payments of principal or interest or any other

amounts payable hereunder by Borrower or otherwise with respect to the

transactions contemplated hereby (except for taxes on the overall net income of

Bank imposed by the United States of America or any political subdivision

thereof);




(b)           imposes,

modifies or deems applicable any deposit insurance, reserve, special deposit or

similar requirement against assets held by, or deposits in or for the account

of, or loans by, Bank; or




(c)           imposes

upon Bank any other condition with respect to its performance under this

Agreement,




and the result of any of the foregoing is to increase

the cost to Bank, reduce the income receivable by Bank or impose any expense

upon Bank with respect to the Obligations, Bank shall notify Borrower

thereof.  Borrower agrees to pay to Bank

the amount of such increase in cost, reduction in income or additional expense

as and when 




 




11





























 




such cost, reduction or expense is incurred or

determined, upon presentation by Bank of a statement of the amount and setting

forth Bank’s calculation thereof, all in reasonable detail, which statement

shall be deemed true and correct absent manifest error.




2.7           Term.  This Agreement shall become effective on the

Closing Date and, subject to Section 0, shall continue in full force and

effect for so long as any Obligations remain outstanding or Bank has any

obligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank shall

have the right to terminate its obligation to make Credit Extensions under this

Agreement immediately and without notice upon the occurrence and during the

continuance of an Event of Default. 

Notwithstanding termination, Bank’s Lien on the Collateral shall remain

in effect for so long as any Obligations are outstanding.




3.             CONDITIONS

OF LOANS.




3.1           Conditions

Precedent to Initial Credit Extension. 

The obligation of Bank to make the initial Credit Extension is subject

to the condition precedent that Bank shall have received, in form and substance

satisfactory to Bank, the following:




(a)           this

Agreement;




(b)           a

certificate of the Secretary of each Borrower with respect to incumbency and

resolutions authorizing the execution and delivery of this Agreement;




(c)           a

financing statement (Form UCC-1) with respect to each Borrower;




(d)           an

intellectual property security agreement with respect to each Borrower;




(e)           a

payoff letter from Bank of America confirming the termination and payment in

full of all of Borrowers’ and Lightpost Publishing, Inc.’s obligations to Bank

of America, and including a release of Bank of America’s security interest in

Borrowers’ and Lightpost Publishing, Inc.’s assets and authorization to

terminate any liens including but not limited to financing statements filed by

Bank of America on Borrowers’ and Lightpost Publishing, Inc.’s assets;




(f)            a

control agreement for Comerica Securities, Inc. for Media Arts Group, Inc.;




(g)           an

agreement consenting to Bank’s security interest and rights under the License

Agreement (which agreement shall be recorded by Bank at the United States

Copyright Office) and any other licensing agreement(s) and material contracts,

between or among the Borrowers and Thomas Kinkade, executed by Thomas Kinkade

for the benefit of Bank;




(h)           a

consent to the grant of a security interest in Borrowers’ rights to and under

the Third Party License Agreements and any other licensing agreement(s) and

material contracts, between or among the Borrowers and third parties, to Bank,

in each case as required by Bank;




(i)            an

opinion of counsel to each Borrower;




(j)            evidence

of a key-man life insurance policy on Thomas Kinkade in the amount of

$40,000,000;




(k)           an

agreement to provide insurance with respect to each Borrower;




(l)            financial

statements of Borrowers, for the quarter ended March 31, 2002, including

balance sheets, and income and cash flow statements, and a Compliance

Certificate certified by a Responsible Officer of the Borrowers demonstrating

compliance with all covenants, including the Financial Covenants for the

quarter ended March 31, 2002, and as of the date of the request for the initial

Credit Extension;




 




12





























 




(m)          payment

of the fees and Bank Expenses then due specified in Section 2.5 hereof;




(n)           completion

by 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)           amendments

to UCC-1 financing statements and related security documents by and between

Media Arts Group, Inc. and Softech, and Exclaim Technologies and Softech,

satisfactory to Bank in Bank’s sole discretion;




(p)           an

internal audit of Borrowers’ Collateral (except Intellectual Property) and

Accounts and inventory, the results of which shall be satisfactory to Bank; and




(q)           such

other documents, and completion of such other matters, as Bank may reasonably

deem necessary or appropriate.




3.2           Conditions

Precedent to all Credit Extensions. 

The obligation of Bank to make each Credit Extension, including the

initial Credit Extension, is further subject to the following conditions:




(a)           timely

receipt by Bank of the Payment/Advance Form as provided in Section 2.1;

and




(b)           the

representations and warranties contained in Section 0 shall be true and

correct in all material respects on and as of the date of such Payment/Advance

Form and on the effective date of each Credit Extension as though made at and

as of each such date, and no Event of Default shall have occurred and be

continuing, or would exist after giving effect to such Credit Extension

(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).  The making

of each Credit Extension shall be deemed to be a representation and warranty by

Borrower on the date of such Credit Extension as to the accuracy of the facts

referred to in this Section 3.2.




4.             CREATION

OF SECURITY INTEREST.




4.1           Grant

of Security Interest.  Each Borrower

hereby grants and pledges to Bank a continuing security interest in all

presently existing and hereafter acquired or arising Collateral in order to

secure prompt repayment of any and all Obligations and in order to secure

prompt performance by each Borrower of each of its covenants and duties under

the Loan Documents.  Except as set forth

in the Schedule, such security interest constitutes a valid, first priority

security interest in the presently existing Collateral, and will constitute a

valid, first priority security interest in Collateral acquired after the date

hereof.




4.2           Delivery

of Additional Documentation Required. 

Each Borrower shall from time to time execute and deliver to Bank, at

the request of Bank, all Negotiable Collateral, all financing statements and

other documents that Bank may reasonably request, in form satisfactory to Bank,

to perfect and continue the perfection of Bank’s security interests in the

Collateral and in order to fully consummate all of the transactions

contemplated under the Loan Documents.




4.3           Right

to Inspect.  Bank (through any of

its officers, employees, or agents) shall have the right, upon reasonable prior

notice, from time to time during each Borrower’s usual business hours but no

more than twice a year (unless an Event of Default has occurred and is

continuing), to inspect Borrower’s Books and to make copies thereof and to

check, test, and appraise the Collateral, including but not limited to

Inventory, in order to verify a Borrower’s financial condition or the amount,

condition of, or any other matter relating to, the Collateral provided that

such inspections and appraisals shall occur no more than once a year during any

Target Covenant Compliance Period (unless an Event of Default has occurred and

is continuing).




 




 




13





























 




4.4           Cash

Collateral.




                (a)

          Each Borrower grants to Bank, as

additional security for the purpose of securing the Obligations, including

without limitation Borrowers’ Obligations in respect of Letters of Credit, the

Minimum Account Balance requirements set forth in Section 6.9 hereof and

overadvances as described in Section 2.2 hereof, a valid, first priority

security interest in each of the Borrowers’ deposit accounts and/or

certificates of deposit maintained with Bank together with all proceeds and

substitutions thereof, any interest thereon, and all cash and noncash proceeds

of the foregoing (the “Cash Collateral”). 

Each Borrower acknowledges that Bank may (i) place a “hold” on any

deposit account or certificate of deposit pledged as Collateral to secure the

Obligations and/or (ii) transfer funds between and among Borrowers’ deposit

accounts for purposes of placing a “hold” on funds designated by Bank, and each

Borrower agrees to take such further action as may reasonably be requested by

Bank to effect the purposes of this Agreement.




                (b)

          Prior to the maturity of any

Certificate of Deposit held by Bank pursuant hereto, Borrowers and Bank shall

agree upon a security or instrument similar in form, quality and substance to

the original Certificate of Deposit in which the proceeds of the Certificate of

Deposit can be reinvested on maturity. 

Upon maturity of the Certificate of Deposit in accordance with its

terms, or in the event the Certificate of Deposit otherwise becomes payable

during the term of this Agreement, such maturing Certificate of Deposit may be

presented for payment, exchange, or otherwise marketed by Bank on behalf of

Borrowers and the proceeds therefrom used to purchase the security or

instrument agreed to by Borrowers and Bank in accordance with the immediately

preceding sentence.  If no agreement has

been made, such proceeds shall be placed into an interest bearing account

offered by Bank in which Bank has a first priority security interest until such

time as an agreement as to the security replacing the original Certificate of

Deposit can be reached.  Bank may retain

any such successor collateral and the proceeds therefrom as Collateral in

accordance with the terms of this Agreement.




5.             REPRESENTATIONS AND WARRANTIES.




Each Borrower represents

and warrants as follows:




5.1           Due

Organization and Qualification. 

Each Borrower and each Subsidiary is a corporation duly existing under

the laws of its state of incorporation and qualified and licensed to do

business in any state in which the conduct of its business or its ownership of

property requires that it be so qualified.




5.2           Due

Authorization; No Conflict.  The

execution, delivery, and performance of the Loan Documents are within

Borrower’s powers, have been duly authorized, and are not in conflict with nor

constitute a breach of any provision contained in Borrower’s Certificate or

Articles of Incorporation, as applicable, or Bylaws, nor will they constitute

an event of default under any material agreement to which Borrower is a party

or by which Borrower is bound.  Borrower

is not in default under any material agreement to which it is a party or by

which it is bound.




5.3           No

Prior Encumbrances.  Borrower has

good and marketable title to its property, free and clear of Liens, except for

Permitted Liens.




5.4           Bona

Fide Eligible Accounts.  The

Eligible Accounts are bona fide existing obligations.  The property and services giving rise to such Eligible Accounts

has been delivered or rendered to the account debtor or to the account debtor’s

agent for immediate and unconditional acceptance by the account debtor.  Borrower has not received notice of actual

or imminent Insolvency Proceeding of any account debtor that is included in any

Borrowing Base Certificate as an Eligible Account.




5.5           Merchantable

Inventory.  All Inventory is in all

material respects of good and marketable quality, free from all material

defects, except for Inventory for which adequate reserves have been made.




