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As filed with the United States Securities and Exchange Commission on February 17, 2005

Registration No. 333-          



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

Zumiez Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
5600
(Primary Standard Industrial Classification Code Number)
91-1040022
(I.R.S. Employer Identification Number)

6300 Merrill Creek Parkway, Suite B
Everett, WA 98203
(425) 551-1500
(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)

Richard M. Brooks
President and Chief Executive Officer
Zumiez Inc.
6300 Merrill Creek Parkway, Suite B
Everett, WA 98203
(Name, address, including zip code and telephone number, including area code, of agent for service)

Copies to:

Gary J. Kocher, Esq.
Chris K. Visser, Esq.
Preston Gates & Ellis LLP
925 Fourth Avenue
Seattle, WA 98104
(206) 623-7580
Brenda I. Morris
Chief Financial Officer
Zumiez Inc.
6300 Merrill Creek Parkway, Suite B
Everett, WA 98203
(425) 551-1500
Eric S. Haueter, Esq.
Sidley Austin Brown & Wood LLP
555 California Street
San Francisco, CA 94104
(415) 772-1200

           Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  o

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

           If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box:  o

CALCULATION OF REGISTRATION FEE


Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate
Offering Price (1)

  Amount of
Registration Fee


Common Stock, no par value   $57,500,000   $6,767.75

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

           The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED FEBRUARY 17, 2005

PROSPECTUS

       

                                        S hares

GRAPHIC

Zumiez Inc.
Common Stock


          This is Zumiez Inc.'s initial public offering. We are offering            shares of our common stock and the selling shareholders identified in this prospectus are offering an additional            shares of our common stock. We currently estimate that the initial public offering price will be between $                  and $                  per share. We will not receive any proceeds from the sale of the shares offered by the selling shareholders.

          Prior to this offering, there has been no public market for our common stock. We have filed an application for our common stock to be quoted on the Nasdaq National Market under the symbol "ZUMZ."


          Investing in our common stock involves risks. See "Risk Factors" beginning on page 8.

 
  Per Share
  Total
Public Offering Price   $     $  
Underwriting Discounts and Commissions   $     $  
Proceeds to Zumiez Inc.   $     $  
Proceeds to the Selling Shareholders   $     $  

Delivery of the shares of our common stock will be made on or about    , 2005.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

          We and the selling shareholders have granted the underwriters an option to purchase a maximum of            and            additional shares, respectively, of our common stock to cover over-allotment of shares, if any, exercisable at any time until 30 days after the date of this prospectus.


Joint Book Running Managers

Wachovia Securities   Piper Jaffray

William Blair & Company

The date of this prospectus is    , 2005.


GRAPHIC



TABLE OF CONTENTS

 
  Page
Prospectus Summary   1
Risk Factors   8
Cautionary Note Regarding Forward-Looking Statements and Market Data   20
Use of Proceeds   21
Dividend Policy   21
Capitalization   22
Dilution   23
Selected Financial Data   24
Management's Discussion and Analysis of Financial Condition and Results of Operations   26
Business   38
Management   48
Certain Relationships and Related Transactions   60
Principal and Selling Shareholders   63
Description of Capital Stock   65
Shares Eligible for Future Sale   68
Underwriting   70
Legal Matters   73
Experts   73
Where You Can Find More Information   73
Index to Financial Statements   F-1

You should rely only on the information contained in this prospectus. We and the underwriters have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters are not making an offer to sell or seeking offers to buy these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing herein is accurate as of the date appearing on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

i



Certain Terms Used in this Prospectus:

          Unless otherwise expressly stated or the context otherwise requires, in this prospectus:

ii



PROSPECTUS SUMMARY

          This summary highlights selected information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider before investing in our common stock. You should carefully read the following summary together with the more detailed information regarding us and our common stock being sold in this offering, including "Risk Factors" and the financial statements and the related notes, appearing elsewhere in this prospectus before making an investment decision.


Zumiez Inc.

          We are a leading specialty retailer of action sports related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of January 29, 2005, we operated 140 stores primarily located in shopping malls, giving us a presence in 18 states. Our stores cater to young men and women between the ages of 12 and 24 who seek popular brands representing a lifestyle centered on activities that include skateboarding, surfing, snowboarding, bicycle motocross (or "BMX") and motocross. We support the action sports lifestyle and promote our brand through a multi-faceted marketing approach that is designed to integrate our brand image with our customers' activities and interests. This approach, combined with our differentiated merchandising strategy, store design, comprehensive training programs and passionate employees, allows us to provide an experience for our customers that we believe is consistent with their attitudes, fashion tastes and identities and is otherwise unavailable in most malls.

          Our stores bring the look and feel of an independent specialty shop to the mall by emphasizing the action sports lifestyle through a distinctive store environment and high-energy sales personnel. We seek to staff our stores with store associates who are knowledgeable users of our products, which we believe provides our customers with enhanced customer service and supplements our ability to identify and react quickly to emerging trends and fashions. We design our stores to appeal to teenagers and to serve as a destination for our customers. Most of our stores, which average approximately 2,600 square feet, feature couches and action sports oriented video game stations that are intended to encourage our customers to shop for longer periods of time and to interact with each other and our store associates. To increase customer traffic, we generally locate our stores near busy areas of the mall such as food courts, movie theaters, music or game stores and other popular teen retailers. We believe that our distinctive store concept and compelling store economics will provide continued opportunities for growth in both new and existing markets.

          We believe that our customers desire merchandise and fashion that is rooted in the action sports lifestyle and reflects their individuality. We strive to keep our merchandising mix fresh by continuously introducing new brands and styles. Our focus on a diverse collection of brands allows us to quickly adjust to changing fashion trends. The brands we currently offer include Billabong, Burton, DC Shoe, Element, Hurley, Quiksilver, Roxy, RVCA and Volcom, among many others. We believe that our strategic mix of both apparel and hardgoods, including skateboards, snowboards, bindings, components and other equipment, allows us to strengthen the potential of the brands we sell and helps to affirm our credibility with our customers. In addition, we supplement our stores with a select offering of private label apparel and products as a value proposition that we believe complements our overall merchandise selection.

          Over our 26-year history, we have developed a corporate culture based on a passion for the action sports lifestyle. Our management philosophy emphasizes an integrated combination of results measurement, training and incentive programs, all designed to drive sales productivity at the individual store associate level. We empower our store managers to make store-level business decisions and consistently reward their success. We seek to enhance the productivity of our employees and encourage their advancement by offering comprehensive in-store, regional and national training programs, which we refer to collectively as "Zumiez University." We have:

1


          In fiscal 2002, certain affiliates of Brentwood Private Equity III, LLC, a private equity firm (the "Brentwood Affiliates"), acquired an indirect minority interest in us through Zumiez Holdings LLC, or "Zumiez Holdings." Since the investment by the Brentwood Affiliates, we have positioned ourselves for accelerated growth by enhancing our infrastructure and deepening our management team. We believe that these initiatives will improve our ability to continue to expand our business.

Competitive Strengths

          We believe that the following competitive strengths differentiate us from our competitors and are critical to our continuing success:

Growth Strategy

          We intend to expand our presence as a leading action sports lifestyle retailer by:

2


The Action Sports Market

          We believe that action sports are a permanent and growing aspect of youth culture, reaching not only consumers that actually participate in action sports, but also those who seek brands and styles that fit a desired action sports image. According to Board-Trac, a market research firm, retail sales of skateboard, snowboard and surf/bodyboard apparel, equipment and accessories in the United States were estimated to be approximately $12.1 billion in 2003. We believe that events such as the ESPN X Games, the inclusion of snowboarding as a medal event in the Winter Olympics and the national recognition of leading board sport athletes have broadened general awareness of the action sports lifestyle.

          We believe teens and young adults are the primary participants in action sports. This concentrated interest is particularly appealing for us, as teens have significant spending power. According to Teen Research Unlimited, a market research firm, spending by U.S. teens was projected to be $169 billion in 2004 and has increased at an average of 5% per year over the past seven years. We believe that teens enjoy shopping in malls and purchasing clothing and fashion-related merchandise.

Corporate Information

          We were founded in 1978 as a Washington corporation. In 2002, we reincorporated in Delaware and, in connection with this offering, we intend to reincorporate back to Washington. Our principal executive offices are located at 6300 Merrill Creek Parkway, Suite B, Everett, WA 98203. Our telephone number is (425) 551-1500 and our principal website address is www.zumiez.com. The information contained on our website does not constitute part of, nor is it incorporated into, this prospectus.

3


The Offering

Common stock offered by Zumiez               shares

Common stock offered by selling shareholders

 

            shares

Common stock to be outstanding immediately after this offering

 

            shares

Use of Proceeds

 

We intend to use the net proceeds from this offering to fund new store openings and growth, for working capital and for other general corporate purposes. We will not receive any proceeds from the sale of shares of our common stock by the selling shareholders. See "Use of Proceeds."

Proposed Nasdaq National Market symbol

 

"ZUMZ"

Risk Factors

 

See "Risk Factors" beginning on page 9 for a discussion of some of the factors that you should consider carefully before deciding to purchase our common stock.

          The number of shares of common stock that will be outstanding immediately after this offering is based on the number of shares outstanding on January 29, 2005 and excludes the following shares:

          Unless specifically stated otherwise, the information in this prospectus:

4


          As noted above, unless otherwise expressly stated or the context otherwise requires, information concerning ownership of our common stock assumes that all of the shares of our common stock held by Zumiez Holdings have been distributed in accordance with the terms of its limited liability company agreement. This distribution will occur prior to the closing of this offering. See "Certain Relationships and Related Transactions—Equity Sales and Related Transactions." The exact number of shares that will be distributed to the persons entitled to those shares will depend upon the public offering price of our common stock in this offering. The information in this preliminary prospectus regarding the number of shares of common stock owned by those persons has been calculated based upon an assumed public offering price of $                  per share (the mid-point of the price range reflected on the cover of this preliminary prospectus) and will change unless the actual public offering price in this offering is $                  per share.

5



Summary Financial Data

          The following tables provide summary historical financial data for the periods indicated. You should read this information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes included elsewhere in this prospectus.

          Through and including December 31, 2002, our fiscal year ended on December 31 and was the same as the calendar year. Subsequent to December 31, 2002, we changed our fiscal year to end on the Saturday closest to January 31 and, as a result, the following tables include financial data as of and for the one month ended February 1, 2003. Each fiscal year ended subsequent to December 31, 2002 consists of four 13-week quarters, with an extra week added to the fourth quarter every five or six years. Our fiscal years ended December 31, 2001 and 2002 and January 31, 2004 each consisted of 52 weeks.

          The summary statement of operations data for the fiscal years ended December 31, 2001 and 2002, the one month ended February 1, 2003 and the fiscal year ended January 31, 2004 and the summary balance sheet data as of December 31, 2002, February 1, 2003 and January 31, 2004 are derived from our audited financial statements, which are included elsewhere in this prospectus. The summary balance sheet data as of December 31, 2001 are derived from our audited financial statements not included in this prospectus. The summary statement of operations data for the nine month periods ended November 1, 2003 and October 30, 2004 and the summary balance sheet data as of October 30, 2004 are derived from our unaudited financial statements included elsewhere in this prospectus.

 
  Fiscal Year Ended
December 31,

   
   
  Nine Months Ended
 
 
  One Month
Ended
February 1,
2003

  Fiscal Year
Ended
January 31,
2004

 
 
  November 1,
2003

  October 30,
2004

 
 
  2001
  2002
 
 
  (In thousands, except share and per share data)

 
Statement of Operations Data:                                      
Net sales   $ 84,735   $ 101,391   $ 6,392   $ 117,857   $ 78,039   $ 100,582  
Cost of goods sold     57,534     71,017     4,575     81,320     54,824     69,165  
   
 
 
 
 
 
 
  Gross margin     27,201     30,374     1,817     36,537     23,215     31,417  
Selling, general and administrative expenses     20,470     23,404     2,013     29,076     20,587     26,248  
   
 
 
 
 
 
 
  Operating profit (loss)     6,731     6,970     (196 )   7,461     2,628     5,169  
Other income (expense)     (3 )   148         8     4     5  
Interest expense     (322 )   (317 )   (12 )   (293 )   (245 )   (218 )
   
 
 
 
 
 
 
Earnings (loss) before income taxes     6,406     6,801     (208 )   7,176     2,387     4,956  
Provision (benefit) for income taxes(1)         1,096     (39 )   2,701     799     1,936  
   
 
 
 
 
 
 
  Net income (loss)   $ 6,406   $ 5,705   $ (169 ) $ 4,475   $ 1,588   $ 3,020  
   
 
 
 
 
 
 
Net income (loss) per share(2)                                      
  Basic   $ 163.52   $ 127.79   $ (3.87 ) $ 102.38   $ 36.33   $ 69.09  
  Diluted   $ 130.23   $ 108.65   $ (3.87 ) $ 90.34   $ 31.98   $ 60.72  
Weighted average shares outstanding(2)                                      
  Basic     39,175     44,642     43,710     43,710     43,710     43,710  
  Diluted     49,191     52,508     43,710     49,535     49,661     49,737  

(1)
For fiscal 2001 and for a portion of fiscal 2002 ended November 3, 2002, we were treated as a Subchapter S corporation for federal income tax purposes and, as a result, we were exempt from paying federal and state income taxes for those periods. As a result, our results of operations for fiscal 2001 do not reflect any provision for income taxes and our provision for income taxes for fiscal 2002 reflects a provision for the last two months of fiscal 2002. Accordingly, our provision for income taxes and our total and per share net income for fiscal 2001 and 2002 are not comparable to our provision for income taxes and our total and per share net income for the subsequent periods reflected in this table. See note 1 to our financial statements included elsewhere in this prospectus.

(2)
Before giving effect to a            for one split of our outstanding common stock that will be effective prior to completion of this offering.

6


 
  December 31,
   
   
   
   
 
 
  February 1,
2003

  January 31,
2004

   
  October 30,
2004

 
 
  2001
  2002
   
 
 
  (In thousands)

 
Balance Sheet Data:                                    
Cash and cash equivalents   $ 645   $ 7,722   $ 482   $ 578       $ 897  
Working capital     502     (1,510 )   (1,436 )   1,698         (1,012 )
Total assets     28,180     42,608     36,003     41,558         62,526  
Total long term liabilities     1,631     1,001     954     1,336         1,491  
Total shareholders' equity     11,916     14,136     13,967     18,438         21,511  

         

 
  Fiscal Year Ended
December 31,

   
   
  Nine Months Ended
 
 
  One Month
Ended
February 1,
2003

  Fiscal Year
Ended
January 31,
2004

 
 
  November 1,
2003

  October 30,
2004

 
 
  2001
  2002
 
 
  (Dollars in thousands except net sales per square foot)

 
Other Financial Data:                                      
Gross margin percentage(1)     32.1 %   30.0 %   28.4 %   31.0 %   29.7 %   31.2 %
Capital expenditures   $ 7,500   $ 7,186   $ 42   $ 5,937   $ 2,713   $ 7,583  
Depreciation   $ 2,348   $ 3,571   $ 332   $ 4,185   $ 3,042   $ 3,999  
Store Data:                                      
Number of stores open at end of period     80     99     99     113     105     132  
Comparable store sales increase (decrease)(2)(3)     20.2 %   (1.1 )%   (5.7 )%   4.3 %   2.1 %   8.2 %
Net sales per store(3)(4)   $ 1,203   $ 1,105   $ 65   $ 1,131   $ 774   $ 807  
Total square footage at end of period(5)     194,651     247,476     247,476     288,784     266,372     349,200  
Average square footage per store at end of period(6)     2,464     2,500     2,500     2,533     2,537     2,645  
Net sales per square foot(3)(7)   $ 506   $ 443   $ 26   $ 448   $ 306   $ 310  

(1)
Gross margin percentage represents gross margin divided by net sales.

(2)
Comparable store sales percentage changes are calculated by comparing comparable store sales for the applicable fiscal year or nine-month period to comparable store sales for the prior fiscal year or for the comparable nine-month period in the prior fiscal year. Comparable store sales are based on net sales, and stores are considered comparable beginning on the first anniversary of their first day of operation. See "Certain Terms Used in this Prospectus" on page ii for more information about how we compute comparable store sales.

(3)
Comparable store sales, net sales per store and net sales per square foot include our in-store sales and our Internet sales. Our Internet sales represented less than 1.0% of our total net sales in each of the periods presented.

(4)
Net sales per store represents net sales for the period divided by the average number of stores open during the period. For purposes of this calculation, the average number of stores open during the period is equal to the sum of the number of stores open as of the end of each month during the period divided by the number of months in the period.

(5)
Total square footage at end of period includes retail selling, storage and back office space.

(6)
Average square footage per store at end of period is calculated on the basis of the total square footage at end of period, including retail selling, storage and back office space, of all stores open at the end of the period.

(7)
Net sales per square foot represents net sales for the period divided by the average square footage of stores open during the period. For purposes of this calculation, the average square footage of stores open during the period is equal to the sum of the total square footage of the stores open as of the end of each month during the period divided by the number of months in the period.

7



RISK FACTORS

          An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with the financial statements and other information contained in this prospectus, before making a decision to buy our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations could suffer. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment in our common stock. In addition, the risks described below are not the only risks that we face, and the occurrence of other risks to which we are subject could also have a material adverse effect on our business, financial condition and results of operations and on the market price of our common stock.

Risks Related to Our Business

Our growth strategy depends on our ability to open and operate a significant number of new stores each year, which could strain our resources and cause the performance of our existing stores to suffer.

          Our growth will largely depend on our ability to open and operate new stores successfully. However, our ability to open new stores is subject to a variety of risks and uncertainties, and we may be unable to open new stores as planned, and any failure to successfully open and operate new stores would have a material adverse effect on our results of operations and on the market price of our common stock. We opened 27 stores in fiscal 2004 and 15 stores in fiscal 2003. We plan to open approximately 35 stores in fiscal 2005, an increase of 25.0% over our store base as of the end of fiscal 2004. We intend to continue to open a significant number of new stores in future years while remodeling a portion of our existing store base annually. However, there can be no assurance that we will open the planned number of new stores in fiscal 2005 or thereafter. In addition, our proposed expansion will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our business less effectively, which in turn could cause deterioration in the financial performance of our individual stores and our overall business. To the extent our new store openings are in markets where we already have stores, we may experience reduced net sales in existing stores in those markets. In addition, successful execution of our growth strategy may require that we obtain additional financing, and we cannot assure you that we will be able to obtain that financing on acceptable terms or at all.

If we fail to effectively execute our expansion strategy, we may not be able to successfully open new store locations in a timely manner, if at all, which could have an adverse affect on our net sales and results of operations.

          Our ability to open and operate new stores successfully depends on many factors, including, among others, our ability to:

          In addition, many of our planned new stores are to be opened in regions of the United States in which we currently have few, or no, stores. The expansion into these markets may present competitive, merchandising and distribution challenges that are different from those currently encountered in our existing markets. Any of these challenges could adversely affect our business and results of operations.

8



Our business is dependent upon our being able to anticipate, identify and respond to changing fashion trends, customer preferences and other fashion-related factors; failure to do so could have a material adverse effect on us.

          Customer tastes and fashion trends in the action sports lifestyle market are volatile and tend to change rapidly. Our success depends on our ability to effectively anticipate, identify and respond to changing fashion tastes and consumer preferences, and to translate market trends into appropriate, saleable product offerings in a timely manner. If we are unable to successfully anticipate, identify or respond to changing styles or trends and misjudge the market for our products or any new product lines, our sales may be lower than predicted and we may be faced with a substantial amount of unsold inventory or missed opportunities. In response to such a situation, we may be forced to rely on markdowns or promotional sales to dispose of excess or slow-moving inventory, which could have a material adverse effect on our results of operations.

Our ability to attract customers to our stores depends heavily on the success of the shopping malls in which our stores are located; any decrease in customer traffic in those malls could cause our sales to be less than expected.

          In order to generate customer traffic we depend heavily on locating our stores in prominent locations within successful shopping malls. Sales at these stores are derived, in part, from the volume of traffic in those malls. Our stores benefit from the ability of a mall's other tenants to generate consumer traffic in the vicinity of our stores and the continuing popularity of malls as shopping destinations. Our sales volume and mall traffic generally may be adversely affected by, among other things, economic downturns in a particular area, competition from Internet retailers, non-mall retailers and other malls and the closing or decline in popularity of other stores in the malls in which we are located. A reduction in mall traffic as a result of these or any other factors could have a material adverse effect on our business, results of operations and financial condition.

Our sales and inventory levels fluctuate on a seasonal basis, leaving our operating results particularly susceptible to changes in back-to-school and holiday shopping patterns.

          Our sales are typically disproportionately higher in the third and fourth fiscal quarters of each fiscal year due to increased sales during the back-to-school and winter holiday shopping seasons. Sales during these periods cannot be used as an accurate indicator of annual results. Our sales in the first and second fiscal quarters are typically lower due, in part, to the traditional retail slowdown immediately following the winter holiday season. Any significant decrease in sales during the back-to-school and winter holiday seasons would have a material adverse effect on our financial condition and results of operations. In addition, in order to prepare for the back-to-school and winter holiday shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other parts of the year. Any unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could have a material adverse effect on our business, results of operations and financial condition.

Our quarterly results of operations are volatile and may decline.

          Our quarterly results of operations have fluctuated significantly in the past and can be expected to continue to fluctuate significantly in the future. As discussed above, our sales and operating results are typically lower in the first and second quarters of our fiscal year due, in part, to the traditional retail slowdown immediately following the winter holiday season. Our quarterly results of operations are affected by a variety of other factors, including:

9


Our business is susceptible to weather conditions that are out of our control, and unseasonable weather could have a negative impact on our results of operations.

          Our business is susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with those unseasonable conditions. These prolonged unseasonable weather conditions, particularly in the western United States where we have a concentration of stores, could have a material adverse effect on our business and results of operations.

We may be unable to compete favorably in the highly competitive retail industry, and if we lose customers to our competitors, our sales could decrease.

          The teenage and young adult retail apparel, hardgoods and accessories industry is highly competitive. We compete with other retailers for vendors, teenage and young adult customers, suitable store locations, qualified store associates and management personnel. In the softgoods markets, which includes apparel, accessories and footwear, we currently compete with other teenage-focused retailers such as Abercrombie & Fitch Co., Aeropostale, Inc., American Eagle Outfitters, Inc., Anchor Blue Clothing Company, Charlotte Russe Inc., Claire's Stores, Inc., Forever 21, Inc., Hollister Co., Hot Topic, Inc., Old Navy, Inc., Pacific Sunwear of California, Inc., The Buckle, Inc., The Wet Seal, Inc. and Urban Outfitters, Inc. In addition, in the softgoods market we compete with independent specialty shops, department stores, and direct marketers that sell similar lines of merchandise and target customers through catalogs and e-commerce. In the hardgoods markets, which includes skateboards, snowboards, bindings, components and other equipment, we compete directly or indirectly with the following categories of companies: other specialty retailers that compete with us across a significant portion of our merchandising categories, such as local snowboard and skate shops; large-format sporting goods stores and chains, such as Big 5 Sporting Goods Corporation, Dick's Sporting Goods, Inc., Sport Chalet, Inc. and The Sports Authority Inc., which operates stores under the brand names Sports Authority, Gart Sports, Oshman's and Sportmart; and Internet retailers.

          Some of our competitors are larger and have substantially greater financial, marketing and other resources than we do. Direct competition with these and other retailers may increase significantly in the future, which could require us, among other things, to lower our prices and could result in the loss of our customers. Current and increased competition could have a material adverse effect on our business, results of operations and financial condition.

If we fail to maintain good relationships with vendors or if a vendor is otherwise unable or unwilling to supply us with adequate quantities of their products at acceptable prices, our business and financial performance could suffer.

          Our business is dependent on continued good relations with our vendors. In particular, we believe that we generally are able to obtain attractive pricing and other terms from vendors because we are perceived as a desirable customer, and a deterioration in our relationship with our vendors would likely have a material adverse effect on our business. We do not have any contractual relationships with our

10



vendors and, accordingly, there can be no assurance that our vendors will provide us with an adequate supply or quality of products or acceptable pricing. Our vendors could discontinue selling to us or raise the prices they charge at any time. There can be no assurance that we will be able to acquire desired merchandise in sufficient quantities on terms acceptable to us in the future. Also, certain of our vendors sell their products directly to the retail market and therefore compete with us directly, and other vendors may decide to do so in the future. There can be no assurance that such vendors will not decide to discontinue supplying their products to us, supply us only less popular or lesser quality items, raise the prices they charge us or focus on selling their products directly. Any inability to acquire suitable merchandise at acceptable prices, or the loss of one or more key vendors, would have a material adverse effect on our business, results of operations and financial condition.

If we lose key management or are unable to attract and retain the talent required for our business, our financial performance could suffer.

          Our performance depends largely on the efforts and abilities of our senior management, including our Co-Founder and Chairman, Thomas D. Campion, our President and Chief Executive Officer, Richard M. Brooks, our Chief Financial Officer, Brenda I. Morris, and our General Merchandising Manager, Lynn K. Kilbourne. None of our employees, except Mr. Brooks, has an employment agreement with us and we do not have, and do not plan to obtain, key person life insurance covering any of our employees. If we lose the services of one or more of our key executives, we may not be able to successfully manage our business or achieve our growth objectives. As our business grows, we will need to attract and retain additional qualified management personnel in a timely manner and we may not be able to do so.

Our failure to meet our staffing needs could adversely affect our ability to implement our growth strategy and could have a material impact on our results of operations.

          Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including regional managers, district managers, store managers and store associates, who understand and appreciate our corporate culture based on a passion for the action sports lifestyle and are able to adequately represent this culture to our customers. Qualified individuals of the requisite caliber, skills and number needed to fill these positions may be in short supply in some areas, and the employee turnover rate in the retail industry is high. Competition for qualified employees could require us to pay higher wages to attract a sufficient number of suitable employees. If we are unable to hire and retain store managers and store associates capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and knowledge of our merchandise, our ability to open new stores may be impaired and the performance of our existing and new stores could be materially adversely affected. We are also dependent upon temporary personnel to adequately staff our stores and distribution center, particularly during busy periods such as the back-to-school and winter holiday seasons. There can be no assurance that we will receive adequate assistance from our temporary personnel, or that there will be sufficient sources of temporary personnel. Although none of our employees is currently covered by collective bargaining agreements, we cannot guarantee that our employees will not elect to be represented by labor unions in the future, which could increase our labor costs and could subject us to the risk of work stoppages and strikes. Any such failure to meet our staffing needs, any material increases in employee turnover rates, any increases in labor costs or any work stoppages or interruptions or strikes could have a material adverse effect on our business or results of operations.

Our operations, including our sole distribution center, are concentrated in the western United States, which makes us susceptible to adverse conditions in this region.

          Our home office and sole distribution center are located in a single facility in Washington, and a substantial number of our stores are located in Washington and the western half of the United States. As a result, our business may be more susceptible to regional factors than the operations of more geographically diversified competitors. These factors include, among others, economic and weather

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conditions, demographic and population changes and fashion tastes. In addition, we rely on a single distribution center in Everett, Washington to receive, store and distribute merchandise to all of our stores and to fulfill our Internet sales. As a result, a natural disaster or other catastrophic event, such as an earthquake affecting western Washington, in particular, or the West Coast, in general, could significantly disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.

We are required to make substantial rental payments under our operating leases and any failure to make these lease payments when due would likely have a material adverse effect on our business and growth plans.

          We do not own any of our retail stores or our combined home office and distribution center, but instead we lease all of these facilities under operating leases. Payments under these operating leases account for a significant portion of our operating expenses. For example, total rental expenses (which were comprised of minimum rental expenses and additional rental payments based on sales) under operating leases were $7.8 million and $8.9 million for the nine months ended October 30, 2004 and fiscal year 2003, respectively, and, as of October 30, 2004, we were a party to operating leases requiring future minimum lease payments aggregating approximately $49.8 million through 2009 and approximately $25.1 million thereafter. In addition to future minimum lease payments, substantially all of our store leases provide for additional rental payments based on sales of the respective stores, as well as common area maintenance charges. We expect that any new stores we open will also be leased by us under operating leases, which will further increase our operating lease expenses.

          Our substantial operating lease obligations could have significant negative consequences, including:

          We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from borrowings under bank loans or from other sources, we may not be able to service our operating lease expenses, grow our business, respond to competitive challenges or to fund our other liquidity and capital needs, which would have a material adverse effect on us.

The terms of our revolving credit facility impose operating and financial restrictions on us that may impair our ability to respond to changing business and economic conditions. This impairment could have a significant adverse impact on our business.

