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Exhibit 10.1    
    

 
 

SPY OPTIC, INC.    
    
    INDEMNIFICATION AGREEMENT    
    

        This Indemnification Agreement (this "Agreement") is entered into as
of                                    , 2004 (the
"Effective Date"), by and between SPY OPTIC, INC., a Delaware corporation (the "Company"), and
                        ("Indemnitee"). 

RECITALS 

        A.    Indemnitee
is either a member of the board of directors of the Company (the "Board of Directors") or an officer of the
Company, or both, and in such capacity or capacities, or otherwise as an Agent (as hereinafter defined) of the Company, is performing a valuable service for the Company. 

        B.    Indemnitee
is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be indemnified as
herein provided. 

        C.    It
is intended that Indemnitee shall be paid promptly by the Company all amounts necessary to effectuate in full the indemnity provided herein. 

        NOW,
THEREFORE, in consideration of the premises and the covenants in this Agreement, and of Indemnitee continuing to serve the Company as an Agent and intending to be legally bound
hereby, the parties hereto agree as follows: 

        1.    Services by Indemnitee.    Indemnitee agrees to serve (a) as a director or an officer of the Company, or
both, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the Certificate of Incorporation and bylaws of the Company, and until such time
as Indemnitee resigns or fails to stand for election or is removed from Indemnitee's position, or (b) as an Agent of the Company. Indemnitee may from time to time also perform other services at
the request or for the convenience of, or otherwise benefiting, the Company. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual
obligation or other obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in any such position. 

        2.    Indemnification.    Subject to the limitations set forth herein and in Section 6 hereof, the Company
hereby agrees to indemnify Indemnitee as follows: 

        The
Company shall, with respect to any Proceeding (as hereinafter defined) associated with Indemnitee's being an Agent of the Company, indemnify Indemnitee to the fullest extent
permitted by applicable law and the Certificate of Incorporation of the Company in effect on the date hereof or as such law or Certificate of Incorporation may from time to time be amended (but, in
the case of any such amendment, only to the extent such amendment permits the Company to provide broader indemnification rights than the law or Certificate of Incorporation permitted the Company to
provide before such amendment). The right to indemnification conferred herein and in the Certificate of Incorporation shall be presumed to have been relied upon by Indemnitee in serving or continuing
to serve the Company as an Agent and shall be enforceable as a contract right. Without in any way diminishing the scope of the indemnification provided by this Section 1, the Company will
indemnify Indemnitee to the full extent permitted by law if and wherever Indemnitee is or was a party or is threatened to be made a party to any Proceeding, including any Proceeding brought by or in
the right of the Company, by reason of the fact that Indemnitee is or was an Agent or by reason of anything done or not done by Indemnitee in such capacity, against Expenses (as hereinafter defined)
and Liabilities (as hereinafter defined) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the investigation, defense, settlement or appeal of such Proceeding.
In 

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addition
to, and not as a limitation of, the foregoing, the rights of indemnification of Indemnitee provided under this Agreement shall include those rights set forth in Sections 2 and 8 below.
Notwithstanding the foregoing, the Company shall be required to indemnify Indemnitee in connection with a Proceeding commenced by Indemnitee (other than a Proceeding commenced by Indemnitee to enforce
Indemnitee's rights under this Agreement) only if the commencement of such Proceeding was authorized by the Board of Directors. 

        3.    Advancement of Expenses.    All reasonable Expenses incurred by or on behalf of Indemnitee (including costs of
enforcement of this Agreement) shall be advanced from time to time by the Company to Indemnitee within thirty (30) days after the receipt by the Company of a written request for an advance of
Expenses, whether prior to or after final disposition of a Proceeding (except to the extent that there has been a Final Adverse Determination (as hereinafter defined) that Indemnitee is not entitled
to be indemnified for such Expenses), including, without limitation, any Proceeding brought by or in the right of the Company. The written request for an advancement of any and all Expenses under this
paragraph shall contain reasonable detail of the Expenses incurred by Indemnitee. In the event that such written request shall be accompanied by an affidavit of counsel to Indemnitee to the effect
that such counsel has reviewed such Expenses and that such Expenses are reasonable in such counsel's view, then such expenses shall be deemed reasonable in the absence of clear and convincing evidence
to the contrary. By execution of this Agreement, Indemnitee shall be deemed to have made whatever undertaking as may be required by law at the time of any advancement of Expenses with respect to
repayment to the Company of such Expenses. In the event that the Company shall breach its obligation to advance Expenses under this Section 2, the parties hereto agree that Indemnitee's
remedies available at law would not be adequate and that Indemnitee would be entitled to specific performance. 

        4.    Surety Bond.    

        (a)   In
order to secure the obligations of the Company to indemnify and advance Expenses to Indemnitee pursuant to this Agreement, the Company shall obtain at the time of any
Change in Control (as hereinafter defined) a surety bond (the "Bond"). The Bond shall be in an appropriate amount not less than one million dollars
($1,000,000), shall be issued by a commercial insurance company or other financial institution headquartered in the United States having assets in excess of $10 billion and capital according to
its most recent published reports equal to or greater than the then applicable minimum capital standards promulgated by such entity's primary federal regulator and shall contain terms and conditions
reasonably acceptable to Indemnitee. The Bond shall provide that Indemnitee may from time to time file a claim for payment under the Bond, upon written certification by Indemnitee to the issuer
of the Bond that (i) Indemnitee has made written request upon the Company for an amount not less than the amount Indemnitee is drawing under the Bond and that the Company has failed or refused
to provide Indemnitee with such amount in full within thirty (30) days after receipt of the request, and (ii) Indemnitee believes that he or she is entitled under the terms of this
Agreement to the amount that Indemnitee is drawing upon under the Bond. The issuance of the Bond shall not in any way diminish the Company's obligation to indemnify Indemnitee against Expenses and
Liabilities to the full extent required by this Agreement. 

        (b)   Once
the Company has obtained the Bond, the Company shall maintain and renew the Bond or a substitute Bond meeting the criteria of Section 4(a) during the term of
this Agreement so that the Bond shall have an initial term of five (5) years, be renewed for successive five-year terms, and always have at least one (1) year of its term
remaining. 

        5.    Presumptions and Effect of Certain Proceedings.    Upon making a request for indemnification, Indemnitee shall
be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proof to overcome that presumption in reaching any contrary determination. The termination
of any Proceeding by judgment, order, settlement, arbitration award or 

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conviction,
or upon a plea of nolo contendere or its equivalent shall not affect this presumption or, except as determined by a judgment or other final adjudication adverse to Indemnitee, establish a
presumption with regard to any factual matter relevant to determining Indemnitee's rights to indemnification hereunder. If the person or persons so empowered to make a determination pursuant to
Section 5 hereof shall have failed to make the requested determination within ninety (90) days after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance
of a plea of nolo contendere or its equivalent, or other disposition or partial disposition of any Proceeding or any other event that could enable the Company to determine Indemnitee's entitlement to
indemnification, the requisite determination that Indemnitee is entitled to indemnification shall be deemed to have been made. 

        6.    Procedure for Determination of Entitlement to Indemnification.    

        (a)   Whenever
Indemnitee believes that Indemnitee is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to
the Company. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee for the determination of entitlement to indemnification. In any
event, Indemnitee shall submit Indemnitee's claim for indemnification within a reasonable time, not to exceed five (5) years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, or final determination, whichever is the later date for which Indemnitee requests indemnification. The Secretary or other
appropriate officer shall, promptly upon receipt of Indemnitee's request for indemnification, advise the Board of Directors in writing that Indemnitee has made such request. Determination of
Indemnitee's entitlement to indemnification shall be made not later than ninety (90) days after the Company's receipt of Indemnitee's written request for such indemnification, provided that any
request for indemnification for Liabilities, other than amounts paid in settlement, shall have been made after a determination thereof in a Proceeding. 

        (b)   The
Company shall be entitled to select the forum in which Indemnitee's entitlement to indemnification will be heard; provided, however, that if there is a Change in
Control of the Company, Independent Legal Counsel (as hereinafter defined) shall determine whether Indemnitee is entitled to indemnification. The forum shall be any one of the following: 

          (i)  the
stockholders of the Company; 

         (ii)  a
majority vote of Disinterested Directors (as hereinafter defined), even though less than a quorum; 

        (iii)  Independent
Legal Counsel, whose determination shall be made in a written opinion; or 

        (iv)  a
panel of three (3) arbitrators, one selected by the Company, another by Indemnitee and the third by the first two arbitrators; or if for any reason three
(3) arbitrators are not selected within thirty (30) days after the appointment of the first arbitrator, then selection of additional arbitrators shall be made by the American Arbitration
Association. If any arbitrator resigns or is unable to serve in such capacity for any reason, the American Arbitration Association shall select such arbitrator's replacement. The arbitration shall be
conducted pursuant to the commercial arbitration rules of the American Arbitration Association now in effect. 