5.6           Intellectual

Property Collateral.  Borrower is

the sole owner of the Intellectual Property Collateral, except for (i)

non-exclusive licenses granted by Borrower to its customers in the ordinary

course of business (ii) Thomas Kinkade’s rights under the License Agreement,

(iii) Thomas Kinkade’s rights in the copyrights 




 




14





























 




of the

Intellectual Property Collateral, and (iv) the intellectual property relating to

any of the Excluded Artists.  Each of

the Patents is valid and enforceable, and no part of the Intellectual Property

Collateral has been judged invalid or unenforceable, in whole or in part, and

no claim has been made that any part of the Intellectual Property Collateral

violates the rights of any third party. 

Except as set forth in the Schedule, Borrower’s rights as a licensee of

intellectual property do not give rise to more than five percent (5%) of its

gross revenue in any given quarter, including without limitation revenue

derived from the sale, licensing, rendering or disposition of any product or

service.  Except as set forth in the

Schedule, Borrower is not a party to, or bound by, any agreement that restricts

the grant by Borrower of a security interest in Borrower’s rights under such

agreement.  The License Agreement is in

full force and effect, no default has occurred thereunder, and all amounts due

and owing to Thomas Kinkade under the License Agreement, and any other material

agreement(s) between Borrowers and Thomas Kinkade, have been paid by Borrowers

in full.




5.7           Name;

Location of Chief Executive Office. 

Except as disclosed in the Schedule, Borrower has not done business

under any name other than that specified on the signature page hereof.  The chief executive office of Borrower is

located at the address indicated in Section 10 hereof.  Except as set forth in the Schedule, all

Borrower’s Inventory and Equipment is located only at the location set forth in

Section 10 hereof.




5.8           Litigation.  Except as set forth in the Schedule, there

are no actions or proceedings pending by or against Borrower or any Subsidiary

before any court or administrative agency in which an adverse decision could

have a Material Adverse Effect, or a material adverse effect on Borrower’s

interest or Bank’s security interest in the Collateral.




5.9           No

Material Adverse Change in Financial Statements.  All consolidated and consolidating financial statements related

to Borrower and any Subsidiary that Bank has received from Borrower fairly

present in all material respects Borrower’s financial condition as of the date

thereof and Borrower’s consolidated and consolidating results of operations for

the period then ended.  There has not been

a material adverse change in the consolidated or the consolidating financial

condition of Borrower since December 31, 2001 other than as disclosed in

writing to Bank.




5.10         Solvency,

Payment of Debts.  Borrower is

solvent and able to pay its debts (including trade debts) as they mature.




5.11         Regulatory

Compliance.  Borrower and each

Subsidiary have met the minimum funding requirements of ERISA with respect to

any employee benefit plans subject to ERISA, and no event has occurred

resulting from Borrower’s failure to comply with ERISA that could result in

Borrower’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 as

one of the important activities, in the business of extending credit for the

purpose of purchasing or carrying margin stock (within the meaning of

Regulations T and U of the Board of Governors of the Federal Reserve

System).  Borrower has complied with all

the 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 a

Material Adverse Effect.




5.12         Environmental

Condition.  Except as disclosed in

the Schedule, none of Borrower’s or any Subsidiary’s properties or assets has

ever been used by Borrower or any Subsidiary or, to the best of Borrower’s

knowledge, by previous owners or operators, in the disposal of, or to produce,

store, handle, treat, release, or transport, any hazardous waste or hazardous

substance other than in accordance with applicable law; to the best of

Borrower’s knowledge, none of Borrower’s properties or assets has ever been

designated or identified in any manner pursuant to any environmental protection

statute as a hazardous waste or hazardous substance disposal site, or a

candidate for closure pursuant to any environmental protection statute; no lien

arising under any environmental protection statute has attached to any revenues

or to any real or personal property owned by Borrower or any Subsidiary; and

neither 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 by

Borrower or any Subsidiary resulting in the releasing, or otherwise disposing

of hazardous waste or hazardous substances into the environment.




 




15





























 




5.13         Taxes.  Borrower and each Subsidiary have filed or

caused to be filed all tax returns required to be filed, and have paid, or have

made 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 does

not own any stock, partnership interest or other equity securities of any

Person or Subsidiary, except for as set forth in this Section 5.14 and

Permitted Investments.




5.15         Government

Consents.  Borrower and each

Subsidiary have obtained all consents, approvals and authorizations of, made

all declarations or filings with, and given all notices to, all governmental

authorities that are necessary for the continued operation of Borrower’s

business as currently conducted, the failure to obtain which could have a

Material Adverse Effect.




5.16         Accounts.  Except as set forth in the Schedule none of

Borrower’s nor any Subsidiary’s property is maintained or invested with a

Person other than Bank.




5.17         Third

Party License Agreements.  The Third

Party License Agreements listed on Annex I attached hereto is a complete

and correct list of each license currently in effect as of the Closing Date.




5.18         Full

Disclosure.  No representation,

warranty or other statement made by Borrower in any certificate or written

statement furnished to Bank contains any untrue statement of a material fact or

omits to state a material fact necessary in order to make the statements

contained in such certificates or statements not misleading.




6.             AFFIRMATIVE

COVENANTS.




Each Borrower covenants and agrees that, until payment in full of all

outstanding Obligations, and for so long as Bank may have any commitment to

make a Credit Extension hereunder, such Borrower shall do all of the following:




6.1           Good

Standing.  Borrower shall maintain

its and each of its Subsidiaries’ corporate existence and good standing in its

jurisdiction of incorporation and maintain qualification in each jurisdiction

in which it is required under applicable law. 

Borrower shall maintain, and shall cause each of its Subsidiaries to

maintain, in force all licenses, approvals and agreements, the loss of which

could have a Material Adverse Effect.




6.2           Government

Compliance.  Borrower shall meet,

and shall cause each Subsidiary to meet, the minimum funding requirements of

ERISA with respect to any employee benefit plans subject to ERISA.  Borrower shall comply, and shall cause each

Subsidiary to comply, with all statutes, laws, ordinances and government rules

and regulations to which it is subject, noncompliance with which could have a

Material Adverse Effect.




6.3           Financial

Statements, 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 unaudited

consolidated and consolidating balance sheets and income statements for

Borrowers and a consolidated cash flow statement for Borrowers covering their

consolidated and consolidating operations during such period, prepared in

accordance with GAAP, consistently applied, in a form acceptable to Bank and

certified by a Responsible Officer (subject to normal quarterly audit

adjustments and the absence of footnotes); (b)  as soon as available, but

in any event within one hundred twenty (120) days after the end of each fiscal

year, audited consolidated and consolidating financial statements of Borrowers

prepared in accordance with GAAP, consistently applied, together with an

unqualified opinion on such financial statements from the independent certified

public accounting firm of Price Waterhouse Coopers or any other independent

certified public accounting firm reasonably acceptable to Bank; (c) if

applicable, copies of all statements, reports and consolidating financial

statements prepared by any Borrowers and notices sent or made available

generally by Borrower to its security holders or to any holders of Subordinated

Debt and all reports on Forms 10-K and 10-Q filed with the Securities and

Exchange Commission; (d) promptly upon receipt of notice thereof, a report

of any legal actions pending or threatened in writing against Borrower or any

Subsidiary that could result in damages or costs to Borrower or any Subsidiary

of 




 




16





























 




Five

Hundred Thousand Dollars ($500,000) or more; (e) such budgets, sales

projections, operating plans or other financial information as Bank may

reasonably request from time to time generally prepared by Borrower in the

ordinary course of business; (f) within thirty (30) days of the last day

of each fiscal quarter, a report signed by Borrower, in form reasonably

acceptable to Bank, listing any applications or registrations that Borrower has

made or filed in respect of any Patents, Copyrights or Trademarks, the status

of any outstanding applications or registrations, information and documents to

facilitate the amendment and/or supplementation of Bank’s filings on each

Borrower’s Intellectual Property at the United States Copyright Office and the

United States Patent Office, as well as any material change in Borrower’s

intellectual property, including but not limited to any subsequent ownership

right (including rights under the License Agreement or any other exclusive

license) of Borrower in or to any Trademark, Patent or Copyright not specified

in Exhibits A, B, and C of the Intellectual Property

Security Agreement delivered to Bank by Borrower in connection with this

Agreement; and (g) promptly upon receipt of notice thereof, a report of any

dispute, claim, default or other failure to perform under any real property

lease to which any Borrower is a party or by which it is bound that could

result in damages or costs to Borrower or any Subsidiary of Five Hundred

Thousand Dollars ($500,000) or more, or that could have a Material Adverse

Effect.




Borrower shall deliver to Bank a Borrowing Base

Certificate signed by a Responsible Officer in substantially the form of Exhibit C

hereto, together with aged listings of accounts receivable and accounts payable

and, beginning with the month ending August 31, 2002, an inventory report, each

in form and substance acceptable to Bank, within one (1) days after the last

day of each week provided that each month-end inventory report provided to Bank

shall carry over for the following month’s weekly reports.  During any Target Covenant Compliance Period

Borrower shall deliver to Bank a Borrowing Base Certificate signed by a

Responsible Officer in substantially the form of Exhibit C hereto,

together with aged listings of accounts receivable and accounts payable and an

inventory 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 quarterly

financial statements and calculations a Compliance Certificate signed by a

Responsible Officer in substantially the form of Exhibit D hereto.




Bank shall have a right from time to time hereafter to

audit Borrower’s Accounts and appraise Collateral, including but not limited to

Inventory, at Borrower’s expense, provided that such audits will be conducted

no more often than every six (6) months unless an Event of Default has occurred

and is continuing and further provided that during any Target Covenant

Compliance Period such audits will be conducted no more often than once each

year unless an Event of Default has occurred and is continuing.




