Document:

Exhibit
10.14

 

CREDIT AGREEMENT

by and between

ZUMIEZ INC., a Washington corporation

and

WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION

Dated as of

September 1, 2006

 

Exhibit A – Addendum to
Credit Agreement

Exhibit B – Revolving
Credit Facility Supplement

Exhibit C –
Collateral/Credit Support Document

 

	
  WELLS FARGO HSBC TRADE BANK

  	
  CREDIT
  AGREEMENT

  

 

ZUMIEZ INC., a Washington
corporation (“Borrower”), organized under the laws of the
State of Washington whose chief executive office is located at the address
specified after its signature to this Agreement (“Borrower’s Address”) and WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION (“Trade
Bank”), whose address is specified after its signature to this Agreement, have
entered into this CREDIT AGREEMENT
as of September 1, 2006 (“Effective Date”). All references to this “Agreement”
include those covenants included in the Addendum to Agreement (“Addendum”)
attached as Exhibit A hereto.

I.  CREDIT FACILITY

1.1   The Facility.
Subject to the terms and conditions of this Agreement, Trade Bank will make
available to Borrower a Revolving Credit Facility (“Facility”) for which a
Facility Supplement (“Supplement”) is attached as Exhibit B hereto. Additional
terms for the Facility (and each subfacility thereof (“Subfacility”)) are set
forth in the Supplement. The Facility will be available from the Closing Date
up to and until August 30, 2009 (“Facility Termination Date”). Collateral and
credit support required for the Facility is set forth in Exhibit C hereto.
Definitions for those capitalized terms not otherwise defined are contained in
Article 8 below.

1.2   Credit Extension Limit. The aggregate outstanding amount
of all Credit Extensions may at no time exceed Twenty-Five Million Dollars
($25,000,000) (“Overall Credit Limit”). The aggregate outstanding amount of all
Credit Extensions outstanding at any time under Revolving Credit Facility may
not exceed that amount specified as the “Credit Limit” in the Supplement for
the Facility, and the aggregate outstanding amount of all Credit Extensions
outstanding at any time under each Subfacility (or any subcategory thereof) may
not exceed that amount specified as the “Credit Sublimit” in the Supplement for
the Facility. An amount equal to 100% of each unfunded Credit Extension shall
be used in calculating the outstanding amount of Credit Extensions under this
Agreement.

The Subfacility(s) of the
Revolving Credit Facility are as follows:

(a)           Sight Commercial
Letters of Credit

(b)           Standby Letters of Credit

1.3   Overadvance. All Credit Extensions made hereunder shall be
added to and deemed part of the Obligations when made. If, at any time and for
any reason, the aggregate outstanding amount of all Credit Extensions made
pursuant to this Agreement exceeds the dollar limitation in Section 1.2,
then Borrower shall immediately pay to Trade Bank on demand, in cash, the
amount of such excess.

1.4   Repayment; Interest and Fees. Each funded Credit Extension
shall be repaid by Borrower, and shall bear interest from the date of
disbursement at those per annum rates and such interest shall be paid, at the
times specified in the Supplement, Note or Facility Document. Borrower agrees
to pay to Trade Bank with respect to (a) the Revolving Credit Facility,
interest at a per annum rate equal to (i) the Prime Rate minus .50% as
specified in the Note, or (ii) Wells Fargo’s LIBOR Rate plus 1.00% as
specified in the Note, and (b) the Subfacilities, the fees specified in
the Supplement as well as those fees specified in the relevant Facility
Document(s). Interest and fees will be calculated on the basis of a 360 day
year, actual days elapsed. Any overdue payments of principal (and interest to
the extent permitted by law) shall bear interest at a per annum floating rate
equal to the Prime Rate plus 5%.

1.5   Prepayments. Credit Extensions under any Facility may only
be prepaid in accordance with the terms of the Supplement. At the time of any
prepayment (including, but not limited to, any prepayment which is a result of
the occurrence of an Event of Default and an acceleration of the Obligations)
Borrower will pay to Trade Bank all interest accrued on the amount so prepaid
to the date of such prepayment and all costs, expenses and fees specified in
the Loan Documents.

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II.  REPRESENTATIONS AND WARRANTIES

Borrower
represents and warrants to Trade Bank that the following representations and
warranties are true and correct:

2.1   Legal Status. Borrower is duly organized and existing and
in good standing under the laws of the jurisdiction indicated in this
Agreement, and is qualified or licensed to do business in all jurisdictions in
which such qualification or licensing is required and in which the failure to
so qualify or to be so licensed could have a material adverse affect on
Borrower.

2.2   Authorization and Validity. The execution, delivery and
performance of this Agreement, and all other Loan Documents to which Borrower
is a party, have been duly and validly authorized, executed and delivered by
Borrower and constitute legal, valid and binding agreements of Borrower, and
are enforceable against Borrower in accordance with their respective terms.

2.3   Borrower’s Name.
The name of Borrower set forth at the end of this Agreement is its correct
name. If Borrower is conducting business under a fictitious business name,
Borrower is in compliance with all laws relating to the conduct of such
business under such name.

2.4   Financial Condition and Statements. All financial
statements of Borrower delivered to Trade Bank have been prepared in conformity
with GAAP, and completely and accurately reflect the financial condition of
Borrower (and any consolidated Subsidiaries) at the times and for the periods
stated in such financial statements. Neither Borrower nor any Subsidiary has
any material contingent liability not reflected in the aforesaid financial
statement. Since the date of the financial statements delivered to Trade Bank
for the last fiscal period of Borrower to end before the Effective Date, there
has been no material adverse change in the financial condition, business or
prospects of Borrower. Borrower is solvent.

2.5   Litigation. Except as disclosed in writing to Trade Bank
prior to the Effective Date, there is no action, claim, suit, litigation,
proceeding or investigation pending or (to best of Borrower’s knowledge)
threatened by or against or affecting Borrower or any Subsidiary in any court
or before any governmental authority, administrator or agency which may result
in (a) any material adverse change in the financial condition or business
of Borrower’s, or (b) any material impairment of the ability of Borrower
to carry on its business in substantially the same manner as it is now being
conducted.

2.6   No Violation. The execution, delivery, and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in a breach of or constitute a default under any
contract, obligation, indenture, or other instrument to which Borrower is a
party or by which Borrower may be bound.

2.7   Income Tax Returns. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.

2.8   No Subordination. There is no agreement, indenture,
contract, or instrument to which Borrower is a party or by which Borrower may
be bound that requires the subordination in right of payment of any of Borrower’s
obligations subject to this Agreement to any other obligation of Borrower.

2.9   ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended or recodified from time to time (“ERISA”); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a “Plan”); no
Reportable Event, as defined in ERISA, has occurred and is continuing with
respect to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under GAAP.

