CONTINUING SECURITY AGREEMENT

WELLS FARGO BANK                                 RIGHTS TO PAYMENT AND INVENTORY





     1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned

GADZOOKS, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS

FARGO BANK TEXAS, NATIONAL ASSOCIATION ("Bank") a security interest in all

accounts, deposit accounts, chattel paper (whether electronic or tangible),

instruments, promissory notes, documents, general intangibles, payment

intangibles, software, letter of credit rights, health-care insurance

receivables and other rights to payment (collectively called "Rights to

Payment"), now existing or at any time hereafter, and prior to the termination

hereof, arising (whether they arise from the sale, lease or other disposition of

inventory or from performance of contracts for service, manufacture,

construction, repair or otherwise or from any other source whatsoever),

including all securities, guaranties, warranties, indemnity agreements,

insurance policies, supporting obligations and other agreements pertaining to

the same or the property described therein, and in all goods returned by or

repossessed from Debtor's customers, together with a security interest in all

inventory, goods held for sale or lease or to be furnished under contracts for

service, goods so leased or furnished, raw materials, component parts and

embedded software, work in process or materials used or consumed in Debtor's

business and all warehouse receipts, bills of lading and other documents

evidencing goods owned or acquired by Debtor, and all goods covered thereby, now

or at any time hereafter, and prior to the termination hereof, owned or acquired

by Debtor, wherever located, and all products thereof (collectively called

"Inventory"), whether in the possession of Debtor, warehousemen, bailees or any

other person, or in process of delivery and whether located at Debtor's places

or business or elsewhere (with all Rights to Payment and Inventory referred to

herein collectively as the "Collateral"), together with whatever is receivable

or received when any of the Collateral or proceeds thereof are sold, leased,

collected, exchanged or otherwise disposed of, whether such disposition is

voluntary or involuntary, including without limitation, all Rights to Payment,

including returned premiums, with respect to any insurance relating to any the

foregoing, and all Rights to Payment with respect to any claim or cause of

action affecting or relating to any of the foregoing (hereinafter called

"Proceeds").



     2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and

performance of: (a) all present and future Indebtedness of Debtor to Bank; (b)

all obligations of Debtor and rights of Bank under this Agreement; and (c) all

present and future obligations of Debtor to Bank of other kinds. The word

"Indebtedness" is used herein in its most comprehensive sense and includes any

and all advances, debts, obligations and liabilities of Debtor, or any of them,

heretofore, now or hereafter made, incurred or created, whether voluntary or

involuntary and however arising, whether due or not due, absolute or contingent,

liquidated or unliquidated, determined or undetermined, and whether Debtor may

be liable individually or jointly, or whether recovery upon such Indebtedness

may be or hereafter becomes unenforceable.



     3. TERMINATION. This Agreement will terminate upon the performance of all

obligations of Debtor to Bank, including without limitation, the payment of all

Indebtedness of Debtor to Bank, and the termination of all commitments of Bank

to extend credit to Debtor, existing at the time Bank receives written notice

from Debtor of the termination of this Agreement.



     4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder.

Any money received by Bank in respect of the Collateral may be deposited, at

Bank's option, into a non-interest bearing account over which Debtor shall have

no control, and the same shall, for all purposes, be deemed Collateral

hereunder.



     5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank

that: (a) Debtor's legal name is exactly as set forth on the first page of this

Agreement, and all of Debtor's organizational documents or agreements delivered



to Bank are complete and accurate in every respect; (b) Debtor is the owner and

has possession or control of the Collateral and Proceeds; (c) Debtor has the

exclusive right to grant a security interest in the Collateral and Proceeds; (d)

