-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TX8gXzIxYy8py6+JLrjCjgQ9G4DiZ1+DXwWG1eEUyJFYtE718leWpAwlVA8tqW1w jJ1wYszANOS2fIMqIKGE2g== 0001047469-09-003647.txt : 20090401 0001047469-09-003647.hdr.sgml : 20090401 20090401144259 ACCESSION NUMBER: 0001047469-09-003647 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20090131 FILED AS OF DATE: 20090401 DATE AS OF CHANGE: 20090401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLDWATER CREEK INC CENTRAL INDEX KEY: 0001018005 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 820419266 STATE OF INCORPORATION: DE FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21915 FILM NUMBER: 09722764 BUSINESS ADDRESS: STREET 1: ONE COLDWATER CREEK DRIVE CITY: SANDPOINT STATE: ID ZIP: 83864 BUSINESS PHONE: 2082632266 MAIL ADDRESS: STREET 1: ONE COLDWATER CREEK DRIVE CITY: SANDPOINT STATE: ID ZIP: 83864 10-K 1 a2191998z10-k.htm 10-K

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

Form 10-K


ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 31, 2009
Commission File Number 0-21915

COLDWATER CREEK INC.
(Exact name of registrant as specified in its charter)


DELAWARE (State of other jurisdiction of incorporation or organization)		82-0419266 (I.R.S. Employer Identification No.)

ONE COLDWATER CREEK DRIVE, SANDPOINT, IDAHO 83864
(Address of principal executive offices)

(208) 263-2266
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered

Common Stock $0.01 par value		NASDAQ Global Select

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO ý

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
YES ý NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in a definitive proxy or information statement incorporated by reference to Part III of this Form 10-K or any amendment to this Form 10-K o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):


Large accelerated filer o		Accelerated filer ý		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on August 2, 2008, the last business day of the registrant's most recently completed second fiscal quarter, based on the last reported trading price of the registrant's common stock on the NASDAQ was approximately $377,399,000

There were 91,255,700 shares of the registrant's $0.01 par value common stock outstanding on March 27, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form are incorporated by reference into Part III of this Form 10-K.

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Coldwater Creek Inc.

Annual Report on Form 10-K

For the Fiscal Year Ended January 31, 2009

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PART I
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	20
Item 3.	Legal Proceedings	22
Item 4.	Submission of Matters to a Vote of Security Holders	22
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	26
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8.	Consolidated Financial Statements and Supplementary Data	48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	82
Item 9A.	Controls and Procedures	82
Item 9B.	Other Information	84
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	85
Item 11.	Executive Compensation	85
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	85
Item 13.	Certain Relationships and Related Transactions, and Director Independence	85
Item 14.	Principal Accountant Fees and Services	85
PART IV
Item 15.	Exhibits and Financial Statement Schedules	86

"We", "us", "our", "Company" and "Coldwater" unless the context otherwise requires means Coldwater Creek Inc. and its subsidiaries.

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PART I

Item 1. BUSINESS

The following discussion contains various statements regarding our current strategies, financial position, results of operations, cash flows, operating and financial trends and uncertainties, as well as certain forward-looking statements regarding our future expectations. When used in this discussion, words such as "anticipate," "believe," "estimate," "expect," "could," "may," "will," "should," "plan," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements are based on our current expectations and are subject to numerous risks and uncertainties. As such, our actual future results, performance or achievements may differ materially from the results expressed in, or implied by, our forward-looking statements. Please refer to our "Risk Factors" in this Annual Report on Form 10-K. We assume no future obligation to update our forward-looking statements or to provide periodic updates or guidance.

We maintain an Internet web site at www.coldwatercreek.com. (This web site address is for informational purposes only and is not intended to provide an active link or to incorporate any information contained on the web site by its reference in this document.) We make available, free of charge, through our web site our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports have been electronically filed with the SEC.

General

We are a specialty retailer of women's apparel, accessories, jewelry and gift items. Founded in 1984 as a catalog company, today we are a multi-channel specialty retailer generating $1.0 billion in net sales in fiscal 2008. Our proprietary merchandise assortment reflects a sophisticated yet relaxed and casual lifestyle. A commitment to providing superior customer service is manifest in all aspects of our business. We serve our customers through our retail and direct segments. Our merchandise assortment, retail stores, catalogs and e-commerce web site are designed to appeal to women who are 35 years of age and older with average annual household incomes in excess of $75,000. Our mission is to become one of the premier specialty retailers for women 35 years of age and older in the United States by offering our customers a compelling merchandise assortment with superior customer service.

Coldwater Creek Brand

The Coldwater Creek brand is synonymous with a sophisticated yet relaxed and casual lifestyle. To maintain and strengthen this brand image we focus our merchandising efforts on the design and development of unique, colorful items with an emphasis on comfort and quality fabrics that provide easy care. Our merchandise is fashionable but not trendy and includes clothing for each aspect of our customer's lifestyle, including soft career, casual weekend wear and special occasion.

We seek to present a consistent brand image throughout all of our marketing and promotion activities. In recent years, we used a broad based marketing strategy of national magazine advertising and catalog circulation to attract new customers while building overall brand awareness. During fiscal 2008 we shifted to a more point-of-sale, in-store focus by concentrating our efforts on maintaining our best customers through programs such as personal shopper. We also continue to attract new customers through select advertising placement. In addition, we are developing traffic drivers through innovative e-mail campaigns, retail mailers and newspaper ads as well as through our loyalty programs (see "Customer Loyalty Programs" below for further discussion).

As a direct-to-consumer retailer we have been able to create an extensive proprietary database of customer information including customer demographics, purchasing history, and geographic proximity to an existing or planned premium retail store. We believe our ability to effectively design and manage

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our marketing and promotional programs is enhanced by this rich source of information, allowing us to adjust the frequency, timing and content of each program to maximize its benefits.

Customer service has always been a hallmark of the Coldwater Creek brand. We seek to hire associates who are understanding of our customer's needs and relate well to our brand. To ensure that our customer receives the same level of exceptional customer service, ongoing training is provided for all store and customer contact center personnel. The training is focused on company culture, customer service methods and expectations, and product knowledge. To ensure we are providing the level of service customers have come to expect, we monitor customer shopping survey scores, customer comments, conversion rates and other operational metrics on a daily basis. In addition, our customer service programs are designed to facilitate our multi-channel approach. We accept returns through any channel regardless of the initial point of purchase. We also provide in-store web kiosks and assist customers in ordering items through our web site if the desired merchandise is unavailable at their local premium retail store.

Our Multi-Channel Approach

Since the opening of our first premium retail store in November 1999, we have gradually evolved from a direct marketer to a multi-channel specialty retailer. Our merchandise is offered through two distinct operating segments, retail and direct. Our retail segment includes an expanding base of premium retail stores and outlet stores along with our day spa locations, while the direct segment encompasses our direct-to-consumer business through e-commerce and phone and mail operations. Our catalogs are prominently displayed in each premium retail store to encourage customers to continue shopping with us even after they have left our stores. This multi-channel approach also allows us to cross-promote the brand and provides customers with convenient access to our merchandise, regardless of their preferred shopping method.

Information regarding segment performance is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K under the heading "Results of Operations—Segment Results." Additionally, selected financial data for our segments is presented in Note 17 to our consolidated financial statements.

Retail Segment

Our retail stores are designed to reflect the brand's focus on a casual, unhurried lifestyle, encouraging customers to relax and enjoy their shopping experience. Our prominent storefront display windows and logo signage provide an inviting atmosphere to our shoppers. Store interiors combine an appealing mix of wood décor, stone accents, and other natural materials and colors. Thoughtfully designed merchandise fixtures, water features and leather chairs also help to create a warm, comfortable environment. We also promote and market our retail stores through the use of our catalogs.

We continue to conduct four key seasonal sales events per year in the premium retail stores. Excess merchandise is cleared primarily through our 35 merchandise clearance outlet stores and our e-commerce channel. Unlike many other retailers that specifically develop and produce items for sale through their outlet locations, we use outlets exclusively to manage overstocked premium merchandise.

The key driver of our growth strategy continues to be the retail expansion. We believe there is an opportunity for us to grow our premium retail store base to between 500 to 550 stores in more than 280 identified markets nationwide. In fiscal 2008, we opened 42 premium retail stores, increasing our total premium store count to 348, covering 201 markets. Approximately 42.5 percent of these stores are located in traditional malls, 52.6 percent in lifestyle centers and 4.9 percent in street locations. In addition to our 348 premium retail stores we also had 35 merchandise clearance outlets in operation at the end of fiscal 2008.

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Each new store location is identified, analyzed and presented for approval through a collaborative process between our real estate and business intelligence departments. The real estate department uses its experience and current market knowledge to identify potential locations based upon an overall market plan. The business intelligence department then analyzes each location by extracting data and information from our own extensive customer database and combining it with external demographic information. This comprehensive analysis includes such information as projected sales, average consumer age and income level, buying habits and the retail location of competitors within the same trade area.

Based on current macroeconomic conditions, we determined during the third quarter of fiscal 2008 to significantly decrease our store rollout plans for fiscal 2009, and it is our present intention to open no more than ten retail stores during fiscal 2009, the majority of which are planned for opening in the first half of the year. New premium retail stores will average approximately 6,100 square feet. As of March 27, 2009, one store has been opened in the first quarter of fiscal 2009, for a premium retail total store count of 349.

We also operate our Coldwater Creek ~ The Spa concept in nine locations. These day spas offer a complete menu of spa treatments, including massages, facials, body treatments, manicures and pedicures. In addition to spa treatments, the day spas carry an assortment of relevant apparel as well as lines of personal care products for women. Our day spas are staffed with experienced professionals in all treatment areas.

Direct Segment

The direct segment consists of sales generated through our e-commerce web site and from orders taken from customers over the phone or though the mail. The direct segment began with the mailing of our first catalog in 1985 and was expanded in 1999 to include our e-commerce business. Our e-commerce web site and catalogs feature full color photographs, graphics and artwork. Utilizing a proprietary process, we primarily present our apparel "off-figure," leaving the customer to decide if an item of merchandise or ensemble is right for her based upon its inherent style and design. All web site and catalog pages are designed by an in-house team of artists, copywriters and editors to ensure a consistent presentation of the Coldwater Creek brand.

Our Web Site. We use the e-commerce web site, www.coldwatercreek.com, to cost-effectively expand our customer base and provide another convenient shopping alternative for customers. The web site features the entire full-price merchandise offering found in our catalogs. It also serves as an efficient promotional vehicle for the disposition of excess inventory. Customers are driven to the web site primarily by our catalogs, e-mail campaigns and online advertising. In addition, we participate in cost-per-click search and revenue share-based affiliate programs whereby numerous popular Internet search engines and consumer and charitable web sites provide direct access to our web site.

Our Catalogs. During fiscal 2008, our merchandise was offered through two core catalog titles: Northcountry and Coldwater Creek, which differentiate the merchandise assortment offered in each title to cater to the various lifestyles of our core customer. Northcountry represents the broadest product assortment, mixing apparel with jewelry, fashion accessories, gift items and home-related hard goods. The Coldwater Creek catalog is designed to drive traffic to our premium retail stores, primarily featuring merchandise that can be found in these stores. We continue to evaluate our catalogs to ensure that we are reaching the greatest number of customers in the most effective and efficient manner possible. As a result, we began offering our merchandise under a single catalog title during late fiscal 2008 and expect to continue to operate under one catalog title during fiscal 2009.

Customer Contact Centers. We have three customer contact centers located in Coeur d'Alene, Idaho, Mineral Wells, West Virginia, and Sandpoint, Idaho. Customer contact center personnel receive

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comprehensive, ongoing training on the Coldwater Creek culture, expectations of exceptional customer service, and product knowledge. Certain personnel receive more extensive product training and are available to respond to customer inquiries. These Product Specialists can be quickly patched into a three-way call with individual customers and contact center agents to answer highly specific questions about any of the merchandise we offer.

If customers visiting our e-commerce web site have questions about products, web site navigation or order placement they can request assistance from a knowledgeable customer contact center agent through the online instant help option. Requests or questions sent via e-mail receive a personalized reply, rather than an automated response, within an average of fifteen minutes. For customers who prefer to place orders over the phone, the customer contact center phone system is designed to ensure customer calls are answered immediately.

Merchandise

We design and develop all of our apparel either in-house or through collaboration with independent designers. To ensure our designers stay abreast of trends in styles and fabrics, we opened our New York design studio during fiscal 2004. Our New York design team merges the latest fashion trends with our customers' preferences to build an overall vision that guides the design and development of our seasonal merchandise assortment. During the fourth quarter of fiscal 2008, we made some changes to our merchandising team and its structure. These changes have enabled us to better integrate our merchandise design and product development teams, which we believe will enable us to offer a more compelling product and enhance efficiency.

Our product development team translates the overall vision for each season into various product designs, fabrics and prints, indicating the construction and exact specifications for each item. Our team seeks inspiration from their extensive travels, fashion shows, and from our direct sourcing team which provides new fabrics and novelty prints along with product samples from various manufacturers. Our direct sourcing team also assists in identifying the appropriate manufacturers to manufacture each item and in negotiating both price and delivery terms.

Once our merchandise assortment is selected, our inventory planning team determines the exact quantities of each item to purchase in order to meet anticipated demand. This determination is made through the analysis of information such as historical sales, planned merchandise presentation, scheduled store openings and sales projections. This process culminates in the issuance of various purchase orders. Coordinating with the direct sourcing department, quality assurance and quality compliance personnel monitor the production process to verify the merchandise is produced to exact specifications and within the designated timeline.

Direct Sourcing

Our apparel has historically been purchased primarily through domestic importers who procured the merchandise on our behalf. Over the past four years, however, we have worked directly with foreign manufacturers, launching our direct sourcing initiative in the third quarter of fiscal 2004. The benefits of direct sourcing include improved control over the production, quality and transportation logistics of our apparel. We believe these benefits result in faster speed to market, improved quality and lower merchandise costs.

To support this initiative we opened a sourcing office in Hong Kong in the fourth quarter of fiscal 2005 and an office in India in the first quarter of fiscal 2006. These sourcing offices work closely with direct sourcing personnel located at our corporate headquarters. The primary functions of these offices are product development and production management as well as ensuring compliance with our code of conduct and monitoring program. Foreign office personnel are involved in selecting foreign manufacturers, ensuring adequate factory capacity and negotiating prices and delivery terms. Our

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sourcing offices also provide samples of fabrics, colors and prints that are being developed in their region. Once a purchase order is issued, production management personnel work directly with foreign manufacturers to ensure merchandise is produced according to our exact specifications, including fabric quality and color, fit and design. The opportunity to verify conformance to these specifications throughout the manufacturing process provides more control over the quality of our end product. Personnel also oversee the timeliness of the production process, from the initial receipt of fabric to merchandise shipment, resulting in improvements in inventory planning and control.

Approximately 15 percent of our apparel was purchased directly from manufacturers in fiscal 2005. During fiscal 2006, this percentage increased to approximately 30 percent. During fiscal 2007, this percentage increased to approximately 50 percent. For fiscal 2008 we have reached our goal of sourcing approximately 60 percent of the apparel units purchased, and we believe there is opportunity to slightly increase our direct sourcing during fiscal 2009. This expansion of our direct sourcing is a multi-year initiative which we expect will ultimately result in approximately 65 to 70 percent of our inventory being sourced directly. As we have increased the percentage of total apparel that is purchased directly from manufacturers, the number of domestic importers with whom we contract has decreased. Domestic importers will remain, however, a crucial component of our overall sourcing strategy, providing unique industry and marketplace knowledge along with product design and development capabilities.

Customer Loyalty Programs

In September 2007, we launched onecreek, a unique new loyalty program designed to further enhance service and reward our most valuable customers. Benefits of program participation include unparalleled service, sneak peeks at upcoming trends and new merchandise, onecreek customer service specialists, a personal shopper, exclusive onecreek savings and promotions, free shipping on returns, and a special gift to help celebrate her birthday. Using our existing customer database we identified and initially enrolled approximately 250,000 of our very best customers in onecreek, which we expanded to over 600,000 customers during fiscal 2008.

In the second quarter of fiscal 2005, we introduced our co-branded credit card program. To encourage pre-approved customers to apply for and accept the credit card, we provide a discount to customers on their first Coldwater Creek purchase made with the co-branded credit card. Once a customer is approved to receive a co-branded credit card and the credit card is activated, they become eligible to participate in our credit card reward program. Under this program, points are earned on purchases made with the credit card at Coldwater Creek and at other businesses where our card is accepted. Cardholders who accumulate the requisite number of points are issued a coupon that is valid towards the purchase of Coldwater Creek merchandise. In addition to earning points, all participants in the co-branded credit card program receive exclusive offers throughout the year. These offers have included special discounts, invitations to Coldwater Creek shopping events, and periodic opportunities to earn double and triple points.

Competition

The women's retail apparel market is highly competitive. Competitors range from specialty apparel retail companies such as Chico's, Talbots, Christopher & Banks and Ann Taylor to small single channel catalog, e-commerce and retail store companies. We also compete with national department store chains such as Macy's, Nordstrom, Dillard's and JC Penney, along with discount retailers that offer women's apparel and accessories, such as Kohl's and Target.

We believe that we compete principally on the basis of our high-quality, distinctive merchandise selection and exceptional customer service. We also believe that an integrated, multi-channel sales

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strategy enhances our ability to compete in the marketplace by providing convenient access to our merchandise, regardless of our customer's preferred shopping method.

Social and Environmental Responsibility

We are committed to sourcing our products in a responsible manner, respecting both the countries in which we have a business presence, and the business partners that manufacture our products.

As a part of this commitment, in fiscal 2005, we implemented a comprehensive code of conduct and monitoring program that applies to all factories contracted in the production of merchandise for Coldwater Creek. Within this code, we recognize that local customs and laws vary from one region of the world to another; however, we strongly believe the issues of business ethics, human rights, health, safety and environmental stewardship transcend geographical boundaries. The intention of this code is to communicate our expectations to each of our business partners.

To ensure our business partners adhere to our code of conduct, we monitor each of their business practices through an annual on-site factory inspection and compliance audit. These audits are performed by an accredited compliance firm and focus on areas such as compliance with local laws and regulations, child and forced labor conditions, working hours, health and safety programs, freedom of association and the environment. Random audits are conducted as needed.

If deficiencies are discovered, personnel in each region are empowered to work with the respective business partner to correct those deficiencies. The goal of this process is to not only immediately correct the deficiencies, but to also educate individuals, build strategic relationships and improve business practices over the long-term. Business relationships are severed with partners who do not make the necessary improvements in a timely manner.

In addition, we have joined Business for Social Responsibility, a global organization that assists member companies in the achievement of success in ways that respect ethical values, people, communities and the environment. Through the many tools offered by this organization, and the collaboration with other member companies, we will continue to develop and strengthen our social compliance program. As a member of Business for Social Responsibility, we, along with nine other internationally known brands, became charter members of the Sustainable Water Group. Water is a natural resource that can be significantly impacted by the apparel manufacturing process. The focus of this group is the development of a single set of standards for monitoring and improving water quality in the production of apparel.

In 2008, we completed our fourth year as a national sponsor for the Susan G. Komen Race for the Cure® for breast cancer awareness and research. We also sponsor various local community organizations and events and encourage our employees to be actively involved in their communities, as evidenced by our Adopt-a-School program which we implemented during 2007. Under this program, Coldwater Creek associates partner with local elementary schools, volunteering their personal time and energy to provide classroom assistance. In addition, we have implemented LEED (Leadership in Energy and Environmental Design) Green Building Rating System for Commercial Interiors in selected stores which is in keeping with Coldwater Creek's goals of reducing our impact on the environment and creating healthy surroundings for our employees and customers.

Government Regulation

The direct business is subject to the Merchandise Mail Order Rule and related regulations promulgated by the Federal Trade Commission. While we believe we are in material compliance with these regulations, no assurance can be given that new laws or regulations will not be enacted or adopted which might adversely affect operations.

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Our multi-channel business model subjects us to state and local taxes in numerous jurisdictions, including state income, franchise, and sales and use tax. We collect these taxes in any jurisdiction in which we have a physical presence. While we believe we have paid or accrued for all taxes based on our interpretation of applicable law, tax laws are complex and interpretations differ from state to state. In the past, some taxing jurisdictions have assessed additional taxes and penalties on us, asserting either an error in our calculation or an interpretation of the law that differed from our own. It is possible that taxing authorities may make additional assessments in the future. In addition to taxes, penalties and interest, these assessments could cause us to incur legal fees associated with resolving disputes with taxing authorities.

Additionally, changes in state and local tax laws, such as temporary changes associated with "tax holidays" and other programs, require us to make continual changes to our collection and reporting systems that may relate to only one taxing jurisdiction. If we fail to update our collection and reporting systems in response to these changes, any over collection or under collection of sales taxes could subject us to interest and penalties, as well as private lawsuits and damage to our reputation.

Various states have attempted to collect back sales and use taxes from direct marketers whose only contacts with the taxing state are solicitations through the mail or the Internet, and whose subsequent delivery of purchased goods is by mail or interstate common carriers. We may be subject to these attempts in jurisdictions in which we currently have or previously had no physical presence. However, the United States Supreme Court has held that these states, absent congressional legislation, may not impose tax collection obligations on an out-of-state mail order or Internet company. During fiscal 2008, certain state legislation has been enacted that requires certain Internet and/or mail order retailers to collect and remit sales tax from customers resident in that jurisdiction. This legislation was enacted on a prospective basis and does not impact our current sales tax collection and remittance processes. We anticipate that any further legislative changes regarding direct marketers, if adopted, would also be applied only on a prospective basis.

Many of our products are manufactured outside the United States and are subject to existing or potential duties, tariffs or quotas that may limit the quantity of products we are allowed to import or increase the cost of such products. For example, the United States and the European Union have historically imposed trade quotas on certain apparel and textile categories from the Peoples Republic of China. Effective January 1, 2009, apparel and textile quotas that were outlined in the memorandum of understanding between the United States and The Peoples Republic of China expired and are no longer applicable. To date, we have not been restricted by quotas in the operation of the business, and customs duties have not comprised a material portion of the total cost of most of our products. As we expand retail operations and begin to source more merchandise overseas, business may be impacted by quotas and the imposition of customs duties or tariffs. We are also subject to foreign governmental regulation and trade restrictions, including U.S. regulations prohibiting certain foreign activities, with respect to our product sourcing.

Employees

As of January 31, 2009, we had 2,800 full-time employees and 8,400 part-time employees. During our peak selling season, which includes the months of November and December, we utilize a substantial number of temporary employees. None of our employees are covered by collective bargaining agreements.

Trademarks

Our registered trademarks include Coldwater Creek®, Coldwater Creek The Spa® and the stylized Coldwater Creek logo. We believe that our registered and common law trademarks have significant value and are instrumental to our ability to market and sustain demand for our merchandise and brand.

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Available Information

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), and therefore file periodic reports and other information with the Securities and Exchange Commission (SEC). These reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet web site at www.sec.gov that contains reports, proxy information statements and other information regarding issuers that file electronically.

Our filings under the Exchange Act (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports) are also available free of charge on the investor relations portion of our web site at www.coldwatercreek.com. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The reference to our web site address does not constitute incorporation by reference of the information contained on the web site, and the information contained on the web site is not part of this document.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the following risk factors which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing the Company. Additional risks and uncertainties not currently known or that are currently deemed immaterial may also adversely affect the business, financial condition, and/or operating results of the Company.

General economic conditions have impacted consumer spending and may adversely affect our financial position.

Consumer spending patterns are highly sensitive to the general economic climate, the consumer's level of disposable income, consumer debt, and overall consumer confidence. Consumer spending has been impacted recently by the current recession, volatile energy and food costs, greater levels of unemployment, higher levels of consumer debt, declines in home values and in the value of consumers' investments and savings, restrictions on the availability of credit and other negative economic conditions, nationally and regionally. We continue to be affected by challenging macroeconomic conditions which are evidenced in our business by a highly competitive retail selling environment, low retail store traffic levels and a shift in customer purchasing toward more value priced merchandise. These conditions, which have continued into the first quarter of fiscal 2009, had a negative impact on our revenues, gross margins, operating cashflows and earnings in fiscals 2008 and 2007. We believe these conditions, in particular the highly competitive selling environment, low retail store traffic levels and the shift in customer purchasing toward more value priced merchandise, will continue throughout fiscal 2009 and the foreseeable future. If consumer spending on apparel and accessories continues to decline and demand for our products decreases further, we may be forced to discount our merchandise or sell it at a loss, which would reduce our revenues, gross margins, operating cash flows and earnings. In addition, continued declines in our profitability could result in a charge to earnings for the impairment of our stores, which would not affect our cash flow but could decrease our earnings or increase our losses, and our stock price could be adversely affected. In addition, higher transportation costs, higher costs of labor, insurance and healthcare, and other negative economic factors may increase our cost of sales and operating expenses.

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Recent disruptions in the credit and financial markets could affect our liquidity and harm our financial performance.

The recent distress in the financial markets has resulted in extreme volatility in securities prices and diminished liquidity and credit availability, which may affect our liquidity. Although we currently do not have any borrowings under our $70 million secured credit facility, tightening of the credit markets could make it more difficult for us to access funds, enter into agreements for new indebtedness or obtain funding through the issuance of our securities. Additionally, if the macroeconomic environment were to continue to deteriorate, it is possible that consumer spending could decline further and impact our cash flows, which may require us to borrow under our credit facility. The actual amount of credit that is available from time to time under our credit facility is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be determined in the discretion of the lender. Consequently, it is possible that, should we need to access our credit facility, it may not be available in full. Additionally, our credit facility contains covenants related to capital expenditure levels and minimum inventory book value, and other customary matters. Our failure to comply with the covenants, terms and conditions of our credit facility could cause the facility not to be available to us.

In addition, the current credit crisis is having a significant negative impact on businesses around the world, and the impact of this crisis on our major suppliers cannot be predicted. The inability of key vendors to access liquidity, or the insolvency of key vendors, could lead to their failure to deliver our merchandise, which would result in lost sales and lower customer satisfaction. It is also possible that the inability of our vendors to access liquidity will cause them to extend less favorable terms to us, which could negatively affect our margins and financial condition.

Demand for our merchandise is difficult to gauge and our inability to predict consumer spending patterns and consumer preferences may reduce our revenues, gross margins and earnings.

Forecasting consumer demand for our merchandise is difficult given the nature of changing fashion trends and consumer preferences, which can vary by season and from one geographic region to another and be affected by general economic conditions that are difficult to predict. On average, we begin the design process for apparel nine to ten months before merchandise is available to consumers, and we typically begin to make purchase commitments four to eight months in advance. These lead times make it difficult for us to respond quickly to changes in demand for our products and amplify the consequences of any misjudgments we might make.

Our inventory levels fluctuate seasonally, and at certain times of the year, such as during the holiday season, we maintain higher inventory levels and are particularly susceptible to risks related to demand for our merchandise. If we elect to carry relatively low levels of inventory and demand is stronger than we anticipated, we may be forced to backorder merchandise in our direct channels or not have merchandise available for sale in our retail stores, which may result in lost sales and lower customer satisfaction.

In addition, during our 2008 fiscal year, our business was negatively impacted as we navigated through an over-assortment of merchandise that did not differentiate us enough from our competitors. We have recently implemented changes to our business strategy that we expect over time will both increase the appeal of our merchandise to customers and reduce the impact of discounting and promotions. However, these initiatives will take time to be fully implemented. They may not be successful, have any positive effect on our operating results or offset declining consumer spending due to adverse economic conditions. If the demand for our merchandise is lower than expected we will be forced to discount more merchandise, which reduces our gross margins and earnings.

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Our cost savings initiatives may have a negative impact on our operations and inhibit our long-term growth plans.

During 2008, through our cost-cutting efforts, we reduced operating expenses and we expect to achieve further reductions in 2009. Much of these savings have been achieved through decreased marketing expenditures and headcount reductions. We believe these measures were necessary and appropriate to ensure the long-term health of our business in response to current economic conditions. However, our cost-cutting measures may also have negative effects on some aspects of our operations. For example, our reduced marketing plans may make it difficult for us to respond quickly to any improvement in economic conditions, and thereby inhibit our long-term growth. We may also experience deterioration of our customer base due to lower levels of marketing and advertising. We could also experience low employee morale and an inability to retain key employees due to recent headcount reductions and other cost savings initiatives.

The retail store model requires us to incur substantial financial commitments and fixed costs that we will not be able to recover if a store is not successful.

The success of an individual store location depends largely on the success of the lifestyle center or shopping mall where the store is located, and may be influenced by changing customer demographic and consumer spending patterns. These factors cannot be predicted with complete accuracy. Because we are required to make long-term financial commitments when leasing retail store locations, and to incur substantial fixed costs for each store's design, leasehold improvements, fixtures and information and management systems, it would be costly for us to close a store that does not prove successful. The current economic environment may also adversely affect the ability of developers or landlords to meet commitments to us to pay for certain tenant improvement expenses we incur in connection with building out new retail store locations.

The deterioration of the financial, credit, and housing markets has had a severe impact on consumer confidence and discretionary spending. These market conditions have had a negative effect on our business. Though we believe no impairment of our long-lived assets exists as of January 31, 2009, we concluded to take an impairment charge in the second quarter of 2008 as a result of continuing losses related to our day spa concept. If market conditions were to continue to deteriorate for an extended period of time, it is reasonably possible that we could record additional impairments of these or other long-lived assets in the future.

We are subject to potentially adverse outcomes in litigation matters.

We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. Actions which may be filed against us include commercial, intellectual property infringement, customer and employment claims, including class action lawsuits alleging that we have violated federal and state wage and hour and other laws. These issues arise primarily in the ordinary course of business but could raise complex factual and legal issues, which are subject to multiple risks and uncertainties and could require significant management time. We believe that our current litigation issues will not have a material adverse effect on our results of operations or financial condition. However, our assessment of current litigation could change in light of the discovery of facts not presently known to us with respect to pending legal actions, or adverse determinations by judges, juries or other finders of fact. Moreover, additional litigation that is not currently pending could have a significant impact on our results or operations or financial condition.

The majority of our cash and cash equivalents are concentrated with one financial institution.

We maintain the majority of our cash and cash equivalents with one major financial institution in the United States of America, in the form of demand deposits, money market accounts and other

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short-term investments. Deposits in this institution may exceed the amounts of insurance provided on such deposits. With the current financial environment and the instability of financial institutions, we cannot be assured that we will not experience losses on our deposits.

Quarterly results of operations fluctuate and may be negatively impacted by seasonal influences.

Net sales, operating results, liquidity and cash flows have fluctuated, and will continue to fluctuate, on a quarterly basis, as well as on an annual basis, as a result of a number of factors, including, but not limited to, the following:

•: the number and timing of premium retail store openings;
•: the timing and number of e-mails delivered;
•: the timing of catalog mailings and the number of catalogs we mail;
•: the ability to accurately estimate and accrue for merchandise returns and the costs of obsolete inventory disposition;
•: the timing of merchandise receiving and shipping, including any delays resulting from labor strikes or slowdowns, adverse weather conditions, health epidemics or national security measures; and
•: shifts in the timing of important holiday selling seasons relative to our fiscal quarters, including Valentine's Day, Easter, Mother's Day, Thanksgiving and Christmas, and the day of the week on which certain important holidays fall.

Our results continue to depend materially on sales and profits from the November and December holiday shopping season. In anticipation of traditionally increased holiday sales activity, we incur certain significant incremental expenses, including the hiring of a substantial number of temporary employees to supplement the existing workforce. If, for any reason, we were to realize lower-than-expected sales or profits during the November and December holiday selling season, as we did in fiscal years 2008 and 2007, our financial condition, results of operations, including related gross margins, and cash flows for the entire fiscal year would be materially adversely affected.

We may be unable to manage expanding operations and the complexities of our multi-channel strategy, which could harm our results of operations.

During the past few years, with the implementation of a multi-channel business model, our overall business has become substantially more complex. This increasing complexity has resulted and is expected to continue to result in increased demands on our managerial, operational and administrative resources and has forced us to develop new expertise. In order to manage our complex multi-channel strategy, we will be required to, among other things:

•: successfully integrate improvements to our management information systems and controls;
•: efficiently manage the upgrade of certain equipment at our distribution center; and
•: attract, train and retain qualified personnel, including middle and senior management, and manage an increasing number of employees.

If we do not meet these demands or develop required expertise, we may be unable to fully achieve our growth strategies or realize the full benefits of a multi-channel strategy, which may harm our results of operations.

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We are subject to significant risks associated with our ongoing implementation of major changes to our management information systems.

To support our increasingly complex business processes, we are replacing a number of our management information systems that are critical to our operations, including systems such as accounting, human resources, inventory purchasing and management, financial planning, direct segment order processing, and retail segment point-of-sale systems. Currently, we are installing a core merchandising system which is a central component affecting many aspects of our business. Installing and integrating vital components of our management information systems carries substantial risk, including potential loss of data or information, cost overruns, implementation delays, disruption of operations, and our potential inability to meet reporting requirements, any of which would harm our business and could impair our results of operations.

We depend on key vendors for timely and effective sourcing and delivery of our merchandise. If these vendors are unable to timely fill orders or meet quality standards, we may lose customer sales and our reputation may suffer.

The direct business depends largely on our ability to fulfill orders on a timely basis, and the direct and retail businesses depend largely on our ability to keep appropriate levels of inventory in the distribution center and stores. We may experience difficulties in obtaining sufficient manufacturing capacity from vendors to produce merchandise. We generally maintain non-exclusive relationships with multiple vendors that manufacture our merchandise. However, we have no contractual assurances of continued supply, pricing or access to new products, and any vendor could discontinue selling to us at any time. Moreover, a key vendor may become unable to supply our inventory needs due to capacity constraints, financial instability, or other factors beyond our control, or we could decide to stop using a vendor due to quality or other issues. If we were required to change vendors or if a key vendor was unable to supply desired merchandise in sufficient quantities on acceptable terms, particularly in light of current global economic conditions, we could experience delays in filling customer orders or delivering inventory to stores until alternative supply arrangements were secured. These delays could result in lost sales and a decline in customer satisfaction. Additionally, delays by our vendors in supplying our inventory needs could cause us to incur expensive air freight charges, which would negatively impact our margins.

We face substantial competition from discount retailers in the women's apparel industry.

We face substantial competition from discount retailers, such as Kohl's and Target, for basic elements in our merchandise lines, and net sales may decline or grow more slowly if we are unable to differentiate our merchandise and shopping experience from these discount retailers. In addition, the retail apparel industry has experienced significant price deflation over the past several years largely due to the downward pressure on retail prices caused by discount retailers and, more recently, by declining consumer spending, resulting in increased promotional and competitive activity. We expect this price deflation to continue as a result of the recent expiration of quota restrictions on the importing of apparel into the United States from foreign countries that are members of the World Trade Organization. This price deflation may make it more difficult for us to maintain gross margins and to compete with retailers that have greater purchasing power than we have. Furthermore, because we continue to source a significant percentage of our merchandise through intermediaries and from suppliers and manufacturers located in the United States and Canada, where labor and production costs, on average, tend to be higher, our gross margins may be lower than those of competing retailers.

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Consumer concerns about purchasing items via the Internet as well as external or internal infrastructure system failures could negatively impact our e-commerce sales or cause us to incur additional costs.

The e-commerce business is vulnerable to consumer privacy concerns relating to purchasing items over the Internet, security breaches, and failures of Internet infrastructure and communications systems. If consumer confidence in making purchases over the Internet declines as a result of privacy or other concerns, e-commerce net sales could decline. We may be required to incur increased costs to address or remedy any system failures or security breaches or any actual or perceived consumer privacy concerns.

We may be unable to fill customer orders efficiently, which could harm customer satisfaction.

If we are unable to efficiently process and fill customer orders, customers may cancel or refuse to accept orders, and customer satisfaction could be harmed. We are subject to, among other things:

•: failures in the efficient and uninterrupted operation of our customer contact centers or our sole distribution center in Mineral Wells, West Virginia, including system failures caused by telecommunications systems providers and order volumes that exceed our present telephone or Internet system capabilities;
•: delays or failures in the performance of third parties, such as vendors who supply our merchandise, shipping companies and the U.S. postal and customs services, including delays associated with labor disputes, labor union activity, inclement weather, natural disasters, health epidemics and possible acts of terrorism; and
•: disruptions or slowdowns in our order processing or fulfillment systems resulting from increased security measures implemented by U.S. customs, or from homeland security measures, telephone or Internet down times, system failures, computer viruses, electrical outages, mechanical problems, human error or accidents, fire, natural disasters or comparable events.

We have a liberal merchandise return policy, and we may experience a greater number of returns than we anticipate.

As part of our customer service commitment, we maintain a liberal merchandise return policy that allows customers to return any merchandise, virtually at any time and for any reason, regardless of condition. We make allowances in financial statements for anticipated merchandise returns based on historical return rates and future expectations. These allowances may be exceeded, however, by actual merchandise returns as a result of many factors, including changes in the merchandise mix, size and fit, actual or perceived quality, differences between the actual product and its presentation in catalogs or on the web site, timeliness of delivery, competitive offerings and consumer preferences or confidence. Any significant increase in merchandise returns or merchandise returns that exceed our expectations would result in adjustments to the sales return accrual and to cost of sales and could have a material and adverse affect on financial condition, results of operations and cash flows.

We may be unable to manage significant increases in the costs associated with the catalog business, which could affect results of operations.

We incur substantial costs associated with catalog mailings, including paper, postage, merchandise acquisition and human resource costs associated with catalog layout and design, production and circulation and increased inventories. Significant increases in U.S. Postal Service rates and the cost of telecommunications services, paper and catalog production could significantly increase catalog production costs and result in lower profits for the catalog business. Most of our catalog-related costs are incurred prior to mailing, and as such we are not able to adjust the costs of a particular catalog

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mailing to reflect the actual subsequent performance of the catalog. Moreover, customer response rates have been unpredictable in recent years, particularly for mailings to prospective customers. Because the catalog business accounts for a significant portion of total net sales, any performance shortcomings experienced by the catalog business would likely have a material adverse effect on our overall business, financial condition, results of operations and cash flows.

Our success is dependent upon key personnel.

Our future success depends largely on the contributions and abilities of key executives and other employees. The loss of any of our key employees could have a material adverse effect on the business. Furthermore, the location of our corporate headquarters in Sandpoint, Idaho, may make it more difficult or costly to replace key employees who leave us, or to add qualified employees we will need to manage our further growth.

Our multi-channel model may expose us to the risk that we may be assessed for unpaid taxes.

Any determination that we have a material weakness in our internal control over financial reporting could have a negative impact on our investor perceptions.

Our system of internal controls over financial reporting is designed to provide reasonable assurance that the objectives of an effective control system are met. However, any system of internal controls is subject to inherent limitations and the design of our controls does not provide absolute assurance that all of our objectives will be met. This includes the possibility that controls may be inappropriately circumvented or overridden, that judgments in decision-making can be faulty and that misstatements due to errors or fraud may not be prevented or detected. Any failure in the effectiveness of internal control over financial reporting could have a material effect on financial reporting or cause us to fail to meet reporting obligations, and could negatively impact investor perceptions.

The stock price has fluctuated and may continue to fluctuate widely.

The market price for our common stock has fluctuated and has been and will continue to be significantly affected by, among other factors, quarterly operating results, changes in any earnings estimates publicly announced by us or by analysts, customer response to merchandise offerings, the size of catalog mailings, the timing of retail store openings or of important holiday seasons relative to our fiscal periods, seasonal effects on sales and various factors affecting the economy in general. The reported high and low closing sale prices of our common stock were $7.92 per share and $1.05 per share, respectively, during fiscal 2008. In addition, stock markets generally have experienced a high

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level of price and volume volatility and market prices for the stock of many companies have experienced wide price fluctuations not necessarily related to their operating performance.

The largest stockholders may exert influence over our business regardless of the opposition of other stockholders or the desire of other stockholders to pursue an alternate course of action.

Dennis Pence, our Chairman of the Board of Directors, may be deemed to beneficially own directly and indirectly approximately 17.1 percent of our outstanding common stock as of March 27, 2009. Ann Pence, our former Vice Chairman, may be deemed to beneficially own, directly and indirectly, approximately 19.9 percent of our outstanding common stock as of March 27, 2009. Either Dennis Pence or Ann Pence acting independently, could have significant influence over any matters submitted to stockholders, including the election of directors and approval of business combinations, and could delay, deter or prevent a change of control of the company, which may adversely affect the market price of common stock. The interests of these stockholders may not always coincide with the interests of other stockholders.

Provisions in the charter documents and Delaware law may inhibit a takeover and discourage, delay or prevent stockholders from replacing or removing current directors or management.

Provisions in our Certificate of Incorporation and Bylaws may have the effect of delaying or preventing a merger with or acquisition of us, even where the stockholders may consider it to be favorable. These provisions could also prevent or hinder an attempt by stockholders to replace current directors and include:

•: providing for a classified Board of Directors with staggered, three-year terms;
•: prohibiting cumulative voting in the election of directors;
•: authorizing the Board to designate and issue "blank check" preferred stock;
•: limiting persons who can call special meetings of the Board of Directors or stockholders;
•: prohibiting stockholder action by written consent; and
•: establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted on by stockholders at a stockholders meeting.

Because the Board of Directors appoints management, any inability to effect a change in the Board of Directors may also result in the entrenchment of management.

We are also subject to Section 203 of the Delaware General Corporation Law, which, subject to exceptions, prohibits a Delaware corporation from engaging in any business combination with an interested stockholder for a period of three years following the date that the stockholder became an interested stockholder. The preceding provisions of our Certificate of Incorporation and Bylaws, as well as Section 203 of the Delaware General Corporation Law, could discourage potential acquisition proposals, delay or prevent a change of control and prevent changes in our management.

The day spa concept may not be successful and may be abandoned at any time.

We operate the Coldwater Creek ~ The Spa concept in nine locations. To date, our day spa has had a negative impact on our earnings, as we experiment with marketing approaches and gather data regarding the spa business and, in particular, our spa customer. During the three months ended August 2, 2008, we determined that the carrying amount of certain assets at certain day spa locations will not be recovered. Consequently, we recorded an impairment charge of $1.5 million related to the day spa concept in the second quarter of fiscal 2008.

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We have not formed a conclusion as to the long-term prospects of this concept, although we have no plan to build additional day spas. There is no assurance that the day spa concept will ever be successful or that we will develop future spas. Factors that could cause us to abandon the day spa concept include:

•: unexpected or increased costs or delays in the concept's development;
•: the potential demands on management resources in developing this new concept and the need to focus these resources on other strategic priorities for our business;
•: legal and regulatory constraints;
•: the inherent difficulty in forecasting consumer tastes and trends through market research, and the possibility that we will determine through the performance of our day spas that demand does not meet our expectations; and
•: our inability to fund our day spa concept or its expansion with operating cash as a result of either lower sales from our retail and direct businesses or higher than anticipated costs, or both.

If we were to abandon the day spa concept, we would be required to write off any costs we have capitalized and may incur lease termination costs, which would have a material and adverse effect on results of operations, particularly for the quarter in which a write off is recognized. Additionally, there is no assurance that we will not incur additional impairment charges related to our day spa concept, in particular, if there were a continued deterioration in macroeconomic conditions.

We may be unable to successfully implement our retail store rollout strategy, which could result in significantly lower revenue growth.

The key driver of our growth strategy continues to be the retail store expansion. As of January 31, 2009, we operated 348 premium retail stores. We have since opened one additional store in the first quarter of fiscal 2009 for a total of 349 premium retail stores currently in operation. We believe we have the potential to grow our retail business to a total of 500 to 550 premium retail stores. However, there can be no assurance that these stores will be opened, will be opened in a timely manner, or, if opened, that these stores will be profitable. The ability to open our planned retail stores depends on our ability to successfully:

•: identify or secure premium retail space;
•: negotiate site leases on favorable lease terms for the retail store locations we identify; and
•: prevent construction delays and cost overruns in connection with the build-out of new stores.

Any miscalculations or shortcomings we may make in the planning and control of the retail growth strategy could materially impact our results of operations and financial condition. In addition, recent macroeconomic conditions including the ongoing credit crisis could result in an inability on the part of real estate developers to obtain retail property in preferred locations.

Based on current macroeconomic conditions, we determined during the third quarter of fiscal 2008 to significantly decrease our store rollout plans for fiscal 2009, and it is our present intention to open no more than ten new retail stores in fiscal 2009. We do not maintain a specific rollout plan beyond a one-year horizon. We continually reassess store rollout plans based on the overall retail environment, the performance of the retail business, our access to working capital and external financing and the availability of suitable store locations. For example, it is possible that in any year we will increase planned store openings, particularly if we experience strong retail sales and have access to the necessary working capital or external financing. Likewise, we would be inclined to further curtail our store rollout if we were to continue to experience weaker retail sales or if we did not have adequate working capital or access to financing, or as a part of a cost containment initiative.

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Increasing reliance on foreign vendors will subject us to uncertainties that could impact our cost to source merchandise and delay or prevent merchandise shipments.

We expect to continue to expand our direct sourcing program and to source more apparel directly from foreign vendors, particularly those located in Asia as well as those located in India and Central America. During fiscal 2008 we were the importer of record for approximately 60 percent of total apparel purchases. We believe there is opportunity to increase our direct sourcing slightly more during fiscal 2009, with the ultimate target being 65 to 70 percent. This exposes us to risks and uncertainties, which could substantially impact our ability to source apparel through foreign vendors and to realize any perceived cost savings. These risks include, among other things:

•: burdens associated with doing business overseas, including the imposition of, or increases in, tariffs or import duties, or import/export controls or regulation, as well as credit assurances we are required to provide to foreign vendors;
•: declines in the relative value of the U.S. dollar to foreign currencies;
•: volatile fuel and energy costs;
•: failure of foreign vendors to adhere to our quality assurance standards or our standards for conducting business;
•: financial instability of a vendor or vendors;
•: changing, uncertain or negative economic conditions, political uncertainties or unrest, or epidemics or other health or weather-related events in foreign countries resulting in the disruption of trade from exporting countries; and
•: restrictions on the transfer of funds or transportation delays or interruptions.

Irrespective of our direct sourcing initiative, substantially all of our merchandise, including that which we buy from domestic vendors, is manufactured overseas. Consequently, regardless of how we source our merchandise, we are exposed to the uncertainties of relying on foreign vendors.

We cannot predict whether any of the foreign countries in which our merchandise is manufactured, or in which our merchandise may be manufactured in the future, will be subject to import restrictions by the U.S. government. The United States and the European Union have historically imposed trade quotas on certain apparel and textile categories from the Peoples Republic of China. Effective January 1, 2009, apparel and textile quotas that were outlined in the memorandum of understanding between the United States and the Peoples Republic of China expired and are no longer applicable. Any new imposition of trade restrictions, such as increased tariffs or more restrictive quotas, on apparel or other items exported from the Peoples Republic of China or elsewhere could however affect the import of such merchandise and could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition, results of operations and liquidity. Our sourcing strategy is designed to allow us to adjust to such potential shifts in availability of apparel and any new imposition of quotas for apparel and textiles exported from the Peoples Republic of China or elsewhere. However, sourcing operations may nevertheless be adversely affected by trade limits, political and/or financial instability resulting in the disruption of trade from exporting countries, significant fluctuation in the value of the U.S. dollar against foreign currencies, and/or other trade disruptions.

Item 1B. Unresolved Staff Comments

None.

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Item 2. PROPERTIES

Stores, Distribution Center and Corporate Facility

Our principal executive and administrative offices are located at One Coldwater Creek Drive, Sandpoint, Idaho 83864. Our telephone number is (208) 263-2266. The general location, use and approximate size of our principal properties as of January 31, 2009 are set forth below:

Facility	Address	Owned/ Leased

Corporate Offices(a)	One Coldwater Creek Drive Sandpoint, Idaho	Owned	270,000 sq. ft.
East Coast Operations Center, including Distribution and Customer Contact Center	100 Coldwater Creek Drive Mineral Wells, West Virginia	Leased	960,000 sq. ft.
Coeur d'Alene, Idaho Customer Contact Center	751 West Hanley Avenue Coeur d'Alene, Idaho	Leased	69,000 sq. ft.
Foreign sourcing offices	Various foreign locations	Leased	17,000 sq. ft.
New York Design Studio	New York City, NY	Leased	9,000 sq. ft.
348 Premium Retail Stores(b)(d)	Various U.S. locations	Leased	2,050,000 sq. ft.
35 Outlet Stores(c)	Various U.S. locations	Leased	247,000 sq. ft.
9 Day Spas(e)	Various U.S. locations	Leased	49,000 sq. ft.

(a): Our corporate offices include approximately 176,000 square feet of administrative office space and approximately 94,000 square feet occupied by our employee fitness center, spa, virtual retail stores, photo studio, employee training center and various corporate departments.
(b): As of January 31, 2009 our premium retail stores averaged approximately 5,900 square feet in size per store. The lease base terms of our premium retail stores are generally ten years.
(c): As of January 31, 2009 our outlet stores averaged approximately 7,000 square feet in size. The lease base terms of our outlet stores are generally five years.
(d): Includes 347 premium retail stores and one flagship store located in Manhattan, New York. During the first quarter of fiscal 2007 we began classifying our resort store as a premium retail store.
(e): As of January 31, 2009 our day spas average approximately 5,400 square feet in size. The lease base terms of our day spas are generally ten years.

We believe that our corporate offices, distribution center and customer contact centers will meet our operational needs for the foreseeable future.

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The following table summarizes the geographic location of our stores at the end of fiscal 2008 and fiscal 2007:

	As of January 31, 2009						As of February 2, 2008

	Premium Retail Stores		Outlet Stores		Day Spas		Premium Retail Stores		Resort and Outlet Stores		Day Spas
Alabama		7		1		—		7		1		—
Arizona		10		—		—		9		—		—
Arkansas		4		—		—		3		—		—
California		31		3		3		26		2		3
Colorado		8		1		1		7		1		1
Connecticut		7		—		—		7		—		—
Delaware		—		2		—		—		2		—
Florida		24		2		1		17		—		1
Georgia		12		1		—		10		1		—
Idaho		2		—		—		2		—		—
Illinois		17		1		1		16		1		1
Indiana		7		2		—		6		2		—
Iowa		4		1		—		4		1		—
Kansas		2		—		—		2		—		—
Kentucky		3		—		—		3		—		—
Louisiana		4		—		—		4		—		—
Maine		2		1		—		1		1		—
Maryland		5		—		—		4		—		—
Massachusetts		9		—		—		9		—		—
Michigan		11		1		—		11		1		—
Minnesota		10		1		—		9		—		—
Mississippi		2		—		—		1		—		—
Missouri		9		1		—		8		1		—
Montana		3		—		—		3		—		—
Nebraska		3		—		—		3		—		—
Nevada		3		—		—		3		—		—
New Hampshire		2		—		—		2		—		—
New Jersey		13		—		—		10		—		—
New Mexico		2		—		—		2		—		—
New York		11		2		—		11		2		—
North Carolina		11		—		—		10		—		—
North Dakota		2		—		—		1		—		—
Ohio		15		1		—		14		1		—
Oklahoma		3		—		—		2		—		—
Oregon		6		1		1		6		1		1
Pennsylvania		14		2		—		11		2		—
Rhode Island		2		—		—		1		—		—
South Carolina		6		1		—		5		1		—
South Dakota		1		—		—		1		—		—
Tennessee		8		1		—		7		1		—
Texas		28		2		2		25		1		2
Utah		2		—		—		2		—		—
Vermont		1		1		—		1		1		—
Virginia		7		2		—		6		2		—
Washington		8		1		—		7		1		—
West Virginia		1		1		—		1		1		—
Wisconsin		5		2		—		5		2		—
Wyoming		1		—		—		1		—		—

Total		348		35		9		306		30		9

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Item 3. LEGAL PROCEEDINGS

We are, from time to time, involved in various legal proceedings incidental to the conduct of business. Actions filed against us from time to time include commercial, intellectual property infringement, customer and employment claims, including class action lawsuits alleging that we violated federal and state wage and hour and other laws. We believe that we have meritorious defenses to all lawsuits and legal proceedings currently pending against us. Though we will continue to vigorously defend such lawsuits and legal proceedings, we are unable to predict with certainty whether or not we will ultimately be successful. However based on management's evaluation, we believe that the resolution of these matters, taking into account existing contingency accruals and the availability of insurance and other indemnifications, will not materially impact our consolidated financial position, results of operations or cash flows.

On September 12, 2006, as amended on April 25, 2007, Brighton Collectibles, Inc. ("Brighton") filed a complaint against us in the United States District Court for the Southern District of California. The complaint alleged, among other things, that we violated trade dress and copyright laws. On November 21, 2008, a federal jury found that we violated the trade dress claim and one copyright held by Brighton. The jury rejected Brighton's claim for punitive damages. On January 28, 2009, the court entered a judgment in the total amount of $8.0 million, which includes damages of $2.7 million on the trade dress claim, $4.1 million in damages and profits on the copyright claim and $1.2 million in attorneys' fees. Various post-trial motions have been filed and currently pending before the court is our motion for a new trial and a motion for renewed judgment as a matter of law. If we do not prevail in these motions, we intend to appeal the judgment as we believe there are legitimate grounds to overturn the judgment. In the interim, the court entered a temporary stay of execution conditioned on us posting a $3.3 million bond which has been posted. We currently have insurance coverage and have been provided defense by our insurance carrier. The amount of damages currently awarded plus attorneys' fees and bond expenses are estimated to be within the insurance coverage limits.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The table below sets forth the name, current age and current position of our executive officers as of March 27, 2009:

Name		Positions Held

Daniel Griesemer	49	President, Chief Executive Officer and Director
Georgia Shonk-Simmons	57	President, Chief Merchandising Officer and Director
Gerard El Chaar	48	Senior Vice President of Operations
John E. Hayes III	46	Senior Vice President, General Counsel and Secretary
Timothy O. Martin	40	Senior Vice President and Chief Financial Officer
Daniel Moen	37	Senior Vice President, Marketing and Chief Information Officer
Jeffrey A. Parisian	49	Senior Vice President of Administration

Daniel Griesemer has served as President, Chief Executive Officer and Director since October 30, 2007. Prior to that appointment, Mr. Griesemer served as our President and Chief Operating Officer since March 2007. From January 2005 to March 2007, Mr. Griesemer served as our Executive Vice President of Sales and Marketing. From April 2004 to January 2005, Mr. Griesemer served as our Executive Vice President of Retail. From October 2001 to April 2004, Mr. Griesemer served as our Senior Vice President of Retail. Prior to joining Coldwater Creek, from 1989 to 2000, Mr. Griesemer

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held a number of progressively responsible positions with, and ultimately served as Divisional Merchandise Manager for Gap Inc. From 1983 to 1989, Mr. Griesemer worked in a variety of positions at Macy's, Inc.

Georgia Shonk-Simmons has served as a Director since January 1, 2001. Since September 26, 2002, Ms. Shonk-Simmons has served as our President and Chief Merchandising Officer. From January 1, 2001 to September 25, 2002, Ms. Shonk-Simmons served as our President and Chief Executive Officer. From April 1999 to December 2000, Ms. Shonk-Simmons served as President of our Catalog & Retail Sales Division. Ms. Shonk-Simmons joined us as Chief Merchant and Vice President of Merchandising in June 1998. From 1994 to 1998, Ms. Shonk-Simmons was Executive Vice President of the Newport News Catalog Division of Spiegel, Inc., a publicly-held, international retailer. Prior to that, from 1981 to 1994, Ms. Shonk-Simmons held a number of other positions of increasing responsibility with Spiegel, including Vice President of Merchandising for Spiegel Catalog beginning in 1991. Prior to joining Spiegel, Ms. Shonk-Simmons held various buyer positions with Lytton's, Carson Pirie Scott and Hahne's.

Gerard El Chaar has served as our Senior Vice President of Operations since January 1, 2005. From March 2002 to December 2004, Mr. El Chaar served as our Vice President of Distribution. From January 2001 to February 2002, Mr. El Chaar served as our Divisional Vice President of Distribution. From October 2000 to December 2000, Mr. El Chaar served as our Director of Distribution. From January 1999 to October 2000, Mr. El Chaar was Senior Director of International Operations with eToys Inc. where he was responsible for Customer Service and Distribution in the United Kingdom and Belgium. From January 1998 to December 1998, Mr. El Chaar was the Director of Engineering for Amazon.com.

John E. Hayes III joined the Company as Senior Vice President, General Counsel and Secretary in February 2009. Prior to joining Coldwater Creek, Mr. Hayes was engaged for 17 years in private law practice, most recently as a partner with Hogan & Hartson, LLP, from March 2003 to February 2009. While in private practice, Mr. Hayes served as the Company's outside corporate and securities law counsel from 1999 until joining the Company. Prior to his legal career, Mr. Hayes practiced as a Certified Public Accountant with KPMG LLP.

Timothy O. Martin has served as Senior Vice President and Chief Financial Officer since September 1, 2007. Prior to that appointment, Mr. Martin served as our Vice President of Finance and Chief Accounting Officer since February 2007. From August 2006 to January 2007, Mr. Martin served as our Vice President of Finance. Prior to joining Coldwater Creek, Mr. Martin served as Vice President of Finance/Global Commercial Operations for Amgen Inc., a multi-billion dollar pharmaceutical company from August 2003 to May 2006. Prior to that, he held management-level finance positions at Gap Inc. from April 2001 to August 2003.

Daniel Moen has served as our Senior Vice President, Marketing and Chief Information Officer since February 12, 2009. Prior to that appointment, Mr. Moen served as our Senior Vice President and Chief Information Officer since September 2004. From June 2004 to September 2004, Mr. Moen served as our Interim Vice President and Chief Information Officer. From July 2003 to May 2004, Mr. Moen served as our Vice President of Marketing and Business Intelligence. From October 2002 to June 2003, Mr. Moen served as our Divisional Vice President of Business Intelligence. From August 2001 to September 2002, Mr. Moen served as our Divisional Vice President of Marketing. From August 2000 to July 2001, Mr. Moen was the Data Warehouse Manager for InfoSpace, Inc. From June 1999 to July 2000, Mr. Moen was our Director of Database Marketing for Network Commerce. From May 1995 to May 1999, Mr. Moen was employed by Coldwater Creek in various capacities in our Marketing Department.