2.10      Other Obligations. Except as disclosed
in writing to Trade Bank prior to the Effective Date, neither Borrower nor any
Subsidiary are in default of any obligation for borrowed money, any purchase
money obligation or any material lease, commitment, contract, instrument or
obligation.

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2.11      No Defaults. No Event of Default, and
event which with the giving of notice or the passage of time or both would
constitute an Event of Default, has occurred and is continuing.

2.12      Information Provided to Trade Bank. The
information provided to the Trade Bank concerning Borrower’s business is true
and correct.

2.13      Environmental Matters. Except as
disclosed by Borrower to Trade Bank in writing prior to the Effective Date,
Borrower (as well as any Subsidiary) is each in compliance in all material
respects with all applicable Federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any Borrower’s or any Subsidiary’s operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Toxic Substances Control Act and the
California Health and Safety Code, as any of the same may be amended, modified
or supplemented from time to time. None of the operations of Borrower or of any
Subsidiary is the subject of any Federal or state investigation evaluating
whether any remedial action involving a material expenditure is needed to
respond to a release of any toxic or hazardous waste or substance into the
environment.

III.  CONDITIONS TO EXTENDING FACILITIES

3.1   Conditions to Initial Credit Extension. The obligation of
Trade Bank to make the first Credit Extension is subject to the fulfillment to
Trade Bank’s satisfaction of the following conditions:

(a)           Approval
of Trade Bank Counsel. All legal matters relating to making the
Facility available to Borrower must be satisfactory to counsel for Trade Bank.

(b)           Documentation.
Trade Bank must have received, in form and substance satisfactory to Trade
Bank, the following documents and instruments duly executed and in full force
and effect:

(1)           a corporate borrowing resolution and
incumbency certificate if Borrower is a corporation, a partnership or joint
venture borrowing certificate if Borrower is a partnership or joint venture,
and a limited liability company borrowing certificate if Borrower is a limited
liability company;

(2)           the Facility Documents for the Facility,
including, but not limited to, note(s) (“Notes”) for the Revolving Credit
Facility, Trade Bank’s standard Commercial Letter of Credit Agreement or
Standby Letter of Credit Agreement for any letter of credit Facility;

(3)           those guarantees, security agreements, deeds
of trust, subordination agreements, intercreditor agreements, factoring
agreements, tax service contracts, and other Collateral Documents required by
Trade Bank to evidence the collateral/credit support specified in the
Supplement;

(4)           if an audit or inspection of any books,
records or property is specified in the Supplement for the Facility, an audit
or inspection report from Wells Fargo or another auditor or inspector
acceptable to Trade Bank reflecting values and property conditions satisfactory
to Trade Bank; and

(5)           if insurance is required in the Addendum,
the insurance policies specified in the Addendum (or other satisfactory proof
thereof) from insurers acceptable to Trade Bank.

3.2   Conditions to Making Each Credit Extension. The obligation
of Trade Bank to make each Credit Extension is subject to the fulfillment to
Trade Bank’s satisfaction of the following conditions:

(a)           Representations
and Warranties. The representations and warranties contained in
this Agreement, the Facility Documents and the Collateral Documents will be
true and correct on and 

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as of the date of the Credit Extension with the same effect as though
such representations and warranties had been made on and as of such date;

(b)           Documentation.
Trade Bank must have received, in form and substance satisfactory to Trade
Bank, the following documents and instruments duly executed and in full force
and effect:

(1)           if the Credit Extension is the issuance of a
Commercial Letter of Credit, Trade Bank’s standard Application For Commercial
Letter of Credit or standard Application and Agreement For Commercial Letter of
Credit;

(2)           if the Credit Extension is the issuance of a
Standby Letter of Credit, Trade Bank’s standard Application For Standby Letter
of Credit or standard Application and Agreement For Standby Letter of Credit;

(3)           if a Borrowing Base Certificate is required
for the Credit Extension, a Borrowing Base Certificate demonstrating compliance
with the requirements for such Credit Extension.

(c)           Fees.
Trade Bank must have received any fees required by the Loan Documents to be
paid at the time such Credit Extension is made.

IV.           AFFIRMATIVE
COVENANTS

Borrower covenants
that so long as Trade Bank remains committed to make Credit Extensions to
Borrower, and until payment of all Obligations and Credit Extensions, Borrower
will comply with each of the following covenants: (For purposes of this Article
IV, and Article V below, reference to “Borrower” may also extend to Borrower’s
subsidiaries, if so specified in the Addendum.)

4.1   Punctual Payments. Punctually pay all principal, interest,
fees and other Obligations due under this Agreement or under any Loan Document
at the time and place and in the manner specified herein or therein.

4.2   Notification to Trade Bank. Promptly, but in no event more
than 5 calendar days after the occurrence of each such event, provide written
notice in reasonable detail of each of the following:

(a)           Occurrence
of a Default. The occurrence of any Event of Default or any
event which with the giving of notice or the passage of time or both would
constitute an Event of Default;

(b)           Borrower’s
Trade Names; Place of Business. Any change of Borrower’s (or any
Subsidiary’s) name, trade name or place of business, or chief executive
officer;

(c)           Litigation.
Any action, claim, proceeding, litigation or investigation threatened or
instituted by or against or affecting Borrower (or any Subsidiary) in any court
or before any government authority, administrator or agency which may
materially and adversely affect Borrower’s (or any Subsidiary’s) financial
condition or business or Borrower’s ability to carry on its business in
substantially the same manner as it is now being conducted;

(d)           Uninsured
or Partially Uninsured Loss. Any uninsured or partially
uninsured loss through liability or property damage or through fire, theft or any
other cause affecting Borrower’s (or any Subsidiary’s) property in excess of
the aggregate amount required hereunder;

(e)           Reports
Made to Insurance Companies. Copies of all material reports made
to insurance companies; and

(f)            ERISA.
The occurrence and nature of any Reportable Event or Prohibited Transaction,
each as defined in ERISA, or any funding deficiency with respect to any Plan.

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4.3   Books and Records. Maintain at Borrower’s address books
and records in accordance with GAAP, and permit any representative of Trade
Bank, at any reasonable time, to inspect, audit and examine such books and
records, to make copies of them, and to inspect the properties of Borrower.

4.4   Tax Returns and Payments. Timely file all tax returns and
reports required by foreign, federal, state and local law, and timely pay all
foreign, federal, state and local taxes, assessments, deposits and
contributions owed by Borrower. Borrower may, however, defer payment of any
contested taxes, provided that Borrower (i) in good faith contests
Borrower’s obligation to pay the taxes by appropriate proceedings promptly
instituted and diligently conducted, (ii) notifies Trade Bank in writing
of the commencement of, and any material development in, the proceedings,
(iii) posts bonds or takes any other steps required to keep the contested
taxes from becoming a lien upon any of the Collateral, and (iv) makes
provision, to Trade Bank’s satisfaction, for eventual payment of such taxes in
the event Borrower is obligated to make such payment.