6.4           Inventory;

Returns.  Borrower shall keep all

Inventory in good and marketable condition, free from all material defects

except for Inventory for which adequate reserves have been made.  Returns and allowances, if any, as between

Borrower and its account debtors shall be on the same basis and in accordance

with the usual customary practices of Borrower, as they exist at the time of

the execution and delivery of this Agreement. 

Other than returns and allowances as described in the preceding

sentence, Borrower shall promptly notify Bank of all returns and recoveries and

of all disputes and claims, where the return, recovery, dispute or claim

involves more than Three Hundred Thousand Dollars ($300,000) individually or in

the aggregate in any calendar month.




6.5           Taxes.  Borrower shall make, and shall cause each

Subsidiary 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 certificates

attesting to the payment or deposit thereof; and Borrower will make, and will

cause each Subsidiary to make, timely payment or deposit of all material tax

payments 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, furnish

Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary

has made such payments or deposits; provided that Borrower or a Subsidiary need

not make any payment if the amount or validity of such payment is contested in

good faith by appropriate proceedings and is reserved against (to the extent

required by GAAP) by Borrower.




6.6           Insurance.




(a)           Each

Borrower, at its expense, shall keep the Collateral insured against loss or

damage by fire, theft, explosion, sprinklers, and all other hazards and risks,

and in such amounts, as ordinarily 




 




17





























 




insured

against by other owners in similar businesses conducted in the locations where

Borrower’s business is conducted on the date hereof.  Each Borrower shall also maintain insurance relating to

Borrower’s business, ownership and use of the Collateral in amounts and of a

type that are customary to businesses similar to Borrower’s.




(b)           Borrowers

shall, at their expense, obtain and maintain a key-man life insurance policy in

the amount of $40,000,000 on Thomas Kinkade prior to the initial Credit

Extension, and Borrowers shall, at their expense, obtain and maintain a

disability policy on Thomas Kinkade or before June 30, 2002.




(c)           All

such policies of insurance shall be in such form, with such companies, and in

such amounts as are reasonably satisfactory to Bank.  All such policies of property insurance shall contain a lender’s

loss payable endorsement, in a form satisfactory to Bank, showing Bank as an

additional loss payee thereof, and all liability insurance policies shall show

the Bank as an additional insured and shall specify that the insurer must give

at least twenty (20) days notice to Bank before canceling its policy for any reason.  Upon Bank’s request, Borrower shall deliver

to Bank certified copies of such policies of insurance and evidence of the

payments of all premiums therefor.  All

proceeds payable under any such policy shall, at the option of Bank, be payable

to Bank to be applied on account of the Obligations.




6.7           Accounts

and Banking Relationships.  Borrower

shall maintain and shall cause each of its Subsidiaries to maintain its primary

depository, operating and investment accounts with Bank and/or Comerica

Securities, Inc.  Borrower may open and

maintain depository, operating and investment accounts with a Person other than

Bank and/or Comerica Securities, Inc. provided that as a condition precedent to

the inclusion in the Borrowing Base of any amounts held in any depository,

operating and investment accounts that are opened and/or maintained with a

Person other than Bank and/or Comerica Securities, Inc. any such accounts shall

be subject to the terms of a control agreement executed by Borrower and such

Person for the benefit of Bank which agreement shall be acceptable to Bank in

Bank’s sole discretion.




6.8           Financial

Covenants.  Borrowers on a

consolidated basis shall maintain and comply with the following financial

covenants:




(i)            Maximum

Losses / Minimum Profitability.  Borrowers’

Cumulative Net Operating Losses shall be less than $12,000,000.  Borrowers shall not have a Net Loss of more

than $1,500,000 for the fiscal quarter ending June 30, 2002.  Borrowers shall have a Net Income and an

Operating Profit of at least One Dollar ($1.00) in each fiscal quarter

beginning with the fiscal quarter ending September 30, 2002, and

thereafter.  As used herein, “Cumulative

Net Operating Losses” means the sum of Borrowers’ monthly net operating losses,

including all deductions from revenue all as determined in accordance with

GAAP, for the six (6) months ending on June 30, 2002.  As used herein, “Net Income,” “Net Loss” and “Net Operating

Income” means Borrowers’ net income, net loss and net operating income,

respectively, determined in accordance with GAAP.




(ii)           Quick

Ratio.  Borrowers shall maintain, as

of the last day of each fiscal quarter, a Quick Ratio of at least the following

amounts 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 to

Current 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)          Adjusted

Tangible Net Worth.  Borrowers shall

maintain, as of the last day of each fiscal quarter, a Tangible Net Worth of

more than Forty-Nine Million Dollars ($49,000,000) plus the amount of the

effect on Borrowers’ income statements of their 2001 Federal income tax and

state income tax benefits which amount shall be approved by Bank in Bank’s sole

discretion(the “Minimum Tangible Net Worth”). 

The Minimum Tangible Net Worth of Borrowers shall be increased by an

amount equal to forty percent (40%) of Borrowers’ net income (but shall not be

reduced by the amount of any net losses incurred after March 31, 2002) in each

fiscal quarter beginning with the fiscal quarter ended on March 31, 2002, and

thereafter.




(iv)          Total

Liabilities-Tangible Net Worth. 

Borrower shall maintain, as of the last day of each fiscal quarter, a

ratio of Total Liabilities to Tangible Net Worth of not more than 0.75 to 1.00.




 




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6.9           Minimum

Account Balance.  Borrowers shall

maintain 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 Base

shortfall) in Borrowers’ money market accounts maintained at Bank and/or

Comerica Securities, Inc.  During any

Target Covenant Compliance Period, Borrowers shall maintain at all times a

minimum balance of not less than One Million Dollars ($1,000,000) (including cash

pledged by Borrowers to support any Borrowing Base shortfall)  in Borrowers’ money market accounts

maintained at Bank and/or Comerica Securities, Inc.




6.10         Registration

of Intellectual Property Rights.




(a)           Borrower

shall register or cause to be registered on an expedited basis (to the extent

not already registered) with the United States Patent and Trademark Office or

the United States Copyright Office, as applicable:  (i) those intellectual property rights listed on Exhibits A,

B and C to the Intellectual Property Security Agreement delivered

to Bank by Borrower in connection with this Agreement, within sixty (60) days

of the date of this Agreement, (ii) all registerable intellectual property

rights Borrower has developed or acquired (including rights under the License

Agreement or any other exclusive license) as of the date of this Agreement but

heretofore failed to register, within sixty (60) days of the date of this

Agreement, and (iii) those additional intellectual property rights

developed or acquired (including rights under the License Agreement or any

other exclusive license) by Borrower from time to time in connection with any

product or service, prior to the sale or licensing of such product or the

rendering of such service to any third party, and prior to Borrower’s use of

such product (including without limitation major revisions or additions to the

intellectual property rights listed on such Exhibits A, B

and C of the Intellectual Property Security Agreement).  Borrower shall give Bank notice of all such

applications or registrations.




(b)           Borrower

shall execute and deliver such additional instruments and documents from time

to time as Bank shall reasonably request to perfect Bank’s security interest in

the Intellectual Property Collateral.




(c)           Borrower

shall (i) protect, defend and maintain the validity and enforceability of

the Trademarks, Patents and Copyrights, (ii) use its best efforts to

detect infringements of the Trademarks, Patents and Copyrights and promptly

advise Bank in writing of material infringements detected and (iii) not

allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited

or dedicated to the public without the written consent of Bank, which shall not

be unreasonably withheld.




(d)           Bank

may audit Borrower’s Intellectual Property Collateral to confirm compliance

with this Section, provided such audit may not occur more often than twice per

year, unless an Event of Default has occurred and is continuing provided that

during any Target Covenant Compliance Period such audit may not occur more often

than once per year unless an Event of Default has occurred and is

continuing.  Bank shall have the right,

but not the obligation, to take, at Borrower’s sole expense, any actions that

Borrower is required under this Section to take but which Borrower fails to

take, after fifteen (15) days’ notice to Borrower.  Borrower shall reimburse and indemnify Bank for all reasonable

costs and reasonable expenses incurred in the reasonable exercise of its rights

under this Section.




(e)           License

Agreement.  Maintain the License

Agreement in full force and effect and enforce Borrowers’ rights under the

License Agreement.  Borrowers will

exercise their rights and remedies under and relating to the License Agreement

and as provided by law, in equity, or otherwise.  Borrowers will not waive terms, obligations or rights under or

relating to the License Agreement nor amend the License Agreement unless

approved by Bank in writing which approval shall not be unreasonably withheld.




6.11         Further

Assurances.  At any time and from

time to time Borrower shall execute and deliver such further instruments and

take such further action as may reasonably be requested by Bank to effect the

purposes of this Agreement.




6.12         Disability

Policy.  On or before June 30, 2002,

Borrower shall deliver to Bank evidence of a disability insurance policy

covering Thomas Kinkade, in such amounts and with carriers as shall be mutually

acceptable to Bank and Borrower.




 




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7.             NEGATIVE

COVENANTS.




Each Borrower covenants and agrees that, so long as any credit

hereunder shall be available and until payment in full of the outstanding

Obligations or for so long as Bank may have any commitment to make any Credit

Extensions, such Borrower will not do any of the following:




7.1           Dispositions.  Convey, sell, lease, transfer or otherwise

dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to

Transfer, all or any part of its business or property, other than:  (i) Transfers of Inventory in the

ordinary course of business; (ii) Transfers of non-exclusive licenses and

similar arrangements for the use of the property of Borrower or its

Subsidiaries in the ordinary course of business; or (iii) Transfers of

worn-out or obsolete Equipment which was not financed by Bank.




7.2           Change

in Business; Change in Control or Executive Office.  Engage in any business, or permit any of its

Subsidiaries to engage in any business, other than the businesses currently

engaged in by Borrower and any business substantially similar or related

thereto (or incidental thereto); or cease to conduct business in the manner

conducted by Borrower as of the Closing Date; or suffer or permit a Change in

Control or a change in management, including but not limited to any Borrowers’

respective chief executive officers and chief financial officers; or without

thirty (30) days prior written notification to Bank, change its name; or

relocate its chief executive office or state of incorporation; or without

Bank’s prior written consent, change the date on which its fiscal year ends.




