Document:

EXECUTIVE EMPLOYMENT AGREEMENT

         This EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated February
14, 2005 by and between Xenomics, Inc., a Florida corporation (the "Company"),
and Bernard Denoyer, an individual (the "Executive").

         The Company desires to employ the Executive, and the Executive wishes
to accept such employment with the Company, upon the terms and conditions set
forth in this Agreement.

         NOW THEREFORE, in consideration of the foregoing facts and mutual
agreements set forth below, the parties, intending to be legally bound, agree as
follows:

         1. Employment. The Company hereby agrees to employ Executive, and
Executive hereby accepts such employment and agrees to perform Executive's
duties and responsibilities in accordance with the terms and conditions
hereinafter set forth.

                  1.1 Duties and Responsibilities. Executive shall serve as Vice
President - Controller. During the Employment Term, Executive shall perform all
duties and accept all responsibilities incident to such positions and other
appropriate duties as may be assigned to Executive by the Company's Chief
Executive Officer from time to time. The Company shall retain full direction and
control of the manner, means and methods by which Executive performs the
services for which she is employed hereunder and of the place or places at which
such services shall be rendered. The Executive agrees that he will sign various
federal and state securities filings as the Company's principal accounting
officer.

                  1.2 Employment Term. The term of Executive's employment under
this Agreement shall commence as of February 14, 2005 (the "Effective Date") and
shall continue for 12 months, unless earlier terminated in accordance with
Section 4 hereof. The term of Executive's employment shall be automatically
renewed for successive one (1) year periods until the Executive or the Company
delivers to the other party a written notice of their intent not to renew the
"Employment Term," such written notice to be delivered at least sixty (60) days
prior to the expiration of the then-effective "Employment Term" as that term is
defined below. The period commencing as of the Effective Date and ending 12
months thereafter or such later date to which the term of Executive's employment
under the Agreement shall have been extended by mutual written Agreement is
referred to herein as the "Employment Term."

                  1.3 Extent of Service. During the Employment Term, Executive
agrees to use Executive's best efforts to carry out the duties and
responsibilities under Section 1.1 hereof and to devote at least two (2) days
per week to such duties and responsibilities. Except for his employment with
Callisto Pharmaceuticals, Inc., Executive further agrees not to work either on a
part-time or independent contracting basis for any other business or enterprise
during the Employment Term without the prior written consent of the Company's
Board of Directors (the "Board"), which consent shall not be unreasonably
withheld.

                  1.4 Base Salary. The Company shall pay Executive a base salary
(the "Base Salary") at the annual rate of $60,000 (U.S.), payable at such times
as the Company customarily pays its other senior level executives (but in any
event no less often than monthly). The Base Salary shall be subject to all
state, federal, and local payroll tax withholding and any other withholdings
required by law.

<PAGE>

                  1.5 Reimbursement of Expenses. Executive shall be provided
with reimbursement of expenses related to Executive's employment by the Company
on a basis no less favorable than that which may be authorized from time to time
by the Board, in its sole discretion, for senior level executives as a group.

                  1.6 Options. The Compensation Committee of the Board will make
an initial grant of options to the Executive of 75,000 incentive stock options
under the Company's 2004 Stock Option Plan with an exercise price of $2.50 per
share. Such options will vest at the rate of 25,000 per year for a period of
three years beginning on January 14, 2006.

                  1.7 No Other Compensation. Except as expressly provided in
Sections 1.4 and 1.6, Executive shall not be entitled to any other compensation
or benefits.

         2. Confidential Information. Executive recognizes and acknowledges that
by reason of Executive's employment by and service to the Company before, during
and, if applicable, after the Employment Term, Executive will have access to
certain confidential and proprietary information relating to the Company's
business, which may include, but is not limited to, trade secrets, trade
"know-how," product development techniques and plans, formulas, customer lists
and addresses, financing services, funding programs, cost and pricing
information, marketing and sales techniques, strategy and programs, computer
programs and software and financial information (collectively referred to as
"Confidential Information"). Executive acknowledges that such Confidential
Information is a valuable and unique asset of the Company and Executive
covenants that he will not, unless expressly authorized in writing by the
Company, at any time during the course of Executive's employment use any
Confidential Information or divulge or disclose any Confidential Information to
any person, firm or corporation except in connection with the performance of
Executive's duties for the Company and in a manner consistent with the Company's
policies regarding Confidential Information. Executive also covenants that at
any time after the termination of such employment, directly or indirectly, he
will not use any Confidential Information or divulge or disclose any
Confidential Information to any person, firm or corporation, unless such
information is in the public domain through no fault of Executive or except when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
or legislative body (including a committee thereof) with apparent jurisdiction
to order Executive to divulge, disclose or make accessible such information. All
written Confidential Information (including, without limitation, in any computer
or other electronic format) which comes into Executive's possession during the
course of Executive's employment shall remain the property of the Company.
Except as required in the performance of Executive's duties for the Company, or
unless expressly authorized in writing by the Company, Executive shall not
remove any written Confidential Information from the Company's premises, except
in connection with the performance of Executive's duties for the Company and in
a manner consistent with the Company's policies regarding Confidential
Information. Upon termination of Executive's employment, the Executive agrees to
return immediately to the Company all written Confidential Information
(including, without limitation, in any computer or other electronic format) in
Executive's possession. As a condition of Executive's continued employment with
the Company and in order to protect the Company's interest in such proprietary
information, the Company shall require Executive's execution of a
Confidentiality Agreement and Inventions Agreement in the form attached hereto
as Exhibit "A", and incorporated herein by this reference.

<PAGE>

         3. Non-Competition; Non-Solicitation.

                  3.1 Non-Compete. The Executive hereby covenants and agrees
that during the term of this Agreement and for a period of one year following
the end of the Employment Term, the Executive will not, without the prior
written consent of the Company, directly or indirectly, on his own behalf or in
the service or on behalf of others, whether or not for compensation, engage in
any business activity, or have any interest in any person, firm, corporation or
business, through a subsidiary or parent entity or other entity (whether as a
shareholder, agent, joint venturer, security holder, trustee, partner,
consultant, creditor lending credit or money for the purpose of establishing or
operating any such business, partner or otherwise) with any Competing Business
in the Covered Area. For the purpose of this Section 3.1, (i) "Competing
Business" means any biotechnology or pharmaceutical company, any contract
manufacturer, any research laboratory or other company or entity (whether or not
organized for profit) that has, or is seeking to develop, one or more products
or therapies that is related to genetic testing through the use of urine
specimens and (ii) "Covered Area" means all geographical areas of the United
States, Ireland, Germany and other foreign jurisdictions where Company then has
offices and/or sells its products directly or indirectly through distributors
and/or other sales agents. Notwithstanding the foregoing, the Executive may own
shares of companies whose securities are publicly trades, so long as such
securities do not constitute more than one percent (1%) of the outstanding
securities of any such company.

                  3.2 Non-Solicitation. The Executive further agrees that as
long as the Agreement remains in effect and for a period of one (1) year from
its termination, the Executive will not divert any business of the Company
and/or its affiliates or any customers or suppliers of the Company and/or the
Company's and/or its affiliates' business to any other person, entity or
competitor, or induce or attempt to induce, directly or indirectly, any person
to leave his or her employment with the Company.

                  3.3 Remedies. The Executive acknowledges and agrees that his
obligations provided herein are necessary and reasonable in order to protect the
Company and its affiliates and their respective business and the Executive
expressly agrees that monetary damages would be inadequate to compensate the
Company and/or its affiliates for any breach by the Executive of his covenants
and agreements set forth herein. Accordingly, the Executive agrees and
acknowledges that any such violation or threatened violation of this Section 3
will cause irreparable injury to the Company and that, in addition to any other
remedies that may be available, in law, in equity or otherwise, the Company and
its affiliates shall be entitled to obtain injunctive relief against he
threatened breach of this Section 3 or the continuation of any such breach by
the Executive without the necessity of proving actual damages.

         4. Termination.

                  4.1 By Company. The Company, by action of the Chief Executive
Officer or acting by duly adopted resolutions of the Board of Directors, may, in
its discretion and at its option, terminate the Executive's employment with or
without Cause, and without prejudice to any other right or remedy to which the
Company or Executive may be entitled at law or in equity or under this
Agreement. In the event the Company desires to terminate the Executive's
employment without Cause, the Company shall give the Executive not less than
thirty (30) days advance written notice. Termination of Executive's employment
hereunder shall be deemed to be "for Cause" in the event that Executive violates
any provisions of this Agreement, is guilty of any criminal act other than minor
traffic violations, is guilty of willful misconduct or gross neglect, or gross
dereliction of his duties hereunder or refuses to perform his duties hereunder
after notice of such refusal to perform such duties or directions was given to
Executive by the Chief Executive Officer or Board of Directors.