        7.    Specific Limitations on Indemnification.    Notwithstanding anything in this Agreement to the contrary, the
Company shall not be obligated under this Agreement to make any payment to Indemnitee with respect to any Proceeding: 

        (a)   To
the extent that payment is actually made to Indemnitee under any insurance policy, or is made to Indemnitee by the Company or an affiliate otherwise than pursuant to
this Agreement. Notwithstanding the availability of such insurance, Indemnitee also may claim indemnification from 

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the
Company pursuant to this Agreement by assigning to the Company any claims under such insurance to the extent Indemnitee is paid by the Company; 

        (b)   Provided
there has been no Change in Control, for Liabilities in connection with Proceedings settled without the Company's consent, which consent, however, shall not be
unreasonably withheld; 

        (c)   For
an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or similar provisions of any state statutory or common law; or 

        (d)   To
the extent it would be otherwise prohibited by law, if so established by a judgment or other final adjudication adverse to Indemnitee. 

        8.    Fees and Expenses of Independent Legal Counsel or Arbitrators.    The Company agrees to pay the reasonable fees
and expenses of Independent Legal Counsel or a panel of three arbitrators should such Independent Legal Counsel or such arbitrators be retained to make a determination of Indemnitee's entitlement to
indemnification pursuant to Section 5(b) of this Agreement, and to fully indemnify such Independent Legal Counsel or arbitrators against any and all expenses and losses incurred by any of them
arising out of or relating to this Agreement or their engagement pursuant hereto. 

        9.    Remedies of Indemnitee.    

        (a)   In
the event that (i) a determination pursuant to Section 5 hereof is made that Indemnitee is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement or
(iv) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in the Court of Chancery of the State of Delaware of the remedy sought.
Alternatively, unless (x) the determination was made by a panel of arbitrators pursuant to Section 5(b)(iv) hereof, or (y) court approval is required by law for the
indemnification sought by Indemnitee, Indemnitee at Indemnitee's option may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial arbitration rules of the
American Arbitration Association now in effect, which award is to be made within ninety (90) days following the filing of the demand for arbitration. The Company shall not oppose Indemnitee's
right to seek any such adjudication or arbitration award. In any such proceeding or arbitration, Indemnitee shall be presumed to be entitled to indemnification and advancement of Expenses under this
Agreement and the Company shall have the burden of proof to overcome that presumption. 

        (b)   In
the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 5 hereof, the
decision in the judicial proceeding or arbitration provided in paragraph (a) of this Section 8 shall be made de novo and Indemnitee shall not be prejudiced by reason of a determination
that Indemnitee is not entitled to indemnification. 

        (c)   If
a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 5 hereof, or is deemed to have been made pursuant to
Section 4 hereof or otherwise pursuant to the terms of this Agreement, the Company shall be bound by such determination in the absence of a misrepresentation or omission of a material fact by
Indemnitee in connection with such determination. 

        (d)   The
Company shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Company shall stipulate
in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement and is precluded from making any assertion to the contrary. 

        (e)   Expenses
reasonably incurred by Indemnitee in connection with Indemnitee's request for indemnification under, seeking enforcement of or to recover damages for breach of
this Agreement 

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shall
be borne by the Company when and as incurred by Indemnitee irrespective of any Final Adverse Determination that Indemnitee is not entitled to indemnification. 

        10.    Contribution.    To the fullest extent permissible under applicable law, if the indemnification provided for in
this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments,
fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion
as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (a) the relative benefits received by the Company and Indemnitee as a result of the
event(s) and/or transaction(s) giving cause to such Proceeding; and/or (b) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection
with such event(s) and/or transaction(s). 

        11.    Maintenance of Insurance.    Upon the Company's purchase of directors' and officers' liability insurance
policies covering its directors and officers, then, subject only to the provisions within this Section 10, the Company agrees that so long as Indemnitee shall have consented to serve or shall
continue to serve as a director or officer of the Company, or both, or as an Agent of the Company, and thereafter so long as Indemnitee shall be subject to any possible Proceeding (such periods being
hereinafter sometimes referred to as the "Indemnification Period"), the Company will use all reasonable efforts to maintain in effect for the benefit of
Indemnitee one or more valid, binding and enforceable policies of directors' and officers' liability insurance from established and reputable insurers, providing, in all respects, coverage both in
scope and amount which is no less favorable than that provided by such preexisting policies. Notwithstanding the foregoing, the Company shall not be required to maintain said policies of directors'
and officers' liability insurance during any time period if during such period such insurance is not reasonably available or if it is determined in good faith by the then directors of the Company
either that: 

        (a)   The
premium cost of maintaining such insurance is substantially disproportionate to the amount of coverage provided thereunder; or 

        (b)   The
protection provided by such insurance is so limited by exclusions, deductions or otherwise that there is insufficient benefit to warrant the cost of maintaining such
insurance. 

        Anything
in this Agreement to the contrary notwithstanding, to the extent that and for so long as the Company shall choose to continue to maintain any policies of directors' and
officers' liability insurance during the Indemnification Period, the Company shall maintain similar and equivalent insurance for the
benefit of Indemnitee during the Indemnification Period (unless such insurance shall be less favorable to Indemnitee than the Company's existing policies). 

        12.    Modification, Waiver, Termination and Cancellation.    No supplement, modification, termination, cancellation
or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 

        13.    Subrogation.    In the event of payment under this Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce such rights. 

        14.    Notice by Indemnitee and Defense of Claim.    Indemnitee shall promptly notify the Company in writing upon
being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative or investigative, but 

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the
omission so to notify the Company will not relieve it from any liability that it may have to Indemnitee if such omission does not prejudice the Company's rights. If such omission does prejudice
the Company's rights, the Company will be relieved from liability only to the extent of such prejudice. Notwithstanding the foregoing, such omission will not relieve the Company from any liability
that it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof: 

        (a)   The
Company will be entitled to participate therein at its own expense; and 

        (b)   The
Company jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to
Indemnitee; provided, however, that the Company shall not be entitled to assume the defense of any Proceeding if there has been a Change in Control or if Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee with respect to such Proceeding. After notice from the Company to Indemnitee of its election to assume the defense thereof,
the Company will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right to employ Indemnitee's own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice
from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless: 

          (i)  the
employment of counsel by Indemnitee has been authorized by the Company; 

         (ii)  Indemnitee
shall have reasonably concluded that counsel engaged by the Company may not adequately represent Indemnitee due to, among other things, actual or potential
differing interests; or 

        (iii)  the
Company shall not in fact have employed counsel to assume the defense in such Proceeding or shall not in fact have assumed such defense and be acting in connection
therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Company. 

        (c)   The
Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee's written consent; provided,
however, that Indemnitee will not unreasonably withhold his or her consent to any proposed settlement. 

        15.    Notices.    All notices, requests, demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) delivered by facsimile
with telephone confirmation of receipt or (c) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: 

          (i)  If
to Indemnitee, to the address or facsimile number set forth on the signature page hereto. 

         (ii)  If
to the Company, to: 

Spy
Optic, Inc.

2070 Las Palmas Drive

Carlsbad, CA 92009

Attn: Michael Brower, Secretary 

or
to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. 

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        16.    Nonexclusivity.    The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under applicable law, the Company's Certificate of Incorporation or bylaws, or any agreements, vote of stockholders, resolution of the Board of Directors or otherwise,
and to the extent that during the Indemnification Period the rights of the then existing directors and officers are more favorable to such directors or officers than the rights currently provided to
Indemnitee thereunder or under this Agreement, Indemnitee shall be entitled to the full benefits of such more favorable rights. 

        17.    Certain Definitions.    

        (a)   "Agent" shall mean any person who is or was, or who has consented to serve as, a director, officer, employee, agent,
fiduciary, joint venturer, partner, manager or other official of the Company or a subsidiary or an affiliate of the Company, or any other entity (including without limitation, an employee benefit
plan) either at the request of, for the convenience of, or otherwise to benefit the Company or a subsidiary of the Company. 