7.3           Mergers

or Acquisitions.  Merge or

consolidate, or permit any of its Subsidiaries to merge or consolidate, with or

into any other business organization, or acquire, or permit any of its

Subsidiaries to acquire, all or substantially all of the capital stock or

property of another Person.




7.4           Indebtedness.  Create, incur, assume or be or remain liable

with respect to any Indebtedness, or permit any Subsidiary so to do, other than

Permitted Indebtedness.




7.5           Encumbrances.  Create, incur, assume or suffer to exist any

Lien with respect to any of its property, or assign or otherwise convey any

right to receive income, including the sale of any Accounts, or permit any of

its Subsidiaries so to do, except for Permitted Liens.  Agree with any Person other than Bank not to

grant a security interest in, or otherwise encumber, any of its property, or

permit any Subsidiary to do so.




7.6           Distributions.  Pay any dividends or make any other

distribution or payment on account of or in redemption, retirement or purchase

of any capital stock, or permit any of its Subsidiaries to do so, except that

Borrower may repurchase the stock of former employees pursuant to stock

repurchase agreements as long as an Event of Default does not exist prior to

such repurchase or would not exist after giving effect to such repurchase.




7.7           Investments.  Directly or indirectly acquire or own, or

make any Investment in or to any Person, or permit any of its Subsidiaries so

to do, other than Permitted Investments; or maintain or invest any of its

property with a Person other than Bank or permit any of its Subsidiaries to do

so unless such Person has entered into an account control agreement with Bank

in form and substance satisfactory to Bank; or suffer or permit any Subsidiary

to be a party to, or be bound by, an agreement that restricts such Subsidiary

from paying dividends or otherwise distributing property to Borrower.




7.8           Transactions

with Affiliates.  Directly or

indirectly enter into or permit to exist any material transaction with any

Affiliate of Borrower except for transactions that are in the ordinary course

of Borrower’s business, upon fair and reasonable terms that are no less

favorable to Borrower than would be obtained in an arm’s length transaction with

a non-affiliated Person.




7.9           Subordinated

Debt.  Make any payment in respect

of any Subordinated Debt, or permit any of its Subsidiaries to make any such

payment, except in compliance with the terms of such Subordinated Debt, or

amend any provision contained in any documentation relating to the Subordinated

Debt without Bank’s prior written consent.




 




20





























 




7.10         Inventory

and Equipment. Store the Inventory or the Equipment with a bailee,

warehouseman, or other third party unless the third party has been notified of

Bank’s security interest and Bank (a) has received an acknowledgment from the

third party that it is holding or will hold the Inventory or Equipment for

Bank’s benefit or (b) is in pledge possession of the warehouse receipt, where

negotiable, covering such Inventory or Equipment. Store or maintain any

Equipment or Inventory at a location other than the location set forth in

Section 10 of this Agreement.




7.11         Compliance.  Become an “investment company” or be

controlled by an “investment company,” within the meaning of the Investment

Company Act of 1940, or become principally engaged in, or undertake as one of

its important activities, the business of extending credit for the purpose of

purchasing or carrying margin stock, or use the proceeds of any Credit

Extension for such purpose.  Fail to

meet the minimum funding requirements of ERISA, permit a Reportable Event or

Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the

Federal Fair Labor Standards Act or violate any law or regulation, which

violation could have a Material Adverse Effect, or a material adverse effect on

the Collateral or the priority of Bank’s Lien on the Collateral, or permit any

of its Subsidiaries to do any of the foregoing.




7.12         Negative

Pledge Agreements. Permit the inclusion in any contract to which it or a

Subsidiary becomes a party of any provisions that could restrict or invalidate

the creation of a security interest in any of Borrower’s or such Subsidiary’s

property.




8.             EVENTS

OF DEFAULT.




Any one or more of the following events shall constitute an Event of

Default by Borrowers under this Agreement:




8.1           Payment

Default.  If a Borrower fails to

pay, when due, any of the Obligations;




8.2           Covenant

Default.  If Borrower fails to

perform any obligation under Section 6.3, 6.6, 6.7, 6.8, 6.9 or 6.10 of

Article 6 or violates any of the covenants contained in Article 7 of

this Agreement, or fails or neglects to perform, keep, or observe any other

material term, provision, condition, covenant (provided that Borrowers’ failure

to meet and/or maintain the Target Covenants shall not constitute an Event of

Default under this Agreement), or agreement contained in this Agreement, in any

of the Loan Documents, or in any other present or future agreement between

Borrower and Bank and as to any default under such other term, provision,

condition, covenant or agreement that can be cured, has failed to cure such

default within ten (10) days after Borrower receives notice thereof or any

officer of Borrower becomes aware thereof; provided, however, that if the

default cannot by its nature be cured within the ten (10) day period or cannot

after 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 Borrower

shall have an additional reasonable period (which shall not in any case exceed

thirty (30) days) to attempt to cure such default, and within such reasonable

time period the failure to have cured such default shall not be deemed an Event

of Default (provided that no Credit Extensions will be required to be made

during such cure period)  );




8.3           Material

Adverse Effect.  If there occurs any

circumstance or circumstances that could have a Material Adverse Effect;




8.4           Attachment.  If any material portion of Borrower’s assets

is attached, seized, subjected to a writ or distress warrant, or is levied

upon, or comes into the possession of any trustee, receiver or person acting in

a similar capacity and such attachment, seizure, writ or distress warrant or

levy has not been removed, discharged or rescinded within ten (10) days, or if

Borrower is enjoined, restrained, or in any way prevented by court order from

continuing to conduct all or any material part of its business affairs, or if a

judgment or other claim becomes a lien or encumbrance upon any material portion

of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of

record with respect to any material portion of Borrower’s assets by the United

States Government, or any department, agency, or instrumentality thereof, or by

any state, county, municipal, or governmental agency, and the same is not paid

within ten (10) days after Borrower receives notice thereof, provided that none

of the foregoing shall constitute an Event of Default where such action or

event is stayed or an adequate bond has been posted pending a good faith

contest by Borrower (provided that no Credit Extensions will be required to be

made prior to the posting of an adequate bond or stay of such action or event);




 




21





























 




8.5           Insolvency.  If a Borrower becomes insolvent, or if an

Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding

is 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 of

such Insolvency Proceeding);




8.6           Artist

Agreements.  If there is a default

or any other failure to perform by a Borrower or Thomas Kinkade relating to or

under the terms of (i) the License Agreement or (ii) any material agreement to

which a Borrower and Thomas Kinkade are parties; or which could have a material

adverse effect under the License Agreement or any other material agreement to

which a Borrower and Thomas Kinkade are parties; or the discontinuance of any

Borrower’s business associations and/or any material agreements, including but

not limited to the License Agreement with Thomas Kinkade;




8.7           Other

Agreements.  If there is a default

or other failure to perform in any agreement to which any Borrower is a party

or 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 amount

in excess of Five Hundred Thousand Dollars ($500,000) individually or in the

aggregate; or which could have a Material Adverse Effect;




8.8           Subordinated

Debt.  If Borrower makes any payment

on account of Subordinated Debt, except to the extent such payment is allowed

under any subordination agreement entered into with Bank;




8.9           Judgments.  If a judgment or judgments for the payment

of money in an amount, individually or in the aggregate, of at least Five

Hundred Thousand Dollars ($500,000) shall be rendered against Borrower and

shall remain unsatisfied and unstayed for a period of ten (10) days (provided

that no Credit Extensions will be made prior to the satisfaction or stay of

such judgment); or




8.10         Misrepresentations.  If any material misrepresentation or

material misstatement exists now or hereafter in any warranty or representation

set forth herein or in any certificate delivered to Bank by any Responsible

Officer pursuant to this Agreement or to induce Bank to enter into this

Agreement or any other Loan Document.




9.             BANK’S

RIGHTS AND REMEDIES.




9.1           Rights

and Remedies.  Upon the occurrence

and 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 the

following, all of which are authorized by Borrowers:




(a)           Declare

all Obligations, whether evidenced by this Agreement, by any of the other Loan

Documents, or otherwise, immediately due and payable (provided that upon the

occurrence of an Event of Default described in Section 8.5, all

Obligations shall become immediately due and payable without any action by

Bank);




(b)           Cease

advancing money or extending credit to or for the benefit of Borrower under

this Agreement or under any other agreement between Borrower and Bank;




(c)           Upon

the occurrence and during the continuance of an Event of Default that has been

declared in writing by Bank, settle or adjust disputes and claims directly with

account debtors for amounts, upon terms and in whatever order that Bank

reasonably considers advisable;




(d)           Make

such payments and do such acts as Bank considers necessary or reasonable to

protect 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 the

premises where the Collateral is located, to take and maintain possession of

the Collateral, or any part of it, and to pay, purchase, contest, or compromise

any encumbrance, charge, or lien which in Bank’s determination appears to be

prior or superior to its security interest and to pay all expenses incurred in

connection therewith.  With respect to

any of Borrower’s owned premises, Borrower hereby grants Bank a license to

enter into possession of such 




 




22





























 




premises

and to occupy the same, without charge, in order to exercise any of Bank’s

rights or remedies provided herein, at law, in equity, or otherwise;




(e)           Set

off and apply to the Obligations any and all (i) balances and deposits of

Borrower held by Bank, or (ii) indebtedness at any time owing to or for

the credit or the account of Borrower held by Bank;




(f)            Ship,

reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise

for sale, and sell (in the manner provided for herein) the Collateral.  Bank is hereby granted a license or other

right, solely pursuant to the provisions of this Section 0, to use,

without charge, Borrower’s labels, patents, copyrights, rights of use of any

name, trade secrets, trade names, trademarks, service marks, and advertising

matter, or any property of a similar nature, as it pertains to the Collateral,

in completing production of, advertising for sale, and selling any Collateral

and, in connection with Bank’s exercise of its rights under this

Section 0, Borrower’s rights under all licenses and all agreements shall

inure to Bank’s benefit;




(g)           Dispose

of the Collateral by way of one or more contracts or transactions, for cash or

on terms, in such manner and at such places (including Borrower’s premises) as

Bank determines is commercially reasonable, and apply any proceeds to the

Obligations in whatever manner or order Bank deems appropriate;




(h)           Bank

may credit bid and purchase at any public sale; and




(i)            Any

deficiency that exists after disposition of the Collateral as provided above

will be paid immediately by Borrowers.