                  4.2 By Executive's Death or Disability. This Agreement shall
also be terminated upon the Executive's death and/or a finding of permanent
physical or mental disability, such disability expected to result in death or to
be of a continuous duration of no less than twelve (12) months, and the
Executive is unable to perform his usual and essential duties for the Company.

<PAGE>

                  4.3 Compensation on Termination. In the event the Company
terminates Executive's employment, all payments under this Agreement shall
cease, except for Base Salary to the extent already accrued. In the event of
termination by reason of Executive's death and/or permanent disability,
Executive or his executors, legal representatives or administrators, as
applicable, shall be entitled to an amount equal to Executive's Base Salary
accrued through the date of termination. Upon termination of Executive, if
Executive executes a written release, substantially in the form attached hereto
as Exhibit "B" (the "Release"), of any and all claims against the Company and
all related parties with respect to all matters arising out of Executive's
employment by the Company (other than Executive's entitlement under any employee
benefit plan or program sponsored by the Company in which Executive
participated), unless the Employment Term expires or termination is for Cause,
the Executive shall receive, in full settlement of any claims Executive may have
related to his employment by the Company, Base Salary for 30 calendar days from
the date of termination, provided Executive is in full compliance with the
provisions of Sections 2 and 3 of this Agreement.

                  4.4 Voluntary Termination. Executive may voluntarily terminate
the Employment Term upon sixty (60) days' prior written notice for any reason;
provided, however, that no further payments shall be due under this Agreement in
that event except that Executive shall be entitled to any benefits due under any
compensation or benefit plan provided by the Company for executives or otherwise
outside of this Agreement.

         5. General Provisions.

                  5.1 Modification: No Waiver. No modification, amendment or
discharge of this Agreement shall be valid unless the same is in writing and
signed by all parties hereto. Failure of any party at any time to enforce any
provisions of this Agreement or any rights or to exercise any elections hall in
no way be considered to be a waiver of such provisions, rights or elections and
shall in no way affect the validity of this Agreement. The exercise by any party
of any of its rights or any of this elections under this Agreement shall not
preclude or prejudice such party from exercising the same or any other right it
may have under this Agreement irrespective of any previous action taken.

                  5.2 Notices. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be deemed to have been given when hand delivered or mailed
by registered or certified mail as follows (provided that notice of change of
address shall be deemed given only when received):

         If to the Company, to:     Xenomics, Inc.
                                    420 Lexington Avenue, Suite 1701
                                    New York, NY 10170

         If to Executive, to:       Bernard Denoyer

Or to such other names or addresses as the Company or Executive, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.

                  5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

                  5.4 Further Assurances. Each party to this Agreement shall
execute all instruments and documents and take all actions as may be reasonably
required to effectuate this Agreement.

<PAGE>

                  5.5 Severability. Should any one or more of the provisions of
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, then such illegal or unenforceable
provision shall be modified by the proper court or arbitrator to the extent
necessary and possible to make such provision enforceable, and such modified
provision and all other provisions of this Agreement and of each other agreement
entered into pursuant to this Agreement shall be given effect separately from
the provisions or portion thereof determined to be illegal or unenforceable and
shall not be affected thereby.

                  5.6 Successors and Assigns. Executive may not assign this
Agreement without the prior written consent of the Company. The Company may
assign its rights without the written consent of the executive, so long as the
Company or its assignee complies with the other material terms of this
Agreement. The rights and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the Company, and the Executive's rights under this Agreement shall inure to
the benefit of and be binding upon his heirs and executors. The Company's
subsidiaries and controlled affiliates shall be express third party
beneficiaries of this Agreement.

                  5.7 Entire Agreement. This Agreement supersedes all prior
agreements and understandings between the parties, oral or written. No
modification, termination or attempted waiver shall be valid unless in writing,
signed by the party against whom such modification, termination or waiver is
sought to be enforced.

                  5.8 Counterparts; Facsimile. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original, and all of which taken together shall constitute one and the same
instrument. This Agreement may be executed by facsimile with original signatures
to follow.

         IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of the date first written above.

                                                    XENOMICS, INC.

                                                    By:  /s/ V. Randy White
                                                       ------------------------
                                                       V. Randy White
                                                       Chief Executive Officer

                                                        /s/ Bernard Denoyer
                                                       ------------------------
                                                       Bernard DenoyerExhibit 10.1

 

	
  

  	
  LOAN
  MODIFICATION

  AGREEMENT

  

 

This Modification
modifies the Business Loan Agreement dated May 29, 2003 (“Agreement”),
regarding a revolving line of credit in the maximum principal amount of
$20,000,000.00 (the “Loan”), executed by ZUMIEZ INC. (“Borrower”) and BANK OF
AMERICA, N.A. (“Bank”). Terms used in this Modification and defined
in the Agreement shall have the meaning given to such terms in the Agreement.
For mutual consideration, Borrower and Bank agree to amend the Agreement as
follows:

 

1.                                       Commitment.
Section 1.1 of the Agreement is amended to read as follows:

 

1.1                               Line of Credit Amount.

 

(a)                               During the availability
period described below, the Bank will provide a line of credit to the Borrower.
The amount of the line of credit (the “Commitment”) is initially
$20,000,000.00. Upon receipt by the Bank of the Borrower’s written request, the
Commitment may be increased to $25,000,000.00 provided that:

 

(i)                                  The Borrower is in
compliance with all terms and conditions of this Agreement and of the other
loan documents at the time the Borrower elects to increase the Commitment;

 

(ii)                              The Borrower has provided
the Bank with a forecast indicating continued compliance with all terms and
conditions of this Agreement for the remaining availability period; and

 

(iii)                          The Borrower has paid to the
Bank a fee of $2,500 for the increase.

 

2.                                       Expiration
Date. Section 1.2 of the Agreement is amended to read as follows:

 

1.2                               Availability Period.  The line
of credit is available between the date of this Agreement until July 1,
2006, or such earlier date as the availability may terminate as provided in
this Agreement (the “Expiration Date”). 
On or before July 1, 2005, the Bank shall, at its sole discretion,
(a) provide the Borrower with a commitment to extend the Expiration Date an
additional 12 months, (thereby changing the Expiration Date to July 1,
2007) or, alternatively, (b) notify the Borrower that the  Bank is not prepared at that time to extend the Line
of Credit beyond the Expiration Date. The Borrower may, on or before
June 1, 2005, notify the Bank of its intent to terminate the agreement
effective July 1, 2005.

 

3.                                       Interest
Rates.

 

(a)                                  Section 1.4(a)
of the Agreement is amended to read as follows: The interest rate is a rate per year equal to the Prime Rate plus (or
minus, as indicated) the Prime Margin.

 

(b)                                 The
second sentence of Section 1.5 of the Agreement is amended to read as
follows:  The optional interest rates shall be the LIBOR Rate plus the LIBOR
Margin as defined below, and shall be subject to the terms and conditions
described later in this Agreement.

 

(c)                                  “Applicable
Margin” as used in the Agreement shall mean both the LIBOR Margin and the Prime
Margin.

 

1

 

4.                                       Applicable
Margin. The pricing grid set forth in Section 1.6 of the Agreement is
amended to read as follows:

 

	
  Pricing

  Level

  	
   

  	
  Adjusted Funded Debt to

  EBIDTAR Ratio

  	
   

  	
  Prime Margin

  	
   

  	
  LIBOR

  Margin

  	
   

  	
  B/A Rate

  	
   

  	
  Nonusage

  Fee Margin

  	
   

  
	
  4

  	
   

  	
  Greater than or
  equal to 4.00

  to 1

  	
   

  	
  -.10

  	
  %

  	
  2.15

  	
  %

  	
  2.00

  	
  %

  	
  0.20

  	
  %

  
	
  3

  	
   

  	
  Greater than or
  equal to 3.50

  to 1; but less than 4.00 to 1

  	
   

  	
  -.25

  	
  %

  	
  1.90

  	
  %

  	
  1.75

  	
  %

  	
  0.15

  	
  %

  
	
  2

  	
   

  	
  Greater than or
  equal to 3.00

  to 1; but less than 3.50 to 1

  	
   

  	
  -.50

  	
  %

  	
  1.65

  	
  %

  	
  1.50

  	
  %

  	
  0.10

  	
  %

  
	
  1

  	
   

  	
  Less than 3.00
  to 1

  	
   

  	
  -.75

  	
  %

  	
  1.40

  	
  %

  	
  1.25

  	
  %

  	
  0.075

  	
  %

  

 

5.                                       Unused
Commitment Fee.  A new sentence is
added to the end of Section 3.1(c) of the Agreement, to read as follows: If the Commitment is increased at any time pursuant
to Section 1.1(a) of the Agreement, such increase will be taken into
account in calculating the unused commitment fee under this paragraph,
beginning on the date such increase becomes effective.