        (b)   "Change in Control" shall mean the occurrence of any of the following: 

          (i)  Both
(A) any "person" (as defined below) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least twenty percent (20%) of the total voting power represented by the Company's then outstanding voting securities and (B) the
beneficial ownership by such person of securities representing such percentage has not been approved by a majority of the Continuing Directors (as defined below); 

         (ii)  Any
"person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing at least fifty percent (50%) of the total voting power represented by the Company's then outstanding voting securities; 

        (iii)  A
change in the composition of the Board of Directors occurs, as a result of which fewer than two-thirds of the incumbent directors are directors who
either (A) had been directors of the Company on the "look-back date" (as defined below) (the "Original Directors") or
(B) were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority in the aggregate of the Original Directors who were still in office at
the time of the election or nomination and directors whose election or nomination was previously so approved (the "Continuing Directors"); 

        (iv)  The
stockholders of the Company approve a merger or consolidation of the Company with any other corporation, if such merger or consolidation would result in the voting
securities of the Company outstanding immediately prior thereto representing (either by remaining outstanding or by being converted into voting securities of the surviving entity) fifty percent (50%)
or less of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or 

         (v)  The
stockholders of the Company approve (A) a plan of complete liquidation of the Company or (B) an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets. 

        For
purposes of Subsection (i) above, the term "person" shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act, but shall exclude (x) a
trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a parent or subsidiary of the Company or (y) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. 

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        For
purposes of Subsection (iii) above, the term "look-back date" shall mean the later of (x) the Effective Date and (y) the date twenty-four
(24) months prior to the date of the event that may constitute a "Change in Control." 

        Any
other provision of this Section 16(b) notwithstanding, the term "Change in Control" shall not include a transaction, if undertaken at the election of the Company, the result
of which is to sell all or substantially all of the assets of the Company to another corporation (the "surviving corporation"); provided that the
surviving corporation is owned directly or indirectly by the stockholders of the Company immediately following such transaction in substantially the same proportions as their ownership of the
Company's common stock immediately preceding such transaction; and provided, further, that the surviving corporation expressly assumes this Agreement. 

        (c)   "Disinterested Director" shall mean a director of the Company who is not or was not a party to or otherwise involved in
the Proceeding in respect of which indemnification is being sought by Indemnitee. 

        (d)   "Expenses" shall include all direct and indirect costs (including, without limitation, attorneys' fees, retainers, court
costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, all other disbursements or
out-of-pocket expenses and reasonable compensation for time spent by Indemnitee for which Indemnitee is otherwise not compensated by the Company or any third party) actually
and reasonably incurred in connection with either the investigation, defense, settlement or appeal of a Proceeding or establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not include any Liabilities. 

        (e)   "Final Adverse Determination" shall mean that a determination that Indemnitee is not entitled to indemnification shall
have been made pursuant to Section 5 hereof and either (1) a final adjudication in the Court of Chancery of the State of Delaware or decision of an arbitrator pursuant to
Section 8(a) hereof shall have denied Indemnitee's right to indemnification hereunder, or (2) Indemnitee shall have failed to file a complaint in a Delaware court or seek an
arbitrator's award pursuant to Section 8(a) for a period of one hundred twenty (120) days after the determination made pursuant to Section 5 hereof. 

        (f)    "Independent Legal Counsel" shall mean a law firm or a member of a firm selected by the Company and approved by
Indemnitee (which approval shall not be unreasonably withheld) or, if there has been a Change in Control, selected by Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld), that neither is presently nor in the past five (5) years has been retained to represent: (i) the Company or any of its subsidiaries or affiliates, or Indemnitee or any
corporation of which Indemnitee was or is a director, officer, employee or agent, or any subsidiary or affiliate of such a corporation, in any material matter, or (ii) any other party to the
Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Legal Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's right to indemnification under this
Agreement. 

        (g)   "Liabilities" shall mean liabilities of any type whatsoever including, but not limited to, any judgments, fines, ERISA
excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines,
penalties or amounts paid in settlement) of any Proceeding. 

        (h)   "Proceeding" shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, that is associated with Indemnitee's being an Agent of the
Company. 

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        18.    Binding Effect; Duration and Scope of Agreement.    This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. This Agreement shall continue in effect during the Indemnification Period,
regardless of whether Indemnitee continues to serve as an Agent. 

        19.    Severability.    If any provision or provisions of this Agreement (or any portion thereof) shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: 

        (a)   The
validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and 

        (b)   To
the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to the intent of any provision held invalid, illegal or
unenforceable. 

        20.    Governing Law.    This Agreement shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware, without regard to conflict of laws rules. 

        21.    Consent to Jurisdiction.    The Company and Indemnitee each irrevocably consent to the jurisdiction of the
courts of the State of Delaware for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agree that any action instituted under this Agreement
shall be brought only in the state courts of the State of Delaware. 

        22.    Entire Agreement.    This Agreement represents the entire agreement between the parties hereto, and there are
no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in
Section 15 hereof. 

        23.    Counterparts.    This Agreement may be executed in one or more counterparts, each of which shall for all
purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. 

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        IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer and Indemnitee has executed this Agreement as of the date first above written. 

	 	 	SPY OPTIC, INC.,

a Delaware corporation
	

 	
 	

By	

 
	 	 	 	

	 	 	Print Name	 
	 	 	 	

	 	 	Title	 
	 	 	 	

	

 	
 	

INDEMNITEE
	

 	
 	

Signature	

 
	 	 	 	

	 	 	Print Name	 
	 	 	 	

	 	 	Address	 
	 	 	 	

	 	 	 	 
	 	 	 	

	 	 	Telephone	 
	 	 	 	

	 	 	Facsimile	 
	 	 	 	

	 	 	E-mail	 
	 	 	 	

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Exhibit 10.1

SPY OPTIC, INC. INDEMNIFICATION AGREEMENTQuickLinks
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Exhibit 10.4    
    

 
 

SPY OPTIC, INC.    
    
    LOAN AND SECURITY AGREEMENT    
    

   
        This LOAN AND SECURITY AGREEMENT is entered into as of October 5, 2001, by and between COMERICA BANK-CALIFORNIA ("Bank") and SPY OPTIC, INC. ("Borrower"). 

RECITALS  

        Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to Bank. 

AGREEMENT  

        The parties agree as follows: 

	1.
	DEFINITIONS
AND CONSTRUCTION. 

        1.1    Definitions.    As used in this Agreement, all capitalized terms shall have the definitions set forth on
Exhibit A. Any term used in the Code and not defined herein shall have the meaning given to the term in the Code. 

        1.2    Accounting Terms.    Any accounting term not specifically defined on Exhibit A shall be construed in
accordance with GAAP and all calculations shall be made in accordance with GAAP. The term "financial statements" shall include the accompanying notes and schedules. 

	2.
	LOAN
AND TERMS OF PAYMENT. 

        2.1    Credit Extensions.    

        (a)    Promise to Pay.    Borrower promises to pay to Bank, in lawful money of the United States of America, the
aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the
terms hereof. 

        (b)    Revolving Advances.    

        (i)    Amount.    Subject to and upon the terms and conditions of this Agreement, Borrower may request Advances in an
aggregate outstanding amount not to exceed the lesser of (A) the Committed Revolving Line or (B) if Borrower's Leverage is greater than 1.50:1.00, the Borrowing Base, in either case less
any amounts outstanding under the Letter of Credit Sublimit. Amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at
which time all Advances under this Section 2.1(b) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium. 

        (ii)    Form of Request.    Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission
or telephone no later than 3:00 p.m. Pacific time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit C. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible
Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as
a result of such reliance, except as the result of Bank's gross negligence or willful misconduct. Bank will credit the amount of Advances made under this Section 2.1(b) to Borrower's deposit
account. 

        (iii)    Letter of Credit Sublimit.    Subject to the availability under the Committed Revolving Line, and in reliance
on the representations and warranties of Borrower set forth herein, at any time and 

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from
time to time from the date hereof through the Business Day immediately prior to the Revolving Maturity Date, Bank shall issue for the account of Borrower such Letters of Credit as Borrower may
request by delivering to Bank a duly executed letter of credit application on Bank's standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit
(i) shall not at any time exceed the Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances for the purpose of calculating availability under the Committed Revolving
Line. Any drawn but unreimbursed amounts under any Letters of Credit shall be charged as Advances against the Committed Revolving Line. Unless Borrower shall have deposited with Bank cash collateral
in an amount sufficient to cover all undrawn amounts under each such Letter of Credit and Bank shall have agreed in writing, no Letter of Credit shall have an expiration date that is later than the
Revolving Maturity Date. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form application and
letter of credit agreement. Borrower will pay any standard issuance and other fees that Bank notifies Borrower will be charged for issuing and processing Letters of Credit. 

        2.2    Overadvances.    If the aggregate amount of the outstanding Advances exceeds the lesser of the Committed
Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess. 

        2.3    Interest Rates, Payments, and Calculations.    

        (a)    Interest Rates.    Advances.    Except as set forth in Section 2.3(b), the Advances shall bear
interest, on the outstanding daily balance thereof, at a variable rate equal to one percent (1%) above the Prime Rate. 