9.2           Power

of Attorney. Effective only upon the occurrence and during the continuance

of an Event of Default that has been declared in writing by Bank, each Borrower

hereby irrevocably appoints Bank (and any of Bank’s designated officers, or

employees) as Borrower’s true and lawful attorney to:  (a) send requests for verification of Accounts or notify account

debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s

name on any checks or other forms of payment or security that may come into

Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading

relating to any Account, drafts against account debtors, schedules and

assignments of Accounts, verifications of Accounts, and notices to account

debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims

under and decisions with respect to Borrower’s policies of insurance; (f) settle

and adjust disputes and claims respecting the accounts directly with account

debtors, for amounts and upon terms which Bank determines to be reasonable; (g)

to file, in its sole discretion, one or more financing or continuation

statements and amendments thereto, relative to any of the Collateral without

the signature of Borrower where permitted by law; and (h) to transfer the

Intellectual Property Collateral into the name of Bank or a third party to the

extent permitted under the California Uniform Commercial Code; provided Bank

may exercise such power of attorney to sign the name of Borrower on any of the

documents described in Section 4.2 regardless of whether an Event of Default

has occurred, including without limitation to modify, in its sole discretion,

any intellectual property security agreement entered into between Borrower and

Bank without first obtaining Borrower’s approval of or signature to such

modification by amending Exhibits A, B, and C, thereof, as appropriate, to

include reference to any right, title or interest in any Copyrights, Patents or

Trademarks acquired by Borrower after the execution hereof or to delete any

reference to any right, title or interest in any Copyrights, Patents or

Trademarks in which Borrower no longer has or claims to have any right, title

or interest.  The appointment of Bank as

Borrower’s attorney in fact, and each and every one of Bank’s rights and

powers, being coupled with an interest, is irrevocable until all of the Obligations

have been fully repaid and performed and Bank’s obligation to provide Credit

Extensions hereunder is terminated.




9.3           Accounts

Collection.  At any time during the

term of this Agreement, Bank may notify any Person owing funds to a Borrower of

Bank’s security interest in such funds and verify the amount of such

Account.  Upon the occurrence and during

the continuance of an Event of Default that has been declared in writing by

Bank Borrower shall collect all amounts owing to Borrower for Bank, receive in

trust all payments as Bank’s trustee, and immediately deliver such payments to

Bank in their original form as received from the account debtor, with proper

endorsements for deposit.




 




23





























 




9.4           Bank

Expenses.  Upon the occurrence and

during the continuance of an Event of Default that has been declared in writing

by Bank, if Borrower fails to pay any amounts or furnish any required proof of

payment due to third persons or entities, as required under the terms of this

Agreement, then Bank may do any or all of the following after reasonable notice

to Borrower:  (a) make payment of

the same or any part thereof; (b) set up such reserves under a loan

facility in Section 2.1 as Bank deems necessary to protect Bank from the

exposure created by such failure; or (c) obtain and maintain insurance

policies of the type discussed in Section 6.6 of this Agreement, and take

any action with respect to such policies as Bank deems prudent.  Any amounts so paid or deposited by Bank

shall constitute Bank Expenses, shall be immediately due and payable, and shall

bear interest at the then applicable rate hereinabove provided, and shall be

secured by the Collateral.  Any payments

made by Bank shall not constitute an agreement by Bank to make similar payments

in the future or a waiver by Bank of any Event of Default under this Agreement.




9.5           Bank’s

Liability for Collateral.  So long

as Bank complies with reasonable banking practices, Bank shall not in any way

or manner be liable or responsible for: 

(a) the safekeeping of the Collateral; (b) any loss or damage

thereto occurring or arising in any manner or fashion from any cause;

(c) any diminution in the value thereof; or (d) any act or default of

any carrier, warehouseman, bailee, forwarding agency, or other person

whomsoever.  All risk of loss, damage or

destruction of the Collateral shall be borne by Borrower.




9.6           Remedies

Cumulative.  Bank’s rights and

remedies under this Agreement, the Loan Documents, and all other agreements

shall be cumulative.  Bank shall have

all other rights and remedies not inconsistent herewith as provided under the

Code, by law, or in equity.  No exercise

by Bank of one right or remedy shall be deemed an election, and no waiver by

Bank of any Event of Default on Borrower’s part shall be deemed a continuing

waiver.  No delay by Bank shall

constitute a waiver, election, or acquiescence by it.  No waiver by Bank shall be effective unless made in a written

document signed on behalf of Bank and then shall be effective only in the

specific 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 payment

and 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 which

Borrower may in any way be liable.




10.           NOTICES;

CO-BORROWING PROVISIONS.




10.1         Unless

otherwise provided in this Agreement, all notices or demands by any party

relating to this Agreement or any other agreement entered into in connection

herewith shall be in writing and (except for financial statements and other

informational documents which may be sent by first-class mail, postage prepaid)

shall be personally delivered or sent by a recognized overnight delivery

service, certified mail, postage prepaid, return receipt requested to Borrower

or 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


  





 




 




24





























 




	

  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 which

they are to receive notices hereunder, by notice in writing in the foregoing

manner given to the other.




10.2         Subrogation

and Similar Rights.  Notwithstanding

any other provision of this Agreement or any other Loan Document, until payment

in full of all Credit Extensions and termination of the commitment to make

Credit Extensions, each Borrower irrevocably waives all rights that it may have

at law or in equity (including, without limitation, any law subrogating a

Borrower to the rights of Bank under the Loan Documents) to seek contribution,

indemnification, or any other form of reimbursement from any other Borrower, or

any other Person now or hereafter primarily or secondarily liable for any of

the Obligations, for any payment made by a Borrower with respect to the

Obligations in connection with the Loan Documents or otherwise and all rights

that it might have to benefit from, or to participate in, any security for the

Obligations as a result of any payment made by a Borrower with respect to the

Obligations in connection with the Loan Documents or otherwise.  Any agreement providing for indemnification,

reimbursement or any other arrangement prohibited under this Section shall be

null and void.  If any payment is made

to a Borrower in contravention of this Section, such Borrower shall hold such

payment in trust for Bank and such payment shall be promptly delivered to Bank

for application to the Obligations, whether matured or unmatured.




10.3         Waivers

of Notice.  To the extent permitted

by law, each Borrower waives notice of acceptance hereof; notice of the

existence, creation or acquisition by any other Borrower of any of the

Obligations; notice of an Event of Default by any other Borrower; notice of the

amount of the Obligations outstanding at any time; notice of intent to

accelerate with respect to the Obligations of any other Borrower; notice of

acceleration of the Obligations of any other Borrower; notice of any adverse

change in the financial condition of any other Borrower or of any other fact

that might increase the Borrower’s risk; presentment for payment; demand;

protest and notice thereof as to any instrument; notice of any other Borrower’s

default; and all other notices and demands to which the Borrower would

otherwise be entitled with respect to the Obligations of any other

Borrower.  Each Borrower waives any

defense arising from any defense of any other Borrower, or by reason of the

cessation from any cause whatsoever of the liability of any other

Borrower.  Bank’s failure at any time to

require strict performance by any Borrower of any provision of the Loan

Documents shall not waive, alter or diminish any right of Bank thereafter to

demand strict compliance and performance therewith.  Nothing contained herein shall prevent Bank from foreclosing on

the Lien of any deed of trust, mortgage or other security instrument, or exercising

any rights available thereunder, and the exercise of any such rights shall not

constitute a legal or equitable discharge of any Borrower.  Each Borrower also waives any defense

arising from any act or omission of Bank that changes the scope of the

Borrower’s risks hereunder.  Each

Borrower hereby waives any right to assert against Bank any defense (legal or

equitable), setoff, counterclaim, or claims that such Borrower individually may

now or hereafter have against another Borrower or any other Person liable to

Bank with respect to the Obligations in any manner or whatsoever.




10.4         Subrogation

Defenses.  To the extent permitted

by law, each Borrower hereby waives any defense based on impairment or

destruction of its subrogation or other rights against any other Borrower and

waives all benefits which might otherwise be available to it under California

Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and

3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726,

as those statutory provisions are now in effect and hereafter amended, and

under any other similar statutes now and hereafter in effect.




 




25





























 




10.5         Right

to Settle, Release.




                                (a)

          The liability of Borrowers

hereunder shall not be diminished by (i) any agreement, understanding or

representation that any of the Obligations is or was to be guaranteed by

another Person or secured by other property, or (ii) any release or

unenforceability, whether partial or total, of rights, if any, which Bank may

now or hereafter have against any other Person, including another Borrower, or

property with respect to any of the Obligations.




                                (b)

          Without notice to (1) any other

Borrower and without affecting the liability of any other such Borrower

hereunder, Bank may (i) compromise, settle, renew, extend the time for payment,

change the manner or terms of payment, discharge the performance of, decline to

enforce, 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 with

respect to such Borrower, or (2) (i) release, surrender or exchange any

deposits or other property securing the Obligations, whether pledged by such

Borrower or any other Person, or (ii) without notice to any such Borrower,

compromise, settle, renew, or extend the time for payment, discharge the

performance of, decline to enforce, or release all or any obligations of any

guarantor, endorser or other Person who is now or may hereafter be liable with

respect to any of the Obligations.