4.5   Compliance with Laws. Comply in all material respects with
the provisions of all foreign, federal, state and local laws and regulations
relating to Borrower, including, but not limited to, those relating to Borrower’s
ownership of real or personal property, the conduct and licensing of Borrower’s
business, and health and environmental matters.

4.6   Taxes and Other Liabilities. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real and
personal, including without limitation federal and state income taxes and state
and local property taxes and assessments, except (a) such as Borrower may
in good faith contest or as to which a bona fide dispute may arise, and
(b) for which Borrower has made provision, to Trade Bank’s satisfaction,
for eventual payment thereof in the event that Borrower is obligated to make
such payment.

4.7   Insurance. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that
of Borrower, including, but not limited to, fire, extended coverage, public
liability, flood, property damage and workers’ compensation, with all such
insurance to be in amounts satisfactory to Trade Bank and to be carried with
companies approved by Trade Bank before such companies are retained, and
deliver to Trade Bank from time to time at Trade Bank’s request schedules
setting forth all insurance then in effect. All insurance policies shall name
Trade Bank as an additional loss payee, and shall contain a lenders loss payee
endorsement in form reasonably acceptable to Trade Bank. (Upon receipt of the
proceeds of any such insurance, Trade Bank shall apply such proceeds in
reduction of the outstanding funded Credit Extensions and shall hold any
remaining proceeds as collateral for the outstanding unfunded Credit
Extensions, as Trade Bank shall determine in its sole discretion, except that,
provided no Event of Default has occurred, Trade Bank shall release to Borrower
insurance proceeds with respect to equipment totaling less than $100,000, which
shall be utilized by Borrower for the replacement of the equipment with respect
to which the insurance proceeds were paid, if Trade Bank receives reasonable
assurance that the insurance proceeds so released will be so used.) If Borrower
fails to provide or pay for any insurance, Trade Bank may, but is not obligated
to, obtain the insurance at Borrower’s expense.

4.8   Further Assurances. At Trade Bank’s request and in form
and substance satisfactory to Trade Bank, execute all documents and take all
such actions at Borrower’s expense as Trade Bank may deem reasonably necessary
or useful to perfect and maintain Trade Bank’s perfected security interest in
the Collateral and in order to fully consummate all of the transactions
contemplated by the Loan Documents.

V.  NEGATIVE COVENANTS

Borrower covenants
that so long as Trade Bank remains committed to make any Credit Extensions to
Borrower and until all Obligations and Credit Extensions have been paid,
Borrower will not:

5.1   Merge or Consolidation, Transfer of Assets. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower’s business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower’s
assets except in the ordinary course of its business.

5.2   Use of Proceeds. Borrower will not use the proceeds of any
Credit Extension except for the purposes, if any, specified for such Credit
Extension in the Supplement covering the Facility under which such Credit
Extension is made.

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5.3   Liens. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower’s assets now
owned or hereafter acquired, except any of the foregoing in favor of Trade Bank
or which is existing as of, and disclosed to Trade Bank in writing prior to,
the date hereof.

5.4   Acquisitions of Assets. Borrower will not acquire any
assets or enter into any other transaction outside the ordinary course of
Borrower’s business.

5.5   Loans and Investments. Borrower will not make any loans or
advances to, or investments in, any person or entity except for accounts
receivable created in the ordinary course of Borrower’s business.

5.6   Indebtedness For Borrowed Money. Borrower will not incur
any indebtedness for borrowed money, except to Trade Bank and except for
indebtedness subordinated to the Obligations by an instrument or agreement in
form acceptable to Trade Bank.

5.7   Guarantees. Borrower will not guarantee or otherwise
become liable with respect to the obligations of any other person or entity,
except for endorsement of instruments for deposit into Borrower’s account in
the ordinary course of Borrower’s business.

VI.  EVENTS OF DEFAULT AND REMEDIES

6.1   Events of Default. The occurrence of any of the following
shall constitute an “Event of Default”:

(a)           Failure
to Make Payments When Due. Borrower’s failure to pay principal,
interest, fees or other amounts when due under any Loan Document.

(b)           Failure
to Perform Obligations. Any failure by Borrower to comply with
any covenant or obligation in this Agreement or in any Loan Document (other
than those referred to in subsection (a)above), and such default shall continue
for a period of twenty calendar days from the earlier of (i) Borrower’s
failure to notify Trade Bank of such Event of Default pursuant to Section
4.2(a) above, or (ii) Trade Bank’s notice to Borrower of such Event of
Default.

(c)           Untrue
or Misleading Warranty or Statement. Any warranty,
representation, financial statement, report or certificate made or delivered by
Borrower under any Loan Document is untrue or misleading in any material
respect when made or delivered.

(d)           Defaults
Under Other Loan Documents. Any “Event of Default” occurs under
any other Loan Document; any Guaranty is no longer in full force and effect (or
any claim thereof made by Guarantor) or any failure of a Guarantor to comply
with the provisions thereof; or any breach of the provisions of any
Subordination Agreement or Intercreditor Agreement by any party other than the
Trade Bank.

(e)           Defaults
Under Other Agreements or Instruments. Any default in the
payment or performance of any obligation, or the occurrence of any event of
default, under the terms of any other agreement or instrument pursuant to which
Borrower, any Subsidiary or any Guarantor or general partner of Borrower has
incurred any debt or other material liability to any person or entity.

(f)            Concealing
or Transferring Property. Borrower conceals, removes or
transfers any part of its property with intent to hinder, delay or defraud its
creditors, or makes or suffers any transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law.

(g)           Judgments
and Levies Against Borrower. The filing of a notice of judgment
lien against Borrower, or the recording of any abstract of judgment against
Borrower, in any county in which Borrower has an interest in real property, or
the service of a notice of levy and/or of a writ of attachment or execution, or
other like process, against the assets of Borrower, or the entry of a judgment
against Borrower.

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(h)           Event
or Condition Impairing Payment or Performance. Any event occurs
or condition arises which Trade Bank in good faith believes impairs or is
substantially likely to impair the prospect of payment or performance by
Borrower of the Obligations, including, but not limited to any material adverse
change in Borrower’s financial condition, business or prospects.

(i)            Voluntary
Insolvency. Borrower, any Subsidiary or any Guarantor
(i) becomes insolvent, (ii) suffers or consents to or applies for the
appointment of a receiver, trustee, custodian or liquidator of itself or any of
its property, (iii) generally fails to pay its debts as they become due,
(iv) makes a general assignment for the benefit of creditors, or
(v) files a voluntary petition in bankruptcy, or seeks reorganization, in
order to effect a plan or other arrangement with creditors or any other relief
under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended
or recodified from time to time (“Bankruptcy Code”), or under any state or
Federal law granting relief to debtors, whether now or hereafter in effect.