Jeffrey A. Parisian has served as Senior Vice President of Administration since April of 2008. From October 2004 to April 2008, Mr. Parisian served as our Vice President of Real Estate. From November 2002 to October 2004, Mr. Parisian served as our Divisional Vice President of Real Estate. From March 2002 to November 2002, Mr. Parisian served as our Senior Director of Real Estate. Prior to joining Coldwater Creek, Mr. Parisian was employed by Gap Inc. as Vice President of Real Estate.

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock and Dividend Policy

Our common stock has been quoted on the NASDAQ Stock Market under the symbol "CWTR" since our initial public offering on January 29, 1997. On March 27, 2009, we had 6,589 stockholders of record and 91,255,700 shares of $0.01 par value common stock outstanding.

The following table sets forth certain sales price data for our common stock for the periods indicated:

	Price Range of Common Stock

	High		Low
Fiscal 2008:
First Quarter	$	5.91	$	3.87
Second Quarter	$	7.18	$	4.83
Third Quarter	$	7.92	$	2.59
Fourth Quarter	$	3.41	$	1.05
Fiscal 2007:
First Quarter	$	22.53	$	17.05
Second Quarter	$	25.67	$	19.04
Third Quarter	$	21.10	$	7.70
Fourth Quarter	$	8.84	$	3.80

We have never paid a cash dividend on our common stock nor do we expect to declare a cash dividend in the foreseeable future.

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Performance Graph

The following graph compares the cumulative five-year total return to shareholders on Coldwater Creek Inc.'s common stock to the cumulative total returns of the NASDAQ Composite Index, and a customized peer group of the following four companies: Ann Taylor Stores Corp., Chico's FAS Inc., Christopher & Banks Corp. and Talbots Inc. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, in the peer group, and the index on January 31, 2004 and its relative performance is tracked through January 31, 2009.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Coldwater Creek Inc., The NASDAQ Composite Index And A Peer Group

* $100 invested on 1/31/04 in stock or index, including reinvestment of dividends. Index calculated on month-end basis.



Coldwater Creek Inc.	100.00	141.22	193.62	236.83	281.28	258.02	427.31	416.51	480.56
NASDAQ Composite	100.00	93.74	92.58	96.95	101.08	94.54	106.98	104.55	114.61
Peer Group	100.00	105.58	103.01	93.75	105.24	107.94	150.78	139.88	160.22



647.22	461.34	705.79	442.59	479.17	455.79	207.18	162.73	123.61	150.93	83.10	65.28
116.34	105.55	119.51	124.99	127.71	129.09	145.10	120.39	122.04	116.23	84.65	73.10
151.05	119.42	129.92	109.99	122.51	98.22	76.36	61.14	50.89	48.16	29.38	17.80

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

The information required by this item concerning equity compensation plans is incorporated by reference to "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" of this Annual Report on Form 10-K.

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Item 6. SELECTED FINANCIAL DATA

The following statement of operations and balance sheet data have been derived from our audited financial statements, including those appearing elsewhere herein. The information presented below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere herein. All information is presented in thousands except per share, average square feet per store and store count data.

		Fiscal Year Ended(a)

		January 31, 2009			February 2, 2008(b)			February 3, 2007(c)(d)		January 28, 2006		January 29, 2005
		(52 weeks)			(52 weeks)			(53 weeks)		(52 weeks)		(52 weeks)
Statement of Operations Data:
Net sales		$	1,024,221		$	1,151,472		$	1,054,611	$	779,663	$	590,310
Gross profit		$	350,560		$	450,183		$	471,007	$	352,778	$	254,108
Net income (loss)		$	(25,963	)	$	(2,488	)	$	55,372	$	41,570	$	29,130
Net income (loss) per common share—Basic		$	(0.29	)	$	(0.03	)	$	0.60	$	0.45	$	0.33
Net income (loss) per common share—Diluted		$	(0.29	)	$	(0.03	)	$	0.59	$	0.44	$	0.32
Weighted average common shares outstanding—Basic			91,037			92,801			92,616		91,488		87,692
Weighted average common shares outstanding—Diluted			91,037			92,801			94,485		94,365		90,743
Cash dividends declared per common share		$	—		$	—		$	—	$	—	$	—
Selected Segment Data:
Net Sales:
	Retail	$	751,352		$	775,082		$	664,170	$	454,538	$	296,227
	Direct	$	272,869		$	376,390		$	390,441	$	325,125	$	294,083
Selected Operating Data:
Total catalogs mailed			85,950			128,551			118,690		113,000		108,000
Average premium retail store size in square feet			5,900			5,800			5,600		5,500		5,700
Balance Sheet Data:
Cash and cash equivalents		$	81,230		$	62,479		$	148,680	$	131,856	$	111,204
Working capital		$	92,989		$	115,750		$	173,319	$	132,010	$	116,488
Total assets		$	628,627		$	624,259		$	580,475	$	458,410	$	324,586
Total long-term debt, including capital leases(e)		$	13,316		$	14,467		$	1,008	$	—	$	—
Stockholders' equity		$	282,496		$	301,863		$	317,456	$	248,397	$	198,279
Premium Retail Store Count:
Beginning of the fiscal year(f)			306			240			174		114		66

Opened in the first quarter			9			12			9		5		5
Opened in the second quarter			7			8			13		17		18
Opened in the third quarter			19			34			29		27		18
Opened in the fourth quarter			7			12			14		11		7

End of the fiscal year			348			306			239		174		114

a): References to a fiscal year refer to the calendar year in which the fiscal year commences. Our fiscal year end is the Saturday nearest January 31^st. This floating fiscal year end typically results in 13-week fiscal quarters and a 52-week fiscal year, but occasionally will contain an additional week resulting in a 14-week fiscal fourth quarter and a 53-week fiscal year. The 2006 fiscal year was a 53 week fiscal year.
b): Effective February 4, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty of Income Taxes (FIN 48). The adoption of FIN 48 did not have a significant impact on our financial position or results of operations. See Note 2 to our consolidated financial statements for further information.
c): Effective January 29, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment" (SFAS 123R) using the modified prospective method.
d): On February 3, 2007 we adopted the provisions of Statement of Financial Accounting Standards No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)", resulting in a $3.2 million decrease in stockholders' equity. See Note 2 to our consolidated financial statements for further information.
e): As of January 31, 2009, we maintained a $60.0 million line of credit with Wells Fargo Bank, N.A., which we refinanced with Wells Fargo Retail Finance, LLC in February 2009. As of the date of this report we have not borrowed under this facility. See Note 6 to our consolidated financial statements for further information.
f): As of February 4, 2007, we reclassified our Jackson Hole, WY store from a resort to a premium store.

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains various statements regarding our current strategies, financial position, results of operations, cash flows, operating and financial trends and uncertainties, as well as certain forward-looking statements regarding our future expectations. When used in this discussion, words such as "anticipate," "believe," "estimate," "expect," "could," "may," "will," "should," "plan," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements are based on our current expectations and are subject to numerous risks and uncertainties. As such, our actual future results, performance or achievements may differ materially from the results expressed in, or implied by, our forward-looking statements. Please refer to our "Risk Factors" elsewhere in this Annual Report on Form 10-K for the fiscal year ended January 31, 2009. The forward-looking statements in this Annual Report are as of the date such report is filed with the SEC, and we assume no obligation to update our forward-looking statements or to provide periodic updates or guidance.

The following narrative is designed to provide readers of our financial statements with a detailed analysis of the business through the eyes of management. This discussion includes an analysis of our financial condition, results of operations, liquidity and capital resources and various other factors that may affect future results. Management's Discussion and Analysis of Financial Condition and Results of Operations is comprised of the following sections:

•: Coldwater Creek Profile
•: Company Initiatives
•: Other Developments
•: Results of Operations
•: Seasonality
•: Liquidity and Capital Resources
•: Future Outlook
•: Critical Accounting Policies and Estimates
•: Recently Issued Accounting Standards
•: Off-Balance Sheet Liabilities and Other Contractual Obligations
•: Related Party Transactions

We encourage you to read this Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying consolidated financial statements and related notes.

References to a fiscal year refer to the calendar year in which the fiscal year commences. Our fiscal year ends on the Saturday nearest January 31st. This reporting schedule is followed by many national retail companies. This floating fiscal year end typically results in 13-week fiscal quarters and a 52-week fiscal year, but occasionally will contain an additional week resulting in a 14-week fiscal fourth quarter and a 53-week fiscal year. The fiscal years ended January 31, 2009 (fiscal 2008) and February 2, 2008 (fiscal 2007) consisted of 52 weeks while the fiscal year ended February 3, 2007 (fiscal 2006) consisted of 53 weeks. The 53^rd week did not have a material impact on our results of operations or financial position for the year ended February 3, 2007.

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Coldwater Creek Profile

Coldwater Creek is a specialty retailer of women's apparel, accessories, jewelry and gift items. Founded in 1984 as a catalog company, today we are a multi-channel specialty retailer generating $1.0 billion in net sales in fiscal 2008. Our proprietary merchandise assortment reflects a sophisticated yet relaxed and casual lifestyle. A commitment to providing superior customer service is manifest in all aspects of our business. We serve our customers through an expanding base of retail stores, as well as our catalog and e-commerce channels. Our merchandise assortment, retail stores, catalogs and e-commerce web site are designed to appeal to women who are 35 years of age and older with average annual household incomes in excess of $75,000. Our mission is to become one of the premier specialty retailers for women 35 years of age and older in the United States by offering our customers a compelling merchandise assortment with superior customer service through all three sales channels. For a more detailed description of our business, see Item 1—"Business" of Part I of this report.

We currently have two operating segments: retail and direct. We believe there is an opportunity for us to grow our premium retail store base to 500 to 550 stores in more than 280 identified markets nationwide. In fiscal 2008, we opened 42 premium retail stores, increasing our total premium store count to 348, covering 201 markets. Approximately 42.5 percent of these stores are located in traditional malls, 52.6 percent in lifestyle centers and 4.9 percent in street locations. In addition to our 348 premium retail stores we also had 35 merchandise clearance outlets in operation at the end of fiscal 2008.

In an effort to sustain our financial stability in these challenging macroeconomic conditions, which are evidenced in our business by low retail store traffic levels and a highly competitive retail selling environment, we currently plan to open no more than ten retail stores during fiscal 2009, the majority of which are planned for opening in the first half of the year. New premium retail stores will average approximately 6,100 square feet. As of March 27, 2009, one premium retail store has been opened in the first quarter of fiscal 2009, for a premium retail total store count of 349.

Though it is our present intention to open no more than ten new retail stores in fiscal 2009, we do not maintain a specific rollout plan beyond a one-year horizon. As evidenced by the reduction in store growth plans for fiscal 2009, we continually reassess store rollout plans based on the overall retail environment, the performance of the retail business, our access to working capital and external financing and the availability of suitable store locations. For example, it is possible that in any year we will increase planned store openings, particularly if we experience strong retail sales and have access to the necessary working capital or external financing. Likewise, we would be inclined to curtail store rollout if we were to experience weaker retail sales or if we did not have adequate working capital or access to financing, or as a part of a cost containment initiative.

During fiscal 2008, our merchandise was offered through two core catalog titles: Northcountry and Coldwater Creek, which differentiate the merchandise assortment offered in each title to cater to the various lifestyles of our core customer. We continue to evaluate our catalogs to ensure that we are reaching the greatest number of customers in the most effective and efficient manner possible. As a result, we began offering our merchandise under a single catalog title during late fiscal 2008 and expect to continue to operate under one catalog title during fiscal 2009. As part of our focus on efficiently managing resources and containing costs, we decreased catalog circulation to approximately 86.0 million catalogs in fiscal 2008 from approximately 128.6 million mailed in fiscal 2007. We currently plan to mail approximately 66.4 million catalogs in fiscal 2009.

Company Initiatives

During fiscal 2008 our business continued to be affected by increasingly challenging macroeconomic conditions, which are evidenced in our business by a highly competitive retail selling environment, low retail store traffic levels and a shift in customer purchasing toward more value priced

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merchandise. These conditions worsened in our third and fourth fiscal quarters with the deterioration of the financial, credit and housing markets which led to further decline in consumer confidence and the decreased availability of consumer credit. We expect to continue to face these challenging conditions, during fiscal 2009 and for the foreseeable future. Our efforts in fiscal 2009 will continue to be focused on certain initiatives which we implemented during fiscal 2008. We believe these initiatives will continue to further our goal of becoming one of the premier specialty retailers for women 35 years of age and older in the United States. These key initiatives include:

•: Increased focus on product and customer experience
•: Injecting product and the customer into decision making throughout the company
•: Restoration of the full price heritage of the Coldwater Creek brand
•: Shift in marketing approach
•: Increased efficiency in the use of resources

Our product and the customer experience are the foundation of all decision making at Coldwater Creek. Our highest priority is to continually improve our product and assortment as we believe that our success depends on offering the appropriate balance of fashion, fit and value that is relevant to the entire range of our target customer base. We are focused on expanding our product by offering more diversity in fit and fabrics to ensure we are more relevant to our entire customer demographic.

During 2008, we were able to make progress in this initiative by lowering our style and color count by approximately 20 percent, allowing us to better execute on our product offerings. In addition, we were able to expand our direct sourcing from 50 percent of our apparel in fiscal 2007 to approximately 60 percent of our apparel in fiscal 2008. We believe there is opportunity to slightly increase our direct sourcing during fiscal 2009. During the twelve-month period ended January 31, 2009, we reduced our retail inventory per square foot by approximately 12 percent, while premium retail square footage grew by approximately 15 percent over the same period. We believe these efforts have positioned us to continue to improve on our product and customer experience in fiscal 2009.

During the fourth quarter of fiscal 2008, we made some changes to our merchandising team and its structure. These changes have enabled us to better integrate our merchandise design and product development teams, which we believe will enable us to offer a more compelling product and enhance efficiency.

We are committed to restoring the full price heritage to our brand by continuing to be more prudent with promotional activity and discounting. Specifically, we have begun to limit the frequency, length, duration, and amount of our overall promotion cadence. However, we will continue to have promotions to drive traffic to our stores and to remain competitive in this challenging environment. During fiscal 2008, we refined our promotional approach to feature fewer, but more targeted campaigns. This is evidenced by a reduction in transactions carrying a promotional discount⁽¹⁾ from 53.2 percent during fiscal 2007 to 27.8 percent during fiscal 2008. We believe that prudently managing our promotions and discounting, accompanied with lowering our style and color count, reducing our retail inventories per square foot, and expanding our direct sourcing program, is critical to improving margins and returning to our full price heritage. In addition, we have seen a shift in customer purchasing toward more value priced merchandise, which we believe is a result of today's challenging economic conditions and the decline in consumer confidence. Therefore, during fiscal 2009, we will continue to work towards offering quality merchandise at a compelling price point.

(1): We define promotional discounts generally as temporary offerings. These include coupons and in-store promotions to customers for specified dollar or percentage discounts.

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Historically, we have used a broad based marketing strategy of catalog circulation and national magazine advertising. During fiscal 2008 we shifted to a more point-of-sale, in-store focus through programs such as personal shopper. We are also working to create a consistent message across all of our distribution channels to drive customers to our stores. We are developing traffic drivers through innovative e-mail campaigns, retail mailers and newspaper ads, as well as through our customer loyalty programs, as we continue to be focused on maintaining and better engaging our best customers, as well as attracting new customers through select advertising placement. We continue to test and refine these promotions to ensure that we are reaching the greatest number of customers in the most cost effective and efficient manner possible. As a result of this more focused approach, during fiscal 2008, marketing expense, primarily national magazine advertising and catalog circulation, decreased approximately $53.9 million, as compared with fiscal 2007.

During fiscal 2008 we decreased national magazine advertising circulation by 68.3 percent compared to fiscal 2007. Our investment in national magazine advertisements decreased to $4.5 million in fiscal 2008 from $22.8 million in fiscal 2007. We expect to reduce our investment in national magazine advertisements further during fiscal 2009. Catalog circulation also decreased by 42.6 million, or 33.1 percent, during the same period, from 128.6 million catalogs to 86.0 million catalogs. The decrease in catalog circulation was primarily due to reduced Northcountry catalog mailings and the discontinuation of Spirit catalog mailings. We continue to evaluate our catalogs to ensure that we are reaching the greatest number of customers in the most effective and efficient manner possible. As a result, we began offering our merchandise under a single catalog title during late fiscal 2008 and expect to continue to operate under one catalog title during fiscal 2009.

We have added approximately 533,000 net new addresses to our e-mail database since February 2, 2008 and conducted more targeted e-mail campaigns, which resulted in an additional 19.9 percent or 130.0 million e-mails being delivered during fiscal 2008, as compared with fiscal 2007.

In addition to a more focused approach on marketing, we have carefully evaluated our entire organization to determine where we can improve operational efficiencies. We remain focused on further reducing our cost structure and preserving capital as business conditions warrant. During the third and fourth quarters of fiscal 2008, we realigned staffing of our retail operations, resulting in additional cost savings. We also completed a plan to right size our organizational structure for the current environment by eliminating certain corporate support positions. We believe that these select staff reductions, as well as reduced travel, lower catalog page counts, more cost effective advertising and other cost savings initiatives could result in approximately $30 million of additional SG&A savings in fiscal 2009.

In addition, we reduced our planned capital expenditures to approximately $25 million in fiscal 2009, down from approximately $81 million in fiscal 2008, which is based on opening no more than ten new retail stores during fiscal 2009.

We are also continuing to improve various information technology tools and systems to enhance operating efficiency and enable our infrastructure to accommodate growth. During fiscal 2008, we continued activities to enhance or replace several fundamental systems, such as our inventory planning and allocation systems. We also continued efforts to enhance our financial and human resources systems, which we installed in fiscal 2007. We also continued to make improvements in our distribution infrastructure, processes and technology in order to expedite the flow of merchandise through our distribution center, with the goal of moving product more quickly to our direct customers and premium retail stores.

Although we have made substantial progress on these initiatives during 2008, our business remains subject to the challenging macroeconomic conditions. We are continuing to focus on lowering our cost structure, prudently managing our growth and improving our merchandise assortment and inventory management, which we believe will allow us to navigate through this difficult environment.

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Other Developments

Revolving Line of Credit On February 13, 2009, we entered into a secured Credit Agreement with Wells Fargo Retail Finance, LLC. This credit facility replaces our previous unsecured revolving line of credit with Wells Fargo Bank, N.A. pursuant to the Amended and Restated Credit Agreement dated February 13, 2007, as amended on April 16, 2008 and January 29, 2009. Our new agreement provides for a $70.0 million revolving line of credit, with subfacilities for the issuance of up to $70.0 million in letters of credit and swingline advances of up to $10.0 million. As of the filing of this Annual Report, we have not borrowed any amounts under this facility.

Results of Operations

Fiscal 2008 Compared to Fiscal 2007

The following table sets forth certain information regarding the components of our consolidated statements of operations for the fiscal year ended January 31, 2009 as compared to the fiscal year ended February 2, 2008. It is provided to assist in assessing differences in our overall performance (in thousands):

		Fiscal Year Ended

		January 31, 2009			% of net sales			February 2, 2008			% of net sales			$ change			% change
Net sales		$	1,024,221			100.0	%	$	1,151,472			100.0	%	$	(127,251	)		(11.1	)%
Cost of sales			673,661			65.8	%		701,289			60.9	%		(27,628	)		(3.9	)%

	Gross profit		350,560			34.2	%		450,183			39.1	%		(99,623	)		(22.1	)%
Selling, general and administrative expenses			395,320			38.6	%		460,232			40.0	%		(64,912	)		(14.1	)%
Loss on asset impairments			1,452			0.1	%		620			0.0	%		832			134.2	%

	Loss from operations		(46,212	)		(4.5	)%		(10,669	)		(0.9	)%		(35,543	)		(333.1	)%
Interest, net and other			1,508			0.1	%		6,793			0.6	%		(5,285	)		(77.8	)%

	Loss before income taxes		(44,704	)		(4.4	)%		(3,876	)		(0.3	)%		(40,828	)		(1,053.4	)%
Income tax benefit			(18,741	)		(1.8	)%		(1,388	)		(0.1	)%		(17,353	)		(1,250.2	)%

	Net Loss	$	(25,963	)		(2.5	)%	$	(2,488	)		(0.2	)%	$	(23,475	)		(943.5	)%

Effective income tax rate			41.9	%					35.8	%

Net Sales

Net sales consist of retail and direct sales, which include co-branded credit card program marketing fees, revenue sharing and sales royalty revenue and shipping fees received from customers for delivery of merchandise.

Net sales decreased during fiscal 2008 as compared to fiscal 2007 primarily due to decreases in comparable premium store sales and decreases in sales through our direct segment. This decrease was partially offset by sales resulting from the addition of 42 premium retail stores and five merchandise clearance outlet stores since February 2, 2008.

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Comparable premium retail store⁽²⁾ sales growth by quarter is as follows:

	Percentage increase (decrease)						Premium Retail Store Base

	Fiscal 2008			Fiscal 2007			Fiscal 2008		Fiscal 2007
Fourth Quarter		(21.4	)%		(19.2	)%		254		190
Third Quarter		(20.5	)%		(13.6	)%		246		178
Second Quarter		(13.7	)%		(6.0	)%		236		172
First Quarter		(19.0	)%		7.3	%		211		148

We believe our sales performance for fiscal 2008 was negatively impacted by the current challenging economic conditions, which are evidenced in our business by a highly competitive retail selling environment, low retail store traffic levels and a shift in customer purchasing toward more value priced merchandise. During fiscal 2008, we experienced a decline in comparable premium retail store traffic of 15.5% and a decrease in average transaction value in both our premium retail stores and direct channel of 3.8% and 7.3%, respectively, as compared to fiscal 2007. The decrease in average transaction value was primarily due to higher levels of markdowns⁽³⁾ in both segments. During fiscal 2008, catalog circulation also decreased by 42.6 million, or 33.1 percent, compared to fiscal 2007.

(2): We define comparable premium stores as those stores in which the gross square footage has not changed by more than 20 percent in the previous 16 months and which have been open for at least 16 consecutive months (provided that store has been considered comparable for the entire quarter) without closure for seven consecutive days or moving to a different temporary or permanent location. Due to the extensive promotions that occur as part of the opening of a premium store, we believe waiting 16 months rather than 12 months to consider a store comparable provides a better view of the growth pattern of the premium retail store base. The calculation of comparable store sales varies across the retail industry and as a result, the calculations of other retail companies may not be consistent with our calculation.
(3): We define markdowns generally as permanent reductions from the original selling price.

Shipping fees received from customers for delivery of merchandise decreased $14.7 million to $33.3 million for fiscal 2008 as compared to fiscal 2007 as a result of lower direct sales in fiscal 2008. We experienced an increase in co-branded credit card marketing fee revenue and royalty revenue of $1.3 million for fiscal 2008 as compared to fiscal 2007. The increase in revenue from the co-branded credit card program is the result of an increase in sales royalty and revenue sharing.

Cost of Sales/Gross Profit

The gross profit rate decreased by 4.9 percentage points during fiscal 2008 as compared to fiscal 2007. Approximately 1.7 percentage points of this decrease was due to increased markdowns and clearance activity, as well as slightly lower initial merchandise markups. In addition, fiscal 2007 included an approximate $7.3 million write-down of overstocked inventory that was liquidated through third parties. The remainder of the decrease in our gross profit rate was the result of decreased leveraging of our retail occupancy costs and buying and distribution costs of approximately 3.8 and 0.2 percentage points, respectively, offset by a 0.8 percentage point improvement in shipping and handling costs as a percentage of sales.

Selling, General and Administrative Expenses

As a percentage of net sales, selling, general and administrative expenses (SG&A) decreased by 1.4 percentage points in fiscal 2008 as compared to fiscal 2007. This decrease in SG&A rate was the result of a 3.8 percentage point decrease in marketing expenses, offset by a 2.0 percentage point increase in employee expenses and a 0.4 percentage point increase in overhead costs.

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The decrease in marketing expenses as a percentage of net sales was driven primarily by decreased catalog and national magazine advertising circulation and the discontinuation of testing of television advertising. The reduced leveraging in employee expenses is primarily due to the decrease in comparable store sales, partially offset by expense reductions as a result of cost savings initiatives. The reduced leveraging in overhead expenses is also primarily due to the decrease in comparable store sales, partially offset by a decrease in store pre-opening costs and expense reductions as a result of cost savings initiatives.

Loss on Asset Impairment

During fiscal 2008, we recorded an impairment charge of $1.5 million related to leasehold improvements and furniture and fixtures at certain day spa locations. During fiscal 2007, we recorded an impairment charge of $0.6 million related to leasehold improvements and furniture and fixtures at certain premium retail store locations.

Interest, Net and Other

The decrease in interest, net and other for fiscal 2008 as compared with fiscal 2007 is primarily the result of lower interest income earned on a lower average cash balance and lower interest rates.

Provision for Income Taxes

The increase in benefit for income taxes for fiscal 2008 as compared to fiscal 2007 was primarily the result of an increase in pre-tax loss, resulting in a tax benefit of $18.7 million. The benefit for income taxes in fiscal 2008 includes an out-of-period adjustment of $2.5 million related to the correction of errors in the calculation of the previous year's income taxes. See Note 7 to our consolidated financial statements for further discussion of the correction.

Segment Results

We evaluate the performance of our operating segments based upon segment operating income, which is shown below along with segment net sales (in thousands):

		Fiscal Year Ended

		January 31, 2009		% of Net Sales			February 2, 2008		% of Net Sales			% Change
Net sales:
	Retail	$	751,352		73.4	%	$	775,082		67.3	%		(3.1	)%
	Direct		272,869		26.6	%		376,390		32.7	%		(27.5	)%

		$	1,024,221		100.0	%	$	1,151,472		100.0	%		(11.1	)%

Segment operating income:
	Retail	$	30,396				$	76,585					(60.3	)%
	Direct		42,108					55,878					(24.6	)%

		$	72,504				$	132,463					(45.3	)%

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The following table reconciles segment operating income to loss from operations (in thousands):

	Fiscal Year Ended

	January 31, 2009			February 2, 2008			% Change
Segment operating income	$	72,504		$	132,463			(45.3	)%
Corporate and other		(118,716	)		(143,132	)		(17.1	)%

Loss from operations	$	(46,212	)	$	(10,669	)		(333.1	)%

Retail Segment

Net Sales

The $23.7 million decrease in retail segment net sales for fiscal 2008 as compared with fiscal 2007 is primarily the result of a decrease in net sales in our comparable premium retail stores as disclosed in the table above under "Results of Operations—Net Sales." This decrease in comparable store sales reflects a decrease in comparable premium retail store traffic of 15.5 percent during fiscal 2008 as compared to fiscal 2007. During fiscal 2008, we also experienced a decrease in average transaction value of premium retail stores of 3.8 percent as compared to fiscal 2007. The decrease in average transaction value was primarily due to higher levels of in-store markdowns.

This decrease was partially offset by net sales from the addition of 42 premium retail stores and five merchandise clearance outlet stores since February 2, 2008. Additionally, retail segment net sales increased as a result of increases of $5.6 million in net sales from merchandise clearance outlet stores, $2.8 million in net sales from our day spas, and $0.3 million in co-branded credit card program revenue in fiscal 2008 as compared with fiscal 2007.

Segment Operating Income

Retail segment operating income rate expressed as a percentage of retail segment net sales for fiscal 2008 decreased 5.8 percentage points as compared to fiscal 2007. Increased in-store markdown activity, as well as slightly lower initial merchandise margins, resulted in a 1.6 percentage point decline in merchandise margins. In addition, fiscal 2007 included an approximate $3.2 million write-down of overstocked inventory that was liquidated through third parties. Retail segment operating rate was also negatively impacted by a 4.3, 0.6 and 0.2 percentage point reduction in the leveraging of retail store occupancy costs, employee expenses and marketing expenses, respectively. The decline in the leveraging of our retail store occupancy costs also reflects increased impairment charges of $0.9 million, or 0.1 percentage points. The reduced leveraging of operating expenses is primarily due to a decrease in comparable store sales. These decreases were offset by a 0.9 percentage point improvement in leveraging of certain overhead costs, primarily related to store pre-opening costs.

Direct Segment

Net Sales

Direct segment net sales decreased $103.5 million during fiscal 2008 as compared to fiscal 2007. Sales through our Internet channel decreased $59.7 million, from $271.0 million in fiscal 2007 to $211.3 million in fiscal 2008. Sales from our phone and mail channel for the same period decreased $43.7 million, from $105.3 million to $61.6 million.

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The decrease in Internet business net sales is primarily due to fewer orders over the Internet, fewer catalogs mailed, and an approximate 7.4 percent decrease in average transaction value during fiscal 2008 as a result of higher levels of Internet markdowns. The decrease in phone and mail businesses net sales was also impacted by fewer orders and less catalogs mailed in addition to an approximate 0.8 percent decrease in average transaction value during fiscal 2008 as compared to fiscal 2007.

Phone and mail net sales are derived from orders taken from customers over the phone or through the mail. Catalogs are used as a brand marketing vehicle to drive sales in all channels and we encourage customers to choose the channel they deem most convenient. Sales made through other channels that we believe were driven by the initial receipt of a catalog are not included in phone and mail net sales. Consequently, as customers choose to purchase merchandise through other channels, we expect catalog business net sales to continue to generally decrease as a percent of total net sales.

Direct segment net sales were also negatively impacted by a decrease of $14.7 million in shipping revenue in fiscal 2008 as compared to fiscal 2007 as a result of lower direct sales in fiscal 2008. These decreases were offset by an increase of $1.0 million in co-branded credit card program revenue over the same periods.

Segment Operating Income

Direct segment operating income rate expressed as a percentage of direct segment net sales for fiscal 2008 as compared to fiscal 2007 increased by 0.6 percentage points. The increase was the result of a decrease in marketing expense which resulted in a 4.1 percentage point improvement in direct segment operating income rate. Offsetting the increase were the effects of increased clearance activity, as well as slightly lower initial merchandise margins, resulting in a 2.0 percentage point decline in merchandise margins. In addition, fiscal 2007 included an approximate $4.1 million write-down of overstocked inventory that was liquidated through third parties. In addition, our direct segment operating income rate was negatively impacted by reduced leveraging of employee expenses and overhead costs, which resulted in a 1.1 and 0.4 percentage point decline in direct segment operating income rate, respectively.

Corporate and Other

Corporate and other expenses decreased $24.4 million in fiscal 2008 as compared to fiscal 2007. This decrease is primarily the result of:

•: a $22.6 million decrease in marketing expenses primarily as a result of fewer national magazine advertising campaigns and the discontinuation of our television advertising test;
•: a $1.2 million decrease in employee expenses, primarily consisting of a reduction in salaries and wages as part of our cost savings initiatives and a reduction in SERP expense as a result of the net curtailment loss recorded in fiscal 2007. Employee expenses were also impacted by $3.5 million of severance expense recorded during fiscal 2008;
•: a $1.4 million decrease in corporate support costs, primarily as a result of other cost savings initiatives;
•: offset by a $0.8 million increase, primarily related to the amortization of internal-use software relating to our new management information system.

Fiscal 2007 Compared to Fiscal 2006

The following table sets forth certain information regarding the components of our consolidated statements of operations for the fiscal year ended February 2, 2008 as compared to the fiscal year

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ended February 3, 2007. It is provided to assist in assessing differences in our overall performance (in thousands):

		Fiscal Year Ended

		February 2, 2008			% of net sales			February 3, 2007			% of net sales			$ change			% change
Net sales		$	1,151,472			100.0	%	$	1,054,611			100.0	%	$	96,861			9.2	%
Cost of sales			701,289			60.9	%		583,604			55.3	%		117,685			20.2	%

	Gross profit		450,183			39.1	%		471,007			44.7	%		(20,824	)		(4.4	)%
Selling, general and administrative expenses			460,232			40.0	%		387,112			36.7	%		73,120			18.9	%
Loss on asset impairments			620			0.0	%		—			0.0	%		620			100.0	%

	Income (loss) from operations		(10,669	)		(0.9	)%		83,895			8.0	%		(94,564	)		(112.7	)%
Interest, net and other			6,793			0.6	%		7,672			0.7	%		(879	)		(11.5	)%

	Income (loss) before income taxes		(3,876	)		(0.3	)%		91,567			8.7	%		(95,443	)		(104.2	)%
Income tax provision (benefit)			(1,388	)		(0.1	)%		36,195			3.4	%		(37,583	)		(103.8	)%

	Net income (loss)	$	(2,488	)		(0.2	)%	$	55,372			5.3	%	$	(57,860	)		(104.5	)%

Effective income tax rate			35.8	%					39.5	%

Net Sales

Net sales consist of retail and direct sales, which include co-branded credit card program marketing fee and sales royalty revenue and shipping fees received from customers for delivery of merchandise.

Net sales increased during fiscal 2007 as compared with fiscal 2006 primarily due to the addition of 66 premium retail stores and four merchandise clearance outlet stores during fiscal 2007. This increase in net sales was offset by a decrease in comparable premium store sales during fiscal 2007 as compared with fiscal 2006. We also experienced an overall decrease in net sales in our direct segment as net sales from our phone and mail channel decreased while being partially offset by a slight increase in net sales from our Internet channel.

Comparable premium retail store sales growth by quarter is as follows:

	Percentage increase (decrease)						Premium Retail Store Base

	Fiscal 2007			Fiscal 2006			Fiscal 2007		Fiscal 2006
Fourth Quarter		(19.2	)%		2.3	%		190		131
Third Quarter		(13.6	)%		9.9	%		178		116
Second Quarter		(6.0	)%		13.3	%		172		113
First Quarter		7.3	%		9.6	%		148		97

We believe our sales performance for fiscal 2007 was negatively impacted by a highly promotional retail environment accompanied by difficult macroeconomic conditions and an over-assortment of merchandise that did not differentiate us from our competitors. In fiscal 2007, we experienced a decline in premium retail store traffic of 6.5% and a decrease in average transaction value of premium retail stores of 6.1% as compared to fiscal 2006. The decrease in average transaction value in 2007 was primarily due to higher levels of markdowns and discounts due to increased promotional and clearance activity, including the discounts associated with our national magazine advertisements.

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During fiscal 2007 we increased our national magazine advertising circulation by 1.5 percent compared to fiscal 2006. Catalog circulation also increased by 9.9 million or 8.3 percent during the same period, from 118.7 million catalogs to 128.6 million catalogs. The increase in circulation was primarily due to additional Coldwater Creek and Clearance catalog mailings. We also added approximately 605,000 net new addresses to our e-mail database during fiscal 2007 along with more targeted e-mail campaigns, which resulted in an additional 23.5 percent or 124.4 million e-mails being delivered in fiscal 2007 as compared to fiscal 2006.

Shipping fees received from customers for delivery of merchandise increased $1.1 million from $46.9 million in fiscal 2006 to $48.0 million in fiscal 2007. We also experienced a decrease in co-branded credit card marketing fee revenue and royalty revenue of $0.6 million and $0.1 million, respectively.

Cost of Sales/Gross Profit

The gross profit rate decreased by 5.6 percentage points primarily due to increased promotional and clearance activity, decreased leveraging of retail occupancy costs, and inventory write-downs related to aged and slow moving inventory. The decrease in gross profit rate was partially offset by higher initial merchandise markups associated with the direct sourcing initiative and higher purchase volumes related to the retail expansion.

Our gross profit rate decreased 2.3 percentage points in fiscal 2007 as compared to fiscal 2006, as a result of an increase in markdowns and discounts, including those discounts related to national magazine advertisements, partially offset by higher initial merchandise markups. Our gross profit rate was also negatively impacted by a $7.3 million, or 0.6 percentage point, inventory write-down related to overstocked inventory that was identified to be liquidated through third parties. Also, a decrease in the leveraging of our buying and distribution costs, shipping and handling costs, and retail occupancy costs reduced our gross profit rate by approximately 0.4, 0.1, and 1.7 percentage points, respectively.

Selling, General and Administrative Expenses

As a percentage of net sales, selling, general and administrative expenses (SG&A) increased by 3.3 percentage points in fiscal 2007 as compared with fiscal 2006. This increase was the result of a 1.8 percentage point increase in employee expenses, a 0.6 percentage point increase in overhead costs, and a 0.9 percentage point increase in marketing expenses.

Employee expenses and overhead costs as a percentage of net sales increased as the result of retail administrative and store employee salaries, wages, taxes and benefits as we continue to increase staffing to support our expanding retail store base. Employee expenses were also impacted by increased stock-based compensation of $1.5 million and increased net periodic pension cost on our Supplemental Executive Retirement Plan of $2.0 million, primarily as a result of a net curtailment loss related to the retirement of the Chief Executive Officer and Chief Financial Officer. The increase in marketing expenses as a percentage of net sales was driven primarily by increased catalog circulation and the testing of television advertising. The reduced leveraging in SG&A expenses is primarily due to the decrease in comparable store sales.

Loss on asset impairment

During fiscal 2007 we recorded an impairment charge of $0.6 million related to leasehold improvements and furniture and fixtures at certain premium retail store locations. We did not have any impairments in fiscal 2006.

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Interest, Net and Other

The decrease in interest, net and other for fiscal 2007 as compared with fiscal 2006 is primarily the result of lower interest income earned on a lower average cash balance and lower interest rates, and higher interest expense primarily related to additional capital leases.

Provision for Income Taxes

The benefit for income taxes for fiscal 2007 as compared to the provision in fiscal 2006 was the result of a pre-tax loss, resulting in a tax benefit of $1.4 million.

Segment Results

We evaluate the performance of our operating segments based upon segment operating income, which is shown below along with segment net sales (in thousands):

		Fiscal Year Ended

		February 2, 2008		% of Net Sales			February 3, 2007		% of Net Sales			% Change
Net sales:
	Retail	$	775,082		67.3	%	$	664,170		63.0	%		16.7	%
	Direct		376,390		32.7	%		390,441		37.0	%		(3.6	)%

		$	1,151,472		100.0	%	$	1,054,611		100.0	%		9.2	%

Segment operating income:
	Retail	$	76,585				$	107,566					(28.8	)%
	Direct		55,878					98,595					(43.3	)%

		$	132,463				$	206,161					(35.8	)%

The following table reconciles segment operating income to income from operations (in thousands):

	Fiscal Year Ended

	February 2, 2008			February 3, 2007			% Change
Segment operating income	$	132,463		$	206,161			(35.8	)%
Corporate and other		(143,132	)		(122,266	)		17.1	%

Income (loss) from operations	$	(10,669	)	$	83,895			(112.7	)%

Retail Segment

Net Sales

The $110.9 million increase in retail segment net sales for fiscal 2007 as compared with fiscal 2006 is primarily the result of the addition of 66 premium retail stores, four merchandise clearance outlet stores and three day spas during fiscal 2007, which was partially offset by a decrease in net sales in our comparable premium retail stores as disclosed in the table above under net sales.

Also included in the retail segment net sales growth during fiscal 2007 as compared with fiscal 2006 was an additional $9.4 million in net sales from merchandise clearance outlet stores combined with an additional $6.3 million in net sales from our day spa concept. These increases were offset by a reduction of $0.6 million in co-branded credit card program fee and royalty revenue. In addition to the increase in our store base, we believe increased promotional and clearance activity, and increased

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circulation in both national magazine advertisements and catalogs also contributed to our retail segment net sales.

Segment Operating Income

Retail segment operating income rate expressed as a percentage of retail segment sales for fiscal 2007 as compared with fiscal 2006 decreased by 6.3 percentage points. Increased promotional and clearance activity, partially offset by higher initial merchandise margins associated with our direct sourcing initiative and higher purchase volumes related to the retail expansion, resulted in a 1.7 percentage point decline in merchandise margins. In addition, our retail segment operating income rate was negatively impacted by a $3.2 million, or a 0.4 percentage point, inventory write-down related to overstocked inventory that was identified to be liquidated through third parties. Retail segment operating income rate was also negatively impacted by a 1.5 percentage point reduction in the leveraging of retail store occupancy costs, a 1.4 percentage point increase in employee expense, a 0.4 percentage point increase in marketing costs, primarily related to retail store promotions and a 0.6 percentage point reduction in the leveraging of certain overhead costs, primarily shipping supplies. The reduced leveraging of our retail store occupancy costs also reflects an impairment charge of $0.6 million or 0.1 percentage points. The reduced leveraging of operating expenses is primarily due to a decrease in comparable store sales.

Costs related to the day spa concept, which are included in the above analysis, decreased our overall retail segment operating income rate by approximately 1.4 percentage points in fiscal 2007 compared to approximately 1.7 percentage points in fiscal 2006.

Direct Segment

Net Sales

The direct segment net sales decreased $14.1 million during fiscal 2007 as compared to fiscal 2006. The decrease was driven by a 16.9 percent decrease in net sales from our phone and mail channel, offset by a 2.8 percent increase in Internet business net sales.

Internet business net sales grew during the period as a result of increased promotional and clearance activity, the addition of approximately 605,000 net new addresses to our e-mail database during fiscal 2007, increased e-mail circulation of 23.4 percent or 122.9 million e-mails to customers in fiscal 2007, as compared to fiscal 2006, along with more targeted e-mail campaigns.

Catalog business net sales experienced a 16.9 percent decline during fiscal 2007 as compared to fiscal 2006. Catalog net sales are derived from orders taken from customers over the phone or through the mail. Catalogs are used as a brand marketing vehicle to drive sales in all channels as we encourage customers to choose the channel they deem most convenient. Sales made through other channels that we believe were driven by the initial receipt of a catalog are not included in catalog net sales. Consequently, as customers choose to purchase merchandise through other channels, we expect catalog business net sales to continue to generally decrease as a percent of total net sales.

Included in the direct segment net sales decrease was an additional $0.1 million reduction in co-branded credit card program fee and royalty revenue, offset by an increase in direct shipping revenue of $1.4 million during fiscal 2007 as compared to fiscal 2006.

Segment Operating Income

Direct segment operating income rate expressed as a percentage of direct sales for fiscal 2007 decreased 10.4 percentage points as compared with fiscal 2006. Increased promotional and clearance activity, partially offset by higher initial merchandise markups associated with our direct sourcing resulted in a 3.6 percentage point decline in merchandise margins. In addition, our direct segment

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operating income rate was negatively impacted by a $4.1 million, or a 1.1 percentage point, inventory write-down related to overstocked inventory that was identified to be liquidated through third parties. The direct segment operating income rate was also negatively impacted by reduced leveraging of marketing and overhead costs which resulted in a 3.3 percentage point and 1.0 percentage point decline in direct segment operating income rate, respectively. Reduced leveraging of employee expenses contributed to a decrease of 0.7 percentage points.

Corporate and Other

Corporate and other expenses increased $20.9 million in fiscal 2007 as compared to fiscal 2006. This increase is primarily the result of:

•: a $4.5 million increase in marketing expenses primarily as a result of the testing of television advertising in the first half of fiscal 2007;
•: a $7.2 million increase in employee expenses, predominantly corporate salaries and benefits;
•: a $6.0 million increase in occupancy costs primarily as a result of increased depreciation and amortization, facilities maintenance and taxes;
•: a $3.2 million increase in corporate support costs, primarily professional service fees and shipping supplies.

Seasonality

As with many apparel retailers, our net sales, operating results, liquidity and cash flows have fluctuated, and will continue to fluctuate, as a result of a number of factors, including the following:

•: the composition, size and timing of various merchandise offerings;
•: the number and timing of premium retail store openings;
•: the timing of catalog mailings and the number of catalogs mailed;
•: the timing of e-mail campaigns;
•: customer response to merchandise offerings, including the impact of economic and weather-related influences, the actions of competitors and similar factors;
•: overall merchandise return rates, including the impact of actual or perceived service and quality issues;
•: our ability to accurately estimate and accrue for merchandise returns and the costs of obsolete inventory disposition;
•: market price fluctuations in critical materials and services, including paper, production, postage and telecommunications costs;
•: the timing of merchandise receiving and shipping, including any delays resulting from labor strikes or slowdowns, adverse weather conditions, health epidemics or national security measures; and
•: shifts in the timing of important holiday selling seasons relative to our fiscal quarters, including Valentine's Day, Easter, Mother's Day, Thanksgiving and Christmas.

We alter the composition, magnitude and timing of merchandise offerings based upon an understanding of prevailing consumer demand, preferences and trends. The timing of merchandise offerings may be further impacted by, among other factors, the performance of various third parties on which we are dependent. Additionally, the net sales we realize from a particular merchandise offering may impact more than one fiscal quarter and year and the amount and pattern of the sales realization

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may differ from that realized by a similar merchandise offering in a prior fiscal quarter or year. The majority of net sales from a merchandise offering generally are realized within the first several weeks after its introduction with an expected significant decline in customer demand thereafter.

Our business materially depends on sales and profits from the November and December holiday shopping season. In anticipation of traditionally increased holiday sales activity, we incur certain significant incremental expenses, including the hiring of a substantial number of temporary employees to supplement the existing workforce. Additionally, as gift items and accessories are more prominently represented in the November and December holiday season merchandise offerings, we typically expect, absent offsetting factors, to realize higher consolidated gross margins and earnings in the second half of our fiscal year. If, for any reason, we were to realize significantly lower-than-expected sales or profits during the November and December holiday selling season, as we did in fiscals 2008 and 2007, our financial condition, results of operations, including related gross margins and cash flows for the entire fiscal year will be materially adversely affected.

Liquidity and Capital Resources

In recent fiscal years, we financed ongoing operations and growth initiatives primarily from cash flow generated by operations, trade credit arrangements and the proceeds from our May 2004 public offering of common stock. However, as we produce catalogs, open retail stores and purchase inventory in anticipation of future sales realization, and as operating cash flows and working capital experience fluctuations, we may occasionally utilize our bank credit facility.

On February 13, 2009, we entered into a secured Credit Agreement (the "Agreement") with Wells Fargo Retail Finance, LLC. This credit facility replaces our previous unsecured revolving line of credit with Wells Fargo Bank, N.A. pursuant to the Amended and Restated Credit Agreement dated February 13, 2007, as amended on April 16, 2008 and January 29, 2009 (the "Prior Agreement"). The Agreement provides for a $70.0 million revolving line of credit, with subfacilities for the issuance of up to $70.0 million in letters of credit and swingline advances of up to $10.0 million. The credit facility has a maturity date of February 13, 2012. The actual amount of credit that is available from time to time under the Agreement is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be required by the lender. The proceeds of any borrowings under the Agreement are available for working capital and other general corporate purposes. We did not incur any material early termination penalties in connection with the termination of the Prior Agreement.

Borrowings under the Agreement will generally accrue interest at a margin ranging from 2.25% to 2.75% (determined according to the average unused availability under the credit facility) over a reference rate of, at the Company's election, either LIBOR or a base rate as defined in the Agreement. Letters of credit under the credit facility accrue fees at a rate equal to interest margin that is in effect from time to time. Commitment fees accrue at a rate of 0.50%, which is assessed on the average unused portion of the credit facility maximum amount.

The Agreement has financial covenants that are limited to capital expenditures, minimum inventory book value and maximum facility usage as a percentage of the borrowing base value. The Agreement also contains various restrictive covenants relating to customary matters, such as indebtedness, liens, investments, acquisitions, mergers, dispositions and dividends.

The Agreement generally contains customary events of default for credit facilities of this type. Upon an event of default that is not cured or waived within any applicable cure periods, in addition to other remedies that may be available to the Lender, the obligations under the Agreement may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.

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As of January 31, 2009 and February 2, 2008 we had no borrowings outstanding under the Prior Agreement and $16.1 million and $28.3 million in commercial letters of credit issued, respectively.

Operating activities generated $95.5 million, $52.4 million and $110.6 million of positive cash flow during fiscals 2008, 2007 and 2006, respectively.

On a comparative year-to-year basis, the $43.2 million increase in cash flows from operating activities in fiscal 2008 from fiscal 2007 resulted primarily from lower operating expenses, reduced payments on inventory purchases, reduced marketing costs and taxes received of $9.3 million versus taxes paid of $20.4 million in the comparable period. We also experienced an increase in cash collected on tenant allowances of $0.9 million as total cash collected was $36.6 million in fiscal 2008 as compared to $35.7 million in fiscal 2007. This increase was offset by decreased revenue and lower gross margins and a decrease in cash collected on interest income of $5.3 million.

On a comparative year-to-year basis, the $58.2 million decrease in cash flows from operating activities in fiscal 2007 from fiscal 2006 resulted primarily from higher operating expenses and inventory purchases, including accelerated payments of $36.4 million on inventory purchases to take advantage of early payment discounts, primarily related to our retail expansion. We also experienced a decrease in cash collected on tenant allowances of $5.6 million as total cash collected was $35.7 million in fiscal 2007 as compared to $41.3 million in fiscal 2006. Operating cash flows also decreased as a result of a decrease of $7.1 million in fees collected from our co-branded credit card program and a decrease in cash collected on interest income of $1.1 million. This decrease was offset by increased revenues and lower taxes paid of $17.6 million in fiscal 2007 as compared to fiscal 2006.

Cash outflows from investing activities principally consisted of capital expenditures which totaled $81.2 million, $121.3 million and $106.2 million during fiscal 2008, fiscal 2007 and fiscal 2006, respectively.

Capital expenditures in fiscal 2008 primarily related to leasehold improvements and furniture and fixtures associated with the opening of 42 additional premium retail stores, five merchandise clearance outlet stores and four premium retail stores under construction; and to a lesser extent the remodeling of certain existing stores, and the expansion of our IT and distribution infrastructure. Capital expenditures in fiscal 2007 primarily related to leasehold improvements and furniture and fixtures associated with the opening of 66 additional premium retail stores, three day spas, four merchandise clearance outlet stores and 15 premium retail stores under construction; and to a lesser extent the remodeling of certain existing stores, and the expansion of our IT and distribution infrastructure. Capital expenditures in fiscal 2006 primarily relate to leasehold improvements and furniture and fixtures associated with the opening of 65 additional premium retail stores, and to a lesser extent our opening of three new outlet stores, the remodeling of certain existing stores, and the expansion of our IT and distribution infrastructure. Cash outflows for fiscal 2008 and fiscal 2007 were offset by cash inflows of $3.1 million and $1.7 million, respectively, related to the proceeds from the sale of certain assets.

Cash inflows from financing activities were $0.5 million during fiscal 2008 compared with cash outflows from financing activities of $19.9 million for fiscal 2007 and cash inflows from financing activities of $12.5 million for fiscal 2006. During fiscal 2008, cash inflows of $1.4 million related to stock option exercises, purchases of shares under our employee stock purchase plan and tax benefits related to the exercise of stock options were offset by $0.9 million in cash outflows related to payments on our capital lease and other financing obligations. The cash outflows in fiscal 2007 related to the purchase and retirement of our common stock of $25.0 million, partially offset by cash inflows of $5.2 million related to stock option exercises, purchases of shares under our employee stock purchase plan and tax benefits related to the exercise of stock options. The cash inflows in fiscal 2006 were derived from activity related to stock option exercises and tax benefits related to the exercise of stock options.

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As a result of the foregoing, we had $93.0 million in working capital at January 31, 2009, compared with $115.8 million at February 2, 2008. Our current ratio was 1.51 at January 31, 2009, compared with 1.69 at February 2, 2008.

Capital expenditures for the full year in fiscal 2009 are expected to be approximately $25.0 million, primarily associated with the premium retail store expansion, store-related expenditures and, to a lesser extent, investments in information technology and other corporate-related capital expenditures.

The deterioration of the financial, credit and housing markets has led to declines in consumer confidence, reduced credit availability, and liquidity concerns. We have factored these concerns into our current business and have responded by implementing significant cost and capital savings initiatives. In addition, we have reduced our store growth plans for fiscal 2009 to no more than ten new retail stores, which will result in capital expenditures of approximately $25 million. We have also invested our cash deposits in U.S. Treasury Bills and money market funds that are invested in U.S. Treasury Securities. We have no borrowings outstanding under our prior or new credit facility and do not anticipate borrowing under our new credit facility during fiscal 2009. We believe cash flow from operations and current cash on hand will be sufficient to fund current operations and retail store openings under our current store roll-out plan. However, if the macroeconomic environment were to continue to deteriorate, it is possible that consumer spending could decline further and impact our cash flows, which may require us to borrow under our credit facility. It is also possible that due to the impact of worsening economic conditions on our business, should we need to access our credit facility, it may not be available in full, or at all, for future borrowings, due to borrowing base and other limitations.

Future Outlook

We continue to operate and compete in increasingly challenging economic conditions. These conditions worsened in our third and fourth fiscal quarters with the deterioration of the financial, credit and housing markets which led to further decline in consumer confidence and the decreased availability of consumer credit. These conditions have carried into the first quarter of fiscal 2009 and continue to have a negative impact on our sales, gross margins and earnings. We believe the current conditions, in particular low retail store traffic levels, highly competitive retail selling environment and a shift in customer purchasing toward more value priced merchandise, will continue into fiscal 2009 and the foreseeable future.

Given the current macroeconomic outlook, our main focus for the foreseeable future will continue to be preservation of our brand and core competencies, and the prudent management of our business, including controlling costs, managing our inventory levels and preserving cash. For this reason, we determined during the third quarter of fiscal 2008 to significantly decrease our store rollout plans for fiscal 2009. We continue to believe that our retail expansion will be the key driver for our long term growth. However, we intend to pursue a significantly scaled back store rollout program until such time as we experience a sustained improvement in economic conditions.

Critical Accounting Policies and Estimates

Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses. Note 2 to our consolidated financial statements describes the significant accounting policies used in the preparation of our consolidated financial statements. Management believes the most complex and sensitive judgments, because of their significance to our consolidated financial statements, result primarily from the need to make estimates about effects of matters that are inherently uncertain. The most significant areas involving management judgments are described below. Actual results in these areas could differ from management's estimates.

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Sales Returns

We recognize sales and the related cost of sales for our direct segment at the time the merchandise is expected to be delivered to our customer and for our retail segment at the point of sale with a customer in a store. We reduce our sales and costs of sales and establish an accrual for expected sales returns based on historical experience and future expectations.

The ability to reasonably estimate sales returns is made more complex by the fact that we offer our customers a return policy whereby they may return merchandise for any reason and at any time without any restrictions as to condition or time of purchase to any of our locations. The actual amount of sales returns we subsequently realize may fluctuate from estimates due to several factors, including size and fit, merchandise mix, actual or perceived quality, differences between the actual product and its presentation in the catalog or web site, timeliness of delivery and competitive offerings. We continually track subsequent sales return experience, compile customer feedback to identify any pervasive issues, reassess the marketplace, compare our findings to previous estimates and adjust the sales return accrual and cost of sales accordingly. Provisions for sales returns were as follows (in thousands):

	Balance at beginning of period		Additions charged to net income		Deductions for actual returns		Current year adjustments to prior year reserve			Balance at end of period

Fiscal year ended:
February 3, 2007	$	5,871	$	103,747	$	103,436	$	(461	)	$	5,721
February 2, 2008	$	5,721	$	128,513	$	126,976	$	(81	)	$	7,177
January 31, 2009	$	7,177	$	106,044	$	106,952	$	(1,974	)	$	4,295

Inventory Valuation

Our inventories consist of merchandise purchased for resale and are recorded at the lower of cost or market. The nature of our business requires that we make substantially all of our merchandising and marketing decisions and corresponding inventory purchase commitments with vendors several months in advance of the time in which a particular merchandise item is intended to be included in the merchandise offerings. These decisions and commitments are based upon, among other possible considerations, historical sales with identical or similar merchandise, our understanding of then-prevailing fashion trends and influences, and an assessment of likely economic conditions and various competitive factors. We continually make assessments as to whether the carrying cost of inventory exceeds its market value, and, if so, by what dollar amount. To determine whether inventory should be written down we consider current and anticipated demand and customer preferences in addition to the current and future estimated selling price. The carrying value of the inventory is reduced to its net realizable value with a corresponding charge to cost of sales. During fiscal 2008 and 2007 we have experienced declining gross margins due to an increase in the amount of inventory being sold with markdowns and promotional discounts. During fiscal 2007, we experienced significantly lower customer traffic than originally anticipated which resulted in an increase in slow moving and aged inventory. Fiscal 2007 included an approximate $7.3 million write-down of overstocked inventory that was liquidated through third parties. Though we currently believe our inventory write-down is adequate based upon current forecasts which consider current and future selling prices, actual results may differ from our estimates if we are required to markdown or discount merchandise beyond our current expectations.

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Stock-Based Compensation

Effective January 1, 2006, our accounting policy related to stock option accounting changed upon our adoption of SFAS 123R. SFAS 123R requires us to expense the fair value of employee stock options and other forms of stock-based compensation. Under the fair value recognition provisions of SFAS 123R, share-based compensation cost is estimated at the grant date based upon the value of the award and is recognized as expense ratably over the requisite service period of the award (generally the vesting period of the equity award). Determining the appropriate fair value model and calculating the fair value of share-based awards requires judgment, including estimating the expected life of the share-based award, the expected stock price volatility over the expected life of the share-based award and forfeitures.

To determine the fair value of stock options on the date of grant, we use the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock price volatility, option life, risk-free interest rate and dividend yield. The risk-free interest rate is a less-subjective assumption as it is based on factual data derived from public sources. We use a dividend yield of zero as we have never paid cash dividends and have no intention to pay cash dividends in the immediate future. The expected stock price volatility and option life assumptions require a greater level of judgment. Our expected stock-price volatility assumption is based upon a combination of both the implied and historical volatilities of our stock which is obtained from public data sources. The expected life represents the weighted average period of time that share-based awards are expected to be outstanding, giving consideration to vesting schedules and historical exercise patterns. We determine the expected life assumption based upon the exercise and post-vesting behavior that has been exhibited historically, adjusted for specific factors that may influence future exercise patterns. If expected volatility or expected life were to increase, that would result in an increase in the fair value of our stock options which would result in higher compensation charges, while a decrease in volatility or the expected life would result in a lower fair value of our stock option awards resulting in lower compensation charges.