 

6.                                       Adjusted
Funded Debt to EBITDAR Ratio. 
Section 8.4(b) of the Agreement is amended to read as follows:  “Adjusted
Funded Debt” means Funded Debt plus six times annual cash
occupancy expense.

 

7.                                       Extension
Fee.  Borrower shall pay to Bank an
extension fee of $2,500 upon execution of this Modification.

 

8.                                       Other
Terms.  Except as specifically
amended by this Modification or any prior amendment, all other terms,
conditions, and definitions of the Agreement, and all other documents,
instruments, or agreements entered into with regard to the Loan, shall remain
in full force and effect. Borrower warrants that the representations and
warranties made by Borrower in the Agreement continue to be true and correct,
except to the extent that such representations and warranties expressly relate
to an earlier date.

 

DATED as of
September 30, 2004.

 

 

	
  Bank:

  	
   

  	
  Borrower

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BANK OF AMERICA, N.A.

  	
   

  	
  ZUMIEZ INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Curt G.
  Clausen

  	
   

  	
  By

  	
  /s/ Brenda I. Morris

  	
   

  
	
   

  	
       Curt
  G. Clausen, Senior Vice President

  	
   

  	
   

  	
       Brenda
  I. Morris, Chief Financial Officer

  	
   

  

 

2

 

BUSINESS LOAN AGREEMENT

 

 

This Agreement
dated as of May 29, 2003, is between BANK OF AMERICA, N.A., a national banking
association (the “Bank”), and ZUMIEZ INC., a Delaware corporation (the
“Borrower”).

 

1.                                      LINE
OF CREDIT AMOUNT AND TERMS

 

1.1.                              Line
of Credit Amount.

 

(a)                                  During
the availability period described below, the Bank will provide a line of credit
to the Borrower. The amount of the line of credit (the “Commitment”) is
initially $20,000,000.00. On or after July 1, 2004, upon receipt by the
Bank of the Borrower’s written request, the Commitment may be increased to
$25,000,000.00 provided that:

 

(i)                                     The
Borrower is in compliance with all terms and conditions of this Agreement and
of the other loan documents at the time the Borrower elects to increase the
Commitment; and

 

(ii)                                  The
Borrower has provided the Bank with a forecast indicating continued compliance
with all terms and conditions of this Agreement for the remaining availability
period.

 

(b)                                 This
is a revolving line of credit. During the availability period, the Borrower may
repay principal amounts and reborrow them.

 

(c)                                  The
Borrower agrees not to permit the principal balance outstanding to exceed the
Commitment.  If the Borrower exceeds
this limit, the Borrower will immediately pay the excess to the Bank upon the
Bank’s demand.

 

1.2.                              Availability
Period. The line of credit is available between the date of this Agreement
until July 1, 2005, or such earlier date as the availability may terminate
as provided in this Agreement (the “Expiration Date”). On or before
July 1, 2004, the Bank shall, at its sole discretion, (a) provide the
Borrower with a commitment to extend the Expiration Date an additional 12
months, (thereby changing the Expiration Date to July 1, 2006) or,
alternatively, (b) notify the Borrower that the Bank is not prepared at that
time to extend the Line of Credit beyond the Expiration Date.

 

1.3.                              Repayment
Terms.

 

(a)                                  The
Borrower will pay interest on June 1, 2003, and then on the first calendar
day of each month thereafter until payment in full of any principal outstanding
under the Line of Credit. Any interest period for an optional interest rate (as
described below) shall expire no later than the Expiration Date.

 

(b)                                 The
Borrower will repay in full all principal and any unpaid interest of other
charges outstanding under the Line of Credit no later than the Expiration Date.

 

1.4.                              Interest
Rate.

 

(a)                                  The
interest rate is a rate per year equal to the Prime Rate.

 

(b)                                 The
Prime Rate is the rate of interest publicly announced from time to time by the
Bank as its Prime Rate. The Prime Rate is set by the Bank based on various
factors, including the Bank’s costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans.  The Bank may price loans to its
customers at, above, or below the Prime Rate. Any change in the Prime Rate
shall take effect at the opening of business on the day specified in the public
announcement of a change in the Bank’s Prime Rate.

 

1.5.                              Optional
Interest Rates. Instead of the interest rate based on the rate stated in
Section 1.4(a), the Borrower may elect the optional interest rates listed
below for the Line of Credit during interest periods specified in
Section 2.2(a). The optional interest rates shall be the LIBOR Rate plus
the Applicable Margin as defined below, and shall be subject to the terms and
conditions described later in

 

1

 

this
Agreement.  Any principal amount bearing
interest at an optional rate under this Agreement is referred to as a
“Portion.”

 

1.6.                              Applicable
Margin. The Applicable Margin, B/A Rate, and Nonusage Fee Margin shall be
the following amounts per annum, based upon the “Adjusted Funded Debt to
EBITDAR Ratio” (as defined in Section 8.4 of this Agreement), as set forth
in the most recent compliance certificate (or, if no compliance certificate is
required, the Borrower’s most recent financial statements) received by the Bank
as required in the Covenants section; provided, however, that, until the Bank
receives the first compliance certificate and financial statement, such amounts
shall be those indicated for pricing level 2 set forth below:

 

	
  Pricing

  Level

  	
   

  	
  Adjusted Funded Debt to

  EBIDTAR Rate

  	
   

  	
  Applicable

  Margin

  	
   

  	
  B/A Rate

  	
   

  	
  Nonusage

  Fee Margin

  	
   

  
	
  4

  	
   

  	
  Greater than or
  equal to 4.00 to 1

  	
   

  	
  2.25

  	
  %

  	
  2.10

  	
  %

  	
  0.20

  	
  %

  
	
  3

  	
   

  	
  Greater than or
  equal to 3.50 to 1;

  but less than 4.00 to 1

  	
   

  	
  2.00

  	
  %

  	
  1.85

  	
  %

  	
  0.15

  	
  %

  
	
  2

  	
   

  	
  Greater than or
  equal to 3.00 to 1;

  but less than 3.50 to 1

  	
   

  	
  1.75

  	
  %

  	
  1.60

  	
  %

  	
  0.10

  	
  %

  
	
  1

  	
   

  	
  Less than 3.00
  to 1

  	
   

  	
  1.50

  	
  %

  	
  1.35

  	
  %

  	
  0.10

  	
  %

  

 

The Applicable Margin, B/A
Rate, and Nonusage Fee Margin shall be in effect from the first day of the
month following the date the most recent compliance certificate and financial
statement is received by the Bank, until the date the next compliance
certificate and financial statement is received; provided, however, that if the
Borrower fails to timely deliver the next compliance certificate or financial
statement, the Line of Credit shall accrue interest at the Prime Rate (and the
optional interest rate shall not be available) from the date such compliance
certificate or financial statement was due until the date such compliance
certificate or financial statement is received by the Bank.

 

1.7.                              Acceptances.  The Line of Credit may be used for financing
acceptance transactions for a minimum tenor of 30 days and a maximum tenor of
180 days, and not to extend beyond the Expiration Date. In calculating the
principal amount outstanding under the Commitment, the calculation shall
include the face amount of any acceptances outstanding. The Borrower agrees:

 

(a)                                  Each
acceptance shall be in an amount not less than $250,000.

 

(b)                                 Any
sum owed to the Bank under an acceptance may, at the option of the Bank, be
added to the principal amount outstanding under this Agreement.  The amount will bear interest and be due as
described elsewhere in this Agreement.

 

(c)                                  If
there is a default under this Agreement, to immediately prepay and make the
Bank whole for any outstanding acceptances.

 

(d)                                 The
issuance of any acceptance is subject to the Bank’s express approval and must
be in form and content satisfactory to the Bank.

 

(e)                                  To
sign the Bank’s standard form agreement for acceptances, and to pay any
issuance and/or other fees that the Bank notifies the Borrower will be charged
for issuing and processing acceptances for the Borrower. The discount
calculated for each acceptance shall be calculated using the B/A Rate set forth
in Section 1.6.

 

(f)                                    To
allow the Bank to automatically charge the Designated Account (as defined
below) for applicable fees, discounts, and other charges.

 

1.8.                             Letters
of Credit.

 

(a)                                  During
the availability period, at the request of the Borrower, the Bank will issue
commercial letters of credit with a maximum maturity of 180 days, and not to
extend more than 180 days beyond the Expiration Date. Each commercial letter of credit will require drafts payable at
sight.