(j)            Involuntary
Insolvency. Any involuntary petition or proceeding pursuant to
the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower, any Subsidiary or Guarantor, or an order for relief is
entered against it by any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors.

(k)           Change
in Ownership. Any change in the ownership of Borrower, any
general partner of Borrower or any Guarantor which the Trade Bank determines,
in its sole discretion, may adversely affect the creditworthiness of Borrower
or credit support for the Obligations.

6.2   Remedies. Upon the occurrence of any Event of Default, or
at any time thereafter, Trade Bank, at its option, and without notice or demand
of any kind (all of which are hereby expressly waived by Borrower), may do any
one or more of the following: (a) terminate Trade Bank’s obligation to
make Credit Extensions or to make available to Borrower the Facility or other
financial accommodations; (b) accelerate and declare all or any part of
the Obligations to be immediately due, payable, and performable, notwithstanding
any deferred or installment payments allowed by any instrument evidencing or
relating to any Credit Extension; and/or (c) exercise all its rights,
powers and remedies available under the Loan Documents, or accorded by law,
including, but not limited to, the right to resort to any or all Collateral or
other security for any of the Obligations and to exercise any or all of the
rights of a beneficiary or secured party pursuant to applicable law.
Notwithstanding the provisions in the foregoing sentence, if any Event of
Default set out in subsections (i) and (j) of Section 6.1 above shall
occur, then all the remedies specified in the preceding sentence shall
automatically take effect without notice or demand of any kind (all of which
are hereby expressly waived by Borrower) with respect to any and all
Obligations. All rights, powers and remedies of Trade Bank may be exercised at
any time by Trade Bank and from time to time after the occurrence of an Event
of Default, are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.

VII.  GENERAL PROVISIONS

7.1   Notices. All notices to be given under this Agreement
shall be in writing and shall be given personally or by regular first-class
mail, by certified mail return receipt requested, by a private delivery service
which obtains a signed receipt, or by facsimile transmission addressed to Trade
Bank or Borrower at the address indicated after their signature to this
Agreement, or at any other address designated in writing by one party to the
other party. Trade Bank is hereby authorized by Borrower to act on such
instructions or notices sent by facsimile transmission or telecommunications
device which Trade Bank believes come from Borrower. All notices shall be
deemed to have been given upon delivery, in the case of notices personally
delivered or delivered by private delivery service, upon the expiration of 3
calendar days following the deposit of the notices in the United States mail,
in the case of notices deposited in the United States mail with postage
prepaid, or upon receipt, in the case of notices sent by facsimile
transmission.

7.2   Waivers. No delay or failure of Trade Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise 

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of any other right, power or remedy. Any
waiver, consent or approval by Trade Bank under any of the Loan Documents must
be in writing and shall be effective only to the extent set out in such
writing.

7.3   Benefit of Agreement. The provisions of the Loan Documents
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, executors, administrators, beneficiaries and legal
representatives of Borrower and Trade Bank; provided, however, that Borrower
may not assign or transfer any of its rights under any Loan Document without
the prior written consent of Trade Bank, and any prohibited assignment shall be
void. No consent by Trade Bank to any assignment shall release Borrower from
its liability for the Obligations unless such release is specifically given by
Trade Bank to Borrower in writing. Trade Bank reserves the right to sell,
assign, transfer, negotiate or grant participations in all or any part of, or
any interest in, Trade Bank’s rights and benefits under each of the Loan
Documents. In connection therewith, Trade Bank may disclose any information
relating to the Facility, Borrower or its business, or any Guarantor or its
business.

7.4   Joint and Several Liability. If Borrower consists of more
than one person or entity, the liability of each of them shall be joint and
several, and the compromise of any claim with, or the release of, any one such
Borrower shall not constitute a compromise with, or a release of, any other
such Borrower.

7.5   No Third Party Beneficiaries. This Agreement is made and
entered into for the sole protection and benefit of Borrower and Trade Bank and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, any of the Loan Documents to which
it is not a party.

7.6   Governing Law and Jurisdiction. This Agreement shall,
unless provided differently in any Loan Document, be governed by, and be
construed in accordance with, the internal laws of the State of California,
except to the extent Trade Bank has greater rights or remedies under federal
law whether as a national bank or otherwise. Borrower and Trade Bank
(a) agree that all actions and proceedings relating directly or indirectly
to this Agreement shall be litigated in courts located within California;
(b) consent to the jurisdiction of any such court and consent to service
of process in any such action or proceeding by personal delivery or any other
method permitted by law; and (c) waive any and all rights Borrower may
have to object to the jurisdiction of any such court or to transfer or change
the venue of any such action or proceeding.

7.7   Mutual Waiver of Jury Trial. Borrower and Trade Bank each
hereby waive the right to trial by jury in any action or proceeding based upon,
arising out of, or in any way relating to, (a) any Loan Document,
(b) any other present or future agreement, instrument or document between
Trade Bank and Borrower, or (c) any conduct, act or omission of Trade Bank
or Borrower or any of their directors, officers, employees, agents, attorneys
or any other persons or entities affiliated with Trade Bank or Borrower, which
waiver will apply in all of the mentioned cases whether the case is a contract
or tort case or any other case. Borrower represents and warrants that no
officer, representative or agent of Trade Bank has represented, expressly or
otherwise, that Trade Bank would not seek to enforce this waiver of jury trial.

7.8   Severability. Should any provision of any Loan Document be
prohibited by, or invalid under applicable law, or held by any court of
competent jurisdiction to be void or unenforceable, such defect shall not
affect, the validity of the other provisions of the Loan Documents.

7.9   Entire Agreement; Amendments. This Agreement and the other
Loan Documents are the final, entire and complete agreement between Borrower
and Trade Bank concerning the Credit Extensions and the Facility; supersede all
prior and contemporaneous negotiations and oral representations and agreements.
There are no oral understandings, representations or agreements between the
parties concerning the Credit Extensions or the Facility which are not set
forth in the Loan Documents. This Agreement and the Supplement may not be
waived, amended or superseded except in a writing executed by Borrower and
Trade Bank.

7.10      Collection of Payments. Unless
otherwise specified in any Loan Document, other than this Agreement or any
Note, all principal, interest and any fees due to Trade Bank by Borrower under
this Agreement, the Addendum, any Supplement, any Facility Document, any
Collateral Document or any Note, will be paid by Trade Bank having Wells Fargo
debit any of Borrower’s accounts with Wells Fargo and forwarding such amount
debited to Trade Bank, without presentment, protest, demand for reimbursement
or payment, notice of dishonor or any other notice whatsoever, all of which are
hereby expressly waived by Borrower. Such debit will be made at the time
principal, interest or any fee is due to 

 8
 

 

Trade Bank pursuant to this Agreement, the
Addendum, any Supplement, any Facility Document, any Collateral Document or any
Note.