          Our $20 million revolving credit facility, which we use for inventory financing and other general corporate purposes, contains a number of significant restrictions and covenants that generally limit our ability to, among other things, (1) incur additional indebtedness or certain lease obligations outside the ordinary course of business; (2) enter into sale/leaseback transactions; (3) make certain changes in our management; and (4) undergo a change in ownership. In addition, our obligations under the revolving credit facility are secured by almost all of our personal property, including, among other things, our inventory, equipment and fixtures. Our revolving credit facility also contains financial covenants that require us to meet certain specified financial ratios, including a debt to earnings ratio, an earnings to

12



interest expense ratio and an inventory to debt ratio. Our ability to comply with these ratios may be affected by events beyond our control.

          A breach of any of these restrictive covenants or our inability to comply with the required financial ratios could result in a default under the revolving credit facility. If a default occurs, the lender may elect to declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable. If we are unable to repay outstanding borrowings when due, whether at their maturity or if declared due and payable by the lender following a default, the lender has the right to proceed against the collateral granted to it to secure the indebtedness. As a result, any breach of these covenants or failure to comply with these ratios could have a material adverse effect on us. In that regard, in fiscal 2002 we breached certain financial covenants in a prior credit facility which required that we obtain waivers from the lender. There can be no assurance that we will not breach the covenants or fail to comply with the ratios in our revolving credit facility or any other debt agreements we may enter into in the future and, if a breach occurs, there can be no assurance that we will be able to obtain necessary waivers or amendments from the lenders.

          The restrictions contained in our revolving credit facility could: (1) limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans; and (2) adversely affect our ability to finance our operations, strategic acquisitions, investments or other capital needs or to engage in other business activities that would be in our interest.

Our business could suffer as a result of United Parcel Service being unable to distribute our merchandise.

          We rely upon United Parcel Service for our product shipments, including shipments to, from and between our stores. Accordingly, we are subject to risks, including employee strikes and inclement weather, which may affect United Parcel Service's ability to meet our shipping needs. Among other things, any circumstances that require us to use other delivery services for all or a portion of our shipments could result in increased costs and delayed deliveries and could harm our business materially. In addition, although we have a contract with United Parcel Service that expires in June 2007, United Parcel Service has the right to terminate the contract upon 30 days written notice. Although the contract with United Parcel Service provides certain discounts from the shipment rates in effect at the time of shipment, the contract does not limit United Parcel Services' ability to raise the shipment rates at any time. Accordingly, we are subject to the risk that United Parcel Service may increase the rates they charge, that United Parcel Service may terminate their contract with us, that United Parcel Service may decrease the rate discounts provided to us when an existing contract is renewed or that we may be unable to agree on the terms of a new contract with United Parcel Service, any of which could materially adversely affect our operating results.

Our business could suffer if a manufacturer fails to use acceptable labor practices.

          We do not control our vendors or the manufacturers that produce the products we buy from them, nor do we control the labor practices of our vendors and these manufacturers. The violation of labor or other laws by any of our vendors or these manufacturers, or the divergence of the labor practices followed by any of our vendors or these manufacturers from those generally accepted as ethical in the United States, could interrupt, or otherwise disrupt, the shipment of finished products or damage our reputation. Any of these, in turn, could have a material adverse effect on our financial condition and results of operations. In that regard, most of the products sold in our stores are manufactured overseas, primarily in Asia and Central America, which may increase the risk that the labor practices followed by the manufacturers of these products may differ from those considered acceptable in the United States.

Our failure to adequately anticipate a correct mix of private label merchandise may have a material adverse effect on our business.

          Sales from private label merchandise accounted for 12.8% of our net sales in fiscal 2004. We may take steps to increase the percentage of net sales of private label merchandise in the future, although there

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can be no assurance that we will be able to achieve increases in private label merchandise sales as a percentage of net sales. Because our private label merchandise generally carries higher gross margins than other merchandise, our failure to anticipate, identify and react in a timely manner to fashion trends with our private label merchandise, particularly if the percentage of net sales derived from private label merchandise increases, may have a material adverse effect on our comparable store sales, financial condition and results of operations.

Most of our merchandise is produced by foreign manufacturers; therefore the availability and costs of these products may be negatively affected by risks associated with international trade and other international conditions.

          Most of our merchandise is produced by manufacturers in Asia and Central America. Some of these facilities are also located in regions that may be affected by natural disasters, political instability or other conditions that could cause a disruption in trade. Trade restrictions such as increased tariffs or quotas, or both, could also affect the importation of merchandise generally and increase the cost and reduce the supply of merchandise available to us. Any reduction in merchandise available to us or any increase in its cost due to tariffs, quotas or local issues that disrupt trade could have a material adverse effect on our results of operations. Although the prices charged by vendors for the merchandise we purchase are generally denominated in United States dollars, a continued decline in the relative value of the United States dollar to foreign currencies could lead to increased merchandise costs, which could negatively affect our competitive position and our results of operation.

If our information systems hardware or software fails to function effectively or does not scale to keep pace with our planned growth, our operations could be disrupted and our financial results could be harmed.

          Over the past several years, we have made improvements to our existing hardware and software systems, as well as implemented new systems. If these or any other information systems and software do not work effectively, this could adversely impact the promptness and accuracy of our transaction processing, financial accounting and reporting and our ability to manage our business and properly forecast operating results and cash requirements. To manage the anticipated growth of our operations and personnel, we may need to continue to improve our operational and financial systems, transaction processing, procedures and controls, and in doing so could incur substantial additional expenses which could harm our financial results. In addition, as discussed below, we may be required to improve our financial and managerial controls, reporting systems and procedures to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

Our inability or failure to protect our intellectual property or our infringement of other's intellectual property could have a negative impact on our operating results.

          We believe that our trademarks and domain names are valuable assets that are critical to our success. The unauthorized use or other misappropriation of our trademarks or domain names could diminish the value of the Zumiez brand, our store concept, our private label brands or our goodwill and cause a decline in our net sales. At this time, we have not secured protection for our trademarks in any jurisdiction outside of the United States, and thus we cannot prevent other persons from using our trademarks outside of the United States, which also could materially adversely affect our business. We are also subject to the risk that we may infringe on the intellectual property rights of third parties. Any infringement or other intellectual property claim made against us, whether or not it has merit, could be time-consuming, result in costly litigation, cause product delays or require us to pay royalties or license fees. As a result, any such claim could have a material adverse effect on our operating results.

The effects of war or acts of terrorism could adversely affect our business.

          Substantially all of our stores are located in shopping malls. Any threat of terrorist attacks or actual terrorist events, particularly in public areas, could lead to lower customer traffic in shopping malls. In

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addition, local authorities or mall management could close shopping malls in response to security concerns. Mall closures, as well as lower customer traffic due to security concerns, would likely result in decreased sales. Additionally, the escalation of the armed conflicts in the Middle East, or the threat, escalation or commencement of war or other armed conflict elsewhere, could significantly diminish consumer spending, and result in decreased sales for us. Decreased sales would have a material adverse effect on the our business, financial condition and results of operations.

Failure to successfully integrate any businesses or stores that we acquire could have an adverse impact on our results of operations.

          We may from time to time acquire other retail stores, individually or in groups. We may experience difficulties in assimilating any stores we may acquire, and any such acquisitions may also result in the diversion of our capital and our management's attention from other business issues and opportunities. We may not be able to successfully integrate any stores that we may acquire, including their facilities, personnel, financial systems, distribution, operations and general operating procedures. If we fail to successfully integrate acquisitions, we could experience increased costs and other operating inefficiencies, which could have an adverse effect on our results of operations.

Our directors, executive officers and significant shareholders have significant influence over, and in certain cases control, our management and affairs.

          Our directors, executive officers and significant shareholders will, in the aggregate, beneficially own approximately            % of our outstanding common stock immediately following the completion of this offering. Specifically, the Brentwood Affiliates will beneficially own approximately            % of our outstanding common stock immediately following this offering, and Thomas D. Campion, our Chairman of the Board, and Richard M. Brooks, our President and Chief Executive Officer, will beneficially own approximately            % and             %, of our outstanding common stock, respectively, immediately following this offering.

          As a result, these shareholders will have significant influence over, and in some circumstances will control, matters requiring approval by our shareholders, including the election of directors and approval of mergers, consolidations, sales of assets, recapitalizations and amendments to our articles of incorporation. These shareholders may take actions with which you do not agree, including actions that delay, defer or prevent a change of control of our company and that could cause the price that investors are willing to pay for our common stock to decline.

Our Internet operations subject us to numerous risks that could have an adverse effect on our results of operations.

          Although Internet sales constitute only a small portion of our overall sales, our Internet operations subject us to certain risks that could have an adverse effect on our operational results, including:

          In addition, risks beyond our control, such as governmental regulation of the Internet, entry of our vendors in the Internet business in competition with us, online security breaches and general economic conditions specific to the Internet and online commerce could have an adverse effect on our results of operations.

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The outcome of litigation could have a material adverse effect on our business.

          We are involved, from time to time, in litigation incidental to our business. Management believes, after considering a number of factors and the nature of the legal proceedings to which we are subject, that the outcome of current litigation will not have a material adverse effect upon our results of operations or financial condition. However, management's assessment of our current litigation could change in light of the discovery of facts not presently known to us or determinations by judges, juries or other finders of fact that are not in accord with management's evaluation of the possible liability or outcome of such litigation. As a result, there can be no assurance that the actual outcome of pending or future litigation will not have a material adverse effect on our results of operations.

We will incur significant expenses as a result of being a public company, which could negatively impact our business and financial performance.

          We will incur significant legal, accounting, insurance and other expenses as a result of being a public company. The Sarbanes-Oxley Act of 2002, as well as related rules implemented by the SEC and The Nasdaq Stock Market, have required changes in corporate governance practices of public companies. We expect that compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act as discussed in the following paragraph, will substantially increase our legal and accounting costs and make some activities more time-consuming and costly. We also expect these laws, rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as officers.

Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting and could harm our ability to manage our expenses.

          Reporting obligations as a public company and our anticipated growth are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel. In addition, as a public company we will be required to document and test our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 so that our management can certify as to the effectiveness of our internal controls and our auditors can publicly attest to this certification by the time our annual report for fiscal 2005 is due and thereafter, which will require us to document and possibly make significant changes to our internal controls over financial reporting. As a result, we may be required to improve our financial and managerial controls, reporting systems and procedures, to incur substantial expenses to test our systems and to make such improvements and to hire additional personnel. If our management is unable to certify the effectiveness of our internal controls or if our auditors cannot attest to our certification, we could be subject to regulatory scrutiny and a loss of public confidence, which could have a material adverse effect on our business and our stock price. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause a decline in our stock price and adversely affect our ability to raise capital.

Risks Related to this Offering

Our stock price may be volatile and the market price of our common stock may decline.

          Prior to this offering, our common stock has not been sold in a public market. We cannot predict the extent to which a trading market will develop or how liquid that market might become. An active trading market for our common stock may never develop or may not be sustained, which could adversely affect your ability to sell your shares and the market price of your shares. The initial public offering price for the shares was determined by negotiations between us, the selling shareholders and the underwriters

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and does not purport to be indicative of prices at which our common stock will trade upon completion of this offering.

          The stock market in general, and the market for stocks of some retailers, has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those listed elsewhere in this "Risk Factors" section and others such as:

          In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

We may invest or spend the proceeds of this offering in ways you may not agree with or in ways which may not yield a return.

          We will have broad discretion over the net proceeds from this offering received by us. We may use these funds to acquire or invest in businesses, stores or products. We have not reserved or allocated specific amounts for any particular purposes, and we cannot specify with certainty how we will use these funds. Accordingly, our management will have considerable discretion in the application of these funds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. These funds may be used for purposes that do not improve our operating results or the market value of our stock. Until these funds are used, they may be placed in investments that do not produce income or that lose value.

Future sales of our common stock in the public market could cause our stock price to fall.

          Sales of our common stock in the public market after this offering, or the perception that such sales might occur, could cause the market price of our common stock to decline. Immediately after completion of this offering, we will have            shares of common stock outstanding, including approximately            shares that will be beneficially owned by the Brentwood Affiliates. In general, the shares sold in this offering will be freely transferable without restriction or additional registration under the Securities

17



Act of 1933, or the "Securities Act." In addition, of the            remaining shares of our common stock that will be outstanding immediately after completion of this offering and based on shares outstanding as of January 29, 2005, approximately            shares will be available for sale in the public markets immediately upon the completion of this offering and approximately            shares will be available for sale in the public markets 180 days (subject to extension for up to an additional 18 days under limited circumstances as described under "Underwriting") after the completion of this offering following the expiration of lock-up agreements entered into by our directors and officers and a number of our shareholders for the benefit of the underwriters. Furthermore, immediately after completion of this offering and based on shares outstanding as of January 29, 2005, the holders of approximately             shares of our outstanding common stock, including the Brentwood Affiliates, will have the right to include those shares in any registration statement we file with the SEC, subject to exceptions, which would enable those shares to be sold in the public markets, subject, in certain cases, to the restrictions under the lock-up agreements referred to above.

          Any or all of the shares subject to the lock-up agreements may be released for sale in the public market prior to expiration of the lock-up period at the discretion of Wachovia Capital Markets, LLC and Piper Jaffray & Co. To the extent shares are sold into the public market, the market price of our common stock could decline. For additional information, see "Shares Eligible for Future Sale" and "Underwriting."

Purchasers in this offering will immediately experience substantial dilution in net tangible book value of their shares.

          The initial public offering price of our common stock in this offering is considerably more than the net tangible book value per share of our outstanding common stock. Our common stock has in the past been sold at prices substantially lower than the initial public offering price that you will pay, and you will suffer immediate dilution of $            per share in net tangible book value, calculated on an "as adjusted" basis that gives effect to the sale of the shares by us in this offering at an assumed initial offering price of $            per share of common stock (the mid-point of the price range set forth on the cover of this preliminary prospectus). See "Dilution."

We have outstanding options that have the potential to dilute shareholder value and cause the price of our common stock to decline.

          In the past, we have offered, and we expect to continue to offer, stock options or other forms of stock-based compensation to our directors, officers and employees. Stock options issued in the past have per share exercise prices below the initial public offering price per share. As of January 29, 2005, we had options outstanding to purchase            shares of our common stock at exercise prices ranging from $            to $            per share, and a weighted average exercise price of $            per share. If some or all of these options are exercised and such shares are sold into the public market, the market price of our common stock may decline.

Washington law and our articles of incorporation and bylaws contain antitakeover provisions that could delay or discourage takeover attempts that shareholders may consider favorable.

          Certain provisions of our articles of incorporation and our bylaws and of Washington law may discourage, delay or prevent transactions that our shareholders may consider favorable, including transactions that could provide for payment of a premium over the prevailing market price of our common stock, and also may limit the price that investors are willing to pay in the future for our common stock. For example, our articles of incorporation contain provisions, such as allowing our board of directors to issue preferred stock with rights superior to those of our common stock without the consent of our shareholders and prohibitions on cumulative voting in the election of directors, which could make it more difficult for a third party to acquire us without the consent of our board of directors. In addition, our articles of incorporation provide for our board of directors to be divided into three classes serving staggered terms of three years each, permit removal of directors only for cause, provide that

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vacancies on the board of directors may be filled only by the affirmative vote of a majority of directors then in office, require two-thirds shareholder approval of certain types of business transactions and restrict the ability of shareholders to amend our bylaws and nominate candidates for election to our board of directors. Furthermore, our bylaws require advance notice of shareholder proposals and nominations of candidates for election to our board of directors and eliminate the ability of shareholders to call for special shareholder meetings. In addition, Chapter 23B.19 of the Washington Business Corporation Act prohibits certain business combinations between us and certain significant shareholders unless certain conditions are met. These provisions may have the effect of delaying, deterring or preventing a third-party from acquiring us. See "Description of Capital Stock—Antitakeover Effects of Washington Law and Certain Provisions of Our Articles of Incorporation and Our Bylaws."

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

          This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements of our expectations regarding net sales, selling, general and administrative expenses, profitability, financial position, business strategy, new store openings, and plans and objectives of management, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect" and similar expressions, as they relate to us and our business, industry, markets and consumers, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among others, those described in "Risk Factors" and elsewhere in this prospectus, and the following:


          These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, future events or developments.

          You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected or implied in the forward-looking statements.

          The market and demographic data included in this prospectus concerning our business and markets, including data regarding retail sales of skateboard, snowboard and surf/bodyboard merchandise, data regarding participation in board sports and data regarding spending by teenagers in the United States is estimated and is based on data made available by market research firms, industry trade associations or other publicly available information. The accuracy and completeness of this information is not guaranteed and this information has not been independently verified.

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USE OF PROCEEDS

          We estimate that the net proceeds from the shares to be sold by us in this offering will be approximately $            million, or approximately $            million if the underwriters' over-allotment option is exercised in full, in each case based on an assumed initial offering price of $            per share (the mid-point of the price range set forth on the cover of this preliminary prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of the shares by the selling shareholders.

          We intend to use the net proceeds from this offering to fund new store openings and growth, for working capital and for other general corporate purposes. As a result, we will retain broad discretion over the use of the net proceeds from this offering. In that regard, we consider possible acquisitions of other businesses and stores from time to time and we may therefore apply a portion of the net proceeds to finance all or a portion of the cost of acquisitions. However, we do not currently have any binding agreements or commitments with respect to any acquisition, and we might be required to obtain additional financing if we were to proceed with an acquisition. Pending application, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities.

          The principal purposes of this offering are (1) to provide additional funds for the purposes described above, (2) to attract and retain qualified employees by providing them with equity incentives and (3) to create a public market for our common stock for the benefit of our current shareholders.


DIVIDEND POLICY

          We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We anticipate that we will retain all of our available funds for use in the operation and expansion of our business. Any future determination as to the payment of cash dividends will be at the discretion of our board of directors and will depend on our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors considers to be relevant. In addition, financial and other covenants in any instruments and agreements that we enter into in the future may restrict our ability to pay cash dividends on our common stock.

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CAPITALIZATION

          The following table sets forth our cash and cash equivalents and our capitalization as of October 30, 2004, as follows:

          You should read this information together with the sections of this prospectus entitled "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes appearing elsewhere in this prospectus.

 
  As of October 30, 2004
 
  Actual
  As Adjusted
 
  (Dollars in thousands, except per share data)

Cash and cash equivalents   $ 897   $           
   
 
Long-term debt(1)   $   $  
   
 
Shareholders' equity(2)            
  Preferred stock, par value $0.01 per share,          shares authorized, none issued and outstanding actual;          shares authorized, none issued and outstanding as adjusted        
  Common stock, par value $0.01 per share,          shares authorized,          shares issued and outstanding actual;          shares authorized,          shares issued and outstanding as adjusted     44      
  Additional paid-in capital          
  Employee stock options     54      
  Retained earnings     21,561      
  Receivable from parent     (148 )    
   
 
    Total shareholders' equity     21,511      
   
 
      Total capitalization(1)   $ 21,511   $  
   
 

(1)
All of the indebtedness outstanding under our $20.0 million revolving credit facility is classified as short-term debt. As of October 30, 2004, we had $6.1 million of short-term debt and $841,000 of letters of credit outstanding under our revolving credit facility. See note 5 to our financial statements included elsewhere in this prospectus. In addition, see notes 9 and 13 to our financial statements appearing elsewhere in this prospectus for information as to our obligations under operating leases.

(2)
The outstanding share information in the table above excludes:

    shares issuable upon exercise of outstanding options;

    an aggregate of            additional shares available for future awards under our 2004 Option Plan;

    an aggregate of            additional shares that will be initially available for future awards under our 2005 Incentive Plan and our Stock Purchase Plan, plus scheduled annual increases and other potential increases in the number of shares reserved for issuance under the 2005 Incentive Plan; and

    an aggregate of up to            additional shares of common stock issuable by us if the underwriters' over-allotment option is exercised in full.

22



DILUTION

          As of January 29, 2005, our net tangible book value was approximately $            million, or $            per outstanding share of our common stock. The net tangible book value per share of our common stock is the difference between our total tangible assets and our total liabilities, divided by the number of shares of common stock outstanding at that date. For new investors in our common stock, dilution is the per share difference between the initial public offering price of our common stock and the net tangible book value of our common stock.

          After giving effect to our receipt of the net proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $            per share (the mid-point of the price range set forth on the cover of this preliminary prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value at January 29, 2005 would have been approximately $            million, or $             per share. This represents an immediate increase in our net tangible book value of $             per share to existing shareholders and an immediate dilution of $             per share to new investors purchasing shares of common stock in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share         $  
  Net tangible book value per share as of January 29, 2005            
  Increase in net tangible book value per share attributable to new investors   $        
   
     
As adjusted net tangible book value per share after giving effect to this offering   $        
         
Dilution per share to new investors         $  
         

          The following table summarizes, as of January 29, 2005, the differences between the number and percentage of shares of common stock purchased from us by our existing shareholders and new investors purchasing shares of common stock from us in this offering, as well as the total consideration and the average price per share paid by them:

 
   
   
  Total
Consideration

   
 
  Shares Purchased
   
 
  Average
Price
Per Share

 
  Number
  Percent
  Amount
  Percent
Existing shareholders         % $                % $           
New investors                        
   
 
 
 
 
  Total       100 % $     100 %    
   
 
 
 
     

          The discussion and tables above exclude, as of January 29, 2005:

          If all of the stock options outstanding at January 29, 2005 were exercised and if the underwriters' over-allotment option were exercised in full, the number of shares held by existing shareholders would increase to             shares, or approximately            % of the total number of shares of common stock to be outstanding immediately after this offering, and the number of shares held by new investors would increase to            shares, or approximately            % of the total number of shares of our common stock to be outstanding immediately after this offering, in each case based upon shares outstanding as of January 29, 2005, and the total consideration paid by existing shareholders and new investors would have been approximately $            and $            , respectively, or approximately            % and            %, respectively, of the total consideration paid.

23



SELECTED FINANCIAL DATA

          The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes included elsewhere in this prospectus.

          Through and including December 31, 2002, our fiscal year ended on December 31 and was the same as the calendar year. Subsequent to December 31, 2002, we changed our fiscal year to end on the Saturday closest to January 31 and, as a result, the following tables include financial data as of and for the one month ended February 1, 2003. Each fiscal year ended subsequent to December 31, 2002 consists of four 13-week quarters, with an extra week added to the fourth quarter every five or six years. Our fiscal years ended December 31, 1999, 2000, 2001 and 2002 and January 31, 2004 each consisted of 52 weeks.

          The selected statement of operations data for the fiscal years ended December 31, 2001 and 2002, the one month ended February 1, 2003 and the fiscal year ended January 31, 2004 and the selected balance sheet data as of December 31, 2002, February 1, 2003 and January 31, 2004 are derived from our audited financial statements, which are included elsewhere in this prospectus. The selected statement of operations data for the fiscal years ended December 31, 1999 and 2000 and the selected balance sheet data as of December 31, 1999, 2000 and 2001 are derived from our audited financial statements not included in this prospectus. The selected statement of operations data for the nine month periods ended November 1, 2003 and October 30, 2004 and the selected balance sheet data as of October 30, 2004 are derived from our unaudited financial statements included elsewhere in this prospectus.

 
   
   
   
   
   
   
  Nine Months Ended
 
 
  Fiscal Year Ended December 31,
  One Month
Ended
February 1,
2003

  Fiscal Year
Ended
January 31,
2004

 
 
  November 1,
2003

  October 30,
2004

 
 
  1999
  2000
  2001
  2002
 
 
  (In thousands, except share and per share data)

 
Statement of Operations Data:                                                  
Net sales   $ 44,541   $ 60,827   $ 84,735   $ 101,391   $ 6,392   $ 117,857   $ 78,039   $ 100,582  
Cost of goods sold     31,457     41,027     57,534     71,017     4,575     81,320     54,824     69,165  
   
 
 
 
 
 
 
 
 
  Gross margin     13,084     19,800     27,201     30,374     1,817     36,537     23,215     31,417  
Selling, general and administrative expenses     9,981     14,010     20,470     23,404     2,013     29,076     20,587     26,248  
   
 
 
 
 
 
 
 
 
  Operating profit (loss)     3,103     5,790     6,731     6,970     (196 )   7,461     2,628     5,169  
Other income (expense)     35     36     (3 )   148         8     4     5  
Interest expense     (223 )   (335 )   (322 )   (317 )   (12 )   (293 )   (245 )   (218 )
   
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes     2,915     5,491     6,406     6,801     (208 )   7,176     2,387     4,956  
Provision (benefit) for income taxes(1)                 1,096     (39 )   2,701     799     1,936  
   
 
 
 
 
 
 
 
 
  Net income (loss)   $ 2,915   $ 5,491   $ 6,406   $ 5,705   $ (169 ) $ 4,475   $ 1,588   $ 3,020  
   
 
 
 
 
 
 
 
 
Net income (loss) per share(2)                                                  
  Basic   $ 65.54   $ 140.23   $ 163.52   $ 127.79   $ (3.87 ) $ 102.38   $ 36.33   $ 69.09  
  Diluted   $ 54.71   $ 112.46   $ 130.23   $ 108.65   $ (3.87 ) $ 90.34   $ 31.98   $ 60.72  
Weighted average shares outstanding(2)                                                  
  Basic     44,480     39,156     39,175     44,642     43,710     43,710     43,710     43,710  
  Diluted     53,278     48,825     49,191     52,508     43,710     49,535     49,661     49,737  

(1)
For fiscal 1999, 2000, 2001 and for a portion of fiscal 2002 ended November 3, 2002, we were treated as a Subchapter S corporation for federal income tax purposes and, as a result, we were exempt from paying federal and state income taxes for those periods. As a result, our results of operations for fiscal 1999, 2000 and 2001 do not reflect any provision for income taxes and our provision for income taxes for fiscal 2002 reflects a provision for the last two months of fiscal 2002. Accordingly, our provision for income taxes and our total and per share net income for fiscal 1999, 2000, 2001 and 2002 are not comparable to our provision for income taxes and our total and per share net income for the subsequent periods reflected in this table. See note 1 to our financial statements included elsewhere in this prospectus.

(2)
Before giving effect to a            for one split of our outstanding common stock that will be effective prior to completion of this offering.

24


 
  December 31,
   
   
   
   
 
 
  February 1,
2003

  January 31,
2004

   
  October 30,
2004

 
 
  1999
  2000
  2001
  2002
   
 
 
  (In thousands)

 
Balance Sheet Data:                                                
Cash and cash equivalents   $ 2,010   $ 3,536   $ 645   $ 7,722   $ 482   $ 578       $ 897  
Working capital     323     1,024     502     (1,510 )   (1,436 )   1,698         (1,012 )
Total assets     15,649     20,996     28,180     42,608     36,003     41,558         62,526  
Total long term liabilities     2,097     1,461     1,631     1,001     954     1,336         1,491  
Total shareholders' equity     4,604     7,488     11,916     14,136     13,967     18,438         21,511  

         

 
   
   
   
   
   
   
  Nine Months Ended
 
 
  Fiscal Year Ended December 31,
  One Month
Ended
February 1,
2003

  Fiscal
Year Ended
January 31,
2004

 
 
  November 1,
2003

  October 30,
2004

 
 
  1999
  2000
  2001
  2002
 
 
  (Dollars in thousands, except net sales per square foot)

 
Other Financial Data:                                                  
Gross margin percentage(1)     29.4 %   32.6 %   32.1 %   30.0 %   28.4 %   31.0 %   29.7 %   31.2 %
Capital expenditures   $ 2,529   $ 3,315   $ 7,500   $ 7,186   $ 42   $ 5,937   $ 2,713   $ 7,583  
Depreciation   $ 1,365   $ 1,694   $ 2,348   $ 3,571   $ 332   $ 4,185   $ 3,042   $ 3,999  
Store Data:                                                  
Number of stores open at end of period     53     64     80     99     99     113     105     132  
Comparable store sales increase (decrease)(2)(3)     8.5 %   18.5 %   20.2 %   (1.1 )%   (5.7 )%   4.3 %   2.1 %   8.2 %
Net sales per store(3)(4)   $ 882   $ 1,049   $ 1,203   $ 1,105   $ 65   $ 1,131   $ 774   $ 807  
Total square footage at end of period(5)     124,395     147,223     194,651     247,476     247,476     288,784     266,372     349,200  
Average square footage per store at end of period(6)     2,347     2,300     2,464     2,500     2,500     2,533     2,537     2,645  
Net sales per square foot(3)(7)   $ 386   $ 456   $ 506   $ 443   $ 26   $ 448   $ 306   $ 310  

(1)
Gross margin percentage represents gross margin divided by net sales.

(2)
Comparable store sales percentage changes are calculated by comparing comparable store sales for the applicable fiscal year or nine-month period to comparable store sales for the prior fiscal year or for the comparable nine-month period in the prior fiscal year. Comparable store sales are based on net sales, and stores are considered comparable beginning on the first anniversary of their first day of operation. See "Certain Terms Used in this Prospectus" on page ii for more information about how we compute comparable store sales.

