Document:

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                                                                    Exhibit 10.3

                                INTERVOICE, INC.

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (this "Agreement") executed as of September
5, 2003, and effective as of August 27, 2003, by and between Intervoice, Inc., a
Texas corporation with its principal executive offices at 17811 Waterview
Parkway, Dallas, Texas 75252 (the "Company"), and Craig E. Holmes (the
"Employee").

                              W I T N E S S E T H:

         WHEREAS, the Employee and the Company desire to enter into this
Agreement to provide for certain terms and conditions of Employee's employment
by the Company.

         NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and subject to the
terms and conditions hereinafter set forth, the parties hereto agree as follows:

1.       DEFINITIONS.

         In addition to the words and terms elsewhere defined in this Agreement,
the following words and terms as used herein shall have the following meanings,
unless the context or use indicates a different meaning:

         "Cause" means (a) any act by the Employee that is materially adverse to
the best interests of the Company and which, if the subject of a criminal
proceeding, could result in a criminal conviction for a felony or (b) the
willful failure by the Employee to substantially perform his duties hereunder,
which duties are within the control of the Employee (other than the failure
resulting from the Employee's incapacity due to physical or mental illness),
provided, however, that the Employee shall not be deemed to be terminated for
Cause under this subsection (b) unless and until (1) after the Employee receives
written notice from the Company specifying with reasonable particularity the
actions of Employee which constitute a violation of this subsection (b) and (2)
within a period of 30 days after receipt of such notice (and during which the
violation is within the control of the Employee), Employee fails to reasonably
and prospectively cure such violation.

         "Common Stock" means the Company's common stock, no par value per
share.

         An "Event of Default" means the occurrence of any of the following
events, unless remedied or otherwise cured within 30 days after the Company's
receipt of written notice from the Employee of such event, (a) a breach by the
Company of any of its express or implied obligations under this Agreement, (b)
without his prior concurrence, the Employee is assigned any duties or
responsibilities that are inconsistent with his position, duties,
responsibilities or status at the commencement of the term of this Agreement, or
his reporting responsibilities or titles in effect at such time are changed, (c)
the Employee's base compensation is reduced or any other failure by the Company
to comply

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with Section 4, or (d) any change in any employee benefit plans or arrangements
in effect on the date hereof in which the Employee participates (including
without limitation any pension and retirement plan, savings and profit sharing
plan, stock ownership or purchase plan, stock option plan, or life, medical or
disability insurance plan), which would adversely affect the Employee's rights
or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of the Company.

2.       EMPLOYMENT.

         The Company hereby employs the Employee and the Employee hereby accepts
employment on the terms and conditions set forth herein.

3.       TERM.

         The initial term of this Agreement shall be from August 27, 2003 until
August 31, 2005 unless sooner terminated in accordance with the provisions
herein regarding termination. Subject to earlier termination as provided herein,
the initial term of this Agreement shall be automatically extended for one (1)
year from September 1, 2005, unless either the Employee or the Company gives
written notice to the other of its intention not to extend this Agreement six
months or more prior to August 31, 2005.

4.       COMPENSATION.

         (a) Base Salary. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee a base salary of $225,000 per
year. Such salary shall be payable in equal semi-monthly installments in
accordance with the customary payroll policies of the Company in effect at the
time such payment is made, or as otherwise mutually agreed upon. Effective as of
March 1 of each year during the term hereof, the Company's Chief Executive
Officer, in consultation with the Compensation Committee of the Company, shall
review Employee's performance for the prior fiscal year and make such
adjustments in base salary from time to time at their discretion as the Employee
and the Company may agree.

         (b) Annual Bonus. As of the date this Agreement is executed, the
Company's executive officers are not eligible to earn a cash bonus as part of
their compensation. If and when all of the Company's other executive officers
become eligible to earn a cash bonus for any fiscal year or years, the Employee
will also become eligible to earn a cash bonus for the same fiscal year or
years. The terms of any plan for a cash bonus for any fiscal year during the
term of this Agreement will be structured by the Company such that if the plan
objectives are achieved at 100% (as 100% achievement is defined or otherwise
described under the terms of any such plan for a cash bonus), Employee will earn
a cash bonus equal to 50% of Employee's base salary for the full fiscal year, if
the cash bonus plan is in effect for the full fiscal year, or, if the cash bonus
plan is in effect for less than a full fiscal year, 50% of Employee's base
salary for the number of months during the fiscal year that the cash bonus plan
is in effect.

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         (c) Bonus. In addition to the Employee's annual base salary and other
benefits provided for in this Agreement, the Company may pay to the Employee on
an annual basis a discretionary bonus in an amount to be approved by the Board
of Directors of the Company; provided, however, in no event shall the bonus
payable hereunder, if any, exceed Employee's annual base salary provided for in
Section 4(a).

         (d) Benefits. The Employee shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made available
by the Company in the future to its executive officers and key management
personnel, subject to and on a basis consistent with the terms, conditions and
overall administration of such plan or arrangement. Nothing paid to the Employee
under any plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of the salary and bonuses (if any) payable
to the Employee pursuant to Subsections 4(a), (b) and (c).

         (e) Stock Option. In consideration of the Employee's execution of this
Agreement, the Company has granted effective August 27, 2003 an option to
purchase an aggregate of 100,000 shares of the Company's Common Stock to the
Employee pursuant to the Company's 2003 Stock Option Plan (the "Stock Option").
The exercise price per share for the Stock Option is based on the arithmetic
average of the high and low trading prices for the Company's Common Stock on the
Nasdaq National Market on August 27, 20003. The Stock Option will vest in three
equal amounts on each of the first three anniversaries of the date the Stock
Option was granted. The Stock Option will be subject to the terms and conditions
of the stock option agreement attached as Exhibit A to this Agreement (the
"Stock Option Agreement").

         (f) Expenses. Upon receipt of itemized vouchers, expense account
reports, and supporting documents submitted to the Company in accordance with
the Company's procedures from time to time in effect, the Company shall
reimburse Employee for all reasonable and necessary travel, entertainment, and
other reasonable and necessary business expenses incurred ordinarily and
necessarily by Employee in connection with the performance of his duties
hereunder.