10.6         Primary

Obligation.  This Agreement is a

primary and original obligation of each Borrower and shall remain in effect

notwithstanding future changes in conditions, including any change of law or

any invalidity or irregularity in the creation or acquisition of any

Obligations or in the execution or delivery of any agreement between Bank and

any Borrower.  Each Borrower shall be

liable for existing and future Obligations as fully as if all of the Loan were

advanced to such Borrower.  Bank may

rely on any certificate or representation made by any Borrower as made on

behalf of, and binding on, all Borrowers, including without limitation

Borrowing Certificates, Borrowing Base Certificates and Compliance

Certificates.




10.7         Subordination.  All indebtedness of a Borrower now or

hereafter arising held by another Borrower is subordinated to the Obligations

and the Borrower holding the indebtedness shall take all actions reasonably

requested by Bank to effect, to enforce and to give notice of such

subordination.




10.8         Enforcement

of Rights.  Borrowers are jointly

and severally liable for the Obligations and Bank may proceed against one or

more of the Borrowers to enforce the Obligations without waiving its right to

proceed against any of the other Borrowers.




10.9         Media

Arts Group, Inc. as Agent.  Each

Borrower appoints Media Arts Group, Inc. as its agent with all necessary power

and authority to give and receive notices, certificates or demands for and on

behalf of each Borrower, to act as disbursing agent for receipt of any Credit

Extensions on behalf of each Borrower and to apply to Bank on behalf of any

Borrower for Credit Extensions, any waivers and any consents.  This authorization cannot be revoked, and

Bank need not inquire as to Media Arts Group Inc.’s authority to act for or on

behalf of any Borrower.




11.           CHOICE

OF 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 of

conflicts of law.  Each of Borrower and

Bank hereby submits to the exclusive jurisdiction of the state and Federal

courts located in the County of Santa Clara, State of California.  BORROWER AND BANK EACH HEREBY WAIVE THEIR

RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR

ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS

CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY

CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER

CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT.  EACH PARTY REPRESENTS AND WARRANTS THAT IT

HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND

VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL

COUNSEL.




 




26





























 




12.           GENERAL

PROVISIONS.




12.1         Successors

and Assigns.  This Agreement shall

bind and inure to the benefit of the respective successors and permitted

assigns of each of the parties; provided, however, that neither this Agreement

nor any rights hereunder may be assigned by Borrowers without Bank’s prior

written consent, which consent may be granted or withheld in Bank’s sole

discretion.  Bank shall have the right

without the consent of or notice to Borrowers to sell, transfer, negotiate, or

grant participation in all or any part of, or any interest in, Bank’s

obligations, rights and benefits hereunder.




12.2         Indemnification.  Borrower shall defend, indemnify and hold

harmless 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 the

transactions contemplated by this Agreement; and (b) all losses or Bank

Expenses in any way suffered, incurred, or paid by Bank as a result of or in

any way arising out of, following, or consequential to transactions between

Bank and Borrower whether under this Agreement, or otherwise (including without

limitation reasonable attorneys’ fees and expenses), except for losses caused

by Bank’s gross negligence or willful misconduct.




12.3         Time

of Essence.  Time is of the essence

for the performance of all obligations set forth in this Agreement.




12.4         Severability

of Provisions.  Each provision of

this Agreement shall be severable from every other provision of this Agreement

for the purpose of determining the legal enforceability of any specific

provision.




12.5         Amendments

in Writing, Integration.  Neither

this Agreement nor the Loan Documents can be amended or terminated orally.  All prior agreements, understandings,

representations, warranties, and negotiations between the parties hereto with

respect 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 number

of counterparts and by different parties on separate counterparts, each of

which, when executed and delivered, shall be deemed to be an original, and all

of which, when taken together, shall constitute but one and the same Agreement.




12.7         Survival.  All covenants, representations and

warranties made in this Agreement shall continue in full force and effect so

long as any Obligations remain outstanding or Bank has any obligation to make

Credit Extensions to Borrower.  The obligations

of Borrower to indemnify Bank with respect to the expenses, damages, losses,

costs and liabilities described in Section 12.2 shall survive until all

applicable statute of limitations periods with respect to actions that may be

brought against Bank have run.




 




27





























 




IN WITNESS WHEREOF, the parties hereto have caused

this 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





























 




DEBTORS:                                           MEDIA

ARTS GROUP, INC.




                                                                THOMAS

KINKADE STORES, INC.




 




SECURED PARTY:                             COMERICA

BANK-CALIFORNIA




EXHIBIT A




COLLATERAL DESCRIPTION ATTACHMENT


TO LOAN AND SECURITY AGREEMENT




All personal property of each Borrower (herein

referred to as “Borrowers” or “Debtors”) whether presently existing or

hereafter created or acquired, and wherever located, including, but not limited

to:




(a)           all accounts,

chattel paper (including tangible and electronic chattel paper), deposit

accounts, documents (including negotiable documents), equipment (including all

accessions and additions thereto), general intangibles (including payment

intangibles and software), goods (including fixtures), instruments (including

promissory notes), inventory (including all goods held for sale or lease or to

be furnished under a contract of service, and including returns and

repossessions), investment property (including securities and securities

entitlements), letter of credit rights, money, and all of Debtors’ books and

records with respect to any of the foregoing, and the computers and equipment

containing said books and records;




(b)           all common law and

statutory copyrights and copyright registrations, applications for

registration, now existing or hereafter arising, in the United States of

America or in any foreign jurisdiction, obtained or to be obtained on or in

connection with any of the forgoing, or any parts thereof or any underlying or

component elements of any of the forgoing, together with the right to copyright

and all rights to renew or extend such copyrights and the right (but not the

obligation) of Secured Party to sue in its own name and/or in the names of the

Debtors for past, present and future infringements of copyright;




(c)           all trademarks,

service marks, trade names and service names and the goodwill associated

therewith, together with the right to trademark and all rights to renew or

extend such trademarks and the right (but not the obligation) of Secured Party

to sue in its own name and/or in the names of the Debtors for past, present and

future infringements of trademark;




(d)           all (i) patents

and patent applications filed in the United States Patent and Trademark Office

or any similar office of any foreign jurisdiction, and interests under patent

license agreements, including, without limitation, the inventions and

improvements described and claimed therein, (ii) licenses pertaining to

any patent whether the applicable Debtor is licensor or  licensee, (iii) income, royalties,

damages, payments, accounts and accounts receivable now or hereafter due and/or

payable under and with respect thereto, including, without limitation, damages

and 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 name

of Secured Party for past, present and future infringements thereof,

(v) rights corresponding thereto throughout the world in all jurisdictions

in which such patents have been issued or applied for, and (vi) reissues,

divisions, continuations, renewals, extensions and continuations-in-part with

respect to any of the foregoing; and




(e)           any and all cash

proceeds and/or noncash proceeds of any of the foregoing, including, without

limitation, insurance proceeds, and all supporting obligations and the security

therefor or for any right to payment. 

All terms above have the meanings given to them in the California

Uniform Commercial Code, as amended or supplemented from time to time,

including revised Division 9 of the Uniform Commercial Code-Secured

Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July

1, 2001.




Notwithstanding the foregoing, the Collateral shall not include (i)

deferred compensation owing to employees of Borrower pursuant to that certain

Media Arts Group Management Deferred Compensation Plan held in account number

33-0042-33 with First American Trust, or (ii) any accounts receivable,

inventory or intellectual property relating to the artist Simon Bull, the

artist Howard Behrens, and the artist Robert Lyn Nelson.




 




29





























 




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)


  
	

   


  
			





 




 




30





























 




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)


  	

   


  	

  $___________


  
	

   


  	

   


  	

   


  





The

undersigned represents and warrants that the foregoing is true, complete and

correct, and that the information reflected in this Borrowing Base Certificate

complies with the representations and warranties set forth in the Loan and

Security 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





























 




EXHIBIT

D


COMPLIANCE CERTIFICATE




TO:                                                                            COMERICA BANK-CALIFORNIA




FROM:                                                         MEDIA ARTS GROUP, INC. and the BORROWERS




The undersigned authorized officer hereby certifies on

behalf of MEDIA ARTS GROUP, INC. and Borrowers that in accordance with the

terms and conditions of the Loan and Security Agreement between Borrowers and

Bank (the “Agreement”), (i) Borrowers are in complete compliance for the

period ending _______________ with all required covenants except as noted below

and (ii) all representations and warranties of Borrowers stated in the

Agreement are true and correct as of the date hereof.  Attached herewith are the required documents supporting the above

certification.  The Officer further

certifies that these are prepared in accordance with Generally Accepted

Accounting Principles (GAAP) and are consistently applied from one period to

the next except as explained in an accompanying letter or footnotes.




Please indicate compliance status by

circling 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





























 




 




	

  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





























 




ANNEX A




 




A.            Audits will be

conducted annually during any Target Covenant Compliance Period.




 




B.            Borrowers shall

maintain, as of the last day of each fiscal quarter, a Quick Ratio of at least

the 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 Covenant

for 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 Account

Balance to be decreased to $1,000,000 during Target Covenant Compliance

Periods.




 




F.             The Target Covenant

for Operating Profit is an amount greater than $225,000 during the first

calendar quarter of each year and an amount greater than $1,200,000 in the

second, third and fourth calendar quarters of each year and the Target Covenant

for Net Income is One Dollar ($1.00).




 




 




34





























 




SCHEDULE OF EXCEPTIONS




Permitted Indebtedness (Section 1.1)




                Indebtedness

existing 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




 




                Contingent

obligations with respect to retail leases set forth on Annex 1 attached

hereto and contained in the Company’s financial statements as of December 31,

2001




 




                Loans to Ken

Raasch pursuant to the terms of convertible promissory notes in an aggregate

amount not to exceed a principal amount of $1,200,000, as disclosed in the

Company’s financial statements




 




 




Permitted Investments (Section 1.1)




                Stock in Thomas

Kinkade Stores, Inc.