We also grant restricted stock units and common stock which are less subjective in determining fair value as the fair value of these awards is based upon the fair market value of our common stock on the date of grant and not on an option-pricing model.

We estimate forfeitures for all of our awards based upon historical experience of stock-based pre-vesting forfeitures. We believe that our estimates are based upon outcomes that are reasonably likely to occur. If actual forfeitures are higher than our estimates it would result in lower compensation expense and to the extent the actual forfeitures are lower than our estimate we would record higher compensation expense.

Impairment of Long-Lived Assets

Long-lived assets, more specifically leasehold improvements and furniture and fixtures at our retail stores and day spas, are subject to a review for impairment if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the future undiscounted cash flows generated by an asset or asset group is less than its carrying amount, it is considered to be impaired and would be written down to its fair value. During the second quarter of fiscal 2008, management determined that our day spa concept needed to be evaluated for impairment. Consequently, we concluded that certain day spa locations were impaired and we recorded a charge of $1.5 million.

The deterioration of the financial, credit, and housing markets have had a severe impact on consumer confidence and discretionary spending. These market conditions have had a negative effect on our business resulting in us evaluating certain retail stores for impairment. Based on this evaluation we concluded that these retail stores were not impaired. Though we believe that no impairment of our long-lived assets exists as of January 31, 2009, if market conditions were to continue to deteriorate for

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an extended period of time, it is possible that we could record impairments of certain long-lived assets in the future.

Contingent Liabilities

Contingent liabilities are accounted for in accordance with SFAS 5, Accounting for Contingencies. According to SFAS 5, an estimated loss from a loss contingency is charged to income if (a) it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (b) the amount of the loss can be reasonably estimated. If a probable loss cannot be reasonably estimated no accrual is recorded but disclosure of the contingency in the notes to the financial statements is required. Gain contingencies are not recorded until realized.

We are involved in litigation and administrative proceedings arising in the normal course of our business. Actions filed against us from time to time include commercial, intellectual property infringement, customer and employment claims, including class action lawsuits alleging that we violated federal and state wage and hour and other laws. If the recognition criteria of SFAS 5 have been met, liabilities have been recorded. The assessment of the outcome of litigation can be very difficult to predict as it is subject to many factors, including those not within our control, and is highly dependent on individual facts and circumstances. Litigation is subject to highly complex legal processes and the final outcome of these matters could vary significantly from the amounts that have been recorded in the financial statements.

Recently Issued Accounting Standards

See Note 2 to our consolidated financial statements.

Off-Balance Sheet Liabilities and Other Contractual Obligations

We do not have any material off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

The following tables summarize our minimum contractual commitments and commercial obligations as of January 31, 2009 (in thousands):

		Payments Due in Fiscal Year

		Total		2009		2010-2011		2012-2013		Thereafter
Contractual Obligations
	Operating leases(a)	$	658,086	$	77,809	$	155,326	$	137,985	$	286,966
	Contractual commitments(b)		145,755		145,755		—		—		—
	Capital leases(c)		25,577		1,031		2,086		2,103		20,357
	Other financing obligations(d)		3,617		1,808		1,809		—		—
	Other long-term liabilities(e)(f)		9,984		962		1,652		1,144		6,226

Total		$	843,019	$	227,365	$	160,873	$	141,232	$	313,549

a.: We lease retail store space as well as other property and equipment under operating leases. Retail store leases require the payment of additional rent based on sales above a specified minimum. The operating lease obligations noted above do not include any contingent rental expense we may incur based on future sales above the specified minimums or payments made for maintenance, insurance and real estate taxes. Several lease agreements provide lease renewal options. Future operating lease obligations would change if these renewal options were exercised.
b.: Contractual commitments include inventory purchase orders of $145.8 million. We expect to pay substantially all of these commitments in the next twelve months. The actual timing of the payments is subject to change based upon actual receipt of the inventory and the terms of payment with the vendor.

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c.: The weighted average interest rate on the capital leases is approximately 7.9 percent. Payments represent the principal and accrued interest of $11.7 million and interest expense to be incurred of approximately $13.9 million.
d.: Payments on other financing obligations represent interest expense to be incurred of approximately $0.3 million and principal amounts due in the next twelve months of approximately $1.6 million which has been recorded as a current liability.
e.: Other long-term liabilities primarily include amounts on our January 31, 2009 consolidated balance sheet representing obligations under our supplemental executive retirement plan of $8.2 million, $1.0 million related to our employee retention compensation program, and asset retirement obligations under certain of our lease arrangements of $0.4 million. We expect payments of approximately $0.4 million during the next twelve months related to the supplemental executive retirement plan. The payments above relating to the $1.0 million retention program, of which $0.6 million will be paid during the next twelve months, do not include $0.8 million of additional compensation that is to be recognized over the employees' remaining service periods.
f.: We have excluded $137.2 million and $5.8 million of deferred rents and deferred revenue, respectively, from the other long-term liabilities in the above table. These amounts have been excluded as deferred rents relate to operating leases which are already reflected in the operating lease category above and the deferred revenue does not represent a contractual obligation that will be settled in cash.

Our only individually significant operating lease is for our distribution center and customer contact center located in Mineral Wells, West Virginia. During the third quarter of fiscal 2006, construction was completed on the 350,000 square-foot expansion to this distribution center, increasing the distribution center size from 610,000 square-feet to 960,000 square-feet. As a result, the distribution center operating lease was amended to include the expansion and extend the lease term from approximately 15 years to 20 years. Our remaining lease commitment as of January 31, 2009 is approximately $72.0 million and has been reflected in the schedule above. All other operating leases primarily pertain to retail and outlet stores, day spas and to various equipment and technology.

Subsequent to January 31, 2009, we entered into additional retail leases with minimum lease payment requirements, and as a result, as of March 27, 2009 our operating lease commitments increased by $1.6 million.

As of January 31, 2009 we had $18.5 million in letters of credit issued, of which $16.1 million was issued under our prior credit facility with Wells Fargo Bank, N.A. related to inventory purchase commitments and $2.4 million under a separate letter of credit related to our distribution facility. Subsequent to January 31, 2009 the outstanding letters of credit under our prior credit facility were transferred to our new credit facility with Wells Fargo Retail Finance, LLC.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have not been materially impacted by fluctuations in foreign currency exchange rates as substantially all of our business is transacted in, and is expected to continue to be transacted in, U.S. dollars or U.S. dollar-based currencies. We have been immaterially impacted by fluctuations in interest rates as a result of our relatively modest bank borrowings in recent fiscal years. During the twelve-month period ended January 31, 2009, we did not have borrowings under our credit facility and, consequently, did not have any material exposure to interest rate market risks during or at the end of this period. However, as any future borrowings under our amended and restated bank credit facility will be at a variable rate of interest, we could potentially be materially adversely impacted should we require significant borrowings in the future, particularly during a period of rising interest rates. We have not used, and currently do not anticipate using, any derivative financial instruments.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm		49
Consolidated Balance Sheets as of January 31, 2009 and February 2, 2008		50
Consolidated Statements of Operations for the years ended January 31, 2009, February 2, 2008 and February 3, 2007		51
Consolidated Statements of Stockholders' Equity for the years ended January 31, 2009, February 2, 2008 and February 3, 2007		52
Consolidated Statements of Cash Flows for the years ended January 31, 2009, February 2, 2008 and February 3, 2007		53
Notes to the Consolidated Financial Statements		54

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Coldwater Creek Inc.
Sandpoint, Idaho

We have audited the accompanying consolidated balance sheets of Coldwater Creek Inc. and subsidiaries (the "Company") as of January 31, 2009 and February 2, 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 31, 2009. 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 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Coldwater Creek Inc. and subsidiaries as of January 31, 2009 and February 2, 2008, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, on February 3, 2007, the Company adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2009, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Boise, Idaho
March 30, 2009

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COLDWATER CREEK INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)

			January 31, 2009			February 2, 2008

ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	81,230		$	62,479
	Receivables			15,991			28,520
	Inventories			135,376			139,993
	Prepaid and other			11,086			17,246
	Income taxes recoverable			14,895			14,265
	Prepaid and deferred marketing costs			5,361			13,662
	Deferred income taxes			9,792			8,073

		Total current assets		273,731			284,238
Property and equipment, net				337,766			328,991
Deferred income taxes				14,147			7,680
Restricted cash				1,776			2,664
Other				1,207			686

		Total assets	$	628,627		$	624,259

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable		$	93,355		$	75,936
	Accrued liabilities			82,469			87,300
	Current deferred marketing fees and revenue sharing			4,918			5,252

		Total current liabilities		180,742			168,488
Deferred rents				137,216			122,819
Capital lease and other financing obligations				13,316			14,467
Supplemental Employee Retirement Plan				7,807			8,041
Deferred marketing fees and revenue sharing				5,823			7,064
Other				1,227			1,517

		Total liabilities		346,131			322,396

Commitments and contingencies
STOCKHOLDERS' EQUITY:
	Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding			—			—
	Common stock, $.01 par value, 300,000,000 shares authorized, 91,264,527 and 90,796,551 shares issued, respectively			913			908
	Additional paid-in capital			115,921			110,010
	Accumulated other comprehensive loss			(1,334	)		(2,014	)
	Retained earnings			166,996			192,959

		Total stockholders' equity		282,496			301,863

		Total liabilities and stockholders' equity	$	628,627		$	624,259

The accompanying notes are an integral part of these consolidated financial statements.

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COLDWATER CREEK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for per share data)

		Fiscal Year Ended

		January 31, 2009			February 2, 2008			February 3, 2007
Net sales		$	1,024,221		$	1,151,472		$	1,054,611
Cost of sales			673,661			701,289			583,604

	Gross profit		350,560			450,183			471,007
Selling, general and administrative expenses			395,320			460,232			387,112
Loss on asset impairments			1,452			620			—

	Income (Loss) from operations		(46,212	)		(10,669	)		83,895
Interest, net, and other			1,508			6,793			7,672

	Income (Loss) before income taxes		(44,704	)		(3,876	)		91,567
Income tax provision (benefit)			(18,741	)		(1,388	)		36,195

	Net income (loss)	$	(25,963	)	$	(2,488	)	$	55,372

	Net income (loss) per share—Basic	$	(0.29	)	$	(0.03	)	$	0.60

	Weighted average shares outstanding—Basic		91,037			92,801			92,616
	Net income (loss) per share—Diluted	$	(0.29	)	$	(0.03	)	$	0.59

	Weighted average shares outstanding—Diluted		91,037			92,801			94,485

The accompanying notes are an integral part of these consolidated financial statements.

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COLDWATER CREEK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

	Common Stock

	Common Stock						Additional Paid-in Capital			Deferred Compensation			Accumulated Other Comprehensive Loss			Retained Earnings
	Shares			Par Value			Additional Paid-in Capital			Deferred Compensation			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at January 28, 2006		92,021			920			108,316			(914	)		—			140,075			248,397

Net income		—			—			—			—			—			55,372			55,372
Net proceeds from exercise of stock options		1,097			11			3,113			—			—			—			3,124
Excess tax benefit from exercise of stock options		—			—			9,664			—			—			—			9,664
Issuance of shares under the employee stock purchase plan		16			—			371			—			—			—			371
Elimination of deferred compensation on adoption of SFAS 123R		—			—			(914	)		914			—			—			—
Stock-based compensation		34			1			3,752			—			—			—			3,753
Adjustment to initially apply SFAS 158, net of tax benefit of $2.1 million		—			—			—			—			(3,225	)		—			(3,225	)

Balance at February 3, 2007		93,168			932			124,302			—			(3,225	)		195,447			317,456

Net loss		—			—			—			—			—			(2,488	)		(2,488	)
Supplemental employee retirement plan liability adjustment, net of tax expense of $0.8 million		—			—			—			—			1,211			—			1,211

Comprehensive loss																				(1,277	)

Net proceeds from exercise of stock options		444			5			1,722			—			—			—			1,727
Excess tax benefit from exercise of stock options		—			—			2,523			—			—			—			2,523
Issuance of shares under the employee stock purchase plan		106			1			1,238			—			—			—			1,239
Stock-based compensation		44			—			5,241			—			—			—			5,241
Purchase and retirement of treasury stock		(2,965	)		(30	)		(25,016	)		—			—			—			(25,046	)

Balance at February 2, 2008		90,797		$	908		$	110,010		$	—		$	(2,014	)	$	192,959		$	301,863

Net loss		—			—			—			—			—			(25,963	)		(25,963	)
Supplemental employee retirement plan liability adjustment, net of tax expense of $0.4 million		—			—			—			—			680			—			680

Comprehensive loss																				(25,283	)

Net proceeds from exercise of stock options		194			2			568			—			—			—			570
Excess tax benefit from exercise of stock options and other additional paid-in capital adjustments		—			—			(342	)		—			—			—			(342	)
Issuance of shares under the employee stock purchase plan		216			2			907			—			—			—			909
Stock-based compensation		58			1			4,778			—			—			—			4,779

Balance at January 31, 2009		91,265		$	913		$	115,921		$	—		$	(1,334	)	$	166,996		$	282,496

The accompanying notes are an integral part of these consolidated financial statements.

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COLDWATER CREEK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

			Fiscal Year Ended

			January 31, 2009			February 2, 2008			February 3, 2007
OPERATING ACTIVITIES:
Net income (loss)			$	(25,963	)	$	(2,488	)	$	55,372
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			61,811			52,453			38,860
	Stock-based compensation expense			4,779			5,241			3,753
	Supplemental Employee Retirement Plan expense			1,293			3,475			1,444
	Deferred income taxes			(8,930	)		(8,457	)		(1,585	)
	Excess tax benefit from exercises of stock options			(82	)		(2,264	)		(8,958	)
	Net loss on asset dispositions			405			1,126			843
	Loss on asset impairments			1,452			620			—
	Other			318			23			14
Net change in current assets and liabilities:
	Receivables			12,529			(6,382	)		6,676
	Inventories			4,617			(13,040	)		(40,644	)
	Prepaid and other and income taxes recoverable			6,199			(17,355	)		(4,419	)
	Prepaid and deferred marketing costs			8,301			(4,411	)		1,187
	Accounts payable			23,126			(11,506	)		8,552
	Accrued liabilities			(7,472	)		20,635			11,262
	Income taxes payable			—			932			(122	)
Change in deferred marketing fees and revenue sharing				(1,575	)		(1,840	)		5,616
Change in deferred rents				16,353			34,932			33,741
Other changes in non-current assets and liabilities				(1,628	)		665			(1,006	)

		Net cash provided by operating activities		95,533			52,359			110,586

INVESTING ACTIVITIES:
	Purchase of property and equipment			(81,215	)		(121,263	)		(106,215	)
	Proceeds from asset dispositions			3,086			1,673			—
	Change in restricted cash			888			888			—

		Net cash used in investing activities		(77,241	)		(118,702	)		(106,215	)

FINANCING ACTIVITIES:
	Net proceeds from exercises of stock options and ESPP purchases			1,318			2,966			3,495
	Excess tax benefit from exercises of stock options			82			2,264			8,958
	Payments on capital lease and other financing obligations			(941	)		(42	)		—
	Purchase and retirement of treasury stock			—			(25,046	)		—

		Net cash provided by (used in) financing activities		459			(19,858	)		12,453

		Net increase (decrease) in cash and cash equivalents		18,751			(86,201	)		16,824
		Cash and cash equivalents, beginning		62,479			148,680			131,856

		Cash and cash equivalents, ending	$	81,230		$	62,479		$	148,680

NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Property and equipment purchases not yet paid		$	1,938		$	7,644		$	5,750
	Financing of software license and other assets			541			3,635			—
	Reclassification of restricted cash from long-term assets to current assets			888			888			901
	Capital leases			—			10,778			1,000
SUPPLEMENTAL CASH FLOW DATA:
	Cash paid for interest (net of amount capitalized)		$	634		$	683		$	75
	Cash paid (refunded) for income taxes			(9,310	)		20,399			38,037

The accompanying notes are an integral part of these consolidated financial statements.

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COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Organizational Structure

Coldwater Creek Inc., together with its wholly-owned subsidiaries, a Delaware corporation headquartered in Sandpoint, Idaho, is a multi-channel specialty retailer of women's apparel, accessories, jewelry and gift items. We have two operating segments: retail and direct. The retail segment consists of our premium retail stores, merchandise clearance outlet stores and day spas. The direct segment consists of sales generated through our e-commerce web site and from orders taken from customers over the phone or through the mail.

2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.

Fiscal Periods

References to a fiscal year refer to the calendar year in which the fiscal year commences. Our fiscal year ends on the Saturday nearest January 31st. This reporting schedule is followed by many national retail companies. This floating fiscal year-end typically results in 13-week fiscal quarters and a 52-week fiscal year, but occasionally will contain an additional week resulting in a 14-week fiscal fourth quarter and a 53-week fiscal year. This current fiscal year ended January 31, 2009 (fiscal 2008) and the fiscal year ended February 2, 2008 (fiscal 2007) both consisted of 52 weeks, while the fiscal year ended February 3, 2007 (fiscal 2006) consisted of 53 weeks.

Comprehensive Income (Loss)

Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires the presentation of comprehensive income, in addition to the existing income statement. Comprehensive income is defined as the change in equity during a period from transactions and other events, excluding changes resulting from investments by owners and distributions to owners. The following table provides a reconciliation of net loss to total other comprehensive loss as disclosed in the Consolidated Statements of Stockholders' Equity (in thousands):

		Fiscal 2008			Fiscal 2007

Net loss		$	(25,963	)	$	(2,488	)
	Amortization of unrecognized prior service cost		494			590
	Unrecognized net actuarial gain (loss)		621			(363	)
	Effect of curtailments		—			1,758
Tax effect			(435	)		(774	)

Total comprehensive loss		$	(25,283	)	$	(1,277	)

There were no differences between comprehensive income and net income for the fiscal year ended February 3, 2007. On February 3, 2007 we adopted SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R), and as a result, we recorded a charge of $3.2 million to accumulated other comprehensive loss, net of the related tax benefit, relating to our Supplemental Executive Retirement Plan.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are embodied in our sales returns accrual, stock-based compensation, contingencies, asset impairment, and our inventory obsolescence calculations. These estimates and assumptions are based on historical results as well as management's future expectations. Actual results may vary from these estimates and assumptions.

Revenue Recognition and Sales Return Estimate

We recognize sales, including shipping and handling income and the related cost of those sales at the time of estimated receipt by the customer for orders placed from a catalog or on our e-commerce web site and at the point of sale for retail store transactions. We exclude the related sales tax from revenue as sales tax amounts are recorded on a net basis. We maintain an allowance for sales returns based on historical experience and future expectations.

The allowance for sales returns (included in accrued liabilities) was as follows (in thousands):

	Balance at beginning of period		Additions charged to net income		Deductions for actual returns		Current year adjustments to prior year reserve			Balance at end of period

Fiscal year ended:
February 3, 2007	$	5,871	$	103,747	$	103,436	$	(461	)	$	5,721
February 2, 2008	$	5,721	$	128,513	$	126,976	$	(81	)	$	7,177
January 31, 2009	$	7,177	$	106,044	$	106,952	$	(1,974	)	$	4,295

Gift certificates and cards. Our policy regarding gift certificates and gift cards is to record revenue as certificates and cards are redeemed for merchandise or when the probability of redemption is remote. We also release gift certificates and gift cards to the appropriate government agency under applicable unclaimed property laws. Prior to these events, amounts received from the sale of gift certificates and gift cards are recorded as a liability. Income on unredeemed gift cards and gift certificates was immaterial in fiscal 2008, fiscal 2007 and fiscal 2006.

Co-branded credit card. During the second quarter of fiscal 2005, we introduced a co-branded customer credit card program. Under this program (which we modified during the second quarter of fiscal 2007), we receive from the issuing bank a non-refundable up-front marketing fee for each new credit card account that is opened and activated. The initial up-front marketing fee is deferred and recognized into revenue over the estimated customer relationship period. We are also eligible to receive an annual revenue sharing payment if certain profitability measures of the program are met. The revenue sharing payment we receive annually, if any, is deferred and recognized into revenue over the expected life of the co-branded credit card program. In addition, we receive an ongoing sales royalty which is based on a percentage of purchases made by the holder of the card. Cardholders receive reward coupons from their credit card purchases that can be used to purchase our merchandise. The

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2. Significant Accounting Policies (Continued)

sales royalty is deferred and subsequently recognized as revenue over the redemption period of the reward coupons, adjusted for that portion of awards that we estimate will not be redeemed by customers ("breakage"). We recognize the breakage for unredeemed awards in proportion to the actual awards that are redeemed by customers. We determine our breakage rate based upon company specific historical redemption patterns.

To encourage customers to apply for and activate the co-branded credit card we provide a discount to customers on their first Coldwater Creek purchase made with the co-branded credit card. These discounts are netted against the sales price of the related merchandise. In addition to marketing sales discounts we also incur the cost of printing and mailing customized catalogs to customers who have been pre-approved by the credit card issuer to receive a credit card offer. These costs are expensed as incurred as selling, general and administrative expenses. Approximately 46,000, 104,000 and 177,000 cards were activated in fiscal 2008, fiscal 2007 and fiscal 2006, respectively.

Onecreek. In September of fiscal 2007, we introduced onecreek, a customer loyalty program which entitled enrolled customers who maintained an annual minimum level of spending to earn awards in the form of future discounts that could be redeemed towards a future purchase of merchandise.

For awards that were earned on individual purchases, we concluded that they represented significant incremental discounts and, as a result, we allocated the consideration received from the customer between the goods purchased and the award earned based on their relative fair values. The consideration allocated to the award was recorded as deferred revenue and subsequently recognized as revenue over the redemption period, adjusted for breakage. We recognize the breakage for unredeemed awards in proportion to the actual awards that were redeemed by customers. We determined our breakage rate based upon company specific historical redemption patterns. In July of 2008, we changed the program such that we no longer provide awards based on the customer maintaining a minimum level of spend and making individual purchases. Consequently, we no longer defer revenue under the onecreek program. The deferred revenue related to the program was approximately $1.2 million as of February 2, 2008. As a result of the changes in the program, no revenue was deferred as of January 31, 2009.

In addition, under the onecreek program, enrolled onecreek customers who maintained their annual minimum spending level also earned a yearly "birthday award". We determined that this award did not represent a significant incremental discount and as a result accounted for it using the incremental cost approach. Under this approach we accrued a liability for the cost of the award over the time period that the customer earned the award. This liability is reduced for that portion of the rewards that we estimate, based on our own historical experience, will not be redeemed by customers. In July of 2008, we changed the program such that birthday coupons are no longer provided based on the customer maintaining a minimum level of spend. Therefore, we no longer accrue for birthday coupons. The accrued liability related to the birthday gift coupons was not material for all periods presented.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid debt instruments with an original maturity date of three months or less at the date of purchase. As of January 31, 2009, these instruments consist mainly of direct investments in U.S. Treasury Bills and money market funds that invest entirely in U.S. Treasury

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2. Significant Accounting Policies (Continued)

Securities. We maintain a substantial portion of our cash and cash equivalents with a well-known and stable financial institution. However, we have significant amounts of cash and cash equivalents at this financial institution that are in excess of federally insured limits. Though we have not experienced any losses on our cash and cash equivalents to date and we do not anticipate incurring any losses, given the current financial environment and the instability of financial institutions, we cannot be assured that we will not experience losses on our deposits.

As of January 31, 2009, we held $20.0 million in U.S. Treasury Bills which are classified as cash equivalents, categorized as held-to-maturity and measured at amortized cost in the statement of financial position. The amortized cost is adjusted by the amortization of premiums and discounts to maturity, with the net amortization included in interest income. As of January 31, 2009, the net carrying amount, which approximates fair value, was approximately $20.0 million. We held no U.S. Treasury Bills as of February 2, 2008.

Fair Value

Effective February 3, 2008, we adopted SFAS No. 157, Fair Value Measures (SFAS 157) for financial assets and liabilities. This standard defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements.

The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

•: Level 1—Quoted prices in active markets for identical assets or liabilities;
•: Level 2—Quoted prices for similar assets or liabilities in active markets or inputs that are observable;
•: Level 3—Inputs that are unobservable.

As of January 31, 2009, we held money market funds that are measured at fair value on a recurring basis. The following table represents our fair value hierarchy for financial assets measured at fair value on a recurring basis as of January 31, 2009 (in thousands):

		Level 1			Level 2			Level 3

Cash Equivalents		$	55,054		$	—		$	—

We also have financial assets and liabilities, not required to be measured at a fair value on a recurring basis, which primarily consist of cash, restricted cash, receivables, payables and financing obligations, the carrying value of which materially approximate their fair values.

Trade Accounts Receivable

Our trade accounts receivable are associated primarily with credit card sales to individuals and are recorded at the invoiced amount. These receivables do not bear interest and are generally converted to cash in two to three days.

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2. Significant Accounting Policies (Continued)

Inventories

Inventories primarily consist of merchandise purchased for resale. Inventory in our distribution center is stated at the lower of first-in, first-out cost or market. Inventory in our premium retail stores, outlet stores and day spas is stated at the lower of weighted average cost or market.

Advertising Costs

Direct response advertising includes catalogs and national magazine advertisements which contain an identifying code that allows us to track related sales. All direct costs associated with the development, production and circulation of direct response advertisements are accumulated as prepaid marketing costs. Once the related catalog or national magazine advertisement is either mailed or first appears in print, these costs are reclassified to deferred marketing costs. These costs are then amortized as expense to selling, general and administrative expenses over the expected sales realization cycle, typically several weeks. We review the carrying amounts of deferred marketing costs for recoverability on a quarterly basis. Direct response advertising expense was $57.3 million, $107.8 million and $96.8 million for the fiscal years ended January 31, 2009, February 2, 2008 and February 3, 2007, respectively.

Advertising costs other than direct response advertising include commissions associated with our participation in a web-based affiliate program, store promotional and signage expenses and television advertising. Production costs related to television commercials are expensed when the commercials are first aired, while other advertising costs are expensed as incurred or when the particular store promotion begins. Non-direct response advertising costs of $22.9 million, $26.3 million and $16.7 million for the fiscal years ended January 31, 2009, February 2, 2008 and February 3, 2007, respectively, are included in selling, general and administrative expenses.

Property and Equipment

Property and equipment, including any major additions and improvements made to property and equipment, are recorded at cost. Minor additions and improvements, as well as maintenance and repairs that do not materially extend the useful life of property or equipment, are charged to operations as incurred. The net book value of property or equipment sold or retired is removed from the asset and related accumulated depreciation accounts with any resulting net gain or loss included in results of operations.

Depreciation and amortization expense is computed using the straight-line method. The estimated useful lives for buildings and land improvements are 15 to 30 years. The estimated useful lives for furniture and fixtures, technology hardware and internal use software and machinery and equipment are three to 12 years. Leasehold improvements are amortized over the contractual lives of the underlying operating leases or the estimated useful lives of the improvements, currently three to 20 years, whichever is less.

Impairment of Long-Lived Assets

Long-lived assets, including leasehold improvements, equipment, and furniture and fixtures at our retail stores and day spas, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future

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2. Significant Accounting Policies (Continued)

undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset.

We introduced the day spa concept on a limited basis resulting in the opening of six day spas in fiscal 2006 and three day spas in fiscal 2007. As of August 2, 2008, the first day spa we opened had been operating for approximately 28 months while the last day spa had been operating for approximately nine months, for an average opening period of approximately 21 months for all nine day spas. Management determined in the second quarter of fiscal 2008 that the day spa concept had been operating for a sufficient amount of time to perform a detailed impairment evaluation, given that the concept continued to incur operating and cash flow losses. Consequently, we determined that the leasehold improvements, equipment, and furniture and fixtures at certain day spa locations were impaired and recorded a charge of $1.5 million. During fiscal 2007, we recorded impairment charges of $0.6 million related to long-lived assets at certain premium retail stores. No impairments were recorded during fiscal 2006. We used the expected present value model, in which multiple cash flow scenarios that reflect the range of possible outcomes and a risk-free rate were used to estimate fair value.

The fair value calculations used for these tests require us to make assumptions about items that are inherently uncertain. Assumptions related to future market demand, market prices, labor and product costs could vary from actual results, and the impact of such variations could be material. Factors that could affect the assumptions include changes in economic conditions and competitive conditions in the industry.

Internal-Use Software Costs

Pursuant to the provisions of Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, costs related to software developed or obtained for internal use are expensed as incurred until the application development stage has been reached. Once the application development stage has been reached, certain qualifying costs are capitalized until the software is ready for its intended use. As of January 31, 2009 and February 2, 2008, internal-use software capitalized within property and equipment, net of accumulated amortization, was $29.6 million and $27.0 million, respectively. Amortization of internal-use software was $6.1 million, $5.0 million, and $3.0 million in fiscal 2008, fiscal 2007 and fiscal 2006, respectively.

Restricted Cash

In connection with the lease of our distribution center we entered into $4.0 million standby letter of credit during fiscal 2005, which required $4.4 million in cash collateral. This restricted cash was initially recorded as a non-current asset in our consolidated balance sheet. The principal amount of the letter of credit and the related restricted cash amount reduce at a rate of 20 percent per year over five years commencing January 1, 2008. As of January 31, 2009 we had approximately $2.7 million in restricted cash recorded between current and non-current assets related to the $2.4 million remaining letter of credit.

Accounting for Leases

We lease our distribution center, customer contact centers, and all of our premium retail, outlet and day spa space, as well as certain other property and equipment. Nearly all of our leases are accounted for as operating leases. Our fixed, non-cancelable terms of our premium retail, outlet and

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2. Significant Accounting Policies (Continued)

day spa leases are generally five to ten years. Most of our leases include renewal options that allow us to extend the term beyond the initial non-cancelable term. Several of our leases require additional rent based on sales, which is recorded as rent expense when the additional rent payments become probable. We have three capital leases with terms ranging from approximately four to 30 years.

Certain of our operating leases contain predetermined fixed escalations of the minimum rental payments over the lease. For these leases, we recognize the related rental expense on a straight-line basis over the term of the lease, which commences for accounting purposes on the date we have access and control over the leased store (possession). Possession occurs prior to the making of any lease payments and approximately 60 to 90 days prior to the opening of a store. In the early years of a lease with rent escalations, the recorded rent expense will exceed the actual cash payments. The amount of rent expense that exceeds the cash payments is recorded as deferred rent in the consolidated balance sheet. In the later years of a lease with rent escalations, the recorded rent expense will be less than the actual cash payments. The amount of cash payments that exceed the rent expense is then recorded as a reduction to deferred rent. Deferred rent related to lease agreements with escalating rent payments was $29.8 million and $23.5 million at January 31, 2009 and February 2, 2008, respectively.

Additionally, certain operating leases contain terms which obligate the landlord to remit cash to us as an incentive to enter into the lease agreement. These lease incentives are commonly referred to as "tenant allowances". When we take possession of a store we record the amount to be remitted by the landlord as a tenant allowance receivable. At the same time, we record deferred rent in an equal amount in the consolidated balance sheet. The tenant allowance receivable is reduced as cash is received from the landlord, while the deferred rent is amortized as a reduction to rent expense over the lease term. Deferred rent related to tenant allowances, including both the current and long-term portions, in the amount of $126.5 million and $116.4 million existed at January 31, 2009 and February 2, 2008, respectively.

Asset Retirement Obligations

We account for asset retirement obligations in accordance with Financial Accounting Standards Board (FASB) Statement No. 143, Accounting for Asset Retirement Obligations (SFAS 143), and FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN 47). We record an asset retirement obligation related to certain store leases that obligate us to incur certain costs at the end of the lease. These costs include the removal of trade fixtures, furniture, equipment, signs and improvements that are not permanently affixed, and any repair costs as a result of their removal. The obligation as of January 31, 2009 and February 2, 2008, was approximately $0.4 million and $0.5 million, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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2. Significant Accounting Policies (Continued)

We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48) on February 4, 2007. Upon the implementation of FIN 48, we did not recognize any increase or decrease in the liability for unrecognized tax benefits. As of February 4, 2007, we had a liability of $0.6 million plus accrued interest of $0.2 million for tax positions taken on previously filed returns. We have filed amended federal and state income tax returns to resolve substantially all of the positions, resulting in an immaterial liability as of January 31, 2009.

We file income tax returns in the U.S. federal jurisdiction and in various state and local and foreign jurisdictions. We are no longer subject to Internal Revenue Service (IRS) examinations for fiscal years prior to fiscal 2005 and are not currently under examination by the IRS. With limited exceptions, we are no longer subject to state or local examinations for our fiscal years prior to fiscal 2002. Currently several state examinations are in progress, however we do not anticipate any adjustments that would result in a material impact to our financial position, results of operations and cash flows. Income tax returns filed in foreign jurisdictions are immaterial to our financial position, results of operations and cash flows.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. This policy did not change as a result of the adoption of FIN 48. No penalties were recognized during fiscal 2007, fiscal 2006 and fiscal 2005. The amount of interest recognized during these same periods was not material. There was an immaterial amount of accrued interest recorded at January 31, 2009 and February 2, 2008.

Contingent Liabilities

Cost of Sales and Selling, General and Administrative Expenses

Cost of sales primarily consist of merchandise acquisition costs, including related buying and freight-in costs, as well as warehousing and distribution costs, shipping and handling costs, returned merchandise processing costs, premium retail, outlet store and day spa occupancy costs and day spa service labor. Selling, general and administrative expenses primarily consist of selling expenses, marketing expenses, including amortization of deferred marketing costs, and general and administrative expenses.

Stock-Based Compensation

We account for stock-based compensation in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which establishes accounting for share-based awards for employee services. SFAS 123R requires companies to expense the estimated fair value of these awards over the requisite employee service period. Compensation cost is recognized on a straight-line basis over the

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requisite employee service period, which is generally the vesting period, and is included in selling, general and administrative expenses.

Supplemental Executive Retirement Plan

On October 1, 2005, the Compensation Committee of our Board of Directors approved a Supplemental Employee Retirement Plan (SERP) for certain of our executive officers effective as of October 30, 2005. The SERP is an unfunded, non-qualified benefit plan that provides eligible participants with monthly benefits upon retirement, termination of employment, death or disability, subject to certain conditions.

We account for our SERP using an actuarial model as required by SFAS No. 87, Employers' Accounting for Pensions. Effective February 3, 2007, we adopted SFAS No. 158 Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—An Amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158) which requires companies to fully recognize an asset or liability for the overfunded or underfunded status of their benefit plans in the financial statements. The funded status of a benefit plan is measured as the difference between the fair value of the plan assets and the benefit obligation. SFAS 158 requires actuarial gains and losses, prior service costs, and any remaining transition assets or obligations that have not yet been recognized under previous accounting standards to be recognized as a component of accumulated other comprehensive income (loss), net of tax, until they are amortized as a component of net periodic pension cost. Subsequent to the initial recognition of the funded status of the benefit plans, any changes to the funded status are recognized through accumulated other comprehensive income (loss) and then amortized as a component of net periodic pension cost. We currently use our fiscal year end as our measurement date.

The adoption of SFAS 158 had no effect on our consolidated statement of operations for the year ended February 3, 2007 and it did not affect our operating results in fiscal 2008 and 2007.

Store Pre-Opening Costs

We incur rent, preparation and training costs prior to the opening of a retail store or day spa. These pre-opening costs are expensed as incurred and are included in selling, general and administrative expenses. Pre-opening costs were approximately $2.6 million, $8.2 million and $8.2 million during fiscal 2008, fiscal 2007 and fiscal 2006, respectively.

List rental income (expense)

Net customer list rental income is recorded as a reduction to selling, general and administrative expenses. We recognize rental income and accrue rental expense, as applicable, at the time the related

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2. Significant Accounting Policies (Continued)

catalog is mailed to the names contained in the rented lists. The amounts of income netted against selling, general and administrative expense are as follows (in thousands):

	Fiscal Year Ended

	January 31, 2009			February 2, 2008			February 3, 2007
List rental income	$	1,190		$	1,768		$	2,216
List rental (expense)		(169	)		(357	)		(611	)

Net list rental income	$	1,021		$	1,411		$	1,605

Interest, net, and other

Interest, net, and other consists of the following (in thousands):

	Fiscal Year Ended

	January 31, 2009			February 2, 2008			February 3, 2007
Interest (expense), including financing fees	$	(747	)	$	(742	)	$	(214	)
Interest income		1,250			6,541			7,304
Other income		1,892			2,089			1,484
Other (expense)		(887	)		(1,095	)		(902	)

Interest, net and other	$	1,508		$	6,793		$	7,672

The amounts of capitalized interest have not been material for all periods presented.

Accounting for Vendor Allowances

We account for allowances received from merchandise vendors as an adjustment to the prices of the vendor's products. This adjustment is characterized as a reduction of the carrying amount of inventory and, when sold, as cost of sales. The terms of the vendor allowance arrangements are generally one year in length and settle semi-annually. Cost of sales includes allowances from merchandise vendors of $7.2 million, $9.4 million and $8.7 million in fiscal 2008, fiscal 2007 and fiscal 2006, respectively.

Self-Insurance

During fiscal 2006, we transitioned to a self-insurance plan for health and welfare benefits and provide an accrual to cover our obligation. The accrual for our self-insurance liability, as determined by management, is based on claims filed and an estimate of claims incurred but not yet reported, and is not discounted. Management considers a number of factors, including historical claims information, when determining the amount of the accrual. We maintain third-party stop-loss insurance policies to cover certain liability costs in excess of predetermined retained amounts. Costs related to the administration of the plan and related claims are expensed as incurred.

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2. Significant Accounting Policies (Continued)

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, Fair Value Measures (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands fair value measurement disclosures. SFAS 157, as originally issued, was effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FASB Staff Position, ("FSP") No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP 157-1) and FSP No. 157-2 Partial Deferral of the Effective Date of Statement 157, (FSP 157-2). FSP 157-1 excludes FASB Statement No. 13, Accounting for Leases (SFAS 13), and other accounting pronouncements that address fair value measurements under SFAS 13, from the scope of SFAS 157. FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. For all other provisions, SFAS 157 was effective for us as of February 3, 2008, but the adoption of these provisions did not have a material impact on our financial position, results of operations or cash flows. We do not expect the initial adoption of the provisions of SFAS No. 157 which were deferred until fiscal 2009 by FSP 157-2 to have a material impact on our financial position, results of operations or cash flows.

On October 10, 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP SFAS No. 157-3 is effective immediately and includes those periods for which financial statements have not been issued. The adoption of these provisions did not have a material impact on our financial position, results of operations or cash flows.

In June 2008, FASB issued FSP Emerging Issues Task Force ("EITF") No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP-EITF No. 03-6-1"). Under FSP-EITF No. 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the two-class method of computing earnings per share. FSP-EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. We do not expect the adoption of FSP-EITF No. 03-6-1 to have any impact on the determination or reporting of our earnings per share.

3. Receivables

Receivables consist of the following (in thousands):

	January 31, 2009		February 2, 2008

Tenant improvement allowances	$	7,972	$	18,483
Trade		4,518		5,637
Other		3,501		4,400

	$	15,991	$	28,520

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3. Receivables (Continued)

We evaluate the credit risk associated with our receivables to determine if an allowance for doubtful accounts is necessary. At January 31, 2009 and February 2, 2008 no allowance for doubtful accounts was deemed necessary.

4. Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

	January 31, 2009			February 2, 2008

Land	$	242		$	242
Building and land improvements and capital leases(a)		40,861			41,074
Leasehold improvements		270,456			222,509
Furniture and fixtures		113,648			108,145
Technology hardware and software		77,598			69,281
Machinery and equipment and other		37,493			38,275
Construction in progress(b)		26,300			18,525

		566,598			498,051
Less—Accumulated depreciation and amortization		(228,832	)		(169,060	)

	$	337,766		$	328,991

(a): Building and land improvements include capital leases of real estate of approximately $11.5 million as of January 31, 2009 and February 2, 2008, respectively.
(b): Construction in progress is comprised primarily of leasehold improvements and furniture and fixtures related to unopened premium retail stores and the construction of a new office building (see Note 14), as well as internal-use software under development.

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	January 31, 2009		February 2, 2008

Accrued payroll and benefits	$	17,538	$	19,151
Gift cards and coupon rewards		32,491		34,004
Current portion of deferred rents		19,035		17,079
Accrued sales returns		4,295		7,177
Accrued taxes		4,424		5,762
Other		4,686		4,127

	$	82,469	$	87,300

Accrued payroll and benefits included $2.4 million of accrued severance payments as of January 31, 2009, of which $0.9 million has been paid as of March 27, 2009.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Revolving Line of Credit and Other Financing Obligations

Revolving Line of Credit

On February 13, 2009, we entered into a new Credit Agreement (the "Agreement") with Wells Fargo Retail Finance, LLC which is collateralized by substantially all of our assets. This credit facility replaces our previous unsecured revolving line of credit with Wells Fargo Bank, N.A. pursuant to the Amended and Restated Credit Agreement dated February 13, 2007, as amended on April 16, 2008 and January 29, 2009 (the "Prior Agreement"). The Agreement provides for a $70.0 million revolving line of credit, with subfacilities for the issuance of up to $70.0 million in letters of credit and swingline advances of up to $10.0 million. The credit facility has a maturity date of February 13, 2012. The actual amount of credit that is available from time to time under the Agreement is limited to a borrowing base amount that is determined according to, among other things, a percentage of the value of eligible inventory plus a percentage of the value of eligible credit card receivables, as reduced by certain reserve amounts that may be required by the lender. The proceeds of any borrowings under the Agreement are available for working capital and other general corporate purposes. We did not incur any material early termination penalties in connection with the termination of the Prior Agreement.

The Agreement generally contains customary events of default for credit facilities of this type. Upon an event of default that is not cured or waived within any applicable cure periods, in addition to other remedies that may be available to the lender, the obligations under the Agreement may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.

The Prior Agreement provided for an unsecured revolving line of credit of up to $60.0 million and allowed us to issue up to $60.0 million in letters of credit. The interest rate under the Prior Agreement was based upon either the London InterBank Offered Rate plus a margin ranging from 0.7 percent to 1.5 percent depending upon our leverage ratio (as defined in the credit agreement), or the lender's prime rate. The Prior Agreement also contained customary financial and negative covenants and imposed unused commitment fees based on a varying percentage of the amount of the total facility that was not drawn down under the Prior Agreement on a quarterly basis.

As of January 31, 2009 and February 2, 2008 we had no borrowings outstanding under the Prior Agreement and $16.1 million and $28.3 million in commercial letters of credit issued, respectively.

Other Financing Obligation

During fiscal 2007 we entered into a financing agreement for the purchase of software licenses and related maintenance in the amount of approximately $3.6 million. In December 2008, we financed an additional $0.5 million of related software maintenance. The amount outstanding related to these

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Revolving Line of Credit and Other Financing Obligations (Continued)

financing arrangements was $3.3 million and $3.6 million as of January 31, 2009 and February 2, 2008, respectively. The financing arrangements mature in December of 2010 and stipulate total quarterly payments of approximately $0.5 million at an imputed interest rate of 7.75%.

7. Income Taxes

Our income tax expense/(benefit) consists of the following (in thousands):

		Fiscal Year Ended

		January 31, 2009			February 2, 2008			February 3, 2007
Current income tax expense/(benefit):
	Federal	$	(11,531	)	$	5,655		$	33,556
	State		1,687			1,281			6,287
	Foreign		33			133			—
Deferred income tax (benefit):
	Federal		(7,031	)		(6,605	)		(3,072	)
	State		(1,856	)		(1,852	)		(576	)
	Foreign		(43	)		—			—

		$	(18,741	)	$	(1,388	)	$	36,195

Income tax expense attributable to income before provision for income taxes differed from the amounts computed by applying the U.S. Federal income tax rate to income before provision for income taxes as a result of the following (in thousands):

	Fiscal Year Ended

	January 31, 2009			February 2, 2008			February 3, 2007
Statutory income tax provision (benefit)	$	(15,646	)	$	(1,356	)	$	32,048
State income taxes, net of federal benefit		(1,123	)		(909	)		3,731
Non-deductible stock option expense, net of disqualifying dispositions		483			454			353
Provision adjustments		(2,459	)		325			70
Foreign activity		(14	)		(98	)		—
Other permanent differences		18			196			(7	)

	$	(18,741	)	$	(1,388	)	$	36,195

Our income tax benefit for fiscal year 2008 includes an out-of-period adjustment related to the correction of errors in the calculation of previous year's income taxes. This adjustment increased our tax benefit by approximately $2.5 million in fiscal year 2008. This adjustment was primarily related to stock options in addition to fixed asset basis differences that accumulated over several previous years. Management has determined that these errors were not material to any previously reported interim or annual period and the resulting correction was not material to fiscal year 2008.

We received tax credits from the States of West Virginia and Idaho, which are reflected in the state income taxes, net of federal benefit line item of the foregoing reconciliation. The West Virginia tax credits, which are available through 2012 and subject to annual limitations, are recognized in the year in which they are available to reduce taxable income. We utilized none, $0.05 million, and

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Income Taxes (Continued)

$0.4 million of these investment tax credits to offset our West Virginia income tax liability during fiscal 2008, fiscal 2007 and fiscal 2006, respectively. The Idaho tax credits are available through 2019 and subject to annual limitations. We utilized none, $0.1 million and $0.5 million of the Idaho tax credits to offset our Idaho state income tax liability during fiscal 2008, fiscal 2007 and fiscal 2006, respectively. We have accumulated $0.4 million and $0.3 million of Idaho and West Virginia tax credits, respectively, as of January 31, 2009 that are carried over to utilize in subsequent years.

We generated state net operating losses in various states during fiscal 2008 which are reflected in the state income taxes, net of federal benefit line item of the foregoing reconciliation. The total state net operating loss generated during fiscal 2008 is $1.6 million. The state net operating losses are carried forward and available to reduce taxable income in the various states through fiscal 2013 to fiscal 2028, depending upon the state.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):

		January 31, 2009						February 2, 2008

		Current			Noncurrent			Current			Noncurrent
Deferred tax assets:
Accrued sales returns		$	1,456		$	—		$	2,540		$	—
Accrued employee benefits			1,668			1,931			1,419			1,991
Supplemental employee retirement plan			—			3,216			—			3,349
Tenant improvements			6,656			42,851			6,158			39,742
Deferred rents			712			10,916			509			8,756
Credit card revenue			1,924			3,863			2,069			3,838
Inventory			—			—			2,156			—
State credit carryover			—			820			—			764
State net operating loss carryover			—			1,579			—			106
Other			112			580			—			—

	Subtotal		12,528			65,756			14,851			58,546

	Valuation Allowance		—			(19	)		—			—

	Total deferred tax assets		12,528			65,737			14,851			58,546

Deferred tax liabilities:
Inventory			(1,131	)		—			—			—
Prepaid and deferred marketing costs			(1,605	)		—			(6,137	)		—
Tax basis depreciation			—			(51,590	)		—			(50,866	)
Other			—			—			(641	)		—

Total deferred tax liabilities			(2,736	)		(51,590	)		(6,778	)		(50,866	)

	Net deferred tax assets	$	9,792		$	14,147		$	8,073		$	7,680

In assessing the realizability of deferred tax assets, we considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of substantially all of these deductible differences.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Income Taxes (Continued)

U.S. federal income taxes have not been provided on unremitted foreign earnings as those earnings are considered to be permanently reinvested. However, if these earnings were not considered permanently reinvested, under current law, the incremental tax on such undistributed earnings would not be material.

8. Common Stock

On March 24, 2006, the Board of Directors approved an increase in the number of our authorized shares of common stock from 150,000,000 shares to 300,000,000 shares. This increase was approved by shareholders in June 2006.

In October 2007, the Board of Directors authorized a program to repurchase up to $75 million of our common stock over a 12-month period. During the fiscal year ended February 2, 2008, we repurchased and retired 2,965,790 shares of our common stock at an average market price of $8.42 per share. All shares repurchased were executed in the open market and no shares were repurchased from related parties. No shares were repurchased during the fiscal year ended January 31, 2009.

9. Net Income (Loss) Per Common Share

We calculate net income (loss) per common share in accordance with SFAS No. 128, Earnings per Share (SFAS 128). Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income by the combination of other potentially dilutive common shares and the weighted average number of common shares outstanding during the period. Other potentially dilutive common shares include the dilutive effect of stock options and restricted stock units (RSUs) for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share, the amount of compensation expense, if any, for future service that has not yet been recognized, and the amount of benefits that would be recorded in additional paid-in-capital, if any, when the share is exercised are assumed to be used to repurchase shares in the current period.

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

		Fiscal Year Ended

		January 31, 2009			February 2, 2008			February 3, 2007
Net income (loss)		$	(25,963	)	$	(2,488	)	$	55,372

	Weighted average common shares outstanding during the period (for basic calculation)		91,037			92,801			92,616
	Dilutive effect of other potential common shares		—			—			1,869

	Weighted average common shares and potential common shares (for diluted calculation)		91,037			92,801			94,485

Net income (loss) per common share—Basic		$	(0.29	)	$	(0.03	)	$	0.60

Net income (loss) per common share—Diluted		$	(0.29	)	$	(0.03	)	$	0.59

The computation of the dilutive effect of other potential common shares excluded options to purchase approximately 3.1 million, 2.1 million and 0.3 million shares of common stock in fiscal 2008, fiscal 2007 and fiscal 2006, respectively. Under the treasury stock method, the inclusion of these options would have been antidilutive.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock-Based Compensation

Our Amended and Restated Stock Option/Stock Issuance Plan (the "Plan") was adopted by the Board of Directors in March 2005 and approved by shareholders in June 2005. The Plan provides for share-based compensation for officers and key employees, non-employee directors and consultants, and other independent advisors. The Plan replaced the 1996 Stock Option/Stock Issuance Plan (the "1996 Plan"), but did not affect awards granted under that plan, some of which remain outstanding.

Eligible individuals may, at the discretion of the Compensation Committee of the Board of Directors, be granted stock options, shares of restricted or unrestricted stock, RSUs and stock appreciation rights. The maximum number of shares of common stock underlying awards which may be issued over the term of the Plan cannot exceed 16,838,402 shares, subject to adjustment for stock splits and similar capitalization changes. We issue new shares of common stock upon exercise of stock options and vesting of RSUs. As of January 31, 2009, approximately 2.2 million shares of common stock remain available for future grants under the Plan. The Plan will terminate on March 25, 2015, subject to earlier termination by the Board of Directors.

We also issue common stock to employees under our Customer Service Recognition Program. We issued 39,625 and 34,089 shares under this program in fiscal years 2007 and 2006 for total compensation expense of $0.6 million and $0.9 million, respectively. We did not issue any shares of common stock under this program in fiscal 2008. Total stock-based compensation recognized from stock options, restricted stock units and common stock issued to employees under our Customer Service Recognition Program during the fiscal years ended January 31, 2009, February 2, 2008 and February 3, 2007 was as follows (in thousands):

	January 31, 2009		February 2, 2008		February 3, 2007

Stock Options	$	2,980	$	3,010	$	1,946
RSUs		1,799		1,638		950
Customer Service Recognition Program		—		593		857

Total	$	4,779	$	5,241	$	3,753

The related tax benefit for fiscal years 2008, 2007 and 2006 was approximately $1.4 million, $1.3 million and $0.7 million, respectively. Stock-based compensation capitalized into inventory and fixed assets for fiscal years ended January 31, 2009, February 2, 2008 and February 3, 2007 was not material.

As of January 31, 2009, total unrecognized compensation expense related to nonvested share-based compensation arrangements (including stock options and RSUs) was approximately $9.0 million. This expense is expected to be recognized over a weighted-average period of 2.1 years.

Stock Options

Options are granted with an exercise price per share equal to at least 100 percent of the fair market value of our common stock on the grant date. Options generally vest and become exercisable on a pro rata basis over a three-, four- or five-year period from the date of grant. The maximum term of each grant may not exceed ten years, subject to earlier expiration for vested options not exercised following termination of employment.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock-Based Compensation (Continued)

The fair value for stock option awards was estimated at the grant date using the Black-Scholes option valuation model with the following weighted average assumptions for fiscal years 2008, 2007 and 2006:

	Fiscal Year Ended January 31, 2009

	Board Members and Officers			All Other Employees
Risk free interest rate(a)		3.8	%		2.7	%
Expected volatility(b)		67.2	%		72.1	%
Expected life (in years)(c)		5.8			4.5
Expected dividends(d)		None			None
Weighted average fair value per option granted	$	3.75		$	2.50

	Fiscal Year Ended February 2, 2008

	Board Members and Officers			All Other Employees
Risk free interest rate(a)		4.8	%		4.6	%
Expected volatility(b)		55.8	%		55.3	%
Expected life (in years)(c)		5.6			5.8
Expected dividends(d)		None			None
Weighted average fair value per option granted	$	11.5		$	10.1

	Fiscal Year Ended February 3, 2007

	Board Members and Officers			All Other Employees
Risk free interest rate(a)		4.6	%		4.5	%
Expected volatility(b)		52.0	%		55.7	%
Expected life (in years)(c)		4.8			5.0
Expected dividends(d)		None			None
Weighted average fair value per option granted	$	12.4		$	13.5

a.: The risk-free interest rate is based on the U.S. Treasury strip rates in effect at the time of the grant with an equivalent remaining term.
b.: The expected volatility of our stock price is based on a combination of historical volatility and the implied volatility of our exchange traded options.
c.: The expected term of the options represents the weighted average period the stock options are expected to remain outstanding. This term is derived from historical experience, taking into consideration expected future employee behavior.
d.: We have never paid cash dividends on common stock and do not expect to declare cash dividends in the foreseeable future.

Under SFAS 123R, stock-based compensation expense is recognized only for those awards that are expected to vest, with forfeitures estimated at the date of grant based on our historical experience and

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock-Based Compensation (Continued)

future expectations. This forfeiture rate will be revised, if necessary, in subsequent periods if actual forfeitures differ from the amount estimated.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which differ significantly from our stock options, as traded options have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, particularly for the expected term and expected stock price volatility. Changes in these assumptions can materially affect the fair value estimates.

As of January 31, 2009, options granted to employees to purchase 2,936,652 shares of Coldwater Creek common stock and options granted to employee directors to purchase 424,081 shares of Coldwater Creek common stock remained outstanding.

The following table summarizes the activity for outstanding stock options for fiscal 2008:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value

						(in thousands)
Outstanding, February 2, 2008	2,670,337		$	10.51
Granted	1,144,700			5.18
Exercised	(194,158	)		2.45
Forfeited/Expired	(260,146	)		12.76

Outstanding, January 31, 2009	3,360,733		$	8.96	5.2	$	388

Vested and expected to vest, January 31, 2009	3,166,364		$	8.62	5.0	$	528

Exercisable, January 31, 2009	1,725,245		$	7.92	3.9	$	383

During the fiscal years ended 2008, 2007 and 2006, the total intrinsic value of stock options exercised was $0.6 million, $7.6 million and $26.6 million, respectively.

RSU Awards

Employees and non-employee directors have been granted 498,376 RSUs under the Plan which remained outstanding at January 31, 2009. The compensation expense related to RSUs is determined based on the fair market value stock price on grant date and is being amortized over the requisite service period, which is generally the vesting period. RSUs generally vest over a one- or three-year period from date of grant.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock-Based Compensation (Continued)

The following table summarizes the activity for unvested RSUs for fiscal 2008:

			Weighted Average Grant Date Fair Market Value

Unvested, February 2, 2008	290,900		$	20.75
Granted	315,826			5.54
Vested	(85,350	)		5.97
Forfeited	(23,000	)		20.04

Unvested, January 31, 2009	498,376		$	14.06

During the fiscal years ended 2008, 2007 and 2006, the total fair market value of RSUs vested was approximately $0.5 million, $0.1 million and $0.2 million, respectively.

11. Employee Stock Purchase Plan

During the third quarter of fiscal 2006 employees began participating in the Coldwater Creek Inc. 2006 Employee Stock Purchase Plan (ESPP) which was adopted by the Board or Directors in March 2006 and approved by our shareholders in June 2006. Through participation in the ESPP employees can purchase Coldwater Creek common stock at a five percent discount to the closing market price on the last trading day of each calendar quarter. Employees may not purchase more than 1,000 shares of common stock during any purchase period and may at no point in any calendar year purchase shares of common stock having an aggregate fair market value in excess of $25,000. Additionally, an employee who owns, or would own as a result of ESPP participation, five percent or more of the total combined voting power of all classes of our stock is not eligible for participation in the ESPP. The aggregate number of shares of common stock that may be made available for purchase under the ESPP is 1,800,000. The shares that are available for purchase may be unissued authorized shares, treasury shares, or shares purchased on the open market. We have determined that the ESPP is a non-compensatory plan under the provisions of SFAS 123R, therefore no compensation expense related to the ESPP has been recognized in the consolidated financial statements. Our employees purchased approximately 215,000, 106,000 and 16,000 shares during fiscal years 2008, 2007 and 2006 at an average share price of $4.21, $11.68 and $23.29, respectively.