 

2

 

(b)                                 The
amount of the letters of credit outstanding at any one time (including the
drawn and unreimbursed amounts of the letters of credit) may not exceed
$7,500,000.

 

(c)                                  In
calculating the principal amount outstanding under the Commitment, the
calculation shall include the amount of any letters of credit outstanding,
including amounts drawn on any letters of credit and not yet reimbursed.

 

(d)                                 The
Borrower agrees:

 

(i)                                     Any
sum drawn under a letter of credit may, at the option of the Bank, be added to
the principal amount outstanding under this Agreement. The amount will bear
interest and be due as described elsewhere in this Agreement.

 

(ii)                                  If
there is a default under this Agreement, to prepay and make the Bank whole for
any outstanding letters of credit, immediately upon the written request of the
Bank.

 

(iii)                               The
issuance of any letter of credit and any amendment to a letter of credit is
subject to the Bank’s written approval and must be in form and content
satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.

 

(iv)                              To
sign the Bank’s form Application and Agreement for Commercial Letter of Credit or
Application and Agreement for Standby Letter of Credit, as applicable.

 

(v)                                 To
pay any issuance and/or other fees that the Bank notifies the Borrower will be
charged for issuing and processing letters of credit for the Borrower.

 

(vi)                              To
allow the Bank to automatically charge the Designated Account (as defined
below) for applicable fees, discounts, and other charges.

 

(e)                                  Letters
of credit outstanding for the account of the Borrower as of the date of this
Agreement shall be deemed to be outstanding under this Agreement, and shall be
subject to all the terms and conditions stated in this Agreement.

 

2.                                      OPTIONAL INTEREST
RATES

 

2.1.                              Optional
Rates. Each optional interest rate is a rate per year. Interest will be
paid on the first day of each month during the interest period.  At the end of any interest period, the
interest rate will revert to the rate stated in Section 1.4(a) above,
unless the Borrower has designated another optional interest rate for the
Portion. No Portion will be converted to a different interest rate during the
applicable interest period. Upon the occurrence of an event of default under
this Agreement, after written notice of default has been given to the Borrower,
the Bank may suspend the availability of optional interest rates for interest
periods commencing after the default occurs, with such suspension to continue
until such default is cured.

 

2.2.                              LIBOR
Rate. The election of LIBOR Rates shall be subject to the following terms
and requirements:

 

(a)                                  The
interest period during which the LIBOR Rate will be in effect will be one, two,
or three months. The first day of the interest period must be a day other than
a Saturday or a Sunday on which the Bank is open for business in New York and
London and dealing in offshore dollars (a “LIBOR Banking Day”). The last day of
the interest period and the actual number of days during the interest period
will be determined by the Bank using the practices of the London inter-bank
market.

 

(b)                                 Each
LIBOR Rate Portion will be for an amount not less than $250,000.

 

3

 

(c)                                  The
“LIBOR Rate” means the interest rate determined by the following formula
rounded upward to the nearest 1/100 of one percent.  (All amounts in the calculation will be determined by the Bank as
of the first day of the interest period.)

 

	
  LIBOR Rate =

  	
  London Inter-Bank Offered Rate

  
	
   

  	
  (1.00 - Reserve
  Percentage)

  

 

Where,

 

(i)                                     “London
Inter-Bank Offered Rate” means the average per annum interest rate at which
U.S. dollar deposits would be offered for the applicable interest period by
major banks in the London inter-bank market, as shown on the Telerate Page 3750
(or any successor page) at approximately 11:00 a.m., London time, two (2)
London Banking Days before the
commencement of the interest period. If such rate does not appear or the
Telerate Page 3750 (or any successor page), the rate for that interest period
will be determined by such alternate method as reasonably selected by the
Bank.  A “London Banking Day” is a day
on which the Bank’s London Banking Center is open for business and dealing in
offshore dollars.

 

(ii)                                  “Reserve
Percentage” means the total of the maximum reserve percentages for determining
the reserves to be maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent.  The percentage will be expressed as a decimal, and will include,
but not be limited to marginal, emergency, supplemental, special, and other
reserve percentages.

 

(d)                                 The
Borrower shall irrevocably request a LIBOR Rate Portion no later than 12:00
noon, Pacific time, on the LIBOR Banking Day preceding the day on which the
London Inter-Bank Offered Rate will be set, as specified above.  For example, if there are no intervening
holidays or weekend days in any of the relevant locations, the request must be
made at least three days before the LIBOR Rate takes effect.

 

(e)                                  The
Bank will have no obligation to accept an election for a LIBOR Rate Portion if
any of the following described events has occurred and is continuing:

 

(i)                                     Dollar
deposits in the principal amount, and for periods equal to the interest period,
of a LIBOR Rate Portion are not available in the London inter-bank market; or

 

(ii)                                  the
LIBOR Rate does not accurately reflect the cost of a LIBOR Rate Portion.

 

(f)                                    Each
prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below.  A “prepayment” is a payment of an amount on
a date earlier than the scheduled payment date for such amount as required by
this Agreement.

 

(g)                                 The
prepayment fee shall be in an amount sufficient to compensate the Bank for any
loss, cost or expense incurred by it as a result of the prepayment, including
any loss of anticipated profits and any loss or expense arising from the
liquidation or reemployment of funds obtained by it to maintain such Portion or
from fees payable to terminate the deposits from which such funds were
obtained. The Borrower shall also pay any customary administrative fees charged
by the Bank in connection with the foregoing. For purposes of this paragraph,
the Bank shall be deemed to have funded each Portion by a matching deposit or
other borrowing in the applicable interbank market, whether or not such Portion
was in fact so funded.

 

4

 

3.                                      FEES AND EXPENSES

 

3.1.                              Fees.

 

(a)                                  Loan
Fee.  The Borrower agrees to pay a loan fee in the amount of
$20,000, to which shall be applied any acceptance fee paid by the Borrower to
the Bank upon acceptance of the Bank’s commitment for the Line of Credit. This
fee is due on the date of this Agreement.

 

(b)                                 Increase
Fee.  The Borrower shall pay an increase fee of $5,000 if  and when it exercises its option to
increase the Commitment to $25,000,000.

 

(c)                                  Unused
Commitment Fee.  The Borrower agrees to pay a fee on any difference between the
Commitment and the amount of credit it actually uses, determined by the average
of the daily amount of credit outstanding during the specified period. The fee
will be calculated at a percentage per year equal to the “Nonusage Fee Margin”
determined in accordance with Section 1.6. The calculation of credit
outstanding shall include the outstanding acceptances and the undrawn amount of
letters of credit. This fee is due on the last day of each calendar quarter
until the Expiration Date.

 

(d)                                 Late
Fee.  To the extent permitted by law, the Borrower agrees to pay
a late fee in an amount not to exceed four percent (4%) of any payment that is
more than fifteen (15) days late. The imposition and payment of a late fee
shall not constitute a waiver of the Bank’s rights with respect to the default.

 

3.2.                              Expenses.  The
Borrower agrees to immediately repay the Bank for expenses, that include, but
are not limited to, filing and search fees, appraisal fees, and documentation
fees.

 

3.3.                              Reimbursement
Costs.

 

(a)                                  The
Borrower agrees to reimburse the Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required by this
Agreement.  Expenses include, but are
not limited to, reasonable attorneys’ fees, including any allocated costs of
the Bank’s in-house counsel to the extent permitted by applicable law.

 

(b)                                 The
Borrower agrees to reimburse the Bank for the cost of periodic field
examinations of the Borrower’s books, records and collateral, and appraisals of
the collateral, not more frequently than annually unless the Borrower is in
default under this Agreement.  The
actions described in this paragraph may be performed by employees of the Bank
or by independent appraisers.

 

4.                                     COLLATERAL

 

The Borrower’s
obligations to the Bank under this Agreement will be secured by personal
property the Borrower now owns or will own in the future as listed below (as
defined under the Uniform Commercial Code). The collateral is further defined
in a security agreement executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all renewals,
modifications and extensions of the Line of Credit.  All personal property collateral securing any other present or
future obligations of the Borrower to the Bank shall also secure this Agreement.

 

(a)                                  Equipment
and Fixtures.

 

(b)                                 Inventory.

 

(c)                                  Accounts.

 

(d)                                 General
Intangibles.

 

(e)                                  Proceeds
of the foregoing.

 

5

 

5.                                      DISBURSEMENTS,
PAYMENTS AND COSTS

 

5.1.                              Disbursements
and Payments.

 

(a)                                  Each
payment by the Borrower will be made in immediately available funds by direct
debit to a deposit account as specified below or by mail to the address shown
on the Borrower’s statement or at one of the Bank’s banking centers in the
United States.

