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                                                                   Exhibit 10.36

                                  CONFIDENTIAL

                                 GADZOOKS, INC.

                    KEY EMPLOYEE RETENTION AND INCENTIVE PLAN

Gadzooks, Inc. ("Company" or "Debtor") filed for protection under Chapter 11 on
February 3, 2004. The outcome of the bankruptcy process is unpredictable and the
retention of key employees who will be central to the operational and financial
restructuring of the business is deemed to be a high priority of the Company and
its key constituencies. The Restructuring Committee of the Board of Directors of
Gadzooks, Inc., upon the recommendation of the Compensation Committee of the
Board of Directors, has put forth a Key Employee Retention and Incentive Plan,
the "PLAN", for certain key employees of the Company.

IT IS IMPORTANT TO NOTE THAT THIS PROGRAM HAS BEEN APPROVED BY THE COMPANY AND
THE UCC. IT WILL BE PRESENTED TO THE COURT FOR APPROVAL. NONE OF THE SPECIFICS
AS TO WHO IS IN THE PROGRAM, WHAT THEIR INDIVIDUAL ELIGIBILITY IS AND FOR WHAT
BENEFITS AND SIMILAR DETAILED INFORMATION WILL BE MADE PUBLIC. SUCH INFORMATION
WILL BE MADE AVAILABLE UNDER SEAL TO THE COURT, THE UNSECURED CREDITORS'
COMMITTEE AND THE US TRUSTEE BUT IT WILL NOT BE MADE PUBLIC TO INSURE THAT
ENTITIES INTENDING TO RECRUIT OUR KEY EMPLOYEES ARE NOT AWARE OF THE `TARGET' IT
WILL TAKE TO PROVIDE AN EASY EXIT FOR THEM. FURTHER, PAYROLL INFORMATION IS
GENERALLY CONFIDENTIAL WITHIN THE COMPANY.

Key employees who may be eligible for this program are deemed to be critical to
the ongoing mission of the enterprise. Many may not, under different bankruptcy
exit plan scenarios, be selected for continuing employment because of a sale or
liquidation of their business unit or duplication of personnel or skill set with
the ultimate owner in the event their business unit is sold. Also, in the case
of a restructuring, the resulting entity may be significantly downsized to
better address capital constraints and the ability to compete in the future
and/or management changes may be in order.

Sixty-four officers and employees comprise the universe of key employees to be
covered under the PLAN. They are divided into 5 separate groups for ease of
understanding their key function within the Company:

<TABLE>

<S>         <C>                                <C>
Group 1     Executive Officers                  7
Group 2     Director Level Staff               11
Group 3     Critical Corporate Staff           10
Group 4     Regional Sales Directors/RLPMs      6
Group 5     District Sales Managers            30
                                               --
                        Total                  64
</TABLE>

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The PLAN is comprised of three primary components including a retention bonus, a
performance incentive and a severance program. The RETENTION BONUS COMPONENT
provides an incentive for each key employee to remain with the Company until a
specified future event has occurred. The PERFORMANCE INCENTIVE COMPONENT
provides an incentive for key employees in Groups 1-3 if the performance for the
current FY2004 fiscal year that ends on January 31, 2005 exceeds the business
plan analyzed in three time periods: February - April; May-August; and,
September - January, 2005. The FY2004 business plan has been reviewed and
approved by the Board of Directors and is the same plan upon which the DIP
lender has set loan covenants. The SEVERANCE PROGRAM COMPONENT is approved by
the Board of Directors but has been defined providing flexibility for senior
management to deal with current conditions. For the key employees who would be
eligible for the PLAN, the Board is willing to commit to a defined amount of
severance which is based on position held. It should be noted that Jerry
Szczepanski and Steve Kotch have existing employment agreements addressing
severance. The proposed severance payment in the PLAN for Steve Kotch is the
same as called for in his employment agreement.