        (b)    Late Fee; Default Rate.    If any payment is not made within ten days after the date such payment is due,
Borrower shall pay Bank a late fee equal to the lesser of (i) three percent (3%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable
law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to three percent (3%) above the interest rate applicable
immediately prior to the occurrence of the Event of Default. 

        (c)    Payments.    Interest hereunder shall be due and payable on the last calendar day of each month during the term
hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower's deposit accounts or against the Committed Revolving Line, in which case
those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder. 

        (d)    Computation.    In the event the Prime Rate is changed from time to time hereafter, the applicable rate of
interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. 

        (e)    Crediting Payments.    Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of
funds, check or other item of payment to such deposit account or Obligation as Borrower specifies, except that to the extent Borrower uses the Advances to purchase Collateral, Borrower's repayment of
the Advances shall apply on a "first-in-first-out" basis so that the portion of the Advances used to purchase a particular item of Collateral shall be paid in the
chronological order the Borrower purchased the Collateral.. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be
immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when 

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presented
for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such
extension. 

        2.4    Fees.    Borrower shall pay to Bank the following: 

        (a)    Facility Fee.    On the Closing Date, a Facility Fee equal to $25,000, and a documentation fee equal to
$500.00, both of which shall be nonrefundable; 

        (b)    Bank Expenses.    On the Closing Date, all Bank Expenses incurred through the Closing Date (not to exceed
$15,000), and, after the Closing Date, all Bank Expenses, as and when they become due. 

        2.5    Term.    This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. 

	3.
	CONDITIONS
OF LOANS. 

        3.1    Conditions Precedent to Initial Credit Extension.    The obligation of Bank to make the initial Credit
Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following: 

        (a)   this
Agreement; 

        (b)   an
officer's certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement; 

        (c)   a
financing statement (Form UCC-1); 

        (d)   a
subordination agreement from each holder of Subordinated Debt; 

        (e)   agreement
to provide insurance; 

        (f)    payment
of the fees and Bank Expenses then due specified in Section 2.4; 

        (g)   current
SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral; 

        (h)   current
financial statements in accordance with Section 6.2; and 

        (i)    such
other documents or certificates, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 

        3.2    Conditions Precedent to all Credit Extensions.    The obligation of Bank to make each Credit Extension,
including the initial Credit Extension, is further subject to the following conditions: 

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

        (b)   the
representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form
and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such
Credit Extension 

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(provided,
however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each
Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2. 

	4.
	CREATION
OF SECURITY INTEREST. 

        4.1    Grant of Security Interest.    Borrower grants and pledges to Bank a continuing security interest in the
Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in
later-acquired Collateral. Notwithstanding any termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding. 

        4.2    Perfection of Security Interest.    Borrower authorizes Bank to file at any time financing statements,
continuation statements, and amendments thereto that describe the Collateral and to describe the Collateral as all assets of Borrower of the kind pledged hereunder and which contain any other
information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the
type of organization and any organizational identification number issued to Borrower, if applicable. Any such financing statements may be signed by Bank on behalf of Borrower, as provided in the Code,
and may be filed at any time in any jurisdiction whether or not Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower shall from time to time execute and deliver to
Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interests
in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower shall have possession of the Collateral, except where expressly otherwise
provided in this Agreement or
where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, Borrower shall take
such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit
of Bank, (ii) obtain "control" of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items
and the term "control" are defined in Revised Article 9 of the Code), with any agreements establishing control to be in form and substance satisfactory to Bank. Borrower will not create any
chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. 

        (a)    Right to Inspect.    Bank (through any of its officers, employees, or agents) shall have the right, upon
reasonable prior notice, from time to time during Borrower's usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the
Collateral. 

	5.
	REPRESENTATIONS
AND WARRANTIES. 

        Borrower
represents and warrants as follows: 

        5.1    Due Organization and Qualification.    Borrower and each Subsidiary is a corporation duly existing under the
laws of the Borrower State and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the
failure to do so would not reasonably be expected to cause a Material Adverse Effect. 

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        5.2    Due Authorization; No Conflict.    The execution, delivery, and performance of the Loan Documents are within
Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles of Incorporation or Bylaws, nor will they
constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent such default would not
reasonably be expected to cause a Material Adverse Effect. 

        5.3    Collateral.    Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral
is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for
Permitted Liens. All Collateral is located solely in the Collateral States. The Eligible Accounts are bona fide existing obligations. The property or services giving rise to such Eligible Accounts has
been delivered or rendered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any Borrowing Base Certificate as an Eligible Account. All Inventory is in all material respects of good and merchantable
quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule, none of the Collateral is maintained or invested with a
Person other than Bank or Bank's affiliates. 

        5.4    Intentionally Omitted.    

        5.5    Name; Location of Chief Executive Office.    Except as disclosed in the Schedule, Borrower has not done
business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive office of
Borrower is located in the Chief Executive Office State at the address indicated in Section 10 hereof. 

        5.6    Litigation.    Except as set forth in the Schedule, there are no actions or proceedings pending by or against
Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision would reasonably be expected to have a Material Adverse Effect, or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. 

        5.7    No Material Adverse Change in Financial Statements.    All consolidated financial statements related to
Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank. 

        5.8    Solvency, Payment of Debts.    Borrower is able to pay its debts (including trade debts) as they mature; the
fair saleable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement. 

        5.9    Compliance with Laws and Regulations.    Borrower and each Subsidiary have met the minimum funding requirements
of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act.
Borrower is in compliance with all 

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environmental
laws, regulations and ordinances except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances
or rules applicable to it, violation of which could have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid,
or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns
or pay such taxes would not reasonably be expected to have a Material Adverse Effect. 

        5.10    Subsidiaries.    Borrower does not own any stock, partnership interest or other equity securities of any
Person, except for Permitted Investments. 

        5.11    Government Consents.    Borrower and each Subsidiary have obtained all consents, approvals and authorizations
of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted, except
where the failure to do so would not reasonably be expected to cause a Material Adverse Effect. 

        5.12    Inbound Licenses.    Except as disclosed on the Schedule, Borrower is not a party to, nor is bound by, any
license or other agreement that prohibits or otherwise restricts Borrower from granting a security interest in Borrower's interest in such license or agreement or any other property. 

        5.13    Full Disclosure.    No representation, warranty or other Statement made by Borrower in any certificate or
written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Bank that the projections and forecasts provided by Borrower in good
faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the
projected or forecasted results. 

	6.
	AFFIRMATIVE
COVENANTS. 

        Borrower
covenants that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all
of the following: 

        6.1    Good Standing and Government Compliance.    Borrower shall maintain its and each of its Subsidiaries' corporate
existence and good standing in the Borrower State, shall maintain qualification and good standing in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect, and
shall furnish to Bank the organizational identification number issued to Borrower by the authorities of the state in which Borrower is organized, if applicable. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, except where the failure to meet such requirements would not reasonably
be expected to have a Material Adverse Effect. Borrower shall comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required
thereunder where the failure to do so could have a Material Adverse Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to
comply with which would reasonably be expected to have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral. 

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        6.2    Financial Statements, Reports, Certificates.    Borrower shall deliver to Bank: (a) as soon as
available, but in any event within 30 days after the end of each calendar month, a company prepared consolidating and consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (b) as soon as available, but in any event within 120 days
after the end of Borrower's fiscal year, audited consolidating and consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion which
is unqualified or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) if applicable,
copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and
10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $50,000 or more; and (e) such budgets, sales projections, operating plans or other financial information
generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to time. 

        (a)   Within
30 days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the
form of Exhibit D hereto, together with aged listings of accounts receivable and accounts payable; provided that, for so long as Borrower's
Leverage is less than 1.50:1.00, Borrower need not deliver to Bank a Borrowing Base Certificate or aged listings of accounts receivable and accounts payable. Borrower shall deliver to Bank, within
30 days after the last day of each month or any other time Borrower delivers to Bank a Borrowing Base Certificate, evidence of Borrower's receipt of any Subordinated Debt or equity. 

        (b)   Within
30 days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in substantially the form of Exhibit E hereto and, unless Borrower's Leverage is less than 1.50:1.00, aged listings of accounts receivable and payable and a summary of
inventory for the month reported in a form acceptable to Bank. 

        (c)   As
soon as possible and in any event within three calendar days after becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement
of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto. 

        (d)   Bank
shall have a right from time to time hereafter to audit Borrower's Accounts and appraise Collateral at Borrower's expense, provided that such audits will be
conducted no more often than every 6 months unless an Event of Default has occurred and is continuing. 

        6.3    Inventory; Returns.    Borrower shall keep all Inventory in good and merchantable condition, free from all
material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving
more than $75,000. 

        6.4    Taxes.    Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all
material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state
disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates
attesting to the payment or deposit thereof; provided that Borrower or a 

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Subsidiary
need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by
Borrower. 