7.11      Costs, Expenses and Attorneys’ Fees.
Borrower will reimburse Trade Bank for all costs and expenses, including, but
not limited to, reasonable attorneys’ fees and expenses (which counsel may be
Trade Bank or Wells Fargo employees), expended or incurred by Trade Bank in the
preparation and negotiation of this Agreement, the Notes, the Collateral
Documents, the Addendum, and the Facility Documents, in amending this
Agreement, the Collateral Documents, the Notes, the Addendum, or the Facility
Documents, in collecting any sum which becomes due Trade Bank on the Notes,
under this Agreement, the Collateral Documents, the Addendum, the Supplement,
or any of the Facility Documents, in the protection, perfection, preservation
and enforcement of any and all rights of Trade Bank in connection with this
Agreement, the Notes, any of the Collateral Documents, the Supplement, any of
the Addendum, or any of the Facility Documents, including, without limitation,
the fees and costs incurred in any out-of-court work out or a bankruptcy or
reorganization proceeding.

VIII.  DEFINITIONS

8.1   “Accounts Receivable” means all presently existing and
hereafter arising “Rights to Payment” (as that term is defined in the “Continuing
Security Agreement – Rights to Payment and Inventory” executed by Borrower in
favor of Trade Bank) which arise from the sale, lease or other disposition of
Inventory, or from performance of contracts for service, manufacture,
construction or repair, together with all goods returned by Borrower’s
customers in connection with any of the foregoing.

8.2   “Agreement” means this Agreement and the Addendum
attached hereto, as corrected or modified from time to time by Trade Bank and
Borrower.

8.3   “Banking Day” means each day except Saturday, Sunday
and a day specified as a holiday by federal or California statute.

8.4   “Closing Date” means the date on which the first Credit
Extension is made.

8.5   “Collateral” means all property securing the
Obligations.

8.6   “Collateral Documents” means those security
agreement(s), deed(s) of trust, guarantee(s), subordination agreement(s),
intercreditor agreement(s), and other credit support documents and instruments
required by the Trade Bank to effect the collateral and credit support
requirements set forth in the Supplement with respect to the Facility.

8.7   “Credit Extension” means each extension of credit under
the Facility (whether funded or unfunded), including, but not limited to,
(a) the issuance of sight or usance commercial letters of credit or
commercial letters of credit supported by back-up letters of credit,
(b) the issuance of standby letters of credit, (c) the issuance of
shipping guarantees, (d) the making of revolving credit working capital
loans, (e) the making of loans against imports for letters of credit,
(f) the making of clean import loans outside letters of credit,
(g) the making of advances against export orders, (h) the making of
advances against export letters of credit, (i) the making of advances
against outgoing collections, (j) the making of term loans, and
(k) the entry into foreign exchange contracts.

8.8   “Credit Limit” means, with respect to the any Facility,
the amount specified under the column labeled “Credit Limit” in the Supplement
for that related Facility.

8.9   “Credit Sublimit” means, with respect to any
Subfacility, the amount specified after the name of that Subfacility under the
column labeled “Credit Sublimit” in the Supplement for the related Facility.

8.10      “Dollars” and “$”
means United States dollars.

8.11      “Facility Documents” means, with respect to the
Facility, those documents specified in the Supplement for the Facility, and any
other documents customarily required by Trade Bank for said Facility.

8.12      “GAAP” means generally accepted accounting principles,
which are applicable to the circumstances, as of the date of determination, set
out in the opinions and pronouncements of the Accounting Principles Board and
the 

 9
 

 

American Institute of Certified Public
Accountants and in the statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession.

8.13      “Inventory” has the meaning assigned to such term in
the “Continuing Security Agreement — Rights to Payment and Inventory” executed
by Borrower in favor of Trade Bank.

8.14      “Loan Documents” means this Agreement, the Addendum,
the Supplement, the Facility Documents and the Collateral Documents.

8.15      “Note” has the meaning specified in Section 3.1(b)(2)
above.

8.16      “Obligations” means (a) the obligation of Borrower
to pay principal, interest and fees on all funded Credit Extensions and fees on
all unfunded Credit Extensions, and (b) the obligation of Borrower to pay
and perform when due all other indebtedness, liabilities, obligations and
covenants required under the Loan Documents.

8.17   “Person” means and includes natural persons,
corporations, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.

8.18      “Prime Rate” means the rate most recently announced by
Wells Fargo at its principal office in San Francisco, California as its “Prime
Rate”, with the understanding that the Prime Rate is one of Wells Fargo’s base
rates and serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto, and is evidenced by the
recording thereof after its announcement in such internal publication or
publications as Wells Fargo may designate. Any change in an interest rate
resulting from a change in the Prime Rate shall become effective as of 12:01
a.m. of the Banking Day on which each change in the Prime Rate is announced by
Wells Fargo.

8.19      “Subsidiary” means (i) any corporation at least the
majority of whose securities having ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) are at the time owned by Borrower and/or one or
more Subsidiaries, and (ii) any joint venture or partnership in which Borrower
and/or one or more Subsidiaries has a majority interest.

8.20      “Wells Fargo” means Wells Fargo Bank, N.A.

IX.  ARBITRATION

9.1           Arbitration.  The parties hereto agree, upon demand by any
party, to submit to binding arbitration all claims, disputes and controversies
between or among them (and their respective employees, officers, directors,
attorneys, and other agents), whether in tort, contract or otherwise arising
out of or relating to in any way (i) the loan and related loan and security
documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.

9.2           Governing Rules.  Any arbitration proceeding will (i) proceed
in a location in California selected by the American Arbitration Association (“AAA”);
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as
applicable, as the “Rules”).  If there is
any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. 
Any party who fails or refuses to submit to arbitration following a
demand by any other party shall bear all costs and expenses incurred by such other
party in compelling arbitration of any dispute. 
Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. §91 or any
similar applicable state law.

 10

 

9.3           No Waiver of
Provisional Remedies, Self-Help and Foreclosure.  The arbitration requirement does not limit
the right of any party to (i) foreclose against real or personal property
collateral; (ii) exercise self-help remedies relating to collateral or proceeds
of collateral such as setoff or repossession; or (iii) obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment or the
appointment of a receiver, before during or after the pendency of any
arbitration proceeding.  This exclusion
does not constitute a waiver of the right or obligation of any party to submit
any dispute to arbitration or reference hereunder, including those arising from
the exercise of the actions detailed in sections (i), (ii) and (iii) of this
paragraph.