Carol Greer, a member of the Board of Directors of Gadzooks, Inc., moved into an
interim officer's position in mid-January with the title of Interim President
and Chief Merchandising Officer. Ms. Greer's compensation in this interim
position is shown on the attached Exhibit I and her incentive bonus is also
described on the exhibit. She is not eligible for further PLAN benefits in her
current position. It is possible that Ms. Greer may shortly agree to enter into
a longer-term employment agreement at which time the specifics of her
compensation arrangements may be modified to fit that job position. It is
contemplated that her compensation arrangement for a permanent position as
President and Chief Merchandising Officer would be as noted on Exhibit I.
However, she would not be eligible for any of the components provided for in the
PLAN.

Jerry Szczepanski, Chairman and CEO, has existing severance and retirement
agreements which set out the specific terms and conditions as to payments he is
to receive in the alternative scenarios which might apply to him. Mr.
Szczepanski has reduced his annual compensation $100,000 post-petition and is in
agreement to participate in the retention bonus and the performance incentive
components of the PLAN as shown herein. While his existing severance and
retirement agreements are pre-petition agreements, it is the intention of the
Board of Directors to insure that any modifications would be acceptable to Mr.
Szczepanski.

Exhibit I is a CONFIDENTIAL list of all key employees who will be eligible for
the PLAN with information about their individual participation levels in the
three PLAN components. Exhibit II is a summary of the NEWCO FY 2004 business
plan information which will be used to compare actual results against for the
incentive portion of the PLAN. These exhibits are filed under seal with the
Court.

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THE RETENTION BONUS COMPONENT

The retention bonus portion of the PLAN provides for payments totaling
$1,098,000 representing approximately 19% of the $5.8 million compensation base
for the entire group. An individual selected to be eligible for a retention
bonus must remain employed in good standing for the sooner of:

            -     The effective date of confirmation by the Court of a plan of
                  reorganization or plan of liquidation of their business unit;
                  or,

            -     Sixty days after the date their business unit is sold pursuant
                  to the approval of the Court unless terminated sooner by a
                  purchaser; or,

            -     Until they are terminated by Gadzooks

The term `business unit' is defined as the Company in the main but if individual
stores or groups of stores were sold separately and the employment status of
eligible employees was impacted then the term `business unit' would apply or the
fact that they would be terminated by Gadzooks would apply. If an eligible
employee voluntarily leaves the employ of the Company prior to the above dates,
then they will forfeit all proposed benefits of the PLAN unless earned prior to
the last date of employment. Any forfeited amounts are removed from the PLAN and
will not be reallocated except in the circumstance that another employee is
moved into that position. In the event that occurs, a determination will be made
by the CEO as to an appropriate retention bonus for that individual given the
circumstances. Finally, in the event of a liquidation of the Company, the
Executive Officers would not receive a retention bonus.

THE INCENTIVE BONUS COMPONENT

Historically, the Company has had a performance bonus plan for its key
employees. The Board of Directors believes such a plan is even more important in
the current situation as an additional motivation to keep its key employees. As
a reference point, the incentive portion of the PLAN at the minimum level is
approximately 40% of the total target bonus that was in place for the same group
in FY2003.

The incentive portion of the PLAN is structured to pay a bonus to Groups 1-3 if
the company exceeds certain milestones established in the FY2004 business plan.
Key employees in Groups 4 & 5 are eligible for other routine field level
performance bonuses (based on sales and shrink) that are paid in the ordinary
course of business as has been the practice for a number of years. This
incentive bonus component will replace any other incentive plan for the eligible
employees in Groups 1-3 for FY2004.

The incentive portion of the PLAN incorporates the following concepts:

      -     The measurements of performance will be comparisons of actual
            performance of the NEWCO division against the NEWCO division base
            2004 Plan projections.

      -     Each incentive period is measured separately and the minimum target
            incentive payments would be made if the actual performance in a
            period at least exceeds 2004 Plan by the amount to be paid.

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      -     The incentive portion contemplates a cumulative end of year
            additional payout if the actual annual cumulative performance
            exceeds the 2004 Plan by specific target amounts as described below.
            Such total incentive payout would contemplate that amounts paid
            during the year would be deducted from the `allowable' total
            incentive payout. Such `allowable' total payout would be calculated
            as follows:

                  -     50% of the first $1 million of excess above the annual
                        target

                  -     25% of the next $1 million increments above the annual
                        target until the caps are achieved

      -     The cap on the incentive payments to the individual Group 1
            participants will not exceed 100% of their annual base salaries.