(3)
Comparable store sales, net sales per store and net sales per square foot include our in-store sales and our Internet sales. Our Internet sales represented less than 1.0% of our total net sales in each of the periods presented.

(4)
Net sales per store represents net sales for the period divided by the average number of stores open during the period. For purposes of this calculation, the average number of stores open during the period is equal to the sum of the number of stores open as of the end of each month during the period divided by the number of months in the period.

(5)
Total square footage at end of period includes retail selling, storage and back office space.

(6)
Average square footage per store at end of period is calculated on the basis of the total square footage at end of period, including retail selling, storage and back office space, of all stores open at the end of the period.

(7)
Net sales per square foot represents net sales for the period divided by the average square footage of stores open during the period. For purposes of this calculation, the average square footage of stores open during the period is equal to the sum of the total square footage of the stores open as of the end of each month during the period divided by the number of months in the period.

25



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in "Risk Factors" above. See "Cautionary Note Regarding Forward-Looking Statements and Market Data."

          Through and including December 31, 2002, our fiscal year ended on December 31. Subsequent to December 31, 2002, we changed our fiscal year to end on the Saturday closest to January 31 and to consist of four 13-week quarters, with an extra week added to the fourth quarter every five or six years. Our fiscal years ended December 31, 2001, December 31, 2002 and January 31, 2004 each consisted of 52 weeks and references in this discussion to "fiscal 2001," "fiscal 2002," "fiscal 2003" and "fiscal 2004" refer to the 52-week periods ended December 31, 2001, December 31, 2002, January 31, 2004 and January 29, 2005, respectively.

          As a result of this change in our fiscal year, the financial data and our financial statements included elsewhere in this prospectus include financial information for the one month ended February 1, 2003, which was the one month transition period following the end of fiscal 2002 and prior to the beginning of fiscal 2003. The following discussion of our results of operations for fiscal 2003 compared to 2002 disregards this one month transition period because we do not believe it is material to an understanding of our results of operations.

Overview

          We were founded in 1978 by Thomas D. Campion, our Chairman. Our current President and Chief Executive Officer, Richard M. Brooks, joined us as Chief Financial Officer in 1993. In fiscal 2002, certain affiliates (the "Brentwood Affiliates") of Brentwood Private Equity III, LLC, a private equity firm, acquired an indirect 41% minority interest in us through Zumiez Holdings LLC, or "Zumiez Holdings." Since the investment by the Brentwood Affiliates, we have positioned ourselves for accelerated growth by enhancing our infrastructure and deepening our management team. Although these initiatives resulted in increased operating expenses as a percentage of net sales in fiscal 2003 as compared to fiscal 2002, we believe that they improved our ability to continue to expand our business. Moreover, the additional expenses resulting from these initiatives consisted primarily of infrastructure improvements, most of which were incurred during fiscal 2003, and increased administrative personnel costs, and we believe that we can leverage these additional expenses to the extent we are able to increase our net sales.

          Our net sales increased from approximately $44.5 million in fiscal 1999 to approximately $117.9 million in fiscal 2003, a compound annual growth rate of 27.5%. Net sales for the first nine months of fiscal 2004 increased by $22.5 million, or 28.9%, over net sales for the first nine months of fiscal 2003. Over the four fiscal years ended with fiscal 2003, we increased our store base from 53 to 113 and our comparable store net sales increased an average of 10.5% per fiscal year. As of January 29, 2005, we operated 140 stores that averaged approximately 2,600 square feet per store, giving us a presence in 18 states.

          We intend to expand our presence as a leading action sports lifestyle retailer by opening new stores and continuing to generate sales growth through improved store level productivity. We have successfully and consistently implemented our store concept across a variety of mall classifications and geographic locations, and our strategy is to continue to open stores in both new and existing markets. We plan to open 35 new stores in fiscal 2005 and to continue an aggressive pace of store openings in future years. Through our merchandising and marketing efforts, we have generally been successful in increasing the level of net sales in our existing stores and we will seek to continue such increases going forward.

26



          We believe that we have developed an economically compelling store model. Our new stores opened during fiscal 2003 generated average net sales of approximately $1.0 million during their first full year of operations. On average, our net investment to open these stores was approximately $360,000, which includes capital expenditures, net of landlord contributions, and initial inventory, net of payables. However, net sales and other operating results for stores that we open or have opened subsequent to the end of fiscal 2003, as well as our net investment to open those stores, may differ substantially from net sales and other operating results and our net investment for stores we opened in fiscal 2003. See "Business—Stores."

          In any given period, our overall gross margin may be impacted by changes in the margins of the various products we offer as well as changes in the relative mix of revenues from different categories of apparel and hardgoods products that we sell. A number of other factors may also positively or negatively impact our gross margins and results of operations, including, but not limited to:

          We believe our ability to effectively manage our gross margin despite these factors is evidenced by the relative stability of our gross margin as a percentage of net sales over the last five fiscal years. Over the past five fiscal years, our annual gross margin as a percentage of our net sales has ranged from a low of 29.4% to a high of 32.6%. We achieved these results while continuing to adjust our merchandise mix to respond to changing consumer preferences and market conditions.

          One of our goals is to better leverage our expenses, particularly general corporate overhead and semi-fixed costs such as occupancy costs, through increases in both comparable store sales and total net sales. At the store level, our strategy is to increase comparable store sales, in an effort to improve operating results by spreading our store level fixed costs over increased net sales per comparable store. We also seek to increase our total net sales, both through increases in comparable store sales and by opening new stores, in an effort to better leverage our corporate level expenses and decrease our general and administrative expenses as a percentage of our net sales.

General

          Net sales constitute gross sales net of returns. Comparable store sales percentage changes are based on net sales, and stores are considered comparable beginning on the first anniversary of their first day of operation. See "Certain Terms Used in this Prospectus" on page ii for further information as to how we compute our comparable store sales. We believe that there are variations in the way in which some of our competitors and other apparel retailers calculate comparable or same store sales. As a result, data in this prospectus regarding our comparable store sales may not be comparable to similar data made available by our competitors or other retailers.

27



          Cost of goods sold consists of the cost of merchandise sold to customers, inbound shipping costs, distribution costs, buying and merchandising costs and store occupancy costs. This may not be comparable to the way in which our competitors or other retailers compute their cost of goods sold.

          In early February 2005, we completed our move from the 49,000 square foot combined home office and distribution facility we occupied since 1994 to a new 87,000 square foot combined home office and distribution center. As a result, we expect a slight increase in fiscal 2005 and future periods in our distribution and warehousing costs that are included as a component of our cost of goods sold.

          Selling, general and administrative expenses consist primarily of store personnel wages and benefits, administrative staff and infrastructure expenses, store supplies, depreciation and facility expenses, and training and marketing costs. Credit card fees, insurance and other miscellaneous operating costs are also included in selling, general and administrative expenses. This may not be comparable to the way in which our competitors or other retailers compute their selling, general and administrative expenses. We expect that our selling, general and administrative costs will also increase in future periods due in part to increased expenses associated with operating as a public company, including compliance with the Sarbanes-Oxley Act of 2002.

          In conjunction with the Brentwood Affiliates' investment in fiscal 2002, we terminated our Subchapter S tax election on November 4, 2002 and elected to be taxed as a Subchapter C corporation under the Internal Revenue Code. As a result, we became subject to federal and state income taxes. Prior to this date, we were not subject to federal or state income taxes and, accordingly, our financial statements for fiscal 2001 do not include any provision for income taxes and our financial statements for fiscal 2002 reflect a provision for income taxes for the last two months of fiscal 2002. Accordingly, our provision for income taxes and net income for fiscal 2001 and fiscal 2002 are not comparable to our provision for income taxes and net income for subsequent periods.

          In connection with this offering, we recognized stock-based compensation expense of approximately $95,000 in fiscal 2004 and we would have expected to recognize approximately $164,000, $164,000, $164,000, $164,000, $121,000, $78,000, $78,000 and $28,000 of additional stock-based compensation expense in fiscal 2005, 2006, 2007, 2008, 2009, 2010, 2011 and 2012, respectively. As a result of implementing Statement of Financial Accounting Standards No. 123R, "Share-Based Payment (Revised 2004)," outstanding unvested options will result in additional compensation expense that otherwise would only have been recognized on a pro-forma basis. Accordingly, our results of operations in future periods will be adversely affected by this additional stock-based compensation expense. For more information regarding the implementation of SFAS 123R, see "—Recently Issued Accounting Pronouncements" below.

          Our success is largely dependent upon our ability to anticipate, identify and respond to the fashion tastes of our customers and to provide merchandise that satisfies customer demands. Any inability to provide appropriate merchandise in sufficient quantities in a timely manner could have a material adverse effect on our business, operating results and financial condition.

28



Results of Operations

          The following table presents, for the periods indicated, selected items in the statements of operations as a percent of net sales:

 
  Fiscal Year Ended
December 31,

   
   
  Nine Months Ended
 
 
   
  Fiscal Year
Ended
January 31,
2004

 
 
  One Month Ended
February 1,
2003

  November 1,
2003

  October 30,
2004

 
 
  2001
  2002
 
Net sales   100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold   67.9   70.0   71.6   69.0   70.3   68.8  
   
 
 
 
 
 
 
Gross margin   32.1   30.0   28.4   31.0   29.7   31.2  
Selling, general and administrative expenses   24.2   23.1   31.5   24.7   26.3   26.1  
   
 
 
 
 
 
 
Operating profit (loss)   7.9   6.9   (3.1 ) 6.3   3.4   5.1  
   
 
 
 
 
 
 
Other income     0.1          
Interest expense   (0.3 ) (0.3 ) (0.2 ) (0.2 ) (0.3 ) (0.2 )
   
 
 
 
 
 
 
Earnings (loss) before income taxes   7.6   6.7   (3.3 ) 6.1   3.1   4.9  
Provision (benefit) for income taxes     1.1   (0.6 ) 2.3   1.1   1.9  
   
 
 
 
 
 
 
Net income (loss)   7.6 % 5.6 % (2.7 )% 3.8 % 2.0 % 3.0 %
   
 
 
 
 
 
 

Nine Months Ended October 30, 2004 Compared with Nine Months Ended November 1, 2003

          Net sales increased to $100.6 million for the nine months ended October 30, 2004 from $78.0 million for the nine months ended November 1, 2003, an increase of $22.6 million, or 28.9%. This increase in net sales was due to an increase in comparable store net sales of approximately $5.9 million and an increase in net sales from non-comparable stores, as defined below, of approximately $16.7 million. We sometimes refer to stores that are not comparable stores as "non-comparable stores." For information as to how we define comparable stores, see "Certain Terms Used in this Prospectus" on page ii.

          Comparable store net sales increased by 8.2% for the nine months ended October 30, 2004 compared to the nine months ended November 1, 2003. This increase was primarily due to higher net sales of footwear, accessories and skateboard hardgoods at our comparable stores, partially offset by lower net sales of snowboard hardgoods at those stores. The increase in non-comparable store net sales was primarily due to 20 new stores that we opened subsequent to November 1, 2003.

          Gross margin for the nine months ended October 30, 2004 was $31.4 million compared with $23.2 million for the nine months ended November 1, 2003, an increase of $8.2 million, or 35.3%. As a percentage of net sales, gross margin for the nine months ended October 30, 2004 increased to 31.2% of net sales, compared with 29.7% of net sales for the nine months ended November 1, 2003. The increase in gross margin as a percentage of net sales was due primarily to the increase in net sales for the nine months ended October 30, 2004 compared to the nine months ended November 1, 2003, which allowed us leverage certain fixed costs, primarily occupancy costs, over greater total net sales.

          Selling, general and administrative, or "SG&A," expenses for the nine months ended October 30, 2004 were $26.2 million compared with $20.6 million for the nine months ended November 1, 2003, an increase of $5.6 million, or 27.5%. This increase was primarily the result of costs associated with operating new stores as well as increases in infrastructure and administrative staff to support our growth. As a

29


percentage of net sales, SG&A expenses decreased to 26.1% for the nine months ended October 30, 2004 compared with 26.3% for the nine months ended November 1, 2003, due primarily to the increase in net sales for the nine months ended October 30, 2004 compared to the nine months ended November 1, 2003, which allowed us to leverage certain semi-fixed costs, such as costs of maintaining and staffing our combined home office and distribution center, over greater total net sales.

          As a result of the above factors, operating profit increased by $2.6 million, or 96.7%, to $5.2 million for the nine months ended October 30, 2004 from $2.6 million for the nine months ended November 1, 2003. As a percentage of net sales, operating profit increased to 5.1% for the nine months ended October 30, 2004 from 3.4% for the nine months ended November 1, 2003.

          Provision for income taxes was $1.9 million for the nine months ended October 30, 2004 compared with $799,000 for the nine months ended November 1, 2003. The effective tax rate was 39.1% for the nine months ended October 30, 2004 compared with 33.5% for the nine months ended November 1, 2003.

          Net income increased by $1.4 million, or 90.2%, to $3.0 million for the nine months ended October 30, 2004 from $1.6 million for the nine months ended November 1, 2003. As a percentage of net sales, net income was 3.0% for the nine months ended October 30, 2004 compared with 2.0% for the nine months ended November 1, 2003.

Year Ended January 31, 2004 Compared with Year Ended December 31, 2002

          Through and including December 31, 2002, our fiscal year ended on December 31. Subsequent to December 31, 2002, we changed our fiscal year to end on the Saturday closest to January 31 and to consist of four 13-week quarters, with an extra week added to the fourth quarter every five or six years. Our fiscal years ended December 31, 2002 and January 31, 2004 each consisted of 52 weeks. As a result of this change in our fiscal year, the financial data and our financial statements included elsewhere in this prospectus include financial information for the one month ended February 1, 2003, which was the one month transition period following the end of fiscal 2002 and prior to the beginning of fiscal 2003. The following discussion of our results of operations for fiscal 2003 compared to fiscal 2002 disregards this one month transition period because we do not believe it is material to an understanding of our results of operations.

          Net sales increased to $117.9 million for fiscal 2003 from $101.4 million for fiscal 2002, an increase of $16.5 million, or 16.2%. This increase in total net sales was due to an increase in comparable store net sales of approximately $3.5 million and an increase in net sales from non-comparable stores of approximately $13.0 million.

          Comparable store net sales increased by 4.3% in fiscal 2003 compared to fiscal 2002. This increase was primarily due to higher net sales of men's and juniors' apparel and accessories at our comparable stores, partially offset by lower net sales of skateboard hardgoods and boys' apparel at those stores. The increase in non-comparable store net sales was primarily due to the opening of 15 new stores subsequent to the end of fiscal 2002.

30


          Gross margin for fiscal 2003 was $36.5 million compared with $30.4 million for fiscal 2002, an increase of $6.1 million, or 20.3%. As a percentage of net sales, gross margin increased to 31.0% in fiscal 2003 from 30.0% in fiscal 2002. The increase in gross margin as a percentage of net sales was due primarily to the increase in net sales for fiscal 2003 compared fiscal 2002, which allowed us leverage certain fixed costs, primarily occupancy costs, over greater overall net sales and, to a lesser extent, to improved pricing from some of our vendors due to our larger merchandise purchases and reduced freight and distribution costs as a percentage of net sales.

          SG&A expenses in fiscal 2003 were $29.1 million compared with $23.4 million in fiscal 2002, an increase of $5.7 million, or 24.2%. This increase was primarily the result of costs associated with operating new stores as well as increases in infrastructure and staff to support our growth. As a percentage of net sales, SG&A expenses increased to 24.7% in fiscal 2003 from 23.1% in fiscal 2002. The increase in SG&A expenses as a percentage of net sales was attributable to an increase in store payroll for new stores, and to the fact that the costs of additional infrastructure and administrative staff to support our growth increased at a faster rate than our net sales.

          As a result of the above factors, operating profit increased by $491,000, or 7.0%, to $7.5 million in fiscal 2003 from $7.0 million in fiscal 2002. As a percentage of net sales, operating profit was 6.3% in fiscal 2003 compared with 6.9% in fiscal 2002.

          Provision for income taxes was $2.7 million for fiscal 2003 compared with $1.1 million for fiscal 2002. Effective November 4, 2002, we terminated our Subchapter S tax election for federal income tax purposes. As a Subchapter S corporation, we were not subject to federal and state income taxes and, accordingly, our financial statements reflected in this prospectus do not include a provision for income taxes for periods prior to November 4, 2002. The provision for income taxes for fiscal 2002 therefore reflects a provision for only the last two months of fiscal 2002, while fiscal 2003 reflects a full year's provision for income taxes. Accordingly, the provision for income taxes in fiscal 2002 is not comparable to the provision for income taxes in fiscal 2003. The effective tax rate was 37.6% for fiscal 2003 compared with 16.1% for fiscal 2002.

          Net income decreased by $1.2 million, or 21.6%, to $4.5 million in fiscal 2003 from $5.7 million in fiscal 2002. This decrease in net income was due primarily to the termination of our election to be taxed as a Subchapter S corporation, effective November 4, 2002. As a percentage of net sales, net income was 3.8% in fiscal 2003 compared with 5.6% in fiscal 2002. Earnings before income taxes increased by $375,000, or 5.5%, to $7.2 million in fiscal 2003 from $6.8 million in fiscal 2002. As a percentage of net sales, earnings before income taxes decreased to 6.1% in fiscal 2003 from 6.7% in fiscal 2002.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

          Net sales increased to $101.4 million for fiscal 2002 from $84.7 million for fiscal 2001, an increase of $16.7 million, or 19.7%. This increase in total net sales was due to an increase in net sales from non-comparable stores of approximately $18.1 million, offset by a decrease of approximately $1.4 million in comparable store net sales.

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          Comparable store net sales decreased by 1.1% in fiscal 2002 compared to fiscal 2001, due chiefly to a more difficult economic environment in fiscal 2002. The decrease in our comparable store net sales was primarily attributable to lower net sales of skateboard hardgoods, men's apparel and footwear at our comparable stores, partially offset by higher net sales of accessories and juniors' apparel at those stores. The increase in non-comparable store net sales was primarily due to the opening of 20 new stores subsequent to the end of fiscal 2001.

          Gross margin for fiscal 2002 was $30.4 million compared with $27.2 million for fiscal 2001, an increase of $3.2 million, or 11.7%. As a percentage of net sales, gross margin decreased to 30.0% in fiscal 2002 from 32.1% in fiscal 2001. The decrease in gross margin as a percentage of net sales was due primarily to the decrease in comparable store net sales for fiscal 2002 compared with fiscal 2001, which resulted in an increase in certain store-level fixed costs, primarily occupancy costs, as a percentage of net sales.

          SG&A expenses in fiscal 2002 were $23.4 million compared with $20.5 million in fiscal 2001, an increase of $2.9 million, or 14.3%. This increase was primarily the result of costs associated with operating new stores as well as increases in infrastructure and staff to support our growth. As a percentage of net sales, SG&A expenses decreased to 23.1% in fiscal 2002 from 24.2% in fiscal 2001. The decrease in SG&A expenses as a percentage of net sales was due to the fact that the costs of additional infrastructure and administrative and corporate staff to support our growth increased at a slower rate than our net sales, reflecting our efforts to contain SG&A expense in light of lower comparable store net sales in fiscal 2002.

          As a result of the above factors, operating profit increased by $239,000, or 3.6%, to $7.0 million in fiscal 2002 from $6.7 million in fiscal 2001. As a percentage of net sales, operating profit decreased to 6.9% in fiscal 2002 from 7.9% in fiscal 2001.

          Provision for income taxes was $1.1 million for fiscal 2002. This reflects a provision for only the last two months of fiscal 2002 due to the termination of our Subchapter S tax election effective November 4, 2002. There was no provision for income taxes in fiscal 2001, during which we were taxed as a Subchapter S corporation. Accordingly, the provision for income taxes in fiscal 2002 is not comparable to the provision for income taxes in fiscal 2001.

          Net income decreased by $701,000, or 10.9%, to $5.7 million in fiscal 2002 from $6.4 million in fiscal 2001. This decrease was in part attributable to the termination of our election to be taxed as a Subchapter S corporation effective November 4, 2002. As a percentage of net sales, net income was 5.6% in fiscal 2002 compared with 7.6% in fiscal 2001. Earnings before income tax increased by $395,000, or 6.2%, to $6.8 million in fiscal 2002 from $6.4 million in fiscal 2001. As a percentage of net sales, earnings before income taxes decreased to 6.7% in fiscal 2002 from 7.6% in fiscal 2001.

Seasonality and Quarterly Results

          We have historically experienced and expect to continue to experience seasonal and quarterly fluctuations in our comparable store sales and operating results. As is the case with many retailers of apparel and related merchandise, our business is subject to seasonal influences. Our net sales and

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operating results are typically lower in the first and second quarters of our fiscal year, while the winter holiday and back-to-school periods historically have accounted for the largest percentage of our annual net sales. Quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of store openings and the relative proportion of our new stores to mature stores, fashion trends and changes in consumer preferences, calendar shifts of holiday or seasonal periods, timing of promotional events, general economic conditions, competition and weather conditions.

          The following table sets forth selected unaudited quarterly statement of operations data for the periods indicated. The unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements included elsewhere in this prospectus and includes all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the information shown. This information should be read in conjunction with the audited consolidated financial statements and the notes thereto appearing elsewhere in this prospectus. The operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future.

 
  Fiscal Year Ended
January 31, 2004

  Fiscal Year Ended
January 29, 2005

 
 
  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

  First
Quarter

  Second
Quarter

  Third
Quarter

 
 
  (Dollars in thousands, except per share data)

 
Statement of Operations Data                                            
Net sales   $ 19,989   $ 23,601   $ 34,448   $ 39,819   $ 24,829   $ 30,615   $ 45,138  
Gross margin     4,909     6,595     11,710     13,323     6,131     9,101     16,185  
Operating profit (loss)   $ (1,006 ) $ (96 ) $ 3,730   $ 4,833   $ (930 ) $ 523   $ 5,576  
Net income (loss)   $ (629 ) $ (90 ) $ 2,307   $ 2,887   $ (678 ) $ 239   $ 3,459  
Basic net income (loss) per share   $ (14.39 ) $ (2.06 ) $ 52.78   $ 66.05   $ (15.51 ) $ 5.47   $ 79.14  
Diluted net income (loss) per share   $ (14.39 ) $ (2.06 ) $ 46.49   $ 58.18   $ (15.51 ) $ 4.83   $ 68.81  
Number of stores open at end of period     99     102     105     113     118     129     132  
Comparable store sales increase (decrease)     (4.8 )%   3.5 %   5.4 %   9.2 %   8.3 %   6.8 %   9.0 %

          Comparable store sales percentage changes are calculated by comparing comparable store sales for the applicable fiscal quarter to comparable store sales for the same fiscal quarter in the prior fiscal year. Comparable store sales are based on net sales and stores are considered comparable beginning on the first anniversary of the first day of operations. See "Certain Terms Used in this Prospectus" on page ii for more information about how we compute comparable store sales.

Liquidity and Capital Resources

          Our primary capital requirements are for capital investments, inventory, store remodeling, store fixtures and ongoing infrastructure improvements such as technology enhancements and distribution capabilities. Historically, our main sources of liquidity have been cash flows from operations and borrowings under our revolving credit facility.

          The significant components of our working capital are inventory and liquid assets such as cash and receivables, specifically credit card receivables, reduced by short-term debt, accounts payable and accrued expenses. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale, while we typically have extended payment terms with our vendors.

          Our capital requirements include construction and fixture costs related to the opening of new stores and for maintenance and remodeling expenditures for existing stores. Future capital requirements will depend on many factors, including the pace of new store openings, the availability of suitable locations for new stores, and the nature of arrangements negotiated with landlords. In that regard, our net investment to open a new store has varied significantly in the past due to a number of factors, including the

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geographic location and size of the new store, and is likely to vary significantly in the future. During fiscal 2005, we expect to spend approximately $13.5 million on capital expenditures, a majority of which will relate to leasehold improvements and furniture and fixtures for the 35 new stores we plan to open in fiscal 2005, and a smaller amount will relate to equipment, systems and improvements for our distribution center and support infrastructure. However, there can be no assurance that the number of stores that we actually open in fiscal 2005 will not be different from the number of stores we plan to open, or that actual fiscal 2005 capital expenditures will not differ from this expected amount. We expect cash flows from operations, available borrowings under our revolving credit facility and proceeds from this offering will be sufficient to meet our foreseeable cash requirements for at least the next twelve months.

          Net cash provided by operating activities for the first nine months of fiscal 2004 was $3.1 million, primarily related to income from operations, partially offset by changes in working capital resulting primarily from increased inventory levels in excess of increases in accounts payable. Net cash used by operating activities for the first nine months of fiscal 2003 was $2.8 million, primarily related to increased inventory levels, partially offset by income from operations and increases in accounts payable.

          Net cash provided by operating activities in fiscal 2003 was $7.0 million, primarily related to income from operations, partially offset by an increase in inventory levels and a decrease in accounts payable. Net cash provided by operating activities in fiscal 2002 was $7.9 million, primarily related to income from operations, partially offset by an increase in inventory levels. Net cash provided by operating activities in fiscal 2001 was $9.1 million, primarily related to income from operations, partially offset by an increase in inventory levels.

          Net cash used in investing activities for the first nine months of fiscal 2004 and fiscal 2003 was $7.6 million, and $2.7 million, respectively, in each case primarily related to capital expenditures for new store openings.

          Net cash used in investing activities in fiscal 2003 was $5.9 million, primarily related to capital expenditures for new store openings and existing store renovations. Net cash used in investing activities in fiscal 2002 was $7.2 million, also primarily related to capital expenditures for new store openings and existing store renovations. Net cash used in investing activities in fiscal 2001 was $9.0 million, primarily related to capital expenditures for new store openings, existing store renovations and an advance to a shareholder.

          Net cash provided by financing activities for the first nine months of fiscal 2004 and fiscal 2003 was $4.8 million and $5.5 million, respectively, in each case primarily related to net borrowings under our revolving credit facility.

          Net cash used in financing activities in fiscal 2003 was $942,000, primarily related to net repayments of borrowing under our revolving credit facility and net repayments of long-term debt. Net cash provided by financing activities in fiscal 2002 was $6.3 million, primarily related to the sale of stock to Zumiez Holdings. Net cash used by financing activities in fiscal 2001 was $3.0 million, primarily related to payment of dividends to our shareholders.

          We have a $20.0 million secured revolving credit facility with a lender. The revolving credit facility provides for the issuance of commercial letters of credit in an amount not to exceed $7.5 million outstanding at any time and with a term not to exceed 180 days, although the amount of borrowings available at any time under our revolving credit facility is reduced by the amount of letters of credit outstanding at that time. As of October 30, 2004, we had approximately $6.1 million of borrowings and approximately $841,000 of letters of credit outstanding under the revolving credit facility. The revolving credit facility bears interest at floating rates based on the lower of the prime rate (4.75% at October 30, 2004) minus a prime margin or the LIBOR rate (2.08% at October 30, 2004) plus a LIBOR margin, with the margin in each case depending on the ratio of our adjusted funded debt (as defined in the loan agreement, as amended) to EBITDAR (as defined in the loan agreement, as amended). The revolving credit facility will expire on July 1, 2006. The borrowing capacity can be increased to $25.0 million if we request

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and if we are in compliance with certain provisions. Our obligations under the revolving credit facility are secured by almost all of our personal property, including, among other things, our inventory, equipment and fixtures. We must also provide financial information and statements to our lender and we must reduce the amount of any outstanding advances under the revolving credit facility to no more than $5.0 million for a period of at least 30 consecutive days of each year. We pay an annual fee of between 0.1% and 0.2% of any unused amount under our revolving credit facility. Our revolving credit facility also contains financial covenants that require us to meet certain specified financial ratios, including a debt to earnings ratio, an earnings to interest expense ratio and an inventory to debt ratio. We were in compliance with all covenants at January 29, 2005.

Contractual Obligations and Commercial Commitments

          The following table summarizes the total amount of future payments due under certain of our contractual obligations at October 30, 2004 and the amount of those payments due in future periods as of October 30, 2004:

 
   
  Payments Due In
 
   
   
  Fiscal Year
 
  Total
  Fourth
Quarter of
Fiscal 2004

  2005
  2006
  2007
  2008
  2009 and
Beyond

 
  (Dollars in thousands)

Contractual obligations(1)                                          
Non-cancelable operating lease obligations   $ 74,906   $ 2,574   $ 10,195   $ 10,115   $ 9,500   $ 8,789   $ 33,733
   
 
 
 
 
 
 
Total contractual cash obligations   $ 74,906   $ 2,574   $ 10,195   $ 10,115   $ 9,500   $ 8,789   $ 33,733

(1)
The table excludes borrowings under our $20.0 million revolving credit facility because the line of credit is not classified as long-term debt.