         (g) Vacation. For vacation purposes, the Employee shall be subject to
the Company's standard vacation policy based on his years of employment with the
Company.

5.       POSITION, DUTIES, EXTENT OF SERVICES AND SITUS.

         (a) Position and Duties. Employee shall serve as the Executive Vice
President and Chief Financial Officer of the Company, and report directly to the
Company's Chief Executive Officer and, subject to the authority of the Company's
Chief Executive Officer and Board of Directors, shall have such powers and
duties as may from time to time be prescribed by the Company's Chief Executive
Officer and/or Board of Directors, provided that such duties are reasonable and
customary for an Executive Vice President and Chief Financial Officer of a
public company.

         (b) Extent of Services and Situs. The Employee shall devote
substantially all of his business time, attention, and energy to the business
and affairs of the Company and shall not during the term of his employment under
this Agreement engage in any other business activity which could

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constitute a conflict of interest, whether or not such business activity is
pursued for gain, profit, or other pecuniary advantage. This shall not be
construed as preventing the Employee from managing his current investments or
investing his assets in such form or manner as will not require any services on
the part of the Employee in the operation and the affairs of the companies in
which such investments are made, subject to the provisions of Sections 6 and 27.
The Employee shall not be required to change the principal place of his
employment to a location which is more than 15 miles further away from his
principal residence than such principal place of employment at the time of the
execution of this Agreement:

6.       COVENANT NOT TO COMPETE.

         (a) The Employee acknowledges that (i) as a result of his position and
tenure with the Company he will receive specialized and unique training and
knowledge concerning the Company, its business, its customers and the industry
in which it competes, (ii) the Company's business, in large part, depends upon
its exclusive possession and use of the Proprietary Information (as defined in
Section 27), (iii) the Company is entitled to protection against the
unauthorized disclosure or use by Employee of the Proprietary Information or the
training and knowledge received by the Employee and (iv) he has received in this
Agreement good and valuable consideration for the covenants he is making in this
Section 6 and in Section 27. The Company and the Employee acknowledge and agree
that the covenants contained in this Section 6 and in Section 27 are reasonably
necessary for the protection of the Company and are reasonably limited with
respect to the activities they prohibit, their duration, their geographical
scope and their effects on the Employee and the public. The parties acknowledge
that the purpose and effect of the covenants are to protect the Company from
unfair competition by the Employee.

         (b) Except as provided in the last sentence of this Section 6(b),
during the period in which the Employee renders services to the Company under
this Agreement and for twelve (12) months thereafter, the Employee shall not,
without the written consent of the Company, own, manage, operate, control, serve
as an officer, director, employee, partner or consultant of or be connected in
any way with or have any interest in any corporation, partnership,
proprietorship or other entity which carries on business activities in
competition with the Company's activities in any state of the United States or
in any foreign country in which the Company has sold or installed its products
or systems or has definitive plans to sell or install its products at any time
prior to or at the time of the date of termination of the Employee's employment;
except that the Employee may own up to 1% of the shares of any publicly-owned
corporation, provided that none of his other relationships with such corporation
violates such covenant. Notwithstanding the foregoing, the provisions of this
Section 6 shall not apply if the Employee's employment with the Company is
terminated during the term of this Agreement by the Company, unless the Employee
is terminated in accordance with Section 7 or for Cause in accordance with
Subsection 9(a).

         (c) The Company and the Employee hereby agree that in the event that
the noncompetition covenants contained herein should be held by any court or
other constituted legal authority of competent jurisdiction to be effective in
any particular area or jurisdiction only if said covenants are modified to limit
their duration, geographical area or scope, then the parties hereto will
consider Section 6 to be amended and modified with respect to that particular
area or jurisdiction so

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as to comply with the order of any such court or other constituted legal
authority and, as to all other jurisdictions or political subdivisions thereof,
the noncompetition covenants contained herein will remain in full force and
effect as originally written. The Company and the Employee further agree that in
the event that the noncompetition covenants contained herein should be held by
any court or other constituted legal authority of competent jurisdiction to be
void or otherwise unenforceable in any particular area or jurisdiction
notwithstanding the operation of this Section 6(c), then the parties hereto will
consider this Section 6 to be amended and modified so as to eliminate therefrom
that particular area or jurisdiction as to which such noncompetition covenants
are so held void or otherwise unenforceable, and, as to all other areas and
jurisdictions covered by the noncompetition covenants, the terms and provisions
hereof shall remain in full force and effect as originally written.

         (d) Employee recognizes and acknowledges that the Company would suffer
irreparable harm and substantial loss if Employee violated any of the terms and
provisions of this Section 6 or Section 27 and that the actual damages which
might be sustained by the Company as the result of any breach of this Section 6
or Section 27 would be difficult to ascertain. Employee agrees, at the election
of the Company and in addition to, and not in lieu of, the Company's right to
terminate Employee's employment and to seek all other remedies and damages which
the Company may have at law and/or equity for such breach, that the Company
shall be entitled to an injunction restraining Employee from breaching any of
the terms or provisions of this Section 6 or Section 27.

7.       COMPENSATION IN THE EVENT OF DISABILITY.

         (a) Disability. If the Employee becomes disabled during the term of
this Agreement the Company shall cause to be paid to the Employee an amount
equal to his base salary in effect at the time of disability under Subsection
4(a), for the shorter of the duration of the disability or the remainder of the
term of this Agreement and, subject to the provisions of Sections 22 and 25,
with no liability on its part for further payments to the Employee during the
duration of the disability. Subject to Subsection 7(b) below, full compensation
shall be reinstituted upon his return to employment and resumption of his
duties. For purposes of this Subsection 7(a) the Employee shall be deemed
"disabled" when he is unable, for a period of 90 consecutive days, to perform
his normal duties of employment due to bodily injury or disease or any other
physical or mental disability.