12. Defined Contribution Plan

We provide a tax-qualified employee savings, retirement and profit sharing plan qualified under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). Under the 401(k) Plan eligible employees may elect to defer a portion of their current compensation, up to certain statutorily prescribed annual limits, and make corresponding periodic contributions into the 401(k) Plan. We match a certain percentage of the employee's overall contribution, which we discontinued for an undetermined period of time, effective February 1, 2009. In addition, we may make a discretionary profit sharing contribution based on our overall profitability. In fiscal 2006, we amended our plan to permit eligible employees to designate a portion of their contributions as "Roth Contributions." We recognized contribution expense of $4.2 million, $3.8 million, and $2.8 million for fiscal 2008, fiscal 2007 and fiscal 2006, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Supplemental Employee Retirement Plan

Changes in the accrued benefit cost, projected benefit obligation and funded status of the SERP during fiscal 2008 and fiscal 2007 are as follows (in thousands):

			Fiscal Year Ended

			January 31, 2009			February 2, 2008
Change in accrued benefit cost:
	Accrued benefit cost at beginning of period		$	(5,234	)	$	(1,759	)
	Net periodic benefit cost			(1,293	)		(1,295	)
	Benefits paid			510			—
	Net curtailment loss			—			(2,180	)

		Accrued benefit cost at end of period	$	(6,017	)	$	(5,234	)

Change in projected benefit obligation:
	Projected benefit obligation at beginning of period		$	8,536		$	7,046
	Service cost			302			279
	Interest cost			497			426
	Net actuarial (gain) loss			(621	)		99
	Benefits paid			(510	)		—
	Effect of curtailments			—			686

		Projected benefit obligation at end of period	$	8,204		$	8,536

Amount recorded in current liabilities			$	397		$	495

Amount recorded in long-term liabilities			$	7,807		$	8,041

Funded status:
	Unrecognized prior service cost		$	(2,445	)	$	(2,939	)
	Unrecognized net actuarial gain (loss)			258			(363	)
	Accrued benefit cost			(6,017	)		(5,234	)

		Funded status	$	(8,204	)	$	(8,536	)

The table below summarizes the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the SERP (in thousands):

	Fiscal Year Ended

	January 31, 2009		February 2, 2008
Projected benefit obligation	$	8,204	$	8,536
Accumulated benefit obligation	$	7,821	$	7,873
Fair value of plan assets	$	—	$	—

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Supplemental Employee Retirement Plan (Continued)

The components of net periodic benefit cost are as follows (in thousands):

		Fiscal Year Ended

		January 31, 2009		February 2, 2008		February 3, 2007
Service expense		$	302	$	279	$	343
Interest expense			497		426		372
Amortization of:
	Prior service cost		494		590		691
	Actuarial loss		—		—		38
Net curtailment loss			—		2,180		—

Net periodic benefit cost		$	1,293	$	3,475	$	1,444

During fiscal 2007, we recorded a net curtailment loss of $2.2 million ($1.4 million after-tax) related to the announced retirement of two of the plan participants, Melvin Dick, former Executive Vice President and Chief Financial Officer and Dennis Pence, former Chief Executive Officer. This net curtailment loss was recorded in accordance with SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (SFAS 88).

We expect to amortize an additional $0.5 million in unrecognized prior service cost and no unrecognized actuarial gain during fiscal 2009.

Significant assumptions related to the SERP include the discount rate used to calculate the actuarial present value of benefit obligations to be paid in the future and the average rate of compensation expense increase by SERP participants. The following assumptions were utilized in calculating the SERP projected benefit obligation and net periodic benefit cost.

	Benefit Obligation						Net Periodic Benefit Cost

	Fiscal 2008			Fiscal 2007			Fiscal 2008			Fiscal 2007			Fiscal 2006
Discount rate		6.50	%		6.00	%		6.00	%		5.75	%		5.50	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%		4.00	%		4.00	%

The assumed discount rate is based, in part, upon a discount rate modeling process that considers both high quality long term indices and the duration of the SERP relative to the durations implicit in the broader indices. The discount rate is utilized principally in calculating the actuarial present value of the obligation and periodic expense pursuant to the SERP. To the extent the discount rate increases or decreases, the SERP obligation is decreased or increased, accordingly.

As the SERP is an unfunded plan, we were not required to make any contributions during the fiscal years ended 2008 and 2007. We did make benefit payments of $0.5 million, funded by operating cash flows, during fiscal 2008. No benefit payments were made during fiscal 2007.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Supplemental Employee Retirement Plan (Continued)

The following table summarizes the expected future benefit payments (in thousands):


Fiscal 2009	$	408
Fiscal 2010		408
Fiscal 2011		586
Fiscal 2012		572
Fiscal 2013		572
Fiscal Years 2014-2018		2,859

14. Commitments

Leases

During fiscal 2008, fiscal 2007 and fiscal 2006, we incurred aggregate rent expense under operating leases of $73.9 million, $64.4 million and $49.9 million, including an immaterial amount of contingent rent expense for each period and $1.1 million, $3.8 million and $2.3 million, respectively, of rent expense classified as store pre-opening costs.

As of January 31, 2009 our minimum lease payment requirements, which include the predetermined fixed escalations of the minimum rentals and exclude contingent rental payments and the amortization of lease incentives for our operating leases and our commitment under capital leases are as follows (in thousands):

	Operating Leases		Capital Lease

Fiscal 2009	$	77,809	$	1,031
Fiscal 2010		78,325		1,053
Fiscal 2011		77,001		1,033
Fiscal 2012		70,603		1,039
Fiscal 2013		67,382		1,064
Thereafter		286,966		20,357

Total	$	658,086	$	25,577

Less—weighted average interest of 7.9% on capital leases				13,857

Total principal payable and accrued interest of $48 on capital leases			$	11,720

Subsequent to January 31, 2009, we have entered into additional retail leases with minimum lease payment requirements, which include the predetermined fixed escalations of the minimum rentals. As of March 27, 2009 our lease commitments increased by $1.6 million.

We lease, from an unrelated third party, a 60,000 square foot facility located on approximately 10.7 acres of land in Coeur d'Alene, Idaho, which functions as a customer contact center, IT data center, and office space. On July 19, 2007, the lease was amended to provide for the construction of a new building, construction of an extension to the existing building, and to extend the term through July 31, 2028. The modification of the lease terms resulted in the existing building being accounted for as a capital lease. Previously, this facility was accounted for as an operating lease. During fiscal 2007, the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Commitments (Continued)

amount capitalized as of the lease commencement date was $10.5 million. As it relates to the construction of the new building and extension to the existing building, we will record all related construction costs on our consolidated balance sheet as we have determined that for accounting purposes we are the owner of the construction projects during the construction period. Under the terms of the lease, the landlord agreed to reimburse us for approximately $7.0 million in construction costs once we incurred $7.0 million in qualifying costs. During the first half of fiscal 2008 we temporarily suspended construction on the new building. As a result of suspending construction, the landlord is disputing its obligation to reimburse these costs. We have entered into arbitration with the landlord. We do not believe that the ultimate outcome of this matter will have a material effect on our financial position or results of operations.

Other

We had inventory purchase commitments of approximately $145.8 million and $150.7 million at January 31, 2009 and February 2, 2008, respectively. As of January 31, 2009 and February 2, 2008 we had $2.4 million and $3.2 million, respectively, committed under our standby letter of credit related to the lease of our distribution center.

15. Contingencies

Legal Proceedings

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COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Contingencies (Continued)

Other

Our multi-channel business model subjects us to state and local taxes in numerous jurisdictions, including franchise, and sales and use tax. We collect these taxes in jurisdictions in which we have a physical presence. While we believe we have paid or accrued for all taxes based on our interpretation of applicable law, tax laws are complex and interpretations differ from state to state. In the past, we have been assessed additional taxes and penalties by various taxing jurisdictions, asserting either an error in our calculation or an interpretation of the law that differed from our own. It is possible that taxing authorities may make additional assessments in the future. In addition to taxes, penalties and interest, these assessments could cause us to incur legal fees associated with resolving disputes with taxing authorities.

16. Co-Brand Credit Card Program

Deferred marketing fees and revenue sharing

The following table summarizes the deferred marketing fee and revenue sharing activity for fiscal 2008 and fiscal 2007 (in thousands).

	Fiscal 2008			Fiscal 2007

Deferred marketing fees and revenue sharing—beginning of period	$	12,316		$	14,156
Marketing fees received		2,240			5,859
Revenue sharing received		2,946			—
Marketing fees recognized to revenue		(5,959	)		(7,699	)
Revenue sharing recognized to revenue		(802	)		—

Deferred marketing fees and revenue sharing—end of period	$	10,741		$	12,316

Less—Current deferred marketing fees and revenue sharing		4,918			5,252

Long-term deferred marketing fees and revenue sharing	$	5,823		$	7,064

The following table provides an estimate of when we expect to amortize the deferred marketing fees of $8.6 million and the deferred revenue sharing payment of $2.1 million as of January 31, 2009 into revenue (in thousands). The schedule of deferred marketing fees is based upon current estimates and assumptions of the expected period the customer will use the credit card while the deferred

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COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Co-Brand Credit Card Program (Continued)

revenue sharing payment is based upon the expected life of the co-branded credit card program, therefore amounts shown are subject to change.

Fiscal Period	Deferred Marketing Fees		Deferred Revenue Sharing Payment		Total

2009	$	4,437	$	481	$	4,918
2010		2,735		481		3,216
2011		1,064		481		1,545
2012		314		481		795
2013		46		221		267

	$	8,596	$	2,145	$	10,741

Sales Royalty

The amount of sales royalty recognized as revenue during the fiscal years ended January 31, 2009, February 2, 2008 and February 3, 2007 was approximately $5.1 million, $2.8 million and $2.9 million, respectively. The amount of deferred sales royalty recorded in accrued liabilities was $4.1 million and $2.7 million at January 31, 2009 and February 2, 2008, respectively.

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COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Segment Reporting

Our merchandise is sold through two operating segments, retail and direct. The performance of each operating segment is based on segment operating income, which is defined as net sales less the cost of merchandise and related acquisition costs and certain directly identifiable and allocable operating costs, as described below. For the direct segment, these operating costs primarily consist of catalog development, production, and circulation costs, e-commerce advertising costs and order processing costs. For the retail segment, these operating costs primarily consist of store selling and occupancy costs. Corporate and other expenses consist of unallocated shared-service costs and general and administrative expenses. Unallocated shared-service costs include merchandising, distribution, inventory planning and quality assurance costs, as well as corporate occupancy costs. General and administrative expenses include costs associated with general corporate management and shared departmental services (i.e., finance, accounting, information technology and human resources). Operating segment depreciation and amortization is allocated to each operating segment. Corporate and other depreciation and amortization and capital expenditures are related to corporate headquarters, merchandise distribution, and technology infrastructure. We do not review total assets by segment.

The following table provides certain financial data for the direct and retail segments as well as reconciliations to the consolidated financial statements (in thousands). The accounting policies of the operating segments are the same as those described in Note 2 "Significant Accounting Policies".

			Fiscal Year Ended

			January 31, 2009			February 2, 2008			February 3, 2007
Net sales(a):
	Retail		$	751,352		$	775,082		$	664,170
	Direct			272,869			376,390			390,441

		Net sales	$	1,024,221		$	1,151,472		$	1,054,611

Segment operating income:
	Retail		$	30,396		$	76,585		$	107,566
	Direct			42,108			55,878			98,595

		Total segment operating income		72,504			132,463			206,161
	Corporate and other			(118,716	)		(143,132	)		(122,266	)

		Income (loss) from operations	$	(46,212	)	$	(10,669	)	$	83,895

Depreciation and amortization:
	Retail		$	44,743		$	36,740		$	26,042
	Direct			1,717			1,442			502
	Corporate and other			15,351			14,271			12,316

		Depreciation and amortization	$	61,811		$	52,453		$	38,860

Supplemental cash flow information:
Purchase of property and equipment:
	Retail		$	57,517		$	94,207		$	88,809
	Direct			199			6,111			4,544
	Corporate and other			23,499			20,945			12,862

		Cash paid for purchase of property and equipment	$	81,215		$	121,263		$	106,215

(a): There have been no inter-segment sales during the reported periods.

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COLDWATER CREEK INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Segment Reporting (Continued)

Our products are principally marketed to individuals within the United States. Net sales realized from other geographic markets, primarily Canada and Japan, have collectively been insignificant in each reported period. No single customer accounts for ten percent or more of net sales. Apparel sales have constituted at least 85 percent of the net sales during fiscal 2008, fiscal 2007 and fiscal 2006, with sales of jewelry, accessories and gift items constituting the respective balances.

Substantially all of our long-lived assets reside within the United States.

18. Quarterly Results of Operations (unaudited)

The following tables contain selected quarterly consolidated financial data for fiscal 2008 and fiscal 2007 that have been prepared on the same basis as the accompanying audited consolidated financial statements and include all adjustments necessary for a fair statement, in all material respects, of the information set forth therein on a consistent basis (in thousands, except for per share data).

	Fiscal 2008

	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Net sales	$	271,105		$	241,434	$	228,453		$	283,229
Gross profit	$	92,800		$	95,648	$	86,114		$	75,998
Net income (loss)	$	(9,240	)	$	3,140	$	(1,310	)	$	(18,553	)
Net income (loss) per common share—Basic	$	(0.10	)	$	0.03	$	(0.01	)	$	(0.20	)
Net income (loss) per common share—Diluted	$	(0.10	)	$	0.03	$	(0.01	)	$	(0.20	)

	Fiscal 2007

	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Net sales	$	281,292	$	253,476	$	271,161		$	345,543
Gross profit	$	128,487	$	110,152	$	107,812		$	103,732
Net income (loss)	$	12,030	$	8,696	$	(6,195	)	$	(17,019	)
Net income (loss) per common share—Basic	$	0.13	$	0.09	$	(0.07	)	$	(0.19	)
Net income (loss) per common share—Diluted	$	0.13	$	0.09	$	(0.07	)	$	(0.19	)

Our income tax benefit for the fourth quarter of fiscal 2008 includes an out-of-period adjustment related to the correction of errors in the calculation of previous period income taxes. This adjustment increased our tax benefit and reduced net loss by approximately $2.3 million in the fourth quarter of fiscal 2008. This adjustment was primarily related to stock options in addition to fixed asset basis differences that accumulated over several previous years. Management has determined that these errors were not material to any previously reported interim or annual period and the resulting correction was not material to fiscal year 2008.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, with the participation of our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of January 31, 2009. Based on that evaluation, our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of January 31, 2009.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our management has assessed the effectiveness of our internal control over financial reporting as of January 31, 2009. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Our management concluded that based on its assessment, our internal control over financial reporting was effective as of January 31, 2009. The effectiveness of our internal control over financial reporting as of January 31, 2009 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears below.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of fiscal 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Coldwater Creek Inc.
Sandpoint, Idaho

We have audited the internal control over financial reporting of Coldwater Creek Inc. and subsidiaries (the "Company") as of January 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 31, 2009 of the Company and our report dated March 30, 2009, expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Boise, Idaho
March 30, 2009

Item 9B. OTHER INFORMATION

None

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PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

For information with respect to the executive officers of the Registrant, see Item 4—"Directors and Executive Officers" at the end of Part I of this report. The other information required by this Item is incorporated herein by reference to our Proxy Statement for the Annual Meeting of Stockholders to be held on June 13, 2009 to be filed with the Commission no later than 120 days after January 31, 2009, pursuant to Regulation 14A.

We have a Code of Ethics applicable to our principal executive officer, principal financial officer and principal accounting officer. A copy of this Code of Ethics is available on the Investor Relations section of our web site at www.coldwatercreek.com. Any future changes or amendments to this Code of Ethics, and any waiver that applies to these individuals, will also be posted on www.coldwatercreek.com.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to our Proxy Statement for the Annual Meeting of Stockholders to be held on June 13, 2009, to be filed with the Commission no later than 120 days after January 31, 2009, pursuant to Regulation 14A.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)

Documents filed as part of this report are as follows:

1.: Financial Statements.

See listing of financial statements included as part of this Form 10-K in Item 8 of Part II.

2.: Financial Statement Schedules:

Financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

3.: Exhibits:

The following list of exhibits includes exhibits submitted with this Form 10-K as filed with the SEC and those incorporated by reference to other filings.

Exhibit Number			Description of Document

	3.1*		Amended and Restated Certificate of Incorporation (filed with the Company's S-1, file No. 333-16651)
	3.1.1*		Certificate of Amendment of Amended and Restated Certificate of Incorporation (filed with Company's Fiscal 2004 Third Quarter Report on Form 10-Q)
	3.2.2*		Amended and Restated Bylaws (filed as Exhibit 3.1 to Form 8-K dated March 23, 2007)
	3.2.3*		Amendment to Amended and Restated Bylaws (filed as Exhibit 3.1 to Form 8-K dated December 8, 2007)
	3.2.4*		Second Amendment to Amended and Restated Bylaws (filed as Exhibit 3.1 to Form 8-K dated February 6, 2009)
	4.1*		Specimen of Stock Certificate (filed with the Company's S-1/A, file No. 333-16651)
	10.1*		Amended and Restated Form of Indemnity Agreement between the Registrant and each of its Directors (filed with the Company's fiscal 2003 Annual Report on Form 10-K)
	10.2*		Form of Agreement for Distribution of Retained Earnings and Tax Indemnification between the Company and Dennis Pence and Ann Pence (filed with the Company's S-1/A, file No. 333-16651)
	10.3		Credit Agreement dated February 13, 2009 between the Company and Wells Fargo Retail Finance, LLC
	10.4*		Amended and Restated Stock Option/Stock Issuance Plan (filed with the Company's Definitive Proxy Statement filed May 10, 2005)
	10.5*		Form of Stock Option Agreement under 1996 Stock Option/Stock Issuance Plan (filed with the Company's S-1, file No. 333-16651)
	10.5.1*		Form of Stock Option Agreement under Amended and Restated Stock Option/Stock Issuance Plan (filed with the Company's Fiscal 2005 Annual Report on Form 10-K)
	10.5.2*		Form of Incentive Stock Option Agreement under Amended and Restated Stock Option/Stock Issuance Plan

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Exhibit Number			Description of Document

	10.6*		Amended and Restated Parkersburg Distribution Center Lease Agreement, dated January 10, 2006 (filed as Exhibit 10.1 to Form 8-K dated January 10, 2006)
	10.6.1*		Sublease Agreement between the Company and Parkersburg-Wood County Area Development Corporation, dated January 12, 2006 (filed as Exhibit 10.2 to Form 8-K dated January 10, 2006)
	10.6.2*		First Amendment to Amended and Restated Lease Agreement, dated October 25, 2006, between the company and Wood County Development Authority (filed as Exhibit 10.1 to Form 8-K dated October 25, 2006)
	10.7.1*+		2006 Incentive Award Program for Executives (filed as Exhibit 99.1 to Form 8-K dated February 13, 2006)
	10.7.2*+		2007 Incentive Award Program for Executives (filed as Exhibit 10.1 to Form 8-K dated March 10, 2007)
	10.7.3*+		2008 Incentive Award Program for Executives (filed as Exhibit 10.1 to Form 8-K dated March 18, 2008)
	10.8*+		Form of Stock Unit Agreement under the Amended and Restated Stock Option/Stock Issuance Plan (filed with the Company's Fiscal 2004 Annual Report on Form 10-K)
	10.9*+		Summary of Non-Management Director Compensation (filed as Exhibit 10.1 to Form 8-K dated October 1, 2005)
	10.10*+		Form of Non-Management Director Restricted Stock Unit Agreement (filed as Exhibit 10.2 to Form 8-K dated October 1, 2005)
	10.11*+		Supplemental Executive Retirement Plan (filed as Exhibit 10.3 to Form 8-K dated October 1, 2005)
	10.11.1*+		Amendment No. 1 to Supplemental Executive Retirement Plan (filed with the Company's Fiscal 2005 Third Quarter Report on Form 10-Q)
	10.11.2*+		Amendment to Supplemental Executive Retirement Plan (filed as Exhibit 99.1 to Form 8-K dated August 28, 2006)
	10.12+		Amended and Restated Employment Agreement between the Company and Georgia Shonk-Simmons dated December 23, 2008
	10.13+		Amended and Restated Employment Agreement between the Company and Daniel Griesemer dated December 23, 2008
	10.14+		Amended and Restated Employment Agreement between the Company and Daniel Moen dated December 23, 2008
	10.15+		Amended and Restated Employment Agreement between the Company and Gerard El Chaar dated December 23, 2008
	10.16+		Employment Agreement between the Company and Timothy O. Martin dated December 23, 2008
	10.17+		Employment Agreement between the Company and Jeffrey A. Parisian dated June 28, 2008
	10.18+		Employment Agreement between the Company and John E. Hayes III dated February 23, 2009

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Exhibit Number			Description of Document

	10.19*+		Supplemental Bonus for Dennis C. Pence (filed with the Company's Fiscal 2006 Third Quarter Report on Form 10-Q)
	10.19.1*+		Supplemental Bonus for Dennis C. Pence (filed as Exhibit 10.1 to Form 8-K dated March 23, 2007)
	21		List of Significant Subsidiaries of the Registrant
	23		Consent of Deloitte and Touche LLP, Independent Registered Public Accounting Firm
	24		Power of attorney (included on signature page hereto)
	31.1		Certification by Daniel Griesemer of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
	31.2		Certification by Timothy O. Martin of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
	32		Certification by Daniel Griesemer and Timothy O. Martin pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*: PREVIOUSLY FILED
+: Represent management contracts or compensatory plans, contracts or arrangements in which the Company's directors or named executive officers participate and that are required to be filed by Item 601(10) of Regulation S-K of the Securities and Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Sandpoint, State of Idaho, on this 1st day of April 2009.


		COLDWATER CREEK INC.
		By:		/s/ DANIEL GRIESEMER Daniel Griesemer President, Chief Executive Officer and Director (Principal Executive Officer)

POWER OF ATTORNEY

I hereby appoint Daniel Griesemer and Timothy O. Martin my true and lawful attorneys-in-fact, each with full power to act without the other and each with full power of substitution, to sign on my behalf, as an individual and in the capacity stated below, and to file the Annual Report on Form 10-K of Coldwater Creek Inc. for its fiscal year ended January 31, 2009 and any amendment that such attorney-in-fact may deem appropriate or necessary. I further grant unto such attorneys and each of them full power and authority to perform each and every act necessary to be done in order to accomplish the foregoing as fully as I might do.

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date

/s/ DANIEL GRIESEMER Daniel Griesemer	President, Chief Executive Officer and Director (Principal Executive Officer)	April 1, 2009
/s/ TIMOTHY O. MARTIN Timothy O. Martin	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	April 1, 2009
/s/ DENNIS C. PENCE Dennis C. Pence	Chairman of the Board of Directors	April 1, 2009
/s/ MICHAEL J. POTTER Michael J. Potter	Director	April 1, 2009
/s/ JAMES R. ALEXANDER James R. Alexander	Director	April 1, 2009
/s/ JERRY GRAMAGLIA Jerry Gramaglia	Director	April 1, 2009
/s/ CURT HECKER Curt Hecker	Director	April 1, 2009
/s/ KAY ISAACSON-LEIBOWITZ Kay Isaacson-Leibowitz	Director	April 1, 2009

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Signature	Title	Date

/s/ ROBERT H. MCCALL Robert H. McCall	Director	April 1, 2009
/s/ FRANK M. LESHER Frank M. Lesher	Director	April 1, 2009
/s/ GEORGIA SHONK-SIMMONS Georgia Shonk-Simmons	President, Chief Merchandising Officer and Director	April 1, 2009

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EXHIBIT INDEX

Exhibit Number		Description of Document

10.3		Credit Agreement dated February 13, 2009 between the Company and Wells Fargo Retail Finance, LLC
10.12		Amended and Restated Employment Agreement between the Company and Georgia Shonk-Simmons dated December 23, 2008
10.13		Amended and Restated Employment Agreement between the Company and Daniel Griesemer dated December 23, 2008
10.14		Amended and Restated Employment Agreement between the Company and Daniel Moen dated December 23, 2008
10.15		Amended and Restated Employment Agreement between the Company and Gerard El Chaar dated December 23, 2008
10.16		Employment Agreement between the Company and Timothy O. Martin dated December 23, 2008
10.17		Employment Agreement between the Company and Jeffrey A. Parisian dated June 28, 2008
10.18		Employment Agreement between the Company and John E. Hayes III dated February 23, 2009
21		List of Significant Subsidiaries of the Registrant
23		Consent of Deloitte and Touche LLP, Independent Registered Public Accounting Firm
24		Power of attorney (included on signature page hereto)
31.1		Certification by Daniel Griesemer of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2		Certification by Timothy O. Martin of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32		Certification by Daniel Griesemer and Timothy O. Martin pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.3 2 a2191998zex-10_3.htm EXHIBIT 10.3

Exhibit 10.3

EXECUTION COPY

CREDIT AGREEMENT

Dated as of February 13, 2009

among

COLDWATER CREEK U.S. INC.,
as the Lead Borrower

and

THE OTHER BORROWERS PARTY HERETO

and

THE GUARANTORS PARTY HERETO

and

WELLS FARGO RETAIL FINANCE, LLC,
as Administrative Agent, Collateral Agent and Swing Line Lender

and

THE OTHER LENDERS PARTY HERETO

TABLE OF CONTENTS

Section		Page

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS		1

1.01	Defined Terms	1
1.02	Other Interpretive Provisions	41
1.03	Accounting Terms	42
1.04	Rounding	42
1.05	Times of Day	42
1.06	Letter of Credit Amounts	42
1.07	Currency Equivalents Generally	43

ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS		43

2.01	Committed Loans; Reserves	43
2.02	Borrowings, Conversions and Continuations of Committed Loans	44
2.03	Letters of Credit	45
2.04	Swing Line Loans	53
2.05	Prepayments	56
2.06	Termination or Reduction of Commitments	57
2.07	Repayment of Loans	57
2.08	Interest	58
2.09	Fees	58
2.10	Computation of Interest and Fees	59
2.11	Evidence of Debt	59
2.12	Payments Generally; Administrative Agent’s Clawback	59
2.13	Sharing of Payments by Lenders	61
2.14	Settlement Amongst Lenders	61

ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY; APPOINTMENT OF LEAD BORROWER		62

3.01	Taxes	62
3.02	Illegality	63
3.03	Inability to Determine Rates	64
3.04	Increased Costs; Reserves on LIBO Rate Loans	64
3.05	Compensation for Losses	65
3.06	Mitigation Obligations; Replacement of Lenders	66
3.07	Survival	66
3.08	Designation of Lead Borrower as Borrowers’ Agent	66

ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS		67

4.01	Conditions of Initial Credit Extension	67
4.02	Conditions to all Credit Extensions	70

ARTICLE V REPRESENTATIONS AND WARRANTIES		71

5.01	Existence, Qualification and Power	71
5.02	Authorization; No Contravention	72
5.03	Governmental Authorization; Other Consents	72
5.04	Binding Effect	72
5.05	Financial Statements; No Material Adverse Effect	72
5.06	Litigation	73
5.07	No Default	73

5.08	Ownership of Property; Liens	73
5.09	Environmental Compliance	74
5.10	Insurance	74
5.11	Taxes	74
5.12	ERISA Compliance	75
5.13	Subsidiaries; Equity Interests	75
5.14	Margin Regulations; Investment Company Act; Public Utility Holding Company Act	76
5.15	Disclosure	76
5.16	Compliance with Laws	76
5.17	Intellectual Property; Licenses, Etc.	76
5.18	Labor Matters	77
5.19	Security Documents	78
5.20	Solvency	79
5.21	Deposit Accounts; Credit Card Arrangements	79
5.22	Brokers	79
5.23	Customer and Trade Relations	79
5.24	Material Contracts	79
5.25	Casualty	79
5.26	Anti-Terrorism Laws	79

ARTICLE VI AFFIRMATIVE COVENANTS		80

6.01	Financial Statements	80
6.02	Certificates; Other Information	81
6.03	Notices	83
6.04	Payment of Obligations	84
6.05	Preservation of Existence, Etc.	84
6.06	Maintenance of Properties	85
6.07	Maintenance of Insurance	85
6.08	Compliance with Laws	86
6.09	Books and Records; Accountants	86
6.10	Inspection Rights	87
6.11	Use of Proceeds	87
6.12	Additional Loan Parties	87
6.13	Cash Management	88
6.14	Information Regarding the Collateral	89
6.15	Physical Inventories	89
6.16	Environmental Laws	90
6.17	Further Assurances	90
6.18	Compliance with Terms of Leaseholds	91
6.19	Material Contracts	91
6.20	ERISA	91
6.21	Insurance and Condemnation Proceeds	92
6.22	Post-Closing Covenants	92

ARTICLE VII NEGATIVE COVENANTS		92

7.01	Liens	92
7.02	Investments	93
7.03	Indebtedness; Disqualified Stock	93
7.04	Fundamental Changes	93
7.05	Dispositions	93

7.06	Restricted Payments	94
7.07	Prepayments of Indebtedness	94
7.08	Change in Nature of Business	95
7.09	Transactions with Affiliates	95
7.10	Burdensome Agreements	95
7.11	Use of Proceeds	95
7.12	Amendment of Material Documents	95
7.13	Fiscal Year	95
7.14	Deposit Accounts; Blocked Accounts; Credit Card Processors	95
7.15	Consignments	96
7.16	Inventory Book Value	96
7.17	Minimum Availability	96
7.18	Capital Expenditures	96
7.19	Loan Restriction	96

ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES		96

8.01	Events of Default	96
8.02	Remedies Upon Event of Default	99
8.03	Application of Funds	100

ARTICLE IX ADMINISTRATIVE AGENT		101

9.01	Appointment and Authority	101
9.02	Rights as a Lender	101
9.03	Exculpatory Provisions	102
9.04	Reliance by Agents	103
9.05	Delegation of Duties	103
9.06	Resignation of Agents	103
9.07	Non-Reliance on Administrative Agent and Other Lenders	104
9.08	Administrative Agent May File Proofs of Claim	104
9.09	Collateral and Guaranty Matters	105
9.10	Notice of Transfer	105
9.11	Reports and Financial Statements	105
9.12	Agency for Perfection	106
9.13	Indemnification of Agents	106
9.14	Relation among Lenders	106
9.15	Defaulting Lender	106

ARTICLE X MISCELLANEOUS		107

10.01	Amendments, Etc.	107
10.02	Notices, Financial Statements and Other Documents; Effectiveness; Electronic Communications	109
10.03	No Waiver; Cumulative Remedies	110
10.04	Expenses; Indemnity; Damage Waiver	110
10.05	Payments Set Aside	111
10.06	Successors and Assigns	112
10.07	Treatment of Certain Information; Confidentiality	115
10.08	Right of Setoff	116
10.09	Interest Rate Limitation	116
10.10	Counterparts; Integration; Effectiveness	116
10.11	Survival	117
10.12	Severability	117

iii

10.13	Replacement of Lenders	117
10.14	Governing Law; Jurisdiction; Etc.	118
10.15	Waiver of Jury Trial	119
10.16	No Advisory or Fiduciary Responsibility	119
10.17	USA PATRIOT Act Notice	120
10.18	Foreign Asset Control Regulations	120
10.19	Time of the Essence	120
10.20	Press Releases	120
10.21	Additional Waivers	120
10.22	No Strict Construction	122
10.23	Attachments	122

SIGNATURES

S-123

SCHEDULES
1.01	Borrowers
1.02	Guarantors
2.01	Commitments and Applicable Percentages
2.03	Existing Letters of Credit
5.01	Loan Parties Organizational Information
5.05	Material Indebtedness
5.06	Litigation
5.08(b)(1)	Owned Real Estate
5.08(b)(2)	Leased Real Estate
5.09	Environmental Matters
5.10	Insurance
5.13	Subsidiaries; Other Equity Investments; Equity Interests in the Borrower
5.17	Intellectual Property Matters
5.18	Labor Matters
5.21(a)	DDAs
5.21(b)	Credit Card Arrangements
5.24	Material Contracts
6.02	Financial and Collateral Reporting
7.01	Existing Liens
7.02	Existing Investments
7.03	Existing Indebtedness
10.02	Administrative Agent’s Office; Certain Addresses for Notices

EXHIBITS

		Form of
A		Committed Loan Notice
B		Swing Line Loan Notice
C-1		Committed Loan Note
C-2		Swing Line Loan Note
D		Compliance Certificate
E		Borrowing Base Certificate
F		Assignment and Assumption
G		Credit Card Notification
H		DDA Notification
I		Joinder Agreement

CREDIT AGREEMENT

This CREDIT AGREEMENT (“Agreement”) is entered into as of February 13, 2009, among

(i) COLDWATER CREEK U.S. INC., a Delaware corporation (the “Lead Borrower”), as agent for the Borrowers now or hereafter party hereto,

(ii) the BORROWERS now or hereafter party hereto,

(iii) the GUARANTORS now or hereafter party hereto,

(iv) each lender from time to time party hereto (each individually, a “Lender” and collectively, the “Lenders”), and

(v) WELLS FARGO RETAIL FINANCE, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender.

The Borrowers have requested that the Lenders provide a revolving credit facility, and the Lenders have indicated their willingness to lend, in each case on the terms and conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

“ACH” means automated clearing house transfers.

“Accommodation Payment” as defined in Section 10.21(d).

“Account” means “accounts” as defined in the UCC, and also means a right to payment of a monetary obligation, whether or not earned by performance, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a policy of insurance issued or to be issued, (d) for a secondary obligation incurred or to be incurred, (e) for energy provided or to be provided, (f) for the use or hire of a vessel under a charter or other contract, (g) arising out of the use of a credit or charge card or information contained on or for use with the card, or (h) as winnings in a lottery or other game of chance operated or sponsored by a state, governmental unit of a state, or person licensed or authorized to operate the game by a state or governmental unit of a state. The term “Account” includes health-care-insurance receivables.

“Acquisition” means, with respect to any Person (a) an Investment in, or a purchase of a Controlling interest in, the Equity Interests of any other Person, (b) a purchase or other acquisition of all or substantially all of the assets or properties of, another Person or of any business unit of another Person, (c) any merger or consolidation of such Person with any other Person or other transaction or series of transactions resulting in the acquisition of all or substantially all of the assets, or a Controlling interest in the Equity Interests, of any Person, or (d) any acquisition of any Store locations of any other Person, in each case in any transaction or group of transactions which are part of a common plan.

“Act” shall have the meaning provided in Section 10.17.

“Adjusted LIBO Rate” means:

(a) for any Interest Period with respect to any LIBO Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of one percent) equal to (i) the LIBO Rate for such Interest Period multiplied by (ii) the Statutory Reserve Rate; and

(b) for any interest rate calculation with respect to any Base Rate Loan, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of one percent) equal to (i) the LIBO

Rate for an Interest Period commencing on the date of such calculation and ending on the date that is thirty (30) days thereafter multiplied by (ii) the Statutory Reserve Rate.

The Adjusted LIBO Rate will be adjusted automatically as of the effective date of any change in the Statutory Reserve Rate.

“Adjustment Date” means the first day of each Fiscal Quarter, commencing August 1, 2009.

“Administrative Agent” means Wells Fargo Retail Finance, LLC, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Lead Borrower and the Lenders.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to any Person, (i) another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified, (ii) any director, officer, managing member, partner, trustee, or beneficiary of that Person, (iii) any other Person directly or indirectly holding 10% or more of any class of the Equity Interests of that Person, and (iv) any other Person 10% or more of any class of whose Equity Interests is held directly or indirectly by that Person.

“Agent(s)” means, individually, the Administrative Agent or the Collateral Agent, and collectively means both of them.

“Aggregate Commitments” means the Commitments of all the Lenders.

“Agreement” means this Credit Agreement.

“Allocable Amount” has the meaning specified in Section 10.21(d).

“Applicable Margin” means:

(a) From and after the Closing Date until the first Adjustment Date, the percentages set forth in Level I of the pricing grid below; and

(b) On the first Adjustment Date, and on each Adjustment Date thereafter, the Applicable Margin shall be determined from the following pricing grid based upon the Average Availability as of the Fiscal Quarter ended immediately preceding such Adjustment Date; provided, however, that notwithstanding anything to the contrary set forth herein, upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may, and at the direction of the Required Lenders shall, immediately increase the Applicable Margin to that set forth in Level III (even if the Average Availability requirements for a different Level have been met) and interest shall accrue at the Default Rate; provided, further if any of the financial statements delivered pursuant to Section 6.01 of this Agreement or any Borrowing Base Certificate is at any time restated or otherwise revised (including as a result of an audit) or if the information set forth in any such financial statements or Borrowing Base Certificate otherwise proves to be false or incorrect such that the Applicable Margin would have been higher than was otherwise in effect during any period, without constituting a waiver of any Default or Event of Default arising as a result thereof, interest due under this Agreement shall be immediately recalculated at such higher rate for any applicable periods and shall be due and payable on demand.

Level	Average Availability	LIBOR Margin		Base Rate Margin
I	Greater than or equal to 50% of the Loan Cap	2.25	%	2.25	%

II	Less than 50% of the Loan Cap but greater than or equal to 25% of the Loan Cap	2.50	%	2.50	%

III	Less than 25% of the Loan Cap	2.75	%	2.75	%

2 “Applicable Percentage” means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

“Applicable Rate” means, at any time of calculation, (a) with respect to Commercial Letters of Credit, a per annum rate equal to the Applicable Margin for Loans which are LIBOR Rate Loans less one half of one percent (0.50%), and (b) with respect to Standby Letters of Credit, a per annum rate equal to the Applicable Margin for Loans which are LIBOR Rate Loans.

“Appraisal Percentage” means 85%.

“Appraised Value” means with respect to the Borrowers’ Eligible Inventory, the appraised orderly liquidation value, net of costs and expenses to be incurred in connection with any such liquidation, which value is expressed as a percentage of Cost of the Borrowers’ Eligible Inventory as set forth in the Borrowers’ inventory stock ledger, which value shall be determined from time to time by the most recent appraisal undertaken by an independent appraiser engaged by the Administrative Agent.

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit F or any other form approved by the Administrative Agent.

“Attributable Indebtedness” means, on any date, (a) in respect of any Capital Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease, agreement or instrument were accounted for as a capital lease.

“Audited Financial Statements” means the audited Consolidated balance sheet of the Parent and its Subsidiaries for the Fiscal Year ended February 2, 2008, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Year of the Parent and its Subsidiaries, including the notes thereto.

“Auto-Extension Letter of Credit” shall have the meaning specified in Section 2.03(b)(iii).

“Availability” means, as of any date of determination thereof by the Administrative Agent, the result, if a positive number, of:

(a) the Loan Cap

minus

(b) the aggregate Outstanding Amount of all Credit Extensions to, or for the account of, the Borrowers.

In calculating Availability at any time and for any purpose under this Agreement, the Lead Borrower shall certify to the Administrative Agent that all accounts payable and Taxes are being paid on a timely basis and consistent with past practices (absent which the Administrative Agent may establish a Reserve therefor).

“Availability Period” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.

“Availability Reserves” means, without duplication of any other Reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as the Administrative Agent from time to time determines in its discretion as being appropriate (a) to reflect the impediments to the Agents’ ability to realize upon the Collateral, (b) to reflect claims and liabilities that the Administrative Agent determines will need to be satisfied in connection with the realization upon the Collateral, (c) to reflect criteria, events, conditions, contingencies or risks which adversely affect any component of the Borrowing Base, or the assets, business, financial performance or financial condition of any Loan Party, or (d) to reflect that a Default or an Event of Default then exists. Without limiting the generality of the foregoing, Availability Reserves may include (but are not limited to), in the Administrative Agent’s discretion, reserves based on: (i) rent; (ii) customs duties and other costs to release Inventory which is included in the Borrowing Base and which is being imported into the United States; (iii) outstanding Taxes and other governmental charges, including, without limitation, ad valorem, real estate, personal property, sales, and other Taxes which may have priority over the interests of the Collateral Agent in the Collateral; (iv) salaries, wages and benefits due to employees of any Loan Party, (v) Customer Credit Liabilities, (vi) warehousemen’s or bailee’s charges and other Permitted Encumbrances which may have priority over the interests of the Collateral Agent in the Collateral, (vii) amounts due to vendors on account of consigned goods, (viii) Cash Management Reserves, and (ix) Bank Products Reserves.

“Average Availability” shall mean the average daily Availability for the immediately preceding Fiscal Quarter.

“Bank Products” means any services or facilities provided to any Loan Party by a Lender or any of its Affiliates, including, without limitation, on account of (a) credit cards, (b) Swap Contracts, (c) purchase cards, and (d) leasing, but excluding Cash Management Services.

“Bank Products Reserves” means such reserves as the Administrative Agent from time to time determines in its discretion as being appropriate to reflect the liabilities and obligations of the Loan Parties with respect to Bank Products then provided or outstanding.

“Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) except during any period of time during which a notice delivered to the Lead Borrower in accordance with Section 3.03 shall remain in full force and effect, the Adjusted LIBO Rate plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo Bank as its “prime rate.” The “prime rate” is a rate set by Wells Fargo Bank based upon various factors including Wells Fargo Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some

loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Wells Fargo Bank shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” means a Loan that bears interest based on the Base Rate.

“Blocked Account” has the meaning provided in Section 6.13(a)(iii).

“Blocked Account Agreement” means with respect to a Blocked Account established by a Loan Party, an agreement, in form and substance satisfactory to the Collateral Agent, establishing Control (as defined in the Security Agreement) of such account by the Collateral Agent.

“Blocked Account Bank” means each bank with whom deposit accounts are maintained in which any funds of any of the Loan Parties from one or more DDAs are concentrated and with whom a Blocked Account Agreement has been, or is required to be, executed in accordance with the terms hereof.

“Borrowers” means, collectively, the Lead Borrower, each Person listed on Schedule 1.01 annexed hereto, and each other Person who shall from time to time execute and deliver a Joinder Agreement as a Borrower or such other document as the Administrative Agent deems appropriate in accordance with Section 6.12.

“Borrowing” means a Committed Borrowing or a Swing Line Borrowing, as the context may require.

“Borrowing Base” means, at any time of calculation, an amount equal to:

(a) the lesser of (i) the Cost of Eligible Inventory (net of Inventory Reserves), multiplied by the Inventory Advance Rate, or (ii) the Cost of Eligible Inventory (net of Inventory Reserves), multiplied by the Appraisal Percentage of the Appraised Value of Eligible Inventory;

plus

(b) the amount of Eligible Credit Card Receivables multiplied by the Credit Card Advance Rate;

plus

(d) the amount of Eligible Trade Receivables (net of Receivables Reserves applicable thereto) multiplied by the Trade Receivables Advance Rate;

minus

(g) the then amount of all Availability Reserves.

“Borrowing Base Certificate” means a certificate substantially in the form of Exhibit E hereto (with such changes therein as may be required by the Administrative Agent to reflect the components of and Reserves against the Borrowing Base as provided for hereunder from time to time), executed and certified as accurate and complete by a Responsible Officer of the Lead Borrower which shall include appropriate exhibits, schedules, supporting documentation, and additional reports as reasonably requested by the Administrative Agent.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any LIBO Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank market.

“Capital Expenditures” means, with respect to any Person for any period, (a) all expenditures made (whether made in the form of cash or other property) or costs incurred for the acquisition or improvement of fixed or capital assets of such Person (excluding normal replacements and maintenance which are properly charged to current operations), in each case that are (or should

be) set forth as capital expenditures in a Consolidated statement of cash flows of such Person for such period, in each case prepared in accordance with GAAP, and (b) Capital Lease Obligations incurred by a Person during such period.

“Capital Leases” shall mean any and all lease obligations that, in accordance with GAAP, are required to be capitalized on the books of a lessee.

“Capital Lease Obligations” means, with respect to any Person for any period, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as liabilities on a balance sheet of such Person under GAAP and the amount of which obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Cash Collateral Account” means a non-interest bearing account established by one or more of the Loan Parties with Wells Fargo Bank, and in the name of, the Collateral Agent (as the Collateral Agent shall otherwise direct) and under the sole and exclusive dominion and control of the Collateral Agent, in which deposits are required to be made in accordance with Section 2.03(g) or 8.02(c).

“Cash Collateralize” has the meaning specified in Section 2.03(g).

“Cash Dominion Event” means either (i) the occurrence and continuance of any Event of Default, or (ii) the failure of the Borrowers to maintain Availability in an amount equal to at least twenty five percent (25%) of the then applicable Loan Cap. For purposes of this Agreement, the occurrence of a Cash Dominion Event shall be deemed continuing at the Administrative Agent’s option (a) so long as such Event of Default has not been waived, and/or (b) if the Cash Dominion Event arises as a result of the Borrowers’ failure to maintain Availability as described in clause (ii) hereunder, until the Borrowers maintain Availability in an amount equal to at least twenty five percent (25%) of the then applicable Loan Cap for forty-five (45) consecutive days, in which case a Cash Dominion Event shall no longer be deemed to be continuing for purposes of this Agreement; provided that a Cash Dominion Event shall be deemed continuing (even if an Event of Default is no longer continuing and/or Availability exceeds the required amount for forty-five (45) consecutive days) at all times after a Cash Dominion Event has occurred and been discontinued on two (2) occasion(s) after the Closing Date.

“Cash Management Reserves” means such reserves as the Administrative Agent, from time to time, determines in its discretion as being appropriate to reflect the reasonably anticipated liabilities and obligations of the Loan Parties with respect to Cash Management Services then provided or outstanding.

“Cash Management Services” means any one or more of the following types or services or facilities provided to any Loan Party by the Administrative Agent or any of its Affiliates: (a) ACH transactions, (b) cash management services, including, without limitation, controlled disbursement services, treasury, depository, overdraft, and electronic funds transfer services, (c) foreign exchange facilities, (d) credit or debit cards, and (e) merchant services not constituting a Bank Product.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.

“CERCLIS” means the Comprehensive Environmental Response, Compensation, and Liability Information System maintained by the United States Environmental Protection Agency.

“CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.

“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, rule, regulation or treaty, (b) any change in any Law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

“Change of Control” means an event or series of events by which:

(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than a Permitted Holder, becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of twenty five percent (25%) or more of the Equity Interests of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully-diluted basis (and taking into account all such Equity Interests that such “person” or “group” has the right to acquire pursuant to any option right); or

(b) during any period of twelve (12) consecutive months, a majority of the members of the board of directors, or other equivalent governing body of the Parent, cease to be comprised of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or

(c) any Person or two or more Persons not constituting Permitted Holders acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent, or control over the Equity Interests of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully-diluted basis (and taking into account all such securities that such Person or Persons have the right to acquire pursuant to any option right) representing twenty five percent (25%) or more of the combined voting power of such securities; or

(d) any “change in control” or “sale” or “disposition” or similar event as defined in any Organizational Document of any Loan Party or in any Material Contract, or any document governing Material Indebtedness of any Loan Party; or

(e) (i) the Parent fails at any time to own, directly or indirectly 100% of the Equity Interests of any Loan Party, in each case free and clear of all Liens (other than the Liens in favor of the Collateral Agent and those Liens specified in clauses (a), (e), (i) and (l) in the definition of Permitted Encumbrances), except where such failure is as a result of a transaction permitted by the Loan Documents.

“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.

“Code” means the Internal Revenue Code of 1986, and the regulations promulgated thereunder, as amended and in effect.

“Coldwater HK” means Coldwater Creek HK Limited, an entity formed under the laws of Hong Kong.

“Collateral” means any and all “Collateral” as defined in any applicable Security Document and all other property that is or is intended under the terms of the Security Documents to be subject to Liens in favor of the Collateral Agent.

“Collateral Access Agreement” means an agreement reasonably satisfactory in form and substance to the Collateral Agent executed by (a) a bailee or other Person in possession of Collateral, and (b) a landlord of Real Estate leased by any Loan Party, pursuant to which such Person (i) acknowledges the Collateral Agent’s Lien on the Collateral, (ii) releases or subordinates such Person’s Liens in the Collateral held by such Person or located on such Real Estate, (iii) as to any landlord, provides the Collateral Agent with access to the Collateral located in or on such Real Estate and a reasonable time to sell and dispose of the Collateral from such Real Estate, and (iv) makes such other agreements with the Collateral Agent as the Collateral Agent may reasonably require.

“Collateral Agent” means Wells Fargo Retail Finance, LLC, acting in such capacity for its own benefit and the ratable benefit of the other Credit Parties, or any successor collateral agent.

“Commercial Letter of Credit” means any Letter of Credit issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by a Borrower in the ordinary course of business of such Borrower.

“Commitment” means, as to each Lender, its obligation to (a) make Committed Loans to the Borrowers pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

“Commitment Fee” has the meaning provided in Section 2.09(a).

“Committed Borrowing” means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of LIBO Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.

“Committed Loan” has the meaning specified in Section 2.01.

“Committed Loan Note” means a promissory note made by the Borrowers in favor of a Lender evidencing Committed Loans made by such Lender, substantially in the form of Exhibit C-1.

“Committed Loan Notice” means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of LIBO Rate Loans, pursuant to Section 2.02, which, if in writing, shall be substantially in the form of Exhibit A.

“Compliance Certificate” means a certificate substantially in the form of Exhibit D.

“Concentration Account” has the meaning provided in Section 6.13(c).

“Consent” means actual consent given by a Lender from whom such consent is sought; or the passage of seven (7) Business Days from receipt of written notice to a Lender from the Administrative Agent of a proposed course of action to be followed by the Administrative Agent without such Lender’s giving the Administrative Agent written notice of that Lender’s objection to such course of action.

“Consolidated” means, when used to modify a financial term, test, statement, or report of a Person, the application or preparation of such term, test, statement or report (as applicable) based upon the consolidation, in accordance with GAAP, of the financial condition or operating results of such Person and its Subsidiaries.

“Contractual Obligation” means, as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Cost” means the lower of cost or market value of Inventory, based upon the Borrowers’ accounting practices, known to the Administrative Agent, which practices are in effect on the Closing Date as such calculated cost is determined from invoices received by the Borrowers, the Borrowers’ purchase journals or the Borrowers’ stock ledger. “Cost” does not include inventory capitalization costs or other non-purchase price charges (such as freight and warehouse markups) used in the Borrowers’ calculation of cost of goods sold.

“Credit Card Advance Rate” means 85%.

“Credit Card Notifications” has the meaning provided in Section 6.13(a)(ii).

“Credit Card Receivables” means each “Account” (as defined in the UCC) together with all income, payments and proceeds thereof, owed by a major credit or debit card issuer (including, but not limited to, Visa, Mastercard, Discover and American Express and such other issuers approved by the Administrative Agent) to a Loan Party resulting from charges by a customer of a Loan Party on credit or debit cards issued by such issuer in connection with the sale of goods by a Loan Party, or services performed by a Loan Party, in each case in the ordinary course of its business.

“Credit Extensions” mean each of the following: (a) a Borrowing, (b) an L/C Credit Extension, and (c) a Permitted Overadvance.

“Credit Party” or “Credit Parties” means (a) individually, (i) each Lender and its Affiliates, (ii) each Agent, (iii) each L/C Issuer, (iv) each beneficiary of each indemnification obligation undertaken by any Loan Party under any Loan Document, (v) any other Person to whom Obligations under this Agreement and other Loan Documents are owing, and (vi) the successors and assigns of each of the foregoing, and (b) collectively, all of the foregoing.

“Credit Party Expenses” means, without limitation, (a) all reasonable out-of-pocket expenses incurred by the Agents and their respective Affiliates, in connection with this Agreement and the other Loan Documents, including without limitation (i) the reasonable fees, charges and disbursements of (A) counsel for the Agents, (B) outside consultants for the Agents, (C) appraisers, (D) commercial finance examiners, and (E) all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Obligations, (ii) in connection with (A) the preparation, negotiation, administration, management, execution and delivery of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the

provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (B) the enforcement or protection of their rights in connection with this Agreement or the Loan Documents or efforts to preserve, protect, collect, or enforce the Collateral or in connection with any proceeding under any Debtor Relief Laws, or (C) any workout, restructuring or negotiations in respect of any Obligations, and (b) with respect to the L/C Issuer, and its Affiliates, all reasonable out-of-pocket expenses incurred in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder; and (c) all reasonable out-of-pocket expenses incurred by the Credit Parties who are not the Agents, the L/C Issuer or any Affiliate of any of them, after the occurrence and during the continuance of an Event of Default, provided that such Credit Parties shall be entitled to reimbursement for no more than one primary counsel and one local counsel in each applicable jurisdiction representing all such Credit Parties (absent a conflict of interest in which case the Credit Parties may engage and be reimbursed for additional counsel).

“Customer Credit Liabilities” means at any time, the aggregate remaining value at such time of (a) outstanding Gift Cards, and (b) outstanding Customer Deposits of the Loan Parties.

“Customer Deposits” means all customer deposits, including, without limitation, all framing deposits.

“Customs Broker Agreement” means an agreement, in form and substance reasonably satisfactory to the Collateral Agent, among a Loan Party, a customs broker, freight forward or other carrier, and the Collateral Agent, in which the customs broker, freight forward or other carrier acknowledges that it has control over and holds the documents evidencing ownership of the subject Inventory for the benefit of the Collateral Agent and agrees, upon notice from the Collateral Agent, to hold and dispose of the subject Inventory solely as directed by the Collateral Agent.

“DDA” means each checking, savings or other demand deposit account maintained by any of the Loan Parties. All funds in each DDA shall be conclusively presumed to be Collateral and proceeds of Collateral and the Agents and the Lenders shall have no duty to inquire as to the source of the amounts on deposit in any DDA.

“DDA Notification” has the meaning provided therefor in Section6.13(a)(i).

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Margin, if any, applicable to Base Rate Loans, plus (iii) 2% per annum; provided, however, that with respect to a LIBO Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Margin) otherwise applicable to such LIBO Rate Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate for Standby Letters of Credit or Commercial Letters of Credit, as applicable, plus 2% per annum.

“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it

hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

“Deteriorating Lender” means any Defaulting Lender or any Lender as to which (a) the Administrative Agent or L/C Issuer believes in good faith that such Lender has defaulted in fulfilling its obligations under one or more other syndicated credit facilities, or (b) a Person that Controls such Lender has been deemed insolvent by the Administrative Agent or become the subject of any proceeding under any Debtor Relief Law.

“Disbursement Letter” means an instructional letter executed and delivered by Borrowers to the Administrative Agent regarding the Committed Loan to be made on the Closing Date, the form and substance of which is satisfactory to the Administrative Agent.

“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including, without limitation, any sale-leaseback transaction and any sale, transfer, license or other disposition of (whether in one transaction or in a series of transactions) of any property (including, without limitation, any Equity Interests) by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

“Disqualified Stock” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable for cash, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the Maturity Date; provided, however, that (i) only the portion of such Equity Interests which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock, (ii) with respect to any Equity Interests issued to any employee or to any plan for the benefit of employees of the Parent or its Subsidiaries or by any such plan to such employees, such Equity Interest shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Parent or one of its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, resignation, death or disability and (iii) if any class of Equity Interest of such Person by its terms authorizes such Person to satisfy its obligations thereunder by delivery of an Equity Interest that is not Disqualified Stock, such Equity Interests shall not be deemed to be Disqualified Stock. Notwithstanding the preceding sentence, any Equity Interest that would constitute Disqualified Stock solely because the holders thereof have the right to require a Loan Party to repurchase such Equity Interest upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Parent and its Subsidiaries may become obligated to pay upon maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock or portion thereof, plus accrued dividends.

“Dollars” and “$” mean lawful money of the United States.

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

“Early Termination Fee” has the meaning set forth in Section 2.09(b).

“EBITDA” means, with respect to any fiscal period, without duplication, the sum of (a) Net Income for that period, plus (b) any extraordinary loss, minus (c) any extraordinary gain, plus (d) Interest Expense for that period, plus (e) the aggregate amount of federal and state taxes on or measured by income for that period (whether or not payable during that period), plus (f) depreciation and amortization expense for that period, plus (g) all other non-cash expenses (less non-cash gains) for that period, in each case as determined in accordance with GAAP, consistently applied and, in the case of items (b), (c), (d), (e), (f), and (g), to the extent deducted in determining such Net Income for that period, minus (h) the aggregate amount of any income from interest for that period (whether or not payable during that period).

“Eligible Assignee” means (a) a Credit Party or any of its Affiliates; (b) a bank, insurance company, or company engaged in the business of making commercial loans, which Person, together with its Affiliates, has a combined capital and surplus in excess of $250,000,000; (c) an Approved Fund; (d) any Person to whom a Credit Party assigns its rights and obligations under this Agreement as part of an assignment and transfer of such Credit Party’s rights in and to a material portion of such Credit Party’s portfolio of asset based credit facilities, and (e) any other Person (other than a natural person) approved by (i) the Administrative Agent, the L/C Issuer and the Swing Line Lender, and (ii) unless an Event of Default has occurred and is continuing, the Lead Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include a Loan Party or any of the Loan Parties’ Affiliates or Subsidiaries.

“Eligible Credit Card Receivables” means at the time of any determination thereof, each Credit Card Receivable that satisfies the following criteria at the time of creation and continues to meet the same at the time of such determination: such Credit Card Receivable (i) has been earned by performance and represents the bona fide amounts due to a Loan Party from a credit card payment processor and/or credit card issuer, and in each case originated in the ordinary course of business of such Loan Party, and (ii) in each case is acceptable to the Administrative Agent in its discretion, and is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of clauses (a) through (k) below. Without limiting the foregoing, to qualify as an Eligible Credit Card Receivable, an Account shall indicate no Person other than a Loan Party as payee or remittance party. In determining the amount to be so included, the face amount of an Account shall be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges or other allowances (including any amount that a Loan Party may be obligated to rebate to a customer, a credit card payment processor, or credit card issuer pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount of all cash received in respect of such Account but not yet applied by the Loan Parties to reduce the amount of such Credit Card Receivable. Any Credit Card Receivables meeting the foregoing criteria shall be deemed Eligible Credit Card Receivables but only as long as such Credit Card Receivable is not included within any of the following categories, in which case such Credit Card Receivable shall not constitute an Eligible Credit Card Receivable:

(a) Credit Card Receivable which do not constitute an “Account” (as defined in the UCC);

(b) Credit Card Receivables that have been outstanding for more than five (5) Business Days from the date of sale;

(c) Credit Card Receivables with respect to which a Loan Party does not have good, valid and marketable title, free and clear of any Lien (other than Liens granted to the Collateral Agent);

(d) Credit Card Receivables that are not subject to a first priority security interest in favor of the Collateral Agent (it being the intent that chargebacks in the ordinary course by the credit card processors shall not be deemed violative of this clause);

(e) Credit Card Receivables which are disputed, are with recourse, or with respect to which a claim, counterclaim, offset or chargeback has been asserted (to the extent of such claim, counterclaim, offset or chargeback);

(f) Credit Card Receivables as to which the credit card processor has the right under certain circumstances to require a Loan Party to repurchase the Accounts from such credit card processor;

(g) Credit Card Receivables due from an issuer or payment processor of the applicable credit card which is the subject of any bankruptcy or insolvency proceedings;

(h) Credit Card Receivables which are not a valid, legally enforceable obligation of the applicable issuer with respect thereto;

(i) Credit Card Receivables which do not conform to all representations, warranties or other provisions in the Loan Documents relating to Credit Card Receivables;

(j) Credit Card Receivables which are evidenced by “chattel paper” or an “instrument” of any kind unless such “chattel paper” or “instrument” is in the possession of the Collateral Agent, and to the extent necessary or appropriate, endorsed to the Collateral Agent; or

(k) Credit Card Receivables which the Administrative Agent determines in its discretion to be uncertain of collection.