          We occupy our retail stores and combined home office and distribution facility under operating leases generally with terms of seven to ten years. Some of our leases have early cancellation clauses, which permit the lease to be terminated if certain sales levels are not met in specific periods. Some leases contain renewal options for periods ranging from one to five years under substantially the same terms and conditions as the original leases. Most of our store leases require payment of a specified minimum rent, plus a contingent rent based on a percentage of the store's net sales in excess of a specified threshold. Amounts in the above table do not include contingent rent. Most of our lease agreements have defined escalating rent provisions, which we have straight-lined over the term of the lease, including any lease renewals deemed to be probable. For certain locations, we receive cash tenant allowances and we have reported these amounts as a deferred liability which is amortized to rent expense over the term of the lease. In addition, most of our leases require payment of real estate taxes, insurance and certain common area and maintenance costs in addition to the future minimum operating lease payments shown in the table above. We amortize our leasehold improvements over the shorter of the useful life of the asset or the lease term.

Off-Balance Sheet Obligations

          Our only off-balance sheet contractual obligations and commercial commitments as of October 30, 2004 relate to operating lease obligations and letters of credit. We have excluded these items from our balance sheet in accordance with generally accepted accounting principles. We presently do not have any non-cancelable purchase commitments. At October 30, 2004, we had outstanding purchase orders to acquire merchandise from vendors for approximately $25.0 million. These purchases are expected to be financed by cash flows from operations and our revolving credit facility. We have an option to cancel these commitments with no notice prior to shipment. At October 30, 2004, we had $841,000 of letters of credit outstanding under our revolving credit facility.

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Impact of Inflation

          We do not believe that inflation has had a material impact on our net sales or operating results for the past three fiscal years.

Quantitative and Qualitative Disclosures About Market Risk

          During different times of the year, due to the seasonality of our business, we have borrowed under our revolving credit facility. To the extent we borrow under our revolving credit facility, which bears interests at floating rates based either on the prime rate or LIBOR, we are exposed to market risk related to changes in interest rates. At October 30, 2004, we had borrowings of $6.1 million outstanding under our credit facility at an interest rate of 4.5% per annum. If interest rates were to increase by 100 basis points, for every $1.0 million outstanding on our revolving credit facility, our operating income would be reduced by approximately $10,000 per year. We are not a party to any derivative financial instruments.

Critical Accounting Policies and Estimates

          In preparing financial statements in accordance with United States generally accepted accounting principles, or "GAAP," we are required to make estimates and assumptions that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. We believe, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates and estimates may vary as new facts and circumstances arise. In preparing the financial statements, we make routine estimates and judgments in determining the net realizable value of accounts receivable, inventory, fixed assets, and prepaid allowances. We believe our most critical accounting estimates and assumptions are in the following areas:

          Valuation of merchandise inventories.    We carry our merchandise inventories at the lower of cost or market. Merchandise inventories may include items that have been written down to our best estimate of their net realizable value. Our decisions to write-down our merchandise inventories are based on our current rate of sale, the age of the inventory and other factors. Actual final sales prices to our customers may be higher or lower than our estimated sales prices and could result in a fluctuation in gross margin. Historically, any additional write-downs have not been significant and we do not adjust the historical carrying value of merchandise inventories upwards based on actual sales experience.

          Leasehold improvements and equipment.    We review the carrying value of our leasehold improvements and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Measurement of the impairment loss is based on the fair value of the asset or group of assets. Generally, fair value will be determined using valuation techniques, such as the expected present value of future cash flows. The actual economic lives of these assets may be different than our estimated useful lives, thereby resulting in a different carrying value. These evaluations could result in a change in the depreciable lives of those assets and therefore our depreciation expense in future periods.

          Revenue recognition and sales returns reserve.    We recognize revenue upon purchase by customers at our retail store locations or upon shipment for orders placed through our website as both title and risk of loss have transferred. We offer a return policy of generally 30 days and we accrue for estimated sales returns based on our historical sales returns results. The amounts of these sales returns reserves vary during the year due to the seasonality of our business. Actual sales returns could be higher or lower than our estimated sales returns due to customer buying patterns that could differ from historical trends.

          Stock-based compensation.    We account for our employee compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. We amortize stock-based compensation using the straight-line

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method over the vesting period of the related options, which is either five or eight years. We have recorded deferred stock-based compensation representing the difference between the option exercise price and the fair value of our common stock on the grant date for financial reporting purposes. We determined the fair value of our common stock based upon several factors, including the market capitalization of similar retailers, management and third party estimates, and the expected valuation we would obtain in an initial public offering. Had different assumptions or criteria been used to determine the fair value of our common stock, different amounts of stock-based compensation could have been reported.

          Pro forma information regarding net income (loss) attributable to common stockholders and net income (loss) per share attributable to common stockholders is required in order to show our net income (loss) as if we had accounted for employee stock options under the fair value method of SFAS No. 123, as amended by SFAS No. 148. This information is contained in note 2 to our financial statements included elsewhere in this prospectus. The fair values of options and shares issued pursuant to our option plans at each grant date were estimated using the minimum-value method, which requires us to make certain assumptions regarding dividend payments, risk-free interest rates and the options' expected terms. Had different assumptions or criteria been used to determine the fair value of our common stock, different amounts of pro-forma stock-based compensation could have been reported.

Recently Issued Accounting Pronouncements

          In November 2004, the Financial Accounting Standards Board, or "FASB," issued Statement of Financial Accounting Standards No. 151, "Inventory Costs—an Amendment of ARB No. 43, Chapter 4." This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage, requiring these items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and will become effective for us beginning with our fiscal year ending in January 2007. The effect of adopting this statement is not expected to be significant to our financial position and results of operations.

          In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment (Revised 2004)." This statement addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for the company's equity instruments or liabilities that are based on the fair value of the company's equity securities or may be settled by the issuance of these securities. SFAS 123R eliminates the ability to account for share-based payments using APB 25, "Accounting for Stock Issued to Employees" and generally requires that such transactions be accounted for using a fair value method. The provisions of this statement are effective for fiscal periods beginning after June 15, 2005 and will become effective for us beginning with the third quarter of our fiscal year ending in January 2006. We have not yet determined which transition method we will use to adopt SFAS 123R. The full impact that the adoption of this statement will have on our financial position and results of operations will be determined by share-based payments granted in future periods but will increase the compensation expense that would otherwise have been recognized in accordance with APB 25. In addition, outstanding unvested options will result in additional compensation expense that otherwise would only have been recognized on a pro-forma basis.

          In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of Non-Monetary Assets." This statement refines the measurement of exchanges of non-monetary assets between entities. The provisions of this statement are effective for fiscal periods beginning after June 15, 2005 and will become effective for us beginning with the third quarter of our fiscal year ending in January 2006. Historically, we have not transacted significant exchanges of non-monetary assets, but future such exchanges would be accounted for under the standard, when effective.

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BUSINESS

Overview

          We are a leading specialty retailer of action sports related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of January 29, 2005, we operated 140 stores primarily located in shopping malls, giving us a presence in 18 states. Our stores cater to young men and women between the ages of 12 and 24 who seek popular brands representing a lifestyle centered on activities that include skateboarding, surfing, snowboarding, BMX and motocross. We support the action sports lifestyle and promote our brand through a multi-faceted marketing approach that is designed to integrate our brand image with our customers' activities and interests. This approach, combined with our differentiated merchandising strategy, store design, comprehensive training programs and passionate employees, allows us to provide an experience for our customers that we believe is consistent with their attitudes, fashion tastes and identities and is otherwise unavailable in most malls.

          Our stores bring the look and feel of an independent specialty shop to the mall by emphasizing the action sports lifestyle through a distinctive store environment and high-energy sales personnel. We seek to staff our stores with store associates who are knowledgeable users of our products, which we believe provides our customers with enhanced customer service and supplements our ability to identify and react quickly to emerging trends and fashions. We design our stores to appeal to teenagers and to serve as a destination for our customers. Most of our stores, which average approximately 2,600 square feet, feature couches and action sports oriented video game stations that are intended to encourage our customers to shop for longer periods of time and to interact with each other and our store associates. To increase customer traffic, we generally locate our stores near busy areas of the mall such as food courts, movie theaters, music or game stores and other popular teen retailers. We believe that our distinctive store concept and compelling store economics will provide continued opportunities for growth in both new and existing markets.

          We believe that our customers desire merchandise and fashion that is rooted in the action sports lifestyle and reflects their individuality. We strive to keep our merchandising mix fresh by continuously introducing new brands and styles. Our focus on a diverse collection of brands allows us to quickly adjust to changing fashion trends. The brands we currently offer include Billabong, Burton, DC Shoe, Element, Hurley, Quiksilver, Roxy, RVCA and Volcom, among many others. We believe that our strategic mix of both apparel and hardgoods, including skateboards, snowboards, bindings, components and other equipment, allows us to strengthen the potential of the brands we sell and helps to affirm our credibility with our customers. In addition, we supplement our stores with a select offering of private label apparel and products as a value proposition that we believe complements our overall merchandise selection.

          Over our 26-year history, we have developed a corporate culture based on a passion for the action sports lifestyle. Our management philosophy emphasizes an integrated combination of results measurement, training and incentive programs, all designed to drive sales productivity at the individual store associate level. We empower our store managers to make store-level business decisions and consistently reward their success. We seek to enhance the productivity of our employees and encourage their advancement by offering comprehensive in-store, regional and national training programs, which we refer to collectively as "Zumiez University." We have:

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          In fiscal 2002, the Brentwood Affiliates acquired an indirect minority interest in us through Zumiez Holdings. Since the investment by the Brentwood Affiliates, we have positioned ourselves for accelerated growth by enhancing our infrastructure and deepening our management team. We believe that these initiatives will improve our ability to continue to expand our business.

Competitive Strengths

          We believe that the following competitive strengths differentiate us from our competitors and are critical to our continuing success.

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Growth Strategy

          We intend to expand our presence as a leading action sports lifestyle retailer by:

40


The Action Sports Market

          We believe that action sports are a permanent and growing aspect of youth culture, reaching not only consumers that actually participate in action sports, but also those who seek brands and styles that fit a desired action sports image. According to Board-Trac, a market research firm, retail sales of skateboard, snowboard and surf/bodyboard apparel, equipment and accessories in the United States were estimated to be approximately $12.1 billion in 2003. We believe that events such as the ESPN X Games, the inclusion of snowboarding as a medal event in the Winter Olympics and the national recognition of leading board sport athletes have broadened general awareness of the action sports lifestyle. The following table, which is based upon data made available by SGMA International, an industry trade group, indicates the estimated number of U.S. participants in board sports, which we define as skateboarding, snowboarding and surfing, during 2003:

Board Sport
  U.S. Participants
Skateboarding   11.1 million
Snowboarding   7.8 million
Surfing   2.1 million

          We believe teens and young adults are the primary participants in action sports. This concentrated interest is particularly appealing for us, as teens have significant spending power. According to Teen Research Unlimited, a market research firm, spending by U.S. teens was projected to be $169 billion in 2004 and has increased at an average of 5% per year over the past seven years. We believe that teens enjoy shopping in malls and purchasing clothing and fashion-related merchandise.

Merchandising and Purchasing

          Merchandising.    Our goal is to be viewed by our customers, both young men and young women, as the definitive source of merchandise for the action sports lifestyle. We believe that the breadth of merchandise offered at our stores, which includes apparel, footwear, equipment and accessories, exceeds that offered by many other action sports specialty stores at a single location, and makes our stores a single-stop purchase destination for our target customers. Our apparel offerings include tops, bottoms, outerwear and accessories such as caps, belts and sunglasses. Our footwear offerings primarily consist of action sports related athletic shoes and sandals. Our equipment offerings, or hardgoods, include skateboards, snowboards and ancillary gear such as boots and bindings. We also offer a selection of other items, such as miscellaneous novelties and DVDs.

          We seek to identify action sports oriented fashion trends as they develop and to respond in a timely manner with a relevant in-store product assortment. We strive to keep our merchandising mix fresh by continuously introducing new brands or styles in response to the evolving desires of our customers. We

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also take advantage of the change in action sports seasons during the year to maintain an updated product selection. Our merchandise mix may vary by region, reflecting the specific action sports preferences and seasons in different parts of the country.

          We believe that offering an extensive selection of current and relevant brands used and sometimes developed by professional action sports athletes is integral to our overall success. The brands we currently offer include: Billabong, Burton, DC Shoe, Element, Hurley, Quiksilver, Roxy, RVCA and Volcom, among many others. No single brand accounted for more than 7.2% and 4.4% of our net sales in fiscal 2004 and 2003, respectively. We believe that our strategic mix of both apparel and hardgoods, including skateboards, snowboards, bindings, components and other equipment, allows us to strengthen the potential of the brands we sell and affirms our credibility with our customers.

          We believe that our ability to maintain an image consistent with the action sports lifestyle is important to our key vendors. Given our scale and market position, we believe that many of our key vendors view us as an important retail partner. This position helps ensure our ability to procure a relevant product assortment and quickly respond to the changing fashion interests of our customers. Additionally, we believe we are presented with a greater variety of products and styles by some of our vendors, as well as certain specially designed items that are only distributed to our stores.

          We supplement our merchandise assortment with a select offering of private label products across many of our apparel product categories. Our private label products complement the branded products we sell, and allow us to cater to the more value-oriented customer. For fiscal 2004, 2003 and 2002, our private label merchandise represented approximately 12.8%, 12.6% and 12.0%, respectively, of our net sales.

          Purchasing.    Our merchandising staff consists of a general merchandising manager, planning staff and a staff of buyers and assistant buyers. Our purchasing approach focuses on quality, speed and cost in order to provide timely delivery of merchandise to our stores. We have developed a disciplined approach to buying and a dynamic inventory planning and allocation process to support our merchandise strategy. We utilize a broad vendor base that allows us to shift our merchandise purchases as required to react quickly to changing market conditions. We manage the purchasing and allocation process by reviewing branded merchandise lines from new and existing vendors, identifying emerging fashion trends and selecting branded merchandise styles in quantities, colors and sizes to meet inventory levels established by management. We also coordinate inventory levels in connection with our promotions and seasonality. Our management information systems provide us with current inventory levels at each store and for our company as a whole, as well as current selling history within each store by merchandise classification and by style. We purchase most of our branded merchandise from domestic vendors.

          Our merchandising staff remains in tune with the action sports culture by participating in action sports, attending relevant events and concerts, watching action sports related programming and reading action sports publications. In order to identify evolving trends and fashion preferences, our staff spends considerable time analyzing sales data by category and brand down to the SKU level, gathering feedback from our stores and customers, shopping in key markets and soliciting input from our vendors. As part of our feedback collection process, our merchandise team receives merchandise requests from both customers and store associates and meets with our store managers two to three times per year to discuss current customer trends.

          We purchase our private label merchandise from independent third parties with the expertise to source through foreign manufacturers in Asia. We have cultivated our private brand sources with a view towards high quality merchandise, production reliability and consistency of fit. We believe that our knowledge of fabric and production costs combined with a flexible sourcing base enables us to buy high-quality private label goods at favorable costs.

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Distribution and Fulfillment

          Timely and efficient distribution of merchandise to our stores is an important component of our overall business strategy. We process all of our merchandise through our distribution center in Everett, Washington. At this facility, merchandise is inspected, entered into our computer system, allocated to stores, ticketed when necessary, and boxed for distribution to our stores or segregated in our e-commerce fulfillment area for delivery to our Internet customers. A significant percentage of our merchandise is currently pre-ticketed by our vendors, which allows us to ship merchandise more quickly, reduces labor costs and enhances our inventory management. We continue to work with our vendors to increase the percentage of pre-ticketed merchandise. Each store is typically shipped merchandise five times a week, providing our stores with a steady flow of new merchandise. We currently use United Parcel Service to ship merchandise to our stores. We believe our current distribution infrastructure is sufficient to accommodate our expected store growth and expanded product offerings over the next several years.

Stores

          As of January 29, 2005, we operated 140 stores with an average of approximately 2,600 square feet per store in 18 states. All of our stores are leased and substantially all are located in shopping malls of different types.

          The following store list shows the number of stores we operated in each state as of January 29, 2005:

State

  Number
of Stores

Alaska   2
Arizona   9
California   23
Colorado   10
Idaho   5
Illinois   9
Minnesota   9
Montana   4
Nevada   3
New Jersey   1
New Mexico   4
New York   16
Oregon   10
Texas   1
Utah   10
Washington   21
Wisconsin   2
Wyoming   1

          As of January 29, 2005, approximately 75% of our stores had been opened or remodeled within the previous five years, and all of our stores except one had been opened or remodeled within the previous ten years. The following table shows the number of stores (excluding temporary stores that we operate from time to time for special events) opened and closed in each of our last four fiscal years:

Fiscal Year

  Stores
Opened

  Stores
Closed

  Total Number of
Stores at End of Period

2001   17   1   80
2002   19     99
2003   15   1   113
2004   27     140

          Store design and environment.    We design our stores to create a distinctive and engaging shopping environment that we believe resonates with our customers and reflects an "organized chaos" that is consistent with many teenagers' lifestyles. Our stores feature an industrial look with concrete floors and open ceilings, dense merchandise displays, action sports focused posters and signage and popular music, all of which are consistent with the look and feel of an independent action sports specialty shop. Most of our stores have couches and action sports oriented video game stations that are intended to encourage our customers to shop for longer periods of time, to interact with each other and our store associates and to visit our stores more frequently. Our stores are constructed and finished to allow us to efficiently shift merchandise displays throughout the year as the action sports season dictates. To further enhance our customers' experience, we seek to attract enthusiastic store associates who are knowledgeable about our products and are able to offer superior customer service and expertise. We believe that our store atmosphere enhances our image as a leading provider of action sports lifestyle merchandise.

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          As of January 29, 2005, our stores averaged 2,600 square feet. We have been, and plan to continue, opening new stores that average 3,000 square feet, slightly larger than our historical average size. These larger stores are intended to enable us to offer an expanded merchandise selection while maintaining our distinctive store environment.

          Expansion Opportunities and Site Selection.    Since the end of fiscal 2002, we have opened 42 stores to enhance our position in existing markets and to enter into new markets, to build our brand awareness and to capitalize on our successful store model. We plan to open 35 new stores in fiscal 2005 and to continue an aggressive pace of new store openings in future years. Our new store openings are planned in both existing and new markets.

          In selecting a location for a new store, we target high-traffic mall space with suitable demographics and favorable lease terms. We seek locations near busy areas of the mall such as food courts, movie theaters, music or game stores and other popular teen retailers. We generally locate our stores in malls in which other teen-oriented retailers have performed well. We also focus on evaluating the market and mall-specific competitive environment for potential new store locations. We seek to diversify our store locations regionally and by caliber of mall. We have currently identified a significant number of potential sites for new stores in malls with appropriate market characteristics.

          We have successfully and consistently implemented our store concept across a variety of mall classifications and geographic locations. Our new stores opened during fiscal 2003 generated average net sales of approximately $1.0 million during their first full year of operations. On average, our net investment to open these stores was approximately $360,000, which includes capital expenditures, net of landlord contributions, and initial inventory, net of payables. However, our net investment to open new stores and net sales generated by new stores vary significantly and depend on a number of factors, including the geographic location and size of those stores. Accordingly, net sales and other operating results for stores that we open or have opened subsequent to the end of fiscal 2003, as well as our net investment to open those stores, may differ substantially from net sales and other operating results and our net investment for the stores we opened in fiscal 2003.

          Store Management, Operations and Training.    We believe that our success is dependent in part on our ability to attract, train, retain and motivate qualified employees at all levels of our organization. We have developed a corporate culture that we believe empowers the individual store managers to make store-level business decisions and consistently reward their success. We are committed to improving the skills and careers of our workforce and providing advancement opportunities for employees, as evidenced by a significant number of our store managers that began their careers with us as store associates.

          Our store operations are currently organized into regions and districts. Each region is managed by a regional manager, responsible for approximately 50 stores. We employ one district sales manager per district, responsible for the sales and operations of approximately 10 stores. Each of our stores is typically staffed with one store manager, one or more assistant managers and two or more store associates, depending on seasonality. The number of store associates we employ generally increases during peak selling seasons, particularly the back-to-school and the winter holiday seasons, and will increase to the extent that we open new stores.

          We provide our managers with the knowledge and tools to succeed through our comprehensive training programs and the flexibility to manage their stores to meet customer demands. While general guidelines for our merchandise assortments, store layouts and in-store visuals are provided by our home office, we give our store managers substantial discretion to tailor their stores to the individual market and empower them to make store-level business decisions. We design group training programs for our managers, such as our "Zumiez Managers Retreat," to improve both operational expertise and supervisory skills. Our comprehensive training programs are offered at the store, regional and national levels. Our programs allow managers from all geographic locations to interact with each other and exchange ideas to

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better operate stores. Our regional, district and store managers are compensated in part based on the sales volume of the store or stores they manage.

          Our store associates generally have an interest in the action sports lifestyle and are knowledgeable about our products. Through our training, evaluation and incentive programs, we seek to enhance the productivity of our store associates. Our store associates receive extensive training from their managers to improve their product expertise and selling skills. We evaluate our store associates weekly on measures such as sales per hour, items per transaction and dollars per transaction to ensure consistent productivity, to reward top performers, and to identify potential training opportunities. We provide sales incentives for store associates such as sales-based commissions in addition to hourly wages and our annual "Zumiez 100K" event, which recognizes outstanding sales performance in a resort setting that combines recreation and education. These and other incentive programs are designed to promote a competitive, yet fun, corporate culture that is consistent with the action sports lifestyle we seek to promote.

          Internet Operations.    We use our website primarily as an information source for our customers. Our website provides current information on our upcoming events and promotions, store locations and merchandise selection. We also sell products directly through our website, although Internet sales currently comprise, and are expected to continue to comprise, a small portion of our overall net sales. In fiscal 2004 and fiscal 2003, Internet sales represented less than 1% of our total net sales.

Marketing and Advertising

          We seek to reach our target customer audience through a multi-faceted marketing approach that is designed to integrate our brand image with the action sports lifestyle. Our marketing efforts focus on reaching our customers in their environment, and feature extensive grassroots marketing events, such as the Zumiez Couch Tour, which give our customers an opportunity to experience and participate in the action sports lifestyle. Our marketing efforts also incorporate local sporting and music event promotions, advertising in magazines popular with our target market such as Transworld Snowboarding and Transworld Skateboarding, interactive contest sponsorships that actively involve our customers with our brands and products, and the distribution of about eight million Zumiez stickers in the past calendar year. We believe that our immersion in the action sports lifestyle allows us to build credibility with our target audience and gather valuable feedback on evolving customer preferences.

          Our grassroots marketing events are built around the demographics of our customer base and offer an opportunity for our customers to develop a strong identity with our brand and culture. For example, the Zumiez Couch Tour is a series of entertainment events that includes skateboarding demonstrations from top professionals, autograph sessions, competitions and live music, and has featured some of today's most popular teenage personalities in action sports and music. The Zumiez Couch Tour provides a high-impact platform where customers can interact with some of their favorite action sports athletes and vendors can showcase new products. Recently, our Zumiez Couch Tour stop at the Mall of America in Bloomington, Minnesota attracted over 20,000 attendees. We also offer promotions and contests such as the "Zumiez and Atticus Battle of the Bands," which provides amateur bands the opportunity to compete against one another for a chance to win Zumiez gift certificates and have their winning track produced on an Atticus CD sampler.

Management Information Systems

          Our management information systems provide integration of store, merchandising, distribution, financial and human resources functions. We use software licensed from ANT USA for merchandise planning and software licensed from Apropos Retail, which was recently acquired by CRS Retail Systems, Inc., that is used for SKU and classification inventory tracking, purchase order management, merchandise distribution, automated ticket making and sales audit functions. Our financial systems are licensed from ACC PAC and Best FAS and are used for general ledger, accounts payable, payroll,

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budgeting, financial reporting and asset management. We believe that our information systems are scalable, flexible and have the capacity to accommodate our current growth plans.

          Sales are updated daily in our merchandising reporting systems by polling sales information from each store's point-of-sale, or "POS," terminals. Our POS system consists of registers providing processing of retail transactions, price look-up, time and attendance and e-mail. Sales information, inventory tracking and payroll hours are uploaded to our central host system. The host system downloads price changes, performs system maintenance and provides software updates to the stores through automated nightly two-way electronic communication with each store. We evaluate information obtained through nightly polling to implement merchandising decisions, including product purchasing/reorders, markdowns and allocation of merchandise on a daily basis.

          In addition to our home office staff, each of our regional and district managers can access relevant business information, including current and historical sales by store, district and region, transaction information and payroll data.

Competition

          The teenage and young adult retail apparel, hardgoods and accessories industry is highly competitive. We compete with other retailers for vendors, teenage and young adult customers, suitable store locations and qualified store associates and management personnel. In the softgoods markets, which includes apparel, accessories and footwear, we currently compete with other teenage-focused retailers such as Abercrombie & Fitch Co., Aeropostale, Inc., American Eagle Outfitters, Inc., Anchor Blue Clothing Company, Charlotte Russe Inc., Claire's Stores, Inc., Forever 21, Inc., Hollister Co., Hot Topic, Inc., Old Navy, Inc., Pacific Sunwear of California, Inc., The Buckle, Inc., The Wet Seal, Inc. and Urban Outfitters, Inc. In addition, in the softgoods markets we compete with independent specialty shops, department stores and direct marketers that sell similar lines of merchandise and target customers through catalogs and e-commerce. In the hardgoods markets, which includes skateboards, snowboards, bindings, components and other equipment, we compete directly or indirectly with the following categories of companies: other specialty retailers that compete with us across a significant portion of our merchandising categories, such as local snowboard and skate shops; large-format sporting goods stores and chains, such as Big 5 Sporting Goods Corporation, Dick's Sporting Goods, Inc., Sport Chalet, Inc. and The Sports Authority Inc., which operates stores under the brand names Sports Authority, Gart Sports, Oshman's and Sportmart; and Internet retailers.

          Competition in our sector is based on, among other things, merchandise offerings, store location, price and the ability to identify with the customer. We believe that we compete favorably with many of our competitors based on our differentiated merchandising strategy, compelling store environment and deep-rooted culture. However, some of our competitors are larger and have substantially greater financial, marketing and other resources than we do. See "Risk Factors—We may be unable to compete favorably in the highly competitive retail industry, and if we lose customers to our competitors, our sales could decrease."

Properties

          In February 2005, we completed our move from the 49,000 square foot combined home office and distribution facility that we occupied since 1994 to a new, 87,000 square foot combined home office and distribution facility, both in Everett, Washington. We occupy the new facility under a lease expiring in July 2012. We have an option to extend the term of this lease for up to two additional five-year periods. All of our stores, encompassing approximately 372,000 total square feet as of the end of fiscal 2004, are occupied under operating leases. The store leases range for a term of five to ten years and we are generally responsible for payment of property taxes and utilities, common area maintenance and marketing fees.

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Trademarks

          "Zumiez," "Free World," "O-Three" and "Limelight" are among our trademarks registered with the United States Patent and Trademark Office. We regard our trademarks as valuable and intend to maintain such marks and any related registrations. We are currently in the process of filing an application to register the "Empyre" and "Empyre Girl" marks. We are not aware of any claims of infringement or other challenges to our right to use our marks in the United States. We vigorously protect our trademarks. We also own numerous domain names which have been registered with Corporation for Assigned Names and Numbers.

Employees

          As of January 29, 2005, we employed approximately 426 full-time and approximately 1,076 part-time employees, of which approximately 147 were employed at our home office and approximately 1,355 at our store locations. However, the number of part-time employees fluctuates depending on our seasonal needs and, in fiscal 2004, varied from between approximately 1,076 and 1,927 part-time employees. None of our employees are represented by a labor union and we consider our relationship with our employees to be good.

Legal Proceedings

          From time to time, we become involved in litigation relating to claims arising from our ordinary course of business. We are not currently party to any legal proceedings that we believe could have a material adverse effect on our business.

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MANAGEMENT

Our Directors and Executive Officers

          The following table sets forth certain information about our directors and executive officers as of the date of this prospectus.

Name

  Age
  Position
Thomas D. Campion   56   Chairman of the Board
Richard M. Brooks   45   President, Chief Executive Officer and Director
Brenda I. Morris   39   Chief Financial Officer
Lynn K. Kilbourne   42   General Merchandising Manager
Thomas E. Davin   47   Director
William M. Barnum, Jr   50   Director

          Thomas D. Campion, 56, was one of our co-founders and has served on our board of directors since our inception in 1978. Mr. Campion has held various senior management positions during this time, including serving as our Chairman since June 2000. From November 1970 until August 1978, he held various management positions with JC Penney Company. Mr. Campion holds a B.A. in Political Science from Seattle University. Mr. Campion serves as the Board Chair of the Alaska Wilderness League, a Washington, D.C. based environmental group, and the Treasurer of the Northwest Ecosystem Alliance, a Bellingham, Washington based environmental group.