         (b) Complete Disability. The Company shall have the right to terminate
the Employee's employment under this Agreement prior to the expiration of the
term upon the "Complete Disability" of the Employee as hereinafter defined
(provided, however, that upon any termination by the Company for Complete
Disability the Company shall comply with its obligations pursuant to Section 10
of this Agreement). The term "Complete Disability" as used in this Subsection
7(b) shall mean (i) the total inability of the Employee, despite any reasonable
accommodations required by law, due to bodily injury or disease or any other
physical or mental incapacity, to perform the services provided for hereunder
for a period of 120 days, in the aggregate, within any given period of 180
consecutive days during the term of this Agreement in addition to any
statutorily required leave of absence, and (ii) where such inability will, in
the opinion of a qualified physician (reasonably acceptable to Employee), be
permanent and continuous during the remainder of his life.

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8.       COMPENSATION IN THE EVENT OF DEATH.

         If the Employee dies during the term of this Agreement, the Company
shall pay to such person as the Employee shall designate in a notice filed with
the Company, or, if no such person shall be designated, to his estate as a death
benefit, the Remaining Compensation, and otherwise, comply with the Company's
obligations under Section 10 (other than the Company's obligations under
subsection 10(ii)), in addition to any payments the Employee's spouse,
beneficiaries, or estate may be entitled to receive pursuant to any pension or
employee benefit plan or life insurance policy maintained by the Company, and,
except for any obligations of the Company under Sections 22 and 25, all other
obligations of the Company hereunder shall cease at the time of the Employee's
death.

9.       TERMINATION.

         (a) Upon at least 30 days' prior written notice to the Employee, the
Company may terminate the Employee's employment with the Company under this
Agreement only for Cause or in accordance with Section 7 and, subject to the
provisions of Sections 7, 22 and 25 (and Section 10 solely with respect to a
termination pursuant to Section 7), with no liability on its part for further
payments to the Employee. The Company may effect a termination for Cause
pursuant to this Subsection 9(a) only by the affirmative vote of a majority of
the members of the Board of Directors of the Company. In voting upon such
termination for Cause, if the Employee is later elected as a member of the Board
of Directors of the Company, then he may not vote on, and will not be considered
present for any purpose with respect to, a matter presented to the Board of
Directors of the Company pursuant to this Subsection 9(a).

         (b) The Employee may terminate his employment with the Company under
this Agreement by giving at least 90 days' prior written notice of his desire to
terminate employment to the Board of Directors of the Company. If the Employee's
employment with the Company under this Agreement is terminated pursuant to this
Subsection 9(b), the Employee will continue to accrue and receive his base
salary in effect at the time pursuant to Subsection 4(a) through the date of
termination with no liability on the part of the Company for further payments to
the Employee, subject to the provisions of Sections 22 and 25.

         (c) If the Employee's employment with the Company is terminated by the
Company without Cause or if the Employee terminates his employment with the
Company following the occurrence of an Event of Default which has not been
waived in writing by the Employee, the Employee will continue to accrue and
receive his base salary in effect at the time pursuant to Subsection 4(a)
through the date of termination and will be entitled to receive the benefits
provided for under Section 10 with no liability on the part of the Company for
further payments to the Employee, subject to the provisions of Sections 7, 22
and 25.

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10.      COMPENSATION AFTER CERTAIN TERMINATIONS.

         If the Employee's employment with the Company is terminated at any time
for any reason during the term of this Agreement other than (a) termination by
the Company for Cause in accordance with Subsection 9(a) or (b) termination at
the election of the Employee pursuant to Subsection 9(b), then, (i) within five
days after the date of such termination, the Remaining Compensation (as herein
defined) shall become due and payable and shall be paid to the Employee in a
single lump sum in cash, and (ii) except for a termination of this Agreement
caused by the Employee's death and subject to the last sentence of this Section
10, thirty-three thousand three hundred thirty three (33,333) shares of Common
Stock covered by the Stock Option described in subsection 4(e), that are not
then exercisable by the Employee shall, notwithstanding the provisions of any
other agreement, become immediately exercisable at the close of business on such
date of termination and remain exercisable until they are exercised or otherwise
would expire in accordance with the terms of the Stock Option Agreement. For
purposes of this Section 10, the "Remaining Compensation" shall mean the annual
base salary payable to the Employee for one calendar year pursuant to Subsection
4 (a) at the time of termination. For any termination for which the Remaining
Compensation becomes due and payable to Employee or his estate, the Company will
pay, for a period of twelve (12) months following the month in which the
termination of employment occurs, for the Company's group health insurance
coverage for Employee and any covered dependents as in effect on such date of
termination, to the same extent as if the Employee had continued as an employee;
provided, however, that the Company's obligation in this regard shall terminate
at such earlier date as the Employee and the Employee's family members who are
then under the Company's coverage have become eligible and qualified for
comparable coverage (including any preexisting-condition requirements) under
another employer's plan. To receive this coverage, the Employee must make a
COBRA election in accordance with the Company's policy for COBRA elections. The
Company may, in its sole discretion, and in lieu of accelerating the date that
33,333 shares of Common Stock become exercisable under the Stock Option pursuant
to subsection 10 (ii) above, send a written notice to Employee on such date of
termination that it will pay, and pay, within five (5) business days of such
date of termination, the Employee an amount in a single lump sum in cash equal
to the annual base salary payable to the Employee for one calendar year pursuant
to subsection 4(a), which payment will be in addition to the Company's
obligation to pay the Employee the Remaining Compensation.

11.      MITIGATION.

         The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by the Employee as the result of employment by another
employer after the date of termination of Employee's employment with the
Company, or otherwise.

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12.      ENTIRE AGREEMENT.

         This Agreement embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior negotiations, agreements, and understandings relating to such subject
matter, and may be modified or amended only by an instrument in writing signed
by the parties hereto.

13.      LAW TO GOVERN.

         This Agreement is executed and delivered in the State of Texas and
shall be governed, construed and enforced in accordance with the laws of the
State of Texas.