 

(b)                                 Each
disbursement by the Bank and each payment by the Borrower will be evidenced by
records kept by the Bank.

 

5.2.                              Telephone
and Telefax Authorization.

 

(a)                                  The
Bank may honor telephone or telefax instructions for advances or repayments or
for the designation of optional interest rates and telefax requests for the
issuance of letters of credit given, or purported to be given, by any one of the individuals authorized to sign
loan agreements on behalf of the Borrower, or any other individual designated
by any one of such authorized signers.

 

(b)                                 Advances
will be deposited in and repayments will be withdrawn from account number
67549808 owned by the Borrower, or such other of the Borrower’s accounts with
the Bank as designated in writing by the Borrower.

 

(c)                                  The
Borrower will indemnify and hold the Bank harmless from all liability, loss,
and costs in connection with any act resulting from telephone or telefax
instructions the Bank reasonably believes are made by any individual authorized
by the Borrower to give such instructions. This paragraph will survive this
Agreement’s termination, and will benefit the Bank and its officers, employees,
and agents.

 

5.3.                              Direct
Debit (Pre-Billing).

 

(a)                                  The
Borrower agrees that the Bank will debit deposit account number 67549808 owned
by the Borrower, or such other of the Borrower’s accounts with the Bank as
designated in writing by the Borrower (the “Designated Account”) on the date
each payment of principal and interest and any fees from the Borrower becomes
due (the “Due Date”).

 

(b)                                 Prior
to each Due Date, the Bank will mail to the Borrower a statement of the amounts
that will be due on that Due Date (the “Billed Amount”).  The bill will be mailed a specified number
of calendar days prior to the Due Date, which number of days will be mutually
agreed from time to time by the Bank and the Borrower. The calculations in the
bill will be made on the assumption that no new extensions of credit or
payments will be made between the date of the billing statement and the Due
Date, and that there will be no changes in the applicable interest rate.

 

(c)                                  The
Bank will debit the Designated Account for the Billed Amount, regardless of the
actual amount due on that date (the “Accrued Amount”). If the Billed Amount
debited to the Designated Account differs from the Accrued Amount, the
discrepancy will be treated as follows:

 

(i)                                     If
the Billed Amount is less than the Accrued Amount, the Billed Amount for the
following Due Date will be increased by the amount of the discrepancy.  The Borrower will not be in default by
reason of any such discrepancy.

 

(ii)                                  If
the Billed Amount is more than the Accrued Amount, the Billed Amount for the
following Due Date will be decreased by the amount of the discrepancy.

 

Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without compounding. The
Bank will not pay the Borrower interest on any overpayment.

 

(d)                                 The
Borrower will maintain sufficient funds in the Designated Account to cover each
debit. If there are insufficient funds in the Designated Account on the date
the Bank enters any debit authorized by this Agreement, the Bank may reverse
the debit.

 

6

 

5.4.                              Banking
Days.  Unless otherwise provided in
this Agreement, a banking day is a day other than a Saturday, Sunday or other
day on which commercial banks are authorized to close, or are in fact closed,
in the state where the Bank’s lending office is located, and, if such day
relates to amounts bearing interest at an offshore rate (if any), means any
such day on which dealings in dollar deposits are conducted among banks in the
offshore dollar interbank market.  All
payments and disbursements which would be due on a day which is not a banking
day will be due on the next banking day. All payments received on a day which
is not a banking day will be applied to the Line of Credit on the next banking
day.

 

5.5.                              Interest
Calculation. Except as otherwise stated in this Agreement, all interest and
fees if any, will be computed on the basis of a 360-day year and the actual
number of days elapsed. This results in more interest or a higher fee than if a
365-day year is used. Installments of principal which are not paid when due
under this Agreement shall continue to bear interest until paid.

 

5.6.                              Default
Rate.  Upon the occurrence of any
default under this Agreement, all amounts outstanding under this Agreement,
including any interest, fees, or costs which are not paid when due, will at the
option of the Bank bear interest at a rate which is 3.0% higher than the rate
of interest otherwise provided under this Agreement. This may result in
compounding of interest. This will not constitute a waiver of any default.

 

6.                                      CONDITIONS

 

The Bank must receive the
following items, in form and content acceptable to the Bank, before it is
required to extend any credit to the Borrower under this Agreement:

 

6.1.                              Conditions
to First Extension of Credit. Before the first extension of credit:

 

(a)                                  Authorizations.  Evidence that the execution, delivery and
performance by Borrower of this Agreement and any instrument or agreement
required under this Agreement has been duly authorized.

 

(b)                                 Governing
Documents.  Copies of the Borrower’s
certificate of incorporation, articles of incorporation, and  bylaws, or equivalent organizational
documents.

 

(c)                                  Perfection
and Evidence of Priority. Financing statements, together with evidence that
the security interests and liens in favor of the Bank are valid, enforceable,
and prior to all others’ rights and interests, except those the Bank consents
to in writing.  All title documents for
motor vehicles which are part of the collateral must show the Bank’s interest.

 

(d)                                 Payment
of Fees. Payment of all accrued and unpaid expenses incurred by the Bank as
required by Section 3.3.

 

(e)                                  Other
Items. Any other items that the Bank reasonably requires.

 

6.2.                              Conditions
to Subsequent Extensions of Credit. 
The Bank’s obligation to make subsequent advances under the Line of
Credit is subject to the following conditions:

 

(a)                                  Representations
and Warranties. The representations and warranties made by the Borrower in
Article 7 and in any certificate, document, or financial statement
furnished at any time shall continue to be true and correct, except to the
extent that such representations and warranties expressly relate to an earlier
date.

 

(b)                                 No
Default. No event of default, or event which, upon notice or lapse of time
or both would constitute an event of default under this Agreement, shall have
occurred and be continuing, or shall exist after giving effect to the advance
to be made.

 

7.                                      REPRESENTATIONS
AND WARRANTIES

 

When the Borrower signs
this Agreement, and until the Bank is repaid in full, the Borrower makes the
following representations and warranties. Each request for an extension of
credit constitutes a renewal of these representations and warranties as of the
date of the request:

 

7

 

7.1.                              Formation.
The  Borrower is duly formed and
existing under the laws of the state of Delaware.

 

7.2.                              Authorization.
This Agreement, and any instrument or agreement required hereunder, are within
the Borrower’s powers, have been duly authorized, and do not conflict with any
of its organizational papers.

 

7.3.                              Enforceable
Agreement. This Agreement is a legal, valid and binding agreement of the
Borrower, enforceable against the Borrower in accordance with its terms, and
any instrument or agreement required hereunder, when executed and delivered,
will be similarly legal, valid, binding and enforceable.

 

7.4.                              Good
Standing. In each state in which the Borrower does business, it is properly
licensed, in good standing, and, where required, in compliance with fictitious
name statutes.

 

7.5.                              No
Conflicts. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.

 

7.6.                              Financial
Information. All financial and other information that has been or will be
supplied to the Bank is sufficiently complete to give the Bank accurate
knowledge of the Borrower’s financial condition, including all material
contingent liabilities. Since the date of the most recent financial statement
provided to the Bank, there has been no material adverse change in the business
condition (financial or otherwise), operations, or properties of the Borrower.

 

7.7.                              Lawsuits.
There is no lawsuit, tax claim or other dispute pending or threatened against
the Borrower which, if  lost,
would impair the Borrower’s financial condition or ability to repay the Line of
Credit, except as have been disclosed in writing to the Bank.

 

7.8.                              Collateral.
All collateral required in this Agreement is owned by the grantor of the
security interest free of any material title defects or any material liens or
interests of others, except those which have been approved by the Bank in
writing.

 

7.9.                              Permits,
Franchises. The Borrower possesses all permits, memberships, franchises,
contracts and licenses required and all trademark rights, trade name rights,
patent rights and fictitious name rights necessary to enable it to conduct the
business in which it is now engaged.

 

7.10.                        Other
Obligations. The Borrower is not in default on any material obligation for
borrowed money, any material purchase money obligation or any other material
lease, commitment, contract, instrument or obligation, except as have been
disclosed in writing to the Bank.

 

7.11.                        Tax
Matters.  The Borrower has no
knowledge of any pending assessments or adjustments of its income tax for any
year and all taxes due have been paid, except as have been disclosed in writing
to the Bank.

 

7.12.                        No
Event of Default. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.

 

7.13.                        Insurance.
The Borrower has obtained, and maintained in effect, the insurance coverage
required in Section 8.17 of this Agreement.

 

7.14.                        Employee
Benefit Plan. The Borrower is in compliance in all material respects with
the provisions of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), and the regulations and published interpretations
thereunder. The Borrower has not engaged in any acts or omissions, which would
make the Borrower materially liable to any Plan, to any of its participants, or
to the Internal Revenue Service, under ERISA. Capitalized terms in this
paragraph shall have the meanings defined within ERISA.