          Richard M. Brooks, 45, has served as our President and Chief Executive Officer since June 2000. From August 1993 through June 2000, he served as a Vice President and our Chief Financial Officer. From November 1989 until February 1992, Mr. Brooks was with Interchecks, Inc., a subsidiary of Bowater PLC, as a finance officer. Mr. Brooks was with Deloitte, Haskins & Sells, currently known as Deloitte & Touche, from July 1982 to March 1989. Mr. Brooks holds a B.A. in Business from the University of Puget Sound. Mr. Brooks has served on the University of Puget Sound Board of Trustees from May 2002 to the present where he has served on its Finance and Facilities Committee and its Audit Committee.

          Brenda I. Morris, 39, has served as our Chief Financial Officer since April 2003. From November 1999 until April 2003, she was with K2 Corporation as the Vice President of Finance. Ms. Morris has also held a senior management position with UnionBay Sportswear. Ms. Morris holds a B.S. in Business from Pacific Lutheran University and an M.B.A. from Seattle University. Ms. Morris is a certified public accountant in Washington and a certified management accountant. Ms. Morris is a member of the Journal of Accountancy Review Board for the American Institute of Certified Public Accountants. Ms. Morris serves on the Board of Washington Business Week, a program of the Foundation for Private Enterprise Education serving high school students, where she has served on its Audit Committee and as its Treasurer.

          Lynn K. Kilbourne, 42, has served as our General Merchandising Manager since September 2004. From July 1991 until May 2001, she was with Banana Republic, a subsidiary of Gap, Inc., in various senior management positions. In 2002 and 2003, Ms. Kilbourne worked as a retail industry consultant with Strategy Consulting. Ms. Kilbourne holds a B.A. in Economics and Political Science from Yale University and an M.B.A. from the Harvard University Graduate School of Business Administration.

          Thomas E. Davin, 47, has served on our board of directors since November 2002 and is President and Chief Operating Officer of Panda Restaurant Group, Inc., a leading Chinese quick service restaurant chain with more than 700 restaurants. Prior to joining Panda Restaurant Group, Inc., Mr. Davin served as the Operating Partner of Brentwood Private Equity III, LLC, a middle-market private equity firm, or "Brentwood Private Equity III." Mr. Davin is a Director of Oakley Inc. (NYSE "OO") and serves as Chairman of Oakley's Nominating and Corporate Governance Committee and Chairman of Oakley's Audit Committee. From 1993 to 2000 Mr. Davin was a senior executive with Taco Bell Corporation, a division of

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YUM! Brands, Inc. (NYSE "YUM"), and served as its Chief Operating Officer from 1997 to 2000. Mr. Davin earned an M.B.A., with distinction, from the Harvard University Graduate School of Business Administration. Mr. Davin is a graduate of Duke University and served as a U.S. Marine Corps officer from 1979 to 1985.

          William M. Barnum, Jr., 50, is a General Partner at Brentwood Private Equity III, where he co-founded the firm's private equity effort. Prior to joining Brentwood Private Equity III in 1984, Mr. Barnum worked at Morgan Stanley & Co. in the investment banking division, where he served as Assistant to the President and also provided investment banking advisory services. He is a graduate of Stanford University, and a graduate of Stanford Law School and Stanford Graduate School of Business. Presently, Mr. Barnum is a director of Bay Travelgear, Inc., Exhale Enterprises Inc., Filson Holdings, Inc., FleetPride Corporation, Oriental Trading Company, Inc., Quiksilver Corporation and ThreeSixty Asia Ltd.

Board Structure and Composition

          Our board of directors currently consists of four members. Currently, the board of directors has determined that only Mr. Davin qualifies as an independent director under the rules of The Nasdaq Stock Market. Mr. Davin was previously affiliated with the Brentwood Affiliates, who are among our significant shareholders. We intend to appoint one additional independent director within 90 days, and at least two additional independent directors within one year, following this offering to comply with applicable SEC and The Nasdaq Stock Market independence requirements. It is our intention to be in full and timely compliance with all applicable rules of the SEC and The Nasdaq Stock Market with respect to the independence of our directors and we intend to avail ourselves of the transition periods provided under the applicable rules of the SEC and The Nasdaq Stock Market for issuers listing in conjunction with their initial public offering.

          Effective upon the completion of this offering, our board of directors will be divided into three classes of directors, each serving staggered three-year terms as follows:

          Upon expiration of the term of a class of directors, directors for that class will be elected for a new three-year term at the annual meeting of shareholders in the year in which such term expires. Each director's term is subject to the election and qualification of his successor, or his earlier death, resignation or removal. The authorized number of directors may be changed by resolution duly adopted by at least a majority of our entire board of directors and, subject to certain exceptions, any vacancies on our board of directors may be filled only by the affirmative vote of a majority of the directors then in office. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors will make it more difficult for a third party to acquire control of our company.

          Prior to the completion of this offering, Messrs. Barnum, Brooks, Campion and Davin had the right, in certain cases, to sit on our board of directors pursuant to the terms of our bylaws and a stockholders' agreement. These board representation rights terminate upon the completion of this offering.

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Board Committees

          Prior to the completion of this offering, our board of directors will have established an audit committee and a compensation committee and, following the completion of this offering, will establish a governance and nominating committee. The composition of our board committees will comply, when required, with the applicable rules of the SEC and The Nasdaq Stock Market. Under these rules, our board committees must initially have one member who meets the applicable SEC and The Nasdaq Stock Market independence requirements, a majority of the members of each committee must meet these independence requirements within 90 days following this offering, and all committee members must meet these independence requirements within one year after this offering.

          Prior to the completion of this offering, we will have an audit committee that will have responsibility for, among other things:

          The audit committee will have the power to investigate any matter brought to its attention within the scope of its duties and to retain counsel for this purpose where appropriate.

          Mr. Davin will serve as the sole initial member of our audit committee and we plan to nominate a second independent member to our audit committee within 90 days following the completion of this offering and a third independent member within one year following the completion of this offering so that all of our audit committee members will be independent under applicable rules of the SEC and The Nasdaq Stock Market. Our board of directors has determined that Mr. Davin is an "audit committee financial expert" under applicable SEC rules and has the required financial sophistication pursuant to the rules of The Nasdaq Stock Market.

          After the completion of this offering, we will establish a governance and nominating committee. The governance and nominating committee will have responsibility for, among other things:

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          Prior to the completion of this offering, we will have a compensation committee. The compensation committee will have responsibility for, among other things:

          Mr. Barnum, who is not an independent director, and Mr. Davin, who is an independent director, will serve as initial members of our compensation committee. We expect to replace Mr. Barnum with an independent director within 90 days after this offering and to add a third independent director to our compensation committee within one year after this offering.

Compensation Committee Interlocks and Insider Participation

          Prior to the completion of this offering and our establishment of a compensation committee, Messrs. Barnum and Davin participated in deliberations of our board of directors concerning executive officer compensation. Neither Mr. Barnum nor Mr. Davin, who will serve as the initial members of our compensation committee, serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Code of Business Conduct and Ethics

          Our board of directors has adopted a code of business conduct and ethics applicable to our directors, executive officers, including our chief financial officer and other of our senior financial officers, and employees, in accordance with applicable rules and regulations of the SEC and The Nasdaq Stock Market.

Board Compensation

          For the fiscal year ended January 29, 2005, the individuals serving on our board of directors who were not our employees did not receive any compensation. After the completion of this offering, we intend to pay our non-employee directors an annual retainer of $                  for their service on our board of directors and an additional annual retainer of $                  for each committee on which they serve as a member. We intend to reimburse all directors for reasonable expenses incurred to attend meetings of our board of directors or committees. In addition, non-employee directors are eligible to receive equity awards under our 2005 Incentive Plan.

Executive Compensation

          The following table sets forth the total compensation awarded, paid or earned for services rendered to us in all capacities during fiscal 2004 by our chief executive officer and our three other most highly compensated executive officers. These executives are referred to as the "named executive officers" elsewhere in this prospectus.

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Summary Compensation Table

 
  Annual Compensation
  Long Term
Compensation

   
Name and Principal Position

  Salary
  Bonus
  Other Annual
Compensation

  Securities
Underlying
Options

  All Other
Compensation

Thomas D. Campion, Co-Founder and Chairman   $ 200,000   $ 25,000        
Richard M. Brooks, President and Chief Executive Officer     175,000     25,000        
Brenda I. Morris, Chief Financial Officer     175,000     25,000        
Lynn K. Kilbourne, General Merchandising Manager     54,619 (1)     $ 40,678 (2)  

(1)
Ms. Kilbourne became our General Merchandising Manager in September of 2004. Her annual base salary is $200,000.

(2)
Consists of moving expense reimbursements.

Stock Option Grants in Fiscal 2004

          The following table sets forth information with respect to stock options granted to each of our named executive officers during fiscal 2004 and includes the potential realizable value, which is the exercise price before taxes associated with exercise, over the entire term of the options. This determination assumes options are exercised at the end of their terms, based on assumed annually compounded rates of stock appreciation of 5% and 10% and based on the exercise price per share. These assumed rates of appreciation comply with the rules of the SEC and do not represent our estimate of future common stock prices. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock. We granted options to purchase a total of                  shares of common stock during fiscal 2004.

          Options granted in fiscal 2004 to the named executive officers were granted under our 2004 Option Plan, the material terms of which are further described below. All options granted to the named executive officers are options to purchase our common stock. All options were granted at or above fair market value as determined in good faith by our board of directors on the date of grant. There were no option exercises during fiscal 2004. The named executive officers did not exercise any options in fiscal 2004.

 
   
  Individual Grants
   
   
   
 
   
  Percentage of
Total Options
Granted in
Fiscal
2004

   
   
  Potential Realizable Value at Assumed Annual Stock Price Appreciation Rate for
Option Term

 
  Number of
Securities
Underlying
Options

   
   
 
  Exercise
Price Per
Share

  Expiration
Date

 
  5%
  10%
Thomas D. Campion            
Richard M. Brooks            
Brenda I. Morris            
Lynn K. Kilbourne(1)                        

(1)
Twenty percent of the options vest at the one-year anniversary of the option grant and then 1/48th of the remaining options vest each month thereafter.

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Employment Agreements and Change of Control Provisions

          On November 4, 2002, we entered into an Executive Agreement with Richard M. Brooks, pursuant to which he serves as our President and Chief Executive Officer. The agreement has no fixed term and terminates upon the death or disability of Mr. Brooks or upon written notice from either party. Under the agreement, Mr. Brooks receives an annual base salary of $175,000 and he is eligible to be considered for an annual discretionary bonus of up to $100,000 and future stock option grants. The agreement further provides that if we terminate Mr. Brooks' employment without cause or if he terminates his employment for good reason, he will continue to receive his base salary until he accepts employment with another employer, but in no event longer than 18 months after the termination of his employment. In addition, the agreement prohibits Mr. Brooks, during his employment with us and for the longest time period permitted by law thereafter, from disclosing confidential information; requires Mr. Brooks to transfer to us any inventions he develops during his employment; and prohibits Mr. Brooks from competing with us in geographic regions in the United States in which we conduct business or from hiring our employees for 18 months after the termination of his employment.

Stock Based Plans

1993 Stock Option Plan

          Our board of directors adopted the 1993 Stock Option Plan (the "1993 Option Plan") on December 1, 1997 and our shareholders approved it on December 1, 1997. The 1993 Option Plan will remain in effect until all options granted under the plan have been exercised or terminated, but no additional option grants could be made under the 1993 Option Plan after July 30, 2004. The 1993 Option Plan provided for the grant of nonqualified stock options to executive officers and key employees.

          Share Reserve.    The aggregate number of shares of common stock that may be issued pursuant to awards granted under the 1993 Option Plan will not exceed            shares. As of January 29, 2005, options to purchase            shares of common stock were outstanding under the 1993 Option Plan and             shares of common stock had been issued under the 1993 Option Plan.

          Administration.    A committee of the board of directors administers the 1993 Option Plan. Subject to the terms of the 1993 Option Plan, the committee determined grant recipients, grant dates, the numbers of stock options to be granted and the terms and conditions of the stock options, including the period of their exercisability, vesting and the exercise price.

          Stock Options.    Nonqualified stock options were granted pursuant to stock option agreements. The committee determined the exercise prices for stock options, which were at least 100% of the fair market value of the shares of common stock underlying the stock options on the date such stock options were granted, and such stock options are not exercisable after the expiration of ten years from the date of grant. The committee determined the vesting period and term of stock options granted under the 1993 Option Plan. Upon the death of an optionee, any options exercisable on the date of death may be exercised by the optionee's estate or the optionee's beneficiary for a period of one year after the date of the optionee's death. Upon the termination of an optionee's employment relationship with us by reason of retirement or permanent disability, an optionee may, within 12 months from the date of termination, exercise his or her stock options to the extent they are exercisable during such 12-month period. Other than in the case of termination by death, disability or retirement, all options held by an optionee shall terminate upon the termination of the optionee's employment relationship with us. An optionee may not transfer a nonqualified stock option other than by will or the laws of descent and distribution.

          Adjustments to Capital Structure.    In the event of a dividend or other distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the committee may adjust the number of shares that may be delivered under the 1993 Option Plan and the number and price of the shares covered by each outstanding stock option grant.

53


          Amendment and Termination.    The committee may amend the 1993 Option Plan or modify stock option awards in response to changes in securities or other laws or to comply with stock exchange rules at any time. The committee may also terminate or modify the plan at any time.

2004 Stock Option Plan

          Our board of directors adopted the 2004 Option Plan on June 7, 2004 and our shareholders have approved it. Unless sooner terminated by the board of directors, the 2004 Option Plan will terminate on June 7, 2014, the tenth anniversary of the date that the plan was adopted by our board of directors. The 2004 Option Plan provides for the grant of incentive stock options and nonqualified stock options, which may be granted to our executive officers and key employees.

          Share Reserve.    The aggregate number of shares of common stock that may be issued pursuant to stock options granted under the 2004 Option Plan is            shares. Shares subject to stock option grants under the 2004 Option Plan that are forfeited or expire prior to the termination of the 2004 Option Plan will remain available for issuance under the 2004 Option Plan. As of January 29, 2005, options to purchase            shares of common stock were outstanding under the 2004 Option Plan and             additional shares of common stock were available for future grants under the 2004 Option Plan. As of January 29, 2005, no shares of common stock had been issued under the 2004 Option Plan.

          Administration.    A committee of the board of directors administers the 2004 Option Plan. Subject to the terms of the 2004 Option Plan, the committee determines recipients, grant dates, the numbers and types of stock options to be granted and the terms and conditions of the stock options, including the period of their exercisability and vesting. Subject to the limitations set forth below, the committee also determines the exercise price of stock options granted.

          Stock Options.    Nonqualified stock options, or "nonqualified options," and incentive stock options, or "incentive options," are granted pursuant to stock option agreements. The committee determines the exercise price for stock options. Subject to the limitations set forth below regarding persons owning more than ten percent of our stock ("ten percent shareholders"), the exercise price for incentive options will be at least 100% of the fair market value of the shares of common stock underlying the incentive stock option on the date such incentive option is granted and such incentive options will not be exercisable after the expiration of ten years from the date of grant. For ten percent shareholders, the exercise price for incentive options will be at least 110% of the fair market value of the shares of common stock underlying an incentive option on the date such incentive option is granted and such incentive option will not be exercisable after the expiration of five years from the date of grant. The committee determines the vesting period and term of stock options granted under the 2004 Option Plan.

          Unless the terms of an optionee's stock option agreement provide otherwise, stock options granted under the 2004 Option Plan expire: 90 days after voluntary or involuntary termination of an optionee's employment (other than in the case of death, disability or discharge for misconduct that is willfully or wantonly harmful to us); upon discharge for misconduct that is willfully or wantonly harmful to us; or 12 months after an optionee's death or disability. In no event may a stock option be exercised after the expiration of its term, as set forth in the stock option agreement. Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will either be cash or, with our approval, common stock owned by the optionee.

          Generally, an optionee may not transfer a nonqualified option other than by will or the laws of descent and distribution unless the nonqualified option agreement provides otherwise. Optionees may not transfer incentive options except by will or by the laws of descent and distribution and incentive options are exercisable during the lifetime of the optionee only by the optionee.

          Recapitalization.    The number of shares for which stock options may be granted under the 2004 Option Plan and the exercise price and the number of shares covered by an outstanding stock option will

54



be adjusted for increases and decreases in the number of our outstanding shares resulting from stock splits and other capital adjustments or the payment of stock dividends.

          Changes in Control.    In the event of a change in control of us, all outstanding stock options under the 2004 Option Plan may be assumed or substituted by any surviving or acquiring entity, and the optionee may exercise his or her vested stock options. If the surviving or acquiring entity elects not to assume or substitute for such outstanding stock options, all outstanding stock options that have not been exercised shall terminate upon the consummation of the change in control.

          Amendment and Termination.    Our board of directors may amend (subject to shareholder approval as required by applicable law), suspend or terminate the 2004 Option Plan at any time.

2005 Equity Incentive Plan

          Our board of directors adopted the 2005 Incentive Plan on January 24, 2005 and our shareholders approved it on            , 2005. The 2005 Incentive Plan will become effective upon the completion of this offering. Unless sooner terminated by the board of directors, the 2005 Incentive Plan will terminate on            , 2015, the day before the tenth anniversary of the date that the plan was approved by our shareholders. The 2005 Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock bonuses, restricted stock awards, restricted stock units and stock appreciation rights, which may be granted to our employees (including officers), directors and consultants.

          Share Reserve.    The aggregate number of shares of common stock that may be issued pursuant to awards granted under the 2005 Incentive Plan will not exceed            plus (1) the number of shares that are subject to awards under the 2005 Incentive Plan, the 1993 Option Plan or the 2004 Option Plan that have been forfeited or repurchased by us or that have otherwise expired or terminated, and (2) an annual increase on the first business day of each fiscal year, such that the total number of shares available for issuance under the 2005 Incentive Plan shall equal 15% of the total number of shares of common stock outstanding on such business day; provided, that with respect to such annual increase, our board of directors may designate a lesser number of additional shares or no additional shares during such fiscal year. In no event, however, will the aggregate number of shares available for award under our 2005 Incentive Plan exceed                        .

          The following types of shares issued under the 2005 Incentive Plan may again become available for the grant of new awards under the 2005 Incentive Plan: restricted stock issued under the 2005 Incentive Plan that is forfeited or repurchased by us prior to it becoming fully vested; shares withheld for taxes; shares tendered to us to pay the exercise price of an option; and shares subject to awards issued under the 2005 Incentive Plan that have expired or otherwise terminated without having been exercised in full.

          Administration.    The board of directors will administer the 2005 Incentive Plan and may delegate this authority to administer the plan to a committee. Subject to the terms of the 2005 Incentive Plan, the plan administrator, which is our board of directors or its authorized committee, determines recipients, grant dates, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the plan administrator will also determine the exercise price of options granted, the purchase price for restricted stock and restricted stock units, and, if applicable, the strike price for stock appreciation rights.

          Stock Options.    Nonqualified options and incentive options are granted pursuant to stock option agreements. The plan administrator determines the exercise price for stock options. Subject to the limitations set forth below regarding persons owning more than ten percent of our stock or of any of our affiliates ("ten percent shareholders"), the exercise price for nonqualified options and incentive options will be at least 100% of the fair market value of the shares of common stock underlying the option on the date such option is granted. Incentive options will not be exercisable after the expiration of ten years from

55



the date of grant. For ten percent shareholders, the exercise price for incentive options will be at least 110% of the fair market value of the shares of common stock underlying an incentive option on the date such incentive option is granted and such incentive option will not be exercisable after the expiration of five years from the date of grant. The plan administrator determines the vesting period and term of stock options granted under the 2005 Incentive Plan.

          Unless the terms of an optionee's stock option agreement provide otherwise, if an optionee's service relationship with us, or any of our affiliates, ceases due to disability or death or the optionee dies within a specified period after termination of service, the optionee, or his or her beneficiary, may exercise any vested options for a period of 12 months in the event of disability or 18 months in the event of death, after the date such service relationship ends or after death, as applicable. If an optionee's relationship with us, or any of our affiliates, ceases for any reason other than disability or death, the optionee may exercise any vested options for a period of three months from cessation of service, unless the terms of the stock option agreement provide for earlier or later termination. In no event, however, may an option be exercised after the expiration of its term, as set forth in the stock option agreement.

          Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will either be cash, common stock owned by the optionee that has been held by the optionee for at least six months, a deferred payment arrangement, a cashless exercise or other legal consideration approved by the plan administrator. The plan administrator may grant stock options with provisions entitling the optionee to a further option in the event the optionee exercises the option evidenced by the option agreement, in whole or in part, by surrendering other shares of our common stock.

          Generally, an optionee may not transfer a nonqualified option other than by will or the laws of descent and distribution unless the nonstatutory option agreement provides otherwise. Optionees may not transfer incentive options except by will or by the laws of descent and distribution and incentive options are exercisable during the lifetime of the optionee only by the optionee. Optionees may designate a beneficiary who may exercise the option following the optionee's death.

          Stock Bonus Awards.    Stock bonus awards are granted pursuant to stock award agreements. The consideration for stock bonus awards may be a recipient's performance of services for us or our affiliates. Stock bonus awards may be subject to a repurchase right in accordance with a vesting schedule determined by the plan administrator. Upon termination of a recipient's service with us, stock bonus awards that are unvested as of the date of such termination may be reacquired by us after such time as it would not result in negative accounting consequences. Stock bonus awards may be transferable only to the extent provided in a stock award agreement.

          Restricted Stock and Restricted Stock Units.    A restricted stock award or restricted stock unit award is the grant of shares of our common stock either currently (in the case of restricted stock) or at a future date (in the case of restricted stock units) at a price determined by the plan administrator. Restricted stock and restricted stock units are granted pursuant to stock award agreements. Upon termination of a recipient's service with us, shares of restricted stock that are unvested as of the date of such termination may be reacquired by us subject to the terms of the restricted stock award agreement. Restricted stock awards may be subject to a repurchase right in accordance with a vesting schedule determined by the board of directors. Restricted stock and restricted stock units may be transferable only to the extent provided in a stock award agreement.

          Stock Appreciation Rights.    Stock appreciation rights entitle a participant to receive a payment equal in value to the difference between the fair market value of a share of stock on the date of exercise of the stock appreciation right over the grant price of the stock appreciation right. Stock appreciation rights are granted pursuant to stock award agreements. The plan administrator may grant stock appreciation rights in connection with stock options or in a stand-alone grant. The plan administrator determines the term and grant price for a stock appreciation right. A stock appreciation right granted under the 2005 Incentive

56



Plan vests at the rate specified in the stock award agreement. With respect to stock appreciation rights that are granted in connection with stock options, such stock appreciation rights shall be exercisable only to the extent that the related stock option is exercisable and such stock appreciation rights shall expire no later than the date on which the related stock options expire. If a recipient's relationship with us, or any of our affiliates, ceases for any reason, any unvested stock appreciation rights will be forfeited and any vested stock appreciation rights will be automatically redeemed.

          Capitalization Adjustments.    In the event of a dividend or other distribution (whether in the form of cash, shares of common stock, other securities, or other property), recapitalization, stock split, reorganization, merger, consolidation, exchange of our common stock or our other securities, or other change in our corporate structure, the plan administrator may adjust the number of shares that may be delivered under the 2005 Incentive Plan and the number and price of the shares covered by each outstanding stock award.

          Changes in Control.    In the event of a change in control of us, all outstanding options and other awards under the 2005 Incentive Plan may be assumed, continued or substituted for by any surviving or acquiring entity. If the surviving or acquiring entity elects not to assume, continue or substitute for such awards, the vesting of such awards held by award holders whose service with us or any of our affiliates has not terminated will be accelerated and such awards will be fully vested and exercisable immediately prior to the consummation of such transaction, and the stock awards shall automatically terminate upon consummation of such transaction if not exercised prior to such event.

          Amendment and Termination.    The plan administrator may amend (subject to shareholder approval as required by applicable law), suspend or terminate the 2005 Incentive Plan at any time.

2005 Employee Stock Purchase Plan

          Our board of directors adopted our Stock Purchase Plan on January 24, 2005 and our shareholders adopted it on            , 2005. The Stock Purchase Plan will become effective upon the completion of this offering.

          Share Reserve.    The Stock Purchase Plan authorizes the issuance of            shares of common stock pursuant to purchase rights granted to certain of our employees or to employees of any of our subsidiaries that we designate as being eligible to participate.

          Administration.    The compensation committee of the board of directors will administer the Stock Purchase Plan. The Stock Purchase Plan provides a means by which employees may purchase our common stock. We will implement the Stock Purchase Plan by offering to our eligible employees the right to purchase shares of common stock. Under the Stock Purchase Plan, we will conduct consecutive six-month offerings with a new offering commencing January 1 and July 1 of each year. The offerings will continue until the Stock Purchase Plan is terminated or until the shares reserved for issuance under the plan have been issued.

          Unless otherwise determined by the compensation committee, common stock may be purchased by the employees participating in the Stock Purchase Plan at a price per share equal to the lesser of (1) 85% of the fair market value of a share of our common stock on the date of commencement of the offering (or the first trading day after the offering if the offering does not commence on a trading day) or (2) 85% of the fair market value of a share of our common stock on the last trading day of the offering. Generally, all regular employees, including officers, who are customarily employed by us or by any of our designated affiliates for more than 20 hours per week and more than five months per calendar year may participate in the Stock Purchase Plan and may contribute (through payroll deductions) up to 15% of their earnings for the purchase of common stock under the Stock Purchase Plan, as determined by the compensation committee. If an employee's employment relationship with us, or any of our affiliates, ceases for any reason, the balance in the account of such participating employee will be paid to the employee or his or

57



her estate. Employees may not transfer or encumber either the payroll deductions credited to their account or any rights to purchase shares other than by will or the laws of descent and distribution.

          Limitations.    Eligible employees may be granted rights to participate under the Stock Purchase Plan only if, together with any other rights granted under other employee stock purchase plans, they do not permit such employee to purchase our common stock at an accrued rate exceeding $25,000 of the fair market value of such stock for each calendar year in which such rights are outstanding. No employee shall be eligible for the grant of any rights under the Stock Purchase Plan if immediately after such rights are granted, such employee owns five percent or more of the total combined voting power or value of all of our classes of capital stock or of the capital stock of any subsidiary of ours.

          Capitalization Adjustments.    In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, offerings of rights, or any other change in the structure of our common stock, the compensation committee may make such adjustments, if any, as it may deem appropriate in the number, kind and the price of shares available for purchase under the Stock Purchase Plan, and in the number of shares which an employee is entitled to purchase.

          Changes in Control.    In the event of a change in control, the outstanding rights to purchase our common stock granted under the Stock Purchase Plan may be assumed or an equivalent purchase right may be substituted by the successor entity. In the event that the successor entity refuses to assume or substitute for the purchase rights, or continue the purchase right, any offering then in progress shall be shortened by setting a new ending date for such offering, which date will be prior to the date of the proposed transaction. The compensation committee will notify each participant in the offering in writing prior to the new ending date for such offering that the end of the offering has been changed and that the participant's purchase rights will be exercised automatically on such new ending date for the offering.

          Amendment and Termination.    The compensation committee may at any time amend or terminate the Stock Purchase Plan.

Limitation on Liability and Indemnification

          Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation Act, or the "WBCA," authorize Washington corporations to indemnify and advance expenses to directors, officers, employees or agents of the corporation under certain circumstances against liabilities and expenses incurred in legal proceedings involving such individuals because of their being or having been a director, officer, employee or agent of the corporation. Section 23B.08.560 of the WBCA authorizes a corporation to agree to so indemnify and obligate itself to advance or reimburse expenses without regard to the limitations of Section 23B.08.510 through 23B.08.550 of the WBCA; provided, however, that no such indemnity shall be made for or on account of any:

          Furthermore, Section 23B.08.320 of the WBCA authorizes a corporation to limit a director's liability to the corporation or its shareholders for monetary damages for acts or omissions as a director, except in certain circumstances involving (1) acts or omissions of a director that involve intentional misconduct or a knowing violation of law, (2) conduct violating Section 23B.08.310 of the WBCA (which section relates to

58



unlawful distributions) or (3) any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.