“Eligible Inventory” means, as of the date of determination thereof, without duplication, items of Inventory of a Loan Party that are finished goods, merchantable and readily saleable to the public in the ordinary course deemed by the Administrative Agent in its discretion to be eligible for inclusion in the calculation of the Borrowing Base, in each case that, except as otherwise agreed by the Administrative Agent, complies with each of the representations and warranties respecting Inventory made by the Loan Party in the Loan Documents, and that is not excluded as ineligible by virtue of one or more of the criteria set forth below. Except as otherwise agreed by the Administrative Agent, the following items of Inventory shall not be included in Eligible Inventory:

(a) Inventory that is not solely owned by a Loan Party or a Loan Party does not have good and valid title thereto;

(b) Inventory that is leased by or is on consignment to a Loan Party or which is consigned by a Loan Party to a Person which is not a Loan Party;

(c) Inventory that is not located in the United States of America (excluding territories or possessions of the United States) at a location that is owned or leased by a Loan Party, except to the extent that the Loan Parties have furnished the Administrative Agent with (i) any UCC financing statements or other documents that the Administrative Agent may determine to be necessary to perfect its security interest in such Inventory at such location, and (ii) a Collateral Access Agreement executed by the Person owning any such location on terms reasonably acceptable to the Administrative Agent;

(d) Inventory that is comprised of goods which (i) are damaged, defective, “seconds,” or otherwise unmerchantable, (ii) are to be returned to the vendor, (iii) are obsolete or

slow moving, or are special order or custom items, work-in-process, raw materials, or that constitute spare parts, promotional, marketing, packaging and shipping materials or supplies used or consumed in a Loan Party’s business, (iv) are seasonal in nature and which have been packed away for sale in the subsequent season, (v) not in compliance with all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale, or (vi) are bill and hold goods;

(e) Inventory that is not subject to a perfected first-priority security interest in favor of the Collateral Agent;

(f) Inventory that consists of samples, labels, bags, packaging, and other similar non-merchandise categories;

(g) Inventory that is not insured in compliance with the provisions of Section 5.10 hereof;

(h) Inventory that has been sold but not yet delivered or as to which a Loan Party has accepted a deposit;

(j) Inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from which any Loan Party or any of its Subsidiaries has received notice of a dispute in respect of any such agreement; or

(k) Inventory acquired in a Permitted Acquisition, unless and until the Collateral Agent has completed or received (A) an appraisal of such Inventory from appraisers satisfactory to the Collateral Agent, establishes Inventory Reserves (if applicable) therefor, and otherwise agrees that such Inventory shall be deemed Eligible Inventory, and (B) such other due diligence as the Agents may require, all of the results of the foregoing to be reasonably satisfactory to the Agents.

“Eligible Trade Receivables” means Accounts arising from the sale of the Loan Parties’ Inventory (other than those consisting of Credit Card Receivables) that satisfies the following criteria at the time of creation and continues to meet the same at the time of such determination: such Account (i) has been earned by performance and represents the bona fide amounts due to a Loan Party from an account debtor, and in each case originated in the ordinary course of business of such Loan Party, and (ii) in each case is acceptable to the Administrative Agent in its discretion, and is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of clauses (a) through (t) below. Without limiting the foregoing, to qualify as an Eligible Trade Receivable, an Account shall indicate no Person other than a Loan Party as payee or remittance party. In determining the amount to be so included, the face amount of an Account shall be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges or other allowances (including any amount that a Loan Party may be obligated to rebate to a customer pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount of all cash received in respect of such Account but not yet applied by the Loan Parties to reduce the amount of such Eligible Trade Receivable. Any Accounts meeting the foregoing criteria shall be deemed Eligible Trade Receivables but only as long as such Account is not included within any of the following categories, in which case such Account shall not constitute an Eligible Trade Receivable:

(a) Accounts that are not evidenced by an invoice;

(b) Accounts that have been outstanding for more than sixty (60) days from the date of sale or more than thirty (3) days past the due date;

(d) Accounts with respect to which a Loan Party does not have good, valid and marketable title thereto, free and clear of any Lien (other than Liens granted to the Collateral Agent pursuant to the Security Documents);

(e) Accounts which are disputed or with respect to which a claim, counterclaim, offset or chargeback has been asserted, but only to the extent of such dispute, counterclaim, offset or chargeback;

(f) Accounts which arise out of any sale made not in the ordinary course of business, made on a basis other than upon credit terms usual to the business of a Loan Party or are not payable in Dollars;

(g) Accounts which are owed by any account debtor whose principal place of business is not within the continental United States;

(h) Accounts which are owed by any Affiliate or any employee of a Loan Party;

(i) Accounts for which all consents, approvals or authorizations of, or registrations or declarations with any Governmental Authority required to be obtained, effected or given in connection with the performance of such Account by the account debtor or in connection with the enforcement of such Account by the Agents have been duly obtained, effected or given and are in full force and effect;

(j) Accounts due from an account debtor which is the subject of any bankruptcy or insolvency proceeding, has had a trustee or receiver appointed for all or a substantial part of its property, has made an assignment for the benefit of creditors or has suspended its business;

(k) Accounts due from any Governmental Authority except to the extent that the subject account debtor is the federal government of the United States of America and has complied with the Federal Assignment of Claims Act of 1940 and any similar state legislation;

(l) Accounts (i) owing from any Person that is also a supplier to or creditor of a Loan Party or any of its Subsidiaries or (ii) representing any manufacturer’s or supplier’s credits, discounts, incentive plans or similar arrangements entitling a Loan Party or any of its Subsidiaries to discounts on future purchase therefrom;

(m) Accounts arising out of sales on a bill-and-hold, guaranteed sale, sale-or-return, sale on approval or consignment basis or subject to any right of return, setoff or charge back;

(n) Accounts arising out of sales to account debtors outside the United States;

(o) Accounts payable other than in Dollars or that are otherwise on terms other than those normal and customary in the Loan Parties’ business;

(p) Accounts evidenced by a promissory note or other instrument;

(q) Accounts consisting of amounts due from vendors as rebates or allowances;

(r) Accounts which are in excess of the credit limit for such account debtor established by a Loan Party in the ordinary course of business and consistent with past practices;

(s) Accounts which include extended payment terms (datings) beyond those generally furnished to other account debtors in the ordinary course of business; or

(t) Accounts which the Administrative Agent determines in its discretion to be unacceptable for borrowing.

Notwithstanding the foregoing, in no event shall any Account constitute Eligible Trade Receivables unless and until the Administrative Agent has (i) received a satisfactory field exam detailing all Accounts in form and substance satisfactory to the Administrative Agent in its sole discretion, and (ii) completed its due-diligence with respect to the Loan Parties’ Eligible Trade Receivables, to the satisfaction of the Administrative Agent in its sole discretion.

“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

“Environmental Liability” means any liability, obligation, damage, loss, claim, action, suit, judgment, order, fine, penalty, fee, expense, or cost, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment, disposal or presence of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equipment” has the meaning provided in the UCC.

“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on the date of determination.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Lead Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Lead Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Lead Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any

liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Lead Borrower or any ERISA Affiliate.

“Event of Default” has the meaning specified in Section 8.01. An Event of Default shall be deemed to be continuing unless and until that Event of Default has been duly waived as provided in Section 10.03 hereof.

“Excess Availability” means, as of any date of determination thereof by the Administrative Agent, the result, if a positive number, of (i) the Borrowing Base at such time, minus (ii) the aggregate Outstanding Amount of all Credit Extensions to, or for the account of, the Borrowers.

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which any Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Lead Borrower under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrowers with respect to such withholding tax pursuant to Section 3.01(a).

“Executive Order” has the meaning set forth in Section 10.18.

“Existing Credit Agreement” means that certain Amended and Restated Credit Agreement, dated as of February 13, 2007, between the Parent and Wells Fargo Bank, National Association, as amended from time to time.

“Existing Letters of Credit” means, collectively, each of the letters of credit issued under the Existing Credit Agreement and outstanding on the Closing Date, as listed on Schedule 2.03.

“Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.

“Facility Guaranty” means the Guaranty made by the Guarantors in favor of the Agents and the Lenders, in form and substance reasonably satisfactory to the Administrative Agent.

“Family Group” means, with respect to any Person (i) such Person’s spouse, children, grandchildren, heirs, lineal descendants, executors and administrators, and (ii) any trust, family partnership or similar investment entity of which any of the foregoing Persons are trustee(s), managing member(s), managing partner(s) or similar officer(s) and/or that is for the benefit of any of the foregoing Persons as long as one or more of such Persons has the exclusive or joint right to control the voting and disposition of securities held by such trust, family partnership or similar investment entity.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System

arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Wells Fargo Bank on such day on such transactions as determined by the Administrative Agent.

“Fee Letter” means the letter agreement, dated the Closing Date, among the Borrowers and the Administrative Agent.

“Fiscal Month” means any fiscal month of any Fiscal Year, which months generally end on the last Saturday of each calendar month in accordance with the fiscal accounting calendar of the Loan Parties.

“Fiscal Quarter” means any fiscal quarter of any Fiscal Year, which quarters generally end on the last Saturday of each January, April, July and October of such Fiscal Year in accordance with the fiscal accounting calendar of the Loan Parties.

“Fiscal Year” means the fiscal year of the Lead Borrower and its Subsidiaries ending on the Saturday closest to each January 31st of any calendar year.

“Fixed Charge Coverage” shall mean the ratio of (a) the sum of EBITDA, to (b) the sum of (without duplication) (i) Interest Expense for such period, (ii) the sum of the scheduled current maturities (determined on a Consolidated basis in accordance with GAAP) of Total Funded Debt during the period in question, and (iii) all amount payable with respect to Capital Lease Obligations for the period in question.

“Foreign Asset Control Regulations” has the meaning set forth in Section 10.18.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Lead Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Fronting Fee” has the meaning assigned to such term in Section 2.03(j).

“FRB” means the Board of Governors of the Federal Reserve System of the United States.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Gift Cards” means all merchandise credits, gift certificates and gift cards of the Borrowers entitling the holder thereof to use all or a portion of the credit, certificate or gift card to pay all or a portion of the purchase price for any Inventory.

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to

government (including any supra-national bodies such as the European Union or the European Central Bank).

“Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or advance or supply funds for the purchase of) any security for the payment of such Indebtedness or obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien), or (c) as an account party in respect of any letter of credit or letter of credit guaranty issued to support such Indebtedness or obligation. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

“Guarantor” means, collectively, the Persons listed on Schedule 1.02 hereto, and each other Person who shall from time to time execute and deliver a Joinder Agreement as a Guarantor or such other document as may be required in accordance with Section 6.12.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Honor Date” has the meaning specified in Section 2.03(c)(i).

“Immaterial Subsidiary” means, on any date of determination, a Loan Party (other than a Borrower) or a Subsidiary of a Loan Party (other than a Loan Party), which neither owns nor has any interest in any assets or other property that is included in the Borrowing Base, and which (a) owns or has any interest in any assets or other property with an aggregate book value (as reflected on the financial statements of such Person) of less than $100,000 on such date, and (b) has annual revenue of less than $100,000 on such date.

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 60 days after the date on which such trade account payable was created);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) All Attributable Indebtedness of such Person;

(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person, or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

(h) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Indemnitees” has the meaning specified in Section 10.04(b).

“Information” has the meaning specified in Section 10.07.

“Intellectual Property” means all present and future: trade secrets, know-how and other proprietary information; trademarks, trademark applications, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights and copyright applications; (including copyrights for computer programs) and all tangible and intangible property embodying the copyrights, unpatented inventions (whether or not patentable); patents and patent applications; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.

“Intellectual Property Security Agreement” means the Intellectual Property Security Agreement dated as of the Closing Date among the Loan Parties and the Collateral Agent, granting a Lien in the Intellectual Property and certain other assets of the Loan Parties, as amended and in effect from time to time.

“Interest Expense” shall mean, for any period, the sum, for the Loan Parties (determined on a Consolidated basis without duplication in accordance with GAAP), of the following: (a) all interest, fees, charges and related expenses payable during such period to any Person in connection with Indebtedness or the deferred purchase price of assets that is treated as interest in accordance with GAAP, (b) the Synthetic Lease Interest component for such period, and (c) the net amounts payable (or minus the net amounts receivable) under any Swap Contract accrued during such period (whether or not actually paid or received during such period).

“Interest Payment Date” means (a) as to each Base Rate Loan (including a Swing Line Loan, the first calendar day of each month and the Maturity Date, and (b) as to each LIBO Rate Loan, the first calendar day of each month, the last day of each Interest Period applicable to such LIBO Rate Loan, and the Maturity Date.

“Interest Period” means, as to each LIBO Rate Loan, the period commencing on the date such LIBO Rate Loan is disbursed or converted to or continued as a LIBO Rate Loan and ending on the date one, two or three months thereafter, as selected by the Lead Borrower in its Committed Loan Notice; provided that:

(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period;

(iii) no Interest Period shall extend beyond the Maturity Date; and

(iv) notwithstanding the provisions of clause (iii) no Interest Period shall have a duration of less than one (1) month, and if any Interest Period applicable to a LIBO Borrowing would be for a shorter period, such Interest Period shall not be available hereunder.

For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Internal Control Event” means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Parent’s and/or its Subsidiaries’ internal controls over financial reporting as described in the Securities Laws and/or the collateral reporting obligations hereunder.

“Inventory” has the meaning given that term in the UCC, and shall also include, without limitation, all: (a) goods which (i) are leased by a Person as lessor, (ii) are held by a Person for sale or lease or to be furnished under a contract of service, (iii) are furnished by a Person under a contract of service, or (iv) consist of raw materials, work in process, or materials used or consumed in a business; (b) goods of said description in transit; (c) goods of said description which are returned, repossessed or rejected; and (d) packaging, advertising, and shipping materials related to any of the foregoing.

“Inventory Advance Rate” means 75%.

“Inventory Reserves” means such reserves as may be established from time to time by the Administrative Agent in the Administrative Agent’s discretion with respect to the determination

of the saleability, at retail, of the Eligible Inventory or which reflect such other factors as affect the market value of the Eligible Inventory. Without limiting the generality of the foregoing, Inventory Reserves may, in the Administrative Agent’s discretion, include (but are not limited to) reserves based on:

(a) obsolescence;

(b) seasonality;

(d) imbalance;

(e) change in Inventory character;

(f) change in Inventory composition;

(g) change in Inventory mix;

(h) mark-downs (both permanent and point of sale);

(i) retail mark-ons and mark-ups inconsistent with prior period practice and performance, industry standards, current business plans or advertising calendar and planned advertising events; and

(j) out-of-date and/or expired Inventory.

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) any Acquisition, or (d) any other investment of money or capital in order to obtain a profitable return. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“IRS” means the United States Internal Revenue Service.

“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

“Issuer Documents” means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and any Borrower (or any Subsidiary thereof) or in favor of the L/C Issuer and relating to any such Letter of Credit.

“Joinder Agreement” means an agreement, in the form attached hereto as Exhibit I pursuant to which, among other things, a Person becomes a party to, and bound by the terms of, this Agreement and/or the other Loan Documents in the same capacity and to the same extent as either a Borrower or a Guarantor, as the Administrative Agent may determine.

“Landlord Lien State” means such state(s) in which a landlord’s claim for rent may have priority over the lien of the Collateral Agent in any of the Collateral. As of the Closing Date, such states will be limited to Pennsylvania, Virginia and Washington.

“Laws” means each international, foreign, Federal, state and local statute, treaty, rule, guideline, regulation, ordinance, code and administrative or judicial precedent or authority, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and each applicable administrative order, directed duty, request, license, authorization and permit of, and agreement with, any Governmental Authority, in each case whether or not having the force of law.

“L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.

“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.

“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.

“L/C Issuer” means (a) Wells Fargo Bank in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit (including Existing Letters of Credit) hereunder (which successor may only be a Lender selected by the Administrative Agent in its discretion that is reasonably satisfactory to the Lead Borrower), and (b) any other Lender selected by the Administrative Agent in its discretion that is reasonably satisfactory to the Lead Borrower. The L/C Issuer may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the L/C Issuer that is reasonably satisfactory to the Lead Borrower, in which case the term “L/C Issuer” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

“L/C Obligations” means, as at any date of determination, the aggregate undrawn amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amounts available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

“Lease” means any agreement, whether written or oral, no matter how styled or structured, pursuant to which a Loan Party is entitled to the use or occupancy of any real property for any period of time.

“Lender” has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender, and collectively means all of them.

“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Lead Borrower and the Administrative Agent.

“Letter of Credit” means each Standby Letter of Credit and each Commercial Letter of Credit issued in accordance herewith and shall include the Existing Letters of Credit. Without limiting the foregoing, all Existing Letters of Credit shall be deemed to have been issued hereunder and shall for all purposes be deemed to be “Letters of Credit” hereunder.

“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

“Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).

“Letter of Credit Fee” has the meaning specified in Section 2.03(i).

“Letter of Credit Sublimit” means an amount equal to $70,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments. A permanent reduction of the Aggregate Commitments shall require a corresponding pro rata reduction in the Letter of Credit Sublimit to an amount equal to (or, at Lead Borrower’s option, less than) the Aggregate Commitments.

“LIBO Borrowing” means a Borrowing comprised of LIBO Rate Loans.

“LIBO Rate” means for any Interest Period with respect to a LIBO Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “LIBO Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the LIBO Rate Loan being made, continued or converted by Wells Fargo Bank and with a term equivalent to such Interest Period would be offered to Wells Fargo Bank by major banks in the London interbank eurodollar market in which Wells Fargo Bank participates at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

“LIBO Rate Loan” means a Committed Loan that bears interest at a rate based on the Adjusted LIBO Rate.

“Lien” means (a) any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale, Capital Lease Obligation, Synthetic Lease Obligation or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing) and (b) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities; provided, however, “Lien” shall not include (i) any Loan Party’s obligation to repurchase or exchange any Inventory sold in the ordinary course of business in accordance with such Loan Party’s prevailing return and exchange policies, or (ii) any reserves retained by a Loan Party’s credit card issuer or credit card processor in its ordinary course of business.

“Liquidation” means the exercise by the Administrative Agent or Collateral Agent of those rights and remedies accorded to such Agents under the Loan Documents and applicable Law as a creditor of the Loan Parties with respect to the realization on the Collateral, including (after the occurrence and continuation of an Event of Default) the conduct by the Loan Parties acting with the consent of the Administrative Agent, of any public, private or “going-out-of-business”, “store closing” or other similar sale or any other disposition of the Collateral for the purpose of liquidating the Collateral. Derivations of the word “Liquidation” (such as “Liquidate”) are used with like meaning in this Agreement.

“Loan” means an extension of credit by a Lender to any Borrower under Article II in the form of a Committed Loan or a Swing Line Loan.

“Loan Account” has the meaning assigned to such term in Section 2.11(a).

“Loan Cap” means, at any time of determination, the lesser of (a) the Aggregate Commitments at such time, or (b) the Borrowing Base at such time.

“Loan Documents” means this Agreement, each Note, each Issuer Document, the Fee Letter, all Borrowing Base Certificates, the Blocked Account Agreements, the DDA Notifications, the Credit Card Notifications, the Security Documents, the Facility Guaranty and any other instrument or agreement now or hereafter executed and delivered in connection herewith, or in

connection with any transaction arising out of any Cash Management Services and Bank Products provided by the Administrative Agent or any of its Affiliates, each as amended and in effect from time to time.

“Loan Parties” means, collectively, the Borrowers and the Guarantors.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of (i) the Borrowers taken as a whole, or (ii) the Loan Parties taken as a whole; (b) a material impairment of the ability of (i) the Borrowers taken as a whole, or (ii) the Loan Parties taken as a whole, to perform their obligations under any Loan Document; (c) a material impairment of the rights and remedies of, or benefit to, the Agent or the Lenders under any Loan Document or a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party; or (d) a material adverse change in, or a material adverse effect upon, the Collateral. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event in and of itself does not have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events occurring on or after the Closing Date would result in a Material Adverse Effect.

“Material Contract” means, with respect to any Person, each agreement to which such Person is a party, the termination or breach of which could reasonably be expected to result in a Material Adverse Effect.

“Material Indebtedness” means Indebtedness (other than the Obligations) of the Loan Parties in an aggregate principal amount exceeding $2,500,000. For purposes of determining the amount of Material Indebtedness at any time, the amount of the obligations in respect of any Swap Contract at such time shall be calculated at the Swap Termination Value thereof.

“Maturity Date” means February 13, 2012.

“Maximum Rate” has the meaning provided therefor in Section 10.09.

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Net Income” shall mean with respect to any fiscal period, the net income of the Loan Parties determined in accordance with GAAP, consistently applied.

“Net Proceeds” means (a) with respect to any Disposition by any Loan Party or any of its Subsidiaries, or any Extraordinary Receipt received or paid to the account of any Loan Party or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and cash equivalents received in connection with such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset by a Lien permitted hereunder which is senior to the Collateral Agent’s Lien on such asset and that is required to be repaid (or to establish an escrow for the future repayment thereof) in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by such Loan Party or such Subsidiary in connection with such transaction (including, without limitation, appraisals, and brokerage, legal, title and recording or transfer tax expenses and commissions) paid by any Loan Party to third parties (other than Affiliates)); and

(b) with respect to the sale or issuance of any Equity Interest by any Loan Party or any of its Subsidiaries, or the incurrence or issuance of any Indebtedness by any Loan Party or any of its Subsidiaries, the excess of (i) the sum of the cash and cash equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by such Loan Party or such Subsidiary in connection therewith.

“Non-Consenting Lender” has the meaning provided therefor in Section 10.01.

“Non-Extension Notice Date” has the meaning specified in Section 2.03(b)(iii).

“Note” means (a) each Committed Loan Note, and (b) the Swing Line Loan Note, as each may be amended, supplemented or modified from time to time.

“NPL” means the National Priorities List under CERCLA.

“Obligations” means (a) all advances to, and debts (including principal, interest, fees, costs, and expenses), liabilities, obligations, covenants, indemnities, and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit (including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral therefor), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest, fees and expenses that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding, and (b) any Other Liabilities.

“Operating Leases” shall mean any lease of property (whether real, personal or mixed) for a period of longer than one year by a Person under which such Person is lessee, other than a Capital Lease.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity, and (d) in each case, all shareholder or other equity holder agreements, voting trusts and similar arrangements to which such Person is a party or which is applicable to its Equity Interests and all other arrangements relating to the Control or management of such Person.

“Other Liabilities” means any obligation on account of (a) any Cash Management Services furnished to any of the Loan Parties or any of their Subsidiaries and/or (b) any transaction with any Agent, any Lender or any of their respective Affiliates, which arises out of any Bank Products entered into with any Loan Party and any such Person, as each may be amended from time to time

“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Outstanding Amount” means (i) with respect to Committed Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrowers of Unreimbursed Amounts.

“Overadvance” means a Credit Extension to the extent that, immediately after its having been made, Availability is less than zero.

“Parent” means Coldwater Creek Inc., a Delaware corporation.

“Participant” has the meaning specified in Section 10.06(d).

“Payment Conditions” means, at the time of determination with respect to any specified transaction or payment, that (a) no Default or Event of Default has occurred and is continuing or would arise as a result of entering into such transaction or the making such payment, and (b) after giving effect to such transaction or payment, the Pro Forma Availability Condition has been satisfied. Prior to undertaking any transaction or payment which is subject to the Payment Conditions, the Loan Parties shall deliver to the Administrative Agent evidence of satisfaction of the conditions contained in clause (b) above on a basis and on assumptions reasonably satisfactory to the Administrative Agent.

“PBGC” means the Pension Benefit Guaranty Corporation.

“PCAOB” means the Public Company Accounting Oversight Board.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Borrower or any ERISA Affiliate or to which any Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

“Permitted Acquisition” means an Acquisition in which all of the following conditions are satisfied:

(a) No Default or Event of Default has occurred and is continuing or, immediately following such Acquisition or after taking into account the pro forma financials, would result from the consummation of such Acquisition;

(b) Such Acquisition shall have been approved by the Board of Directors of the Person (or similar governing body if such Person is not a corporation) which is the subject of such Acquisition and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition shall violate applicable Law;

(c) The Lead Borrower shall have furnished the Administrative Agent with thirty (30) days’ prior written notice of such intended Acquisition and shall have furnished the Administrative Agent with a current draft of the agreements, certificates and other documents delivered or to be delivered in connection therewith (and final copies thereof as and when executed), a summary of any due diligence undertaken by the Loan Parties in connection with such Acquisition, appropriate financial statements of the Person which is the subject of such Acquisition, pro forma projected financial statements for the twelve (12) month period following such Acquisition after giving effect to such Acquisition

(including balance sheets, cash flows and income statements by quarter for the acquired Person, individually, and on a Consolidated basis with all Loan Parties), and such other information as the Administrative Agent may reasonably require, all of which shall be reasonably satisfactory to the Administrative Agent;

(d) Either (i) the legal structure of the Acquisition shall be acceptable to the Administrative Agent in its reasonable discretion, or (ii) the Loan Parties shall have provided the Administrative Agent with a solvency opinion from an unaffiliated third party valuation firm reasonably satisfactory to the Administrative Agent;

(e) After giving effect to the Acquisition, if the Acquisition is an Acquisition of the Equity Interests, a Loan Party shall acquire and own, directly or indirectly, a majority of the Equity Interests in the Person being acquired and shall Control a majority of any voting interests or shall otherwise Control the governance of the Person being acquired;

(f) If the assets acquired in such Acquisition are to be included in the Borrowing Base upon the consummation of such Acquisition, the Administrative Agent shall have received (i) the results of appraisals of the assets (or the assets of the Person) to be acquired in such Acquisition and of a commercial finance examination of the Person which is (or whose assets are) being acquired, and (ii) such other due diligence as the Administrative Agent may reasonably require, all of the results of the foregoing to be reasonably satisfactory to the Administrative Agent;

(g) Any assets acquired shall be utilized in, and if the Acquisition involves a merger, consolidation or stock acquisition, the Person which is the subject of such Acquisition shall be engaged in, a business otherwise permitted to be engaged in by a Borrower under this Agreement;

(h) If the Person which is the subject of such Acquisition will be maintained as a Subsidiary of a Loan Party, or if the assets acquired in an acquisition will be transferred to a Subsidiary which is not then a Loan Party, such Subsidiary shall have been joined as a “Borrower” hereunder or as a Facility Guarantor, as the Administrative Agent shall determine, and the Collateral Agent shall have received a first priority security interest in such Subsidiary’s Equity Interests, Inventory, Accounts and other property of the same nature as constitutes collateral under the Security Documents;

(i) Either (A) the consideration paid for (i) any one such Acquisition (whether in cash, tangible property, notes or other property, other than Equity Interests) after the Closing Date shall not exceed the sum of $10,000,000, and (ii) all such Acquisitions (whether in cash, tangible property, notes or other property, other than Equity Interests) after the Closing Date shall not exceed, in the aggregate, the sum of $25,000,000, or (B) the consideration for any such Acquisition is paid in Equity Interests issued by the Parent or with the Net Proceeds from a sale or issuance by the Parent of the Equity Interests of Parent, provided, that, such Net Proceeds are applied for the consummation of such Acquisition within ninety (90) days of the receipt thereof; and

(j) The Loan Parties shall have satisfied the Payment Conditions.

“Permitted Discretion” means the Administrative Agent’s good faith credit judgment based upon any factor or circumstance which it reasonably believes in good faith: (i) will or could reasonably be expected to adversely affect the value of the Collateral, the enforceability or priority of the Collateral Agent’s Liens thereon in favor of the Credit Parties or the amount which the Collateral Agent and the Credit Parties would likely receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral; (ii) suggests

that any collateral report or financial information delivered to the Administrative Agent by or on behalf of the Loan Parties is incomplete, inaccurate or misleading in any material respect; (iii) could reasonably be expected to materially increase the likelihood of a bankruptcy, reorganization or other insolvency proceeding involving any Loan Party; or (iv) creates or reasonably could be expected to create a Default or Event of Default. In exercising such judgment, the Administrative Agent may consider, without limitation, such factors or circumstances already addressed in or tested by the definition of Eligible Inventory, Eligible Credit Card Receivables or Eligible Trade Receivables, as well as any of the following: (A) the financial and business climate and prospects of any Loan Party’s industry and general macroeconomic conditions; (B) changes in demand for and pricing of Inventory; (C) changes in any concentration of risk with respect to Inventory; (D) any other factors or circumstances that will or could reasonably be expected to have a Material Adverse Effect; (E) audits of books and records by third parties, history of chargebacks or other credit adjustments; and (F) any other factors that change or could reasonably be expected to change the credit risk of lending to the Borrowers on the security of the Collateral.

“Permitted Disposition” means any of the following:

(a) bulk sales or other Dispositions of the Inventory of a Loan Party in the ordinary course of business, provided, that, at the time of any such bulk sales, and immediately after giving effect thereto, a Usage Event Period Event is not in effect, and the aggregate amount of all such bulk sales does not exceed $1,000,000 in any Fiscal Year;

(b) bulk sales or other Dispositions of the Inventory of a Loan Party not in the ordinary course of business, made in connection with Store closings, at arm’s length, provided, that such Store closures and related Inventory Dispositions shall not exceed (i) in any Fiscal Year of the Parent and its Subsidiaries, five percent (5%) of the number of the Loan Parties’ Stores as of the beginning of such Fiscal Year (net of new Store openings) and (ii) in the aggregate from and after the Closing Date, ten percent (10%) of the number of the Loan Parties’ Stores in existence as of the Closing Date (net of new Store openings), provided, further, that all sales of Inventory in connection with Store closings shall be in accordance with liquidation agreements and with professional liquidators reasonably acceptable to the Agents; provided, further, that as long as a Cash Dominion Event shall have occurred and be continuing, all Net Proceeds received in connection therewith are applied to the Obligations in accordance with Section 2.05 hereof;

(c) non-exclusive licenses of Intellectual Property of a Loan Party or any of its Subsidiaries in the ordinary course of business;

(d) licenses for the conduct of licensed departments within the Loan Parties’ Stores in the ordinary course of business; provided that, if requested by the Agents, the Agents shall have entered into an intercreditor agreement with the Person operating such licensed department on terms and conditions reasonably satisfactory to the Agents;

(e) Dispositions of Equipment in the ordinary course of business that is substantially worn, damaged, obsolete or, in the judgment of a Loan Party, no longer useful or necessary in its business or that of any Subsidiary;

(f) sales, transfers and Dispositions (i) among the Loan Parties, (ii) by any Subsidiary to a Loan Party or (iii) to the extent constituting a Permitted Investment, by any Loan Party to any Subsidiary;

(g) sales, transfers and Dispositions of or by any Subsidiary which is not a Loan Party to another Subsidiary that is not a Loan Party; and

(h) as long as no Default or Event of Default shall have occurred and be continuing or would arise therefrom, sales of Real Estate of any Loan Party (or sales of any Person or Persons created to hold such Real Estate or the equity interests in such Person or Persons), including sale-leaseback transactions involving any such Real Estate pursuant to leases on market terms, provided, that (A) such sale is made for fair market value, (B) as long as a Cash Dominion Event shall have occurred and be continuing, the Net Proceeds of any such sale are utilized to repay the Obligations, and (C) in the case of any sale-leaseback transaction permitted hereunder, the Collateral Agent shall have received from such each purchaser or transferee a Collateral Access Agreement on terms and conditions reasonably satisfactory to the Agents.

“Permitted Encumbrances” means:

(a) Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 6.04;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by applicable Law, arising in the ordinary course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in compliance with Section 6.04;

(c) pledges and deposits made (i) in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations, other than any Lien imposed by ERISA and (ii) in connection with an Acquisition or Permitted Disposition otherwise permitted hereunder, whether as an earnest money deposit or an escrow arrangement;

(d) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(e) Liens in respect of judgments that would not constitute an Event of Default hereunder;

(f) easements, covenants, conditions, restrictions, building code laws, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially interfere with the ordinary conduct of business of a Loan Party and such other minor title defects or survey matters that do not materially interfere with the current use of the real property;

(g) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) except as permitted pursuant to clause (a) of the definition of “Permitted Indebtedness,” the amount secured or benefited thereby is not increased, (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is otherwise permitted hereunder;

(h) Liens on fixed or capital assets acquired by any Loan Party which are permitted under clause (c) of the definition of Permitted Indebtedness so long as (i) such Liens and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition, (ii) the Indebtedness secured thereby does not exceed the cost of

acquisition of such fixed or capital assets and (iii) such Liens shall not extend to any other property or assets of the Loan Parties;

(i) Liens in favor of the Collateral Agent;

(j) Landlords’ and lessors’ Liens in respect of rent not in default;

(k) possessory Liens in favor of brokers and dealers arising in connection with the acquisition or disposition of Investments owned as of the date hereof and Permitted Investments, provided that such liens (a) attach only to such Investments and (b) secure only obligations incurred in the ordinary course and arising in connection with the acquisition or disposition of such Investments and not any obligation in connection with margin financing;

(l) Liens arising solely by virtue of any statutory or common law provisions relating to banker’s liens, liens in favor of securities intermediaries, rights of setoff or similar rights and remedies as to deposit accounts or securities accounts or other funds maintained with depository institutions or securities intermediaries;

(m) Liens arising from (i) precautionary UCC filings regarding “true” operating leases or, to the extent permitted under the Loan Documents, the consignment of goods to a Loan Party, or (ii) UCC filings which (x) have lapsed or (y) relate to obligations that have been indefeasibly repaid in full and for which no rights to obtain further extensions of credit or other financial accommodations remain outstanding;

(n) voluntary Liens on property (other than property of the type included in the Borrowing Base) in existence at the time such property is acquired pursuant to a Permitted Acquisition or on such property of a Subsidiary of a Loan Party in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition; provided, that such Liens are not incurred in connection with or in anticipation of such Permitted Acquisition and do not attach to any other assets of any Loan Party or any Subsidiary;

(o) Liens in favor of customs and revenues authorities imposed by applicable Law arising in the ordinary course of business in connection with the importation of goods and securing obligations (i) that are not overdue by more than thirty (30) days, or (ii)(A) that are being contested in good faith by appropriate proceedings, (B) the applicable Loan Party or Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (C) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation;

(p) Liens on cash collateral securing letters of credit which are permitted under clause (k) of the definition of Permitted Indebtedness; and

(r) Liens on fixed or capital assets acquired or held by any Loan Party relating to a financing permitted under clause (f) of the definition of Permitted Indebtedness so long as such Liens shall not extend to any other property or assets of the Loan Parties.

provided, however, that, except as provided in any one or more of clauses (a) through (r) above, the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

“Permitted Holder” means any one of the following: (i) Dennis Pence and (ii) Ann Pence, and any member of the Family Group of each such Person.

“Permitted Indebtedness” means each of the following as long as no Default or Event of Default has occurred and is continuing or would arise from the incurrence thereof:

(a) Indebtedness outstanding on the date hereof and listed on Schedule 7.03 and any refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or

extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder, and the direct or contingent obligor with respect thereto is not changed as a result of or in connection with such refinancing, refunding, renewal or extension, (ii) the result of such extension, renewal or replacement shall not be an earlier maturity date or decreased weighted average life of such Indebtedness, and (iii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended;

(b) Indebtedness of any Loan Party to any other Loan Party; provided that such Indebtedness shall (i) be evidenced by such documentation as the Administrative Agent may reasonably require, (ii) constitute “Collateral” under this Agreement and the Security Documents, (iii) be on terms (including subordination terms) reasonably acceptable to the Administrative Agent, and (iv) be otherwise permitted pursuant to Section 7.03;

(c) without duplication of Indebtedness described in clause (f) of this definition, purchase money Indebtedness of any Loan Party to finance the acquisition of any fixed or capital assets, including Capital Lease Obligations and Synthetic Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof provided that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate, provided, however, that, in addition to the Capital Lease Obligations outstanding on the date hereof and listed on Schedule 7.03, the aggregate principal amount of all Indebtedness permitted by this clause (c) shall not exceed (i) $5,000,000 in any any Fiscal Year, or (ii) $15,000,000 at any time on or after the Closing Date, and provided, further, that, if requested by the Collateral Agent, the Loan Parties shall cause the holders of any such Indebtedness to enter into a Collateral Access Agreement on terms reasonably satisfactory to the Collateral Agent;

(d) obligations (contingent or otherwise) of any Loan Party or any Subsidiary thereof existing or arising under any Swap Contract, provided that such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates or foreign exchange rates, and not for purposes of speculation or taking a “market view;” provided that the

aggregate Swap Termination Value thereof shall not exceed $2,500,000 at any time outstanding;

(e) contingent liabilities under surety bonds or similar instruments incurred in the ordinary course of business;

(f) Indebtedness (i) incurred for the construction or acquisition or improvement of, or to finance or to refinance, any Real Estate owned by any Loan Party (including therein any Indebtedness incurred in connection with sale-leaseback transactions permitted hereunder), provided that, (A) as long as a Cash Dominion Event shall have occurred and be continuing, all Net Proceeds received in connection with any such Indebtedness are applied to the Obligations, and (B) the Collateral Agent shall have received from the holders of such Indebtedness a Collateral Access Agreement on terms reasonably satisfactory to the Collateral Agent, or (ii) constituting Capital Lease Obligations relating to Real Estate that is subject to a sale-leaseback transaction permitted pursuant to clause (h) of the definition of Permitted Disposition;

(g) Indebtedness with respect to the deferred purchase price for any Permitted Acquisition, provided, that such Indebtedness does not require the payment in cash of principal (other than in respect of working capital adjustments) prior to the Maturity Date, has a maturity which extends beyond the Maturity Date, and is subordinated to the Obligations on terms reasonably acceptable to the Agents;

(h) Indebtedness of (i) any Person that becomes a Subsidiary of a Loan Party in a Permitted Acquisition, which Indebtedness is existing at the time such Person becomes a Subsidiary of a Loan Party (other than Indebtedness incurred solely in contemplation of such Person’s becoming a Subsidiary of a Loan Party) or (ii) any Subsidiary to the extent that such Indebtedness constitutes a Permitted Investment pursuant to clause (g)(iv) of the definition thereof;

(i) the Obligations;

(j) Subordinated Indebtedness;

(k) (i) unsecured Indebtedness, not otherwise permitted under subsections (a) through (j) above, or (ii) Indebtedness relating to cash collateralized Letters of Credit, provided, that, the aggregate principal amount of all Indebtedness specified in clauses (i) and (ii) hereto shall collectively not exceed $1,000,000 at any one time outstanding;

(l) Guarantees of any Loan Party or other Subsidiary in respect of obligations of another Loan Party that are otherwise permitted to be incurred under this Agreement and the other Loan Documents; and

(m) all Indebtedness referred to in clause (g) to the definition of Indebtedness, other than any such Indebtedness which constitutes Disqualified Stock.

“Permitted Investments” means each of the following as long as no Default or Event of Default exists or would arise from the making of such Investment:

(a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

(b) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof;

(c) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 180 days from the date of acquisition thereof;

(d) fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above (without regard to the limitation on maturity contained in such clause) and entered into with a financial institution satisfying the criteria described in clause (c) above or with any primary dealer and having a market value at the time that such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such counterparty entity with whom such repurchase agreement has been entered into;

(e) Investments, classified in accordance with GAAP as current assets of the Loan Parties, in any money market fund, mutual fund, or other investment companies that are registered under the Investment Company Act of 1940, as amended, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and which invest solely in one or more of the types of securities described in clauses (a) through (d) above;

(f) Investments existing on the Closing Date, and set forth on Schedule 7.02, but not any increase in the amount thereof or any other modification of the terms thereof;

(g) (i) Investments by any Loan Party and its Subsidiaries in their respective Subsidiaries outstanding on the date hereof, (ii) additional Investments by any Loan Party and its Subsidiaries in Loan Parties, (iii) additional Investments by any Subsidiary that is not a Loan Party in another Subsidiary that is not a Loan Party, and (iv) additional investments by any Loan Party in a Subsidiary that is not a Loan Party so long as, in the case of this clause (iv), the proceeds of any such Investment is used by each such Subsidiary to pay for its operating expenses incurred in the ordinary course of its business, and the aggregate amount of such Investments following the Closing Date (y) in all such Subsidiaries (other than Coldwater HK), does not exceed $100,000 per Fiscal Year, and (z) in Coldwater HK, does not exceed $3,000,000 per Fiscal Year;

(h) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

(i) Guarantees constituting Permitted Indebtedness;

(j) Investments by any Loan Party in Swap Contracts permitted hereunder;

(k) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(l) advances to officers, directors and employees of the Loan Parties and Subsidiaries in the ordinary course of business in an amount not to exceed $300,000 to any individual

at any time or in an aggregate amount not to exceed $300,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;

(m) Investments constituting Permitted Acquisitions;

(n) Capital contributions made by any Loan Party to another Loan Party;

(o) to the extent constituting an Investment, all Capital Expenditures permitted hereunder.

provided, however, that notwithstanding the foregoing, after the occurrence and during the continuance of a Cash Dominion Event, no such Investments specified in clauses (a) through (e) shall be permitted unless (i) either (A) no Loans are then outstanding, or (B) the Investment is a temporary Investment pending expiration of an Interest Period for a LIBO Rate Loan, the proceeds of which Investment will be applied to the Obligations after the expiration of such Interest Period, and (ii) such Investments are pledged to the Collateral Agent as additional Collateral for the Obligations pursuant to such agreements as may be reasonably required by the Collateral Agent.

“Permitted Overadvance” means an Overadvance made by the Administrative Agent, in its discretion, which:

(a) Is made to maintain, protect or preserve the Collateral and/or the Credit Parties’ rights under the Loan Documents or which is otherwise for the benefit of the Credit Parties; or

(b) Is made to enhance the likelihood of, or to maximize the amount of, repayment of any Obligation;

(d) Together with all other Permitted Overadvances then outstanding, shall not (i) exceed ten percent (10%) of the Loan Cap at any time or (ii) unless a Liquidation is occurring, remain outstanding for more than forty-five (45) consecutive Business Days, unless in each case, the Required Lenders otherwise agree.

provided, however, that the foregoing shall not (i) modify or abrogate any of the provisions of Section 2.03 regarding the Lender’s obligations with respect to Letters of Credit, or (ii) result in any claim or liability against the Administrative Agent (regardless of the amount of any Overadvance) for “inadvertent Overadvances” (i.e. where an Overadvance results from changed circumstances beyond the control of the Administrative Agent (such as a reduction in the collateral value)), and such “inadvertent Overadvances” shall not reduce the amount of Permitted Overadvances allowed hereunder, and provided further that in no event shall the Administrative Agent make an Overadvance, if after giving effect thereto, the principal amount of the Credit Extensions would exceed the Aggregate Commitments (as in effect prior to any termination of the Commitments pursuant to Section 2.06 hereof).

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, limited partnership, Governmental Authority or other entity.

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by a Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Pledge Agreement” means, collectively, the Pledge Agreements dated as of the Closing Date among the Loan Parties party thereto and the Collateral Agent, as amended and in effect from time to time.

“Prepayment Event” means:

(a) any Disposition (including, without limitation, pursuant to any sale-leaseback transaction) of any property or asset of a Loan Party;

(b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of a Loan Party, unless (i) the proceeds therefrom are required to be paid to the holder of a Lien on such property or asset having priority over the Lien of the Collateral Agent or (ii) prior to the occurrence of a Cash Dominion Event, the proceeds therefrom are utilized in accordance with Section 6.21;

(c) the issuance by a Loan Party of any Equity Interests, other than any such issuance of Equity Interests (i) to a Loan Party, (ii) as consideration for a Permitted Acquisition or (iii) as a compensatory issuance to any employee, director, or consultant (including under any option plan);

(d) the incurrence by a Loan Party of any Indebtedness for borrowed money other than Permitted Indebtedness; or

(e) the receipt by any Loan Party of any Extraordinary Receipts.

“Pro Forma Availability Condition” shall mean, for any date of calculation with respect to any transaction or payment, the Pro Forma Availability following, and after giving effect to, such transaction or payment, will be equal to or greater than thirty percent (30%) of the Loan Cap.

“Pro Forma Availability” shall mean, for any date of calculation, the projected average Availability (exclusive of any projected Short-Term Borrowings) for each Fiscal Month during any projected twelve (12) Fiscal Months.

“Real Estate” means all Leases and all land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned by any Loan Party, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.

“Receivables Reserves” means such Reserves as may be established from time to time by the Administrative Agent in the Administrative Agent’s discretion with respect to the determination of the collectability in the ordinary course of Eligible Trade Receivables.

“Register” has the meaning specified in Section 10.06(c).

“Registered Public Accounting Firm” has the meaning specified by the Securities Laws and shall be independent of the Parent and its Subsidiaries as prescribed by the Securities Laws.

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, advisors, attorneys and representatives of such Person and of such Person’s Affiliates.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

“Reports” has the meaning provided in Section 9.11.

“Request for Credit Extension” means (a) with respect to a Committed Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

“Required Lenders” means, as of any date of determination, at least two Lenders holding more than 50% of the Aggregate Commitments or, if the Commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, at least two Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender’s risk participation and funded

participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

“Reserves” means all (if any) Inventory Reserves, Availability Reserves and Receivables Reserves.

“Responsible Officer” means the chief executive officer, president, chief financial officer of a Loan Party or any of the other individuals designated in writing to the Administrative Agent by an existing Responsible Officer of a Loan Party as an authorized signatory of any certificate or other document to be delivered hereunder. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to such Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment. Without limiting the foregoing, “Restricted Payments” with respect to any Person shall also include all payments made by such Person with any proceeds of a dissolution or liquidation of such Person.

“Restricted Payment Conditions” means, at the time of determination with respect to any specified transaction or payment, that (a) no Default or Event of Default has occurred and is continuing or would arise as a result of entering into such transaction or making such payment, (b) after giving effect to such transaction or payment, the Restricted Pro Forma Availability Condition has been satisfied, and (c) on the date of such transaction or payment, the amount of Total Outstandings (other than the undrawn amount available to be drawn under all outstanding Letters of Credit and Short-Term Borrowings) shall be zero.

“Restricted Preferred Equity Dividend Conditions” means, at the time of determination with respect to any specified dividend payment in respect of preferred equity, that (a) no Default or Event of Default has occurred and is continuing or would arise as a result of making such payment, and (b) after giving effect to such payment, the Restricted Preferred Equity Dividend Pro Forma Liquidity Amount is not less than $25,000,000

“Restricted Preferred Equity Dividend Pro Forma Liquidity Amount” shall mean, for any date on which any dividend payment in respect of preferred equity is paid, after giving effect to such payment, and projected for the 90 consecutive day period following the date of the proposed payment, the sum of (a) Availability plus (b) cash and cash equivalents of the type described in clauses (a) through (e) of the definition of Permitted Investments held by the Loan Parties.

“Restricted Pro Forma Availability” shall mean, for any date of calculation, the projected average Availability (exclusive of any projected Short-Term Borrowings) for the 90 consecutive day period following a proposed Restricted Payment, as reasonably projected by the Lead Borrower in good faith.

“Restricted Pro Forma Availability Condition” shall mean, for any date of calculation with respect to any transaction or payment, the Restricted Pro Forma Availability following, and after

giving effect to, such transaction or payment, will be equal to or greater than fifty percent (50%) of the Loan Cap.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

“Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley, and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.

“Security Agreement” means the Security Agreement dated as of the Closing Date among the Loan Parties and the Collateral Agent.

“Security Documents” means the Security Agreement, the Pledge Agreement, the Intellectual Property Security Agreement, the Blocked Account Agreements, the DDA Notifications, the Credit Card Notifications, and each other security agreement or other instrument or document executed and delivered to the Collateral Agent pursuant to this Agreement or any other Loan Document granting a Lien to secure any of the Obligations.

“Settlement Date” has the meaning provided in Section 2.14(a).

“Shareholders’ Equity” means, as of any date of determination, consolidated shareholders’ equity of the Lead Borrower and its Subsidiaries as of that date determined in accordance with GAAP.

“Short-Term Borrowings” means any Loan, the proceeds of which are used to repay any interest, fees, costs, Credit Party Expenses or any Unreimbursed Amount incurred in connection with this Agreement or the other Loan Documents, which is fully repaid by the Borrower, in cash, within 15 days following notice of such Loan.

“Shrink” means Inventory which has been lost, misplaced, stolen, or is otherwise unaccounted for.

“Solvent” and “Solvency” means, with respect to any Person on a particular date, that on such date (a) at fair valuation, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair saleable value of the properties and assets of such Person is not less than the amount that would be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person’s ability to pay as such debts mature, and (e) such Person is not engaged in a business or a transaction, and is not about to engage in a business or transaction, for which such Person’s properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. The amount of all guarantees at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, can reasonably be expected to become an actual or matured liability.

“Standby Letter of Credit” means any Letter of Credit that is not a Commercial Letter of Credit and that (a) is used in lieu or in support of performance guaranties or performance, surety or similar bonds (excluding appeal bonds) arising in the ordinary course of business, (b) is used in lieu or in support of stay or appeal bonds, (c) supports the payment of insurance premiums for

reasonably necessary casualty insurance carried by any of the Loan Parties, or (d) supports payment or performance for identified purchases or exchanges of products or services in the ordinary course of business.

“Stated Amount” means at any time the maximum amount for which a Letter of Credit may be honored.

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the FRB to which Wells Fargo Bank is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. LIBO Rate Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Store” means any retail store (which may include any real property, fixtures, Equipment, Inventory and other property related thereto) operated, or to be operated, by any Loan Party.

“Subordinated Indebtedness” means Indebtedness which is expressly subordinated in right of payment to the prior payment in full of the Obligations and which is in form and on terms approved in writing by the Administrative Agent.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the Equity Interests having ordinary voting power for the election of directors or other governing body are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of a Loan Party.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and

termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

“Swing Line” means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04.

“Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

“Swing Line Lender” means Wells Fargo Retail Finance, LLC, its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

“Swing Line Loan” has the meaning specified in Section 2.04(a).

“Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

“Swing Line Loan Note” means the promissory note of the Borrowers substantially in the form of Exhibit C-2, payable to the order of the Swing Line Lender, evidencing the Swing Line Loans made by the Swing Line Lender.

“Swing Line Sublimit” means an amount equal to the lesser of (a) $10,000,000, and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments.

“Synthetic Lease” shall mean each arrangement, however described, under which the obligor accounts for its interest in the property covered thereby under GAAP as lessee of a lease which is not a Capital Lease and accounts for its interest in the property covered thereby for Federal income tax purposes to the owner.

“Synthetic Lease Interest Component” shall mean, with respect to any Person for any period, the portion of rent paid or payable (without duplication) for such period under Synthetic Leases of such Person that would be treated as interest in accordance with Financial Accounting Standards Board Statement No. 13 if such Synthetic Leases were treated as capital leases under GAAP.

“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale-leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Termination Date” means the earliest to occur of (i) the Maturity Date, (ii) the date on which the maturity of the Obligations is accelerated (or deemed accelerated) and the Commitments are irrevocably terminated (or deemed terminated) in accordance with Article VIII.

“Total Funded Debt” shall mean all Indebtedness (to the extent included as Indebtedness in accordance with GAAP) of the Loan Parties on a Consolidated basis.

“Total Outstandings” means the aggregate Outstanding Amount of all Loans and all L/C Obligations.

“Trade Receivables Advance Rate” means 85%.

“Trading with the Enemy Act” has the meaning set forth in Section 10.18.

“Type” means, with respect to a Committed Loan, its character as a Base Rate Loan or a LIBO Rate Loan.

“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that if a term is defined in Article 9 of the Uniform Commercial Code differently than in another Article thereof, the term shall have the meaning set forth in Article 9; provided further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of a security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “Uniform Commercial Code” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.

“UFCA “ has the meaning specified in Section 10.21(d).

“UFTA” has the meaning specified in Section 10.21(d).

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“United States” and “U.S.” mean the United States of America.

“Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).

“Usage Event Period” means, any period during which any of the following conditions exists: (i) a Default or Event of Default has occurred and is continuing, (ii) Availability is less than or equal to 50% of the Loan Cap, (iii) the Loan Parties maintain (a) on a 30 day average basis, less than $30,000,000 of cash and cash equivalents of the type described in clauses (a) through (e) of the definition of Permitted Investments, or (b) at any time, less than $20,000,000 of cash and cash equivalents of the type described in clauses (a) through (e) of the definition of Permitted Investments, or (iv) Total Outstandings (other than the undrawn amount available to be drawn under outstanding Letters of Credit and Short-Term Borrowings) is greater than zero. The “Usage Event Period” shall commence with and include the Fiscal Month during which any such condition first occurred and continue until the expiration of 30 consecutive Business Days after the date on which no such conditions exist.

“Wells Fargo Bank” means Wells Fargo Bank, N.A., a national banking association.

1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any

particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

(d) In the case of any component of the calculation of Reserves or Borrowing Base that provides for a determination to be made in the Administrative Agent’s discretion, such discretion shall be exercised by the Administrative Agent in its Permitted Discretion.

1.03 Accounting Terms

(a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Lead Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Lead Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Lead Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

1.04 Rounding. Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

1.06 Letter of Credit Amounts. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to be the Stated Amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Documents related thereto, provides for one or more automatic increases in the Stated Amount thereof, the amount of such Letter of Credit shall be

deemed to be the maximum Stated Amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum Stated Amount is in effect at such time.

1.07 Currency Equivalents Generally. Any amount specified in this Agreement (other than in Articles II, IX and X) or any of the other Loan Documents to be in Dollars shall also include the equivalent of such amount in any currency other than Dollars, such equivalent amount thereof in the applicable currency to be determined by the Administrative Agent at such time on the basis of the Spot Rate (as defined below) for the purchase of such currency with Dollars. For purposes of this Section 1.07, the “Spot Rate” for a currency means the rate determined by the Administrative Agent to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date of such determination; provided that the Administrative Agent may obtain such spot rate from another financial institution designated by the Administrative Agent if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.

ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS

2.01 Committed Loans; Reserves. (a) Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a “Committed Loan”) to the Borrowers from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the lesser of (x) the amount of such Lender’s Commitment, or (y) such Lender’s Applicable Percentage of the Borrowing Base; subject in each case to the following limitations:

(i) after giving effect to any Committed Borrowing, the Total Outstandings shall not exceed the lesser of (A) the Aggregate Commitments, or (B) the Borrowing Base;

(ii) after giving effect to any Committed Borrowing, the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment;

(iii) the Outstanding Amount of all L/C Obligations shall not at any time exceed the Letter of Credit Sublimit; and

(iv) after giving effect to all Credit Extensions, no Overadvance shall exist.

Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.01, prepay under Section 2.05, and reborrow under this Section 2.01. Committed Loans may be Base Rate Loans or LIBO Rate Loans, as further provided herein.

(b) The following are the Reserves which may be established as of the Closing Date:

(i) rent (an Availability Reserve): An amount equal to two (2) months’ rent for all of the Borrowers’ leased locations in each Landlord Lien State, other than leased locations with respect to which the Collateral Agent has received a Collateral Access Agreement in form reasonably satisfactory to the Collateral Agent;

(ii) Customer Credit Liabilities (an Availability Reserve);

(iii) self funded health insurance (an Availability Reserve);

(iv) Shrink (an Inventory Reserve); and

(v) any additional Reserves described in the Borrowing Base Certificate delivered on the Closing Date.

(c) The Administrative Agent shall have the right, at any time and from time to time on or after the Closing Date in its discretion to establish new, or modify or eliminate any existing, eligibility criteria or Reserves.

2.02 Borrowings, Conversions and Continuations of Committed Loans.

(a) Committed Loans (other than Swing Line Loans) shall be either Base Rate Loans or LIBO Loans as the Lead Borrower may request subject to and in accordance with this Section 2.02. All Swing Line Loans shall be only Base Rate Loans. Subject to the other provisions of this Section 2.02, Committed Borrowings of more than one Type may be incurred at the same time.

(b) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of LIBO Rate Loans shall be made upon the Lead Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of LIBO Rate Loans or of any conversion of LIBO Rate Loans to Base Rate Loans, and (ii) one Business Day prior to the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Lead Borrower pursuant to this Section 2.02(b) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Each Borrowing of, conversion to or continuation of LIBO Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c), each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Lead Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of LIBO Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Lead Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Lead Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable LIBO Rate Loans. If the Lead Borrower requests a Borrowing of, conversion to, or continuation of LIBO Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. Notwithstanding anything to the contrary herein, a Swing Line Loan may not be converted to a LIBO Rate Loan.

(c) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Lead Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(b). In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01), the Administrative Agent shall use reasonable efforts to make all funds so received available to the Borrowers in like funds by no later than 4:00 p.m. on the day of receipt by the Administrative Agent either by (i) crediting the account of the Lead Borrower on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Lead Borrower; provided, however, that if, on the date the Committed Loan Notice with respect to such Borrowing is given by the Lead Borrower, there are L/C Borrowings

outstanding, then the proceeds of such Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrowers as provided above.