 

7.15.                        UCC
Information. The Borrower was originally incorporated under the laws of the
State of Delaware, and remains a Delaware corporation. The Borrower’s
“organizational identification number” for purposes of the UCC is 3543890. The
Borrower’s place of business (or, if the Borrower has more than one place of
business, its chief executive office) is located at the address listed under
the Borrower’s signature on this Agreement.

 

8

 

8.                                      COVENANTS

 

The
Borrower agrees, so long as credit is available under this Agreement and until
the Bank is repaid in full:

 

8.1.                              Use
of Proceeds. To use the proceeds of the Line of Credit only for inventory
financing and general corporate purposes.

 

8.2.                              Financial Information. To provide the following financial
information and statements in form and content acceptable to the Bank, and such
additional information as requested by the Bank from time to time:

 

(a)                                  Within 120 days of the fiscal year end, the
annual financial statements of the Borrower. These financial statements must be
audited (with an opinion satisfactory to the Bank) by a Certified Public
Accountant acceptable to the Bank. The statements shall be prepared on a
consolidated basis.

 

(b)                                 Within 60 days of the period’s end
(including the last period in each fiscal year), quarterly financial statements
of the Borrower, certified and dated by an authorized financial officer. These
financial statements may be company-prepared. The statements shall be prepared
on a consolidated basis.

 

(c)                                  Within
the period(s) provided in (a) and (b) above, a compliance certificate of the
Borrower signed by an authorized financial officer of the Borrower setting
forth (i)  the information and
computations (in sufficient detail) to establish that the Borrower is in
compliance with all financial covenants at the end of the period covered by the
financial statements then being furnished and (ii) whether there existed as of
the date of such financial statements and whether there exists as of the date
of the certificate, any default under this Agreement and, if any such default
exists, specifying the nature thereof and the action the Borrower is taking and
proposes to take with respect thereto.

 

(d)                                 Promptly,
upon sending or receipt, copies of any management letters and correspondence
relating to management letters, sent or received by the Borrower to or from the
Borrower’s auditor.

 

(e)                                  Within
60 days of the end of each fiscal year, a forecast balance sheet and profit and
loss statement for the current year.

 

(f)                                    Such
additional financial information regarding the Borrower with respect to the
Line of Credit as the Bank shall reasonably request, upon 30-days’ notice.

 

8.3.                              Out
of Debt Period.  To reduce the
amount of advances outstanding under the Line of Credit to not more than
$5,000,000 for a period of at least 30 consecutive days in each Line-Year.  “Line-Year” means the period between the
date of this Agreement and July 1, 2004, and each subsequent one-year
period (if any). For purposes of this paragraph, “advances” does not include
undrawn amounts of outstanding letters of credit but does include outstanding
acceptances.

 

8.4.                              Adjusted
Funded Debt to EBITDAR Ratio. To maintain on a consolidated basis an
Adjusted Funded Debt to EBITDAR Ratio not exceeding 4.25 to 1 at the end of
fiscal quarters 1 and 3 of each fiscal year, not exceeding 4.50 to 1 at the end
of fiscal quarter 2, and not exceeding 3.75 to 1 at each fiscal year end. This
ratio will be calculated at the end of each fiscal quarter, using the results
of the twelve-month period ending with that fiscal quarter.

 

(a)                                  “Adjusted
Funded Debt to EBITDAR Ratio” means the rate of Adjusted Funded Debt to
EBITDAR.

 

(b)                                 “Adjusted
Funded Debt” means Funded Debt plus six times cash occupancy expense.

 

(c)                                  “Funded Debt” means all outstanding
liabilities for borrowed money
and other interest-bearing liabilities, including current and long term debt,
less the non-current portion of Subordinated Liabilities.

 

9

 

(d)                                 “EBITDAR” means the sum of the following:
(i) net income, (ii) all interest expense: (iii) all income tax expense; (iv)
total depreciation expense; (v) total amortization expense; (vi) any non-cash
changes incurred in connection with stock options granted to employees; (vii)
all fees, costs or expenses incurred in connection with the consummation of the
investment by Brentwood Associates in the Borrower; and (vii) occupancy
expense.

 

(e)                                  “Subordinated
Liabilities” means liabilities subordinated to the Borrower’s obligations to
the Bank in a manner acceptable to the Bank in its sole discretion.

 

8.5.                              Fixed Charge Coverage Ratio. 
To maintain on a consolidated basis a Fixed Charge Coverage Ratio of at
least 1.25 to 1. This ratio will be calculated at the end of each fiscal
quarter, using the results of the twelve-month period ending with that fiscal
quarter.  “Fixed Charge Coverage Ratio”
means the ratio of (i) EBITDAR (as defined in Section 8.4(d)), to (ii)
cash interest expense plus cash occupancy expense.

 

8.6.                              Inventory Coverage Ratio. To maintain on a consolidated basis an
Inventory Coverage Ratio of at least 0.85 to 1 at the end of fiscal quarter 2
of each fiscal year, and of at least 1.0 to 1 as of every other fiscal quarter
and fiscal year end.  This ratio will be
calculated at the end of each fiscal quarter. “Inventory Coverage Ratio” means
(i) 60% of inventory (valued at the lower of cost or market value) in which
Bank holds a perfected first-lien security interest (but subject, where
applicable, to statutory landlord lien rights); divided by (ii) Funded Debt (as
defined in Section 8.4(c)) plus outstanding letters of credit and
acceptances.

 

8.7.                              Landlord Waivers. 
Obtain and deliver to the Bank on a commercially reasonable best-efforts
basis landlord waivers, in form satisfactory to the Bank, from each landlord of
leased property for which the Borrower enters into a new lease or renews an
existing lease, for premises upon which inventory, equipment, or fixtures of
the Borrower are located, within 30 days of execution of such new lease or
lease amendment.

 

8.8.                              Other Debts. 
Not to have outstanding or incur any direct or contingent liabilities or
lease obligations (other than those to the Bank), or become liable for the
liabilities of others, without the Bank’s written consent. This does not
prohibit:

 

(a)                                  Acquiring goods, supplies, or merchandise
on normal trade credit.

 

(b)                                 Endorsing negotiable instruments received
in the usual course of business.

 

(c)                                  Obtaining surety bonds in the usual course
of business.

 

(d)                                 Liabilities, lines of credit and leases in
existence on the date of this Agreement disclosed in writing to the Bank.

 

(e)                                  Leases for new stores and related
construction costs.

 

8.9.                              Other Liens. 
Not to create, assume, or allow any security interest or material lien
(including judicial liens) on property the Borrower now or later owns, except:

 

(a)                                  Liens
and security interests in favor of the Bank.

 

(b)                                 Liens
for taxes not yet due.

 

(c)                                  Liens
outstanding on the date of this Agreement disclosed in writing to the Bank.

 

(d)                                 Statutory
liens during the construction or renovation of any store, so long as such lien
is discharged prior to the completion of execution proceedings on the property
subject to the lien.

 

8.10.                        Maintenance of Assets.

 

(a)                                  Not to sell, assign, lease, transfer or
otherwise dispose of any part of the Borrower’s business or the Borrower’s
assets except in the ordinary course of the Borrower’s business.

 

10

 

(b)                                 Not  to
sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into
any agreement to do so, except in the ordinary course of the Borrower’s
business.

 

(c)                                  Not to enter into any sale and leaseback
agreement covering any of its fixed assets.

 

(d)                                 To maintain and preserve all rights, privileges, and franchises the Borrower now has.

 

(e)                                  To make any repairs,  renewals, or replacements to keep the
Borrower’s properties in good working condition.

 

8.11.                        Investments. Not to have any existing, or make any
new, financial investments in any individual or entity, or make any capital
contributions or other transfers of assets to any individual or entity, except
for:

 

(a)                                  Existing investments disclosed to the Bank
in writing.

 

(b)                                 Investments
in the Borrower’s current subsidiaries.

 

(c)                                  Investments
in any of the following:

 

(i)                                     certificates of deposit;

 

(ii)                                  U.S. treasury bills and other obligations
of the federal government;

 

(iii)                               readily marketable securities (including
commercial paper, but excluding restricted stock and stock subject to the
provisions of Rule 144 of the Securities and Exchange Commission).

 

(d)           Other investments
not exceeding $200,000 in the aggregate.

 

8.12.                        Loans. Not to make any loans, advances or other extensions of credit to any
individual or entity, except for:

 

(a)                                  Existing
extensions of credit disclosed to the Bank in writing.

 

(b)                                 Extensions
of credit to the Borrower’s current subsidiaries.