          Our articles of incorporation and our bylaws provide that we shall indemnify our directors and officers to the fullest extent permitted by applicable law. Our bylaws also provide that we may indemnify our employees and agents to the fullest extent permitted by applicable law. Our articles of incorporation and our bylaws also require advances for expenses for such indemnified individuals who are parties to such a proceeding as provided by applicable law or by written agreements, which written agreement may allow any required determination as to the availability of indemnification to be made by any appropriate person or body consisting of a member or members of our board of directors, any other person or body appointed by the board of directors who is not a party to the particular claim, or independent legal counsel. Our articles of incorporation provide that a director shall not be personally liable to us or to any of our shareholders for monetary damages for conduct as a director pursuant to Section 23B.08.320 of the WBCA, subject to the limitations of that section. Our bylaws also provide that we may maintain, at our expense, insurance to protect us and an indemnified director, officer, employee or agent against any liability, whether or not we would have the power to indemnify such director, officer, employee or agent against the same liability under Sections 23B.08.510 or 23B.08.520 of the WBCA.

          We also intend to enter into separate indemnification agreements with each of our directors and officers to effectuate the provisions discussed above and to purchase director and officer liability insurance. The effect of such provisions is to indemnify our directors and officers against all costs, expenses and liabilities incurred by them in connection with any action, suit or proceeding in which they are involved by reason of their affiliation with us, to the fullest extent permitted by law.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Equity Sales and Related Transactions

Zumiez Holdings LLC

          In October and November 2002, we entered into a series of transactions with the Brentwood Affiliates and certain of our shareholders (these transactions are referred to as the "2002 Recapitalization"). As part of the 2002 Recapitalization, we entered into a contribution agreement, or the "Contribution Agreement," and certain other agreements, pursuant to which Zumiez Holdings LLC, a Delaware limited liability company, or "Zumiez Holdings," was formed and substantially all of our then-outstanding shares of capital stock were contributed to Zumiez Holdings. In connection with the 2002 Recapitalization, we paid $143,000 in fees on behalf of Zumiez Holdings. See note 8 to our financial statements included elsewhere in this prospectus. The initial members of Zumiez Holdings were Brentwood-Zumiez Investors, LLC, an entity controlled by the Brentwood Affiliates, Thomas D. Campion, our Co-Founder and Chairman, Richard M. Brooks, our President and Chief Executive Officer, and John G. Haakenson, our Co-Founder. In addition, Thomas E. Davin and William M. Barnum, Jr., each of whom is currently a member of our Board of Directors, were associated with the Brentwood Affiliates at the time of the 2002 Recapitalization and Mr. Barnum is currently associated with the Brentwood Affiliates. Pursuant to the terms of the Zumiez Holdings limited liability company agreement, or the "Holdings LLC Agreement," Zumiez Holdings will be dissolved and its assets, which consist solely of shares of our common stock, will be distributed to its members immediately prior to the consummation of this offering. Immediately prior to this offering and based on shares outstanding as of January 29, 2005, Zumiez Holdings held approximately            % of our outstanding shares of common stock. Information in this prospectus concerning ownership of our common stock by the Brentwood Affiliates and Messrs. Campion, Barnum, Brooks and Haakenson, including the information appearing under "Principal and Selling Shareholders," assumes that all of the shares of our common stock held by Zumiez Holdings have been distributed to the persons entitled to those shares upon its dissolution. The exact number of shares that will be distributed to those persons will depend upon the public offering price of our common stock in this offering. The information in this preliminary prospectus regarding the number of shares of common stock owned by those persons has been calculated based on an assumed public offering price of $             per share, which is equal to the mid-point of the price range set forth on the cover of this preliminary prospectus, and will change unless the actual public offering price is $             per share.

Services Agreement

          In connection with the 2002 Recapitalization, we entered into a Corporate Development and Administrative Services Agreement, dated November 4, 2002, or the "Services Agreement," with Brentwood Private Equity III, pursuant to which we are obligated to pay Brentwood Private Equity III an annual consulting fee, the amount of which fee depends on our adjusted EBITDA, and to reimburse Brentwood Private Equity III for certain expenses. In 2002, 2003 and 2004 we paid Brentwood Private Equity III a consulting fee of $31,000, $200,000 and $200,000, respectively, under the Services Agreement. We also anticipate paying Brentwood Private Equity III a pro-rated consulting fee in 2005 through the date of completion of this offering. We are also obligated under the Services Agreement to pay Brentwood Private Equity III an advisory fee based upon: (1) the aggregate consideration paid by us (A) in connection with an acquisition of all or substantially all of the capital stock, business or assets of another individual or business entity and (B) in connection with any joint venture or minority investment and (2) the amount of any equity interest or similar securities issued by us with the assistance of Brentwood Private Equity III. We are not obligated to pay Brentwood Private Equity III any additional advisory or other fees under the Services Agreement in connection with this offering and the Services Agreement will terminate upon the consummation of this offering.

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Expense Agreement

          In connection with the 2002 Recapitalization, we entered into an Expense Agreement, dated November 4, 2002, or the "Expense Agreement," with Zumiez Holdings pursuant to which we are obligated to reimburse Zumiez Holdings, or such other parties as Zumiez Holdings may designate, for reasonable expenses incurred in connection with facilitating investments in us. The Services Agreement will terminate upon the consummation of this offering.

Redemption Agreements

          In October 2002, in connection with the 2002 Recapitalization, we entered into common stock redemption agreements with Thomas D. Campion, our Co-Founder and Chairman, and Richard M. Brooks, our President and Chief Executive Officer. Pursuant to the terms of our redemption agreement with Mr. Campion, we redeemed            shares of our common stock held by Mr. Campion for an aggregate purchase price of approximately $7.7 million, which amount was paid by us through our delivery of a promissory note in the sum of approximately $6.2 million and the cancellation of a promissory note in the amount of $1.5 million executed by Mr. Campion in favor of us. Pursuant to the terms of our redemption agreement with Mr. Brooks, we redeemed            shares of our common stock held by Mr. Brooks for an aggregate purchase price of approximately $829,000, which amount was paid by us through our delivery of a promissory note in the sum of approximately $829,000. Each of the promissory notes issued in connection with the redemption agreements has been paid in full.

Loans to Executives

          In August 2001, we loaned Thomas D. Campion, our Co-Founder and Chairman, $1.5 million for which he executed a promissory note that was due and payable in full by September 1, 2002 and which promissory note bore interest at a rate of 6.0% per annum. As described above under "Redemption Agreements," Mr. Campion paid the principal of this promissory note in full.

Issuance of Stock to Zumiez Holdings

          In November 2002, in connection with the 2002 Recapitalization, we issued            shares of our common stock to Zumiez Holdings for an aggregate purchase price of approximately $7.1 million, which was paid in cash at the closing of the Contribution Agreement. The members of Zumiez Holdings at the time of such issuance were Brentwood-Zumiez Investors, LLC, an entity controlled by the Brentwood Affiliates, Thomas D. Campion, our Co-Founder and Chairman, Richard M. Brooks, our President and Chief Executive Officer, and John G. Haakenson, our Co-Founder. Thomas E. Davin and William M. Barnum, Jr., each of whom is currently a member of our board of directors, were associated with the Brentwood Affiliates at the time of the issuance and sale of our common stock to Zumiez Holdings, and Mr. Barnum is currently associated with the Brentwood Affiliates.

Contribution Agreement

          At the closing under the Contribution Agreement:

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          Under the Contribution Agreement, we agreed to indemnify and hold harmless Zumiez Holdings, its officers, employees, agents, consultants, advisors and other representatives and its controlling persons and affiliates, which include Brentwood-Zumiez Investors, LLC, an entity controlled by the Brentwood Affiliates, Thomas D. Campion, our Co-Founder and Chairman, and Richard M. Brooks, our President and Chief Executive Officer, for certain losses and expenses. Thomas E. Davin and William M. Barnum, Jr., each of whom is currently a member of our board of directors, were associated with the Brentwood Affiliates at the time of the execution of the Contribution Agreement, and Mr. Barnum is currently associated with the Brentwood Affiliates. Except with respect to certain representations and warranties, including representations and warranties related to taxation, our indemnification obligations under the Contribution Agreement will have expired upon consummation of this offering.

Director and Officer Indemnification

          Our articles of incorporation and our bylaws contain provisions limiting the liability of our directors and require that we indemnify our directors to the fullest extent permitted by law. In addition, we intend to enter into agreements to indemnify our directors and executive officers to the fullest extent permitted under Washington law. See "Management—Limitation on Liability and Indemnification."

Registration Rights

          Some of our shareholders are entitled to registration rights. See "Description of Capital Stock—Registration Rights."

Stock Option Grants

          We have granted options to purchase shares of our common stock to our executive officers and directors. See "Management."

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PRINCIPAL AND SELLING SHAREHOLDERS

          The following table sets forth information with respect to the beneficial ownership of our common stock held as of January 29, 2005, and as adjusted to reflect the sale of common stock in this offering for:


          Information in the following table concerning ownership of our common stock by Brentwood-Zumiez Investors, LLC and Messrs. Campion, Brooks and Barnum assumes that all of the shares of our common stock held by Zumiez Holdings have been distributed to the persons and entities entitled to those shares under the terms of its limited liability company agreement. We anticipate that this distribution will occur prior to the closing of this offering. The exact number of shares that will be distributed to these persons and entities will depend upon the public offering price of our common stock in this offering. The information appearing below regarding the number of shares of common stock owned by these persons and entities has been calculated based upon an assumed public offering price of $             per share, which is equal to the mid-point of the price range shown on the cover of this preliminary prospectus, and will change unless the actual public offering price is equal to this assumed public offering price. See "Certain Relationships and Related Transactions—Equity Sales and Related Transactions."

          Except as otherwise indicated by footnote, and subject to applicable community property laws, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares. Beneficial ownership is determined in accordance with the rules of the SEC.

          The number of shares of common stock outstanding used in calculating the percentage for each listed person and entity includes common stock underlying options held by the person or entity that are exercisable within 60 days of January 29, 2005 or upon completion of this offering, but excludes common stock underlying options held by any other person or entity. Percentage of beneficial ownership is based on            shares of common stock outstanding as of January 29, 2005. The address for those individuals

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for which an address is not otherwise indicated is c/o Zumiez Inc., 6300 Merrill Creek Parkway, Suite B, Everett, Washington 98203.

 
  Shares Beneficially Owned
Prior to this Offering

   
  Shares Beneficially Owned
After this Offering(1)

 
  Shares Being
Offered(1)

Executive Officers and Directors

  Number
  Percentage
  Number
  Percentage
Thomas D. Campion                    
Richard M. Brooks                    
Brenda I. Morris(2)         *          
Lynn K. Kilbourne                
Thomas E. Davin                
William M. Barnum, Jr.(3)(4)                    

All Executive Officers and Directors as a group (6 persons)

 

 

 

 

 

 

 

 

 

 

5% Shareholders:

 

 

 

 

 

 

 

 

 

 
Brentwood-Zumiez Investors, LLC(4)                    

Other Selling Shareholders:

 

 

 

 

 

 

 

 

 

 
                     

*
Represents beneficial ownership of less than 1%.

(1)
Assumes that the underwriters' over-allotment option is not exercised. In the event that the underwriters' over-allotment option is exercised in full, then the number of shares being offered by each of            ,             and            will increase by            shares,             shares and            shares, respectively, and the number of shares beneficially owned by            ,             and            after this offering will decrease to            shares,            shares and             shares, respectively, or            %,            % and            %, respectively, of the shares to be outstanding immediately after this offering.

(2)
Includes            shares issuable upon exercise of outstanding options exercisable within 60 days of January 29, 2005.

(3)
Includes            shares held by Brentwood-Zumiez Investors, LLC, an entity controlled by the Brentwood Affiliates. William M. Barnum, Jr., one of our directors, is a managing member of Brentwood Private Equity III, LLC.

(4)
The membership interests of Brentwood-Zumiez Investors, LLC are held by Brentwood Associates Private Equity III, L.P., Brentwood Associates Private Equity III-A, L.P., and BAPE III Executive Fund, L.P. (collectively, "Brentwood Funds"). Brentwood Private Equity III, LLC is the managing member of each of the Brentwood Funds. Mr. Barnum, one of our directors, is a managing member of Brentwood Private Equity III, LLC, and thus shares voting power and investment power over shares held by Brentwood-Zumiez Investors, LLC. Mr. Barnum disclaims beneficial ownership of the shares held or controlled by Brentwood-Zumiez Investors, LLC except to the extent of his pecuniary interest therein. The address for Brentwood-Zumiez Investors, LLC is 11150 Santa Monica Blvd., Suite 1200, Los Angeles, CA 90025.

64



DESCRIPTION OF CAPITAL STOCK

General

          We are authorized to issue                        shares of common stock, par value $0.01 per share, and            shares of preferred stock, par value $0.01 per share. Immediately after this offering, there will be                        shares of common stock outstanding, or                        shares if the underwriters' over-allotment is exercised in full,            shares of common stock will be issuable upon exercise of outstanding options and no shares of preferred stock will be issued and outstanding, based on shares and options outstanding as of January 29, 2005.

Common Stock

          The holders of our common stock are entitled to one vote per share on all matters submitted to a vote at a meeting of shareholders, except as otherwise required by law or by the terms of any preferred stock we may issue in the future. The holders of our common stock are generally entitled to vote on amendments to our articles of incorporation, except for the designation of a series of preferred stock out of our authorized preferred stock. There are no cumulative voting rights for the election of our directors, which means that the holders of a majority of the outstanding shares of our common stock will be entitled to elect all of our directors. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of our common stock are entitled to receive such dividends, if any, as may be declared by our board of directors out of funds legally available for dividends. In the event of liquidation, dissolution or winding up of us, the holders of our common stock are entitled to share ratably in all assets remaining after payment of or provision for our liabilities, subject to prior rights of preferred stock, if any, then outstanding. Our common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our common stock are, and the shares to be sold by us in this offering will be, fully paid and nonassessable.

Preferred Stock

          Pursuant to our articles of incorporation, our board of directors has the authority, without action by our shareholders, to issue up to                        shares of preferred stock. The board of directors may issue this stock from time to time in one or more series and may fix the rights, preferences, privileges and restrictions of each series of preferred stock. Some of the rights and preferences that our board of directors may designate include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. The board of directors may determine the number of shares constituting any series and the designation of such series. Any or all of the rights and preferences selected by our board of directors for any series of preferred stock may be greater than the rights of the common stock. The issuance of preferred stock could adversely affect, among other things, the voting power of holders of common stock and the likelihood that shareholders will receive dividend payments and payments upon our liquidation, dissolution or winding up. The issuance of preferred stock could also have the effect of delaying, deferring or preventing a change in control of us if, for example, our board of directors designated and issued a series of preferred stock in an amount that sufficiently increased the number of outstanding shares to overcome a vote by the holders of our common stock or with rights and preferences that included special voting rights to veto a change in control, merger or similar transaction.

Registration Rights

          On November 4, 2002, we entered into an Amended and Restated Stockholders' Agreement, or the "Stockholders' Agreement," which grants certain holders of our common stock rights with respect to registration of their shares under the Securities Act of 1933. Such registration will permit the resale of those shares in the public market. Under the Stockholders' Agreement, we granted Zumiez Holdings the

65



right to demand that we register its shares for sale in an initial public offering. Zumiez Holdings exercised that right in connection with this offering. We also granted all of these shareholders certain "piggyback" registration rights to register the shares of common stock owned by them under the Securities Act. The Stockholders' Agreement provides that whenever we propose to register shares of our common stock under the Securities Act (other than on a Form S-4 or Form S-8), then these shareholders, with certain exceptions, will have the right to register their shares of common stock as part of that registration. The registration rights under the Stockholders' Agreement are subject to the rights of the lead underwriters, if any, to reduce or exclude certain shares owned by these shareholders from the registration. The Stockholders' Agreement requires us to pay for all costs and expenses, other than underwriting discounts and commissions and fees and disbursements of counsel for these shareholders, incurred in connection with the registration of shares under the agreement. No shareholder will have any rights under the Stockholders' Agreement to include shares in a registration statement if those shares have (1) already been sold pursuant to a registration statement or pursuant to Rule 144 under the Securities Act, or (2) may be sold pursuant to Rule 144 under the Securities Act, if we have advised that shareholder that we are willing to instruct the transfer agent for our common stock to remove any restrictive legends necessary in connection with that sale.

          Immediately after completion of this offering and based on shares outstanding as of January 29, 2005, the holders of approximately                        shares of our outstanding common stock will be entitled to the registration rights described above. In addition, the Stockholders' Agreement provides that all shares of our capital stock acquired by any of those shareholders in the future will also be entitled to these registration rights.

Antitakeover Effects of Washington Law and Certain Provisions of Our Articles of Incorporation and Our Bylaws

          Washington RCW 23B.19.    Washington law imposes restrictions on certain transactions between a corporation and certain significant shareholders. Chapter 23B.19 of the WBCA prohibits a "target corporation," with certain exceptions, from engaging in certain "significant business transactions" with a person or group of persons that beneficially owns 10% or more of the voting securities of the target corporation (an "acquiring person") for a period of five years after the acquisition of the securities, unless the transaction of securities is approved by a majority of the members of the target corporation's board of directors prior to the time of acquisition. Such prohibited transactions include, among other things, a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from, the acquiring person; termination of 5% or more of the employees of the target corporation as a result of the acquiring person's acquisition of 10% or more of the shares; or allowing the acquiring person to receive any disproportionate benefit as a shareholder.

          After the five-year period, a "significant business transaction" may occur, as long as it complies with certain "fair price" provisions of the statute. A corporation may not "opt out" of this statute. This provision may have the effect of delaying, deterring or preventing a change in control of us.

          Issuance of preferred stock.    As noted above, our board of directors, without shareholder approval, has the authority under our articles of incorporation to issue preferred stock with rights superior to the rights of the holders of common stock. As a result, preferred stock could be issued quickly and easily, could adversely affect the rights of holders of common stock and could be issued with terms calculated to delay or prevent a change in control or to make removal of management more difficult.

          Election and removal of directors.    Our articles of incorporation provide for the division of our board of directors into three classes, as nearly as equal in number as possible, with the directors in each class serving for three-year terms, and one class being elected each year by our shareholders. In addition, our directors are removable only for cause and, subject to certain exceptions, any vacancies on the board of directors may be filled only by the affirmative vote of a majority of the directors then in office. Because

66



this system of electing, appointing, removing and replacing directors generally makes it more difficult for shareholders to replace a majority of the board of directors, it may discourage a third party from making a tender offer or otherwise attempting to gain control of us and may maintain the incumbency of the board of directors.

          Approval for certain business combinations.    Our articles of incorporation require that certain business combinations, including a merger, share exchange and the sale, lease, exchange, mortgage, pledge, transfer or other disposition or encumbrance of a substantial part of our assets other than in the usual and regular course of business, be approved by the holders of not less than 662/3% of the voting power of all of the then-outstanding shares of the capital stock entitled to vote generally in the election of directors, voting together as a single class.

          Shareholder meetings.    Our articles of incorporation and our bylaws provide that only the board of directors or the chairman of the board of directors may call a special meeting of shareholders. The effect of these provisions is that a shareholder will have to wait until an annual meeting or a special meeting called by the board of directors or the chairman of the board of directors to bring a proposal for shareholder approval.

          Requirements for advance notification of shareholder nominations and proposals.    Our bylaws contain advance notice procedures with respect to shareholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee thereof.

          Amendment of our bylaws.    Our articles of incorporation and our bylaws provide that shareholders can amend our bylaws only upon the affirmative vote of the holders of at least 662/3% of the voting power of all of the then-outstanding shares of the capital stock entitled to vote generally in the election of directors, voting together as a single class. Our board of directors can amend our bylaws without shareholder approval.

Transfer Agent And Registrar

          The Transfer Agent and Registrar for our common stock is                        .

Nasdaq National Market Quotation

          We have applied to have our shares of common stock quoted on the Nasdaq Stock Market's National Market under the trading symbol "ZUMZ."

67



SHARES ELIGIBLE FOR FUTURE SALE

          Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could adversely affect prevailing market prices of our common stock. Furthermore, because only a limited number of our shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after these restrictions lapse, or the perception that such sales may occur, could adversely affect the prevailing market price and our ability to raise equity capital in the future.

          Upon completion of this offering and based on shares outstanding as of January 29, 2005, we will have                        outstanding shares of common stock, assuming no exercise of the underwriters' over-allotment option. All of the shares of common stock sold in this offering will be freely tradable on the date of this prospectus unless purchased by our "affiliates," as that term is defined in Rule 144 promulgated under the Securities Act. In addition, the following table illustrates the times at which shares will be eligible for sale in the public market:

Number of Shares
  Date Available for Sale
    90 days after the date we become subject to the reporting requirements of the Securities Exchange Act of 1934, these shares will be saleable under Rule 144 (subject, in some cases, to volume limitations) or Rule 701 under the Securities Act.

 

 

180 days after the date of this prospectus, the 180-day lock-up will be released and these shares are saleable under Rule 144 (subject, in some cases, to volume limitations), Rule 144(k) or Rule 701 under the Securities Act.

          We anticipate that we will become subject to the reporting requirements of the Securities Exchange Act of 1934, or the "Securities Exchange Act," on or shortly before the date of this prospectus. The 180 day lock-up period described above may be extended by up to 18 days under certain circumstances and may also be waived as described below. No prediction can be made as to the effect, if any, that sales of shares or the availability of shares for sale in the public markets will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market after the lapse or waiver of the restrictions described in this section, or the perception that sales may occur, could adversely affect the prevailing market price and our ability to raise equity capital in the future at a time and price that we deem appropriate.

Lock-Up Agreements

          We, all of our directors and officers, the selling shareholders and all of our other shareholders have agreed that, without the prior written consent of Wachovia Capital Markets, LLC and Piper Jaffray & Co., we and they will not, among other things, offer or sell any shares of our common stock during the period beginning on and including the date of this prospectus through and including the date that is the 180th day after the date of this prospectus, except for sales of shares to the underwriters and subject to certain other exceptions. The 180-day lock-up period may be extended by an additional 18 days under certain circumstances described under "Underwriting." Wachovia Capital Markets, LLC and Piper Jaffray & Co. may, in their sole discretion and at any time or from time to time, without notice, release all or any portion of the shares subject to the lock-up agreements. See "Underwriting—Lock-up Agreements."

68



Rule 144

          In general, under Rule 144 as currently in effect, beginning 90 days after we become subject to the reporting requirements of the Securities Exchange Act, but subject to the lock-up agreements described above, if applicable, a person (or persons whose shares are aggregated) who has purchased our common stock from us or any "affiliate" of ours at least one year previously would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the number of shares of common stock then outstanding or the average weekly trading volume of the common stock as reported through the Nasdaq National Market during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. In addition, a person who is not deemed to have been our "affiliate" at any time during the 90 days preceding a sale and who has beneficially owned for at least two years the shares proposed to be sold would be entitled to sell such shares under Rule 144(k) without regard to the volume limitations and other requirements described above.

Rule 701

          Our employees, directors and officers who acquired our common stock prior to the date we become subject to the reporting requirements of the Securities Exchange Act under written compensatory benefit plans or written contracts relating to the compensation of those persons may rely on Rule 701 with respect to the resale of that stock. In general, Rule 701 permits resales of shares issued under compensatory benefit plans and contracts commencing 90 days after we became subject to the reporting requirements of the Securities Exchange Act in reliance upon Rule 144, but without compliance with certain restrictions, including the holding period requirements contained in Rule 144. Accordingly, subject to the lock-up agreements described above, if applicable, beginning 90 days after we become subject to the reporting requirements of the Securities Exchange Act, persons who are not our "affiliates" may resell those shares subject only to the manner of sale provisions of Rule 144 and persons who are our "affiliates" may resell those shares without compliance with Rule 144's minimum holding period requirements.

Registration Rights

          Immediately after completion of this offering and based on shares outstanding as of January 29, 2005, the holders of approximately                        shares of our outstanding common stock will have the right, under the Stockholders' Agreement, to require that we include those shares in any registration statement we file under the Securities Act, subject to exceptions. Such registration will permit the resale of those shares in the public markets. In addition, all shares of capital stock which those stockholders may acquire in the future will also be entitled to similar registration rights. See "Description of Capital Stock—Registration Rights" for a description of such rights.

Stock Plans

          As of January 29, 2005, options to purchase                        shares of common stock were issued and outstanding and                        additional shares of our common stock were available for future awards under our stock option plans. In addition, upon completion of this offering, an aggregate of                        additional shares of our common stock initially will be available for future awards under our 2005 Incentive Plan and Stock Purchase Plan, plus scheduled annual increases and other potential increases in the number of shares reserved for issuance under our 2005 Incentive Plan. See "Management—Stock Based Plans." We intend to file a registration statement under the Securities Act covering all of the shares of common stock reserved for issuance under our outstanding stock option and stock purchase plans. We expect this registration statement to be filed and to become effective as soon as practicable after this offering. Such registration will permit the resale of shares issued upon the exercise of those stock options or pursuant to those stock purchase plans in the public market without restriction under the Securities Act.

69



UNDERWRITING

          Subject to the terms and conditions of the underwriting agreement, we and the selling shareholders have agreed to sell to the underwriters named below, and the underwriters, for whom Wachovia Capital Markets, LLC and Piper Jaffray & Co. are acting as joint book-running managers and representatives, have severally agreed to purchase, the respective number of shares of common stock appearing opposite their names below:

Underwriter

  Number of Shares
Wachovia Capital Markets, LLC    
Piper Jaffray & Co.    
William Blair & Company, L.L.C.    
   
  Total    
   

          The underwriters have agreed to purchase all of the shares shown in the above table if any of those shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

          The shares of common stock are offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by counsel for the underwriters and other conditions. The underwriters reserve the right to withdraw, cancel or modify the offer and to reject orders in whole or in part.

          The underwriters have informed us that they will not confirm sales to accounts over which they exercise discretionary authority in excess of 5% of the total number of shares offered by them.

          Commissions and Discounts.    The underwriters have advised us that they propose to offer the shares of common stock to the public at the public offering price appearing on the cover page of this prospectus and to certain dealers at that price less a concession of not more than $            per share, of which up to $                  may be reallowed to other dealers. After the initial offering, the public offering price, concession and reallowance to dealers may be changed.

          The following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses, to us and to the selling shareholders, both on a per share basis and in total, assuming either no exercise or full exercise by the underwriters of their over-allotment option.

 
   
  Total
 
  Per Share
  Without
Option

  With
Option

Public offering price            
Underwriting discounts and commissions            
Proceeds, before expenses, to us            
Proceeds, before expenses, to the selling shareholders            

          We estimate that the expenses of this offering payable by us, not including underwriting discounts and commissions, will be approximately $            million. We have agreed to pay the expenses of the selling shareholders incurred in connection with this offering, other than underwriting discounts and commissions payable in respect of the shares sold by the selling shareholders and fees and disbursements of counsel for the selling shareholders.

          Over-allotment Option.    We and the selling shareholders have granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to                  

70



and                  additional shares of common stock, respectively, at the public offering price per share less the underwriting discounts and commissions per share shown on the cover page of this prospectus. To the extent that the underwriters exercise this option, each underwriter will have a firm commitment, subject to conditions, to purchase approximately the same percentage of those additional shares that the number of shares of common stock to be purchased by that underwriter as shown in the above table represents as a percentage of the total number of shares shown in that table.

          Indemnity.    We and the selling shareholders have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

          Lock-up Agreements.    We, all of our directors and officers, the selling shareholders and all of our other shareholders, which directors, officers and shareholders will own a total of approximately        % of our outstanding common stock (or        % if the underwriters' over-allotment option is exercised in full) immediately upon completion of this offering, based on shares outstanding as of January 29, 2005, have agreed that, without the prior written consent of Wachovia Capital Markets, LLC and Piper Jaffray & Co., we and they will not, during the period beginning on and including the date of this prospectus through and including the date that is the 180th day after the date of this prospectus, directly or indirectly:

whether any transaction described in any of the foregoing bullet points is to be settled by delivery of our common stock or other capital stock, other securities, in cash or otherwise. Moreover, if:

the restrictions described in the immediately preceding sentence will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as the case may be, unless Wachovia Capital Markets, LLC and Piper Jaffray & Co. waive, in writing, that extension.

          The restrictions described in the immediately preceding paragraph do not apply to:

71


provided that, in the case of any transfer or issuance described in clause (4), (5) or (6) above, (A) the transferee, donee or recipient, as the case may be, executes and delivers to the representatives, not later than one business day prior to such transfer, gift or issuance, a written agreement wherein it agrees to be subject to the restrictions described in the immediately preceding paragraph, subject to the applicable exceptions described above in this paragraph.

          Wachovia Capital Markets, LLC and Piper Jaffray & Co. may, in their sole discretion and at any time or from time to time, without notice, release all or any portion of the shares or other securities subject to the lock-up agreements.

          Quotation on the Nasdaq National Market.    We have filed for an application for our common stock to be quoted on the Nasdaq National Market under the symbol "ZUMZ."

          Stabilization.    The representatives have advised us that certain persons participating in this offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, which may have the effect of stabilizing or maintaining the market price of our common stock at a level above that which might otherwise prevail in the open market.