(d) The Administrative Agent, without the request of the Lead Borrower, may advance any interest, fee, expenses, service charge, Credit Party Expenses, or other payment to which any Credit Party is entitled from the Loan Parties pursuant hereto or any other Loan Document, in each case, as and when due and payable, and may charge the same to the Loan Account notwithstanding that an Overadvance may result thereby. The Administrative Agent shall advise the Lead Borrower of any such advance or charge promptly after the making thereof. Such action on the part of the Administrative Agent shall not constitute a waiver of the Administrative Agent’s rights and the Borrowers’ obligations under Section 2.05. Any amount which is added to the principal balance of the Loan Account as provided in this Section 2.02(d) shall bear interest at the interest rate then and thereafter applicable to Base Rate Loans.

(e) Except as otherwise provided herein, a LIBO Rate Loan may be continued or converted only on the last day of an Interest Period for such LIBO Rate Loan. Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may, and at the direction of the Required Lenders shall, prohibit Loans from being requested as, converted to, or continued as, LIBO Rate Loans.

(f) The Administrative Agent shall promptly notify the Lead Borrower and the Lenders of the interest rate applicable to any Interest Period for LIBO Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Lead Borrower and the Lenders of any change in Wells Fargo Bank’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

(g) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than five (5) Interest Periods in effect with respect to Committed Loans.

(h) The Administrative Agent, the Lenders, the Swing Line Lender and the L/C Issuer shall have no obligation to make any Loan, or to cause the issuance of or provide any Letter of Credit, if an Overadvance would result. The Administrative Agent may, in its discretion, make Permitted Overadvances without the consent of the Lenders, the Swing Line Lender and the L/C Issuer and each Lender shall be bound thereby. Any Permitted Overadvance may constitute a Swing Line Loan. A Permitted Overadvance is for the account of the Borrowers and shall constitute a Loan and an Obligation and shall be repaid by the Borrowers in accordance with the provisions of Section 2.05(c). The making of any such Permitted Overadvance on any one occasion shall not obligate the Administrative Agent or any Lender to make or permit any Permitted Overadvance on any other occasion or to permit such Permitted Overadvances to remain outstanding. The making by the Administrative Agent of a Permitted Overadvance shall not modify or abrogate any of the provisions of Section 2.03 regarding the Lenders’ obligations to purchase participations with respect to Letters of Credit or of Section 2.04 regarding the Lenders’ obligations to purchase participations with respect to Swing Line Loans. Without limiting the foregoing, the Administrative Agent shall have no liability for, and no Loan Party or Credit Party shall have the right to, or shall, bring any claim of any kind whatsoever against the Administrative Agent with respect to “inadvertent Overadvances” (i.e. where an Overadvance results from changed circumstances beyond the control of the Administrative Agent (such as a reduction in the collateral value)) regardless of the amount of any such Overadvance(s).

2.03 Letters of Credit.

(a) The Letter of Credit Commitment.

(i) Subject to the terms and conditions set forth herein, (A) the Administrative Agent, in reliance upon the agreements of the Lenders set forth in this Section 2.03, shall cause the L/C Issuer from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrowers, and to amend or extend Letters of Credit previously issued by the L/C

Issuer, in accordance with Section 2.03(b) below; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrowers and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the lesser of the Aggregate Commitments or the Borrowing Base, (y) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Lead Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrowers that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. Any L/C Issuer (other than Wells Fargo Bank or any of its Affiliates) shall notify the Administrative Agent in writing on each Business Day of all Letters of Credit issued on the prior Business Day by such L/C Issuer. All Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof (notwithstanding the fact that the Existing Letters of Credit were issued for the account of the Parent and not the Borrowers).

(ii) No Letter of Credit shall be issued if:

(A) subject to Section 2.03(b)(iii), the expiry date of such requested Standby Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

(B) subject to Section 2.03(b)(iii), the expiry date of such requested Commercial Letter of Credit would occur more than 120 days after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

(C) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless either such Letter of Credit is Cash Collateralized on or prior to the Letter of Credit Expiration Date or all the Lenders have approved such expiry date.

(iii) No Letter of Credit shall be issued, without the prior consent of the Administrative Agent, if:

(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed

loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;

(B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;

(C) except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is in an initial Stated Amount less than $50,000, in the case of a Commercial Letter of Credit, or $100,000, in the case of a Standby Letter of Credit;

(D) such Letter of Credit is to be denominated in a currency other than Dollars;

(E) such Letter of Credit contains any provisions for automatic reinstatement of the Stated Amount after any drawing thereunder; or

(F) a default of any Lender’s obligations to fund under Section 2.03(c) exists or any Lender is at such time a Defaulting Lender or Deteriorating Lender hereunder, unless the Administrative Agent or the L/C Issuer has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the L/C Issuer’s risk with respect to such Lender.

(iv) The Borrowers shall not permit any Letter of Credit to be amended if (A) the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof or (B) if the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

(v) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.

(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Lead Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Any Letter of Credit Application or other document delivered hereunder that is signed by a Responsible Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action, and such Responsible Officer shall be conclusively presumed to have acted on behalf of the Borrowers. Such Letter of Credit Application must be received by the Administrative Agent and the L/C Issuer not later than 11:00 a.m. at least two Business Days (or such other date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. Promptly after receipt of any Letter of Credit Application, the Administrative Agent will confirm with the L/C Issuer (other than Wells Fargo Bank or any of its Affiliates), by telephone or in writing, that the L/C Issuer has received a copy of such Letter of Credit Application from the Lead Borrower and, if not, the Administrative Agent will provide the L/C Issuer with a copy thereof. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit

Application shall specify in form and detail satisfactory to the Administrative Agent and the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the Administrative Agent or the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Administrative Agent and the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the Administrative Agent or the L/C Issuer may require. Additionally, the Lead Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.

(ii) Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the applicable Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices. Immediately upon the issuance or amendment of each Letter of Credit, each Lender shall be deemed to (without any further action), and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer, without recourse or warranty, a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Letter of Credit. Upon any change in the Commitments under this Agreement, it is hereby agreed that with respect to all L/C Obligations, there shall be an automatic adjustment to the participations hereby created to reflect the new Applicable Percentages of the assigning and assignee Lenders.

(iii) If the Lead Borrower so requests in any applicable Letter of Credit Application, the Administrative Agent may, in its sole and absolute discretion, cause the L/C Issuer to issue a Standby Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Standby Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Standby Letter of Credit is issued. Unless otherwise directed by the Administrative Agent or the L/C Issuer, the Lead Borrower shall not be required to make a specific request to the Administrative Agent or the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Standby Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the Administrative Agent shall instruct the L/C Issuer not to permit any such extension if (A) the Administrative Agent has determined that it would not be permitted, or would have no obligation, at such time to cause or have the L/C Issuer issue

such Standby Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) the L/C Issuer has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Lead Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.

(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Lead Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.

(c) Drawings and Reimbursements; Funding of Participations.

(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Administrative Agent shall notify the Lead Borrower thereof; provided, however, that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligation to reimburse the L/C Issuer and the Lenders with respect to any such payment. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an “Honor Date”), the Borrowers shall reimburse the L/C Issuer through the Administrative Agent on the same day in an amount equal to the amount of such drawing, less the amount of any funds withdrawn by the L/C Issuer from account number 4121499255, maintained at Wells Fargo Bank (or such other account maintained at Wells Fargo Bank as the Borrowers shall designate from time to time in writing), that the L/C Issuer used to repay such drawing, provided, that the Administrative Agent has received written notice of such withdrawal and the amount thereof. If the Borrowers fail to fully reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and the amount of such Lender’s Applicable Percentage thereof. In such event, the Borrowers shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone or electronic means.

(ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent’s Office in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrowers in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer.

(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrowers shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that

is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03.

(iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Applicable Percentage of such amount shall be solely for the account of the L/C Issuer.

(v) Each Lender’s obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, any Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Committed Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Lead Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrowers to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.

(vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the principal amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.

(d) Repayment of Participations.

(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 2.03(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrowers or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in the same funds as those received by the Administrative Agent.

(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

(e) Obligations Absolute. The obligation of the Borrowers to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;

(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrowers or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

(iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Laws;

(v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrowers or any of their Subsidiaries; or

(vi) the fact that any Event of Default shall have occurred and be continuing.

The Lead Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Lead Borrower’s instructions or other irregularity, the Lead Borrower will immediately notify the Administrative Agent and the L/C Issuer. The Borrowers shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.

(f) Role of L/C Issuer. Each Lender and the Borrowers agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to

ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; (iii) any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit or any error in interpretation of technical terms; or (iv) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrowers hereby assume all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrowers’ pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.03(e); provided, however, that anything in such clauses to the contrary notwithstanding, the Borrowers may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrowers, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrowers which the Borrowers prove were caused by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary (or the L/C Issuer may refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit), and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing that remains outstanding, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrowers shall, in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations. Sections 2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.03, Section 2.05 and Section 8.02(c), “Cash Collateralize” means to pledge and deposit with or deliver to the Collateral Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances in an amount equal to 105% of the Outstanding Amount of all L/C Obligations, pursuant to documentation in form and substance satisfactory to the Collateral Agent and the L/C Issuer (which documents are hereby Consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrowers hereby grant to the Collateral Agent a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in the Cash Collateral Account. If at any time the Collateral Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the Collateral Agent or that the total amount of such funds is less than the aggregate Outstanding Amount of all L/C Obligations, the Borrowers will, forthwith upon demand by the Collateral Agent, pay to the Collateral Agent, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such aggregate Outstanding Amount over (y) the total amount of funds, if any, then held as Cash Collateral that the Collateral Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral,

such funds shall be applied, to the extent permitted under applicable Laws, to reimburse the L/C Issuer and, to the extent not so applied, shall thereafter be applied to satisfy other Obligations.

(h) Applicability of ISP and UCP. Unless otherwise expressly agreed by the L/C Issuer and the Lead Borrower when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), (i) the rules of the ISP shall apply to each Standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance shall apply to each Commercial Letter of Credit.

(i) Letter of Credit Fees. The Borrowers shall pay to the Administrative Agent, for the account of each Lender in accordance with its Applicable Percentage, a Letter of Credit fee (the “Letter of Credit Fee”) for each Letter of Credit equal to the Applicable Rate times the daily Stated Amount under each such Letter of Credit (as determined pursuant to Section 1.06). For purposes of computing the daily Stated Amount available to be drawn under any Letter of Credit, the Stated Amount of the Letter of Credit shall be determined in accordance with Section 1.06. Letter of Credit Fees shall be (i) due and payable on the first calendar day of each month, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand, and (ii) computed on a monthly basis in arrears. If there is any change in the Applicable Rate during any month, the daily amount available to be drawn under of each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such month that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, while any Event of Default has occurred and is continuing, the Administrative Agent may, and upon the request of the Required Lenders shall, notify the Lead Borrower that all Letter of Credit Fees shall accrue at the Default Rate and thereafter such Letter of Credit Fees shall accrue at the Default Rate to the fullest extent permitted by applicable Laws.

(j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The Borrowers shall pay to the Administrative Agent, for the account of the L/C Issuer, a fronting fee (i) with respect to each Commercial Letter of Credit, at a rate equal to 0.125 per cent per annum, computed on the amount of such Letter of Credit, and payable upon the issuance thereof, (ii) with respect to any amendment of a Commercial Letter of Credit increasing the amount of such Letter of Credit, at a rate separately agreed between the Lead Borrower and the L/C Issuer, computed on the amount of such increase, and payable upon the effectiveness of such amendment, and (iii) with respect to each Standby Letter of Credit, at a rate equal to 0.125 percent per annum, computed on the daily amount available to be drawn under such Letter of Credit and on a monthly basis in arrears. Such fronting fees shall be due and payable on the first calendar day of each month, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of the Letter of Credit shall be determined in accordance with Section 1.06. In addition, the Borrowers shall pay to the Administrative Agent, for the account of the L/C Issuer, the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(k) Consignment of Bill of Lading. The Borrowers shall, upon the request of the Administrative Agent, consign to the L/C Issuer any bill of lading for Inventory which is supported by a Commercial Letter of Credit issued by the L/C Issuer.

(l) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

2.04 Swing Line Loans.

(a) The Swing Line. Subject to the terms and conditions set forth herein, the Swing Line Lender agrees, in reliance upon the agreements of the other Lenders set forth in this Section 2.04, to make loans (each such loan, a “Swing Line Loan”) to the Borrowers from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the

amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Percentage of the Outstanding Amount of Committed Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender’s Commitment; provided, however, that after giving effect to any Swing Line Loan, (i) the Total Outstandings shall not exceed the lesser of (A) the Aggregate Commitments, or (B) the Borrowing Base, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender at such time, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations at such time, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans at such time shall not exceed such Lender’s Commitment, and provided, further, that the Borrowers shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.04, prepay under Section 2.05, and reborrow under this Section 2.04. Each Swing Line Loan shall bear interest only at a rate based on the Base Rate. Immediately upon the making of a Swing Line Loan, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Swing Line Loan.

(b) Borrowing Procedures. Each Swing Line Borrowing shall be made upon the Lead Borrower’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent at the request of the Required Lenders prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Article IV is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender may, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the Borrowers at its office by crediting the account of the Lead Borrower on the books of the Swing Line Lender in immediately available funds.

(c) Refinancing of Swing Line Loans.

(i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrowers (which hereby irrevocably authorize the Swing Line Lender to so request on their behalf), that each Lender make a Base Rate Loan in an amount equal to such Lender’s Applicable Percentage of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 4.02. The Swing Line Lender shall furnish the Lead Borrower with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Lender shall make an amount equal to its Applicable Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender

at the Administrative Agent’s Office not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrowers in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.

(ii) If for any reason any Swing Line Loan cannot be refinanced by such a Committed Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Lenders fund its risk participation in the relevant Swing Line Loan and each Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.

(iii) If any Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with banking industry rules on interbank compensation plus any administrative, processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the principal amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or funded participation in the relevant Swing Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

(iv) Each Lender’s obligation to make Committed Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrowers or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Committed Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 4.02. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrowers to repay Swing Line Loans, together with interest as provided herein.

(d) Repayment of Participations.

(i) At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Applicable Percentage of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s risk participation was funded) in the same funds as those received by the Swing Line Lender.

(ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Lender shall pay to the Swing Line

Lender its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

(e) Interest for Account of Swing Line Lender. The Swing Line Lender shall be responsible for invoicing the Borrowers for interest on the Swing Line Loans. Until each Lender funds its Base Rate Loan or risk participation pursuant to this Section 2.04 to refinance such Lender’s Applicable Percentage of any Swing Line Loan, interest in respect of such Applicable Percentage shall be solely for the account of the Swing Line Lender.

(f) Payments Directly to Swing Line Lender. The Borrowers shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.

2.05 Prepayments.

(a) The Borrowers may, upon irrevocable notice from the Lead Borrower to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of LIBO Rate Loans and (B) on the date of prepayment of Base Rate Loans; (ii) any prepayment of LIBO Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid and, if LIBO Rate Loans, the Interest Period(s) of such Committed Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Lead Borrower, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a LIBO Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages.

(b) The Borrowers may, upon irrevocable notice from the Lead Borrower to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (ii) any such prepayment shall be in a minimum principal amount of $100,000. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Lead Borrower, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.

(c) If for any reason the Total Outstandings at any time exceed the lesser of the Aggregate Commitments or the Borrowing Base, each as then in effect, the Borrowers shall immediately prepay Committed Loans, Swing Line Loans and L/C Borrowings and/or Cash Collateralize the L/C Obligations (other than L/C Borrowings) in an aggregate amount equal to such excess; provided, however, that the Borrowers shall not be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.05(c) unless after the prepayment in full of the Loans the Total Outstandings exceed the lesser of the Aggregate Commitments or the Borrowing Base, each as then in effect.

(d) After the occurrence and during the continuance of a Cash Dominion Event, any proceeds deposited to the Concentration Account in accordance with the provisions of Section 6.13, including, without limitation, any Net Proceeds received by a Loan Party upon the occurrence of a Prepayment Event shall be transferred to the Concentration Account in accordance with Section 6.13 and shall, (i) if deposited in the Concentration Account not later than 2:00 p.m. in immediately available

funds, be utilized to prepay the Loans on the date such funds were deposited into the in the Concentration Account, or (ii) if deposited in the Concentration Account after 2:00 p.m. in immediately available funds, be utilized to prepay the Loans on the next Business Day following the date such funds were deposited into the in the Concentration Account, in either case in the order of priority set forth in Section 2.05(e). The application of all such proceeds to the Loans shall not reduce the Commitments. If no Cash Dominion Event exists (or if all Obligations then due pursuant to Section 2.05(e) are paid in full during the existence of a Cash Dominion Event), then any proceeds deposited to the Concentration Account shall be remitted without any deduction of any kind to the operating account of the Borrowers designated by the Lead Borrower on (i) if received in the Concentration Account not later than 2:00 p.m. in immediately available funds, the date such funds were deposited into the in the Concentration Account, or (ii) if received in the Concentration Account after 2:00 p.m. in immediately available funds, the next Business Day following the date such funds were deposited into the in the Concentration Account.

(e) Prepayments made pursuant to this Section 2.05, first, shall be applied ratably to the L/C Borrowings and the Swing Line Loans, second, shall be applied ratably to the outstanding Committed Loans, third, in the case of payments other than pursuant to Section 2.05(d) when no Event of Default exists, shall be used to Cash Collateralize the remaining L/C Obligations in accordance with Section 2.03(g); and, fourth, the amount remaining, if any, after the prepayment in full of all L/C Borrowings, Swing Line Loans and Committed Loans outstanding at such time and the Cash Collateralization of the remaining L/C Obligations in full may be retained by the Borrowers for use in the ordinary course of its business. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrowers or any other Loan Party) to reimburse the L/C Issuer or the Lenders, as applicable.

2.06 Termination or Reduction of Commitments.

(a) The Borrowers may, upon irrevocable notice from the Lead Borrower to the Administrative Agent, terminate the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit or from time to time permanently reduce the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of any such termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Borrowers shall not terminate or reduce (A) the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments, (B) the Letter of Credit Sublimit if, after giving effect thereto, the Outstanding Amount of L/C Obligations not fully Cash Collateralized hereunder would exceed the Letter of Credit Sublimit, and (C) the Swing Line Sublimit if, after giving effect thereto, and to any concurrent payments hereunder, the Outstanding Amount of Swing Line Loans hereunder would exceed the Swing Line Sublimit.

(b) If, after giving effect to any reduction of the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Commitments, such Letter of Credit Sublimit or Swing Line Sublimit shall be automatically reduced by the amount of such excess.

(c) The Administrative Agent will promptly notify the Lenders of any termination or reduction of the Letter of Credit Sublimit, Swing Line Sublimit or the Aggregate Commitments under this Section 2.06. Upon any reduction of the Aggregate Commitments, the Commitment of each Lender shall be reduced by such Lender’s Applicable Percentage of such reduction amount. All fees (including, without limitation, Commitment Fees, Early Termination Fees, and Letter of Credit Fees) and interest in respect of the Aggregate Commitments accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination.

2.07 Repayment of Loans.

(a) The Borrowers shall repay to the Lenders on the Termination Date the aggregate principal amount of Committed Loans outstanding on such date.

(b) To the extent not previously paid, the Borrowers shall repay the outstanding balance of the Swing Line Loans on the Termination Date.

2.08 Interest.

(a) Subject to the provisions of Section 2.08(b) below, (i) each LIBO Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted LIBO Rate for such Interest Period plus the Applicable Margin; (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Margin; and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Margin.

(b) (i) If any amount payable under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(ii) If any other Event of Default has occurred and is continuing, then the Administrative Agent may, and upon the request of the Required Lenders shall, notify the Lead Borrower that all outstanding Obligations shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate and thereafter, until such Event of Default has been duly waived as provided in Section 10.01 hereof, such Obligations shall bear interest at the Default Rate to the fullest extent permitted by applicable Laws.

(iii) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Laws.

2.09 Fees. In addition to certain fees described in subsections (i) and (j) of Section 2.03:

(a) Commitment Fee. The Borrowers shall pay to the Administrative Agent, for the account of each Lender, in accordance with its Applicable Percentage, a commitment fee (the “Commitment Fee”) equal to one half of one percent (0.50%) times the average daily amount by which the Aggregate Commitments exceed the sum of (i) the Outstanding Amount of Loans and (ii) the Outstanding Amount of L/C Obligations. The Commitment Fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable monthly in arrears on the first calendar day of each month, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period. The Commitment Fee shall be calculated monthly in arrears, and if there is any change in the Applicable Margin during any month, the average daily amount shall be computed and multiplied by the Applicable Margin separately for each period during such month that such Applicable Margin was in effect.

(b) Early Termination Fee. In the event that at any time on or before February 13, 2011, (i) the Termination Date occurs, for any reason, or (ii) the Lead Borrower elects to permanently reduce the Commitments pursuant to Section 2.06 hereof, then in each case the Borrowers shall pay to the Administrative Agent, for the ratable benefit of the Lenders, a fee (the “Early Termination Fee”) in respect of amounts which are or become payable by reason thereof equal to one percent (1%) of the Aggregate Commitments then in effect. Notwithstanding anything to the contrary contained herein, no Early Termination Fee shall be due if the Commitments are irrevocably terminated and the Obligations repaid in full in cash at any time after February 13, 2010, as a result of the loan arrangement evidenced by this Agreement and the other Loan Documents being refinanced in its entirety by an Affiliate of the Administrative Agent. No Early Termination Fee shall be due if the Termination Date or such reduction

of the Commitments shall occur at any time after February 13, 2011. All parties to this Agreement agree and acknowledge that the Lenders will have suffered damages on account of the early termination of this Agreement and that, in view of the difficulty in ascertaining the amount of such damages, the Early Termination Fee constitutes reasonable compensation and liquidated damages to compensate the Lenders on account thereof.

(c) Other Fees. The Borrowers shall pay to the Administrative Agent, for its own account, fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

2.10 Computation of Interest and Fees. All computations of interest and fees shall be made on the basis of a 360-day year and actual days elapsed. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12, bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

2.11 Evidence of Debt.

(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by the Administrative Agent (the “Loan Account”) in the ordinary course of business. In addition, each Lender may record in such Lender’s internal records, an appropriate notation evidencing the date and amount of each Loan from such Lender, each payment and prepayment of principal of any such Loan, and each payment of interest, fees and other amounts due in connection with the Obligations due to such Lender. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrowers and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrowers shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto. Upon receipt of an affidavit of a Lender as to the loss, theft, destruction or mutilation of such Lender’s Note and upon cancellation of such Note, the Borrowers will issue, in lieu thereof, a replacement Note in favor of such Lender, in the same principal amount thereof and otherwise of like tenor.

(b) In addition to the accounts and records referred to in Section 2.11(a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

2.12 Payments Generally; Administrative Agent’s Clawback.

(a) General. All payments to be made by the Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrowers hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by

wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrowers shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

(b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of LIBO Rate Loans (or in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Committed Borrowing available to the Administrative Agent, then the applicable Lender and the Borrowers severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrowers to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation plus any administrative processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrowers, the interest rate applicable to Base Rate Loans. If the Borrowers and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrowers the amount of such interest paid by the Borrowers for such period. If such Lender pays its share of the applicable Committed Borrowing to the Administrative Agent, then the principal amount so paid shall constitute such Lender’s Committed Loan included in such Committed Borrowing. Any payment by the Borrowers shall be without prejudice to any claim the Borrowers may have against a Lender that shall have failed to make such payment to the Administrative Agent.

(ii) Payments by Borrowers; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Lead Borrower prior to the time at which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrowers have not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. A notice of the Administrative Agent to any Lender or the Lead Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrowers by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are

not satisfied or waived in accordance with the terms hereof (subject to the provisions of the last paragraph of Section 4.02 hereof), the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Committed Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 10.04(c).

(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

2.13 Sharing of Payments by Lenders. If any Credit Party shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of, interest on, or other amounts with respect to, any of the Obligations resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Obligations greater than its pro rata share thereof as provided herein (including as in contravention of the priorities of payment set forth in Section 8.03), then the Credit Party receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Obligations of the other Credit Parties, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Credit Parties ratably and in the priorities set forth in Section 8.03, provided that:

(i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

(ii) the provisions of this Section shall not be construed to apply to (x) any payment made by the Loan Parties pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than to the Borrowers or any Subsidiary thereof (as to which the provisions of this Section shall apply).

Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation.

2.14 Settlement Amongst Lenders

(a) The amount of each Lender’s Applicable Percentage of outstanding Loans (including outstanding Swing Line Loans) shall be computed weekly (or more frequently in the Administrative Agent’s discretion) and shall be adjusted upward or downward based on all Loans (including Swing Line Loans) and repayments of Loans (including Swing Line Loans) received by the Administrative Agent as of 3:00 p.m. on the first Business Day (such date, the “Settlement Date”) following the end of the period specified by the Administrative Agent.

(b) The Administrative Agent shall deliver to each of the Lenders promptly after a Settlement Date a summary statement of the amount of outstanding Committed Loans for the

period and the amount of repayments received for the period. As reflected on the summary statement, (i) the Administrative Agent shall transfer to each Lender its Applicable Percentage of repayments, and (ii) each Lender shall transfer to the Administrative Agent (as provided below) or the Administrative Agent shall transfer to each Lender, such amounts as are necessary to insure that, after giving effect to all such transfers, the amount of Committed Loans made by each Lender shall be equal to such Lender’s Applicable Percentage of all Committed Loans outstanding as of such Settlement Date. If the summary statement requires transfers to be made to the Administrative Agent by the Lenders and is received prior to 1:00 p.m. on a Business Day, such transfers shall be made in immediately available funds no later than 3:00 p.m. that day; and, if received after 1:00 p.m., then no later than 3:00 p.m. on the next Business Day. The obligation of each Lender to transfer such funds is irrevocable, unconditional and without recourse to or warranty by the Administrative Agent. If and to the extent any Lender shall not have so made its transfer to the Administrative Agent, such Lender agrees to pay to the Administrative Agent, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent, equal to the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation plus any administrative, processing, or similar fees customarily charged by the Administrative Agent in connection with the foregoing.

ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY;
APPOINTMENT OF LEAD BORROWER

3.01 Taxes.

(a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrowers hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrowers shall be required by applicable Laws to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Laws.

(b) Payment of Other Taxes by the Borrowers. Without limiting the provisions of subsection (a) above, the Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Laws.

(c) Indemnification by the Loan Parties. The Loan Parties shall indemnify the Administrative Agent, each Lender and the L/C Issuer, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and any penalties, interest, fees, and reasonable costs and expenses, arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Lead Borrower by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error.

(d) Evidence of Payments. If requested by the Administrative Agent, the Lead Borrower shall deliver to the Administrative Agent, as soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrowers to a Governmental Authority, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of

the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which any Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Lead Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Lead Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Lead Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Lead Borrower or the Administrative Agent as will enable the Lead Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Without limiting the generality of the foregoing, in the event that any Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Lead Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Lead Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

(ii) duly completed copies of Internal Revenue Service Form W-8ECI,

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrowers within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or

(iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Lead Borrower to determine the withholding or deduction required to be made.

(f) Treatment of Certain Refunds. If the Administrative Agent, any Lender or the L/C Issuer determines that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section, it shall pay to the Borrowers an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrowers, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agree to repay the amount paid over to the Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer in the event the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrowers or any other Person.

3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable

Lending Office to make, maintain or fund LIBO Rate Loans, or to determine or charge interest rates based upon the LIBO Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Lead Borrower through the Administrative Agent, any obligation of such Lender to make or continue LIBO Rate Loans or to convert Base Rate Loans to LIBO Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Lead Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrowers shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all LIBO Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such LIBO Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBO Rate Loans. Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted.

3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a LIBO Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank market for the applicable amount and Interest Period of such LIBO Rate Loan, (b) adequate and reasonable means do not exist for determining the LIBO Rate for any requested Interest Period with respect to a proposed LIBO Rate Loan , or (c) the LIBO Rate for any requested Interest Period with respect to a proposed LIBO Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Lead Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBO Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Lead Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of LIBO Rate Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.

3.04 Increased Costs; Reserves on LIBO Rate Loans.

(a) Increased Costs Generally. If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the LIBO Rate) or the L/C Issuer;

(ii) subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any LIBO Rate Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer); or

(iii) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or LIBO Rate Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any LIBO Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer

hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.

(b) Capital Requirements. If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender’s or the L/C Issuer’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the L/C Issuer’s capital or on the capital of such Lender’s or the L/C Issuer’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the L/C Issuer’s policies and the policies of such Lender’s or the L/C Issuer’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company for any such reduction suffered.

(c) Certificates for Reimbursement. A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section, as well as the basis for determining such amount or amounts, and delivered to the Lead Borrower shall be conclusive absent manifest error. The Borrowers shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

(d) Delay in Requests. Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s or the L/C Issuer’s right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Lead Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the L/C Issuer’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

(e) Reserves on LIBO Rate Loans. In addition to the amounts paid by the Borrowers in respect of the Statutory Reserve Rate, the Borrowers shall pay to each Lender, as long as such Lender shall be required to maintain reserves (other than any reserve described in the definition of Statutory Reserve Rate) with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each LIBO Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Lead Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.

3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrowers shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

(b) any failure by the Borrowers (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Lead Borrower; or

(c) any assignment of a LIBO Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Lead Borrower pursuant to Section 10.13; 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 Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrowers shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each LIBO Rate Loan made by it at the LIBO Rate for such Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and for a comparable period, whether or not such LIBO Rate Loan was in fact so funded.

3.06 Mitigation Obligations; Replacement of Lenders.

(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender as reasonably determined by such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b) Replacement of Lenders. Notwithstanding subsection (a) above, if any Lender requests compensation under Section 3.04, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, the Borrowers may replace such Lender in accordance with Section 10.13.

(c) If the L/C Issuer may not issue Letters of Credit as a result of the limitations set forth in Section 2.03(a)(iii)(A), then Borrowers may, if no Default or Event of Default exists and with the prior written consent of Administrative Agent (which consent shall not be unreasonably withheld or delayed): (i) request a Lender (with such Lender’s consent) to issue Letters of Credit; or (ii) designate a supplemental bank or financial institution, which is an Eligible Assignee and otherwise satisfactory to Administrative Agent, to issue Letters of Credit and become an additional “L/C Issuer” hereunder.

3.07 Survival. All of the Borrowers’ obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.

3.08 Designation of Lead Borrower as Borrowers’ Agent.

(a) Each Borrower hereby irrevocably designates and appoints the Lead Borrower as such Borrower’s agent to obtain Credit Extensions, the proceeds of which shall be available to each Borrower for such uses as are permitted under this Agreement. As the disclosed principal for its agent, each Borrower shall be obligated to each Credit Party on account of Credit Extensions so made as if made directly by the applicable Credit Party to such Borrower, notwithstanding the manner by which such Credit Extensions are recorded on the books and records of the Lead Borrower and of any other

Borrower. In addition, each Loan Party other than the Borrowers hereby irrevocably designates and appoints the Lead Borrower as such Loan Party’s agent to represent such Loan Party in all respects under this Agreement and the other Loan Documents.

(b) Each Borrower recognizes that credit available to it hereunder is in excess of and on better terms than it otherwise could obtain on and for its own account and that one of the reasons therefor is its joining in the credit facility contemplated herein with all other Borrowers. Consequently, each Borrower hereby assumes and agrees to discharge all Obligations of each of the other Borrowers.

(c) The Lead Borrower shall act as a conduit for each Borrower (including itself, as a “Borrower”) on whose behalf the Lead Borrower has requested a Credit Extension. Neither the Administrative Agent nor any other Credit Party shall have any obligation to see to the application of such proceeds therefrom.

ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

4.01 Conditions of Initial Credit Extension. The obligation of the L/C Issuer and each Lender to make its initial Credit Extension hereunder is subject to satisfaction (or waiver in accordance with Section 10.01) of the following conditions precedent:

(a) The Administrative Agent’s receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent:

(i) executed counterparts of this Agreement sufficient in number for distribution to the Administrative Agent, each Lender and the Lead Borrower;

(ii) (A) a Committed Loan Note executed by the Borrowers in favor of each Lender requesting a Committed Loan Note, and (B) a Swing Line Loan Note executed by the Borrowers in favor of Wells Fargo Retail Finance, LLC;

(iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing (A) the authority of each Loan Party to enter into this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party and (B) the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party;

(iv) copies of each Loan Party’s Organization Documents and such other documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, and in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

(v) a favorable opinion of Hogan & Hartson LLP and Elsaesser Jarzabek Anderson Marks & Elliott, Chtd., counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to such matters concerning the Loan Parties and the Loan Documents as the Administrative Agent may reasonably request;

(vi) a certificate signed by a Responsible Officer of the Lead Borrower certifying (A) that the conditions specified in Sections 4.01 and 4.02 have been satisfied, (B) that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect, (C) either that (1) no consents, licenses or approvals are required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, or (2) that all such consents, licenses and approvals have been obtained and are in full force and effect, and (D) to the Solvency of the Loan Parties on a Consolidated basis as of the Closing Date after giving effect to the transactions contemplated hereby;

(vii) a duly completed Compliance Certificate as of the last day of the Fiscal Month of the Parent and its Subsidiaries most recently ended prior to the Closing Date, signed by a Responsible Officer of the Lead Borrower;

(viii) evidence that all insurance required to be maintained pursuant to the Loan Documents and all endorsements in favor of the Agents required under the Loan Documents have been obtained and are in effect;

(ix) a payoff letter from the lenders under the Existing Credit Agreement satisfactory in form and substance to the Administrative Agent evidencing that the Existing Credit Agreement has been or concurrently with the Closing Date is being terminated, all obligations and other indebtedness thereunder are being paid in full, and all Liens securing obligations under the Existing Credit Agreement have been or concurrently with the Closing Date are being released;

(x) a certificate from the chief financial officer of the Lead Borrower, satisfactory in form and substance to the Administrative Agent, attesting to the Solvency of the Loan Parties as of the Closing Date after giving effect to the transactions contemplated hereby;

(xi) the Security Documents and certificates evidencing any stock being pledged thereunder, together with undated stock powers executed in blank (other than the certificate and stock powers being delivered pursuant to Section 6.22), each duly executed by the applicable Loan Parties;

(xii) all other Loan Documents, each duly executed by the applicable Loan Parties;

(xiii) the Disbursement Letter, duly executed by each of the parties thereto;

(xiv) (A) appraisals (based on net liquidation value) by a third party appraiser acceptable to the Collateral Agent of all Inventory of the Borrowers, the results of which are satisfactory to the Collateral Agent and (B) a written report regarding the results of a commercial finance examination of the Loan Parties, which shall be satisfactory to the Collateral Agent;

(xv) results of searches or other evidence reasonably satisfactory to the Collateral Agent (in each case dated as of a date reasonably satisfactory to the Collateral Agent) indicating the absence of Liens on the assets of the Loan Parties, except for Permitted Encumbrances and Liens for which termination statements and releases, satisfactions and discharges of any mortgages, and

releases or subordination agreements satisfactory to the Collateral Agent are being tendered concurrently with such extension of credit or other arrangements satisfactory to the Collateral Agent for the delivery of such termination statements and releases, satisfactions and discharges have been made;

(xvi) (A) all documents and instruments, including Uniform Commercial Code financing statements, required by law or reasonably requested by the Collateral Agent to be filed, registered or recorded to create or perfect the first priority Liens intended to be created under the Loan Documents and all such documents and instruments shall have been so filed, registered or recorded to the satisfaction of the Collateral Agent, (B) the DDA Notifications, Credit Card Notifications, and Blocked Account Agreements required pursuant to Section 6.13 hereof, and (C) control agreements with respect to the Loan Parties’ securities and investment accounts;

(xvii) Collateral Access Agreement, as required by the Collateral Agent; and

(xviii) such other assurances, certificates, documents, consents or opinions as the Agents reasonably may require.

(b) After giving effect to (i) the first funding under the Loans, (ii) any charges to the Loan Account made in connection with the establishment of the credit facility contemplated hereby and (iii) all Letters of Credit to be issued at, or immediately subsequent to such establishment, Availability shall be not less than $40,000,000.

(c) The Administrative Agent shall have received a Borrowing Base Certificate dated the Closing Date, relating to the month ended on January 31, 2009, and executed by a Responsible Officer of the Lead Borrower.

(d) The Administrative Agent shall be reasonably satisfied that any financial statements delivered to it fairly present the business and financial condition of the Loan Parties and that there has been no Material Adverse Effect since the date of the most recent financial information delivered to the Administrative Agent.

(e) The Administrative Agent shall have received and be satisfied with (i) a detailed business plan and forecast for the period commencing on the Closing Date and ending with the end of such Fiscal Year, which shall include an Availability model, Consolidated income statement, balance sheet, and statement of cash flow, by quarter, each prepared in conformity with GAAP and consistent with the Loan Parties’ then current practices and (b) such other information (financial or otherwise) reasonably requested by the Administrative Agent.

(f) There shall not be pending any litigation or other proceeding, the result of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(g) There shall not have occurred any default of any Material Contract of any Loan Party which could reasonably be expected to have a Material Adverse Effect.

(h) The consummation of the transactions contemplated hereby shall not violate any applicable Law or any Organization Document.

(i) All fees and expenses required to be paid to the Agents on or before the Closing Date shall have been paid in full, and all fees required to be paid to the Lenders on or before the Closing Date shall have been paid in full.

(j) The Borrowers shall have paid all fees, charges and disbursements of counsel to the Administrative Agent to the extent invoiced prior to the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing

proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrowers and the Administrative Agent).

(k) The Administrative Agent shall have received all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation the USA PATRIOT Act, and shall be satisfied that the Loan Parties are in compliance with all Laws.

(l) No material changes in governmental regulations or policies affecting any Loan Party or any Credit Party shall have occurred prior to the Closing Date.

(m) There shall not have occurred any disruption or material adverse change in the United States financial or capital markets in general that has had, in the reasonable opinion of the Administrative Agent, a material adverse effect on the market for loan syndications or adversely affecting the syndication of the Loans.

(n) Each Lender shall have received final credit approval to enter into the Agreement and the other Loan Documents (to which it is a party) and for its applicable Commitment, and to perform its obligations thereunder.

(o) The Agents shall have completed, and be satisfied with, its corporate and legal due-diligence of each Loan Party (including, but not limited to solvency), its examination of the Collateral, the Stores and distribution centers of the Loan Parties, and the capital structure of the Loan Parties.

Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have Consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be Consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

4.02 Conditions to all Credit Extensions. The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type, or a continuation of LIBO Rate Loans) is subject to the following conditions precedent:

(a) The representations and warranties of each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 4.02, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01.

(b) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.

(c) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.

(d) The Administrative Agent shall have received an updated Borrowing Base Certificate reflecting the outstanding Credit Extensions after giving effect to such request (it being agreed that except for Borrowing Base Certificates furnished pursuant to Section 6.02(c), the values for eligible assets will not be required to be updated).

(e) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Borrower, any Agent, any Lender or any of their Affiliate.

(f) The aggregate amount of all requested Loans and/or Letters of Credit shall not exceed Availability at such time.

(g) No event or circumstance which could reasonably be expected to result in a Material Adverse Effect shall have occurred.

(h) No Loan Party shall have entered into any transaction, or made any payment, of the type specified in Section 7.06(d) or (e), within ninety (90) days of the date of the proposed Credit Extension, provided, however, this condition shall not apply in connection with the issuance of any Letter of Credit, any L/C Borrowing, or any other Loan for which 100% of the proceeds shall be used to repay any outstanding fees, costs or expenses (including, without limitation, the Commitment Fees, Early Termination Fees, and Letter of Credit Fees), owed to any Credit Party under, or in connection with, this Agreement or any other Loan Document.

Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of LIBO Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty by the Borrowers that the conditions specified in this Section 4.02 have been satisfied on and as of the date of the applicable Credit Extension. The conditions set forth in this Section 4.02 are for the sole benefit of the Credit Parties but until the Required Lenders otherwise direct the Administrative Agent to cease making Committed Loans, the Lenders will fund their Applicable Percentage of all Committed Loans and L/C Advances and participate in all Swing Line Loans and Letters of Credit whenever made or issued, which are requested by the Lead Borrower and which, notwithstanding the failure of the Loan Parties to comply with the provisions of this Article IV, are agreed to by the Administrative Agent, provided, however, the making of any such Loans or the issuance of any Letters of Credit shall not be deemed a modification or waiver by any Credit Party of the provisions of this Article IV on any future occasion or a waiver of any rights or the Credit Parties as a result of any such failure to comply.

ARTICLE V
REPRESENTATIONS AND WARRANTIES

To induce the Credit Parties to enter into this Agreement and to make Loans and to issue Letters of Credit hereunder, each Loan Party represents and warrants to the Administrative Agent and the other Credit Parties that:

5.01 Existence, Qualification and Power. Each Loan Party and each Subsidiary thereof (a) is a corporation, limited liability company, partnership or limited partnership, duly organized or formed, validly existing and, where applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, permits, authorizations, consents and approvals to (i) own or lease its assets and carry on its business as currently conducted, and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, where applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. Schedule 5.01 annexed hereto sets forth, as of the Closing Date, each Loan Party’s name as it appears in official filings in its state of incorporation or organization and the name under which each Loan Party currently conducts its business (if different), its state of incorporation or organization, organization type, organization number, if any, issued by its state of incorporation or

organization, its federal employer identification number, and the address of its chief executive office and principal place of business.

5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is or is to be a party, has been duly authorized by all necessary corporate or other organizational action, and does not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach, termination, or contravention of, or constitute a default under, or require any payment to be made under (i) any Material Contract or any Material Indebtedness to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries, (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject or (iii) any governmental licenses, permits, authorizations, consents and approvals; (c) result in or require the creation of any Lien upon any asset of any Loan Party (other than Liens in favor of the Collateral Agent under the Security Documents); or (d) violate any Law.

5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, except for (a) the perfection or maintenance of the Liens created under the Security Documents (including the first priority nature thereof), or as otherwise expressly contemplated hereby in respect of the protection and enforcement of such Liens or, (b) such as have been obtained or made and are in full force and effect or (c) filings with the SEC in connection with the entry into a material agreement.

5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

5.05 Financial Statements; No Material Adverse Effect.

(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of the Parent and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all Material Indebtedness and other liabilities, direct or contingent, of the Parent and its Subsidiaries on a Consolidated basis as of the date thereof, including liabilities for taxes, material commitments and Indebtedness, in each case, in accordance with GAAP consistently applied through the covered period.

(b) The unaudited Consolidated balance sheet of the Parent and its Subsidiaries dated November 1, 2008, and the related Consolidated and consolidating statements of income or operations, Shareholders’ Equity and cash flows for the Fiscal Quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Parent and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. As of the Closing Date, Schedule 5.05 sets forth all Material Indebtedness and other

liabilities, direct or contingent, of the Loan Parties and their Subsidiaries on a Consolidated basis as of the date of such financial statements, including liabilities for taxes, material commitments and Material Indebtedness, in each case, in accordance with GAAP consistently applied through the covered period.

(c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

(d) To the best knowledge of the Lead Borrower, no Internal Control Event exists or has occurred since the date of the Audited Financial Statements that has resulted in or could reasonably be expected to result in a misstatement in any material respect, in any financial information delivered or to be delivered to the Administrative Agent or the Lenders, of (i) covenant compliance calculations provided hereunder or (ii) the assets, liabilities, financial condition or results of operations of the Parent and its Subsidiaries on a Consolidated basis.

(e) The Consolidated forecasted balance sheet and statements of income and cash flows of the Parent and its Subsidiaries delivered pursuant to Section 6.01(e) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Loan Parties’ best estimate of future financial performance.

5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Loan Parties after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against any Loan Party or any of its Subsidiaries or against any of its properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) except as specifically disclosed on Schedule 5.06, either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, and there has been no adverse change in the status, or financial effect on any Loan Party or Subsidiary thereof, of the matters described on Schedule 5.06.

5.07 No Default. No Loan Party or any Subsidiary is in default under or with respect to any Material Indebtedness which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

5.08 Ownership of Property; Liens.

(a) Each of the Loan Parties thereof has good record and marketable title in fee simple to or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, in each case free and clear of all Liens, other than Permitted Encumbrances. Each of the Loan Parties has good and marketable title to, valid leasehold interests in, or valid licenses to use all personal property (including Intellectual Property) and assets material to the ordinary conduct of its business as currently conducted, free and clear of all Liens, other than Permitted Encumbrances.

(b) Schedule 5.08(b)(1) sets forth the address (including street address, county and state) of all Real Estate that is owned by the Loan Parties, together with a list of the holders of any mortgage or other Lien thereon as of the Closing Date. Each Loan Party has good, marketable and insurable fee simple title to the real property owned by such Loan Party or such Subsidiary, free and clear of all Liens, other than Permitted Encumbrances. Schedule 5.08(b)(2) sets forth the address (including street address, county and state) of all Leases of the Loan Parties, together with a list of the lessor and its contact information with respect to each such Lease as of the Closing Date. Each of such Leases is in full force and effect as of the Closing Date and the Loan Parties are in compliance with the terms thereof to the extent required by Section 6.18.

(c) The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Liens set forth on Schedule 7.01, and Permitted Encumbrances.

(d) Schedule 7.02 sets forth a complete and accurate list of all Investments other than Equity Interests disclosed pursuant to Schedule 5.13 held by any Loan Party or any Subsidiary of a Loan

Party on the Closing Date, showing as of the Closing Date hereof the amount, obligor or issuer and maturity, if any, thereof.

(e) Schedule 7.03 sets forth a complete and accurate list of all Indebtedness of each Loan Party and any Subsidiary of each Loan Party as of the Closing Date, showing as of the Closing Date the amount, obligor or issuer and maturity thereof.

5.09 Environmental Compliance.

(a) Except as specifically disclosed in Schedule 5.09, no Loan Party or any Subsidiary thereof (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability, except, in each case, as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b) Except as otherwise set forth in Schedule 5.09, none of the properties currently or formerly owned or operated by any Loan Party or any Subsidiary thereof is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; to the knowledge of the Loan Parties, there are no and never have been any underground or above-ground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned or operated by any Loan Party or any Subsidiary thereof or, to the best of the knowledge of the Loan Parties, on any property formerly owned or operated by any Loan Party or Subsidiary thereof; except as individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect, there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or Subsidiary thereof; and except as individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect, Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any Subsidiary thereof.

(c) Except as otherwise set forth in Schedule 5.09, no Loan Party or any Subsidiary thereof is undertaking, and no Loan Party or any Subsidiary thereof has completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any Subsidiary thereof have been disposed of in a manner not reasonably expected to result in material liability to any Loan Party or any Subsidiary thereof.

5.10 Insurance. The properties of the Loan Parties and their Subsidiaries are insured with financially sound and reputable insurance companies which are not Affiliates of the Loan Parties, in such amounts, with such deductibles and covering such risks (including, without limitation, workmen’s compensation, public liability, business interruption and property damage insurance) as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Loan Parties or the applicable Subsidiary operates. Schedule 5.10 sets forth a description of all insurance maintained by or on behalf of the Loan Parties as of the Closing Date. As of the Closing Date, each insurance policy listed on Schedule 5.10 is in full force and effect and all premiums in respect thereof that are due and payable have been paid.

5.11 Taxes. The Loan Parties have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes,

assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings being diligently conducted, for which adequate reserves have been provided in accordance with GAAP, as to which Taxes no Lien has been filed and which contest effectively suspends the collection of the contested obligation and the enforcement of any Lien securing such obligation. There is no proposed tax assessment against any Loan Party or any Subsidiary that would, if made, have a Material Adverse Effect. No Loan Party or any Subsidiary thereof is a party to any tax sharing agreement.

5.12 ERISA Compliance.

(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of the Lead Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. The Loan Parties and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. No Lien imposed under the Code or ERISA exists or is likely to arise on account of any Plan.

(b) There are no pending or, to the best knowledge of the Lead Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither any Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither any Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither any Loan Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.

5.13 Subsidiaries; Equity Interests. As of the Closing Date, the Loan Parties have no Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.13, which Schedule sets forth the legal name, jurisdiction of incorporation or formation and authorized Equity Interests of each such Subsidiary, listed by class, and setting forth the number and percentage of the outstanding Equity Interests of each such class owned directly or indirectly by the applicable Loan Party. All of the outstanding Equity Interests in the Loan Parties and such Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by a Loan Party (or a Subsidiary of a Loan Party) in the amounts specified on Part (a) of Schedule 5.13, free and clear of all Liens except for those created under the Security Documents. Except as specifically disclosed in Schedule 5.13, no Loan Party or any of its respective Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of any Loan Party’s Subsidiaries’ Equity Interests or any security convertible into or exchangeable for any such Equity Interests. As of the Closing Date, the Loan Parties have no equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13. Part (c) of Schedule 5.13 is a complete and accurate description of the authorized Equity Interests of each Loan Party as of the Closing Date, by class, and a description

of the number of shares of each such class that are issued and outstanding. All of the outstanding Equity Interests in the Loan Parties have been validly issued, and are fully paid and non-assessable and, other than with respect to the Lead Borrower, are owned in the amounts specified on Part (c) of Schedule 5.13, free and clear of all Liens except for those created under the Security Documents. Except as set forth in Schedule 5.13, there are no subscriptions, options, warrants, or calls relating to any shares of any Loan Party’s Equity Interests, including any right of conversion or exchange under any outstanding security or other instrument. The copies of the Organization Documents of each Loan Party and each amendment thereto provided pursuant to Section 4.01 are true and correct copies of each such document, each of which is valid and in full force and effect.

5.14 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.

(a) No Loan Party is engaged or will be engaged, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. None of the proceeds of the Credit Extensions shall be used directly or indirectly for the purpose of purchasing or carrying any margin stock, for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry any margin stock or for any other purpose that might cause any of the Credit Extensions to be considered a “purpose credit” within the meaning of Regulations T, U, or X issued by the FRB.

(b) None of the Loan Parties, any Person Controlling any Loan Party, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940. None of the Loan Parties, any Person Controlling any Loan Party, or any Subsidiary is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company”, as each term is defined and used in the Public Utility Holding Company Act of 2005

5.15 Disclosure. Each Loan Party has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading as of the time when made or delivered; provided that, with respect to projected financial information, the Loan Parties represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

5.16 Compliance with Laws. Each of the Loan Parties and each Subsidiary is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.17 Intellectual Property; Licenses, Etc. Each Loan Party owns, or holds licenses in, all Intellectual Property, trade names, patent rights and other authorizations that are necessary to

the conduct of its business as currently conducted and as proposed to be conducted, and attached hereto as Schedule 5.17 is a true, correct, and complete listing as of the Closing Date of all material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which a Loan Party is the owner or is an exclusive licensee. There is no action, proceeding, claim or complaint pending or, threatened in writing to be brought against any Loan Party which might jeopardize any of such Person’s interest in any of the foregoing licenses, patents, copyrights, trademarks, trade names, designs or applications, except those which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party or any Subsidiary infringes upon any rights held by any other Person.

5.18 Labor Matters.

There are no strikes, lockouts, slowdowns or other material labor disputes against any Loan Party or any Subsidiary thereof pending or, to the knowledge of any Loan Party, threatened. The hours worked by and payments made to employees of the Loan Parties comply in all material respects with the Fair Labor Standards Act and any other applicable federal, state, local or foreign Law dealing with such matters. No Loan Party or any of its Subsidiaries has incurred any material liability or obligation under the Worker Adjustment and Retraining Act or similar state Law. All payments due from any Loan Party and its Subsidiaries, or for which any claim may be made against any Loan Party, on account of wages and employee health and welfare insurance and other benefits, have been paid or properly accrued in accordance with GAAP as a liability on the books of such Loan Party, except as could not reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 5.18 no Loan Party or any Subsidiary is a party to or bound by any collective bargaining agreement, management agreement, employment agreement, bonus, restricted stock, stock option, or stock appreciation plan or agreement or any similar plan, agreement or arrangement. As of the Closing Date, there are no representation proceedings pending or, to any Loan Party’s knowledge, threatened to be filed with the National Labor Relations Board, and no labor organization or group of employees of any Loan Party or any Subsidiary has made a pending demand for recognition in any case, and at all times after the Closing Date, there are no representation proceedings pending or, to any Loan Party’s knowledge, threatened to be filed with the National Labor Relations Board, and no labor organization or group of employees of any Loan Party or any Subsidiary has made a pending demand for recognition in any case which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. There are no complaints, unfair labor practice charges, grievances, arbitrations, unfair employment practices charges or any other claims or complaints against any Loan Party or any Subsidiary pending or, to the knowledge of any Loan Party, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any employee of any Loan Party or any of its Subsidiaries. The consummation of the transactions contemplated by the Loan Documents will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Loan Party or any of its Subsidiaries is bound. Each Loan Party and its Subsidiaries are in material compliance with all requirements pursuant to employment standards, labor relations, health and safety, workers compensation and human rights laws, immigration laws and other applicable employment legislation, except as could not reasonably be expected to have a Material Adverse Effect. To the knowledge of the Loan Parties, no officer or director of any Loan Party who is party to an employment agreement with such Loan Party is in violation of

any term of any employment contract or proprietary information agreement with such Loan Party, which could reasonably be expected to have a Material Adverse Effect; and to the knowledge of the Loan Parties, the execution of the employment agreements and the continued employment by the Loan Parties of the such persons, will not result in any such violation, which could reasonably be expected to have a Material Adverse Effect.

5.19 Security Documents.

(a) The Pledge Agreement creates in favor of the Collateral Agent, for the benefit of the Secured Parties referred to therein, a legal, valid, continuing and enforceable security interest in the Collateral (as defined in the Pledge Agreement), the enforceability of which is subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law, and the Pledged Securities (as defined in the Pledge Agreement) have been delivered to the Collateral Agent (together with stock powers or other appropriate instruments of transfer executed in blank form). The Collateral Agent has a fully perfected first priority Lien on, and security interest in, to and under all right, title and interest of each pledgor thereunder in such Collateral, and such security interest is in each case prior and superior in right and interest to any other Person, subject only to Permitted Encumbrances.

(b) The Security Agreement creates in favor of the Collateral Agent, for the benefit of the Secured Parties referred to therein, a legal, valid, continuing and enforceable security interest in the Collateral (as defined in the Security Agreement), the enforceability of which is subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Upon the filing of the financing statements approved by the Lead Borrower and/or the obtaining of “control” of such deposit accounts in respect of which Blocked Account Agreements are required hereunder the Collateral Agent will have a perfected Lien on, and security interest in, to and under all right, title and interest of the grantors thereunder in all Collateral that may be perfected by filing, recording or registering a financing statement or analogous document (including without limitation the proceeds of such Collateral subject to the limitations relating to such proceeds in the UCC), in each case, to the extent required by the Security Agreement or (in the case of such deposit accounts) by obtaining control, under the UCC (in effect on the date this representation is made) in each case prior and superior in right to any other Person, subject only to Permitted Encumbrances.

(c) When the Security Agreement is filed in the United States Patent and Trademark Office and the United States Copyright Office and when financing statements, releases and other filings referenced in Section 5.19(c) are filed, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the applicable Loan Parties in the Intellectual Property (as defined in the Security Agreement) in which a security interest may be perfected by filing, recording or registering a security agreement, financing statement or analogous document in the United States Patent and Trademark Office or the United States Copyright Office, as applicable, in each case prior and superior in right to any other Person, subject only to Permitted Encumbrances (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a Lien on registered trademarks, trademark applications and copyrights acquired by the Loan Parties after the date hereof).

(d) Notwithstanding anything to the contrary in this Section 5.19, in the case of any Loan Parties not organized in a jurisdiction of the United States, no representation is made in this Section 5.19 as to any security interest creation or perfection actions that may be required under the laws of jurisdictions outside of the United States.

5.20 Solvency

After giving effect to the transactions contemplated by this Agreement, and before and after giving effect to each Credit Extension, the Loan Parties, on a Consolidated basis, are Solvent. No transfer of property has been or will be made by any Loan Party and no obligation has been or will be incurred by any Loan Party in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of any Loan Party.

5.21 Deposit Accounts; Credit Card Arrangements.

(a) Annexed hereto as Schedule 5.21(a) is a list of all DDAs maintained by the Loan Parties as of the Closing Date, which Schedule includes, with respect to each DDA (i) the name and address of the depository; (ii) the account number(s) maintained with such depository; (iii) a contact person at such depository, and (iv) the identification of each Blocked Account Bank.

(b) Annexed hereto as Schedule 5.21(b) is a list describing all arrangements as of the Closing Date to which any Loan Party is a party with respect to the processing and/or payment to such Loan Party of the proceeds of any credit card charges and debit card charges for sales made by such Loan Party.

5.22 Brokers. No broker or finder brought about the obtaining, making or closing of the Loans or transactions contemplated by the Loan Documents, and no Loan Party or Affiliate thereof has any obligation to any Person in respect of any finder’s or brokerage fees in connection therewith. Each Loan Party hereby jointly and severally indemnifies each Credit Party against, and agrees that such Person will hold each such Credit Party harmless from, any claim, demand or liability, including reasonable attorneys’ fees, for any broker’s, finder’s or placement fee or commission incurred by such indemnifying party or the Lead Borrower or its Affiliates or a representative of such Person.

5.23 Customer and Trade Relations. There exists no actual termination or cancellation of, or any material adverse modification or change in, the business relationship of any Loan Party with any supplier material to its operations, unless the Administrative Agent has received evidence, in form and substance reasonably satisfactory to it, that the applicable Loan Party has replaced (or is replacing) any such supplier, and the terms governing such business relationship are either (i) not be less favorable to such Loan Party, in any material respect than those which governed the business relationship with the replaced supplier prior to its threatened termination or cancellation, or modification or change, as the case may be, or (ii) reasonably acceptable to the Administrative Agent.

5.24 Material Contracts. Schedule 5.24 sets forth all Material Contracts to which any Loan Party is a party or is bound as of the Closing Date. The Loan Parties have delivered true, correct and complete copies of such Material Contracts to the Administrative Agent on or before the date hereof. The Loan Parties are in compliance with the obligations specified in Section 6.19 in respect of their Material Contacts. The Loan Parties have not received any notice of the intention of any Person to terminate any Material Contract, which could reasonably be expected to result in the termination of a Material Contract.