14.      ASSIGNMENT.

         This Agreement is personal to the parties, and neither this Agreement
nor any interest herein may be assigned (other than by will or by the laws of
descent and distribution) without the prior written consent of the parties
hereto nor be subject to alienation, anticipation, sale, pledge, encumbrance,
execution, levy, or other legal process of any kind against the Employee or any
of his beneficiaries or any other person. Notwithstanding the foregoing, the
Company shall be permitted to assign this Agreement to any corporation or other
business entity succeeding to substantially all of the business and assets of
the Company by merger, consolidation, sale of assets, or otherwise, if the
Company obtains the assumption of this Agreement by such successor.

15.      BINDING AGREEMENT.

         Subject to the provisions of Section 14 of this Agreement, this
Agreement shall be binding upon and shall inure to the benefit of the Company
and the Employee and their respective representatives, successors, and assigns.

16.      REFERENCES AND GENDER.

         All references to "Sections" and "Subsections" contained herein are,
unless specifically indicated otherwise, references to sections and subsections
of this Agreement. Whenever herein the singular number is used, the same shall
include the plural where appropriate, and words of either gender shall include
the other gender where appropriate.

17.      WAIVER.

         No waiver of any right under this Agreement shall be deemed effective
unless the same is set forth in writing and signed by the party giving such
waiver, and no waiver of any right shall be deemed to be a waiver of any such
right in the future.

18.      NOTICES.

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         Except as may be otherwise specifically provided in this Agreement, all
notices required or permitted hereunder shall be in writing and will be deemed
to be delivered when deposited in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, or deposited with
Federal Express courier service for next day delivery, addressed to the party or
parties at 17811 Waterview Parkway, Dallas, Texas 75252, or at such other
addresses as may have theretofore been specified by written notice delivered in
accordance herewith.

19.      OTHER INSTRUMENTS.

         The parties hereto covenant and agree that they will execute such other
and further instruments and documents as are or may become necessary or
convenient to effectuate and carry out the terms of this Agreement.

20.      HEADINGS.

         The headings used in this Agreement are used for reference purposes
only and do not constitute substantive matter to be considered in construing the
terms of this Agreement.

21.      INVALID PROVISION.

         Any clause, sentence, provision, section, subsection, or paragraph of
this Agreement held by a court of competent jurisdiction to be invalid, illegal,
or ineffective shall not impair, invalidate, or nullify the remainder of this
Agreement, but the effect thereof shall be confined to the clause, sentence,
provision, section, subsection, or paragraph so held to be invalid, illegal or
ineffective.

22.      RIGHTS UNDER PLANS AND PROGRAMS.

         Anything in this Agreement to the contrary notwithstanding, no
provision of this Agreement is intended, nor shall it be construed, to reduce or
in any way restrict any benefit to which the Employee may be entitled under any
other agreement, plan, arrangement, or program providing benefits for the
Employee.

23.      MULTIPLE COPIES.

         This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument. The terms of this Agreement
shall become binding upon each party from and after the time that he or it
executed a copy hereof. In like manner, from and after the time that any party
executes a consent or other document, such consent or other document shall be
binding upon such parties.

24.      WITHHOLDING OF TAXES.

         The Company may withhold from any amounts payable under this Agreement
all federal, state, city, or other taxes as shall be required pursuant to any
law or government regulation or ruling.

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25.      LEGAL FEES AND EXPENSES.

         The Company shall pay and be responsible for all legal fees and
expenses which the Employee may incur as a result of the Company's failure to
perform under this Agreement or as a result of the Company or any successor
contesting the validity or enforceability of this Agreement.

26.      SET OFF OR COUNTERCLAIM.

         Except with respect to any claim against or debt or other obligation of
the Employee properly recorded on the books and records of the Company, there
shall be no right of set off or counterclaim against, or delay in, any payment
by the Company to the Employee or his beneficiaries provided for in this
Agreement in respect of any claim against or debt or other obligation of the
Employee, whether arising hereunder or otherwise.

27.      ASSIGNMENT, PROTECTION AND CONFIDENTIALITY OF PROPRIETARY INFORMATION.

         Employee acknowledges and agrees that all items of the Company's
Proprietary Information constitute valuable, special and unique assets and trade
secrets of its business, which provide to the Company a competitive advantage
over others who do not have access thereto and access to which is essential to
the performance of Employee's duties hereunder. Employee shall not, during the
term of this Agreement or thereafter, use or disclose any Proprietary
Information that is not otherwise publicly available, in whole or in part, for
his benefit or for the benefit of any other person or party, except for the
Company. As used herein, "Proprietary Information" includes, but is not limited
to, customer lists and prices, whether current or prospective, product designs
or other product information, experimental developments and other research and
development information, testing processes, marketing studies and research
activities, and any other trade secrets concerning the Company, its
shareholders, officers, directors, employees, business prospects, customers,
transactions, finances, affairs, opportunities, operations, properties or
assets. The Employee further agrees that all inventions, devices, compounds,
processes, formulas, techniques, improvements and modifications which he may
develop, in whole or in part, during the term of his employment or through or
with the facilities, equipment or resources of the Company shall be and remain
the sole and exclusive property of the Company. The Employee agrees to deliver
to the Company at any time the Company may request, all memoranda, notes, plans,
records, reports, and other documents (including copies thereof and all
embodiments thereof whether in computerized form or any other medium) relating
to the business or affairs of the Company or its subsidiaries which he may then
possess or have under his control. Employee shall maintain in good condition all
tangible and other forms of Proprietary Information in Employee's custody or
control until his obligations under the preceding sentence are satisfied.
Employee agrees to execute all documents and take such other actions as may be
required to comply with this Section.

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         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.

                                          INTERVOICE, INC.

                                          By: /s/ DAVID W. BRANDENBURG
                                             -----------------------------------

                                          Name:     David W. Brandenburg
                                          Title:    Chairman of the Board
                                                    and Chief Executive Officer

                                           /s/ CRAIG E. HOLMES
                                          ---------------------------
                                          CRAIG E. HOLMES

                                       11<PAGE>
                                                                     EXHIBIT 4.1

NEITHER THIS NOTE NOR THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER SECURITIES
LAWS, AND NEITHER MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO
REGISTERED OR UNLESS SOLD PURSUANT TO AN EXEMPTION THEREFROM. THIS NOTE MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE NOTE
PURCHASE AGREEMENT REFERRED TO IN THIS NOTE, A COMPLETE AND CORRECT COPY OF THE
FORM OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF GADZOOKS,
INC., 4121 INTERNATIONAL PARKWAY, CARROLLTON, TEXAS 75007.