          The representatives have advised us that these transactions may be effected on the Nasdaq National Market or otherwise. Neither we nor any of the underwriters makes any representation that the underwriters will engage in any of the transactions described above and these transactions, if commenced,

72



may be discontinued without notice. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of the effect that the transactions described above, if commenced, may have on the market price of our common stock.

          Directed Share Program.    At our request, the underwriters have reserved up to 5% of the shares of common stock being sold in this offering for sale to our friends, business associates and other related persons at the initial public offering price through a directed share program. The number of shares of our common stock available for sale to the general public in this offering will be reduced to the extent that these reserved shares are purchased by these persons. Any reserved shares not purchased by these persons will be offered by the underwriters to the general public on the same basis as the other shares in this offering.

          Pricing of this Offering.    Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock was determined by negotiations among us, the selling shareholders and the representatives of the underwriters. The factors considered in determining the initial public offering price included:

          An active trading market for our common stock may not develop. It is possible that the market price of our common stock after this offering will be less than the initial public offering price. In addition, the estimated initial public offering price range appearing on the cover of this preliminary prospectus is subject to change as a result of market conditions or other factors.


LEGAL MATTERS

          Preston Gates & Ellis LLP, Seattle, Washington, will pass upon the validity of the common stock offered hereby. Sidley Austin Brown & Wood LLP, San Francisco, California, will act as counsel to the underwriters. Sidley Austin Brown & Wood LLP will rely, as to all matters of Washington law, on Preston Gates & Ellis LLP.


EXPERTS

          The financial statements as of December 31, 2002, and January 31, 2004, for the fiscal years ended December 31, 2001, December 31, 2002 and January 31, 2004 and for the one month ended February 1, 2003 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.


WHERE YOU CAN FIND MORE INFORMATION

          We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement. For further information with respect to Zumiez Inc. and the common stock offered in this offering, we refer you to the registration statement and to the attached exhibits and schedules. Statements made in this prospectus concerning the contents of any document referred to in this prospectus are not complete. With respect to

73



each such document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matters involved.

          You may inspect our registration statement and the attached exhibits and schedules without charge at the public reference facilities maintained by the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. You may obtain copies of all or any part of our registration statement from the SEC upon payment of prescribed fees. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

          Our SEC filings, including the registration statement and the exhibits filed with the registration statement, are also available from the SEC's website at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

          You can obtain a copy of any of our filings, at no cost, by writing to or telephoning us at:

Zumiez Inc.
6300 Merrill Creek Parkway, Suite B
Everett, WA 98203
Attention: Investor Relations
(425) 551-1500

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INDEX TO FINANCIAL STATEMENTS

 
  Page
Report of Independent Registered Public Accounting Firm   F-2
Balance Sheets   F-3
Statements of Operations   F-4
Statements of Changes in Shareholders' Equity   F-5
Statements of Cash Flows   F-6
Notes to Financial Statements   F-7

F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Zumiez Inc.

          In our opinion, the accompanying balance sheets and the related statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Zumiez Inc. (the "Company") at January 31, 2004 and December 31, 2002, and the results of its operations and its cash flows for each of the years ended January 31, 2004, December 31, 2002, December 31, 2001 and the one month ended February 1, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          As further described in note 1 to the financial statements, the Company changed its fiscal year end as of February 2, 2003.

/s/ PRICEWATERHOUSECOOPERS LLP

Seattle, Washington
June 2, 2004

F-2



ZUMIEZ INC.
BALANCE SHEETS
(In thousands, except share amounts)

 
  December 31,
2002

  January 31,
2004

  October 30,
2004
(unaudited)

  Pro forma
October 30, 2004
(unaudited)

Assets                      
Current assets                      
  Cash and cash equivalents   $ 7,722   $ 578   $ 897    
  Receivables     900     1,039     1,430    
  Inventory     16,455     20,802     34,595    
  Prepaid expenses and other     291     395     546    
  Deferred tax assets     593     668     1,044    
   
 
 
 
    Total current assets     25,961     23,482     38,512    
   
 
 
 
Leasehold improvements and equipment, net     16,647     18,076     24,014    
   
 
 
 
    Total assets   $ 42,608   $ 41,558   $ 62,526    
   
 
 
 
Liabilities and Shareholders' Equity                      
Current liabilities                      
  Current portion of long-term debt   $ 1,359   $ 544   $    
  Revolving credit facility         300     6,125    
  Notes payable to shareholders     7,094            
  Book overdraft         4,464     3,982    
  Trade accounts payable     12,337     9,273     18,876    
  Accrued payroll and payroll taxes     2,167     1,609     2,161    
  Income taxes payable     1,056     1,846     1,312    
  Deferred rent and tenant allowances     1,192     1,596     4,224    
  Other accrued liabilities     2,266     2,152     2,844    
   
 
 
 
    Total current liabilities     27,471     21,784     39,524    
   
 
 
 
Long-term debt, less current portion     544            
Deferred tax liabilities     457     1,336     1,491    
   
 
 
 
    Total liabilities   $ 28,472   $ 23,120   $ 41,015    
   
 
 
 
Commitments and contingencies (Note 9)                      

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

 
 
Preferred stock, par value $.01 per share, 7,500 shares authorized; none issued and outstanding

 

 


 

 


 

 


 

 
  Common stock, par value $.01 per share, 92,000 shares authorized; 43,710 shares issued and outstanding     44     44     44    
  Employee stock options             54    
  Retained earnings     14,235     18,541     21,561    
  Receivable from parent     (143 )   (147 )   (148 )  
   
 
 
 
    Total shareholders' equity     14,136     18,438     21,511    
   
 
 
 
    Total liabilities and shareholders' equity   $ 42,608   $ 41,558   $ 62,526    
   
 
 
 

The accompanying notes are an integral part of these financial statements

F-3



ZUMIEZ INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)

 
  Fiscal Year Ended
December 31,

   
   
  Nine Months Ended
 
 
  One
Month Ended
February 1,
2003

  Fiscal
Year Ended
January 31,
2004

 
 
  November 1,
2003
(unaudited)

  October 30,
2004
(unaudited)

 
 
  2001
  2002
 
Net sales   $ 84,735   $ 101,391   $ 6,392   $ 117,857   $ 78,039   $ 100,582  
Cost of goods sold     57,534     71,017     4,575     81,320     54,824     69,165  
   
 
 
 
 
 
 
  Gross margin     27,201     30,374     1,817     36,537     23,215     31,417  

Selling, general and administrative expenses

 

 

20,470

 

 

23,404

 

 

2,013

 

 

29,076

 

 

20,587

 

 

26,248

 
   
 
 
 
 
 
 
  Operating profit (loss)     6,731     6,970     (196 )   7,461     2,628     5,169  

Other income (expense)

 

 

(3

)

 

148

 

 


 

 

8

 

 

4

 

 

5

 
Interest expense     (322 )   (317 )   (12 )   (293 )   (245 )   (218 )
   
 
 
 
 
 
 
Earnings (loss) before income taxes     6,406     6,801     (208 )   7,176     2,387     4,956  

Provision (benefit) for income taxes

 

 


 

 

1,096

 

 

(39

)

 

2,701

 

 

799

 

 

1,936

 
   
 
 
 
 
 
 
Net income (loss)   $ 6,406   $ 5,705   $ (169 ) $ 4,475   $ 1,588   $ 3,020  
   
 
 
 
 
 
 
Basic net income (loss) per share   $ 163.52   $ 127.79   $ (3.87 ) $ 102.38   $ 36.33   $ 69.09  
   
 
 
 
 
 
 
Diluted net income (loss) per share   $ 130.23   $ 108.65   $ (3.87 ) $ 90.34   $ 31.98   $ 60.72  
   
 
 
 
 
 
 
Weighted average shares outstanding                                      
  Basic     39,175     44,642     43,710     43,710     43,710     43,710  
   
 
 
 
 
 
 
  Diluted     49,191     52,508     43,710     49,535     49,661     49,737  
   
 
 
 
 
 
 

The accompanying notes are an integral part of these financial statements

F-4



ZUMIEZ INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)

 
  Common Stock
   
   
   
   
   
 
 
  Additional
Paid-In
Capital

  Employee
Stock
Options

  Retained
Earnings

  Receivable
from
Parent

   
 
 
  Shares
  Amount
  Total
 
Balance at December 31, 2000   39   $ 39   $ 258       $ 7,191       $ 7,488  
Dividends declared                   (2,130 )       (2,130 )
Stock issued upon exercise of options   4     4     149                 153  
Net income                   6,406         6,406  
   
 
 
 
 
 
 
 
Balance at December 31, 2001   43   $ 43   $ 407       $ 11,467       $ 11,917  
Dividends declared                   (922 )       (922 )
Stock issued upon exercise of options   2     2     98                 100  
Stock redemption   (6 )   (6 )   (6,549 )       (2,015 )       (8,570 )
Stock purchased by parent   5     5     6,044             (143 )   5,906  
Net income                   5,705         5,705  
   
 
 
 
 
 
 
 
Balance at December 31, 2002   44   $ 44   $       $ 14,235   $ (143 ) $ 14,136  
   
 
 
 
 
 
 
 
Net loss                   (169 )       (169 )
   
 
 
 
 
 
 
 
Balance at February 1, 2003   44   $ 44   $       $ 14,066   $ (143 ) $ 13,967  
   
 
 
 
 
 
 
 
Cost incurred on behalf of parent                       (4 )   (4 )
Net income                   4,475         4,475  
   
 
 
 
 
 
 
 
Balance at January 31, 2004   44   $ 44   $       $ 18,541   $ (147 ) $ 18,438  
   
 
 
 
 
 
 
 
Stock based compensation (unaudited)             $ 54           $ 54  
Cost incurred on behalf of parent (unaudited)                       (1 )   (1 )
Net income (unaudited)                   3,020         3,020  
   
 
 
 
 
 
 
 
Balance at October 30, 2004 (unaudited)   44   $ 44   $   $ 54   $ 21,561   $ (148 ) $ 21,511  
   
 
 
 
 
 
 
 

The accompanying notes are an integral part of these financial statements

F-5



ZUMIEZ INC.
STATEMENTS OF CASH FLOWS
(In thousands)

 
  Fiscal Year Ended
December 31,

   
   
  Nine Months Ended
 
 
  One
Month Ended
February 1,
2003

  Fiscal
Year Ended
January 31,
2004

 
 
  November 1,
2003
(unaudited)

  October 30,
2004
(unaudited)

 
 
  2001
  2002
 
Cash flows from operating activities                                      
Net income (loss)   $ 6,406   $ 5,705   $ (169 ) $ 4,475   $ 1,588   $ 3,020  
Adjustments to reconcile net income (loss) to net cash provided by operating activities                                      
  Depreciation     2,348     3,571     332     4,185     3,042     3,999  
  Deferred tax expense         (136 )   83     804     (325 )   (221 )
  Stock compensation expense                         54  
  Loss on disposal of assets     32     13         33     31     3  
  Changes in operating assets and liabilities                          
    Receivables     (31 )   (317 )   133     (272 )   (27 )   (391 )
    Inventory     (3,403 )   (4,194 )   (94 )   (1,957 )   (11,462 )   (12,723 )
    Prepaid expenses     14     (179 )   (24 )   (163 )   (51 )   (151 )
    Trade accounts payable     2,299     1,599     (2,937 )   (2,423 )   3,790     8,533  
    Accrued payroll and payroll taxes     151     270     (1,007 )   449     126     552  
    Income taxes payable         1,056     (120 )   910     15     (534 )
    Other accrued liabilities     929     118     (682 )   564     224     691  
    Deferred rent     370     433     34     370     262     271  
   
 
 
 
 
 
 
Net cash provided by (used in) operating activities   $ 9,115   $ 7,939   $ (4,451 ) $ 6,975   $ (2,787 ) $ 3,103  
   
 
 
 
 
 
 
Cash flows from investing activities                                      
Additions to leasehold improvements and equipment   $ (7,500 ) $ (7,186 ) $ (42 ) $ (5,937 ) $ (2,713 ) $ (7,583 )
Advances (to) from shareholders     (1,534 )   34                  
   
 
 
 
 
 
 
Net cash used in investing activities   $ (9,034 ) $ (7,152 ) $ (42 ) $ (5,937 ) $ (2,713 ) $ (7,583 )
   
 
 
 
 
 
 
Cash flows from financing activities                                      
Change in book overdraft   $   $ 2,293   $ 2,774   $ 1,690   $ (94 ) $ (482 )
Borrowings on revolving credit facility     24,153     20,440     1,845     25,620     23,020     38,796  
Payments on revolving credit facility     (24,153 )   (20,440 )       (27,165 )   (16,615 )   (32,971 )
Proceeds from issuance of long-term debt     3,713                      
Principal payments on long-term debt     (3,092 )   (1,087 )   (272 )   (1,087 )   (816 )   (544 )
Proceeds from exercise of stock options     153     100                  
Stock purchased by parent         5,906                  
Redemption of common stock             (7,094 )            
Dividends paid     (3,746 )   (922 )                
   
 
 
 
 
 
 
Net cash provided by (used in) financing activities     (2,972 )   6,290     (2,747 )   (942 )   5,495     4,799  
   
 
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents   $ (2,891 ) $ 7,077   $ (7,240 ) $ 96   $ (5 ) $ 319  
Cash and cash equivalents                                      
Beginning of period     3,536     645     7,722     482     482     578  
   
 
 
 
 
 
 
End of period   $ 645   $ 7,722   $ 482   $ 578   $ 477   $ 897  
   
 
 
 
 
 
 
Supplemental disclosure of cash flow information                                      
Cash paid during the period for interest   $ 324   $ 302   $ 12   $ 265   $ 220   $ 127  
Cash paid during the period for income taxes         176         1,172     1,172     2,752  

The accompanying notes are an integral part of these financial statements

F-6



NOTES TO FINANCIAL STATEMENTS

1.    Nature and Ownership of Business and Basis of Presentation

          Nature of Business—Zumiez Inc. (the "Company") is a leading specialty retailer of action sports related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of October 30, 2004, the Company operated 133 stores primarily located in shopping malls, with a presence in 18 states. The Company's stores cater to young men and women between the ages of 12 and 24 who seek popular brands representing a lifestyle centered on activities that include skateboarding, surfing, snowboarding, bicycle motocross (or "BMX") and motocross. The Company supports the action sports lifestyle and promotes its brand through a multi-faceted marketing approach that is designed to integrate its brand image with its customers' activities and interests. In addition, the Company operates a website which sells merchandise online and provides content and a community for its target customers. The Company, based in Everett, WA, was formed in August 1978 and operates within one reportable segment.

          The Company is a majority owned subsidiary of Zumiez Holdings LLC (the "Parent"), a holding company with no operating activities. The financial position and operating results of the Parent are not included in the Company's financial statements. The Parent has three members.

          Change in Ownership—Effective November 4, 2002, 95% of the shares of the Company were transferred to the Parent in exchange for cash, the redemption of a note receivable and the creation of two notes payable to two of the shareholders (the "Transaction"). In connection with the Transaction, the Company entered into common stock redemption agreements with two shareholders. Pursuant to the terms of the redemption agreements with these shareholders, the Company redeemed 5,741 shares of its common stock held by one shareholder for an aggregate purchase price of approximately $7.7 million, which amount was paid by the Company through delivery of a note payable for approximately $6.2 million and the cancellation of a $1.5 million note receivable and the Company redeemed 615 shares of common stock held by the other shareholder for an aggregate purchase price of approximately $829,000, which amount was paid by the Company through delivery of a note payable for approximately $829,000. Each of these notes payable have been paid in full.

          Also on November 4, 2002, approximately 43% of the Parent was sold to certain affiliates of Brentwood Private Equity III, LLC, a private equity firm (the "Brentwood Affiliates"), for approximately $25.3 million, of which approximately $17.1 million was distributed to two of the original shareholders of the Company. The Transaction did not result in a change in the operating control of the Company. While the Brentwood Affiliates have certain protective rights regarding its investment in the Parent, and therefore the Company, two shareholders continue to serve in the function of the primary operating roles of the Company Chairman and Chief Executive Officer. In fiscal 2002, 2003 and 2004 the Company paid Brentwood Private Equity III, LLC a management fee of $31,000, $200,000 and $200,000, respectively, under a Corporate Development Administrative Services Agreement.

          As part of the Transaction, the Company also authorized 7,500 shares of preferred stock, with a $.01 par value. Subsequent to January 1, 2003 and prior to March 1, 2004, the Company had the right to require the Brentwood Affiliates to purchase at least $5.0 million, but no more than $10.0 million in the aggregate, of preferred stock. The Company did not exercise this right and no preferred stock was issued.

          Also effective November 4, 2002, the Company terminated its Subchapter S tax election and elected to be taxed as a Subchapter C corporation under the Internal Revenue Code. As a result, the Company has been subject to federal and state income taxes beginning as of November 4, 2004. Prior to this date, the shareholders were taxed on the earnings of the Company on their personal income tax returns, in accordance with Subchapter S of the Internal Revenue Code. Therefore, no provision for income taxes or deferred taxes is recorded in these financial statements for operating results through November 3, 2002. Upon the conversion to a Subchapter C corporation, the Company recorded a net deferred tax asset of $373,000.

F-7


          Fiscal Year—Subsequent to December 31, 2002, the Company changed its fiscal year end from December 31 to a 52- or 53- week period ending on the Saturday closest to January 31. This fiscal calendar is widely used by the retail industry. As a result of the change in its fiscal year end, there was a one month conversion period ended February 1, 2003. Each fiscal year now consists of four 13-week quarters, with an extra week added to the fourth quarter every five or six years. "Fiscal 2004" will be the 52-week period ending January 29, 2005. "Fiscal 2003" was the 52-week period ended January 31, 2004. "Fiscal 2002" was the calendar year ended December 31, 2002. "Fiscal 2001" was the calendar year ended December 31, 2001.

          Interim Financial Data—The accompanying consolidated balance sheet as of October 30, 2004 and financial statements for the nine months ended October 30, 2004 and November 1, 2003 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements. It is the opinion of management that the interim financial data includes all the adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the results for the interim periods. The results for the nine months ended October 30, 2004 are not necessarily indicative of the results to be expected for the fiscal year ending January 29, 2005.

          Basis of Presentation—The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

2.    Summary of Significant Accounting Policies

          Comprehensive Income—Comprehensive income represents all changes in equity during a period except those resulting from investments by and distributions to shareholders. There was no difference between net income and comprehensive income for fiscal 2001, 2002 and 2003 and the one month period ended February 1, 2003.

          Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. These estimates can also affect supplemental information disclosed by the Company, including information about contingencies, risk, and financial condition. In preparing the financial statements, the Company makes routine estimates and judgments in determining the net realizable value of accounts receivable, inventory, fixed assets, and prepaid allowances. Some of the more significant estimates include the allowance for sales returns, the reserve for inventory valuation estimates and the expected useful lives of fixed assets. Actual results could differ from those estimates.

          Concentration of Risk—The Company maintains its cash and cash equivalents in accounts with one major financial institution in the United States of America, in the form of demand deposits, certificates of deposits and money market accounts. Deposits in this bank may exceed the amounts of federal deposit insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company's accounts receivable are primarily derived from credit card purchases from customers and are typically settled within one to two days.

          Cash and Cash Equivalents—The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.

          Restricted Cash—For all the periods presented herein, restricted cash consisted of a certificate of deposit held for the lessor of the Company's former combined home office and distribution facility of $32,000 and is included in prepaid expenses and other.

F-8



          Receivables—Consist primarily of tenant allowances and credit card transactions that remain outstanding at the end of the period. The Company does not extend credit to its customers, except through third-party credit cards.

          Merchandise Inventories—Merchandise inventories are valued at the lower of cost or market. Merchandise inventories may include items that have been written down to the Company's best estimate of their net realizable value. The Company's decisions to write-down its merchandise inventories are based on its current rate of sale, the age of the inventory and other factors. Actual final sales prices to customers may be higher or lower than the Company's estimated sales prices and could result in a fluctuation in gross profit. Historically, any additional write-downs have not been significant and the Company does not adjust the historical carrying value of merchandise inventories upwards based on actual sales experience.

          Leasehold Improvements and Equipment—Leasehold improvements and equipment are stated at cost less accumulated depreciation. Amortization of leasehold improvements is computed on the straight-line method over the lesser of an asset's estimated useful life or the life of the related store's lease (generally 7-10 years), whichever is shorter. Depreciation on furniture, fixtures and equipment is computed on the straight-line method over five years. Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation or amortization of assets sold or otherwise disposed of is removed from the accounts and the related gain or loss is reported in the statement of operations.

          Valuation of Long-Lived Assets—The Company has adopted SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Measurement of the impairment loss is based on the fair value of the asset, or group of assets. Generally, fair value will be determined using accepted valuation techniques, such as the present value of expected future cash flows.

          Fair Value of Financial Instruments—Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments," requires management to disclose the estimated fair value of certain assets and liabilities defined by SFAS 107 as financial instruments. Financial instruments are generally defined by SFAS 107 as cash, evidence of ownership interest in an entity, or a contractual obligation that both conveys to one entity a right to receive cash or other financial instruments from another entity and imposes on the other entity the obligation to deliver cash or other financial instruments to the first entity. At October 30, 2004 and all other previous periods presented herein, the carrying amounts of cash and cash equivalents, receivables, payables and other accrued liabilities approximated fair value because of the short maturity of these financial instruments. The carrying value of the long-term debt and the revolving credit facility approximate the fair value because these financial instruments have floating interest rates which reflect current market conditions.

          Deferred Rent and Tenant Allowances—The Company occupies its retail stores and combined home office and distribution facility under operating leases generally with terms of seven to ten years. Some of these leases have early cancellation clauses, which permit the lease to be terminated if certain sales levels are not met in specific periods. Some leases contain renewal options for periods ranging from one to five years under substantially the same terms and conditions as the original leases. Most of the store leases require payment of a specified minimum rent, plus a contingent rent based on a percentage of the store's net sales in excess of a specified threshold. Most of the lease agreements have defined escalating rent provisions, which are straight-lined over the term of the related lease, including any lease renewals deemed to be probable. For certain locations, the Company receives cash tenant allowances and has reported these amounts as a deferred liability which is amortized to rent expense over the term of the lease. In addition, most of the leases require payment of real estate taxes, insurance and certain common area and maintenance costs in addition to the future minimum operating lease payments.

F-9



          Income Taxes—The provision for income taxes includes both current and deferred tax expenses. Current tax expense is the amount associated with current operating results. The Company follows the liability method of accounting for income taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary difference between the carrying amounts and the tax bases of the assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax asserts to the amount expected to be realized.

          Revenue Recognition—Sales are recognized upon purchase by customers at the Company's retail store locations or upon shipment for orders placed through the Company's website as both title and risk of loss have transferred. The Company records the sale of gift cards as a current liability and recognizes revenue when a customer redeems a gift card. The Company reports shipping revenues and costs within sales and cost of goods sold, respectively. The Company accrues for estimated sales returns by customers based on historical sales return results. Sales return reserves were insignificant for all periods presented. The Company offers a return policy of generally 30 days.

          The Company does not extend credit to customers, except through third-party credit cards. The majority of sales are through credit cards, and accounts receivable are composed primarily of amounts due from financial institutions related to credit card sales.

          Cost of Goods Sold—Cost of goods sold consists of the cost of merchandise sold to customers, inbound shipping costs, distribution costs, buying and merchandising costs and store occupancy costs. This may not be comparable to the way in which the Company's competitors or other retailers compute their cost of goods sold.

          Selling, General and Administrative Expense—Selling, general and administrative expenses consist primarily of store personnel wages and benefits, administrative staff and infrastructure expenses, store supplies, depreciation and facility expenses, and training and marketing costs. Credit card fees, insurance and other miscellaneous operating costs are also included in selling, general and administrative expenses. This may not be comparable to the way in which the Company's competitors or other retailers compute their selling, general and administrative expenses. The Company does receive insignificant amounts of cash consideration from vendors which have been reported as a reduction of expenses as the amounts are reimbursements of specific, incremental and identifiable costs of selling the vendors' products.

          Advertising—The Company expenses advertising costs as incurred. Advertising expense was approximately $375,000, $322,000 and $295,000 in fiscal 2001, 2002 and 2003, respectively, and $24,000 for the one month period ended February 1, 2003.

          Net Income per Share—Basic net income per common share is computed using the weighted average number of shares outstanding. Diluted net income per common share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. Incremental shares of 10,016, 7,866 and 5,825, in fiscal 2001, 2002, and 2003, respectively, and 5,617 for the one month period ended February 1, 2003 were used in the calculation of diluted net income per common share.

          Stock Compensation—The Company has stock-based employee compensation plans, which are described further in note 7 below. The Company accounts for stock-based employee compensation arrangements on the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and related amendments and interpretations. The Company complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which requires fair value recognition for employee stock-based compensation.

F-10



          If the computed fair values of the awards had been amortized to expense over the vesting period of the awards, pro forma net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated in the following table (in thousands, except per share data):

 
  Fiscal Year Ended
   
   
  Nine Months Ended
 
 
  One Month
Ended
February 1,
2003

  Fiscal
Year Ended
January 31,
2004

 
 
  December 31,
2001

  December 31,
2002

  November 1,
2003
(unaudited)

  October 30,
2004
(unaudited)

 
Net income (loss), as reported   $ 6,406   $ 5,705   $ (169 ) $ 4,475   $ 1,588   $ 3,020  
Add: Stock-based compensation expense (benefit), as reported                         54  
Deduct: Stock-based employee compensation expense determined under fair-value-based method, net of tax     (201 )   (207 )   (17 )   (118 )   (83 )   (111 )
   
 
 
 
 
 
 
Pro forma net income (loss)     6,205     5,498     (186 )   4,357     1,505     2,963  
Net income (loss) per share:                                      
  Basic—as reported   $ 163.52   $ 127.79   $ (3.87 ) $ 102.38   $ 36.33   $ 69.09  
  Basic—pro forma   $ 158.39   $ 123.16   $ (4.26 ) $ 99.68   $ 34.43   $ 67.79  
  Diluted—as reported   $ 130.23   $ 108.65   $ (3.87 ) $ 90.34   $ 31.98   $ 60.72  
  Diluted—pro forma   $ 126.14   $ 104.71   $ (4.26 ) $ 87.96   $ 30.31   $ 59.57  

          Merchandise Risk—The Company's success is largely dependent upon its ability to gauge the fashion tastes of its customers and provide merchandise that satisfies customer demand. Any inability to provide appropriate merchandise in sufficient quantities in a timely manner could have a material adverse effect on the Company's business, operating results and financial condition.

          Reclassifications—Certain amounts in the prior year financial statements have been reclassified to conform to the current year's financial statement presentation. The reclassifications had no effect on shareholders' equity or net income.

Recent accounting pronouncements

          In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, "Inventory Costs—an Amendment of ARB No. 43, Chapter 4." This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage, requiring these items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and will become effective for the Company beginning in fiscal 2006. The effect of adopting this statement is not expected to be significant to the Company's financial position and results of operations.

          In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment (Revised 2004)" ("FAS 123R"). This statement addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for the company's equity instruments or liabilities that are based on the fair value of the company's equity securities or may be settled by the issuance of these securities. SFAS 123R eliminates the ability to account for share-based payments using APB 25, "Accounting for Stock Issued to Employees" and generally requires that such transactions be accounted for using a fair value method. The provisions of this statement are effective for fiscal periods beginning after June 15, 2005 and will become effective for the Company beginning with

F-11



the third quarter of fiscal 2005. The Company has not yet determined which transaction method it will use to adopt SFAS 123R. The full impact that the adoption of this statement will have on the Company's financial position and results of operations will be determined by share-based payments granted in future periods but will increase the compensation expense that would otherwise have been recognized in accordance with APB 25. In addition, outstanding unvested options will result in additional compensation expense that otherwise would only have been recognized on a pro-forma basis.

          In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of Non-Monetary Assets." This statement refines the measurement of exchanges of non-monetary assets between entities. The provisions of this statement are effective for fiscal periods beginning after June 15, 2005 and will become effective for the Company beginning with the third quarter of fiscal 2005. Historically, the Company has not transacted significant exchanges of non-monetary assets, but future such exchanges would be accounted for under the standard, when effective.

3.    Transition Period Comparative Data

          As a result of the change in the Company's fiscal year end there was a one month transition period. The following table presents certain condensed financial information for the one month ended February 3, 2002 (unaudited) and the one month ended February 1, 2003 (audited), respectively.