9.4           Arbitrator
Qualifications and Powers. 
Any arbitration proceeding in which the amount in controversy is
$5,000,000.00 or less will be decided by a single arbitrator selected according
to the Rules, and who shall not render an award of greater than $5,000,000.00.  Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.  The arbitrator will be a neutral attorney
licensed in the State of California or a neutral retired judge of the state or
federal judiciary of California, in either case with a minimum of ten years
experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated.  The arbitrator
will determine whether or not an issue is arbitratable and will give effect to
the statutes of limitation in determining any claim.  In any arbitration proceeding the arbitrator
will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication.  The arbitrator shall resolve all disputes in
accordance with the substantive law of California and may grant any remedy or
relief that a court of such state could order or grant within the scope hereof
and such ancillary relief as is necessary to make effective any award.  The arbitrator shall also have the power to award
recovery of all costs and fees, to impose sanctions and to take such other
action as the arbitrator deems necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil
Procedure or other applicable law. 
Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction.  The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.

9.5           Discovery.  In any arbitration proceeding discovery will
be permitted in accordance with the Rules. 
All discovery shall be expressly limited to matters directly relevant to
the dispute being arbitrated and must be completed no later than 20 days before
the hearing date and within 180 days of the filing of the dispute with the
AAA.  Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery
is essential for the party’s presentation and that no alternative means for obtaining
information is available.

9.6           Class Proceedings and
Consolidations.  The
resolution of any dispute arising pursuant to the terms of this Agreement shall
be determined by a separate arbitration proceeding and such dispute shall not
be consolidated with other disputes or included in any class proceeding.

9.7           Payment Of
Arbitration Costs And Fees. 
The arbitrator shall award all costs and expenses of the arbitration
proceeding.

9.8           Real Property
Collateral; Judicial Reference. 
Notwithstanding anything herein to the contrary, no dispute shall be
submitted to arbitration if the dispute concerns indebtedness secured directly
or indirectly, in whole or in part, by any real property unless (i) the holder
of the mortgage, lien or security interest specifically elects in writing to
proceed with the arbitration, or (ii) all parties to the arbitration waive any
rights or benefits that might accrue to them by virtue of the single action
rule statute of California, thereby agreeing that all indebtedness and obligations
of the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable.  If any such dispute is not submitted to
arbitration, the dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference agreement is intended to be specifically enforceable in accordance
with said Section 638.  A referee with
the qualifications required herein for arbitrators shall be selected pursuant
to the AAA’s selection procedures. 
Judgment upon the decision rendered by a referee shall be entered in the
court in which such proceeding was commenced in accordance with California Code
of Civil Procedure Sections 644 and 645.

9.9           Miscellaneous.  To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA.  No 

 11
 

 

arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business or by applicable law or regulation. 
If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the documents between the parties or the subject matter of the
dispute shall control.  This Agreement
may be amended or modified only in writing signed by each party hereto.  If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of
this Agreement.  This arbitration
provision shall survive termination, amendment or expiration of any of the
documents or any relationship between the parties.

Borrower and Trade
Bank have caused this Agreement to be executed by their duly authorized
officers or representatives on the date first written above.

“BORROWER”

ZUMIEZ, INC.

	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
				

 

Borrower’s Address:

6300 Merrill Creek
Parkway, Suite B

Everett, WA  98203

“LENDER”

WELLS FARGO HSBC TRADE BANK,

NATIONAL ASSOCIATION

	
  By:

  	
   

  	
   

  
	
   

  	
  Jennifer Wallis

  
	
   

  	
  Vice President

  

 

Lender’s Address:

999 Third Avenue

Seattle, WA  98104

 12
 

 

 

EXHIBIT A

 

	
  WELLS FARGO HSBC TRADE BANK

  	
  ADDENDUM
  TO CREDIT AGREEMENT

  

 

THIS
ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT (“CREDIT AGREEMENT”) BETWEEN WELLS
FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF
BORROWER:  ZUMIEZ INC.

ADDITIONAL
AFFIRMATIVE COVENANTS

The following
covenants are part of Article IV of the Credit Agreement:

REPORTS.  Borrower will furnish the following
information or deliver the following reports to Trade Bank at the times
indicated below:

·                  Annual Financial Statements: Not later than ninety (90)
calendar days after and as of the end of each of Borrower’s fiscal years, an
annual unqualified audited consolidated and consolidating financial statement
of Borrower prepared by a certified public accountant acceptable to Trade Bank
and prepared in accordance with GAAP, to include balance sheet, income
statement and statement of cash flow.

·                  Quarterly Financial Statements: Not later than forty-five
(45) calendar days after and as of the end of each of Borrower’s fiscal
quarters, a consolidated and consolidating financial statement of Borrower
prepared by Borrower, to include balance sheet, income statement and statement
of cash flow.

Certificate of Compliance: At
the time each financial statement of Borrower required above is delivered to
Trade Bank, a certificate of the president or chief financial officer of
Borrower that said financial statements are accurate and that there exists no
Event of Default under the Agreement nor any condition, act or event which with
the giving of notice or the passage of time or both would constitute an Event
of Default.

·                  Insurance: Borrower will maintain in full force and effect
insurance coverage on all Borrower’s property, including, but not limited to,
the following types of insurance coverage:

policies of fire
insurance

business
personal property insurance

All the insurance
referred to in the preceding sentence must be in form, substance and amounts,
and issued by companies, satisfactory to Trade Bank, and cover risks required
by Trade Bank and contain loss payable endorsements in favor of Trade Bank.

FINANCIAL COVENANTS.
Borrower will maintain the following (if Borrower has any Subsidiaries which
must be consolidated under GAAP, the following applies to borrower and the
consolidated Subsidiaries):

 13
 

 

·                  Total Liabilities divided by Tangible Net Worth. Not greater
than 1.15 to 1.0 determined as of each fiscal quarter end. (“Tangible Net Worth”
means the aggregate of total shareholders’
equity determined in accordance with GAAP plus
indebtedness which is subordinated to the Obligations to Trade Bank under a
subordination agreement in form and substance acceptable to Trade Bank or by
subordination language acceptable to Trade Bank in the instrument evidencing
such indebtedness less (i) all assets which would
be classified as intangible assets under GAAP, including, but not limited to,
goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and franchises, and (ii) assets
which Trade Bank determines in its business judgment would not be available or
would be of relatively small value in a liquidation of Borrower’s business,
including, but not limited to, loans to officers or affiliates and other items,
and “Total Liabilities” excludes indebtedness which is subordinated to the
Obligations to Trade Bank under a subordination agreement in form and substance
acceptable to Trade Bank or by subordination language acceptable to Trade Bank
in the instrument evidencing such indebtedness.)