 

(c)                                  Extensions of credit in the nature of
accounts receivable or notes receivable arising from the sale or lease of goods
or services in the ordinary course of business to non-affiliated entities.

 

(d)                                 Loans to employees of the Borrower not
exceeding $50,000 per loan and $200,000 in the aggregate.

 

8.13.                        Change of Management. Not to make any substantial change in the
individuals acting as Chairman or Chief Executive Officer of the Borrower.

 

8.14.                        Change of Ownership. Not to cause, permit, or suffer any
Change in Control. “Change in Control” means the acquisition by any person or
entity (“a party”), or any two or more parties acting in concert, of beneficial
ownership  (within the meaning of Rule
13d-3 of the Securities and Exchange Commission) of outstanding shares of
voting stock of the Borrower representing more than 50% of voting control of
the Borrower, which party or parties currently have beneficial ownership of 50%
or less of the outstanding voting shares of voting stock of the Borrower.
Change in Control shall not include an acquisition or transfer of shares, or
the beneficial ownership of shares, by or to a party that owns a beneficial
interest in the outstanding voting stock of the Borrower as of the date of this
Agreement.

 

8.15.                        Additional Negative Covenants. Not to, without the Bank’s written
consent:

 

(a)                                  Enter into any consolidation, merger, or
other combination, or become a partner in a partnership, a member of a joint
venture, or a member of  a limited
liability company.

 

(b)                                 Acquire or purchase a business or its
assets for an amount greater than $200,000 in the aggregate for all such
acquisitions.

 

11

 

(c)                                  Engage in any business activities
substantially different from the Borrower’s present business.

 

(d)                                 Liquidate or dissolve the Borrower’s business.

 

(e)                                  Voluntarily suspend its business for more
than one day in any one-year period.

 

8.16.                        Notices
to Bank. To promptly notify the Bank in writing of:

 

(a)                                  Any lawsuit over $500,000 against the
Borrower.

 

(b)                                 Any substantial dispute between any
governmental authority and the Borrower.

 

(c)                                  Any event of default under this Agreement,
or any event which, with notice or lapse of time or both, would constitute an
event of default.

 

(d)                                 Any material adverse change in the
Borrower’s business condition (financial or otherwise), operations, or
properties, or ability to repay the Line of Credit.

 

(e)                                  Any change in the Borrower’s name, legal
structure, place of business, or chief executive office if the Borrower has
more than one place of business.

 

(f)                                    Any actual contingent liabilities of the
Borrower, and any such contingent liabilities which are reasonably foreseeable,
where such liabilities are in excess of $1,000,000 in the aggregate.

 

8.17.                        Insurance.

 

(a)                                  General
Business Insurance. To maintain insurance as is usual for the business it
is in.

 

(b)                                 Insurance Covering Collateral. To maintain all risk property damage
insurance policies covering the tangible property comprising the collateral.
Each insurance policy must be in an amount not less than the amount of the
Commitment. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender’s loss payable endorsement in favor of the
Bank in a form acceptable to the Bank.

 

(c)                                  Business Interruption Insurance. To maintain a business interruption
insurance policy for at least $5,000,000 in coverage amount, with an insurer
acceptable to the Bank, and with the Bank named as an additional loss payee.

 

(d)                                 Evidence of Insurance. Upon the request of the Bank, to deliver to the Bank a copy
of each insurance policy, or, if permitted by the Bank, a certificate of
insurance listing all insurance in force.

 

8.18.                        Compliance with Laws. To materially comply with the laws
(including any fictitious name statute), regulations, and orders of any
government body with authority over the Borrower’s business.

 

8.19.                        ERISA Plans. 
Promptly during each year, to pay and cause any subsidiaries to pay
contributions adequate to meet at least the minimum funding standards under
ERISA with respect to each and every Plan; file each annual report required to
be filed pursuant to ERISA in connection with each Plan for each year; and
notify the Bank within ten (10) days of the occurrence of any Reportable Event
that might constitute grounds for termination of any capital Plan by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer any Plan. “ERISA” means
the Employee Retirement Income Security Act of 1974, as amended from time to
time. Capitalized terms in this paragraph shall have the meanings defined
within ERISA.

 

8.20.                        Books and Records. To maintain adequate books and records.

 

8.21.                        Audits. To allow the Bank and its agents to inspect the Borrower’s properties
and examine, audit, and make copies of books and records not more frequently
than annually unless the Borrower is in default under this Agreement. If any of
the Borrower’s properties, books or records are in the possession of a third
party, the Borrower authorizes that third party to permit the Bank or its
agents to

 

12

 

have access to
perform inspections or audits and to respond to the Bank’s requests for
information concerning such properties, books and records.

 

8.22.                        Perfection
of Liens. To help the Bank perfect and protect its security interests and
liens, and reimburse it for related costs it incurs to  protect its security interests and liens.

 

8.23.                        Cooperation.
To take any action reasonably requested by the Bank to carry out the intent of
this Agreement.

 

9.                                      DEFAULT AND
REMEDIES

 

If any of the following
events of default occurs, the Bank may do one or more of the following: declare
the Borrower in default, stop making any additional credit available to the
Borrower, and require the Borrower to repay its entire debt immediately and
without prior notice.  In addition, if
any event of default occurs, the Bank shall have all rights, powers and remedies
available under any instruments and agreements required by or executed in
connection with this Agreement, as well as all rights and remedies available at
law or in equity. If an event of default occurs under Section 9.5, with
respect to the Borrower, then the entire debt outstanding under this Agreement
will automatically be due immediately.

 

9.1.                              Failure
to Pay. The Borrower fails to make a payment under this Agreement when due
and such failure continues for five days after written notice from the Bank.

 

9.2.                              Other
Bank Agreements. The Borrower or any of the Borrower’s related entities or
affiliates fails to meet the conditions of, or fails to perform any obligation
under any other agreement the Borrower or any of the Borrower’s related
entities or affiliates has with the Bank or any affiliate of the Bank. If the
breach is of a nature that it is capable of being remedied, the breach will not
be considered an event of default under this Agreement for a period of 30 days
after the date on which the Bank gives written notice of the breach to the
Borrower.

 

9.3.                              Cross-default.
Any default occurs under any agreement in connection with any credit the
Borrower or any of the Borrower’s related entities or affiliates has obtained
from anyone else or which the Borrower or any of the Borrower’s related
entities or affiliates has guaranteed, if the default consists of failing to
make a payment when due or gives the other lender the right to accelerate the
obligation, and the default remains uncured after 30 days.

 

9.4.                              False
Information.  The Borrower has given
the Bank materially false or misleading information or representations.

 

9.5.                              Bankruptcy.  The Borrower files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower, or the Borrower makes a
general assignment for the benefit of creditors.

 

9.6.                              Receivers.  A receiver or similar official is appointed
for a substantial portion of the Borrower’s business, or the business is
terminated, or the Borrower is liquidated or dissolved.

 

9.7.                              Lien
Priority. The Bank fails to have an enforceable first lien (except for any
prior liens to which the Bank has consented in writing) on or security interest
in any property given as security for this Agreement.

 

9.8.                              Judgments.
Any final judgments or final arbitration awards are entered against the Borrower,
or the Borrower enters into any settlement agreements with respect to any
litigation or arbitration, in an aggregate amount of $500,000 or more in excess
of any insurance coverage, unless satisfied or discharged within 30 days.

 

9.9.                              Government
Action.  Any government authority
takes action that materially adversely affects the Borrower’s financial
condition or ability to repay the Line of Credit.

 

9.10.                        Default
under Related Documents. Any default occurs under any guaranty,
subordination agreement, security agreement, or other document required by or
delivered in connection with this Agreement or any such document is no longer
in effect.

 

9.11.                        ERISA
Plans. Any one or more of the following events occurs with respect to a
Plan of the Borrower subject to Title IV of ERISA, provided such event or
events could reasonably be expected,

 

13

 

in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any
combination of the foregoing) which, in the aggregate, could have a material
adverse effect on the financial condition of the Borrower:

 

(a)                                  A reportable event shall occur under
Section 4043(c) of ERISA with respect to a Plan.

 

(b)                                 Any Plan termination (or commencement of
proceedings to terminate a Plan) or the full or partial withdrawal from a Plan
by the Borrower or any ERISA Affiliate.

 

9.12.                        Other
Breach Under Agreement. The Borrower fails to meet the conditions of, or
fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article. This includes any failure or
anticipated failure by the Borrower to comply with any financial covenants set
forth in this Agreement, whether such failure is evidenced by financial
statements delivered to the Bank or is otherwise known to the Borrower or the
Bank.  If the breach is of a nature that
it is capable of being remedied, the breach will not be considered an event of
default under this Agreement for a period of 30 days after the date on which
the Bank gives written notice of the breach to the Borrower; provided however,
that the Bank will not be obligated to extend any additional credit to the
Borrower during that period.