5.25 Casualty. Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.26 Anti-Terrorism Laws.

(a) General. To the knowledge of the Loan Parties, after reasonable inquiry, none of the Loan Parties nor any direct or indirect investor in any Loan Party (other than the Lenders or any direct or indirect investors in the Lenders), is in violation of any Anti-Terrorism Law or engages in or conspires

to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

(b) Executive Order No. 13224. To the knowledge of the Loan Parties, after reasonable inquiry, none of the Loan Parties nor any direct or indirect investor in any Loan Party (other than the Lenders or any direct or indirect investors in the Lenders), or their respective agents acting or benefiting in any capacity in connection with the transactions hereunder, is any of the following (each a “Blocked Person”):

(i) a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

(ii) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

(iii) a Person or entity with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

(iv) a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order No. 13224;

(v) a Person or entity that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list; or

(vi) a Person or entity who is affiliated or associated with a person or entity listed above.

(c) To the best knowledge of the Loan Parties, after reasonable inquiry, none of the Loan Parties nor, to the knowledge of the Loan Parties, any of its or their agents acting in any capacity in connection with the transactions hereunder (A) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (B) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.

ARTICLE VI
AFFIRMATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnification obligations for which no claim has been asserted), or any Letter of Credit shall remain outstanding, the Loan Parties shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, and 6.03) cause each Subsidiary to:

6.01 Financial Statements. Deliver to the Administrative Agent, in form and detail reasonably satisfactory to the Administrative Agent:

(a) as soon as available, but in any event within ninety (90) days after the end of each Fiscal Year of the Parent (commencing with the Fiscal Year ended January 2009), a Consolidated balance sheet of the Parent and its Subsidiaries as at the end of such Fiscal Year, and the related Consolidated statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and prepared in accordance with GAAP, such Consolidated statements to be audited and accompanied by (i) a report and unqualified opinion of a Registered Public Accounting Firm of nationally recognized standing reasonably acceptable to the Administrative Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit, and (ii) an opinion of such Registered Public Accounting Firm independently assessing the Loan Parties’

internal controls over financial reporting in accordance with Item 308 of SEC Regulation S-K, PCAOB Auditing Standard No. 5, and Section 404 of Sarbanes-Oxley expressing a conclusion that contains no statement that there is a material weakness in such internal controls, except for such material weaknesses as to which the Required Lenders do not object;

(b) as soon as available, but in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Parent (commencing with the fiscal quarter ended May 1, 2009), a Consolidated balance sheet of the Parent and its Subsidiaries as at the end of such Fiscal Quarter, and the related Consolidated statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Quarter and for the portion of the Parent’s Fiscal Year then ended, setting forth in each case in comparative form the figures for (A) such period set forth in the projections delivered pursuant to Section 5.01(d) hereof, (B) the corresponding Fiscal Quarter of the previous Fiscal Year and (C) the corresponding portion of the previous Fiscal Year, all in reasonable detail, such Consolidated statements to be certified by a Responsible Officer of the Lead Borrower as fairly presenting in all material respects the financial condition, results of operations, Shareholders’ Equity and cash flows of the Parent and its Subsidiaries as of the end of such Fiscal Quarter in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes;

(c) as soon as available, but in any event within 30 days after the end of each of the Fiscal Months of each fiscal year of the Parent (commencing with the Fiscal Month ended March 1, 2009) (i) a statement as to the book value of the Inventory held by the Loan Parties as of the end of such Fiscal Month for purposes of Section 7.16 hereof, and (ii) in the event that a Usage Event Period is in effect, a Consolidated balance sheet of the Parent and its Subsidiaries as at the end of such Fiscal Month, and the related Consolidated statements of income or operations, Shareholders’ Equity for such Fiscal Month, and for the portion of the Parent’s Fiscal Year then ended, setting forth in each case in comparative form the figures for (A) such period set forth in the projections delivered pursuant to Section 6.01(e) hereof, (B) the corresponding Fiscal Month of the previous Fiscal Year and (C) the corresponding portion of the previous fiscal year, all in reasonable detail, such Consolidated statements to be certified by a Responsible Officer of the Lead Borrower as having been prepared in good faith and consistent with prior practices;

(d) the financial and collateral reports described on Schedule 6.02 hereto, at the times set forth in such Schedule;

(e) (A) as soon as available, but in any event at least 30 days before the end of each Fiscal Year of the Parent, a forecast (including projected new Store openings) prepared by management of the Lead Borrower, for the immediately following Fiscal Year (including the fiscal year in which the Maturity Date occurs), of (i) Consolidated balance sheets and statements of income or operations and cash flows of the Parent and its Subsidiaries on a quarterly basis (provided, that, with respect to the projected Capital Expenditures set forth therein, such forecast shall be reasonably satisfactory to the Administrative Agent, and in all other respects shall be in form substantially similar to the forecast provided in connection with this Agreement prior to the Closing Date), and (ii) Consolidated working capital details (including, but not limited to, cash balance, Inventory balance by month, accounts payable balance, Loan balances and Letter of Credit forecasts), and summary income statements of the Parent and its Subsidiaries on a monthly basis (in form substantially similar to the forecast provided in connection with this Agreement prior to the Closing Date), and (B) a copy of any and all significant revisions made to such forecast with respect to such Fiscal Year, promptly upon request from the Administrative Agent.

6.02 Certificates; Other Information. Deliver to the Administrative Agent, in form and detail reasonably satisfactory to the Administrative Agent:

(a) [intentionally omitted];

(b) concurrently with the delivery of the financial statements referred to in Sections 6.01(a), (b) and (c)(ii), (i) a duly completed Compliance Certificate signed by a Responsible Officer of the Lead Borrower, which shall include (A) a certification as to the amount, if any, of rent under any Leases, and any obligations and liabilities with respect to Taxes, that have not been timely paid, (B) a certification as to the receipt of notice, if any, as to any material obligations or liabilities with respect to utilities that have not been timely paid, (C) a certification as to the receipt of notice, if any, as to any obligations or liabilities with respect to insurance premiums that have not been timely paid, (D) a certification as to the acquisition, if any, of any additional material Intellectual Property acquired since the date of the last similar certification, and (E) a report of any new Store openings or closings of any Store since the date of the last similar certification and (ii) in the case of any quarterly or annual financial statements, a copy of management’s discussion and analysis with respect to such financial statements. In the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Lead Borrower shall also provide a statement of reconciliation conforming such financial statements to GAAP;

(c) on the fifth Business Day of each Fiscal Month, a Borrowing Base Certificate (together with supporting source documents) showing the Borrowing Base as of the close of business as of the last day of the immediately preceding Fiscal Month, each Borrowing Base Certificate to be certified as complete and correct by a Responsible Officer of the Lead Borrower; provided that upon the occurrence and continuation of a Cash Dominion Event, such Borrowing Base Certificate (together with supporting source documents) shall be delivered on Wednesday of each week (or, if Wednesday is not a Business Day, on the next succeeding Business Day), as of the close of business on the immediately preceding Saturday;

(d) upon the request of the Administrative Agent or its auditors, appraisers, accountants, consultants or other representatives, copies of each Loan Party’s federal income tax returns, and any amendments thereto;

(e) promptly following the submission to the board of directors (but in no event later than five (5) Business Days thereafter), copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by its Registered Public Accounting Firm in connection with the accounts or books of the Loan Parties or any Subsidiary, or any audit of any of them, including, without limitation, specifying any Internal Control Event (as it relates only to financial reporting);

(f) promptly after the same are available, and in no event later than ten (10) Business Days after they are sent, made available, or publicly filed, notice of (and, at the request of the Administrative Agent, copies of) annual report, proxy or financial statement or other documents, report or communication sent to the stockholders of the Loan Parties, and copies of all annual, regular, periodic and special reports and registration statements which any Loan Party may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934 or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

(g) [intentionally omitted];

(h) promptly and in no event later than five (5) Business Days after they are sent, notice of (and, at the request of the Administrative Agent, copies of) any notice of default or other material notice, statement, report or other communication (other than periodic information and reports in the ordinary course) furnished to any holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit or similar agreement, in each case not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;

(i) as soon as available, but in any event within thirty (30) days after the end of each Fiscal Year of any Loan Party (or upon the request of the Administrative Agent or its auditors,

appraisers, accountants, consultants or other representatives), (i) a certificate executed by an authorized officer of the Lead Borrower certifying the existence and adequacy of the property and casualty insurance program carried by the Loan Parties and their Subsidiaries, and (ii) a written summary of said program identifying the name of each insurer, the number of each policy and expiration date of each policy, the amounts and types of each coverage, and a list of exclusions and deductibles for each policy, and containing such additional information as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably specify;

(j) promptly, and in any event within five (5) Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from any Governmental Authority (including, without limitation, the SEC (or comparable agency in any applicable non-U.S. jurisdiction)) concerning any proceeding with, or investigation or possible investigation or other inquiry (other than routine and periodic inquiries received in the ordinary course) by such Governmental Authority regarding financial or other operational results of any Loan Party or any Subsidiary thereof or any other matter which, in either case, could reasonably be expected to have a Material Adverse Effect; and

(k) promptly, such additional information regarding the business affairs, financial condition or operations of any Loan Party or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request, including, without limitation, the income level for each individual Store.

Financial statements and other documents required to be delivered pursuant to Sections 6.01 and Section 6.02 shall be delivered in accordance with Section 10.02(a). The Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Loan Parties with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

The Loan Parties hereby acknowledge that the Administrative Agent will make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Loan Parties hereunder.

6.03 Notices. Promptly notify the Administrative Agent:

(a) any Responsible Officer of a Loan Party becomes aware of the occurrence of any Default or Event of Default;

(b) any Responsible Officer of a Loan Party becomes aware of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including any matter arising from: (i) any breach or non-performance of, any default under, or termination of, a Material Contract or with respect to Material Indebtedness of any Loan Party or any Subsidiary thereof; (ii) any dispute, litigation, investigation, proceeding or suspension between any Loan Party or any Subsidiary thereof and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or any administrative or arbitration proceeding affecting any Loan Party or any Subsidiary thereof, including pursuant to any applicable Environmental Laws;

(d) any Responsible Officer of a Loan Party becomes aware of the occurrence of any ERISA Event;

(e) of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof;

(f) of any change in any Loan Party’s chief executive officer, chief financial officer or chairman of the board of directors;

(g) of the discharge by any Loan Party of its present Registered Public Accounting Firm or any withdrawal or resignation by such Registered Public Accounting Firm;

(h) of any collective bargaining agreement or other labor contract to which a Loan Party becomes a party, or the application for the certification of a collective bargaining agent, or any strike, lockout, slowdown or other material labor dispute against any Loan Party or any Subsidiary pending or, to the knowledge of any Loan Party, threatened;

(i) any Responsible Officer of a Loan Party becomes aware of the filing of any Lien for unpaid Taxes against any Loan Party;

(j) any Responsible Officer of a Loan Party becomes aware of any casualty or other insured damage to any material portion of the Collateral or the commencement of any action or proceeding for the taking of any interest in a material portion of the Collateral under power of eminent domain or by condemnation or similar proceeding or if any material portion of the Collateral is damaged or destroyed;

(k) [intentionally omitted]; and

(l) of any failure by any Loan Party to pay rent (other than rent which is withheld in connection with a good faith dispute arising in the ordinary course or business and for which appropriate reserves in conformity with GAAP have been established on the books of the applicable Loan Party) at any one or more of such Loan Party’s locations, if such failure continues for more than ten (10) days following the day on which such rent first came due.

Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Lead Borrower setting forth details of the occurrence referred to therein and stating what action the Lead Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

6.04 Payment of Obligations. Pay and discharge in full as the same shall become due and payable (subject to any applicable grace period, and ordinary and customary trade terms), all its obligations and liabilities, including (a) all Federal, state and other material tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, and (b) all lawful claims (including, without limitation, claims for labor, materials, supplies and claims of landlords, warehousemen, customs brokers, and carriers) which, if unpaid, would by law become a Lien upon its property, except, in each case, where (i) the validity or amount thereof (other than payroll taxes or taxes that are the subject of a United States federal tax lien) is being contested in good faith by appropriate proceedings diligently conducted, (ii) such Loan Party has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (iii) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation, (iv) no Lien has been filed with respect thereto (other than any Lien being contested in good faith with respect to labor, materials or supplies associated with any Real Estate of the Loan Parties ), and (v) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. The Lead Borrower will, upon request, furnish the Collateral Agent with proof satisfactory to the Collateral Agent indicating that the Loan Parties and their Subsidiaries have made the payments described in clause (a) above. Each Loan Party shall, and shall cause each of its Subsidiaries to, pay in full as the same shall become due and payable (subject to any applicable grace period, and ordinary and customary trade terms) all undisputed material accounts payable incident to the operations of such Person not referred to in this Section 6.04, above. Nothing contained herein shall be deemed to limit the rights of the Agents with respect to determining Reserves pursuant to this Agreement.

6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence under the Laws of the jurisdiction of its organization or formation except in a transaction permitted by Section 7.04 or 7.05; (b) maintain its good standing under

the Laws of the jurisdiction of its organization or formation except in a transaction permitted by Section 7.04 or 7.05; and (c) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

6.06 Maintenance of Properties.

(a) Keep its properties in such repair, working order and condition, and shall from time to time make such repairs, replacements, additions and improvements thereto, as are reasonably necessary for the efficient operation of its business and shall comply at all times in all material respects with all material franchises, licenses and leases to which it is party so as to prevent any loss or forfeiture thereof or thereunder, except where (i) compliance is at the time being contested in good faith by appropriate proceedings and (ii) failure to comply with the provisions being contested has not resulted, and which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

(b) Take all reasonable actions to possess and maintain all Intellectual Property material to the conduct of their respective businesses and own all right, title and interest in and to, or have a valid license for, all such Intellectual Property. No Loan Party nor any of its Subsidiaries shall take any action, or fail to take any action, that could reasonably be expected to (i) result in the invalidity, abandonment, misuse, lapse, or unenforceability of Intellectual Property which is material to the conduct of the business of the Loan Parties, taken as a whole, or (ii) knowingly infringe upon or misappropriate any rights of other Persons.

(c) Do all things reasonably necessary in order to comply with all Environmental Laws at any Real Property or otherwise in connection with their operations except where the noncompliance with which could not reasonably be expected to cause a Material Adverse Effect, and obtain all permits and other governmental authorizations for their operations under applicable Environmental Laws other than such permits and other authorizations the failure of which to obtain could not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Effect.

6.07 Maintenance of Insurance.

(a) Maintain with financially sound and reputable insurance companies reasonably acceptable to the Administrative Agent and not Affiliates of the Loan Parties, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business and operating in the same or similar locations or as is required by applicable Law, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons and as are reasonably acceptable to the Administrative Agent.

(b) Fire and extended coverage policies maintained with respect to any Collateral shall be endorsed or otherwise amended to include (i) lenders’ loss payable clause (regarding personal property), in form and substance satisfactory to the Collateral Agent, which endorsements or amendments shall provide that the insurer shall pay all proceeds otherwise payable to the Loan Parties under the policies directly to the Collateral Agent, (ii) a provision to the effect that none of the Loan Parties, Credit Parties or any other Person shall be a co-insurer and (iii) such other provisions as the Collateral Agent may reasonably require from time to time to protect the interests of the Credit Parties. Commercial general liability policies shall be endorsed to name the Collateral Agent as an additional insured. Business interruption policies shall name the Collateral Agent as a loss payee and shall be endorsed or amended to include (i) a provision that, from and after the Closing Date, the insurer shall pay all proceeds otherwise payable to the Loan Parties under the policies directly to the Collateral Agent, and (ii) such other provisions as the Collateral Agent may reasonably require from time to time to protect the interests of the Credit Parties. Each such policy referred to in this Section 6.07(b) shall also provide that it shall not be canceled, modified to reduce coverage or increase deductibles, or not renewed (i) by reason of nonpayment of premium except upon not less than ten (10) days’ prior written notice thereof by the insurer to the Collateral Agent (giving the Collateral Agent the right to cure defaults in the payment of premiums) or (ii) for any other reason except upon not less than thirty (30) days’ prior written notice thereof by the insurer to the Collateral Agent. The Lead Borrower shall deliver to the Collateral Agent,

prior to the cancellation, or non-renewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Collateral Agent, including an insurance binder) together with evidence satisfactory to the Collateral Agent of payment of the premium therefor.

(c) None of the Credit Parties, or their agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section 6.07. Each Loan Party shall look solely to its insurance companies or any other parties other than the Credit Parties for the recovery of such loss or damage and such insurance companies shall have no rights of subrogation against any Credit Party or its agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Loan Parties hereby agree, to the extent permitted by law, to waive their right of recovery, if any, against the Credit Parties and their agents and employees. The designation of any form, type or amount of insurance coverage by the any Credit Party under this Section 6.07 shall in no event be deemed a representation, warranty or advice by such Credit Party that such insurance is adequate for the purposes of the business of the Loan Parties or the protection of their properties.

(d) Maintain for themselves and their Subsidiaries, a Directors and Officers insurance policy, and a “Blanket Crime” policy including employee dishonesty, forgery or alteration, theft, disappearance and destruction, robbery and safe burglary, and computer fraud coverage with responsible companies in such amounts as are customarily carried by business entities engaged in similar businesses similarly situated, and will upon request by the Administrative Agent furnish the Administrative Agent certificates evidencing renewal of each such policy.

(e) Permit any representatives that are designated by the Collateral Agent to inspect the insurance policies maintained by or on behalf of the Loan Parties and to inspect books and records related thereto and any properties covered thereby. The Loan Parties shall pay the reasonable fees and expenses of any representatives retained by the Collateral Agent to conduct any such inspection.

6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted, such contest effectively suspends enforcement of the contested Laws, and adequate reserves have been set aside and maintained by the Loan Parties in connection therewith and in accordance with GAAP, and (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

6.09 Books and Records; Accountants.

(a) (i) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Loan Parties or such Subsidiary, as the case may be; and (ii) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Loan Parties or such Subsidiary, as the case may be.

(b) At all times retain a Registered Public Accounting Firm which is reasonably satisfactory to the Administrative Agent and shall instruct such Registered Public Accounting Firm to cooperate with, and be available to, the Administrative Agent or its representatives to discuss the Loan Parties’ financial performance, financial condition, operating results, controls, and such other matters, within the scope of the retention of such Registered Public Accounting Firm, as may be raised by the Administrative Agent. The Lead Borrower hereby irrevocably authorizes and directs all auditors, accountants, or other third parties to deliver to the Administrative Agent, at the Borrowers’ expense, copies of the Borrowers’ financial statements, papers related thereto, and other accounting records of any nature in their possession, and to disclose to the Administrative Agent any information they may have regarding the Collateral or the financial condition of the Borrowers.

6.10 Inspection Rights. (a) Permit representatives and independent contractors of the Administrative Agent to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and Registered Public Accounting Firm, all at the expense of the Loan Parties (such expenses to be reasonable) and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Lead Borrower; provided, however, that (i) so long as no Event of Default shall have occurred and be continuing, the Loan Parties shall not be obligated for expenses in connection with more than two (2) visits per Fiscal Year and (ii) when an Event of Default has occurred and is continuing, the Administrative Agent (or any of its representatives or independent contractors) may do any of the foregoing at the expense of the Loan Parties at any time during normal business hours and without advance notice.

(b) Upon the request of the Administrative Agent after reasonable prior notice, permit the Administrative Agent or professionals (including investment bankers, consultants, accountants, lawyers and appraisers) retained by the Administrative Agent to conduct appraisals, commercial finance examinations and other evaluations, including, without limitation, of (i) the Lead Borrower’s practices in the computation of the Borrowing Base and (ii) the assets included in the Borrowing Base and related financial information such as, but not limited to, sales, gross margins, payables, accruals and reserves. Subject to the following sentences, the Loan Parties shall pay the fees and expenses of the Administrative Agent or such professionals with respect to such evaluations and appraisals. Without limiting the foregoing, the Loan Parties acknowledge that the Administrative Agent may, in its discretion, undertake up to one (1) inventory appraisal and one (1) commercial finance examination each Fiscal Year at the Loan Parties’ expense. Notwithstanding anything to the contrary contained herein, the Administrative Agent may cause additional inventory appraisals and commercial finance examinations to be undertaken (x) as it in its discretion deems necessary or appropriate, at its own expense, or (y) at the expense of the Loan Parties, (A) at any time required by applicable Law, (B) up to two (2) inventory appraisals and two (2) commercial finance examinations each Fiscal Year, in any Fiscal Year when Excess Availability is at any time during such Fiscal Year greater than or equal an amount equal to 20% of the then applicable Borrowing Base and less than an amount equal to 50% of the then applicable Borrowing Base, and (C) up to three (3) inventory appraisals and three (3) commercial finance examinations each Fiscal Year, in any Fiscal Year when Excess Availability is at any time during such Fiscal Year less than an amount equal to 20% of the then applicable Borrowing Base, or an Event of Default shall have occurred.

6.11 Use of Proceeds. Use the proceeds of the Credit Extensions (a) to refinance all Indebtedness under the Existing Credit Agreement, (b) to finance transaction fees and expenses related hereto and the other Loan Documents, (c) to finance the working capital needs of the Loan Parties, including the purchase of Inventory, in each case in the ordinary course of business, (d) to finance Capital Expenditures of the Loan Parties, and (e) for general corporate purposes of the Loan Parties, in each case to the extent expressly permitted under applicable Law and the Loan Documents.

6.12 Additional Loan Parties. Notify the Administrative Agent at the time that any Person becomes a Subsidiary (other than an Immaterial Subsidiary), and promptly thereafter (and in any event within fifteen (15) days), cause any such Person (a) which is not a CFC, to (i) become a Loan Party by executing and delivering to the Administrative Agent a Joinder Agreement or such other document as the Administrative Agent shall reasonably request for such purpose, (ii) grant a Lien to the Collateral Agent on such Person’s assets to secure the Obligations, and (iii) deliver to the Administrative Agent documents of the types referred to in clauses (iii) and (iv) of Section 4.01(a) and, if requested by the Administrative Agent, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in this clause (a)), and (b) if any Equity Interests or Indebtedness of such Person are owned by or on behalf of any Loan

Party, to pledge such Equity Interests and promissory notes evidencing such Indebtedness (except that, if such Subsidiary is a CFC, the Equity Interests of such Subsidiary to be pledged may be limited to 65% of the outstanding voting Equity Interests of such Subsidiary and 100% of the non-voting Equity Interests of such Subsidiary and such time period may be extended based on local law or practice), in each case in form, content and scope reasonably satisfactory to the Administrative Agent. In no event shall compliance with this Section 6.12 waive or be deemed a waiver or Consent to any transaction giving rise to the need to comply with this Section 6.12 if such transaction was not otherwise expressly permitted by this Agreement or constitute or be deemed to constitute, with respect to any Subsidiary, an approval of such Person as a Borrower or permit the inclusion of any acquired assets in the computation of the Borrowing Base.

6.13 Cash Management.

(a) (i) On or prior to March 13, 2009, deliver to the Administrative Agent copies of notifications (each, a “DDA Notification”) substantially in the form attached hereto as Exhibit H which have been executed on behalf of such Loan Party and delivered to each depository institution listed on Schedule 5.21(a);

(ii) On or prior to March 13, 2009, deliver to the Administrative Agent copies of notifications (each, a “Credit Card Notification”), substantially in the form attached hereto as Exhibit G which have been executed on behalf of such Loan Party and delivered to such Loan Party’s credit card clearinghouses and processors listed on Schedule 5.21(b); and

(iii) On or prior to March 13, 2009, enter into a Blocked Account Agreement satisfactory in form and substance to the Agents with each Blocked Account Bank (collectively, the “Blocked Accounts”).

(b) (i) Each Credit Card Notification and DDA Notification shall require the ACH or wire transfer no less frequently than daily (and whether or not there are then any outstanding Obligations) to a Blocked Account of all payments due from credit card processors, and (ii) the Borrowers shall cause each depository institution listed on Schedule 5.21(a) to cause the ACH or wire transfer no less frequently than daily (and whether or not there are then any outstanding Obligations) to a Blocked Account of all amounts on deposit in each DDA in excess of the minimum balance permitted in accordance with Section 6.13(c).

(c) Each Blocked Account Agreement shall require the ACH or wire transfer no less frequently than daily (and whether or not there are then any outstanding Obligations) to the concentration account maintained by the Collateral Agent at Wells Fargo Bank (the “Concentration Account”), of all cash receipts and collections, including, without limitation, the following:

(i) all available cash receipts from the sale of Inventory and other assets;

(ii) all proceeds of collections of Accounts;

(iii) all Net Proceeds, and all other cash payments received by a Loan Party from any Person or from any source or on account of any sale or other transaction or event, including, without limitation, any Prepayment Event;

(iv) the then contents of each DDA (net of any minimum balance, not to exceed $2,500.00, as may be required to be kept in the subject DDA by the depository institution at which such DDA is maintained);

(v) the then entire ledger balance of each Blocked Account (net of any minimum balance, not to exceed $2,500.00, as may be required to be kept in the subject Blocked Account by the Blocked Account Bank); and

(vi) the proceeds of all credit card charges.

(d) [Intentionally Omitted].

(e) The Concentration Account shall at all times be under the sole dominion and control of the Collateral Agent. The Loan Parties hereby acknowledge and agree that (i) without limiting the provisions of Section 2.05(d), the Loan Parties have no right of withdrawal from the Concentration Account, (ii) the funds on deposit in the Concentration Account shall at all times be collateral security for

all of the Obligations and (iii) the funds on deposit in the Concentration Account shall be applied as provided in Section 2.05(e). In the event that, notwithstanding the provisions of this Section 6.13, any Loan Party receives or otherwise has dominion and control of any such proceeds or collections, such proceeds and collections shall be held in trust by such Loan Party for the Collateral Agent, shall not be commingled with any of such Loan Party’s other funds or deposited in any account of such Loan Party and shall, not later than the Business Day after receipt thereof, be deposited into the Concentration Account or dealt with in such other fashion as such Loan Party may be instructed by the Collateral Agent.

(f) Upon the request of the Administrative Agent, the Loan Parties shall cause bank statements and/or other reports to be delivered to the Administrative Agent not less often than monthly, accurately setting forth all amounts deposited in each Blocked Account to ensure the proper transfer of funds as set forth above.

6.14 Information Regarding the Collateral.

(a) Furnish to the Administrative Agent at least thirty (30) days prior written notice of any change in: (i) any Loan Party’s name as it appears in official filings in the state of incorporation or other organization; (ii) the location of any Loan Party’s chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or distribution center at which Collateral owned by it is located (including the establishment of any such new office or distribution center); (iii) any Loan Party’s type of entity or jurisdiction of incorporation or formation; or (iv) any Loan Party’s Federal Taxpayer Identification Number or organizational identification number assigned to it by its state of organization. The Loan Parties agree not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the UCC or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected first priority security interest in all the Collateral for its own benefit and the benefit of the other Credit Parties.

(b) From time to time as may be reasonably requested by the Administrative Agent, the Lead Borrower shall supplement each Schedule to this Agreement and the other Loan Documents, or any representation herein or in any other Loan Document, with respect to any matter arising after the Closing Date that, if existing or occurring on the Closing Date, would have been required to be set forth or described in such Schedule or as an exception to such representation or that is necessary to correct any information in such Schedule or representation which has been rendered inaccurate thereby (and, in the case of any supplements to any Schedule, such Schedule shall be appropriately marked to show the changes made therein). Notwithstanding the foregoing, no supplement or revision to any Schedule or representation shall be deemed the Credit Parties’ consent to the matters reflected in such updated Schedules or revised representations nor permit the Loan Parties to undertake any actions otherwise prohibited hereunder or fail to undertake any action required hereunder from the restrictions and requirements in existence prior to the delivery of such updated Schedules or such revision of a representation; nor shall any such supplement or revision to any Schedule or representation be deemed the Credit Parties’ waiver of any Default resulting from the matters disclosed therein.

6.15 Physical Inventories.

(a) Cause not less than one (1) physical inventory of all the Stores to be undertaken in each twelve (12) month period and cause periodic cycle counts to be taken at each distribution center, in each case at the expense of the Loan Parties and consistent with past practices and following such methodology as is consistent with the methodology used in the immediately preceding inventory or cycle count, as the case may be, provided, however, upon the occurrence and during the continuation of a Cash Dominion Event (i) at the request of the Collateral Agent, cause one (1) physical inventory to be taken at each distribution center, at the expense of the Loan Parties, to be completed (with final results) within 30 days following the end of the Fiscal Month in which the Collateral Agent provided such request, or (ii) if the Collateral Agent does not request a physical inventory of each distribution center pursuant to the immediately preceding clause (i), cause a physical inventory of each distribution center, at the expense of the Loan Parties, to be performed concurrently with the next physical inventory taken of the Stores provided, further, however, if the Collateral Agent should have a good faith belief that the accuracy or

completeness of the inventory or cycle count practices or methodology is unreliable, all such inventory and cycle count shall be subsequently conducted by such inventory takers and in accordance with such practices and methodology, as are reasonably satisfactory to the Collateral Agent, in each case at the expense of the Loan Parties. The Collateral Agent, at the expense of the Loan Parties, may participate in and/or observe each scheduled physical count of Inventory which is undertaken on behalf of any Loan Party. The Lead Borrower, within fifteen (15) Business Days following the completion of each such inventory, shall provide the Collateral Agent with a reconciliation of the results of such inventory (as well as of any other physical inventory or cycle counts undertaken by a Loan Party) and shall post such results to the Loan Parties’ stock ledgers and general ledgers, as applicable.

(b) The Collateral Agent, in its Permitted Discretion, if any Default or Event of Default shall have occurred and be continuing, may cause additional such inventories to be taken as the Collateral Agent determines (each, at the expense of the Loan Parties).

6.16 Environmental Laws.

Except as could not reasonably be expected to have a Material Adverse Effect (a) conduct its operations and keep and maintain its Real Estate in material compliance with all Environmental Laws; (b) obtain and renew all environmental permits appropriate or necessary for its operations and properties; and (c) implement any and all investigation, remediation, removal and response actions that are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws pertaining to the presence, generation, treatment, storage, use, disposal, transportation or release of any Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate, provided, however, that neither a Loan Party nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and adequate reserves have been set aside and are being maintained by the Loan Parties with respect to such circumstances in accordance with GAAP.

6.17 Further Assurances.

(a) Execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements and other documents), that may be required under any applicable Law, or which any Agent may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. The Loan Parties also agree to provide to the Agents, from time to time upon request, evidence satisfactory to the Agents as to the perfection and priority of the Liens created or intended to be created by the Security Documents.

(b) If any material personal property assets are acquired by any Loan Party after the Closing Date (other than assets constituting Collateral under the Security Documents that become subject to the Lien of the Security Documents upon acquisition thereof), notify the Agents thereof, and the Loan Parties will cause such assets to be subjected to a Lien securing the Obligations and will take such actions as shall be necessary or shall be requested by any Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section 6.17, all at the expense of the Loan Parties. In no event shall compliance with this Section 6.17(b) waive or be deemed a waiver or consent to any transaction giving rise to the need to comply with this Section 6.17(b) if such transaction was not otherwise expressly permitted by this Agreement or constitute or be deemed to constitute consent to the inclusion of any acquired assets in the computation of the Borrowing Base.

(c) [Intentionally Omitted].

(d) To the extent that the Administrative Agent agrees (subject to the proviso below), in its sole discretion at the request of the Lead Borrower, to include in transit Inventory in the Borrowing Base, upon the request of the Collateral Agent, use commercially reasonable efforts to cause each of its customs brokers, freight forwarders and other carriers to deliver an agreement (including, without limitation, a Customs Broker Agreement) to the Collateral Agent covering such matters and in such form as the Collateral Agent may reasonably require, provided, however, notwithstanding anything to the contrary, unless and until the Administrative Agent shall have received such an agreement (including,

without limitation, a Customs Broker Agreement) covering such matters and in such form as the Collateral Agent may reasonably require, no transit Inventory shall be included in the Borrowing Base.

(e) Upon the request of the Collateral Agent, made in its Permitted Discretion, the Loan Parties shall use commercially reasonable efforts to cause the landlord of any such leased property to deliver a Collateral Access Agreement to the Collateral Agent in such form as the Collateral Agent may reasonably require.

6.18 Compliance with Terms of Leaseholds.

Except as otherwise expressly permitted hereunder (including, without limitation, in connection with Store closings permitted pursuant to clause (b) of the definition of Permitted Dispositions), make all payments and otherwise perform all obligations in respect of all Leases of real property to which any Loan Party is a party, keep such Leases in full force and effect and not allow such Leases to lapse or be terminated or any rights to renew such Leases to be forfeited or cancelled, notify the Administrative Agent of any default by any party with respect to such Leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect. In the event that the Borrowers become delinquent in their rent payments, the Administrative Agent may establish additional Reserves against the Borrowing Base for the amount of any landlord liens arising from such delinquency.

6.19 Material Contracts. Perform and observe all of the terms and provisions of each Material Contract to be performed or observed by any Loan Party or any of its Subsidiaries, take all such action required on the part of any Loan Party or any of its Subsidiaries to maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Material Contract such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

6.20 ERISA.

(a) Comply in all material respects with the applicable provisions of ERISA or any other applicable federal, state, provincial, local or foreign law dealing with such matters, except where the failure to comply could reasonably be expected to result in a claim or liability against any Loan Party or its Affiliates of $1,000,000 or less.

(b) Pay and discharge promptly any liability imposed upon it pursuant to the provisions of Title IV of ERISA; provided, however, that neither any Loan Party nor any ERISA Affiliate or any other Subsidiary of the Loan Parties shall be required to pay any such liability if (i) the amount, applicability or validity thereof shall be diligently contested in good faith by appropriate proceedings, and (ii) such Person shall have set aside on its books reserves, in the opinion of the independent certified public accountants of such Person, adequate with respect thereto.

(c) Deliver to the Collateral Agent, promptly, and in any event within 20 days, after (i) the occurrence of any Reportable Event in respect of a Plan, a copy of the materials that are filed with the PBGC, (ii) any Loan Party or any ERISA Affiliate or an administrator of any Plan files with participants, beneficiaries or the PBGC a notice of intent to terminate any such Plan, a copy of any such notice, (iii) the receipt of notice by any Loan Party or any ERISA Affiliate or an administrator of any Plan from the PBGC of the PBGC’s intention to terminate any Plan or to appoint a trustee to administer any such Plan, a copy of such notice, (iv) the request by any Lender of copies of each annual report that is

filed on Treasury Form 5500 with respect to any Plan, together with certified financial statements (if any) for the Plan and any actuarial statements on Schedule B to such Form 5500, (v) any Loan Party or any ERISA Affiliate knows or has reason to know of any event or condition which could reasonably be expected to constitute grounds under the provisions of Section 4042 of ERISA for the termination of (or the appointment of a trustee to administer) any Plan, an explanation of such event or condition, (vi) the receipt by any Loan Party or any ERISA Affiliate of an assessment of withdrawal liability under Section 4201 of ERISA from a Multiemployer Plan, a copy of such assessment, (vii) any Loan Party or any ERISA Affiliate knows or has reason to know of any event or condition which would reasonably be expected to cause any one of them to incur a liability under Section 4062, 4063, 4064 or 4069 of ERISA or Section 412(n) or 4971 of the Code, an explanation of such event or condition, or (viii) any Loan Party or any ERISA Affiliate knows or has reason to know that an application is to be, or has been, made to the Secretary of the Treasury for a waiver of the minimum funding standard under the provisions of Section 412 of the Code, a copy of such application, and in each case described in clauses (i) through (iii) and (v) through (vii) together with a statement signed by an officer setting forth details as to such Reportable Event, notice, event or condition and the action which such Loan Party and any ERISA Affiliate proposes to take with respect thereto.

6.21 Insurance and Condemnation Proceeds.

Prior to the occurrence of a Cash Dominion Event, the proceeds of any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of a Loan Party, shall be utilized for purposes of replacing or repairing the assets in respect of which such proceeds, awards or payments were received within 180 days of the occurrence of the damage to or loss of the assets being repaired or replaced.

6.22 Post-Closing Covenants.

(a) On or before February 20, 2009, the Lead Borrower shall deliver to the Collateral Agent, a certificate evidencing the stock of Coldwater Creek The Spa Inc., an Idaho corporation, being pledged to the Collateral Agent under the Pledge Agreement, together with undated stock powers executed in blank, in form and substance reasonably satisfactory to the Administrative Agent.

(b) On or before March 13, 2009, the Lead Borrower shall deliver to the Collateral Agent, an agreement, in form and substance reasonably satisfactory to the Collateral Agent, establishing Control (as defined in the Security Agreement) over Securities Account #12309373, maintained in the name of the Parent at Wells Fargo Brokerage Services, LLC.

(c) On or before May 13, 2009, the Lead Borrower shall provide the Administrative Agent with evidence, in form a substance reasonably satisfactory to the Administrative Agent, that the legal existence of CWC Sourcing CA Limitada, an entity formed under the laws of Guatemala, has been terminated.

ARTICLE VII

NEGATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnification obligations for which no claim has been asserted), or any Letter of Credit shall remain outstanding, no Loan Party shall, nor shall it permit any Subsidiary to, directly or indirectly:

7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired or sign or file or suffer to exist under the UCC or any similar Law or statute of any jurisdiction a financing statement that names any Loan Party or any Subsidiary thereof as debtor; sign or suffer to exist any security agreement authorizing any Person thereunder to file such financing statement; sell any of its property or

assets subject to an understanding or agreement (contingent or otherwise) to repurchase such property or assets with recourse to it or any of its Subsidiaries; or assign or otherwise transfer any accounts or other rights to receive income, other than, as to all of the above, Permitted Encumbrances.

7.02 Investments. Have outstanding, make, acquire or hold any Investment (or become contractually committed to do so), directly or indirectly, or incur any liabilities (including contingent obligations) for or in connection with any Investment, except Permitted Investments.

7.03 Indebtedness; Disqualified Stock

Create, incur, assume, guarantee, suffer to exist or otherwise become or remain liable with respect to, any Indebtedness (except Permitted Indebtedness) or issue Disqualified Stock.

7.04 Fundamental Changes. Merge, dissolve, liquidate, wind up, consolidate with or into another Person, reorganize, enter into a plan of reorganization, recapitalization or reclassify its Equity Interests (or agree to do any of the foregoing, unless such agreement provides as a condition to the consummation of the transaction that either (y) the Required Lenders have consented in writing, or (z) (i) the Aggregate Commitments have been terminated or will be terminated concurrently with such effectiveness, (ii) all of the Secured Obligations (other than contingent indemnification obligations for which no claim has been asserted) have been indefeasibly paid in full in cash or will be indefeasibly paid in full in cash concurrently with such effectiveness, (iii) all L/C Obligations have been, or will be concurrently with such effectiveness, reduced to zero (or fully Cash Collateralized or supported by another letter of credit in a manner reasonably satisfactory to the L/C Issuer and the Administrative Agent, and (iv) the Administrative Agent has, or will have concurrently with such effectiveness, no further obligation to cause the L/C Issuer to issue Letters of Credit under the Credit Agreement), except that, so long as no Default or Event of Default shall have occurred and be continuing prior to or immediately after giving effect to any action described below or would result therefrom:

(a) any Subsidiary that is not a Loan Party may merge with (i) a Loan Party, provided that the Loan Party shall be the continuing or surviving Person (or the surviving Person shall become a Loan Party hereunder and otherwise satisfy the requirements of Section 6.12 upon the consummation of such merger) and if a Borrower is party to such merger, such Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries other than a Loan Party, provided that in each case, to the extent that any wholly-owned Subsidiary is merging with another Subsidiary, a wholly-owned Subsidiary shall be the continuing or surviving Person;

(b) any Loan Party may merge into any other Loan Party; provided that in the case of any merger involving a Borrower, such Borrower shall be the continuing or surviving Person;

(c) any Borrower may merge into any other Borrower;

(d) in connection with a Permitted Acquisition, any Loan Party other than a Borrower may merge with or into or consolidate with any other Person or permit any other Person to merge with or into or consolidate with it; provided that the Person surviving such merger shall be a Loan Party;

(e) any CFC that is not a Loan Party may merge into any CFC that is not a Loan Party; and

(f) any Subsidiary or any Loan Party (other than a Borrower) constituting an Immaterial Subsidiary may be dissolved.

7.05 Dispositions. Make any Disposition or enter into any agreement to make any Disposition (unless such agreement provides as a condition to the consummation of the transaction that either (y) the Required Lenders have consented in writing, or (z) (i) the Aggregate Commitments have been terminated or will be terminated concurrently with such

effectiveness, (ii) all of the Secured Obligations (other than contingent indemnification obligations for which no claim has been asserted) have been indefeasibly paid in full in cash or will be indefeasibly paid in full in cash concurrently with such effectiveness, (iii) all L/C Obligations have been, or will be concurrently with such effectiveness, reduced to zero (or fully Cash Collateralized or supported by another letter of credit in a manner reasonably satisfactory to the L/C Issuer and the Administrative Agent, and (iv) the Administrative Agent has, or will have concurrently with such effectiveness, no further obligation to cause the L/C Issuer to issue Letters of Credit under the Credit Agreement), except Permitted Dispositions.

7.06 Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that, so long as no Default or Event of Default shall have occurred and be continuing prior to or immediately after giving effect to any action described below or would result therefrom:

(a) each (i) Loan Party may make Restricted Payments to any other Loan Party, and (ii) Subsidiary of a Loan Party may make Restricted Payments to any other Loan Party;

(b) the Loan Parties and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;

(c) if the Restricted Preferred Equity Dividend Conditions are satisfied, the Parent may make cash dividend payments to the holders of its Equity Interests (other than the holders of its common stock), issued after the Closing Date;

(d) if the Restricted Payment Conditions are satisfied, the Parent and its Subsidiaries may purchase or redeem Equity Interests issued by it;

(e) if the Restricted Payment Conditions are satisfied, the Parent and its Subsidiaries may declare and pay cash dividends to the holders of its common stock;

(f) the Parent my declare and make dividend payments or other Distributions in preferred Equity Interests that is not redeemable for cash in connection with a “poison pill” so long as no Change of Control could reasonably be expected to occur as a result of the issuance of any such preferred Equity Interests or the conversion of any thereof; and

(g) in connection with any stock split transaction consummated by the Parent, the Parent may make cash payments for the retirement of any fractional Equity Interests resulting therefrom; provided, however that such cash payments shall not exceed $25,000 in the aggregate following the Closing Date.

The Loan Parties shall provide the Administrative Agent with written notice of any Restricted Payment, in each case as otherwise permitted pursuant to Sections 7.06(c), 7.06(d), 7.06(e) or 7.06(f), no less than five (5) Business Days prior to the making thereof.

7.07 Prepayments of Indebtedness. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner any Indebtedness, or make any payment in violation of any subordination terms of any Subordinated Indebtedness, except (a) as long as no Event of Default then exists or would result therefrom, regularly scheduled or mandatory repayments, repurchases, redemptions or defeasances of Permitted Indebtedness, (b) voluntary prepayments, repurchases, redemptions or defeasances of Permitted Indebtedness (but excluding on account of any Subordinated Indebtedness) as long as the Payment Conditions are satisfied, and (c) refinancings and refundings of such Indebtedness in compliance with Section 7.03.

7.08 Change in Nature of Business.

Engage in any line of business different from the business conducted by the Loan Parties and their Subsidiaries on the date hereof or any business substantially related or incidental thereto.

7.09 Transactions with Affiliates. Enter into, renew, extend or be a party to any transaction of any kind with any Affiliate of any Loan Party, whether or not in the ordinary course of business, other than on fair and reasonable terms that are fully disclosed to the Administrative Agent, and that are no less favorable to the Loan Parties or such Subsidiary than would be obtainable by the Loan Parties or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate, provided that the foregoing restriction shall not apply to (i) a transaction between or among the Loan Parties. (ii) transactions between or among any Subsidiaries that are not Loan Parties, (iii) Permitted Investments of the type described in clause (l) of the definition thereof, (iv) Restricted Payments permitted pursuant to Section 7.06, (v) the payment of director and officer compensation (including bonuses) and other benefits (including retirement, health, stock option and other benefit plans) and indemnification arrangements, in each case under this clause (v), made in the ordinary course of business and consistent with industry practice, and (vi) Permitted Investments of the type described in clause (g) of the definition thereof.

7.10 Burdensome Agreements. Enter into or permit to exist any Contractual Obligation (other than this Agreement or any other Loan Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments or other distributions to any Loan Party or to otherwise transfer property to or invest in a Loan Party, (ii) of any Subsidiary to Guarantee the Obligations, (iii) of any Subsidiary to make or repay loans to a Loan Party, or (iv) of the Loan Parties or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person in favor of the Collateral Agent; provided, however, that this clause (iv) shall not prohibit (I) any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under clauses (c) or (f) of the definition of Permitted Indebtedness solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness; or (II) the existence of or entry into of licenses, leases or other contracts entered into in the ordinary course of business containing customary restrictions on the assignment of such license, lease or contract; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person.

7.11 Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund Indebtedness originally incurred for such purpose.

7.12 Amendment of Material Documents.

Amend, modify or waive any of a Loan Party’s rights under (a) its Organization Documents, or (b) any Material Contract or Material Indebtedness (other than on account of any refinancing thereof otherwise permitted hereunder), in each case to the extent that such amendment, modification or waiver would be reasonably likely to have a Material Adverse Effect.

7.13 Fiscal Year.

Change the Fiscal Year of any Loan Party, or the accounting policies or reporting practices of the Loan Parties, except as required by GAAP.

7.14 Deposit Accounts; Blocked Accounts; Credit Card Processors.

(a) Permit any funds to be deposited to new DDAs or Blocked Accounts unless the Loan Parties shall have delivered to the Collateral Agent appropriate DDA Notifications or Blocked Account Agreements consistent with the provisions of Section 6.13.

(b) Enter into new agreements with credit card processors other than the ones expressly contemplated herein or in Section 6.13 hereof unless the Loan Parties shall have delivered to the Collateral Agent appropriate Credit Card Notifications consistent with the provisions of Section 6.13.

7.15 Consignments. Consign any Inventory or sell any Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale (it being understood that customer return and exchange policies relating to the sale of Inventory in the ordinary course of business shall not be prohibited by this Section 7.15).

7.16 Inventory Book Value. Permit the book value of the Borrowers’ Inventory, as reported pursuant to Section 6.01(c), at any time to be less than or equal to $95,000,000.

7.17 Minimum Availability. Permit Excess Availability at any time to be less than an amount equal to 15% of the then applicable Loan Cap.

7.18 Capital Expenditures. Make Capital Expenditures in each of the following Fiscal Years in excess of the applicable amount set forth below:

Fiscal Year Ending On or About		Maximum Capital Expenditures
January 31, 2010		$36,000,000
January 31, 2011		An amount which is equal to 120% of the projected Capital Expenditures for the Fiscal Year ending January 31, 2011, as set forth in the forecast delivered in accordance with Section 6.01(e), and as such projected Capital Expenditures are reasonably satisfactory to the Administrative Agent.
January 31, 2012		An amount which is equal to 120% of the projected Capital Expenditures for the Fiscal Year ending January 31, 2012, as set forth in the forecast delivered in accordance with Section 6.01(e), and as such projected Capital Expenditures are reasonably satisfactory to the Administrative Agent.

provided, however, the Loan Parties shall not be subject to the restrictions of this Section 7.18 if the Loan Parties maintain a Fixed Charge Coverage, calculated as of the last day of each quarter on a trailing twelve (12) month Consolidated basis, during the Fiscal Years set forth above, of greater than 1.00:1.00.

7.19 Loan Restriction.

Provide notice requesting, or otherwise incur, any Loan for a period of ninety (90) consecutive days after the Parent or any of its Subsidiaries shall have entered into any transaction, or made any Restricted Payment of the type specified in Section 7.06(d) or (e).

ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

8.01 Events of Default. Any of the following shall constitute an Event of Default:

(a) Non-Payment. The Borrowers or any other Loan Party fails to pay when and as required to be paid herein, (i) any amount of principal of any Loan or any L/C Obligation, or deposit any funds as Cash Collateral in respect of L/C Obligations, or (ii) any interest on any

Loan or on any L/C Obligation, or any fee due hereunder, or (iii) any other amount payable hereunder or under any other Loan Document; or

(b) Specific Covenants. (i) Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Sections 6.01, 6.02(b), 6.02(c), 6.03, 6.05(a), 6.07 (other than in connection with the last sentence of clause (b) thereof), 6.10, 6.11, 6.12, 6.13or Article VII of this Agreement; or (ii) any of the Loan Parties fails to perform or observe any term, covenant or agreement contained in Sections 4.04, 4.10(a) and 5.01 of the Security Agreement to which it is a party; or

(c) Additional Covenants. Any Loan Party fails to perform or observe any term, covenant or agreement contained in Sections 6.02 or 6.05 (not specified in subsection (b) above) contained in this Agreement and such failure continues for fifteen (15) days; or

(d) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a), (b) or (c) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty (30) days; or

(e) Material Impairment. Any material impairment of the priority of the Credit Parties’ security interests in the Collateral; or

(f) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith (including, without limitation, any Borrowing Base Certificate) shall be incorrect or misleading in any material respect when made or deemed made; or

(g) Cross-Default. (i) Any Loan Party or any Subsidiary thereof (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any (x) Material Indebtedness, or (y) other Indebtedness, to the extent that such failure could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (other than Indebtedness hereunder and Indebtedness under Swap Contracts), including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement, or (B) fails to observe or perform any other agreement or condition relating to any such Material Indebtedness (other than Indebtedness hereunder and Indebtedness under Swap Contracts) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Material Indebtedness or the beneficiary or beneficiaries of any Guarantee thereof (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined); or

(h) Insolvency Proceedings, Etc. Any Loan Party or any of its Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Laws, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or a proceeding shall be commenced or a petition filed, without the application or consent of such Person, seeking or requesting the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed and the appointment continues undischarged, undismissed or unstayed for 30 calendar days

(provided, however, that, during the pendency of such period, the Credit Parties shall be relieved of their obligation to extend credit hereunder) or an order or decree approving or ordering any of the foregoing shall be entered; or any proceeding under any Debtor Relief Laws relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 30 calendar days (provided, however, that, during the pendency of such period, the Credit Parties shall be relieved of their obligation to extend credit hereunder), or an order for relief is entered in any such proceeding; or

(i) Inability to Pay Debts; Attachment. (i) Any Loan Party becomes unable or admits in writing its inability or fails generally to pay its debts as they become due in the ordinary course of business, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person; or

(j) Judgments. There is entered against any Loan Party or any Subsidiary thereof (i) one or more judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding $3,000,000 (to the extent not covered by independent third-party insurance as to which the insurer is rated at least “A” by A.M. Best Company, has been notified of the potential claim and does not dispute coverage), or (ii) any one or more non-monetary judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect; or

(k) [Intentionally Omitted]; or

(l) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $500,000 or which would reasonably likely result in a Material Adverse Effect, or (ii) a Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $100,000 or which would reasonably likely result in a Material Adverse Effect; or

(m) Invalidity of Loan Documents. (i) Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document or seeks to avoid, limit or otherwise adversely affect any Lien purported to be created under any Security Document; or (ii) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party or any other Person not to be, a valid and perfected Lien on any Collateral to the extent required by the applicable Security Document, with the priority required by the applicable Security Document; or

(n) Change of Control. There occurs any Change of Control; or

(o) Cessation of Business. Except as otherwise expressly permitted hereunder, the Loan Parties, taken as a whole, shall take any action to suspend the operation of its business in the ordinary course, liquidate all or a material portion of its assets or Store locations, or employ an agent or other third party to conduct a program of closings, liquidations or “Going-Out-Of-Business” sales of any material portion of its business; or

(p) Loss of Collateral. There occurs any uninsured loss to any material portion of the Collateral; or

(q) Breach of Contractual Obligation. Any Loan Party or any Subsidiary thereof fails to make any undisputed payment when due in respect of any Material Contract or fails to observe or perform any other material agreement or condition relating to any such Material Contract or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause the counterparty to such Material Contract to terminate such Material Contract in accordance with its terms; or

(r) Indictment. The indictment or institution of any legal process or proceeding against, any Loan Party or any Subsidiary thereof, under any federal, state or municipal criminal statute, rule, regulation, order, or other requirement having the force of law for a felony;

(s) Guaranty. The termination or attempted termination of any Facility Guaranty other than in accordance with the terms of the Loan Documents; or

(t) Subordination. (i) The subordination provisions of the documents evidencing or governing any Subordinated Indebtedness (the “Subordinated Provisions”) shall, in whole or in part, terminate, cease to be effective or cease to be legally valid, binding and enforceable against any holder of the applicable Subordinated Indebtedness; or (ii) any Borrower or any other Loan Party shall, directly or indirectly, (A) make any payment on account of any Subordinated Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent that such payment is permitted by the terms of the Subordinated Provisions applicable to such Subordinated Indebtedness or (B) disavow or contest in any manner (x) the effectiveness, validity or enforceability of any of the Subordination Provisions, (y) that the Subordination Provisions exist for the benefit of the Credit Parties, or (z) that all payments of principal of or premium and interest on the applicable Subordinated Indebtedness, or realized from the liquidation of any property of any Loan Party, shall be subject to any of the Subordination Provisions.

8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent may, or, at the request of the Required Lenders shall, take any or all of the following actions:

(a) declare the Commitments of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such Commitments and obligation shall be terminated;

(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Loan Parties;

(c) require that the Loan Parties Cash Collateralize the L/C Obligations; and

(d) whether or not the maturity of the Obligations shall have been accelerated pursuant hereto, proceed to protect, enforce and exercise all rights and remedies of the Credit Parties under this Agreement, any of the other Loan Documents or applicable Law, including, but not limited to, by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Loan Documents or any instrument pursuant to which the Obligations are evidenced, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Credit Parties;

provided, however, that upon the entry of an order for relief with respect to any Loan Party or any Subsidiary thereof under the Bankruptcy Code of the United States of America, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Loan Parties to Cash Collateralize the L/C Obligations as

aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.

No remedy herein is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of Law.

8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations (excluding the Other Liabilities) constituting fees, indemnities, Credit Party Expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and the Collateral Agent and amounts payable under Article III) due and payable to the Administrative Agent and the Collateral Agent, each in its capacity as such;

Second, to payment of that portion of the Obligations (excluding the Other Liabilities) constituting indemnities, Credit Party Expenses, and other amounts (other than principal, interest and fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them;

Third, to the extent not previously reimbursed by the Lenders, to payment to the Lenders of that portion of the Obligations constituting principal and accrued and unpaid interest on any Permitted Overadvances, ratably among the Lenders in proportion to the amounts described in this clause Third payable to them;

Fourth, to the extent that Swing Line Loans have not been refinanced by a Committed Loan, payment to the Swing Line Lender of that portion of the Obligations constituting accrued and unpaid interest on the Swing Line Loans;

Fifth, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Committed Loans, L/C Borrowings and other Obligations, and fees (including Letter of Credit Fees but excluding any Early Termination Fees), ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Fifth payable to them;

Sixth, to the extent that Swing Line Loans have not been refinanced by a Committed Loan, to payment to the Swing Line Lender of that portion of the Obligations constituting unpaid principal of the Swing Line Loans;

Seventh, to payment of that portion of the Obligations constituting unpaid principal of the Committed Loans and L/C Borrowings, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Seventh held by them;

Eighth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit;

Ninth, to payment of all other Obligations (including without limitation the cash collateralization of unliquidated indemnification obligations as provided in Section 10.04, but excluding any Other Liabilities), ratably among the Credit Parties in proportion to the respective amounts described in this clause Ninth held by them;

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Tenth, to payment of that portion of the Obligations arising from Cash Management Services to the extent secured under the Security Documents, ratably among the Credit Parties in proportion to the respective amounts described in this clause Tenth held by them;

Eleventh, to payment of all other Obligations arising from Bank Products to the extent secured under the Security Documents, ratably among the Credit Parties in proportion to the respective amounts described in this clause Eleventh held by them; and

Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Loan Parties or as otherwise required by Law.

Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Eighth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.

ARTICLE IX

ADMINISTRATIVE AGENT

9.01 Appointment and Authority.

(a) Each of the Lenders and the L/C Issuer hereby irrevocably appoints Wells Fargo Retail Finance, LLC to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. Except as provided in Section 9.06, the provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and no Loan Party or any Subsidiary thereof shall have rights as a third party beneficiary of any of such provisions.

(b) Each of the Lenders (in its capacities as a Lender), Swing Line Lender and the L/C Issuer hereby irrevocably appoints Wells Fargo Retail Finance, LLC as Collateral Agent and authorizes the Collateral Agent to act as the agent of such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Collateral Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Collateral Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Collateral Agent), shall be entitled to the benefits of all provisions of this Article IX and Article X(including Section 10.04(c)), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents, as if set forth in full herein with respect thereto.

9.02 Rights as a Lender. The Persons serving as the Agents hereunder shall have the same rights and powers in their capacity as a Lender as any other Lender and may exercise the same as though they were not the Administrative Agent or the Collateral Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent or the Collateral Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Loan Parties or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent or the Collateral Agent hereunder and without any duty to account therefor to the Lenders.

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9.03 Exculpatory Provisions. The Agents shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Agents:

(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent or the Collateral Agent, as applicable, is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that no Agent shall be required to take any action that, in its respective opinion or the opinion of its counsel, may expose such Agent to liability or that is contrary to any Loan Document or applicable Law; and

(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Loan Parties or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent, the Collateral Agent or any of its Affiliates in any capacity.

No Agent shall be liable for any action taken or not taken by it (i) with the Consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a final and non-appealable judgment of a court of competent jurisdiction.