Registration # _______________

              5% CONVERTIBLE SUBORDINATED NOTE DUE OCTOBER 9, 2008

$_____________                                             October 9, 2003

         FOR VALUE RECEIVED, the undersigned, GADZOOKS, INC. (the "Company"), a
Texas corporation, hereby promises to pay to the order of ________________, or
its permitted, registered assigns (the "Holder"), the principal sum of
___________________ Dollars ($________) on (i) October 9, 2008, or (ii) when
declared due and payable by the Holder upon the occurrence of an Event of
Default (as defined below) (in the case of either (i) or (ii), the "Maturity
Date"), with interest from the date hereof payable on the unpaid balance thereof
at the rate of five percent (5%) per annum, payable semiannually, on the 1st day
of April and 1st day of October in each year, commencing with April 1, 2004,
until the principal hereof shall have become due and payable.

         Principal and interest shall be payable in lawful money of the United
States of America, at such place as the Holder may designate from time to time
in writing to the Company. Interest shall be computed on the basis of a three
hundred sixty day year and a thirty day month.

         This Note is one of a duly authorized issue of the Company designated
as 5% Convertible Subordinated Notes (the "Notes") due October 9, 2008, and
limited to the aggregate principal amount of $14,000,000 and issued pursuant to
that certain Note Purchase Agreement by and between the Company and the Holder.
The following is a statement of the rights of the Holder of this Note and the
conditions to which this Note is subject, and to which the Holder hereof, by the
acceptance of this Note, agrees:

         1. Definitions. As used in this Note, the following terms have the
following meanings:

            1.1 "Closing Date" means the date of the closing of the purchase and
sale of the Notes pursuant to the Note Purchase Agreement.

            1.2 "Common Stock" means any capital stock of any class or series of
the Company (including, on the Closing Date, the Common Stock, par value $0.01
per share, of the Company) which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which is not subject to redemption
by the Company. However, subject to the provisions of Section 10.6, shares
issuable on conversion of this Note shall include only shares of the class of
capital stock of the Company designated as Common Stock, par value $0.0l per
share, of the Company on the Closing Date or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which are not subject to redemption by the Company; provided, however, that
if at any time there shall be more than one such resulting class, the shares of
each such class then so issuable shall be substantially in the proportion which
the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.

<PAGE>

            1.2 "Company" shall include any corporation which shall succeed to
or assume the obligations of the Company under this Note.

            1.3 "Holder," when the context refers to a holder of this Note,
shall mean any person who shall at the time be the registered holder of this
Note.

            1.4 "Trading Day(s)" means any day on which the primary market on
which shares of the Company Common Stock (as defined below) are listed is open
for trading.

         2. Events of Default. If any of the events specified in this Section 2
shall occur (herein individually referred to as an "Event of Default"), the
Holder of the Note may, so long as such condition exists, declare the entire
principal and unpaid accrued interest hereon immediately due and payable in
cash, by notice in writing to the Company:

            2.1 Default in the payment of the principal or unpaid accrued
interest of this Note when due and payable if such default is not cured by the
Company within thirty (30) days after the Holder has given the Company written
notice of such default; or

            2.2 The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to institution of bankruptcy or
insolvency proceedings against it or the filing by it of a petition or answer or
consent seeking reorganization or release under the federal Bankruptcy Act, or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or the appointment of a receiver, liquidator, assignee,
trustee or other similar official of the Company, or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the taking of corporate action by the Company in furtherance of any such
action; or

            2.3 If, within ninety (90) days after the commencement of an action
against the Company (and service of process in connection therewith on the
Company) seeking any bankruptcy, insolvency, reorganization, liquidation or
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of the Company or
all orders or proceedings thereunder affecting the operations or the business of
the Company stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within ninety (90) days after the appointment
without the consent or acquiescence of the Company of any trustee, receiver or
liquidator of the Company or of all or any substantial part of the properties of
the Company, such appointment shall not have been vacated.

         3. Subordination. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Senior Indebtedness,
as hereinafter defined.

            3.1 Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
all indebtedness of the Company to banks, commercial finance lenders, insurance
companies or other financial institutions regularly engaged in the business of
lending money, which is for money borrowed by the Company (whether or not
secured), and (ii) amounts owed to equipment lessors pursuant to equipment lease
lines approved by the Company's Board of Directors, and (iii) all indebtedness
of the Company evidenced by notes, debentures, bonds or other securities of the
Company which are designated by and approved by the Company's Board of
Directors, and (iv) all obligations and liabilities in connection with the lease
of real property, and (v) all modifications, renewals, extensions and refundings
of indebtedness, liabilities or obligations of the kind described in any of the
preceding clauses, provided, however no indebtedness of the Company, all or part
of which is convertible into equity, and no indebtedness which has a material
equity component shall be designated as Senior Indebtedness by the Company
without the consent of a majority of the Holders of the Notes.

            3.2 Default on Senior Indebtedness. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangement with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an Event of Default with respect to any Senior
Indebtedness, then (i) no amount

                                       2
<PAGE>

shall be paid by the Company in respect of the principal of or interest on this
Note at the time outstanding, unless and until the principal of and interest on
the Senior Indebtedness then outstanding shall be satisfied, and (ii) no claim
or proof of claim shall be filed with the Company by or on behalf of the Holder
of this Note that shall assert any right to receive any payment in respect of
the principal of and interest on this Note, except subject to the satisfaction
of the principal of and interest on all of the Senior Indebtedness then
outstanding. If there occurs an event of default that has been declared in
writing with respect to any Senior Indebtedness, or in the instrument under
which any Senior Indebtedness is outstanding, permitting the holder of such
Senior Indebtedness to accelerate the maturity thereof, then, unless and until
such event of default shall have been cured or waived or shall have ceased to
exist, or all Senior Indebtedness shall have been satisfied, no payment shall be
made in respect of the principal of or interest on this Note or unless within
three (3) months after the happening of such event of default, the maturity of
such Senior Indebtedness shall not have been accelerated.