·                  Quick Asset Ratio. 
Not less than 1.0 to 1.0 determined as of each fiscal quarter end.  “Quick Asset Ratio”
means “Quick Assets” divided by Funded Debt, and “Quick Assets”
means cash on hand or on deposit in banks, readily marketable securities issued
by the United States, readily marketable commercial paper rated “A-1” by
Standard & Poor’s Corporation (or a similar rating by a similar rating
organization), certificates of deposit and banker’s acceptances, and accounts
receivable (net of allowance for doubtful accounts).  “Funded
Debt” means outstanding amounts under Revolving Credit Facility
whether classified as a short or long-term liability on Borrower’s financial
statement.

·                        Net Income After Taxes. Not less than $1 on a rolling four-quarter basis determined as of each
fiscal quarter end, based on the sum of the results of four consecutive
quarters consisting of the present quarter and the three preceding quarters.

Borrower shall
only be obligated to comply with financial covenants at the time an advance for
Funded Debt is requested under the Revolving Facility and shall be obligated to
comply with financial covenants at all times any Funded Debt is outstanding
under the Revolving Credit Facility.

BY
SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM:

ZUMIEZ INC.

	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
				

 

 14
 

 

EXHIBIT B

 

	
  WELLS FARGO HSBC TRADE BANK

  	
  REVOLVING
  CREDIT FACILITY SUPPLEMENT

  

 

THIS
SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO HSBC
TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF
BORROWER: ZUMIEZ INC.

CREDIT
LIMIT FOR THIS REVOLVING CREDIT LOAN FACILITY AND SUBLIMITS:
Credit Limit:  $25,000,000 (subject to
dollar limitations in Section 1.2 of Agreement)

CREDIT SUBLIMITS:
Subject to the Revolving Credit Facility Credit Limit, the Credit Sublimit for
each Subfacility specified below refers to the aggregate amount which may be
outstanding at any one time under each such Subfacility.

	
  ·

  	
  Sight Commercial Letters of Credit

  	
   

  	
  $

  	
  25,000,000

  	
   

  
	
  ·

  	
  Standby Letters of Credit

  	
   

  	
  $

  	
  5,000,000

  	
   

  

 

FACILITY
DESCRIPTION: Trade Bank will make the Revolving Credit
Facility available to finance Borrower’s working capital requirements. Subject
to the credit sublimits specified above, the Revolving Credit Facility may be
supported by (i) a standby letter of credit in favor of Trade Bank,
(ii) a guarantee or (iii) accounts receivable, inventory or other 

 15
 

 

collateral.
Revolving Credit Loans cannot be used to repay outstanding Revolving Credit
Loans or Term Loans that have matured or to repay amounts due under any other
Facilities provided to Borrower.

FACILITY DOCUMENTS:

·                  Revolving Credit Loans Note: The term and prepayment
conditions of the Loans under Revolving Credit Facility are set forth in
Revolving Credit Loans Note.

INTEREST
RATES:

·                  Loans under Revolving Credit Facility: All outstanding Loans
under Revolving Credit Facility will bear interest at the following rate:

Prime
Rate: The Prime Rate minus .50% per annum.

Other Rate: LIBOR plus 1.00% per
annum.

Interest
Payment Dates: Interest on all outstanding Loans under
Revolving Credit Facility will be paid at least once each month on the last day
of the month.

FEES:

·                  Facilities Fee: 
Borrower will pay the following Facilities Fee to Trade Bank before any
Facility, including this Facility, is made available to Borrower:  $7,500.

·                  Sight Commercial Credits:

Issuance Fees/Fees For
Increasing Credit Amounts or Extending Expiration Dates:
(Minimum $125)

1/8 of 1% per annum of
the amount of each Sight Commercial Credit and of any increase in such amount.

Payable: At the time each Sight
Commercial Credit is issued or increased and at the time the expiration date of
any Sight Commercial Credit is extended.

Amendment Fees:
(Minimum $100)

$100 for each amendment,
unless the amendment is an increase in the Sight Commercial Credit amount or an
extension of the expiration date, in which case the Issuance Fee above will
substitute for any Amendment Fee.

Payable: At the time each amendment
is issued.

Negotiation/Payment/Examination
Fees: (Minimum $125)

1/8 of 1% of the face
amount of each drawing under each Sight Commercial Credit.

Payable: At the time any draft or
other documents are negotiated, paid or examined.

·                  Standby Credits:

Commission Fees/Fees For
Increasing Credit Amounts or Extending Expiration Dates:
(Minimum $500)

1.25% of the amount of
each Standby Credit and of any increase in such amount.

Payable: At the time each Standby
Credit is issued or increased and at the time the expiration date of any
Standby Credit is extended.

Amendment Fees:
(Minimum $130)

$130 for each amendment,
unless the amendment is an increase in the Standby Credit amount or an
extension of the expiration date, in which case the Commission Fee above will
substitute for any Amendment Fee.

Payable: At the time each amendment
is issued.

Negotiation/Payment/Examination
Fees: (Minimum $250)

1/8 of 1% of the face
amount of each drawing under each Standby Credit.

Payable: At the time any draft or
other documents are negotiated, paid or examined.

 16
 

 

COLLATERAL:
See Exhibit C - Collateral/Credit Support Document.

SUBFACILITIES DESCRIPTION,
PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS:

·                  Sight Commercial Credits:

Description And Purpose: Trade Bank
will issue sight commercial letters of credit (each a “Sight Commercial Credit”)
for the account of Borrower for the purpose or purposes stated below. Subject
to the credit sublimits specified above, these Sight Commercial Credits will be
transferable or not transferable and have the goods related to them consigned
to or not consigned to, or controlled by or not controlled by, Trade Bank. The
Sight Commercial Credit Sublimit specified above refers to the aggregate
undrawn amount of all Sight Commercial Credits which may be at any one time
outstanding under this Facility together with the aggregate amount of all
drafts drawn under such Sight Commercial Credits which have not been reimbursed
as provided below at such time.

This Subfacility may only be used for the following purpose:
importation of goods.

Documents:

Before the first Sight
Commercial Credit is issued:

Trade Bank’s standard form Commercial Letter of Credit Agreement;

Before each Sight
Commercial Credit is issued:

Trade Bank’s standard form Application For Commercial Letter of Credit;

Before each Sight
Commercial Credit is amended:

Trade Bank’s standard form Application For Amendment To Letter of
Credit;

Term: No Sight Commercial Credit may
expire more than one hundred twenty (120) calendar days after the date it is
issued.

·                  Standby Credits:

Description And Purpose: Trade Bank
will issue standby letters of credit (each a “Standby Credit”) for the account
of Borrower the purpose or purposes stated below. Subject to the credit
sublimits specified above, these Standby Credits will be issued to support
Borrower’s open account trade terms, bid and performance bonds, industrial
revenue bonds, worker’s compensation obligations and or the moving of Borrower
as a new customer from another bank to Trade Bank. The Standby Credit Sublimit
specified above refers to the aggregate undrawn amount of all Standby Credits
which may be at any one time outstanding under this Subfacility together with
the aggregate amount of all drafts drawn under such Standby Credits which have
not been reimbursed as provided below at such time.