        6.5    Insurance.    

        (a)   Borrower,
at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain
liability and other insurance in amounts and of a type that are customary to businesses similar to Borrower's. 

        (b)   All
such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank. All policies of property insurance
shall contain a lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional
insured and specify that the insurer must give at least 20 days notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrower shall deliver to Bank certified copies
of the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower's option, be
payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security
interest. If an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Bank's option, be payable to Bank to be applied on account of the Obligations. 

        6.6    Primary Depository.    Borrower shall maintain its primary depository, operating and investment accounts with
Bank or Bank's affiliates. 

        6.7    Financial Covenants.    Borrower shall at all times maintain the following financial ratios and covenants,
measured as of the last day of each calendar month unless stated otherwise: 

        (a)    Current Ratio.    A ratio of Current Assets to Current Liabilities of at least 1.25 to 1.00. 

        (b)    Total Liabilities-Tangible Net Worth.    A ratio of Total Liabilities to Tangible Net Worth ("Leverage") of not
more than 2.00 to 1.00. 

        (c)    Tangible Net Worth.    A Tangible Net Worth of not less than $6,500,000,  plus (but not to be decreased by) (i) fifty
percent (50%) of Borrower's aggregate net income per fiscal quarter, and (ii) one hundred
percent (100%) of capital infusions, including Subordinated Debt. 

        (d)    Profitability.    Annual minimum profit of One Dollar (excluding extraordinary income and taxes). 

        6.8    Intentionally Omitted.    

        6.9    Consent of Inbound Licensors.    Prior to entering into or becoming bound by any material license or agreement,
Borrower shall: (i) provide written notice to Bank of the material terms of such license or agreement with a description of its likely impact on Borrower's business or financial condition; and
(ii) in good faith use commercially reasonable efforts to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for Borrower's interest in such licenses or
contract rights to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or
entered into in the future, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default under this Agreement. As used herein, "material license or
agreement" means any license or agreement which involves the receipt or payment by Borrower of consideration in excess of $25,000. 

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        6.10    Further Assurances.    At any time and from time to time Borrower shall execute and deliver such further
instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 

	7.
	NEGATIVE
COVENANTS. 

        Borrower
covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any
commitment to make any Credit Extensions, Borrower will not do any of the following without Bank's prior written consent, which shall not be unreasonably withheld: 

        7.1    Dispositions.    Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to "Transfer"),
or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than Permitted Transfers. 

        7.2    Change in Name, Location or Executive Office, Change in Business; Change in Fiscal Year; Change in
Control.    Change its name, the Borrower State, or relocate its chief executive office without 30 days prior written notification to Bank; engage in any
business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end;
have a Change in Control. 

        7.3    Mergers or Acquisitions.    Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person except where (i) such transactions do not in the aggregate exceed $75,000 and (ii) no Event of Default has
occurred, is continuing or would exist after giving effect to the transactions. 

        7.4    Indebtedness.    Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or
permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness
to Bank. 

        7.5    Encumbrances.    Create, incur, assume or allow any Lien with respect to any of its property, or assign or
otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person (other than
Bank) that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower's property. 

        7.6    Distributions.    Pay any dividends or make any other distribution or payment on account of or in redemption,
retirement or purchase of any capital stock, except that Borrower may (i) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does
not exist prior to such repurchase or would not exist after giving effect to such repurchase, and (ii) repurchase the stock of former employees pursuant to stock repurchase agreements by the
cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists. 

        7.7    Investments.    Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit
any of its Subsidiaries so to do, other than Permitted Investments, or maintain or invest any of its property with a Person other than Bank or Bank's affiliates unless such Person has entered into a
control agreement with Bank, in form and substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying
dividends or otherwise distributing property to Borrower. 

        7.8    Transactions with Affiliates.    Directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for transactions that are in the ordinary 

9

 

course
of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person. 

        7.9    Subordinated Debt.    Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries
to make any such payment, except in compliance with the terms of such Subordinated Debt or amend any provision affecting Bank's rights contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent; provided that, with the prior written consent of Bank, which shall not be unreasonably withheld, Borrower may
prepay up to $600,000 of Subordinated Debt, as long as an Event of Default does not exist prior to and would not result after giving effect to such prepayment. 

        7.10    Inventory and Equipment.    Store the Inventory or the Equipment with a bailee, warehouseman, or similar third
party unless the third party has been notified of Bank's security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or
Equipment for Bank's benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other
locations of which Borrower gives Bank prior written notice and as to which Bank files a financing statement where needed to perfect its security interest. 

        7.11    No Investment Company.    Become or be controlled by an "investment company," within the meaning of the
Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Credit Extension for such purpose. 

	8.
	EVENTS
OF DEFAULT. 

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

        8.1    Payment Default.    If Borrower fails to pay any of the Obligations within five (5) calendar days of the
date when due; 

        8.2    Covenant Default.    

        (a)   If
Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement; or 

        (b)   If
Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or
in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default
within ten days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten day period
or cannot after diligent attempts by Borrower be cured within such ten day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed 15 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event
of Default but no Credit Extensions will be made; 

        8.3    Defective Perfection.    If Bank shall receive at any time following the Closing Date an SOS Report indicating
that except for Permitted Liens, Bank's security interest in the Collateral is not prior to all other security interests or Liens of record reflected in the report; 

10

 

        8.4    Material Adverse Change.    If there occurs a material adverse change in Borrower's business or financial
condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or a material impairment of the value or priority of Bank's security interests in the
Collateral; 

        8.5    Attachment.    If any material portion of Borrower's assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within fifteen (15) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material
part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and
the same is not paid within fifteen (15) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is
stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period); 

        8.6    Insolvency.    If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an
Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within 45 days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency
Proceeding); 

        8.7    Other Agreements.    If there is a default or other failure to perform in any agreement to which Borrower is a
party with a third parry or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $50,000 or
that could have a Material Adverse Effect; 

        8.8    Subordinated Debt.    If Borrower makes any payment on account of Subordinated Debt, except to the extent the
payment is allowed hereunder or under any subordination agreement entered into with Bank; 

        8.9    Judgments.    If a judgment or judgments for the payment of money in an amount, individually or in the
aggregate, of at least $75,000 shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of fifteen (15) days (provided that no Credit Extensions will be made
prior to the satisfaction or stay of the judgment); or 

        8.10    Misrepresentations.    If any material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document. 

	9.
	BANK'S
RIGHTS AND REMEDIES. 

        9.1    Rights and Remedies.    Upon the occurrence and during the continuance of an Event of Default, Bank may, at its
election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: 

        (a)   Declare
all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the
occurrence of an Event of Default described in Section 8.6, all Obligations shall become immediately due and payable without any action by Bank); 

        (b)   Demand
that Borrower (i) deposit cash with Bank in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the
repayment of any future 

11

 

drawings
under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit, and Borrower shall
promptly deposit and pay such amounts. 

        (c)   Cease
advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank; 

        (d)   Settle
or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; 

        (e)   Make
such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise; 

        (f)    Set
off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Bank; 

        (g)   Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is
hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and
selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's
benefit; 

        (h)   Sell
the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places
(including Borrower's premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank may sell the
Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank,
and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale; 

        (i)    Bank
may credit bid and purchase at any public sale; and 

        (j)    Apply
for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the
Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and 

        (k)   Any
deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 

12

 

        Bank
may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. 

        9.2    Power of Attorney.    Effective only upon the occurrence and during the continuance of an Event of Default,
Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession;
(c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices
to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; (f) settle and
adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) to file, in its sole discretion, one
or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; provided Bank may exercise such power
of attorney to sign the name of Borrower on any of the documents described in clause (g) above regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated. 

        9.3    Accounts Collection.    At any time after the occurrence and during the continuation of an Event of Default,
Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit. 

        9.4    Bank Expenses.    If Borrower fails to pay any amounts or furnish any required proof of payment due to third
persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Facility as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall
constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by
Bank shall not constitute an agreement by Bank to
make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement. 

        9.5    Bank's Liability for Collateral.    Bank has no obligation to clean up or otherwise prepare the Collateral for
sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 

        9.6    No Obligation to Pursue Others.    Bank has no obligation to attempt to satisfy the Obligations by collecting
them from any other person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Bank's rights
against Borrower. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations. 

        9.7    Remedies Cumulative.    Bank's rights and remedies under this Agreement, the Loan Documents, and all other
agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on 

13

 

Borrower's
part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document
signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may not
be waived or modified by Bank by course of performance, conduct, estoppel or otherwise. 

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

	10.
	NOTICES. 

        Unless
otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing
and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery
service,
certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below: 

	 	If to Borrower:	 	SPY OPTIC, INC.