      -     The cap on the incentive payments to the individual Group 2 & 3
            participants will not exceed 25% of their annual base salaries.

The incentive portion of the PLAN is structured to pay eligible employees who
are employed on three dates:

      -     On May 15, 2004 if the goals for the first three months are exceeded
            by at least the amount to be paid, then the percentage sharing
            described above provides the framework for the first period total
            bonus pool. The minimum incentive bonus payout TARGET is
            approximately $180,000 which is 5% of the annual compensation base
            for these employees.

      -     On September 15, if the goals for the next four months are exceeded
            by at least the amount to be paid, then the percentage sharing
            described above again provides the framework for the second period
            total bonus pool. The minimum incentive bonus payout TARGET is
            another approximately $180,000 which is 5% of the annual
            compensation base for these employees.

      -     On February 15, 2005, if the goals for the final five months are
            exceeded by at least the amount to be paid, then the percentage
            sharing described above again provides the framework for the third
            period total bonus pool. The minimum incentive bonus payout TARGET
            is approximately $240,000 which is 6.7% of the annual compensation
            base for these employees.

The grand total minimum payout TARGET of all performance incentive bonuses, if
earned and paid, would approximate $600,000 or 17% of their annual base
compensation. As described above, based on the cumulative magnitude of the
excess over the business plan, it is possible for the employees to realize
higher bonus payouts up to the caps described above. The entire plan will remain
within the discretion of the CEO, Compensation Committee and Restructuring
Committee to make adjustments in the payouts once the incentive pool has been
created through achievement of results exceeding plan.

To be determined to be in good standing, the employee must have been employed
until the payment date as specified above. The incentive bonus for the first
three month's performance, if earned, would be paid on May 15, 2004; and, for
the next four months, if earned, on September 15, 2004. The final period payment
would be paid, if earned, on

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February 15, 2005 for the final 5 months of FY 2004. If a cumulative bonus in
addition to the minimum target bonus is due and payable, it would be paid on
March 1, 2005.

THE MILESTONE IN THE INCENTIVE PLAN FOR GROUPS 1, 2 & 3 IS THE EBITDA FOR THE
PERIOD AS COMPARED TO THE FY2004 BUDGETED BUSINESS PLAN.

THE SEVERANCE PROGRAM COMPONENT

In the event an eligible employee is terminated without cause on or before the
dates noted below, they will receive in addition to the retention bonus, a
severance payment. The events are:

      -     The effective date of confirmation by the Court of a plan of
            reorganization of their business unit; or,

      -     The effective date of confirmation by the Court of a plan of
            liquidation of their business unit; or,

      -     Sixty days after the date their business unit is sold pursuant to
            the approval of the Court unless terminated sooner by a purchaser;
            or,

      -     Until they are terminated by Gadzooks

Terminated employees would forfeit any benefit from the unearned incentive
portion of the PLAN in lieu of payments for retention and severance.

The severance payout portion of the PLAN will terminate upon the effective date
of the plan of reorganization or plan of liquidation. In other words, the
reorganized Debtor would have its own ongoing severance plan. All eligible
employees who are offered positions with the reorganized company would never
receive a severance payment because they had never been effectively terminated.
The same would be the case for eligible employees who are offered positions with
a buyer of their business unit unless terminated by the buyer without cause
within sixty days.

SUMMARY

The PLAN described above is deemed to be within appropriate limits for a Company
of the size and complexity of Gadzooks operating within a bankruptcy proceeding.

Further, some examples may be helpful:

      -     An eligible employee who remains with the Debtor in good standing
            and who is not terminated and if offered a position with the
            reorganized Debtor or a buyer in the event of a sale of their
            business unit will receive a retention payment and incentive
            payments earned as of payment dates on which the employee remained
            employed.

      -     An eligible employee who is terminated without cause in advance of
            having been offered continued employment with a buyer or the
            reorganized Debtor would receive a retention payment, incentive
            payment earned as of payment dates on which the employee remained
            employed and a severance payment.

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      -     An eligible employee terminated for cause or who voluntarily leaves
            the employment of the Debtor would receive only incentive payments
            earned as of payment dates on which the employee remained employed.