            3.3 Effect of Subordination. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 3 to receive cash, securities
or other properties otherwise payable or deliverable to the Holder of this Note,
nothing contained in this Section 3 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and conditions
hereof, to pay to the Holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the Holder of this Note,
upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.

            3.4 Subrogation. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 3.2 above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of this Note; and for the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness to which the Holder would he
entitled except for the provisions of this Section 3 shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and the
Holder, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.

            3.5 Undertaking. By its acceptance of this Note, the Holder agrees
to execute and deliver such documents as may be reasonably requested from time
to time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 3.

            3.6 Pro Rata Distribution. In the event that the Company's assets
are insufficient to satisfy the Holder of this Note and the Holders of all other
Notes issued contemporaneously or in connection with the offering of the Notes
by the Company, the Company's available assets shall be distributed pro rata to
all such Holders based on the total principal and interest then due to each such
Holder.

         4. Prepayment. Subject to the conditions set forth in this Section 4
and Section 6 below, at any time after the third anniversary of the Closing
Date, the Company has the right, at the Company's option, to prepay the entire
unpaid principal balance of this Note (including any accrued and unpaid
interest) (the "Remaining Balance") (the "Prepayment").

         5. Put Right. Subject to the conditions set forth in this Section 5 and
Section 7 below, at any time after the third anniversary of the Closing Date,
the Holder has the right, at the Holder's option, to require the Company to
repurchase the Remaining Balance (the "Put").

         6. Company Prepayment Procedure. Before the Company shall be entitled
to prepay the Note in accordance with Section 4 above, it shall give written
notice to the Holder, notifying the Holder of its desire to exercise its right
of Prepayment and specifying the Remaining Balance and the date on which such
Prepayment will occur (the "Prepayment Closing Date"). On the Prepayment Closing
Date, the Company will pay to the Holder in cash or other immediately available
funds an amount equal to the Remaining Balance and the Holder shall deliver to
the Company the Note.

         7. Holder Put Procedure. If the Holder wishes to exercise the Put in
accordance with Section 5 above, the Holder shall deliver written notice (the
"Put Notice") to the Company notifying the Company of its desire

                                       3
<PAGE>

to exercise the Put. The closing for the Put shall occur at the Company's
principal office, or at such other place as shall be mutually agreeable to the
Holder and the Company, within ninety (90) days after the receipt of notice by
the Company (the "Put Closing Date"). On the Put Closing Date, the Company shall
pay to the Holder in cash or other immediately available funds an amount equal
to the Remaining Balance and the Holder shall deliver to the Company the Note.

         8. Conversion.

            8.1 Holder Conversion. Any Holder of this Note has the right, at the
Holder's option, at any time and prior to payment in full of the principal
balance of this Note, to convert this Note, in accordance with the provisions of
Section 8.3 hereof and subject to Section 9 hereof, in whole or in part, into
fully paid and nonassessable shares of Common Stock. The number of shares of
Common Stock into which this Note may be converted ("Conversion Shares") shall
be determined by dividing the aggregate principal amount together with all
accrued and unpaid interest to the date of conversion by the Conversion Price in
effect at the time of such conversion. The Conversion Price shall be equal to
Five Dollars ($5.00), subject to adjustment as specified in Section 10.

            8.2 Company Conversion. Commencing 18 months from the Closing Date
and subject to the conditions of this Section 8.2, the Company has the right, at
the Company's option, from time to time thereafter, to convert the entire unpaid
principal balance of this Note (including any accrued and unpaid interest) into
shares of Common Stock at the Conversion Price then in effect; provided, that
the closing price of the Company's Common Stock is greater than Six Dollars
($6.00) (as adjusted proportionately at the time of any Conversion Price
adjustment) for twenty (20) Trading Days during a thirty (30) consecutive
Trading Day period; and provided further, that (i) any Registration Statement
required to be filed and be effective pursuant to the Note Purchase Agreement is
then in effect and has been in effect and sale of the Common Stock can be made
thereunder for at least twenty (20) days prior to the Company's conversion
notice provided in Section 8.4, and (ii) the Company has sufficient number of
authorized shares of Common Stock reserved for issuance upon the conversion of
the Note; and, provided, further, that in the event the conversion of the Note
under this Section 8.2 shall result in the issuance of shares of Common Stock in
excess of the Issuable Maximum (as defined in Section 9 below), the Company
shall, prior to any such conversion, obtain Shareholder Approval (as defined in
Section 9 below).

            8.3 Holder Conversion Procedure. Before the Holder shall be entitled
to convert this Note into shares of Common Stock, it shall surrender this Note
at the office of the Company and shall give written notice to the Company at its
principal corporate office, of the election to convert the same pursuant to this
Section 8.3, and shall state therein the name or names in which the certificate
or certificates for shares of Common Stock are to be issued. Unless waived by
the Company in its sole discretion, the minimum conversion amount accepted by
the Company for conversion hereunder shall be the lesser of: a One Million
Dollar ($1,000,000) principal balance on the Holder's Note, or the remaining
principal and accrued interest balance on the Holder's Note. The Company shall,
as soon as practicable thereafter, issue and deliver to the Holder of this Note
a certificate or certificates (bearing such legend as required in the Note
Purchase Agreement) for the number of shares of Common Stock to which the Holder
of this Note shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of this Note, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.

            8.4 Company Conversion Procedure. Before the Company shall be
entitled to convert this Note into shares of Common Stock, it shall give written
notice to the Holder at the address last shown on the records of the Company for
the Holder or given by the Holder to the Company for the purpose of notice,
notifying the Holder of the conversion to be effected, specifying the Conversion
Price, the principal amount of the Note to be converted, the amount of accrued
interest to be converted, the date on which such conversion will occur and
calling upon such Holder to surrender to the Company, in the manner and at the
place designated, the Note. The Company shall, as soon as practicable
thereafter, issue and deliver to the Holder of the Note a certificate or
certificates (bearing such legend as required in the Note Purchase Agreement)
for the number of shares of Common Stock to which the Holder of this Note shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of this
Note, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock as of such date. Notwithstanding the
foregoing, in the event the

                                       4
<PAGE>

Holder fails to convert this Note following a thirty (30) day period beginning
from the date the Company shall give written notice to the Holder in accordance
with this Section 8.4, the interest payable on the unpaid principal balance of
this Note shall be reduced to zero beginning on the thirty-first (31st) day
after such notice and shall remain at zero until the earlier of (i) the Maturity
Date, and (ii) the entire unpaid principal balance of this Note (including any
accrued and unpaid interest) is converted into the Company's Common Stock.