 

10.                         ENFORCING
THIS AGREEMENT; MISCELLANEOUS

 

10.1.                        GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

 

10.2.                        Washington Law. This Agreement is governed by Washington
law.

 

10.3.                        Successors and Assigns. This Agreement is binding on the
Borrower’s and the Bank’s successors and assignees.  The Borrower agrees that it may not assign this Agreement without
the Bank’s prior consent.  The Bank may
sell participations in or assign this loan, and may exchange financial
information about the Borrower with actual or potential participants or
assignees. If a participation is sold or the loan is assigned, the purchaser
will have the right of set-off against the Borrower.

 

10.4.                        Arbitration.

 

(a)                                  This
paragraph concerns the resolution of any controversies or claims between the
parties, whether arising in contract, tort or by statute, including but not
limited to controversies or claims that arise out of or relate to: (i) this
agreement (including any renewals, extensions or modifications); or (ii) any
document related to this agreement (collectively a “Claim”).  For the purposes of this arbitration
provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank
involved in the servicing, management or administration of any obligation
described or evidenced by this agreement.

 

(b)                                 At the request of any
party to this agreement, any Claim shall be resolved by  binding arbitration in accordance with
the  Federal Arbitration Act
(Title 9, U.S. Code) (the “Act”).  The
Act will apply even though this agreement provides that it is governed by the
law of a specified state.

 

(c)                                  Arbitration proceedings will be determined
in accordance with the Act, the applicable rules and procedures for the
arbitration of disputes of Judicial Arbitration and Mediation Service, also
know as JAMS/Endispute, or any successor thereof (“JAMS”), and the terms of
this paragraph.  In the event of any
inconsistency, the terms of this paragraph shall control.

 

(d)                                 The arbitration shall be administered by
JAMS and conducted, unless otherwise required by law, in any U.S. state where
real or tangible personal property collateral for the Line of Credit is located
or if there is no such collateral, in the state specified in the governing law
section of this agreement. All Claims shall be determined by one
arbitrator; however, if Claims exceed $5,000,000, upon the request of any
party, the Claims shall be decided by three arbitrators. All arbitration
hearings shall commence within ninety (90) days of the demand for

 

14

 

arbitration and close within ninety (90) days of
commencement and the award of the arbitrator(s) shall be issued within thirty
(30) days of the close of the hearing. However, the arbitrator(s), upon a
showing of good cause, may extend the commencement of the hearing for up to an
additional sixty (60) days. The arbitrator(s) shall provide a concise written
statement of reasons for the award. The arbitration award may be submitted to
any court having jurisdiction to be confirmed and enforced.

 

(e)                                  The arbitrator(s) will have the authority
to decide whether any Claim is barred by the statute of limitations and, if so,
to dismiss the arbitration on that basis. For purposes of the application of
the statute of limitations, the service on JAMS under applicable JAMS rules of
a notice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitration
provision or whether a Claim is arbitrable shall be determined by the
arbitrator(s). The arbitrator(s) shall have the power to award legal fees
pursuant to the terms of this agreement.

 

(f)                                    This paragraph does not limit the right of
any party to: (i) exercise self-help remedies, such as but not limited to,
setoff; (ii) initiate judicial or non-judicial foreclosure against any real or
personal property collateral; (iii) exercise any judicial or power of sale
rights, or (iv) act in a court of law to obtain an interim remedy, such as but
not limited to, injunctive relief, writ of possession or appointment of a
receiver, or additional or supplementary remedies.

 

(g)                                 The filing of a court action is not
intended to constitute a waiver of the right of any party, including the suing
party, thereafter to require submittal of the Claim to arbitration.

 

10.5.                          Severability: Waivers.
If any part of this Agreement is not enforceable, the rest of the Agreement may
be enforced. The Bank retains all rights, even if it makes a loan after default.
If the Bank waives a default, it may enforce a later default. Any consent or
waiver under this Agreement must be in writing.

 

10.6.                        Attorneys’ Fees. The Borrower shall reimburse the Bank for
any reasonable costs and attorneys’ fees incurred by the Bank in connection
with the enforcement or preservation of any rights or remedies under this
Agreement and any other documents executed in connection with this Agreement,
and in connection with any amendment, waiver, “workout” or restructuring under
this Agreement. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys’ fees
incurred in connection with the lawsuit or arbitration proceeding, as
determined by the court or arbitrator. In the event that any case is commenced
by or against the Borrower under the Bankruptcy Code (Title 11, U.S. Code) or
any similar or successor statute, the Bank is entitled to recover costs and
reasonable attorneys’ fees incurred by the Bank related to the preservation,
protection, or enforcement of any rights of the Bank in such a case. As used in
this paragraph, “attorneys’ fees” includes the allocated costs of the Bank’s
in-house counsel.

 

10.7.                        One Agreement. This Agreement and any related security
or other agreements required by this Agreement, collectively:

 

(a)                                  represent the sum of the understandings and
agreements between the Bank and the Borrower concerning the Line of Credit;

 

(b)                                 replace any prior oral or written agreements
between the Bank and the Borrower concerning the Line of Credit; and

 

(c)                                  are intended by the Bank and the Borrower
as the final, complete and exclusive statement of the terms agreed to by them.

 

In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will prevail. Any
reference in any related document to a “promissory note” or a “note” executed
by the Borrower and dated as of the date of this Agreement shall be deemed to
refer to this Agreement, as now in effect or as hereafter amended, renewed, or
restated.

 

10.8.                        Indemnification.
The Borrower will indemnify and hold the Bank harmless from any loss,
liability, damages, judgment, and costs of any kind relating to or arising
directly or indirectly out of (a) this Agreement or any document required
hereunder, (b) any credit extended or committed by the Bank to the Borrower
hereunder, and (c) any litigation or proceeding related to or arising out of
this Agreement, any

 

15

 

such document, or any
such credit. This indemnity includes but is not limited to reasonable
attorneys’ fees (including the allocated cost of in-house counsel). This
indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys, and assigns.
This indemnity will survive repayment of the Borrower’s obligations to the
Bank. All sums due to the Bank hereunder shall be obligations of the Borrower,
due and payable immediately without demand.

 

10.9.                        Notices.
Unless otherwise provided in this Agreement or in another agreement between the
Bank and the Borrower, all notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, or by
overnight courier, to the addresses on the signature page of this Agreement, or
sent by facsimile to the fax numbers listed on the signature page, or to such
other addresses as the Bank and the Borrower may specify from time to time in
writing. Notices and other communications shall be effective (i) if mailed,
upon the earlier of receipt or five (5) days after deposit in the U.S. mail,
first class, postage prepaid, (ii) if telecopied, when transmitted, or (iii) if
hand-delivered, by courier or otherwise (including telegram, lettergram or
mailgram), when delivered.

 

10.10.                  Headings.
Article and paragraph headings are for reference only and shall not affect
the interpretation or meaning of any provisions of this Agreement.

 

10.11.                  Prior
Agreement Superseded.  This
Agreement supersedes the Business Loan Agreement entered into as of
July 20, 2001, between the Bank and the Borrower, including all amendments
thereto; and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.

 

10.12.                  Counterparts.
This Agreement may be executed in as many counterparts as necessary or
convenient, and by the different parties on separate counterparts each of
which, when so executed, shall be deemed an original but all such counterparts
shall constitute but one and the same agreement.

 

WASHINGTON
NOTICE: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.

 

This Agreement is
executed as of the date stated at the top of the first page.

 

	
  Bank:

  	
  Borrower:

  
	
   

  	
   

  
	
  BANK OF AMERICA, N.A.

  	
  ZUMIEZ INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Curt G. Clausen

  	
   

  	
  By

  	
  /s/ Brenda I. Morris

  	
   

  
	
   

  	
  Curt
  G. Clausen, Senior Vice President

  	
   

  	
   

  	
  Brenda
  I. Morris, Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address where notices
  to the Bank

  	
  Address where notices
  to the Borrower

  
	
  are to be sent:

  	
  are to be sent:

  
	
   

  	
   

  
	
  1602 Hewitt Ave.

  	
  1420 - 80th St. S.W.
  Suite A

  
	
  Everett, WA 98201-3500

  	
  Everett, WA 98203

  
	
  Attention: Curt Clausen

  	
  Attention: Brenda I.
  Morris

  
	
  Telephone: (425)
  259-7777

  	
  Telephone: (425)
  551-1500

  
	
  Telefacsimile: (425)
  259-7660

  	
  Telefacsimile: (425)
  551-1595

  

 

16

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