 




                Checking, deposit

and other bank accounts as disclosed by Borrowers to Bank in that certain side

letter from the Borrowers to Bank




 




 




Permitted Liens (Section 1.1)




Existing Liens related to:




UCC filing against Exclaim Technologies for Secured

Party 3Com Credit Corporation (filed January 11, 2000 with California Secretary

of State)




 




UCC filing against Exclaim Technologies for Secured

Party Bankers/Softech/Mid-States a Division of EAB Leasing Corp (filed April 5,

2000 with California Secretary of State), which lien shall be terminated or

amended to the satisfaction of Bank in Bank’s sole discretion prior to the

initial Credit Extension




 




UCC filing against Media Arts Group, Inc. for Secured

Party LMA Capital Group, LLC (filed February 4, 1997 with California Secretary

of State)




 




UCC filing against Media Arts Group, Inc. for Secured

Party Caltronics Business Systems, Inc. (filed November 17, 1999 with

California Secretary of State)




 




UCC filing against Media Arts Group, Inc. for Secured

Party Caltronics Business Systems, Inc. (filed September 5, 2000 with

California Secretary of State)




 




UCC filing against Media Arts Group, Inc. for Secured

Party Bankers/Softech Divisions of EAB Leasing Corp. (filed April 2, 2001 with

California Secretary of State), which lien shall be terminated or amended to

the satisfaction of Bank in Bank’s sole discretion prior to the initial Credit

Extension




 




UCC filing against Media Arts Group, Inc. for Secured

Party Bankers/Softech Divisions of EAB Leasing Corp. (filed April 2, 2001 with

California Secretary of State),which lien shall be terminated or amended to the

satisfaction of Bank in Bank’s sole discretion prior to the initial Credit

Extension




 




UCC filing against Media Arts Group, Inc. for Secured

Party Caltronics Business Systems, Inc. (filed June 28, 2001 with California

Secretary 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 Kinkade

Stores, Inc. (formerly known as Thomas Kinkade Galleries, Inc. (formerly known

as Commemorative Press))




                Thomas Kinkade

Stores, Inc. has fictitious name filing in Pennsylvania as Thomas Kinkade

Gallery.




 




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 Hine

North America; John Hine Canada; Studio & Workshop of John Hine; Father

Time, Ltd.; Dove, Ltd.; Guild, Ltd.; Serendipity Limited; California Coast

Galleries; 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.; Santa

Clara, 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 Superior

Court — Case No. CV806096)




 




 




Accounts (Section 5.16)




                Checking, deposit

and other bank accounts as disclosed by Borrowers to Bank in that certain side

letter 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




Third

Party 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





























 




53.           Agreement

with Rocky Mountain Chocolate Factory dated October 1, 2000.




54.           Agreement

with Taylor Corporation dated April 1, 2001.




55.           Agreement

with Taylor Woodrow Homes dated April 30, 2001.




56.           Agreement

with Teleflora dated February 1, 2001.




57.           Agreement

with Thomas Nelson dated March 17, 1998.




58.           Agreement

with Tommy Nelson dated April 15, 1998.




59.           Agreement

with Warner Books dated July 20, 1998.




60.           Agreement

with Willow Road dated April 1, 1997.




61.           Agreement

with Wrebbit dated April 1, 2001.




 




39





























 




CORPORATE

RESOLUTIONS TO BORROW




	

  Borrower:             MEDIA

  ARTS GROUP, INC.


  





 




I, the undersigned Secretary or Assistant Secretary of

MEDIA ARTS GROUP, INC. (the “Corporation”), HEREBY CERTIFY that the Corporation

is organized and existing under and by virtue of the laws of the State of

Delaware.




I FURTHER CERTIFY that attached hereto as

Attachments 1 and 2 are true and complete copies of the Certificate of

Incorporation, as amended, and the Restated Bylaws of the Corporation, each of

which is in full force and effect on the date hereof.




I FURTHER CERTIFY that at a meeting of the Directors

of the Corporation, duly called and held, at which a quorum was present and

voting (or by other duly authorized corporate action in lieu of a meeting), the

following resolutions were adopted.




BE IT RESOLVED, that any one (1) of the following

named officers, employees, or agents of this Corporation, whose actual

signatures are shown below:




	

  NAMES


  	

  POSITION


  	

  ACTUAL SIGNATURES


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  





acting for and on behalf of this Corporation and as

its act and deed be, and they hereby are, authorized and empowered:




Borrow

Money.  To borrow from time to time from Comerica

Bank-California (“Bank”), on such terms as may be agreed upon between the

officers, employees, or agents of the Corporation and Bank, such sum or sums of

money as in their judgment should be borrowed, without limitation.




Execute

Loan Documents.  To execute and deliver to Bank that certain Loan

and Security Agreement dated as of April 15, 2002 (the “Loan Agreement”) and

any other agreement entered into between Corporation and Bank in connection

with the Loan Agreement, including any amendments, all as amended or extended

from time to time (collectively, with the Loan Agreement, the “Loan

Documents”), and also to execute and deliver to Bank one or more renewals,

extensions, modifications, refinancings, consolidations, or substitutions for

the Loan Documents, or any portion thereof.




Grant

Security.  To grant a security interest to Bank in the

Collateral described in the Loan Documents, which security interest shall

secure all of the Corporation’s Obligations, as described in the Loan

Documents.




Negotiate

Items.  To draw, endorse, and discount with Bank all

drafts, trade acceptances, promissory notes, or other evidences of indebtedness

payable to or belonging to the Corporation or in which the Corporation may have

an interest, and either to receive cash for the same or to cause such proceeds

to be credited to the account of the Corporation with Bank, or to cause such

other disposition of the proceeds derived therefrom as they may deem advisable.




Warrants. 

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




Letters

of Credit.  To execute letter of credit applications and

other related documents pertaining to Bank’s issuance of letters of credit.




Foreign

Exchange.  To execute foreign exchange agreements

and other related documents pertaining to Bank’s issuance of foreign exchange

contracts.




Further

Acts.  In the case of lines of credit, to designate

additional or alternate individuals as being authorized to request advances

thereunder, and in all cases, to do and perform such other acts and things, to

pay any and all fees and costs, and to execute 




 




40





























 




and deliver such other documents and agreements as

they may in their discretion deem reasonably necessary or proper in order to

carry into effect the provisions of these Resolutions.




BE IT FURTHER RESOLVED, that any and all acts

authorized pursuant to these resolutions and performed prior to the passage of

these resolutions are hereby ratified and approved, that these Resolutions

shall remain in full force and effect and Bank may rely on these Resolutions

until written notice of their revocation shall have been delivered to and

received by Bank.  Any such notice shall

not affect any of the Corporation’s agreements or commitments in effect at the

time notice is given.




I FURTHER CERTIFY that the officers, employees, and

agents named above are duly elected, appointed, or employed by or for the

Corporation, as the case may be, and occupy the positions set forth opposite

their respective names; that the foregoing Resolutions now stand of record on

the books of the Corporation; and that the Resolutions are in full force and

effect and have not been modified or revoked in any manner whatsoever.




IN WITNESS WHEREOF, I have hereunto set my hand on

April 15, 2002 and attest that the signatures set opposite the names listed

above are their genuine signatures.




	

   


  	

   


  	

  CERTIFIED AND ATTESTED

  BY:


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  X                                                                                                                      


  
	

   


  	

   


  	

   


  





 




 




41





























 




	

  Borrower:             THOMAS

  KINKADE STORES, INC.


  





 




I, the undersigned Secretary or Assistant Secretary of

THOMAS KINKADE STORES, INC. (the “Corporation”), HEREBY CERTIFY that the

Corporation is organized and existing under and by virtue of the laws of the

State of California.




I FURTHER CERTIFY that attached hereto as

Attachments 1 and 2 are true and complete copies of the Articles of

Incorporation, as amended, and the Restated Bylaws of the Corporation, each of

which is in full force and effect on the date hereof.




I FURTHER CERTIFY that at a meeting of the Directors

of the Corporation, duly called and held, at which a quorum was present and

voting (or by other duly authorized corporate action in lieu of a meeting), the

following resolutions were adopted.




BE IT RESOLVED, that any one (1) of the following

named officers, employees, or agents of this Corporation, whose actual

signatures are shown below:




	

  NAMES


  	

  POSITION


  	

  ACTUAL SIGNATURES


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  
	

                                                                            


  	

   


  	

                                                                           


  	

   


  	

                                                                         


  	

   


  
	

   


  	

   


  	

   


  





acting for and on behalf of this Corporation and as

its act and deed be, and they hereby are, authorized and empowered:




Borrow

Money.  To borrow from time to time from Comerica

Bank-California (“Bank”), on such terms as may be agreed upon between the

officers, employees, or agents of the Corporation and Bank, such sum or sums of

money as in their judgment should be borrowed, without limitation.




Execute

Loan Documents.  To execute and deliver to Bank that certain

Loan and Security Agreement dated as of April 15, 2002 (the “Loan Agreement”)

and any other agreement entered into between Corporation and Bank in connection

with the Loan Agreement, including any amendments, all as amended or extended

from time to time (collectively, with the Loan Agreement, the “Loan

Documents”), and also to execute and deliver to Bank one or more renewals,

extensions, modifications, refinancings, consolidations, or substitutions for

the Loan Documents, or any portion thereof.




Grant

Security.  To grant a security interest to Bank in the

Collateral described in the Loan Documents, which security interest shall

secure all of the Corporation’s Obligations, as described in the Loan

Documents.




Negotiate

Items.  To draw, endorse, and discount with Bank all

drafts, trade acceptances, promissory notes, or other evidences of indebtedness

payable to or belonging to the Corporation or in which the Corporation may have

an interest, and either to receive cash for the same or to cause such proceeds

to be credited to the account of the Corporation with Bank, or to cause such

other disposition of the proceeds derived therefrom as they may deem advisable.