            8.5 Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of the Company issuing any
fractional shares to the Holder upon the conversion of this Note, the Company
shall pay to the Holder the amount of outstanding principal that is not so
converted by including a check payable to the Holder for any cash amounts in
lieu of a fractional share.

         9. Nasdaq Limitation. If on any date following the Closing Date (i) one
or more Holders give written notice to the Company of such Holder's election to
convert the Note(s) in accordance with Section 8.3 above (or the Company gives
written notice to the Holder of the Company's election to convert the Note(s) in
accordance with Section 8.4 above) where such conversion(s), together with all
other prior conversions of the Notes, would result in an issuance of shares of
Common Stock as would equal or exceed 20% of the number of shares of the Common
Stock outstanding immediately prior to the Closing Date (the "Issuable
Maximum"), and (ii) the Company shall not have previously obtained the vote of
the shareholders of the Company (the "Shareholder Approval") as may be required
by the applicable rules and regulations of Nasdaq (or any successor entity) to
approve the issuance of shares of Common Stock in excess of the Issuable
Maximum, the Company shall use its best efforts to obtain Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the sixty (60) days after the applicable conversion notice pursuant to
Sections 8.3 and 8.4, respectively. Until the Company has received Shareholder
Approval no Holder shall be issued, upon conversion of the Note(s), shares of
Common Stock in an amount greater than such Holder's allocated portion of the
Issuable Maximum pursuant to Section 10.4.

         10. Conversion Price Adjustments.

            10.1 Adjustments for Stock Splits and Subdivisions. In the event the
Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision, other
than any such transaction upon a merger or consolidation or sale to which
Section 10.6 applies, of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, immediately after the close of business on such record
date (or the date of effectiveness of such dividend, distribution, split or
subdivision if no record date is fixed), the Conversion Price of this Note shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of this Note shall be increased in proportion to such increase
of outstanding shares, (including the additional shares of Common Stock issuable
upon conversion or exercise of any such Common Stock Equivalents).

            10.2 Adjustment for Reverse Stock Splits. If the number of shares of
Common Stock outstanding at any time after the date hereof is decreased by a
reverse stock split or combination, other than any such transaction upon a
merger or consolidation or sale to which Section 10.6 applies, of the
outstanding shares of Common Stock, then, immediately after the close of
business on the record date of such reverse stock split or combination (or the
date of effectiveness of such reverse stock split or combination if no record
date is fixed), the Conversion Price for this Note shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
hereof shall be decreased in proportion to such decrease in outstanding shares.

            10.3 Notices of Record Date, etc. In the event of:

                  10.3.1 Any taking by the Company of a record of the holders of
any class of securities of the Company for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend payable out of earned surplus at the same rate as that of the last such
cash dividend theretofor paid) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or

                                       5
<PAGE>

                  10.3.2 Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to any other
person or any consolidation or merger involving the Company; or

                  10.3.3 Any voluntary or involuntary dissolution, liquidation
or winding up of the Company, the Company will mail to the holder of this Note
at least ten (10) days prior to the earliest date specified therein, a notice
specifying:

                         10.3.3.1 The date on which any such record is to be
         taken for the purpose of such dividend, distribution or right, and the
         amount and character of such dividend, distribution or right; and

                         10.3.3.2 The date on which any such reorganization,
         reclassification, transfer, consolidation, merger, dissolution,
         liquidation or winding up is expected to become effective and the
         record date for determining stockholders entitled to vote thereon.

         10.4 Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
Note such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Note (the "Reserve Amount"); and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of the entire outstanding principal
amount of this Note, in addition to such other remedies as shall be available to
the Holder of this Note, the Company will use its best efforts to take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes. The Reserved Amount shall be allocated
pro rata among the Holders based on the principal amount of the Note issued to
each Holder.

         10.5 Optional Tax Adjustment. The Company may at its option, at any
time, decrease the Conversion Price, in addition to those changes required by
Sections 10.1 and 10.2, as deemed advisable by the Board of Directors, in order
that any event treated for Federal income tax purposes as a dividend of stock or
stock rights shall not be taxable to the recipients.

         10.6 Changes in Common Stock. In case at any time or from time to time
after the Closing Date, the Company shall be a party to or shall otherwise
engage in any transaction or series of related transactions constituting:

         (i) a merger of the Company into, a consolidation of the Company with,
    or a sale of all or substantially all of the Company's assets to, any other
    person (a "Non-Surviving Transaction"), or

         (ii) any merger of another person into the Company in which the
    previously outstanding shares of Common Stock shall be cancelled,
    reclassified or converted or changed into or exchanged for securities of the
    Company or other property (including cash) or any combination of the
    foregoing (a "Surviving Transaction"; any Non-Surviving Transaction or
    Surviving Transaction being herein called a "Transaction"),

then, as a condition to the consummation of such Transaction, the Company shall
(or, in the case of any Non-Surviving Transaction, the Company shall cause such
other person to) execute and deliver to the Holder an instrument providing that:

                         (x) on such terms and subject to such conditions as
         shall be as nearly equivalent as may be practicable to the provisions
         set forth in this Note, this Note, upon the conversion thereof at any
         time on or after the consummation of such Transaction, shall be
         convertible into, in lieu of the Common Stock issuable upon such
         conversion prior to such consummation, only the securities or other
         property ("Substituted Property") that would have been receivable upon
         such Transaction by a holder of the number of shares of Common Stock
         into which this Note was convertible immediately prior to such
         Transaction.

