ELEVENTH MODIFICATION TO LOAN AND SECURITY AGREEMENT

This  Modification to  (this “Modification”) is entered into by and between Spy
Optic Inc., a(n) California corporation (“Borrower”) and CapitalSource Business
Finance Group, a dba of BFI Business Finance, a California corporation (“Lender”
or “CSBFG”) as of this 10th day of September, 2014, at Campbell, California.

RECITALS

A.

Lender and Borrower have previously entered into or are concurrently herewith
entering into a  (the “Agreement”) dated February 26, 2007.

B.

Lender and Borrower may have previously executed one or more Modifications to
the Loan and Security Agreement (the “Previous Modification(s)”).

C.

Borrower has requested, and Lender has agreed, to modify the Agreement as set
forth below.

AGREEMENT

For good and valuable consideration, the parties agree as set forth below:

1.

Incorporation by Reference.  The Agreement and the Previous Modification(s), if
any, as modified hereby and the Recitals are incorporated herein by this
reference.

2.

Borrowing Authority.  The  attached hereto as Exhibit A and incorporated herein
by this reference remains in full force and effect and no change in Borrower’s
officers or signing authority has occurred.

3.

Effective Date.  The terms of this Modification shall be in full force and
effect .

4.

Modification to Agreement.  The Agreement is hereby modified as follows:

a.

The following definition(s) as set forth in “Section 1.1 Definitions.” is(are)
hereby amended and restated in its(their) entirety as set forth below:

““Maximum Inventory Advance” means a) beginning on the Effective Date of the
Eleventh Modification to Loan and Security Agreement, and continuing through
February 26, 2015, the lesser of Three Million Five Hundred Thousand and 00/100
Dollars ($3,500,000.00) or One Hundred percent (100%) of the A.R Borrowing Base;
and b) beginning on February 27, 2015 and continuing thereafter the lesser of
Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00) or
Sixty-Five percent (65%) of the A R Borrowing Base.”

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b.

The following Section(s) is(are) hereby amended and restated in its(their)
entirety as set forth below:

9.5.

Tax Returns.  Upon Lender request, Borrower shall provide to Lender copies of
each of Borrower’s federal income tax returns, and any amendments thereto and
extensions thereof.

9.6.

Inventory Product Activity.  If applicable, at Lender’s request, Borrower shall
provide to Lender a full, complete, and accurate detailed report of all
Borrower’s Inventory activity on a monthly basis from Borrower within two (2)
Business Days of the end of the prior period and on a monthly basis from any and
all public warehouses within fifteen (15) Business Days of the end of the prior
month.

9.9

.

Designation of Inventory.  Upon Lender’s request, Borrower shall now and from
time to time hereafter, but not less frequently than monthly, execute and
deliver to Lender a detailed designation of Inventory from Borrower and from all
public warehouses, specifying the cost and, if applicable, the market value of
Borrower's raw materials, work in process and finished goods, and further
specifying such other information as Lender may reasonably request, with all
monthly information due within five (5) days of month end.  Borrower shall
promptly, in writing, notify Lender if any of Borrower's Inventory contains any
labels, trademarks, trade-names or other identifying characteristics which are
the properties of third parties.

14.3.

Indemnification.  Borrower hereby agrees to indemnify Lender, any Affiliate
thereof, and its directors, officers, employees, agents, counsel, and other
advisors (each an “Indemnified Person”) against, and hold each of them harmless
from, any and all liabilities, obligations, losses, claims, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements of any kind or
nature whatsoever, including Attorneys’ Fees, Lender Expenses, the reasonable
fees and disbursements of counsel to an Indemnified Person (including allocated
costs of internal counsel), which may be imposed on, incurred by, or asserted
against any Indemnified Person, in any way relating to or arising out of this
Agreement or the transactions contemplated hereby or any action taken or omitted
to be taken by it hereunder (the “Indemnified Liabilities”); provided that
Borrower shall not be liable to any Indemnified Person for any portion of such
Indemnified Liabilities to the extent they are found by a final decision of a
court of competent jurisdiction to have resulted from such Indemnified Person’s
gross negligence or willful misconduct, with the foregoing indemnity and hold
harmless agreement by Borrower in favor of Lender to survive the termination of
this Agreement and payment and performance of the Obligations, and continue
thereafter.  If and to the extent that the foregoing indemnification is for any
reason held unenforceable, Borrower agrees to make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

99.

Borrower Authorization.  Borrower consents to Lender’s use of Borrower’s company
names and logos in Lender’s written and oral presentations, including in
Lender’s advertising, promotional and marketing materials, client lists, news
releases and Web site.  In connection with any client references in such written
or oral presentations, Borrower consents to the use of individual names and
quotations.  Borrower’s consents herein shall survive termination of this
Agreement until such time that Borrower delivers, and Lender receives, written
revocation of such consents.

5.

Fee.  At the time of execution of the Modification, Borrower agrees to pay a
one-time fee in the amount of ----------N/A----------- and 00/100 Dollars
($---------n/a----------).

6.

Legal Effect.  Except as specifically set forth in this Modification, all of the
terms and conditions of the Agreement remain in full force and effect.

7.

Counterparts.  This Modification may be executed in any number of counterparts,
each of which shall be deemed an original but all of which taken together shall
constitute a single original.

8.

Electronic Signature.  This Modification, or a signature page thereto intended
to be attached to a copy of this Modification, signed and transmitted by
facsimile machine, telecopier or other electronic means (including via
transmittal of a “pdf” file) shall be deemed and treated as an original
document.  The signature of any person thereon, for purposes hereof, is to be
considered as an original signature, and the document transmitted is to be
considered to have the same binding effect as an original signature on an
original document.  At the request of any party hereto, any facsimile, telecopy
or other electronic document is to be re-executed in original form by the
persons who executed the facsimile, telecopy of other electronic document.  No
party hereto may raise the use of a facsimile machine, telecopier or other
electronic means or the fact that any signature was transmitted through the use
of a facsimile machine, telecopier or other electronic means as a defense to the
enforcement of this Modification.

9.

Integration.  This is an integrated Modification and supersedes all prior
negotiations and agreements regarding the subject matter hereof.  All amendments
hereto must be in writing and signed by the parties.

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IN WITNESS WHEREOF, the parties have executed this  Modification to  as of the
date first set forth above.

CapitalSource Business Finance Group,

a dba of BFI Business Finance

/s/ Stephen P. Darlington

 

Spy Optic Inc.

/s/ James McGinty

By:  Stephen P. Darlington

Its:  Chief Operating Officer

 

By:

James McGinty

Its:

CFO