all Collateral and Proceeds are genuine, free from liens, adverse claims,

setoffs, default, prepayment, defenses and conditions precedent of any kind or

character, except the lien created hereby or as otherwise agreed to by Bank, or

heretofore disclosed by Debtor to Bank, in writing; (e) all statements contained

herein and, where applicable, in the Collateral are true and complete in all

material respects; (f) no financing statement covering any of the Collateral or

Proceeds, and naming any secured party other than Bank, is on file in any public

office; (g) all persons appearing to be obligated on

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Rights to Payment and Proceeds have authority and capacity to contract and are

bound as they appear to be; (h) all property subject to chattel paper has been

properly registered and filed in compliance with law and to perfect the interest

of Debtor in such property; and (i) all Rights to Payment and Proceeds comply

with all applicable laws concerning form, content and manner of preparation and

execution, including where applicable Federal Reserve Regulation Z and any State

consumer credit laws.



     6. COVENANTS OF DEBTOR



           (a) Debtor agrees in general: (i) to pay Indebtedness secured hereby

when due; (ii) to indemnify Bank against all losses, claims, demands,

liabilities and expenses of every kind caused by property subject hereto; (iii)

to pay all costs and expenses, including reasonable attorneys' fees, incurred by

Bank in the perfection and preservation of the Collateral or Bank's interest

therein and/or the realization, enforcement and exercise of Bank's rights,

powers and remedies hereunder; (iv) to permit Bank to exercise its power; (v) to

execute and deliver such documents as Bank deems necessary to create, perfect

and continue the security interests contemplated hereby; (vi) not to change its

name, and as applicable, its chief executive office, its principal residence or

the jurisdiction in which it is organized and/or registered without giving Bank

prior written notice thereof; (vii) not to change the places where Debtor keeps

any Collateral or Debtor's records concerning the Collateral and Proceeds

without giving Bank prior written notice of the address to which Debtor is

moving same; and (viii) to cooperate with Bank in perfecting all security

interests granted herein and in obtaining such agreements from third parties as

Bank deems necessary, proper or convenient in connection with the preservation,

perfection or enforcement of any of its rights hereunder.



           (b) Debtor agrees with regard to the Collateral and Proceeds, unless

Bank agrees otherwise in writing: (i) that Bank is authorized to file financing

statements in the name of Debtor to perfect Bank's security interest in

Collateral and Proceeds; (ii) to insure Inventory and, where applicable, Rights

to Payment with Bank as loss payee, in form, substance and amounts, under

agreements, against risks and liabilities, and with insurance companies

satisfactory to Bank; (iii) not to use any Inventory for any unlawful purpose or

in any way that would void any insurance required to be carried in connection

therewith; (iv) not to remove Inventory from Debtor's premises, except for

deliveries to buyers in the ordinary course of Debtor's business and except

Inventory which consists of mobile goods as defined in the Texas Business and

Commerce Code, in which case Debtor agrees not to remove or permit the removal

of the Inventory from its state of domicile for a period in excess of 30

calendar days; (v) not to permit any security interest in or lien on the

Collateral or Proceeds, including without limitation, liens arising from the

storage of Inventory, except in favor of Bank; (vi) not to sell, hypothecate or

otherwise dispose of, nor permit the transfer by operation of law of, any of the

Collateral or Proceeds or any interest therein, except sales of Inventory to

buyers in the ordinary course of Debtor's business; (vii) to furnish reports to

Bank of all acquisitions, returns, sales and other dispositions of the Inventory

in such form and detail and at such times as Bank may require; (viii) to permit

bank to inspect the Collateral at any time; (ix) to keep, in accordance with

generally accepted accounting principles, complete and accurate records

regarding all Collateral and Proceeds, and to permit Bank to inspect the same

and make copies thereof at any reasonable time; (x) if requested by Bank, to

receive and use reasonable diligence to collect Rights to Payment and Proceeds,

in trust and as the property of Bank, and to immediately endorse as appropriate

and deliver such Rights to Payment and Proceeds to Bank daily in the exact form

in which they are received together with a collection report in form

satisfactory to Bank; (xi) not to commingle Rights to Payment, Proceeds or

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