This Subfacility may only be used for the following purpose: to support
lease or other obligations.

Documents:

Before the first Standby
Credit is issued:

Trade Bank’s standard form Standby Letter of Credit Agreement.

Before each Standby
Credit is issued:

Trade Bank’s standard form Application For Standby Letter of Credit.

Before each Standby
Credit is amended:

Trade Bank’s standard form Application For Amendment To Letter of
Credit.

Term: No Standby Credit will expire
more than three hundred sixty-five (365) calendar days after the date it is
issued. Standby Credits will be available by sight drafts only.

 17
 

 

REIMBURSEMENTS FOR SIGHT
COMMERCIAL CREDITS AND STANDBY CREDITS:

The
amount of each drawing paid by Trade Bank under a Sight Commercial Credit or
Standby Credit will be reimbursed to Trade Bank as follows:

by Trade Bank
having Wells Fargo Bank debit any of Borrower’s accounts with Wells Fargo Bank
and forwarding such amount debited to Trade Bank; or

immediately on demand of
Trade Bank; or

by treating such amount drawn as an advance to Borrower under Borrower’s
Revolving Credit Facility.

DEFAULT INTEREST RATE ON
UNREIMBURSED SIGHT COMMERCIAL CREDITS AND STANDBY CREDITS:

Default
interest will accrue at a per annum rate equal to the Prime Rate plus five
percent (5%) (“Default Interest Rate”) and be paid at least once each month as
follows:

All drawings (i) under Sight Commercial Credits and (ii) under Standby
Credits, not reimbursed on the day they are paid by Trade Bank, will bear
interest at the Default Interest Rate from the date they are paid to the date
such payment is fully reimbursed.

 18
 

 

EXHIBIT C

BY INITIALING HERE BORROWER AGREES TO ALL THE
TERMS OF THIS SUPPLEMENT:            

 

	
  WELLS FARGO HSBC TRADE BANK

  	
  COLLATERAL/CREDIT
  SUPPORT DOCUMENT

  

 

	
  ·

  	
  Personal Property Security From Borrower:

  
	
   

  	
  First priority
  lien in the following assets of Borrower:

  
	
   

  	
  accounts receivable

  
	
   

  	
  inventory

  
	
   

  	
  equipment

  
	
   

  	
  Collateral
  Documents:

  
	
   

  	
  Continuing
  Security Agreement:  Rights to Payment
  and Inventory

  
	
   

  	
  Security Agreement:
  Equipment and Fixtures

  
	
   

  	
  UCC-1 Financing
  Statement

  
			

 

BY INITIALING HERE BORROWER
AGREES TO ALL THE TERMS OF THIS EXHIBIT:          

 19EXHIBIT 10.32

Compensation Arrangements for Named Executive Officers
of Avaya Inc. (“Avaya” or “the Company”)

In addition to
participation in certain plans and/or arrangements already filed and identified
as exhibits to this Form 10-K, the following applies with respect to
the Company’s former Chairman of the Board, President and Chief Executive
Officer (“CEO”), the current President and CEO and the other four most highly
compensated executive officers (together, the “Named Executive Officers”) for
fiscal 2006:

Salaries
for fiscal 2006 were:

	
  Donald K. Peterson

  	
   

  	
  $

  	
  940,000

  	
   

  
	
  Former Chairman of the
  Board, President and Chief Executive Officer

  	
   

  	
   

  	
   

  
	
  Louis J. D’Ambrosio

  	
   

  	
  $

  	
  536,905

  	
   

  
	
  Director, President and
  Chief Executive Officer

  	
   

  	
   

  	
   

  
	
  Pamela F. Craven

  	
   

  	
  $

  	
  390,000

  	
   

  
	
  Chief Administrative Officer

  	
   

  	
   

  	
   

  
	
  Garry K. McGuire

  	
   

  	
  $

  	
  470,000

  	
   

  
	
  Chief Financial Officer
  and Senior Vice President—Corporate Development

  	
   

  	
   

  	
   

  
	
  Francis M. Scricco

  	
   

  	
  $

  	
  475,000

  	
   

  
	
  Senior Vice President—Avaya
  Global Services

  	
   

  	
   

  	
   

  
	
  Michael C. Thurk

  	
   

  	
  $

  	
  517,857

  	
   

  
	
  Chief Operating Officer

  	
   

  	
   

  	
   

  

 

As indicated on a Current
Report on Form 8-K dated July 28, 2006, Mr. Peterson
ceased serving as the Company’s President and CEO effective July 24, 2006
and, effective as of September 30, 2006, he ceased serving as a Director
of Avaya.

Mr. D’Ambrosio was
appointed President and CEO of the Company effective July 24, 2006, and
his base salary was modified as of that date. The amount indicated above
represents amounts earned before that date using his prior base salary of
$475,000 plus amounts earned after that date through the remainder of fiscal
2006 at his current base salary of $800,000. He was elected a Director of the
Company on November 2, 2006.

Mrs. Craven was
appointed Chief Administrative Officer of the Company effective August 3,
2006, and her base salary was modified as of August 1, 2006. The amount
indicated above represents amounts earned before that date using her prior base
salary of $380,000 plus amounts earned after that date through the remainder of
fiscal 2006 at her current base salary of $440,000.

As indicated on a Current
Report on Form 8-K dated October 5, 2006, Mr. McGuire will
retire as Chief Financial Officer and Senior Vice President—Corporate
Development, effective December 31, 2006.

Mr. Scricco’s base
salary for fiscal 2006 remained unchanged from fiscal 2005.

Mr. Thurk was
appointed Chief Operating Officer of the Company effective July 24, 2006,
and his base salary was modified as of that date. The amount indicated above
represents amounts earned before that date using his prior base salary of
$475,000 plus amounts earned after that date through the remainder of fiscal
2006 at his current base salary of $700,000. He was elected a Director of the
Company on November 2, 2006.

In addition to the above
base salaries and participation in the other plans and/or arrangements already
filed and identified as exhibits to this Form 10-K, during fiscal
2006 the Company provided the Named Executive Officers with, and in fiscal 2007
may provide to its continuing Named Executive Officers, certain fringe
benefits, including one or more of the following:  financial counseling services,
a car allowance, reimbursement for home security systems, certain temporary
housing expenses, limited use of the corporate aircraft and automobiles for
personal reasons and company-provided health physical examinations. The
Compensation Committee of the Company’s Board of Directors periodically reviews
fringe benefits made available to the Company’s executive officers, including
the CEO, to ensure that they are in line with market practice.

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