                                       6
<PAGE>

                         (y) the rights and obligations of the Company (or, in
         the event of a Non-Surviving Transaction, such other person) and the
         Holder in respect of Substituted Property shall be as nearly equivalent
         as may be practicable to the rights and obligations of the Company and
         the Holder in respect of Common Stock hereunder as set forth in
         Sections 8.1 and 8.2 hereof and elsewhere herein.

Such instrument shall provide for adjustments which, for events subsequent to
the effective date of such instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 10. The above
provisions of this Section 10.6 shall similarly apply to successive
Transactions.

         11. Assignment. This Note and the underlying Conversion Shares may only
be transferred in compliance with the terms and conditions of the Note Purchase
Agreement, and the rights and obligations of the Company and the Holder of this
Note shall be binding upon and benefit any permitted and registered successors,
assigns, heirs, administrators and transferees of the parties.

         12. Lost or Destroyed Note. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Note and, if
requested in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of this Note, the Company will issue a new Note, in the amount of the unpaid
principal balance of the lost, stolen, destroyed or mutilated Note and dated the
date to which interest has been paid, in lieu of such lost, stolen, destroyed or
mutilated Note.

         13. Expenses; Waivers. If action is instituted to collect this Note,
the Company promises to pay all reasonable costs and expenses, including without
limitation reasonable attorneys' fees and costs, incurred in respect with such
action. The Company hereby waives notice of default, presentation or demand for
payment, protest or notice of nonpayment or dishonor and all other notices or
demands relative to this Note.

         14. Waiver and Amendment. Any provision of this Note may be amended,
waived or modified upon the written consent of the Company and the holders of a
majority of the face amount of all then outstanding Notes.

         15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed (i) if within the United States
by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (ii) if
delivered from outside the United States, by International Federal Express or
facsimile, and shall be deemed given (a) if delivered by first-class registered
or certified mail, three business days after so mailed, (b) if delivered by
nationally recognized overnight carrier, one business day after so mailed, (c)
if delivered by International Federal Express, two business days after so
mailed, (d) if delivered by facsimile, upon electronic confirmation of receipt
and shall be delivered as addressed as follows:

             (a)  if to the Company, to:

                       Gadzooks, Inc.
                       4121 International Parkway
                       Carrollton, TX 75007
                       Attn:  James A. Motley
                       Vice President, Chief Financial Officer and Secretary

             (b)  with a copy to (which does not constitute notice):

                       Akin, Gump, Strauss, Hauer & Feld, L.L.P.
                       1700 Pacific Avenue
                       Suite 4100
                       Dallas, TX  75201
                       Attn: Eliot Raffkind, Esq.

             (c)  if to the Holder, at the address set forth on the signature
                  page to the Note Purchase Agreement, or at such other address
                  or addresses as may have been furnished to the Company in
                  writing.

                                       7
<PAGE>

         16. No Shareholder Rights. Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person the right to vote or
to consent, except as provided herein, or to receive notice as a shareholder in
respect of meetings of shareholders for the election of directors of the Company
or any other matters or any rights whatsoever as a shareholder of the Company;
and no dividends shall be payable or accrued in respect of this Note or the
interest represented hereby or the shares of Common Stock issuable upon
conversion of this Note until, and only to the extent that, this Note shall have
been converted.

         17. Usury. All agreements between the Company and the Holder or any
other holder of this Note, whether now existing or hereafter arising and whether
written or oral, are expressly limited so that in no contingency or event
whatsoever, whether by acceleration of this Note or otherwise, shall the amount
paid, or agreed to be paid, to the Holder or any other holder hereof, for the
use, forbearance or detention of the money to be loaned hereunder or otherwise,
exceed the maximum amount permissible under applicable law. If from any
circumstances whatsoever fulfillment of any provision of this Note or of any
other document evidencing, securing or pertaining to the indebtedness evidenced
hereby, at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then, ipso facto, the
obligation to be fulfilled shall be reduced to the limit of such validity, and
if from any such circumstances the Holder or any other holder of this Note shall
ever receive as interest under this Note or any other document evidencing,
securing or pertaining to the indebtedness evidenced hereby or otherwise an
amount that would exceed the highest lawful rate, such amount that would be
excessive interest shall be applied to the reduction of the principal amount
owing under this Note or on account of any other indebtedness of the Company to
the Holder or such holder hereof relating to this Note, and not to the payment
of interest, or if such excessive interest exceeds the unpaid balance of
principal of this Note and such other indebtedness, such excess shall be
refunded to the Company. In determining whether or not the interest paid or
payable with respect to any indebtedness of the Company to the Holder or any
other holder hereof, under any specific contingency, exceeds the highest lawful
rate, the Company and the Holder or any other holder hereof shall, to the
maximum extent permitted by applicable law: (a) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest; (b) exclude
voluntary prepayments and the effects thereof; (c) amortize, prorate, allocate
and spread the total amount of interest throughout the full term of such
indebtedness so that the actual rate of interest on account of such indebtedness
is uniform throughout the term thereof; and/or (d) allocate interest between
portions of such indebtedness, to the end that no such portion shall bear
interest at a rate greater than that permitted by law. The terms and provisions
of this paragraph shall control and supersede every other conflicting provision
of all agreements between the Company and the Holder or any other holder hereof.

         18. Company Certification. The Company hereby certifies that (i) it has
been advised to seek the advice of an attorney and an accountant in connection
with this Note, and (ii) the Company has had the opportunity to seek the advice
of an attorney and accountant of its choice in connection with this Note.

         19. Governing Law. This Note and all actions arising out of or in
connection with this Note shall be governed by, and construed in accordance
with, the laws of the State of Texas, without giving effect to the principles of
conflicts of law.

         20. Heading; References. The headings of the various sections of this
Note have been inserted for convenience of reference only and shall not be
deemed to be part of this Note. Except where otherwise indicated, all references
herein to Sections refer to Sections hereof.

                            [Signature Page Follows]

                                       8
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Note to be issued this
____ day of October 2003.

                                      Gadzooks, Inc.

                                      By:
                                             ----------------------------------
                                      Name:  James A. Motley
                                      Title: Vice President, Chief Financial
                                             Officer and Secretary

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