1260 Avenida Chelsea

Vista, CA 92085

Attn: Chief Financial Officer

FAX: (760) 734-6508
	 	
 If to Bank:	
 	

COMERICA BANK-CALIFORNIA

701 B Street, Suite 600

San Diego, CA 92101

Attn: Richmond C. Boyce

FAX: (619) 234-2234

        The
parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 

	11.
	CHOICE
OF LAW AND VENUE; JURY TRIAL WAIVER. 

        This
Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower
and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. 

14

 
	12.
	GENERAL
PROVISIONS. 

        12.1    Successors and Assigns.    This Agreement shall bind and inure to the benefit of the respective successors and
permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to
sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder. 

        12.2    Indemnification.    Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and
agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct. 

        12.3    Time of Essence.    Time is of the essence for the performance of all obligations set forth in this Agreement. 

        12.4    Severability of Provisions.    Each provision of this Agreement shall be severable from every other provision
of this Agreement for the purpose of determining the legal enforceability of any specific provision. 

        12.5    Amendments in Writing, Integration.    All amendments to or terminations of this Agreement must be in writing.
All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents. 

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

        12.7    Survival.    All covenants, representations and warranties made in this Agreement shall continue in full force
and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run. 

        12.8    Confidentiality.    In handling any confidential information Bank and all employees and agents of Bank shall
exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby
received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be
required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential
information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public
domain after disclosure to Bank through no fault of 

15

 

Bank;
or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. 

        IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. 

	 	 	SPY OPTIC, INC.
	

 	
 	

By:	

/s/ BARRY BUCHHOLTZ

	 	 	Title:	President

	

 	
 	

COMERICA BANK-CALIFORNIA
	

 	
 	

By:	

/s/ RICHMOND C. BOYCE

	 	 	Title:	Assistant Vice President

16

   EXHIBIT A  

 DEFINITIONS  

"Accounts"
means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including,
without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and
other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. 

"Advance"
or "Advances" means a cash advance or cash advances under the Revolving Facility. 

"Affiliate"
means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such
Person, and each of such Person's senior executive officers, directors, and partners. 

"Agreement"
means this Loan and Security Agreement entered into as of October 5, 2001, by and between Bank and Borrower. 

"Bank
Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of
the Loan Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of
appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought. 

"Borrower
State" means California, the state under whose laws Borrower is organized. 

"Borrower's
Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such information. 

"Borrowing
Base" means an amount equal to 70% of Eligible Accounts, plus 90% of Eligible Foreign Accounts,  plus 40% of Eligible Inventory (such amount not to exceed
Two Million Dollars ($2,000,000)), all as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower. 

"Business
Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close. 

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

"Chief
Executive Office State" means California, where Borrower's chief executive office is located. 

"Closing
Date" means the date of this Agreement. 

"Code"
means the California Uniform Commercial Code as amended or supplemented from time to time. 

"Collateral"
means the property described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described on Exhibit B, except to the extent any such property
(i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such 

1

 

prohibition
on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a security interest therein is contrary
to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral. 

"Collateral
State" means the state or states where the Collateral is located, which are California, Ohio, Italy and in Borrower's vending trailers and trucks (with Inventory not to exceed the
aggregate value of approximately $100,000) which travel throughout the United States. 

"Committed
Revolving Line" means a Credit Extension of up to Three Million Dollars ($3,000,000), plus the actual amount of any equity invested in or
Subordinated Debt received by Borrower after the Closing Date, not to exceed an additional Two Million Dollars ($2,000,000) (as reported by Borrower upon each Advance Request, in the form of Annex I
to Loan Payment/Advance Telephone Request Form), up to the aggregate amount of Five Million Dollars ($5,000,000) (inclusive of any amounts outstanding under the Letter of Credit Sublimit). 

"Contingent
Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter
of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person;
and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the
primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such
Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement. 

"Credit
Extension" means each Advance or any other extension of credit by Bank to or for the benefit of Borrower hereunder. 

"Current
Assets" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as
at such date. 

"Current
Liabilities" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its
Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Credit Extensions made under this Agreement (irrespective of treatment of such Credit Extensions in
accordance with GAAP), including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendible at the
option of Borrower or any Subsidiary to a date more than one year from the date of determination. 

"Eligible
Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in
Section 5.3; provided, that Bank may change the standards of eligibility by giving Borrower 30 days prior written notice. Unless otherwise agreed to by Bank, Eligible Accounts shall not
include the following: 

	(a)
	Accounts
that the account debtor has failed to pay in full within 60 days of due date; 

2

 
	(b)
	Accounts
that the account debtor has failed to pay in full within 90 days of invoice date (except for accounts associated with Snow Goggles Program, as to which the account
debtor has failed to pay in full within 120 days of invoice date);

	(c)
	Accounts
with respect to an account debtor, 20% of whose Accounts the account debtor has failed to pay within 60 days of due date;

	(d)
	Accounts
with respect to which the account debtor is an officer, employee, or agent of Borrower;

	(e)
	Accounts
with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the
account debtor may be conditional;

	(f)
	Accounts
with respect to which the account debtor is an Affiliate of Borrower;

	(g)
	Accounts
with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible Foreign Accounts;

	(h)
	Accounts
with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, except for Accounts of the United States if
the payee has assigned its payment rights to Bank and the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);

	(i)
	Accounts
with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts
owing to the account debtor against amounts owed to Borrower;

	(j)
	Accounts
with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed 20% of all Accounts, to the extent such obligations
exceed the aforementioned percentage, except as approved in writing by Bank;

	(k)
	Accounts
with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a
basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and

	(l)
	Accounts
the collection of which Bank reasonably determines after inquiry and consultation with Borrower to be doubtful 

"Eligible
Foreign Accounts" means Accounts with respect to which the account debtor does not have its principal place of business in the United States and that (i) are supported by insurance or
one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, or (ii) that Bank approves on a case-by-case basis. 

"Eligible
Inventory" means finished goods in Borrower's inventory. 

"Environmental
Laws" means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any agency pertaining
to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials. 

"Equipment"
means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. 

"ERISA"
means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. 

"Event
of Default" has the meaning assigned in Article 8. 

3

 

"GAAP"
means generally accepted accounting principles, consistently applied, as in effect from time to time. 

"Indebtedness"
means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with
respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all
Contingent Obligations. 

"Insolvency
Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief. 

"Inventory"
means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and
finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual
or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing. 

"Investment"
means any beneficial ownership of (including stock, partnership or limited liability company or other securities) any Person, or any loan, advance or capital contribution to any Person. 

"IRC"
means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. 

"Letter
of Credit" means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrower's request in accordance with Section 2.1(b)(iii). 

"Letter
of Credit Sublimit" means a sublimit under the Committed Revolving Line not to exceed Two Million Dollars ($2,000,000), for Letters of Credit. 

"Leverage"
has the meaning assigned in Section 6.7(b). 

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

"Loan
Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into between Borrower and Bank in connection with
this Agreement, all as amended or extended from time to time. 

"Material
Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or
(ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents. 

"Negotiable
Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and
chattel paper, and Borrower's Books relating to any of the foregoing. 

"Obligations"
means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from
Borrower to others that Bank may have obtained by assignment or otherwise. 

4

 

"Periodic
Payments" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or
agreement now or hereafter in existence between Borrower and Bank. 

"Permitted
Indebtedness" means: 

	(a)
	Indebtedness
of Borrower in favor of Bank arising under this Agreement or any other Loan Document;

	(b)
	Indebtedness
existing on the Closing Date and disclosed in the Schedule; provided the holders of such Indebtedness have executed and
delivered to Bank subordination agreements in form and substance satisfactory to Bank;

	(c)
	Indebtedness
not to exceed $75,000 in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term "Permitted Liens," provided
such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;

	(d)
	Subordinated
Debt incurred after Closing Date, in favor of any Person not to exceed $100,000 in the aggregate to such Person without Bank's prior written consent;  provided that Subordinated Debt issued to any Person
in an amount less than $100,000 shall require Bank's prior written consent when the aggregate
amount of Subordinated Debt issued equals or exceeds $500,000; provided further, the holders of such Subordinated Debt have executed and delivered to
Bank subordination agreements in form and substance satisfactory to Bank;

	(e)
	Indebtedness
to trade creditors incurred in the ordinary course of business; and

	(f)
	Extensions,
refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms
upon Borrower or its Subsidiary, as the case may be. 

"Permitted
Investment" means: 

	(a)
	Investments
existing on the Closing Date disclosed in the Schedule;

	(b)
	(i) Marketable
direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date
of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from
either Standard & Poor's Corporation or Moody's Investors Service, (iii) Bank's certificates of deposit maturing no more than one year from the date of investment therein, and
(iv) Bank's money market accounts;

	(c)
	Repurchases
of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed $50,000 in any
fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the
repurchase is the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists; and

	(d)
	Investments
accepted in connection with Permitted Transfers. 