 
  One Month Ended
 
 
  February 3, 2002
(unaudited)

  February 1, 2003
 
 
  (In thousands)

 
Summarized Statements of Operations              
Net sales   $ 5,831   $ 6,392  
Cost of goods sold     3,961     4,575  
   
 
 
  Gross margin     1,870     1,817  
   
 
 
Operating profit (loss)     210     (196 )
   
 
 
  Net income (loss)   $ 201   $ (169 )
   
 
 
Summarized Balance Sheets              
Assets              
Total current assets   $ 16,297   $ 19,646  
  Total assets     29,532     36,003  
   
 
 
Liabilities and shareholders' equity              
Total current liabilities   $ 15,049   $ 21,082  
   
 
 
Total liabilities     16,679     22,036  
Total shareholders' equity     12,853     13,967  
   
 
 
  Total liabilities and shareholders' equity   $ 29,532   $ 36,003  
   
 
 

F-12


4.    Leasehold Improvements and Equipment

          Leasehold improvements and equipment consist of the following:

 
  December 31,
2002

  January 31,
2004

 
 
  (In thousands)

 
Leasehold improvements   $ 17,241   $ 20,102  
Store computer equipment     3,115     3,225  
Store displays     7,734     9,923  
Vehicles     53     53  
   
 
 
      28,143     33,303  
Less accumulated depreciation     (11,496 )   (15,227 )
   
 
 
    $ 16,647   $ 18,076  
   
 
 

5.    Long-Term Debt

          Long-term debt consists of the following:

 
  December 31,
2002

  January 31,
2004

 
 
  (In thousands)

 
Note payable to bank, payable in quarterly installments of $272,000 plus interest at LIBOR (1.155% per annum at January 31, 2004) plus 2%, maturing July 1, 2004   $ 1,903   $ 544  
Less current portion     (1,359 )   (544 )
   
 
 
    $ 544   $  
   
 
 

          The note payable to bank at January 31, 2004 was collateralized by substantially all the assets of the Company. Additionally, this note payable contained covenants that required the Company to maintain certain working capital ratios and placed certain restrictions on the declaration and payment of dividends. The note was paid in full per the terms of the agreement in fiscal 2004. During 2002, the Company received waivers for certain covenant violations, and the Company was in compliance with all covenants at January 31, 2004 and for the fiscal year then ended.

          In May 2003 the Company entered into an agreement for a new revolving credit facility of $20,000,000. The revolving credit facility has a $7,500,000 sub-limit for the issuance of letters of credit with 180 day maximum maturity. The outstanding borrowings under the revolving credit facility were $0 and $300,000 at December 31, 2002 and January 31, 2004, respectively. The Company also had open letters of credit of $213,000 and $447,000 at December 31, 2002 and January 31, 2004, respectively. The revolving credit facility bears interest at floating rates based on the lower of the prime rate (4% at January 31, 2004) or LIBOR (1.155% at January 31, 2004) plus 2%.

          In September 2004 the Company entered into a loan modification agreement to the existing revolving credit facility. The loan modification agreement reduced certain applicable interest rates and extended the maturity date of the revolving credit facility to July 1, 2006. The borrowing capacity can be increased to $25.0 million if the Company requests and if the Company is in compliance with certain provisions. The outstanding borrowings under the revolving credit facility was $6.1 million at October 30, 2004 (unaudited). The Company also had open letters of credit of $841,000 at October 30, 2004

F-13



(unaudited). The revolving credit facility bears interest at floating rates based on the lower of the prime rate (4.75% at October 30, 2004) minus a prime margin ranging from 0.75% to 0.10% or the LIBOR rate (2.08% at October 30, 2004) plus a LIBOR margin ranging from 1.40% to 2.15%, in each case depending on the ratio of the Company's adjusted funded debt (as defined in the loan agreement, as amended) to EBITDAR (as defined in the loan agreement, as amended). The Company's obligations under the revolving credit facility are secured by almost all of its personal property, including, among other things, inventory, equipment and fixtures. The Company must reduce the amount of any outstanding advances under the revolving credit facility to no more than $5.0 million for a period of at least 30 consecutive days each year. The Company pays an annual fee of between 0.1% and 0.2% of any unused amount under the revolving credit facility. The revolving credit facility also contains financial covenants that require the Company to meet specified financial ratios, including a debt to earnings ratio, an earnings to interest expense ratio and an inventory to debt ratio. The Company believes it was in compliance with all covenants at October 30, 2004.

6.    Income Taxes

          The components of the current deferred tax assets and net long-term deferred tax assets (liabilities) are:

 
  December 31,
2002

  January 31,
2004

 
 
  (In thousands)

 
Current deferred tax assets (liabilities)              
  Inventory   $ 410   $ 621  
  Employee benefits     108     124  
  Prepaid expenses         (77 )
  State income taxes     75      
   
 
 
    Total current deferred tax assets     593     668  
   
 
 
Long-term deferred tax assets (liabilities)              
  Property and equipment     (895 )   (1,927 )
  Deferred rent     438     591  
   
 
 
    Total long-term deferred tax liabilities     (457 )   (1,336 )
   
 
 
    Net deferred tax asset (liability)   $ 136   $ (668 )
   
 
 

F-14


          The components of the provision (benefit) for income taxes are:

 
  Fiscal Year Ended December 31,
2002

  One Month Ended February 1,
2003

  Fiscal Year Ended January 31,
2004

 
  (In thousands)

Current                  
  Federal   $ 837   $ (122 ) $ 1,526
  State     395         371
   
 
 
    Total current     1,232     (122 )   1,897
   
 
 
Deferred                  
  Federal     (129 )   77     740
  State     (7 )   6     64
   
 
 
    Total deferred     (136 )   83     804
   
 
 
    Provision (benefit) for income taxes   $ 1,096   $ (39 ) $ 2,701
   
 
 

          The reconciliation of the income tax provision at the U.S. federal statutory rate to the Company's effective income tax rate is as follows for the fiscal year ended:

 
  Fiscal Year Ended December 31, 2002
  One Month Ended February 1, 2003
  Fiscal Year Ended January 31, 2004
 
Expected U.S. federal income taxes at statutory rates   34.0 % 34.0 % 34.0 %
State and local income taxes, net of federal effect   4.3 % % 3.4 %
Benefit of Subchapter S election and termination   (22.3 )% (0.9 )% %
Permanent differences   % % 0.2 %
Other   0.1 % (14.3 )% %
   
 
 
 
    16.1 % 18.8 % 37.6 %
   
 
 
 

7.    Stock Options

          During fiscal 1997, the Company adopted the 1993 Stock Option Plan (the "Plan") to provide for the granting of nonqualified stock options to executive officers and key employees of the Company as determined by the 1993 Plan Committee (the "Committee").

          The Company has authorized 14,238 shares of common stock for issuance under the Plan. The date of grant, option price, vesting period and other terms specific to options granted under the Plan are determined by the Committee. All stock options granted under the Plan vest over a fixed period of five to eight years and expire ten years from the date of grant. Prior to the nine months ended October, 30, 2004, the option price for all options granted was equal to the fair market value of the Company's common stock at the date of grant and no stock-based compensation expense was recognized during fiscal 2001, 2002, 2003 or the one month ended February 1, 2003.

          During fiscal 2004, the Company adopted the 2004 Stock Option Plan (the "2004 Plan") to provide for the granting of incentive stock options and nonqualified stock options to executive officers and key employees of the Company as determined by the 2004 Plan Committee. The terms of the 2004 Plan are

F-15



generally the same as the plan adopted in fiscal 1997. During the nine months ended October 30, 2004, the Company issued stock options to certain employees with exercise prices below the fair market value of the Company's common stock at the date of grant. In accordance with the requirements of APB 25, the Company has recorded stock-based compensation for the difference between the exercise price of the stock options and the fair market value of the Company's stock at the grant date. During the nine months ended October 30, 2004 (unaudited), the Company recorded stock-based compensation of $54,000 related to these options. Stock-based compensation expense is currently recognized over the vesting period of the awards, generally five to eight years. Excluding the impact of the adoption of FAS 123R, future compensation expense to be recognized through fiscal 2012 associated with these grants will be $1,056,000.

          All grants of stock options have been to employees of the Company. There were no stock option grants, exercises, forfeitures or cancellations during fiscal 2002 or the one month period ended February 1, 2003. The fair values of the options granted under the Plan and the 2004 Plan were estimated using the minimum-value method with the assumptions from the table below:

 
  Fiscal Year Ended
  Nine Months Ended
 
 
  December 31,
2001

  January 31,
2004

  October 30,
2004
(unaudited)

 
Dividend yield   % % %
Average risk-free interest rate:              
  Expected lives—Ten years   5.10 % % %
  Expected lives—Eight years   % % 3.84 %
  Expected lives—Five years   % 3.30 % 3.41 %

          The following table summarizes stock option activity:

 
  Fiscal Year Ended
December 31, 2001

  Fiscal Year Ended
December 31, 2002

  Fiscal Year Ended
January 31, 2004

  Nine Months Ended
October 30, 2004
(unaudited)

 
  Number of
Options

  Weighted-
Average
Exercise
Price

  Number of
Options

  Weighted-
Average
Exercise
Price

  Number of
Options

  Weighted-
Average
Exercise
Price

  Number of
Options

  Weighted-
Average
Exercise
Price

Options outstanding at beginning of fiscal year   9,411   $ 192   7,860   $ 429   5,617   $ 583   5,930   $ 638
Options granted during the fiscal year   1,872   $ 919     $   521   $ 1,348   1,547   $ 2,000
Options exercised during the fiscal year   (3,423 ) $ 45   (2,243 ) $ 45     $     $
Options forfeited during the fiscal year     $     $   (208 ) $ (919 ) (256 ) $ 832
   
 
 
 
 
 
 
 
Options outstanding at end of fiscal year   7,860   $ 429   5,617   $ 583   5,930   $ 638   7,221   $ 923
   
 
 
 
 
 
 
 
Weighted-average fair value of options granted       $ 302                 $ 183       $ 1,207

F-16


          The following table summarizes information concerning outstanding and exercisable options at January 31, 2004:

 
  Options Outstanding

  Options Exercisable
Exercise Price
  Number of Options
  Weighted-Average
Remaining
Contractual Life

  Number of Options
$ 120   1,249   3.9   937
  562   2,496   5.3   1,248
  919   1,664   7.6   416
  1,348      521   9.3  
     
     
      5,930       2,601
     
     

8.    Related Party Transactions

          During fiscal 2002, the Company paid $143,000 in fees related to the Transaction that are receivable from the Parent. At January 31, 2004, due to additional such payments by the Company, the balance was $147,000. This amount is reported in shareholders' equity.

          During fiscal 2001, the Company advanced $1,500,000 to a shareholder under a note receivable. At December 31, 2001, the outstanding balance of the note and accrued interest receivable was $1,533,750, and while the interest was paid in cash in fiscal 2002, the note was redeemed as part of the Transaction.

          In fiscal 2002, 2003 and 2004 the Company paid Brentwood Private Equity III, LLC a consulting fee of $31,000, $200,000 and $200,000 (unaudited), respectively, under a Corporate Development and Administrative Services Agreement.

9.    Commitments and Contingencies

          Leases—The Company is committed under operating leases for all of its retail store locations. In addition to minimum future lease payments, all store leases provide for additional rental payments based on sales, as well as common area maintenance charges. For leases that have fixed escalation clauses, minimum rents are recognized on a straight-line basis over the term of the lease.

          Rent expense, including common area maintenance and other occupancy costs, was $8,733,000, $11,754,000, $13,871,000 and $919,000 for fiscal 2001, 2002, 2003 and the one month period ended February 1, 2003, respectively.

          Future minimum annual commitments (in thousands) on all leases at January 31, 2004 are as follows:

Fiscal 2005   $ 8,603
Fiscal 2006     8,343
Fiscal 2007     8,163
Fiscal 2008     7,341
Fiscal 2009     6,567
Thereafter     22,021
   
    $ 61,038
   

          Purchase Commitments—The Company was committed under purchase orders to acquire merchandise from vendors for approximately $25.0 million at October 30, 2004, unaudited. These

F-17



purchases are expected to be financed by cash flows from operations and the Company's revolving credit facility. The Company has an option to cancel such commitments with no notice prior to shipment.

          Litigation—The Company is involved from time to time in litigation incidental to its business and, from time to time, the Company may make provisions for potential litigation losses. The Company follows SFAS 5, "Accounting for Contingencies" when assessing pending or potential litigation. Management believes, after considering a number of factors and the nature of the contingencies to which the Company is subject, that the outcome of these contingencies will not have a material adverse effect upon the results of operations or financial condition of the Company.

          Insurance Reserves—The Company is responsible for medical insurance claims up to a specified aggregate amount. The Company maintains a reserve for estimated medical insurance claims based on historical claims experience and other estimated assumptions. The Company follows SFAS 5, "Accounting for Contingencies" when assessing pending or potential claims.

          Employment Agreement—The Company has an employment agreement in place with a key employee. The agreement provides that if the Company terminates the employee's employment without cause or if he terminates his employment for good reason, the employee could be entitled to continue to receive his base salary up to a maximum commitment of $262,000.

10.    Retirement Savings Plan

          The Zumiez Investment Plan is a qualified plan under Section 401(k) of the Internal Revenue Code. The Company's 401(k) matching and profit-sharing contributions are discretionary and are determined annually by the Company. The Company contributed $100,000, $50,000 and $55,000 to the plan during fiscal 2001, 2002 and 2003, respectively.

11.    Income (Loss) Per Share

          Basic net income (loss) per share is based on the weighted average number of common shares outstanding. Diluted net income (loss) per share is based on the weighted average number of common shares and common share equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options.

          The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except share and per share data):

 
  Fiscal Year Ended
   
   
  Nine Months Ended
 
  One Month
Ended
February 1,
2003

  Fiscal Year
Ended
January 31,
2004

 
  December 31,
2001

  December 31,
2002

  November 1,
2003
(unaudited)

  October 30,
2004
(unaudited)

Net income (loss)   $ 6,406   $ 5,705   $ (169 ) $ 4,475   $ 1,588   $ 3,020
   
 
 
 
 
 
Weighted average common shares for basic net income (loss) per share     39,175     44,642     43,710     43,710     43,710     43,710
Dilutive effect of stock options     10,016     7,866         5,825     5,951     6,027
   
 
 
 
 
 
Weighted average common shares for diluted net income (loss) per share     49,191     52,508     43,710     49,535     49,661     49,737
   
 
 
 
 
 
Basic net income (loss) per share   $ 163.52   $ 127.79   $ (3.87 ) $ 102.38   $ 36.33   $ 69.09
   
 
 
 
 
 
Diluted net income (loss) per share   $ 130.23   $ 108.65   $ (3.87 ) $ 90.34   $ 31.98   $ 60.72
   
 
 
 
 
 

          For the one month ended February 1, 2003, the dilutive effect of 5,617 options were excluded from weighted average diluted shares outstanding because the effect was antidilutive.

F-18


12.    Supplemental Cash Flow Information

          Non cash investing and financing activities are as follows:

 
  December 31,
2002

  January 31,
2004

  October 30,
2004
(unaudited)

 
  (In thousands)

Redemption of shareholder receivable for stock   $ 1,500   $   $
Issuance of notes payable to shareholders for stock     7,070        
Receivable from parent for transaction fees     143     4     1

13.    Subsequent Event (unaudited)

          The Company is contemplating an initial public offering (the "IPO") which is expected to become effective subsequent to year end. In connection with the IPO, the Parent will distribute the shares of the Company's common stock that it owns to the Parent's members, whereupon the Parent will dissolve.

          The Company recently entered into a lease for a new combined home office and distribution facility under a noncancelable operating lease agreement that expires in July 2012.

          Future minimum annual commitments (in thousands) on the new home office and distribution facility at October 30, 2004 are as follows:

 
   
Fiscal 2004   $ 34
Fiscal 2005     404
Fiscal 2006     432
Fiscal 2007     466
Fiscal 2008     479
Fiscal 2009     492
Fiscal 2010-2012     982
   
    $ 3,289
   

F-19


GRAPHIC

            Shares
Common Stock


PROSPECTUS
                     , 2005


Wachovia Securities   Piper Jaffray

 

 

 


 

 

 
William Blair & Company

          Until                        , 2005 (the 25th day after the date of this prospectus), all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.



PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

          The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts are estimates. We will pay all these expenses.

 
  Amount to be
Paid

SEC Registration Fee   $ 6,800
NASD Filing Fee     6,300
Nasdaq National Market Listing Fee     100,000
Printing Fees and Expenses     100,000
Legal Fees and Expenses     400,000
Accounting Fees and Expenses     600,000
Blue Sky Fees and Expenses     20,000
Transfer Agent and Registrar Fees     25,000
Miscellaneous     41,900
   
  Total   $ 1,300,000
   

Item 14. Indemnification of Directors and Officers

          Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation Act (the "WBCA") authorize Washington corporations to indemnify and advance expenses to directors, officers, employees or agents of the corporation under certain circumstances against liabilities and expenses incurred in legal proceedings involving such individuals because of their being or having been a director, officer, employee or agent of the corporation. Section 23B.08.560 of the WBCA authorizes a corporation to agree to so indemnify and obligate itself to advance or reimburse expenses without regard to the limitations of Section 23B.08.510 through 23B.08.550 of the WBCA; provided, however, that no such indemnity shall be made for or on account of any:

          Furthermore, Section 23B.08.320 of the WBCA authorizes a corporation to limit a director's liability to the corporation or its shareholders for monetary damages for acts or omissions as a director, except in certain circumstances involving (1) acts or omissions of a director that involve intentional misconduct or a knowing violation of law, (2) conduct violating Section 23B.08.310 of the WBCA (which section relates to unlawful distributions) or (3) any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.

          Zumiez Inc.'s (the "Company") articles of incorporation and bylaws provide that the Company shall indemnify its directors and officers to the fullest extent permitted by applicable law. The bylaws also provide that the Company may indemnify its employees and agents to the fullest extent permitted by applicable law. The Company's articles of incorporation and bylaws also require advances for expenses for

II-1



such indemnified individuals who are parties to such a proceeding as provided by applicable law or by written agreement, which written agreement may allow any required determination as to the availability of indemnification to be made by any appropriate person or body consisting of a member or members of the Board of Directors, any other person or body appointed by the Board of Directors who is not a party to the particular claim, or independent legal counsel. The Company's articles of incorporation provide that a director shall not be personally liable to the Company or to any of its shareholders for monetary damages for conduct as a director pursuant to Section 23B.08.320 of the WBCA, subject to the limitations of that Section. The bylaws also provide that the Company may maintain, at its expense, insurance to protect itself and an indemnified director, officer, employee or agent against any liability, whether or not the Company would have the power to indemnify such director, officer, employee or agent against the same liability under Sections 23B.08.510 or 23B.08.520 of the WBCA.

Item 15. Recent Sales of Unregistered Securities

Issuance of Securities to Zumiez Holdings

          In October and November 2002, we entered into a series of transactions with certain affiliates of Brentwood Private Equity III, LLC (the "Brentwood Affiliates") and certain of our shareholders (the "2002 Recapitalization"). In November 2002, in connection with the 2002 Recapitalization, we issued            shares of our common stock to Zumiez Holdings LLC, a Delaware limited liability company that was formed in connection with the 2002 Recapitalization ("Zumiez Holdings"), for an aggregate purchase price of approximately $7.1 million. The issuance of our common stock to Zumiez Holdings in connection with the 2002 Recapitalization was exempt from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering. Zumiez Holdings was an accredited investor, as such term is defined in the Securities Act and the regulations promulgated thereunder, and represented its intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the share certificates issued in such transaction.

Exercise of Stock Options

          In July 1993, as partial consideration for a loan from Rajnikant R. Shah and Akhil R. Shah (collectively, the "Optionees") to us, we granted the Optionees an option to purchase                              shares of our common stock at an exercise price of $                              per share. In July 2002, the Optionees exercised their option to purchase shares of our common stock and we issued an aggregate of            shares of our common stock to the Optionees for an aggregate purchase price of $                              . The issuance of our common stock to the Optionees was exempt from registration under Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering. The optionees represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the share certificates issued in such transaction.

Stock Option Grants

          Since February 2002, we have granted options to employees (including officers) to purchase an aggregate of                              shares of our common stock at exercise prices of between $                  and $                  per share. All option grants during this period have been made in consideration for services rendered or to be rendered by the respective employees. The amount of options included in each grant to employees has been determined by our board of directors in consultation with management taking into consideration the employee's job description, tenure and level of service. During this same period, we have not issued any shares of our common stock upon exercise of such stock options. The stock option grants were exempt under Rule 701 under the Securities Act as exempt offers and sales of securities under a written compensatory benefit plan.

II-2



Item 16. Exhibits and Financial Statement Schedules


Exhibit
Number

   
Exhibit Description

1.1*

 


Form of Underwriting Agreement.

3.1*

 


Articles of Incorporation, to be effective upon completion of the offering.

3.2*

 


Amended and Restated Bylaws, to be effective upon completion of the offering.

4.1*

 


Form of Common Stock Certificate of Zumiez Inc.

5.1*

 


Opinion of Preston Gates & Ellis LLP.

10.1

 


Business Loan Agreement dated May 29, 2003 between Bank of America, N.A. and Zumiez Inc., as modified by Loan Modification Agreement dated September 30, 2004.

10.2

 


Lease Agreement between Merrill Creek Holdings, LLC and Zumiez Inc. dated August 2, 2004.

10.3

 


Executive Agreement, dated as of November 4, 2002 between Zumiez Inc. and Richard M. Brooks.

10.4†

 


Carrier Agreement between United Parcel Service Inc. and Zumiez Inc. dated June 28, 2004.

10.5

 


Zumiez Inc. 1993 Stock Option Plan.

10.6

 


Zumiez Inc. 2004 Stock Option Plan.

10.7*

 


Zumiez Inc. 2005 Equity Incentive Plan.

10.8*

 


Zumiez Inc. 2005 Employee Stock Purchase Plan.

23.1

 


Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.

23.2*

 


Consent of Preston Gates & Ellis LLP (included in Exhibit 5.1).

24.1

 


Power of Attorney (included on signature page of this Registration Statement).

*
To be filed by amendment.
Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4) and 230.406.

(b)
Financial Statement Schedules

Item 17. Undertakings

          The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

          Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of

II-3



the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

          The undersigned registrant undertakes that:

II-4



SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Everett, State of Washington, on the 17th day of February, 2005.

    ZUMIEZ INC.
       
    By: /s/  RICHARD M. BROOKS      
Richard M. Brooks
President and Chief Executive Officer


POWER OF ATTORNEY

          KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard M. Brooks and Brenda I. Morris, and each of them, his or her attorney-in-fact, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments and abbreviated registration statements), and any and all registration statements filed pursuant to Rule 462 or Rule 429 under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of common stock of Zumiez Inc., and to file or cause to be filed the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitutes, may do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities indicated on February 17, 2005.

Signature
  Title

 

 

 

/s/  
RICHARD M. BROOKS      
Richard M. Brooks

 

President and Chief Executive Officer, Director (Principal Executive Officer)

/s/  
BRENDA I. MORRIS      
Brenda I. Morris

 

Chief Financial Officer (Principal Financial and Accounting Officer)

/s/  
WILLIAM M. BARNUM, JR.      
William M. Barnum, Jr.

 

Director

/s/  
THOMAS E. DAVIN      
Thomas E. Davin

 

Director

/s/  
THOMAS D. CAMPION      
Thomas D. Campion

 

Chairman

II-5



EXHIBIT INDEX

Exhibit
Number

   
Exhibit Description

1.1*

 


Form of Underwriting Agreement.

3.1*

 


Articles of Incorporation, to be effective upon completion of the offering.

3.2*

 


Amended and Restated Bylaws, to be effective upon completion of the offering.

4.1*

 


Form of Common Stock Certificate of Zumiez Inc.

5.1*

 


Opinion of Preston Gates & Ellis LLP.

10.1

 


Business Loan Agreement dated May 29, 2003 between Bank of America, N.A. and Zumiez Inc., as modified by Loan Modification Agreement dated September 30, 2004.

10.2

 


Lease Agreement between Merrill Creek Holdings, LLC and Zumiez Inc. dated August 2, 2004.

10.3

 


Executive Agreement, dated as of November 4, 2002 between Zumiez Inc. and Richard M. Brooks.

10.4†

 


Carrier Agreement between United Parcel Service Inc. and Zumiez Inc. dated June 28, 2004.

10.5

 


Zumiez Inc. 1993 Stock Option Plan.

10.6

 


Zumiez Inc. 2004 Stock Option Plan.

10.7*

 


Zumiez Inc. 2005 Equity Incentive Plan.

10.8*

 


Zumiez Inc. 2005 Employee Stock Purchase Plan.

23.1

 


Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.

23.2*

 


Consent of Preston Gates & Ellis LLP (included in Exhibit 5.1).

24.1

 


Power of Attorney (included on signature page of this Registration Statement).

*
To be filed by amendment.
Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4) and 230.406.



QuickLinks

TABLE OF CONTENTS
Certain Terms Used in this Prospectus
PROSPECTUS SUMMARY
Zumiez Inc.
Summary Financial Data
RISK FACTORS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL AND SELLING SHAREHOLDERS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ZUMIEZ INC. BALANCE SHEETS (In thousands, except share amounts)
ZUMIEZ INC. STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts)
ZUMIEZ INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands)
ZUMIEZ INC. STATEMENTS OF CASH FLOWS (In thousands)
NOTES TO FINANCIAL STATEMENTS
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX

Exhibit 10.1

 

LOAN MODIFICATION
AGREEMENT

 

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

 

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

 

1.1                               Line of Credit Amount.

 

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

 

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

 

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

 

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

 

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

 

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

 

3.                                       Interest Rates.

 

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

 

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

 

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

 

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

 

Pricing
Level

 

Adjusted Funded Debt to
EBIDTAR Ratio

 

Prime Margin

 

LIBOR
Margin

 

B/A Rate

 

Nonusage
Fee Margin

 

4

 

Greater than or equal to 4.00
to 1

 

-.10

%

2.15

%

2.00

%

0.20

%

3

 

Greater than or equal to 3.50
to 1; but less than 4.00 to 1

 

-.25

%

1.90

%

1.75

%

0.15

%

2

 

Greater than or equal to 3.00
to 1; but less than 3.50 to 1

 

-.50

%

1.65

%

1.50

%

0.10

%

1

 

Less than 3.00 to 1

 

-.75

%

1.40

%

1.25

%

0.075

%

 

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

 

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

 

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

 

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

 

DATED as of September 30, 2004.

 

 

Bank:

 

Borrower

 

 

 

 

 

BANK OF AMERICA, N.A.

 

ZUMIEZ INC.

 

 

 

 

 

 

 

 

 

By

/s/ Curt G. Clausen

 

By

/s/ Brenda I. Morris

 

 

     Curt G. Clausen, Senior Vice President

 

 

     Brenda I. Morris, Chief Financial Officer

 

 

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BUSINESS LOAN AGREEMENT

 

 

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

 

1.                                      LINE OF CREDIT AMOUNT AND TERMS

 

1.1.                              Line of Credit Amount.

 

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

 

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

 

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

 

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

 

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

 

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

 

1.3.                              Repayment Terms.

 

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

 

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

 

1.4.                              Interest Rate.

 

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

 

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

 

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

 

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

 

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

 

Pricing
Level

 

Adjusted Funded Debt to
EBIDTAR Rate

 

Applicable
Margin

 

B/A Rate

 

Nonusage
Fee Margin

 

4

 

Greater than or equal to 4.00 to 1

 

2.25

%

2.10

%

0.20

%

3

 

Greater than or equal to 3.50 to 1;
but less than 4.00 to 1

 

2.00

%

1.85

%

0.15

%

2

 

Greater than or equal to 3.00 to 1;
but less than 3.50 to 1

 

1.75

%

1.60

%

0.10

%

1

 

Less than 3.00 to 1

 

1.50

%

1.35

%

0.10

%

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.8.                             Letters of Credit.

 

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

 

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

 

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

 

(d)                                 The Borrower agrees:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2.                                      OPTIONAL INTEREST RATES

 

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

 

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

 

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

 

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

 

3



 

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

 

LIBOR Rate =

London Inter-Bank Offered Rate

 

(1.00 - Reserve Percentage)

 

Where,

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4



 

3.                                      FEES AND EXPENSES

 

3.1.                              Fees.

 

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

 

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

 

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

 

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

 

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

 

3.3.                              Reimbursement Costs.

 

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

 

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

 

4.                                     COLLATERAL

 

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

 

(a)                                  Equipment and Fixtures.

 

(b)                                 Inventory.

 

(c)                                  Accounts.

 

(d)                                 General Intangibles.

 

(e)                                  Proceeds of the foregoing.

 

5



 

5.                                      DISBURSEMENTS, PAYMENTS AND COSTS

 

5.1.                              Disbursements and Payments.

 

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

 

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

 

5.2.                              Telephone and Telefax Authorization.

 

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

 

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

 

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

 

5.3.                              Direct Debit (Pre-Billing).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6



 

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

 

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

 

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

 

6.                                      CONDITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

7.                                      REPRESENTATIONS AND WARRANTIES

 

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

 

7



 

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

 

7.2.