Warrants. 

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




Letters

of Credit.  To execute letter of credit applications and

other related documents pertaining to Bank’s issuance of letters of credit.




Foreign

Exchange.  To execute foreign exchange agreements

and other related documents pertaining to Bank’s issuance of foreign exchange

contracts.




Further

Acts.  In the case of lines of credit, to designate

additional or alternate individuals as being authorized to request advances

thereunder, and in all cases, to do and perform such other acts and things, to

pay any and all fees and costs, and to execute and deliver such other documents

and agreements as they may in their discretion deem reasonably necessary or

proper in order to carry into effect the provisions of these Resolutions.




 




42





























 




BE IT FURTHER RESOLVED, that any and all acts

authorized pursuant to these resolutions and performed prior to the passage of

these resolutions are hereby ratified and approved, that these Resolutions

shall remain in full force and effect and Bank may rely on these Resolutions

until written notice of their revocation shall have been delivered to and

received by Bank.  Any such notice shall

not affect any of the Corporation’s agreements or commitments in effect at the

time notice is given.




I FURTHER CERTIFY that the officers, employees, and

agents named above are duly elected, appointed, or employed by or for the

Corporation, as the case may be, and occupy the positions set forth opposite

their respective names; that the foregoing Resolutions now stand of record on

the books of the Corporation; and that the Resolutions are in full force and

effect and have not been modified or revoked in any manner whatsoever.




IN WITNESS WHEREOF, I have hereunto set my hand on

April 15, 2002 and attest that the signatures set opposite the names listed

above are their genuine signatures.




	

   


  	

   


  	

  CERTIFIED AND ATTESTED

  BY:


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  X                                                                                                                      


  
	

   


  	

   


  	

   


  





 




 




43





























 




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 document

will also serve as the authorization for Comerica Bank-California to disburse

the loan proceeds as stated above.




	

   


  	

   


  	

   


  
	

                                                                                                    


  	

   


  	

                                                                                                   


  
	

  Signature


  	

   


  	

  Signature


  
	

   


  	

   


  	

   


  





 




 




44





























 




AGREEMENT

TO PROVIDE INSURANCE




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




attn:  Collateral Operations, M/C 4604




9920 South La Cienega

Blvd, 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 Covenant

Compliance Period), secured by all tangible personal property including

inventory and equipment.




I/We agree to obtain adequate insurance coverage to

remain in force during the term of the loan.




I/We also agree to advise the below named agent to add

Comerica Bank-California as lender’s loss payable on the new or existing

insurance policy, and to furnish Bank at above address with a copy of said

policy/endorsements and any subsequent renewal policies.




I/We understand that the policy must contain:




1.             Fire

and extended coverage in an amount sufficient to cover:




(a)        The amount of the loan, OR




(b)        All existing encumbrances, whichever is

greater,




But not in excess of the replacement value of the

improvements on the real property.




2.             Lender’s

“Loss Payable” Endorsement Form 438 BFU in favor of Comerica

Bank-California, or any other form acceptable to Bank.




INSURANCE

INFORMATION




Insurance Co./Agent: AON/

Vince Mantione, Representative    Telephone

No.: (415) 486-7248




Agent’s Address: 199 Fremont Street, 14th Floor, San

Francisco, 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:                                                                                                                 


  
	

   


  





 




 




45





























 




	

  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


  
	

   


  	

   


  
			





 




 




46





























 




DEBTOR:                                                                        MEDIA ARTS

GROUP, INC.




 




SECURED

PARTY:                             COMERICA

BANK-CALIFORNIA




 




EXHIBIT A




COLLATERAL DESCRIPTION ATTACHMENT


TO UCC-1 FINANCING STATEMENT




All personal property of Borrower (herein referred to as “Borrower” or

“Debtor”) whether presently existing or hereafter created or acquired, and

wherever located, including, but not limited to:




(a)           all accounts,

chattel paper (including tangible and electronic chattel paper), deposit

accounts, documents (including negotiable documents), equipment (including all

accessions and additions thereto), general intangibles (including payment

intangibles and software), goods (including fixtures), instruments (including

promissory notes), inventory (including all goods held for sale or lease or to

be furnished under a contract of service, and including returns and

repossessions), investment property (including securities and securities

entitlements), letter of credit rights, money, and all of Debtors’ books and

records with respect to any of the foregoing, and the computers and equipment

containing said books and records;




(b)           all common law and

statutory copyrights and copyright registrations, applications for

registration, now existing or hereafter arising, in the United States of

America or in any foreign jurisdiction, obtained or to be obtained on or in connection

with any of the forgoing, or any parts thereof or any underlying or component

elements of any of the forgoing, together with the right to copyright and all

rights to renew or extend such copyrights and the right (but not the

obligation) of Secured Party to sue in its own name and/or in the names of the

Debtors for past, present and future infringements of copyright;




(c)           all trademarks,

service marks, trade names and service names and the goodwill associated

therewith, together with the right to trademark and all rights to renew or

extend such trademarks and the right (but not the obligation) of Secured Party

to sue in its own name and/or in the names of the Debtors for past, present and

future infringements of trademark;




(d)           all (i) patents

and patent applications filed in the United States Patent and Trademark Office

or any similar office of any foreign jurisdiction, and interests under patent

license agreements, including, without limitation, the inventions and

improvements described and claimed therein, (ii) licenses pertaining to

any patent whether the applicable Debtor is licensor or  licensee, (iii) income, royalties,

damages, payments, accounts and accounts receivable now or hereafter due and/or

payable under and with respect thereto, including, without limitation, damages

and 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 of

Secured Party for past, present and future infringements thereof, (v) rights

corresponding thereto throughout the world in all jurisdictions in which such

patents have been issued or applied for, and (vi) reissues, divisions,

continuations, renewals, extensions and continuations-in-part with respect to

any of the foregoing; and




(e)           any and all cash

proceeds and/or noncash proceeds of any of the foregoing, including, without

limitation, insurance proceeds, and all supporting obligations and the security

therefor or for any right to payment. 

All terms above have the meanings given to them in the California

Uniform Commercial Code, as amended or supplemented from time to time,

including revised Division 9 of the Uniform Commercial Code-Secured

Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July

1, 2001.




Notwithstanding the foregoing, the Collateral shall not include (i)

deferred compensation owing to employees of Borrower pursuant to that certain

Media Arts Group Management Deferred Compensation Plan held in account number

33-0042-33 with First American Trust, or (ii) any accounts receivable,

inventory or intellectual property relating to the artist Simon Bull, the

artist Howard Behrens, and the artist Robert Lyn Nelson.




 




47





























 




DEBTOR:                                                                        THOMAS

KINKADE STORES, INC.




 




SECURED

PARTY:                             COMERICA

BANK-CALIFORNIA




 




EXHIBIT A




COLLATERAL DESCRIPTION ATTACHMENT


TO UCC-1 FINANCING STATEMENT




All personal property of Borrower (herein referred to as “Borrower” or

“Debtor”) whether presently existing or hereafter created or acquired, and

wherever located, including, but not limited to:




(a)           all accounts,

chattel paper (including tangible and electronic chattel paper), deposit

accounts, documents (including negotiable documents), equipment (including all

accessions and additions thereto), general intangibles (including payment

intangibles and software), goods (including fixtures), instruments (including

promissory notes), inventory (including all goods held for sale or lease or to

be furnished under a contract of service, and including returns and

repossessions), investment property (including securities and securities

entitlements), letter of credit rights, money, and all of Debtors’ books and

records with respect to any of the foregoing, and the computers and equipment

containing said books and records;




(b)           all common law and

statutory copyrights and copyright registrations, applications for

registration, now existing or hereafter arising, in the United States of

America or in any foreign jurisdiction, obtained or to be obtained on or in

connection with any of the forgoing, or any parts thereof or any underlying or

component elements of any of the forgoing, together with the right to copyright

and all rights to renew or extend such copyrights and the right (but not the

obligation) of Secured Party to sue in its own name and/or in the names of the

Debtors for past, present and future infringements of copyright;




(c)           all trademarks,

service marks, trade names and service names and the goodwill associated

therewith, together with the right to trademark and all rights to renew or

extend such trademarks and the right (but not the obligation) of Secured Party

to sue in its own name and/or in the names of the Debtors for past, present and

future infringements of trademark;




(d)           all (i) patents

and patent applications filed in the United States Patent and Trademark Office

or any similar office of any foreign jurisdiction, and interests under patent

license agreements, including, without limitation, the inventions and

improvements described and claimed therein, (ii) licenses pertaining to

any patent whether the applicable Debtor is licensor or  licensee, (iii) income, royalties,

damages, payments, accounts and accounts receivable now or hereafter due and/or

payable under and with respect thereto, including, without limitation, damages

and 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 of

Secured Party for past, present and future infringements thereof,

(v) rights corresponding thereto throughout the world in all jurisdictions

in which such patents have been issued or applied for, and (vi) reissues,

divisions, continuations, renewals, extensions and continuations-in-part with

respect to any of the foregoing; and




(e)           any and all cash

proceeds and/or noncash proceeds of any of the foregoing, including, without

limitation, insurance proceeds, and all supporting obligations and the security

therefor or for any right to payment. 

All terms above have the meanings given to them in the California

Uniform Commercial Code, as amended or supplemented from time to time,

including revised Division 9 of the Uniform Commercial Code-Secured

Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July

1, 2001.




Notwithstanding the foregoing, the Collateral shall not include (i)

deferred compensation owing to employees of Borrower pursuant to that certain

Media Arts Group Management Deferred Compensation Plan held in account number

33-0042-33 with First American Trust, or (ii) any accounts receivable,

inventory or intellectual property relating to the artist Simon Bull, the

artist Howard Behrens, and the artist Robert Lyn Nelson.




 




48