"Permitted
Liens" means the following: 

	(a)
	Any
Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Advances) or arising under this Agreement or the other
Loan Documents; 

5

 
	(b)
	Liens
for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower
maintains adequate reserves, provided the same have no priority over any of Bank's security interests;

	(c)
	Liens
not to exceed $75,000 in the aggregate (i) upon or in any Equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment
or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the
Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;

	(d)
	Liens
incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above,
provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; and

	(e)
	Liens
arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.5 or 8.9. 

"Permitted
Transfer" means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of: 

	(a)
	Inventory
in the ordinary course of business;

	(b)
	licenses
and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;

	(c)
	worn-out
or obsolete Equipment not financed with the proceeds of Equipment Advances; or

	(d)
	other
transfers not otherwise prohibited hereunder, not to exceed Fifty Thousand Dollars ($50,000) in the aggregate at any time. 

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

"Prime
Rate" means the variable rate of interest, per annum, most recently announced by Bank, as its "prime rate," whether or not such announced rate is the lowest rate available from Bank. 

"Quick
Assets" means, at any date as of which the amount thereof shall be determined, the unrestricted cash and cash-equivalents, net accounts receivable and investments with maturities
not to exceed 90 days, of Borrower determined in accordance with GAAP. 

"Responsible
Officer" means each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of Borrower. 

"Revolving
Facility" means the facility under which Borrower may request Bank to issue Advances, as specified in Section 2. l(b) hereof. 

"Revolving
Maturity Date" means October 5, 2003. 

"Schedule"
means the schedule of exceptions attached hereto and approved by Bank, if any. 

"Snow
Goggles Program" means the program pursuant to which Borrower grants extended payment terms to its customers who pre-book by June of each year a minimum number (subject to change
from time to time in Borrower's reasonable business judgment) of snow goggles. 

6

 

"SOS
Reports" means the official reports from the Secretaries of State of each Collateral State, Chief Executive Office State and the Borrower State and other applicable federal, state or local
government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report. 

"Subordinated
Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and
Bank). 

"Subsidiary"
means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than 50% of the stock, limited
liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any
determination is being made, is owned by Borrower, either directly or through an Affiliate. 

"Tangible
Net Worth" means at any date as of which the amount thereof shall be determined, the sum of the capital stock, partnership interest or limited liability company interest and additional
paid-in capital plus retained earnings (or minus accumulated deficit) of Borrower and its Subsidiaries minus intangible assets, plus Subordinated Debt, on a consolidated basis determined
in accordance with GAAP. 

"Total
Liabilities" means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness. 

7

  

	DEBTOR:	 	SPY OPTIC, INC.
	SECURED PARTY:	 	COMERICA BANK-CALIFORNIA

EXHIBIT B  

 COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT  

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

        (a)   all
accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts,
documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures),
instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor's books and records with respect to any of the foregoing, and the computers and equipment
containing said books and records; 

        (b)   any
and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the
security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time, including
revised Division 9 of the Uniform
Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July 1, 2001. 

        Notwithstanding
the foregoing, the Collateral shall not include any copyrights, patents, trademarks, servicemarks and applications therefor, now owned or hereafter acquired, or any
claims for damages by way of any past, present and future infringement of any of the foregoing (collectively, the "Intellectual Property"); provided, however, that the Collateral shall include all
accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the "Rights to Payment").
Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security
interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the minimum extent necessary to permit perfection
of Secured Party's security interest in the Rights to Payment, and such limited inclusion of the Intellectual Property in the Collateral shall not provide Secured Party with any rights of a secured
creditor with respect to the Intellectual Property, including any rights under the Code or Sections 9.1(h) and 9.2(d) of the Loan and Security Agreement between Debtor and Secured Party, except to the
extent necessary to permit Secured Party to realize on such Rights to Payment. Secured Party specifically acknowledges and agrees that, except to the extent necessary to permit Secured Party to
realize on the Rights to Payment, Secured Party has no right to sell, dispose of or otherwise transfer the Intellectual Property or any interests therein. 

1

   EXHIBIT C  

 LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM  

 DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.  

	TO:	 	[                        ]	 	DATE:	 	                        
	FAX #:	 	[                        ]	 	TIME:	 	                        

	FROM:	 	SPY OPTIC, INC.

	CLIENT NAME (BORROWER)
	REQUESTED BY:	 	 
	 	 	

	AUTHORIZED SIGNER'S NAME

	AUTHORIZED SIGNATURE:	 	 
	 	 	

	PHONE NUMBER:	 	 
	 	 	

	FROM ACCOUNT #	 	 	 	 	TO ACCOUNT #	 	 
	 	 	
	 	 	 	 	

	
REQUESTED TRANSACTION TYPE	
 	
 	
REQUEST DOLLAR AMOUNT
	

PRINCIPAL INCREASE (ADVANCE) [use attached Annex I to describe proceeds of Subordinated Debt or equity received]	
 	
$
	

 

	

PRINCIPAL PAYMENT (ONLY)	
 	
$
	

 

	INTEREST PAYMENT (ONLY)	 	$
	 

	PRINCIPAL AND INTEREST (PAYMENT)	 	$
	 

	OTHER INSTRUCTIONS:	 	 	 	 	 
	 	 	 	 	 	

	    

All
representations and warranties of Borrower stated in the Loan and Security Agreement are true, correct and complete in all material respects as of the date of the telephone request for an Advance
confirmed by this Advance Request; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of
such date. 

BANK USE ONLY

TELEPHONE REQUEST:  

        The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. 

	    
 Authorized Requester	 	    
 Phone #
	

    
 Received By (Bank)	
 	

    
 Phone #
	

    
 Authorized Signature (Bank)	
 	

 

2

   ANNEX I TO

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM  

(Report
of Proceeds of Subordinated Debt or Equity) 

	Investor/Debt Holder Name
 
	 	Gross Proceeds
	 	Date of

Infusion/Date

Credited
	 	Evidence of

Credit/Deposit

Attached (circle)
	 	Subordination

Agreement

Required/Executed

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Yes	 	No	 	Yes	 	No

3

   EXHIBIT D  

 BORROWING BASE CERTIFICATE  

	

	Borrower: SPY OPTIC, INC.	 	Lender: COMERICA BANK-CALIFORNIA

Commitment
Amount: $3,000,000 (subject to increase up to total of $5,000,000) 

	DOMESTIC ACCOUNTS RECEIVABLE	 	 	 	 
	 	1.	 	Accounts Receivable Book Value as of             	 	 	 	$

	 	2.	 	Additions (please explain on reverse)	 	 	 	$

	 	3.	 	TOTAL ACCOUNTS RECEIVABLE	 	 	 	$

	

DOMESTIC ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	
 	

 	
 	

 
	 	4.	 	Amounts over 60 days due/90 days invoice	 	 	 	$

	 	5.	 	Balance of 20% over 60 days past due accounts	 	 	 	$

	 	6.	 	Concentration Limits	 	 	 	 
	 	7.	 	Governmental Accounts	 	 	 	$

	 	8.	 	Contra Accounts	 	 	 	$

	 	9.	 	Demo Accounts	 	 	 	$

	 	10.	 	Intercompany/Employee Accounts	 	 	 	$

	 	11.	 	Other (please explain on reverse)	 	 	 	$

	 	12.	 	TOTAL DOMESTIC ACCOUNTS RECEIVABLE DEDUCTIONS	 	 	 	$

	 	13.	 	Eligible Accounts (#3 minus #12)	 	 	 	$

	 	14.	 	LOAN VALUE OF DOMESTIC ACCOUNTS (70% of #14)	 	 	 	$

	

FOREIGN ACCOUNTS RECEIVABLE	
 	

 	
 	

 
	 	15.	 	Eligible Foreign Accounts	 	 	 	$

	 	16.	 	LOAN VALUE OF FOREIGN ACCOUNTS (90% of 15)	 	 	 	$

	

INVENTORY	
 	

 	
 	

 
	 	17.	 	Eligible Domestic Inventory	 	 	 	$

	 	18.	 	LOAN VALUE OF DOMESTIC INVENTORY (lesser of 40% of 17, or $2,000,000)	 	 	 	$

	

BALANCES	
 	

 	
 	

 
	 	19.	 	Maximum Loan Amount	 	$
	 	 
	 	20.	 	Total Funds Available [Lesser of #19 or (#l4 + #l6 + #l8)	 	$
	 	 
	 	21.	 	Present balance owing on Line of Credit	 	$
	 	 
	 	22.	 	Outstanding under Sublimits	 	$
	 	 
	 	20.	 	RESERVE POSITION (#19 minus #21 and #22)	 	$
	 	 

The undersigned represents and warrants that the foregoing is true, complete and correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Comerica
Bank-California.

SPY
OPTIC, INC. 

	By:	 	 	 	 
	 	 	
 Authorized Signer	 	 

4

   EXHIBIT E  

 COMPLIANCE CERTIFICATE  

	TO:	 	COMERICA BANK-CALIFORNIA
	FROM:	 	SPY OPTIC, INC.

        The
undersigned authorized officer of SPY OPTIC, INC. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending                        with all required
covenants, except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. 

        Please indicate compliance status by circling Yes/No under "Complies" column.  

	Reporting Covenant
 
	 	Required
	 	Complies

	Monthly financial statements	 	Monthly within 30 days	 	Yes	 	No
	Annual (CPA Audited)	 	FYE within 120 days	 	Yes	 	No
	l0K and l0Q	 	(as applicable)	 	Yes	 	No
	A/R & A/P Agings, Borrowing Base Cert.	 	Monthly within 30 days (if required)	 	Yes	 	No
	
Financial Covenant
 
	
 	

Required
	
 	

Actual
	
 	

Complies

	Maintain on a Monthly Basis:	 	 	 	 	 	 	 	 
	 	Minimum Current Ratio	 	1.25:1.00	 	        :1.00	 	Yes	 	No
	 	Maximum Debt-TNW	 	2.00:1.00	 	        :1.00	 	Yes	 	No
	 	Minimum Tangible Net Worth	 	$6,500,000*	 	$                	 	Yes	 	No
	Profitability	 	$1.00	 	$                	 	Yes	 	No

* plus (i) fifty percent (50%) of Borrower's aggregate net income per fiscal quarter, and (ii) one
hundred percent (100%) of capital infusions, including Subordinated Debt 

	 	 	

	Comments Regarding Exceptions: See Attached.	 	BANK USE ONLY
	

Sincerely,	
 	

Received by:	
 	

 
	 	 	 	 	

	 	 	AUTHORIZED SIGNER
	 	 	 	 	 
	 	 	Date:	 	 
	
 SIGNATURE	 	 	 	

	

 	
 	

Verified:	
 	

 
	 	 	 	 	

	 	 	AUTHORIZED SIGNER
	 	 	 	 	 
	
 TITLE	 	Date:	 	 
	 	 	 	 	

	 	 	 	 	 
	
 DATE	 	Compliance Status                Yes    No
	 	 	

5

 
SCHEDULE OF EXCEPTIONS  

Permitted Indebtedness (Exhibit A) 

        Indebtedness
in favor of Finova Capital (by assignment from Fremont Financial Corp.), which shall be satisfied in full immediately after the Closing Date from a portion of the proceeds
of the Revolving Facility. 

        Indebtedness
in connection with capital leases for copiers and other office and computer equipment with: 

	1.
	Nations
Credit Commercial Corp.;

	2.
	Textron
Financial Corp.;

	3.
	MetroLease, Inc.;
and

	4.
	Wells
Fargo Financial Leasing.

	5.
	Ql
Exchange (Ford Commercial Credit)

	6.
	DFS
Acceptance (Dell)

	7.
	Deutche
Financial 

Permitted Investments (Exhibit A) 

Spy
Optic SRL (subsidiary formed under the laws of Italy)

Spy Europe SL (subsidiary formed under the laws of Spain) 

Permitted Liens (Exhibit A) 

        UCC-1
in favor of Finova capital (by assignment from Fremont Financial Corp.), which shall be terminated immediately after the Closing Date. 

        UCC-
Is in favor of: 

	1.
	Nations
Credit Commercial Corp. (filed 4/22/98, assigned 11/06/98);

	2.
	Textron
Financial Corp. (2) (1 filed 10/22/98, assigned 6/08/99; 1 filed 4/19/99, assigned 8/26/99);

	3.
	MetroLease, Inc.
(filed 10/28/99); and

	4.
	Wells
Fargo Financial Leasing (filed 5/10/01). 

Prior Names (Section 5.5) 

        Sports
Colors, Inc. 

Litigation (Section 5.6) 

        None 

6

   CORPORATE RESOLUTIONS TO BORROW  

Borrower: SPY OPTIC, INC. 

        I,
the undersigned officer of SPY OPTIC, INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the State of
California. 

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

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

        BE
IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below: 

	NAMES
 
	 	POSITION
	 	ACTUAL SIGNATURES

	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

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

        Borrow Money.    To borrow from time to time from Comerica Bank-California("Bank"), on such terms as may be agreed
upon between the officers, employees, or agents of the Corporation and Bank, such sum or sums of money as in their judgment should be borrowed, without limitation, including, without limitation, such
sums as are specified in that certain Loan and Security Agreement dated as of October 5, 2001 (the "Loan Agreement"). 

        Execute Loan Documents.    To execute and deliver to Bank the Loan Agreement and any other agreement entered into between
Corporation and Bank in connection with the Loan Agreement, all as amended or extended from time to time (collectively, with the Loan Agreement, the "Loan Documents"), and also to execute and deliver
to Bank one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for the Loan Documents, or any portion thereof. 

        Grant Security.    To grant a security interest to Bank in the Collateral described in the Loan Documents, which security
interest shall secure all of the Corporation's Obligations, as described in the Loan Documents. 

        Negotiate Items.    To draw, endorse, and discount with Bank all drafts, trade acceptances, promissory notes, or other evidences
of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the
account of the Corporation with Bank, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable. 

        Letters of Credit; Foreign Exchange.    To execute letter of credit applications, foreign exchange agreements and other related
documents pertaining to Bank's issuance of letters of credit and foreign exchange contracts. 

        Further Acts.    In the case of lines of credit, to designate additional or alternate individuals as being authorized to request
advances thereunder, and in all cases, to do and perform such other acts 

7

 

and
things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions. 

        BE
IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that
these Resolutions shall remain in full force and effect and Bank may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Bank. Any such
notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given. 

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

        IN
WITNESS WHEREOF, I have hereunto set my hand on October 5, 2001 and attest that the signatures set opposite the names listed above are their genuine signatures. 

	 	 	CERTIFIED AND ATTESTED BY:
	

 	
 	

X	
 	

 

8

   COMERICA BANK-CALIFORNIA

Member FDIC

ITEMIZATION OF AMOUNT FINANCED

DISBURSEMENT INSTRUCTIONS

(Revolver)  

	Name(s): SPY OPTIC, INC.	 	Date: October 5, 2001

	$                        	 	credited to deposit account No.                         when Advances are requested or disbursed
to Borrower by cashiers check or wire transfer
	

Amounts paid to others on your behalf:
	

$                        	
 	

to                        Bank for Loan Fee
	

$                        	
 	

to                        Bank for Document Fee
	

$                        	
 	

to                        Bank for accounts receivable audit (estimate)
	

$                        	
 	

to Bank counsel fees and expenses
	

$                        	
 	

to                        
	

$                        	
 	

to                        
	

$                        	
 	

TOTAL (AMOUNT FINANCED)

        Upon
consummation of this transaction, this document will also serve as the authorization for Comerica Bank-California to disburse the loan proceeds as stated above. 

	 
 Signature	 	 
 Signature

9

   AGREEMENT TO PROVIDE INSURANCE  

	TO:	 	COMERICA BANK-CALIFORNIA

Attn: Collateral Operations, M/C 4604

9920 South La Cienega Blvd, Suite 628

Inglewood, CA 90301-4423	 	Date: October 5, 2001

Borrower: SPY OPTIC, INC.

        In
consideration of a loan in the amount of $5,000,000, secured by all tangible personal property including inventory and equipment. 

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

        I/We
also agree to advise the below named agent to add Comerica Bank-California as lender's loss payable on the new or existing insurance policy, and to furnish Bank at above
address with a copy of said policy/endorsements and any subsequent renewal policies. 

        I/We
understand that the policy must contain: 

	1.
	Fire
and extended coverage in an amount sufficient to cover:

	(a)
	The
amount of the loan, OR

	(b)
	All
existing encumbrances, whichever is greater, 

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

	2.
	Lender's
"Loss Payable" Endorsement Form 438 BFU in favor of Comerica Bank-California, or any other form acceptable to Bank. 

INSURANCE INFORMATION  

	Insurance Co./Agent	 	 	 	Telephone No.:	 	 
	Agent's Address:	 	 	 	 	 	 

	 	 	Signature of Obligor:	 	 
	 	 
	 	 	Signature of Obligor:	 	 
	 	 

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

10

QuickLinks

Exhibit 10.4

SPY OPTIC, INC. LOAN AND SECURITY AGREEMENT

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}]]