The Agents shall not be deemed to have knowledge of any Default unless and until notice describing such Default is given to such Agent by the Loan Parties, a Lender or the L/C Issuer. In the event that the Agents obtains such actual knowledge or receives such a notice, the Agents shall give prompt notice thereof to each of the other Credit Parties. Upon the occurrence and during the continuance of an Event of Default, the Agents shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders. Unless and until the Agents shall have received such direction, the Agents may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to any such Default or Event of Default as it shall deem advisable in the best interest of the Credit Parties. In no event shall the Agents be required to comply with any such directions to the extent that any Agent believes that its compliance with such directions would be unlawful.

The Agents shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or the creation, perfection or priority of any Lien purported to be created by the Security Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agents.

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9.04 Reliance by Agents.

Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including, but not limited to, any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received written notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. Each Agent may consult with legal counsel (who may be counsel for any Loan Party), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

9.05 Delegation of Duties. Each Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by such Agent. Each Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Agents and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as such Agent.

9.06 Resignation of Agents. Either Agent may at any time give written notice of its resignation to the Lenders, the L/C Issuer and the Lead Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with the consent of the Lead Borrower (absent the existence of a Default or an Event of Default), which consent shall not be unreasonably withheld or delayed, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, in consultation with the Lead Borrower (absent the existence of a Default or an Event of Default), on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent or Collateral Agent, as applicable, meeting the qualifications set forth above; provided that if the Administrative Agent or the Collateral Agent shall notify the Lead Borrower and the Lenders that no qualifying Person has accepted such appointment, then the resigning Agent may apply to a court of competent jurisdiction for the appointment of a new Administrative Agent or Collateral Agent, as applicable, provided, further, that such resignation shall not become effective until such time as a successor Administrative Agent or the Collateral Agent, as applicable, is appointed and has accepted such appointment. Upon the acceptance of a successor’s appointment as Administrative Agent or Collateral Agent, as applicable, hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Agent, and the retiring Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise

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agreed between the Lead Borrower and such successor. After the retiring Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting as Administrative Agent or Collateral Agent hereunder.

Any resignation by Wells Fargo Retail Finance, LLC as Administrative Agent pursuant to this Section shall also constitute the resignation of Wells Fargo Retail Finance, LLC as Swing Line Lender. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Swing Line Lender, and (b) the retiring Swing Line Lender shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents.

9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the Agents or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Agents or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. Except as provided in Section 9.12, the Agents shall not have any duty or responsibility to provide any Credit Party with any other credit or other information concerning the affairs, financial condition or business of any Loan Party that may come into the possession of the Agents.

9.08 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Laws or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Loan Parties) shall be entitled and empowered, by intervention in such proceeding or otherwise

(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuer, the Administrative Agent and the other Credit Parties (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer, the Administrative Agent, such Credit Parties and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuer the Administrative Agent and such Credit Parties under Sections 2.03(i), 2.03(j), 2.09 and 10.04) allowed in such judicial proceeding; and

(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.

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Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or the L/C Issuer or to authorize the Administrative Agent to vote in respect of the claim of any Lender or the L/C Issuer in any such proceeding.

9.09 Collateral and Guaranty Matters. The Credit Parties irrevocably authorize the Agents, at their option and in their discretion,

(a) to release any Lien on any property granted to or held by the Collateral Agent under any Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than contingent indemnification obligations for which no claim has been asserted) and the expiration or termination of all Letters of Credit (or upon the Cash Collateralization of all Letters of Credit in the manner set forth in Section 2.03(g)), (ii) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (iii) if approved, authorized or ratified in writing by the Required Lenders in accordance with Section 10.01;

(b) to subordinate any Lien on any property granted to or held by the Collateral Agent under any Loan Document to the holder of any Lien, or to release any Lien, on such property that is permitted by the definition of Permitted Encumbrances; and

(c) to release any Guarantor from its obligations under the Facility Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder.

Upon request by any Agent at any time, the Required Lenders will confirm in writing such Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Facility Guaranty pursuant to this Section 9.09. Notwithstanding the foregoing, in each case as specified above in clauses (a)-(c) of this Section 9.09, the Agents will without further confirmation from the Required Lenders, at the Loan Parties’ expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Security Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Facility Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.09.

9.10 Notice of Transfer.

The Agents may deem and treat a Lender party to this Agreement as the owner of such Lender’s portion of the Obligations for all purposes, unless and until, and except to the extent, an Assignment and Acceptance shall have become effective as set forth in Section 10.06.

9.11 Reports and Financial Statements.

By signing this Agreement, each Lender:

(a) agrees to furnish the Administrative Agent on the first day of each month with a summary of all Other Liabilities due or to become due to such Lender. In connection with any distributions to be made hereunder, the Administrative Agent shall be entitled to assume that no amounts are due to any Lender on account of Other Liabilities unless the Administrative Agent has received written notice thereof from such Lender;

(b) is deemed to have requested that the Administrative Agent furnish such Lender, promptly after they become available, copies of all financial statements required to be delivered by the Lead Borrower hereunder and all commercial finance examinations and appraisals of the Collateral received by the Agents (collectively, the “Reports”);

(c) expressly agrees and acknowledges that the Administrative Agent makes no representation or warranty as to the accuracy of the Reports, and shall not be liable for any information contained in any Report;

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(d) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that the Agents or any other party performing any audit or examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and records, as well as on representations of the Loan Parties’ personnel;

(e) agrees to keep all Reports confidential in accordance with the provisions of Section 10.07 hereof; and

(f) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold the Agents and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any Credit Extensions that the indemnifying Lender has made or may make to the Borrowers, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a Loan or Loans; and (ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including attorney costs) incurred by the Agents and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

9.12 Agency for Perfection.

Each Lender hereby appoints each other Lender as agent for the purpose of perfecting Liens for the benefit of the Agents and the Lenders, in assets which, in accordance with Article 9 of the UCC or any other applicable Law of the United States can be perfected only by possession. Should any Lender (other than the Agents) obtain possession of any such Collateral, such Lender shall notify the Agents thereof, and, promptly upon the Collateral Agent’s request therefor shall deliver such Collateral to the Collateral Agent or otherwise deal with such Collateral in accordance with the Collateral Agent’s instructions.

9.13 Indemnification of Agents. The Lenders agree to indemnify the Agents (to the extent not reimbursed by the Loan Parties and without limiting the obligations of Loan Parties hereunder), ratably according to their Applicable Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted to be taken by any Agent in connection therewith; provided, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s gross negligence or willful misconduct as determined by a final and nonappealable judgment of a court of competent jurisdiction.

9.14 Relation among Lenders. The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Agents) authorized to act for, any other Lender.

9.15 Defaulting Lender.

(a) If for any reason any Lender shall fail or refuse to abide by its obligations under this Agreement, including without limitation its obligation to make available to Administrative Agent its Applicable Percentage of any Loans, expenses or setoff or purchase its Applicable Percentage of a participation interest in the Swing Line Loans or L/C Borrowings and such failure is not cured within two (2) days of receipt from the Administrative Agent of written notice thereof, then, in addition to the rights and remedies that may be available to the other Credit Parties, the Loan Parties or any other party at law or in equity, and not at limitation thereof, (i) such Defaulting Lender’s right to participate in the administration of, or decision-making rights related to, the Obligations, this Agreement or the other Loan Documents shall be

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suspended during the pendency of such failure or refusal, and (ii) a Defaulting Lender shall be deemed to have assigned any and all payments due to it from the Loan Parties, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining non-Defaulting Lenders for application to, and reduction of, their proportionate shares of all outstanding Obligations until, as a result of application of such assigned payments the Lenders’ respective Applicable Percentages of all outstanding Obligations shall have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. The Defaulting Lender’s decision-making and participation rights and rights to payments as set forth in clauses (i) and (ii) hereinabove shall be restored only upon the payment by the Defaulting Lender of its Applicable Percentage of any Obligations, any participation obligation, or expenses as to which it is delinquent, together with interest thereon at the Default Rate from the date when originally due until the date upon which any such amounts are actually paid.

(b) The non-Defaulting Lenders shall also have the right, but not the obligation, in their respective, sole and absolute discretion, to cause the termination and assignment, without any further action by the Defaulting Lender for no cash consideration (pro rata, based on the respective Commitments of those Lenders electing to exercise such right), of the Defaulting Lender’s Commitment to fund future Loans. Upon any such purchase of the Applicable Percentage of any Defaulting Lender, the Defaulting Lender’s share in future Credit Extensions and its rights under the Loan Documents with respect thereto shall terminate on the date of purchase, and the Defaulting Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest, including, if so requested, an Assignment and Acceptance.

(c) Each Defaulting Lender shall indemnify the Administrative Agent and each non-Defaulting Lender from and against any and all loss, damage or expenses, including but not limited to reasonable attorneys’ fees and funds advanced by the Administrative Agent or by any non-Defaulting Lender, on account of a Defaulting Lender’s failure to timely fund its Applicable Percentage of a Loan or to otherwise perform its obligations under the Loan Documents.

ARTICLE X

MISCELLANEOUS

10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no Consent to any departure by any Loan Party therefrom, shall be effective unless in writing signed by the Administrative Agent, with the Consent of the Required Lenders, and the Lead Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or Consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

(a) extend or, increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written Consent of such Lender;

(b) postpone any date fixed by this Agreement or any other Loan Document for (i) any payment or mandatory prepayment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any of the other Loan Documents without the written Consent of each Lender entitled to such payment, or (ii) any scheduled or mandatory reduction of the Aggregate Commitments hereunder or under any other Loan Document without the written Consent of each Lender;

(c) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iv) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document, without the written Consent of each Lender entitled to such amount; provided, however, that only the Consent of the Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive

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any obligation of the Borrowers to pay interest or Letter of Credit Fees at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein);

(d) change Section 2.13 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written Consent of each Lender;

(e) change any provision of this Section or the definition of “Required Lenders”, or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written Consent of each Lender;

(f) except as expressly permitted hereunder or under any other Loan Document, release, or limit the liability of, any Loan Party without the written Consent of each Lender;

(g) except for Permitted Dispositions, release all or substantially all of the Collateral from the Liens of the Security Documents without the written Consent of each Lender;

(h) increase the Aggregate Commitments without the written Consent of each Lender;

(i) change the definition of the term “Borrowing Base” or any component definition thereof if as a result thereof the amounts available to be borrowed by the Borrowers would be increased without the written Consent of each Lender, provided that the foregoing shall not limit the discretion of the Administrative Agent to change, establish or eliminate any Reserves;

(j) modify the definition of Permitted Overadvance so as to increase the amount thereof or, except as provided in such definition, the time period for a Permitted Overadvance without the written Consent of each Lender; and

(k) except as expressly permitted herein or in any other Loan Document, subordinate the Obligations hereunder or the Liens granted hereunder or under the other Loan Documents, to any other Indebtedness or Lien, as the case may be without the written Consent of each Lender;

and, provided further, that (i) no amendment, waiver or Consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or Consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or Consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) no amendment, waiver or Consent shall, unless in writing and signed by the Collateral Agent in addition to the Lenders required above, affect the rights or duties of the Collateral Agent under this Agreement or any other Loan Document, and (v) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or Consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.

If any Lender does not Consent (a “Non-Consenting Lender”) to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the Consent of each Lender and that has been approved by the Required Lenders, the Lead Borrower may replace such Non-Consenting Lender in accordance with Section 10.13; provided that such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section (together with all other such assignments required by the Lead Borrower to be made pursuant to this paragraph).

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10.02 Notices, Financial Statements and Other Documents; Effectiveness; Electronic Communications.

(a) Notices, Financial Statements and Other Documents Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices, financial statements and other documents and communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

(i) if to the Loan Parties, the Agents, the L/C Issuer or the Swing Line Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

(ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices, financial statements and other documents sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices, financial statements and other documents sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices, financial statements and other documents delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).

(b) Electronic Communications. Notices, financial statements and other documents and communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Lead Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(c) Change of Address, Etc. Each of the Loan Parties, the Agents, the L/C Issuer and the Swing Line Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Lead Borrower, the Agents, the L/C Issuer and the Swing Line Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

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(d) Reliance by Agents, L/C Issuer and Lenders. The Agents, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or on behalf of the Loan Parties even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Loan Parties shall indemnify the Agents, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Loan Parties. All telephonic notices to and other telephonic communications with the Agents may be recorded by the Agents, and each of the parties hereto hereby consents to such recording.

10.03 No Waiver; Cumulative Remedies. No failure by any Credit Party to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided herein and in the other Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time.

10.04 Expenses; Indemnity; Damage Waiver.

(a) Costs and Expenses. The Borrowers shall pay all Credit Party Expenses.

(b) Indemnification by the Loan Parties. The Loan Parties shall indemnify the Agents (and any sub-agent thereof), each other Credit Party, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless (on an after tax basis) from, any and all losses, claims, causes of action, damages, liabilities, settlement payments, costs, and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Agents (and any sub-agents thereof) and their Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by any Loan Party or any of its Subsidiaries, or any Environmental Liability related in any way to any Loan Party or any of its Subsidiaries, (iv) any claims of, or amounts paid by any Credit Party to, a Blocked Account Bank or other Person which has entered into a control agreement with any Credit Party hereunder, or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by any Borrower or any other Loan Party or any of the Loan Parties’ directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages,

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liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c) Reimbursement by Lenders. Without limiting their obligations under Section 9.13 hereof, to the extent that the Loan Parties for any reason fail to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it, each Lender severally agrees to pay to the Agents (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Agents (or any such sub-agent) or the L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Agents (or any such sub-agent) or L/C Issuer in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).

(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable Law, the Loan Parties shall not assert, and hereby waive, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

(e) Payments. All amounts due under this Section shall be payable on demand therefor.

(f) Survival. The agreements in this Section shall survive the resignation of any Agent and the L/C Issuer, the assignment of any Commitment or Loan by any Lender, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.

10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Loan Parties is made to any Credit Party, or any Credit Party exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by such Credit Party in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Agents upon demand its Applicable Percentage (without duplication) of any amount so recovered from or repaid by the Agents, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

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10.06 Successors and Assigns.

(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Loan Party may assign or otherwise transfer any of its rights or obligations hereunder or under any other Loan Document without the prior written Consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of Section 10.06(b), (ii) by way of participation in accordance with the provisions of Section 10.06(d), or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.06(f) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Credit Parties) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment(s) and the Loans (including for purposes of this Section 10.06(b), participations in L/C Obligations and in Swing Line Loans) at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i) Minimum Amounts

(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, no minimum amount need be assigned; and

(B) in any case not described in subsection (b)(i)(A)of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if the “Effective Date” is specified in the Assignment and Assumption, as of the “Effective Date”, shall not be less than $10,000,000 unless each of the Administrative Agent and, so long as no Default or Event of Default has occurred and is continuing, the Lead Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;

(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not apply to the Swing Line Lender’s rights and obligations in respect of Swing Line Loans;

(iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

(A) the consent of the Lead Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) a Default or Event of Default has occurred and is continuing at the time of such assignment (2) such assignment is in connection with any merger, consolidation, sale, transfer or other disposition of all or any substantial portion of the business or loan portfolio of the

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assigning Lender, or (3) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and

(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Commitment if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and

(C) the consent of the L/C Issuer (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding); and

(D) the consent of the Swing Line Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment in respect of the assignment of any Commitment.

(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500, provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrowers (at their expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d).

(c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, absent manifest error, and the Loan Parties, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Lead Borrower and any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Loan Parties or the Administrative Agent, sell participations to any Person (other than a natural person or the Loan Parties or any of the Loan Parties’ Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its

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Commitment and/or the Loans (including such Lender’s participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Loan Parties, the Agents, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any Participant shall agree in writing to comply with all confidentiality obligations set forth in Section 10.07 as if such Participant was a Lender hereunder.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement and the other Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Loan Parties agree that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.06(b). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender.

(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Lead Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Lead Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Loan Parties, to comply with Section 3.01(e) as though it were a Lender.

(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(g) Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

(h) Resignation as L/C Issuer or Swing Line Lender after Assignment. Notwithstanding anything to the contrary contained herein, if at any time Wells Fargo Retail Finance, LLC assigns all of its Commitment and Loans pursuant to subsection (b) above, (i) Wells Fargo Bank may upon 30 days’ notice to the Lead Borrower and the Lenders, resign as L/C Issuer (provided that such resignation shall not be effective until a successor L/C Issuer has been appointed, which absent the occurrence and continuation of an Event of Default, shall be reasonably acceptable to the Lead Borrower), and/or (ii) Wells Fargo Retail Finance, LLC upon 30 days’ notice to the Lead Borrower, resign as Swing Line Lender. In the event of any such resignation as L/C Issuer or Swing Line Lender, the Lead Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer or Swing Line Lender hereunder; provided, however, that no failure by the Lead Borrower to appoint any such successor shall affect the resignation of Wells Fargo Bank as L/C Issuer or Wells Fargo Retail Finance, LLC as Swing Line Lender, as the case may be. If Wells Fargo Bank resigns as L/C Issuer, it shall retain

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all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)). If Wells Fargo Retail Finance, LLC resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c). Upon the appointment of a successor L/C Issuer and/or Swing Line Lender, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swing Line Lender, as the case may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Wells Fargo Bank to effectively assume the obligations of Wells Fargo Bank with respect to such Letters of Credit.

10.07 Treatment of Certain Information; Confidentiality. Each of the Credit Parties agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, funding sources, attorneys, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential on the same terms as provided herein), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Loan Party and its obligations, (g) with the consent of the Lead Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to any Credit Party or any of their respective Affiliates on a non-confidential basis from a source other than the Loan Parties; provided, however, that in the case of any disclosure pursuant to clause (c) above, the applicable Credit Party which is required to disclose confidential Information agrees to give the Lead Borrower, to the extent practicable and not otherwise prohibited by any such Law, regulation, subpoena, order or decree of a court or similar legal process , prior notice of such disclosure (provided, however, no Credit Party shall incur any liability to any Loan Party or other Person for failing to provide the Lead Borrower with any such prior notice); provided, further, however, that the Administrative Agent and such Lender shall disclose only that portion of the confidential Information as is required to be disclosed, in its sole judgment, pursuant to any such Law, regulation, subpoena, order or decree of a court or similar legal process. Any such required disclosure shall not, in and of itself, change the status of the disclosed information as Information under the terms of this Agreement. For purposes of this Section, “Information” means all information received from the Loan Parties or any Subsidiary thereof relating to the Loan Parties or any Subsidiary thereof or their respective businesses, other than any such information that is available to any Credit Party on a non-confidential basis prior to disclosure by the Loan Parties or any Subsidiary thereof. Any Person required to maintain the confidentiality of Information as provided in this Section shall be

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considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

Each of the Credit Parties acknowledges that (a) the Information may include material non-public information concerning the Loan Parties or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.

10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing or if any Lender shall have been served with a trustee process or similar attachment relating to property of a Loan Party, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent or the Required Lenders, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of the Borrowers or any other Loan Party against any and all of the Obligations now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer, regardless of the adequacy of the Collateral, and irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrowers or such Loan Party may be contingent or unmatured or are owed to a branch or office of such Lender or the L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer (through the Administrative Agent) agrees to notify the Lead Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrowers. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and

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understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be as effective as delivery of a manually executed counterpart of this Agreement.

10.11 Survival. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Credit Parties, regardless of any investigation made by any Credit Party or on their behalf and notwithstanding that any Credit Party may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding. Further, the provisions of Sections 3.01, 3.04, 3.05 and 10.04 and Article IX shall survive and remain in full force and effect regardless of the repayment of the Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. In connection with the termination of this Agreement and the release and termination of the security interests in the Collateral, the Agents may require such indemnities and collateral security as they shall reasonably deem necessary or appropriate to protect the Credit Parties against (x) loss on account of credits previously applied to the Obligations that may subsequently be reversed or revoked, and (y) any obligations that may thereafter arise with respect to the Other Liabilities.

10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10.13 Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, or if any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(a) the Borrowers shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);

(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts

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under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);

(c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and

(d) such assignment does not conflict with applicable Laws.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.

10.14 Governing Law; Jurisdiction; Etc.

(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

(b) SUBMISSION TO JURISDICTION. EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE LOAN PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE LOAN PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT ANY CREDIT PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c) WAIVER OF VENUE. EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE LOAN PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

(e) ACTIONS COMMENCED BY LOAN PARTIES. EACH LOAN PARTY AGREES THAT ANY ACTION COMMENCED BY ANY LOAN PARTY ASSERTING ANY CLAIM OR COUNTERCLAIM ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT SOLELY IN A COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AS

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THE ADMINISTRATIVE AGENT MAY ELECT IN ITS SOLE DISCRETION AND CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS WITH RESPECT TO ANY SUCH ACTION.

10.15 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

10.16 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby, the Loan Parties each acknowledge and agree that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Loan Parties, on the one hand, and the Credit Parties, on the other hand, and each of the Loan Parties is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each Credit Party is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Loan Parties or any of their respective Affiliates, stockholders, creditors or employees or any other Person; (iii) none of the Credit Parties has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Loan Parties with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether any of the Credit Parties has advised or is currently advising any Loan Party or any of its Affiliates on other matters) and none of the Credit Parties has any obligation to any Loan Party or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Credit Parties and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Loan Parties and their respective Affiliates, and none of the Credit Parties has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Credit Parties have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and each of the Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. Each of the Loan Parties hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against each of the Credit Parties with respect to any breach or alleged breach of agency or fiduciary duty.

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10.17 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Loan Parties that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act. Each Loan Party is in compliance, in all material respects, with the Patriot Act. No part of the proceeds of the Loans will be used by the Loan Parties, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

10.18 Foreign Asset Control Regulations. Neither of the advance of the Loans nor the use of the proceeds of any thereof will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the “Trading With the Enemy Act”) or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)). Furthermore, none of the Borrowers or their Affiliates (a) is or will become a “blocked person” as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (b) engages or will engage in any dealings or transactions, or be otherwise associated, with any such “blocked person” or in any manner violative of any such order.

10.19 Time of the Essence. Time is of the essence of the Loan Documents.

10.20 Press Releases.

(a) Each Credit Party executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of Administrative Agent or its Affiliates or referring to this Agreement or the other Loan Documents without at least two (2) Business Days’ prior notice to Administrative Agent and without the prior written consent of Administrative Agent unless (and only to the extent that) such Credit Party or Affiliate is required to do so under applicable Law and then, in any event, such Credit Party or Affiliate will consult with Administrative Agent before issuing such press release or other public disclosure.

(b) Each Loan Party consents to the publication by Administrative Agent or any Lender of advertising material relating to the financing transactions contemplated by this Agreement using any Loan Party’s name, product photographs, logo or trademark. Administrative Agent or such Lender shall provide a draft reasonably in advance of any advertising material to the Lead Borrower for review and comment prior to the publication thereof. Administrative Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.

10.21 Additional Waivers.

(a) The Obligations are the joint and several obligation of each Loan Party. To the fullest extent permitted by applicable Law, the obligations of each Loan Party shall not be affected by

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(i) the failure of any Credit Party to assert any claim or demand or to enforce or exercise any right or remedy against any other Loan Party under the provisions of this Agreement, any other Loan Document or otherwise, (ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, this Agreement or any other Loan Document, or (iii) the failure to perfect any security interest in, or the release of, any of the Collateral or other security held by or on behalf of the Collateral Agent or any other Credit Party.

(b) The obligations of each Loan Party shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations after the termination of the Commitments), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Loan Party hereunder shall not be discharged or impaired or otherwise affected by the failure of any Agent or any other Credit Party to assert any claim or demand or to enforce any remedy under this Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, any default, failure or delay, willful or otherwise, in the performance of any of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Loan Party or that would otherwise operate as a discharge of any Loan Party as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations after the termination of the Commitments).

(c) To the fullest extent permitted by applicable Law, each Loan Party waives any defense based on or arising out of any defense of any other Loan Party or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Loan Party, other than the indefeasible payment in full in cash of all the Obligations and the termination of the Commitments. The Collateral Agent and the other Credit Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or non-judicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with any other Loan Party, or exercise any other right or remedy available to them against any other Loan Party, without affecting or impairing in any way the liability of any Loan Party hereunder except to the extent that all the Obligations have been indefeasibly paid in full in cash and the Commitments have been terminated. Each Loan Party waives any defense arising out of any such election even though such election operates, pursuant to applicable Law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Loan Party against any other Loan Party, as the case may be, or any security.

(d) Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. Upon payment by any Loan Party of any Obligations, all rights of such Loan Party against any other Loan Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations and the termination of the Commitments. In addition, any indebtedness of any Loan Party now or hereafter held by any other Loan Party is hereby subordinated in right of payment to the prior indefeasible payment in full of the Obligations and no Loan Party will demand, sue for or otherwise attempt to collect any such indebtedness. If any amount shall erroneously be paid to any Loan Party on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of any Loan Party, such amount shall be held in trust for the benefit of the Credit Parties and shall forthwith be paid to the Administrative Agent to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement and the other Loan Documents. Subject to the foregoing, to the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting Revolving Loans made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an “Accommodation Payment”), then the Borrower making such Accommodation Payment shall upon request be entitled to contribution and

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indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount and the denominator of which is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (a) rendering such Borrower “insolvent” within the meaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (b) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA, or (c) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code or Section 4 of the UFTA, or Section 5 of the UFCA.

10.22 No Strict Construction.

The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

10.23 Attachments.

The exhibits, schedules and annexes attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein, except that in the event of any conflict between any of the provisions of such exhibits and the provisions of this Agreement, the provisions of this Agreement shall prevail.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

	Borrowers:

	COLDWATER CREEK U.S. INC.
	as Lead Borrower and a Borrower


	By:	/s/ Timothy O. Martin
	Name:	Timothy O. Martin
	Title:	Treasurer & Secretary

	COLDWATER CREEK THE SPA INC.


	By:	/s/ L. Michelle Carlone
	Name:	L. Michelle Carlone
	Title:	Treasurer & Secretary

	COLDWATER CREEK MERCHANDISING & LOGISTICS INC.


	By:	/s/ L. Michelle Carlone
	Name:	L. Michelle Carlone
	Title:	Treasurer & Secretary

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	Guarantors:

	COLDWATER CREEK INC.


	By:	/s/ Timothy O. Martin
	Name:	Timothy O. Martin
	Title:	Chief Financial Officer

	C SQUARED LLC


	By:	/s/ Timothy O. Martin
	Name:	Timothy O. Martin
	Title:	Manager

	ASPENWOOD ADVERTISING, INC.


	By:	/s/ Peter Prandato
	Name:	Peter Prandato
	Title:	Treasurer & Secretary

	CWC WORLDWIDE SERVICES INC.


	By:	/s/ Timothy O. Martin
	Name:	Timothy O. Martin
	Title:	Treasurer & Secretary

	COLDWATER CREEK SOURCING INC.


	By:	/s/ John K. Leary
	Name:	John K. Leary
	Title:	Treasurer & Secretary

	CWC SOURCING LLC


	By:	/s/ John K. Leary
	Name:	John K. Leary
	Title:	Manager

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	Agents:

	WELLS FARGO RETAIL FINANCE, LLC,
	as Administrative Agent and Collateral Agent


	By:	/s/ Cory Loftus
	Name:	Cory Loftus
	Title:	Vice President

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	Lenders:

	WELLS FARGO RETAIL FINANCE, LLC,
	as Lender and Swing Line Lender

	By:	/s/ Cory Loftus
	Name:	Cory Loftus
	Title:	Vice President

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EX-10.12 3 a2191998zex-10_12.htm EXHIBIT 10.12

Exhibit 10.12

GEORGIA SHONK-SIMMONS
EMPLOYMENT AGREEMENT, AS AMENDED AND RESTATED

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is dated as of December 20, 2006, and amended and restated December 23, 2008, by and between Coldwater Creek Inc., a Delaware corporation (the “Company”), and Georgia Shonk-Simmons (the “Executive”).

WHEREAS, the Company desires to employ the Executive as its President and Chief Merchandising Officer, and the Executive desires to accept such employment, on the terms set forth below.

Accordingly, the parties hereto agree as follows:

1. Term. The Company hereby employs the Executive, and the Executive hereby accepts such employment for an initial term commencing as of the date hereof and ending December 20, 2009, unless sooner terminated in accordance with the provisions of Section 4 or Section 5, and which shall automatically renew for an additional one year term unless six months advance notice is given of non-renewal (the period during which the Executive is employed hereunder being hereinafter referred to as the “Term”).

2. Duties. The Executive, in her capacity as President and Chief Merchandising Officer, shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer or board of directors or similar governing body of the Company (the “Board”) (including the performance of services for, and serving on the Board of Directors of, any subsidiary or affiliate of the Company without any additional compensation). The Executive will be based at the Company’s headquarters, presently located in Sandpoint, Idaho. The Executive shall devote substantially all of the Executive’s business time and effort to the performance of the Executive’s duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Chief Executive Officer or the Board, so long as such activities do not materially and adversely interfere with the Executive’s duties for the Company.

3. Compensation.

3.1 Salary. The Company shall pay the Executive during the Term a base salary at the rate of $600,000 per annum (the “Annual Salary”), payable semi-monthly and subject to regular deductions and withholdings as required by law. The Annual Salary may be

increased annually by an amount as may be approved by the Board or the Compensation Committee of the Board of Directors (the “Compensation Committee”), and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary for purposes of this Agreement.

3.2 Bonus. The Executive will be entitled to such bonuses as may be authorized by the Board. The Executive’s target bonus amount, when expressed as a percentage of Annual Salary, will be no less than the target amount that was applicable for fiscal year 2006, provided, however, that Executive’s Annual Bonus, if any, may be below, at, or above the target based upon the achievement of individual and objective Company annual performance criteria established by the Compensation Committee. Any Annual Bonus payable to the Executive hereunder shall be paid no later than 2 ½ months of the fiscal year following the fiscal year with respect to which the bonus is earned.

3.3 Equity-Based Awards. The Executive may from time to time be awarded such restricted stock units, stock options or other equity-based awards as the Board or the Compensation Committee determines to be appropriate.

3.4 Benefits – In General. The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans, supplemental executive retirement plan and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.

3.5 Personal Days. During the Term, the Executive shall be entitled to the number of personal days per year as may be prescribed from time to time pursuant to the Company’s human resources policies.

3.6 Expenses. The Company shall pay or reimburse the Executive for all ordinary and reasonable out-of-pocket expenses actually incurred (and, in the case of reimbursement, paid) by the Executive during the Term in the performance of the Executive’s services under this Agreement, provided that the Executive submits such expenses in accordance with the policies applicable to senior executives of the Company generally.

4. Termination upon Death or Disability. If the Executive dies during the Term, the obligations of the Company to or with respect to the Executive shall terminate in their entirety except as otherwise provided under this Section 4. If the Executive becomes eligible for disability benefits under the Company’s long-term disability plans and arrangements (or, if none apply, would have been so eligible under the most recent plan or arrangement), the Company shall have the right, to the extent permitted by law, to terminate the employment of the Executive upon notice in writing to the Executive and such termination in and of itself shall not be, nor shall it be deemed to be, a breach of this Agreement; provided that,, the Company will have no right to terminate the Executive’s employment if, in the opinion of a qualified physician

reasonably acceptable to the Company, it is reasonably certain that the Executive will be able to resume the Executive’s duties on a regular full-time basis within 90 days of the date the Executive receives notice of such termination.

Upon death of the Executive or upon termination of the Executive’s employment by virtue of disability the Executive (or the Executive’s estate or beneficiaries in the case of the death of the Executive) shall have no right to receive any compensation or benefit under this Agreement on and after the Effective Date of the Termination (as defined below in this Section 4) other than the Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, a pro-rata bonus for the year of termination based on the target and portion of year completed, and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination). In the event of termination by virtue of disability, in addition to the foregoing, the Executive will also be entitled to monthly cash payments equal to one twelfth (1/12th) of the Executive’s Annual Salary in effect on the day of termination for a period of eighteen (18) months. This Agreement shall otherwise terminate upon the Effective Date of the Termination and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.13). For purposes of this Section 4, the “Effective Date of the Termination” shall mean the date of death or the date on which a notice of termination by virtue of disability is given by the Company or any later date set forth in such notice of termination.

For the avoidance of doubt, the Executive acknowledges and agrees that the payments set forth in this Section 4 constitute liquidated damages for termination of her employment during the Term upon her death or by virtue of her disability.

5. Other Terminations of Employment.

5.1 Termination for Cause; Termination of Employment by the Executive Without Good Reason.

(a) For purposes of this Agreement, “Cause” shall mean:

(i) the Executive’s commission of any felony;

(ii) the Executive’s commission of an act of fraud, theft or dishonesty;

(iii) the continuing failure or habitual neglect by the Executive to perform the Executive’s duties hereunder;

(iv) any material violation of Company policy, including without limitation, the Company’s Corporate Standards of Conduct;

(v) any material violation by the Executive of Section 6 below; or

(vi) the Executive’s material breach of this Agreement.

Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Cause under clause (iii), (iv), (v) or (vi) above, the Executive shall have 30 days from the date written notice is given by the Company of such event or condition to cure such event or condition and, if the Executive does so, such event or condition shall not constitute Cause hereunder.

(b) For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by the Executive:

(i) the material reduction of the Executive’s authority, duties and responsibilities, or the assignment to the Executive of duties materially and adversely inconsistent with the Executive’s position or positions with the Company and its subsidiaries;

(ii) a material reduction in Annual Salary of the Executive except in connection with a reduction in compensation generally applicable to senior management employees of the Company;

(iii) a requirement by the Company that the Executive’s work location be moved more than 50 miles from the Company’s principal place of business in Sandpoint, Idaho; or

(iv) the Company’s material and willful breach of this Agreement.

Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Good Reason, the Company shall have thirty (30) days from the date on which the Executive gives the written notice thereof to cure such event or condition (such notice from the Executive to be given within ninety (90) days from the date the event or condition first occurs) and, if the Company does so, such event or condition shall not constitute Good Reason hereunder. Further, an event or condition shall cease to constitute Good Reason one hundred twenty (120) days after the event or condition first occurs. In addition, for a period of 30 days commencing on the first anniversary of the Change in Control, a Change in Control shall constitute Good Reason, and in the event Executive terminates employment, it will be deemed to have occurred within 12 months of a Change in Control for purposes of Section 5.2.

no right to receive any compensation or benefit under this Agreement on and after the Effective Date of the Termination (as defined below in this Section 5.1(c)) other than Annual Salary and other benefits, including payment for accrued but unused vacation (but excluding any bonuses) earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the provisions of Section 5.3 shall apply and (iii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(c), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Company or any later date set forth in such notice of termination.

(d) The Executive may terminate her employment without Good Reason. If the Executive terminates the Executive’s employment with the Company without Good Reason: (i) the Executive shall have no right to receive any compensation or benefit under this Agreement on and after the Effective Date of the Termination (as defined below in this Section 5.1(d)) other than Annual Salary and other benefits, including payment for accrued but unused vacation (but excluding any bonuses) earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the provisions of Section 5.3 shall apply and (iii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(d), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Executive or any later date set forth in such notice of termination.

(e) In the event the Executive or the Company elects not to renew this Agreement pursuant to Section 1 above, (i) the Executive shall have no right to receive any compensation or benefit under this Agreement on and after the Effective Date of the Termination (as defined below in this Section 5.1(e)) other than Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for any prior years not yet paid, any bonus earned with respect to the calendar year in which the Effective Date of Termination occurred, and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination) and (ii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(e), the “Effective Date of the Termination” shall mean the date on which a notice of non-renewal is given by the Executive or the Company, as applicable, or any later date set forth in such notice of non-renewal.

5.2 Termination Without Cause; Termination for Good Reason. The Company may terminate the Executive’s employment at any time without Cause, for any reason

or no reason, and the Executive may terminate the Executive’s employment with the Company for Good Reason. If the Company or the Executive terminates the Executive’s employment and such termination is not described in Section 4 or Section 5.1, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus for any pending bonus periods in the current year (and if such Effective Date of Termination is after December 20, 2009, the pro rata bonus with respect to any pending bonus period shall be paid only to the extent the performance goals for such pending bonus period are subsequently determined to have been achieved) and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive a cash payment equal to the Severance Payment (as defined below in this Section 5.2) payable no later than 30 days after the Effective Date of the Termination, (iii) all unvested equity awards held by the Executive shall fully vest, provided, however, that if the equity awards are subject to performance vesting requirements and such Effective Date of Termination is after December 20, 2009, such vesting will only occur to the extent the performance goals for any pending bonus period are subsequently determined to have been achieved, (iv) the Executive shall receive accelerated full vesting of Executive’s supplemental executive retirement plan and payment in accordance with its terms (v) the Executive shall continue to receive health benefits for 18 months and (vi) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). Notwithstanding the foregoing sentence, if the Company terminates Executive’s employment without Cause or Executive terminates employment for Good Reason on or within 12 months after a Change in Control, the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than (i) the Executive shall receive her Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus (based on target level) for any pending bonus periods in the current year and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive the applicable Severance Payment, payable no later than 30 days after the Effective Date of the Termination (iii) the Executive shall receive continuation of health benefits for 18 months, (iv) all unvested equity awards held by the Executive shall fully vest, (v) the Executive shall receive accelerated full vesting of Executive’s supplemental executive retirement plan and payment in accordance with its terms, and (vi) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). The “Severance Payment” means one and one-half (1 1/2) times the Executive’s Annual Salary and annual bonus at target level in effect on the day of termination, provided that, if the Effective Date of Termination is after December 20, 2009 the Severance Payment will be two and one-half

(2 1/2) times the Executive’s Annual Salary; and provided further that, if the Effective Date of Termination occurs within 365 days following the occurrence of a Change in Control pursuant to the Company’s termination without Cause or the Executive’s termination for Good Reason (as defined below in this Section 5.1(b)), the Severance Payment means two and one-half (2 1/2) times Executive’s Annual Salary and annual bonus at target level in effect on the day of termination. For purposes of this Section 5.2, (i) the “Effective Date of the Termination” shall mean the date of termination specified in the Company’s or the Executive’s notice of termination, as applicable, and (ii) a “Change in Control” shall mean: (a) the acquisition directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities; (b) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (c) a sale of all or substantially all of the assets of the Company to another person or entity (other than a person or entity that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction).

5.3 Nature of Payments. For the avoidance of doubt, the Executive acknowledges and agrees that the Company’s payment obligations set forth in this Section 5 constitute liquidated damages for termination of the Executive’s employment during the Term.

6. Noncompetition.

6.1 Noncompetition. The Executive agrees with the Company that, during the Term of this Agreement and for eighteen (18) months thereafter (the “Non-Competition Restriction Period”), the Executive will not, directly or indirectly (whether as an officer, director, employee, consultant, agent, advisor, stockholder, partner, joint venturer, proprietor or otherwise) engage or otherwise become interested in any business or activity that directly or indirectly competes with any business of the Company or any of its subsidiaries (or any of their successors) as conducted or contemplated during her period of employment with the Company.

6.2 Reasonable and Necessary Restrictions. The Executive acknowledges that the restrictions, prohibitions and other provisions hereof, including, without limitation the Restriction Period, are reasonable, fair and equitable in terms of duration, scope and geographic area, are necessary to protect the legitimate business interests of the Company and are a material inducement to the Company to enter into this Agreement.

6.3 Forfeiture of Severance Payments. In the event the Executive breaches any provision of Section 6.1, in addition to any other remedies that the Company may have at law or in equity, the Executive shall promptly reimburse the Company for any Severance Payments received from, or payable by, the Company. In addition, the Company shall be entitled in its sole discretion to offset all or any portion of the amount of any unpaid reimbursements against any amount owed by the Company to the Executive.

7. Other Provisions.

7.1 Specific Performance. The Executive acknowledges that the obligations undertaken by such Executive pursuant to Section 6 of this Agreement are unique and that the Company likely will have no adequate remedy at law if the Executive shall fail to perform any of such Executive’s obligations hereunder, and the Executive therefore confirms that the Company’s right to specific performance of the terms of Section 6 of this Agreement is essential to protect the rights and interests of the Company. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, covenants, agreements and other provisions of Section 6 of this Agreement specifically performed by the Executive, and the Company shall have the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by the Executive. The Executive hereby acknowledges and warrants that she will be fully able to earn a livelihood for herself and her dependents if these covenants are specifically enforced against her. The Executive hereby further acknowledges and agrees that the Company shall not be required to post bond as a condition to obtaining or exercising such remedies, and the Executive hereby waives any such requirement or condition.

7.2 Severability. The Executive acknowledges and agrees that the Executive has had an opportunity to seek advice of counsel in connection with this Agreement. If it is determined that any of the provisions of this Agreement, or any part thereof, is invalid or unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.

7.3 Attorneys’ Fees. In the event of any legal proceeding relating to this Agreement or any term or provision thereof, the losing party shall be responsible to pay or reimburse the prevailing party for all reasonable attorneys’ fees incurred by the prevailing party in connection with such proceeding.

7.4 Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly delivered (i) two business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, (ii) when received if it is sent by facsimile communication during normal business hours on a business day or one business day after it is sent by facsimile and received if sent other than during business hours on a business day, (iii) one business day after it is sent via a reputable overnight courier service,

charges prepaid, or (iv) when received if it is delivered by hand, in each case to the intended recipient as set forth below:

(i) if to the Executive, to the address set forth in the records of the Company; and

(ii) if to the Company,

Coldwater Creek, Inc.

One Coldwater Creek Drive

Sandpoint, Idaho 83864

Attention: Chief Executive Officer

Facsimile: [ ]

Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.

7.5 Entire Agreement. This Agreement, and the Coldwater Creek Inc. Confidentiality and Intellectual Property Agreement and Agreement for Non-Solicitation or Recruitment, contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with the Company or its subsidiaries (or any predecessor of either).

7.6 Waivers and Amendments. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IDAHO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

7.8 Assignment. This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive; any purported assignment by the Executive in violation hereof shall be null and void. In the event of any Change in Control, the Company may assign this Agreement and its rights hereunder.

7.9 Withholding. The Company shall be entitled to withhold from any payments or deemed payments any amount of withholding required by law. No other taxes, fees,

impositions, duties or other charges or offsets of any kind shall be deducted or withheld from amounts payable hereunder, unless otherwise required by law.

7.10 No Duty to Mitigate. The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor will any payments hereunder be subject to offset in the event the Executive does mitigate.

7.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.

7.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto.

7.13 Survival. Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 4 through 6 (to the extent necessary to effectuate the post-termination obligations set forth therein) and of Section 7 shall survive termination of this Agreement and any termination of the Executive’s employment hereunder.

7.14 Existing Agreements. The Executive represents to the Company that the Executive is not subject or a party to any employment or consulting agreement, non-competition covenant or other agreement, covenant or understanding which might prohibit the Executive from executing this Agreement or limit the Executive’s ability to fulfill the Executive’s responsibilities hereunder.

7.15 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

7.16 Parachute Provisions. If any amount payable to or other benefit receivable by the Executive pursuant to this Agreement is deemed to constitute a Parachute Payment (as defined below in this Section 7.16) alone or when added to any other amount payable or paid to or other benefit receivable or received by the Executive which is deemed to constitute a Parachute Payment (whether or not under an existing plan, arrangement or other agreement), and would result in the imposition on the Executive of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (“Section 4999”), then, in addition to any other benefits to which the Executive is entitled under this Agreement, the Executive shall be paid by the Company an amount in cash equal to the sum of the excise taxes payable by the Executive by reason of receiving Parachute Payments plus the amount necessary to put the Executive in the same after-tax position (taking into account any and all applicable federal, state and local excise, income or other taxes at the highest applicable rates on such Parachute Payments and on any payments under this Section 7.16 ) as if no excise taxes had been imposed

with respect to Parachute Payments (the “Gross-Up Payment”). Notwithstanding the foregoing, if the Parachute Payment does not exceed 110% of three (3) times the Executive’s “base amount” as defined within Section 280G of the Internal Revenue Code of 1986, as amended, then the Company will not pay the Gross-Up Payment, and the payments due under this Agreement shall be reduced so that the Parachute Payments would not result in the imposition of an excise tax under Section 4999. The amount of any payment under this Section 7.16 shall be computed by a certified public accounting firm mutually and reasonably acceptable to the Executive and the Company, the computation expenses of which shall be paid by the Company. “Parachute Payment” shall mean any payment deemed to constitute a “parachute payment” as defined in Section 280G

7.17 Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a Subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such termination, the Executive would receive any payment that, absent the application of this Section 7.17, would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (1) 6 months after the Executive’s termination date, (2) the Executive’s death or (3) such other date as will cause such payment not to be subject to such interest and additional tax.

(b) It is the intention of the parties that payments or benefits payable under this Agreement not be subject to the additional tax imposed pursuant to Section 409A of the Code (“409A”). To the extent such potential payments or benefits could become subject to such Section, the parties shall cooperate to amend this Agreement with the goal of giving the Executive the economic benefits described herein in a manner that does not result in such tax being imposed.

(c) Except as otherwise provided under this Agreement, all reimbursements to the Executive shall be paid as promptly as practical and in any event not later than the last day of the calendar year in which the expenses are incurred, and the amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses eligible for reimbursement in any other calendar year. With respect to payments under this Agreement, for purposes of 409A, each severance payment and COBRA continuation reimbursement payment will be considered one of a series of separate payments, and the Executive’s termination date will be treated as the Executive’s separation from service as defined under 409A.

(d) Amounts payable under this Agreement following the Executive’s termination of employment, other than those expressly payable on a deferred or installment basis, will be paid as promptly as practical after such a termination of employment and, in any event, within 2 ½ months after the end of the year in which employment terminates.

7.18 Certain Definitions. For purposes of this Agreement:

(a) an “affiliate” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person, and includes subsidiaries.

(b) A “business day” means the period from 9:00 am to 5:00 pm on any weekday that is not a banking holiday in New York City, New York.

(c) A “person” means an individual, corporation, limited liability company, partnership, association, trust or any other entity or organization, including any court, administrative agency or commission or other governmental authority.

(d) A “subsidiary” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests or no board of directors or other governing body, 50% or more of the equity interests of which) is owned directly or indirectly by such first person.

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

	COLDWATER CREEK INC.

	By:	/s/ Daniel Griesemer
	Name:	Daniel Griesemer
	Title:	President and Chief Executive Officer


	/s/ Georgia Shonk-Simmons
	GEORGIA SHONK-SIMMONS

EX-10.13 4 a2191998zex-10_13.htm EXHIBIT 10.13

Exhibit 10.13

DANIEL GRIESEMER

EMPLOYMENT AGREEMENT, AS AMENDED AND RESTATED

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is dated as of May 29, 2007, and amended and restated December 23, 2008 by and between Coldwater Creek Inc., a Delaware corporation (the “Company”), and Daniel Griesemer (the “Executive”).

WHEREAS, the Company desires to employ the Executive as its President and Chief Executive Officer and the Executive desires to accept such employment, on the terms set forth below.

Accordingly, the parties hereto agree as follows:

1. Term. The Company hereby employs the Executive, and the Executive hereby accepts such employment for an initial term commencing as of the date hereof and ending May 29, 2010, unless sooner terminated in accordance with the provisions of Section 4 or Section 5, and which shall automatically renew for an additional one year term unless six months advance notice is given of non-renewal (the period during which the Executive is employed hereunder being hereinafter referred to as the “Term”).

2. Duties. The Executive, in his capacity as President and Chief Executive Officer shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer or board of directors or similar governing body of the Company (the “Board”) (including the performance of services for, and serving on the Board of Directors of, any subsidiary or affiliate of the Company without any additional compensation). The Executive will be based at the Company’s headquarters, presently located in Sandpoint, Idaho. The Executive shall devote substantially all of the Executive’s business time and effort to the performance of the Executive’s duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Chief Executive Officer or the Board, so long as such activities do not materially and adversely interfere with the Executive’s duties for the Company.

3. Compensation.

3.1 Salary. The Company shall pay the Executive during the Term a base salary at the rate of $725,000 per annum (the “Annual Salary”), payable semi-monthly and subject to regular deductions and withholdings as required by law. The Annual Salary may be increased annually by an amount as may be approved by the Board or the Compensation Committee of the Board of Directors (the “Compensation Committee”), and, upon such

increase, the increased amount shall thereafter be deemed to be the Annual Salary for purposes of this Agreement.

3.2 Bonus. The Executive will be entitled to such bonuses as may be authorized by the Board. The Executive’s target bonus amount, when expressed as a percentage of Annual Salary, will be no less than the target amount that was applicable for fiscal year 2007, provided, however, that Executive’s Annual Bonus, if any, may be below, at, or above the target based upon the achievement of individual and objective Company annual performance criteria established by the Compensation Committee. Any Annual Bonus payable to the Executive hereunder shall be paid no later than 2 ½ months of the fiscal year following the fiscal year with respect to which the bonus is earned.

4. Termination upon Death or Disability. If the Executive dies during the Term, the obligations of the Company to or with respect to the Executive shall terminate in their entirety except as otherwise provided under this Section 4. If the Executive becomes eligible for disability benefits under the Company’s long-term disability plans and arrangements (or, if none apply, would have been so eligible under the most recent plan or arrangement), the Company shall have the right, to the extent permitted by law, to terminate the employment of the Executive upon notice in writing to the Executive and such termination in and of itself shall not be, nor shall it be deemed to be, a breach of this Agreement; provided that, the Company will have no right to terminate the Executive’s employment if, in the opinion of a qualified physician reasonably acceptable to the Company, it is reasonably certain that the Executive will be able to

resume the Executive’s duties on a regular full-time basis within 90 days of the date the Executive receives notice of such termination.

For the avoidance of doubt, the Executive acknowledges and agrees that the payments set forth in this Section 4 constitute liquidated damages for termination of his employment during the Term upon his death or by virtue of his disability.

5. Other Terminations of Employment.

5.1 Termination for Cause; Termination of Employment by the Executive Without Good Reason.

(a) For purposes of this Agreement, “Cause” shall mean:

(i) the Executive’s commission of any felony;

(ii) the Executive’s commission of an act of fraud, theft or dishonesty;

(iii) the continuing failure or habitual neglect by the Executive to perform the Executive’s duties hereunder;

(iv) any material violation of Company policy, including without limitation, the Company’s Corporate Standards of Conduct;

(v) any material violation by the Executive of Section 6 below; or

(vi) the Executive’s material breach of this Agreement.

(b) For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by the Executive:

(ii) a material reduction in Annual Salary of the Executive except in connection with a reduction in compensation generally applicable to senior management employees of the Company;

(iii) a requirement by the Company that the Executive’s work location be moved more than 50 miles from the Company’s principal place of business in Sandpoint, Idaho; or

(iv) the Company’s material and willful breach of this Agreement.

earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the provisions of Section 5.3 shall apply and (iii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(c), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Company or any later date set forth in such notice of termination.

(d) The Executive may terminate his employment without Good Reason. If the Executive terminates the Executive’s employment with the Company without Good Reason: (i) the Executive shall have no right to receive any compensation or benefit under this Agreement on and after the Effective Date of the Termination (as defined below in this Section 5.1(d)) other than Annual Salary and other benefits, including payment for accrued but unused vacation (but excluding any bonuses) earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the provisions of Section 5.3 shall apply and (iii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(d), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Executive or any later date set forth in such notice of termination.

to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus for any pending bonus periods in the current year (and if such Effective Date of Termination is after May 29, 2010, the pro rata bonus with respect to any pending bonus period shall be paid only to the extent the performance goals for such pending bonus period are subsequently determined to have been achieved) and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive a cash payment equal to the Severance Payment (as defined below in this Section 5.2) payable no later than 30 days after the Effective Date of the Termination, (iii) all unvested equity awards held by the Executive shall fully vest, provided, however, that if the equity awards are subject to performance vesting requirements and such Effective Date of Termination is after May 29, 2010, such vesting will only occur to the extent the performance goals for any pending bonus period are subsequently determined to have been achieved, (iv) the Executive shall receive accelerated full vesting of Executive’s supplemental executive retirement plan and payment in accordance with its terms, (v) the Executive shall continue to receive health benefits for eighteen (18) months and (vi) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). Notwithstanding the foregoing sentence, if the Company terminates Executive’s employment without Cause or Executive terminates employment for Good Reason on or within 12 months after a Change in Control, the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than (i) the Executive shall receive his Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus (at target level) for any pending bonus periods in the current year and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive the applicable Severance Payment, payable no later than 30 days after the Effective Date of the Termination (iii) the Executive shall receive continuation of health benefits for eighteen (18) months, (iv) all unvested equity awards held by the Executive shall fully vest, (v) the Executive shall receive accelerated full vesting of Executive’s supplemental executive retirement plan and payment in accordance with its terms, and (vi) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). The “Severance Payment” means one and one-half (1 1/2) times the Executive’s Annual Salary and annual bonus at target level in effect on the day of termination, provided that, if the Effective Date of Termination is after May 29, 2010 the Severance Payment will be two and one-half (2 1/2) times the Executive’s Annual Salary; and provided further that, if the Effective Date of Termination is within 365 days following the occurrence of a Change in Control pursuant to the Company’s termination without Cause or the Executive’s termination for Good Reason (as

defined above in Section 5.1(b)), the Severance Payment means two and one-half (2 1/2) times Executive’s Annual Salary plus annual bonus at target level in effect on the day of termination. For purposes of this Section 5.2, (i) the “Effective Date of the Termination” shall mean the date of termination specified in the Company’s or the Executive’s notice of termination, as applicable, and (ii) a “Change in Control” shall mean: (a) the acquisition directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities; (b) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (c) a sale of all or substantially all of the assets of the Company to another person or entity (other than a person or entity that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction).

6. Noncompetition.

6.1 Noncompetition. The Executive agrees with the Company that, during the Term of this Agreement and for eighteen (18) months thereafter (the “Non-Competition Restriction Period”), the Executive will not, directly or indirectly (whether as an officer, director, employee, consultant, agent, advisor, stockholder, partner, joint venturer, proprietor or otherwise) engage, be engaged by or otherwise become interested in any direct competitor of the Company or any of its subsidiaries (or any of their successors), as the Company’s business is conducted or contemplated to be conducted during his period of employment with the Company.

6.3 Forfeiture of Severance Payments. In the event the Executive breaches any provision of Section 6.1 or the Coldwater Creek Inc. Confidentiality and Intellectual Property Agreement and Agreement for Non-Solicitation or Recruitment, in addition to any other remedies that the Company may have at law or in equity, the Executive shall promptly reimburse

the Company for any Severance Payments received from, or payable by, the Company. In addition, the Company shall be entitled in its sole discretion to offset all or any portion of the amount of any unpaid reimbursements against any amount owed by the Company to the Executive.

7. Other Provisions.

7.1 Specific Performance. The Executive acknowledges that the obligations undertaken by such Executive pursuant to Section 6 of this Agreement are unique and that the Company likely will have no adequate remedy at law if the Executive shall fail to perform any of such Executive’s obligations hereunder, and the Executive therefore confirms that the Company’s right to specific performance of the terms of Section 6 of this Agreement is essential to protect the rights and interests of the Company. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, covenants, agreements and other provisions of Section 6 of this Agreement specifically performed by the Executive, and the Company shall have the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by the Executive. The Executive hereby acknowledges and warrants that he will be fully able to earn a livelihood for himself and his dependents if these covenants are specifically enforced against him. The Executive hereby further acknowledges and agrees that the Company shall not be required to post bond as a condition to obtaining or exercising such remedies, and the Executive hereby waives any such requirement or condition.

(i) if to the Executive, to the address set forth in the records of the Company; and

(ii) if to the Company,

Coldwater Creek Inc.

One Coldwater Creek Drive

Sandpoint, Idaho 83864

Attention: Chief Executive Officer

Facsimile: [ ]

Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.

7.5 Entire Agreement. This Agreement, and the Coldwater Creek Inc. Confidentiality and Intellectual Property Agreement and Agreement for Non-Solicitation or Recruitment, along with all equity grants to Executive, contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with the Company or its subsidiaries (or any predecessor of either).

7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IDAHO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

7.9 Withholding. The Company shall be entitled to withhold from any payments or deemed payments any amount of withholding required by law. No other taxes, fees, impositions, duties or other charges or offsets of any kind shall be deducted or withheld from amounts payable hereunder, unless otherwise required by law.

7.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.

7.15 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

7.16 Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a Subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such termination, the Executive would receive any payment that, absent the application of this Section 7.16, would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (1) 6 months after the Executive’s termination date, (2) the Executive’s death or (3) such other date as will cause such payment not to be subject to such interest and additional tax.

Section, the parties shall cooperate to amend this Agreement with the goal of giving the Executive the economic benefits described herein in a manner that does not result in such tax being imposed.

7.17 Parachute Provisions. In the event Executive becomes entitled to any amount of benefits payable in connection with a change in control (whether or not such amounts are payable pursuant to this Agreement) (the “Change in Control Payments”) and Executive’s receipt of such Change in Control Payments would cause Executive to become subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Code (or any similar federal, state, or local tax that may hereafter be imposed), the Company shall reduce the Change in Control Payments to the extent necessary to avoid the application of the Excise Tax if, as a result of such reduction, the net benefits to Executive of the Change in Control Payments as so reduced (after payment of applicable income taxes) exceeds the net benefit to Executive of the Change in Control Payments without such reduction (after payment of applicable income taxes and excise taxes). Unless Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce the Change in Control Payments by first reducing the portion of the Change in Control Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the change in control. Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation. The determination that Executive’s Change in Control Payments would cause him to become subject to the Excise Tax and the calculation of the amount of any reduction, shall be made, at the Company’s discretion, by the Company’s outside auditing firm or by a nationally-recognized accounting or benefits consulting firm designated by the Company prior to a change in control. The firm’s expenses shall be paid by the Company.

7.18 Certain Definitions. For purposes of this Agreement:

(b) A “business day” means the period from 9:00 am to 5:00 pm on any weekday that is not a banking holiday in New York City, New York.

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

	COLDWATER CREEK INC.

	By:	/s/ Timothy Martin
	Name:	Timothy Martin
	Title:	Senior Vice President and Chief Financial Officer


	/s/ Daniel Griesemer
	DANIEL GRIESEMER

EX-10.14 5 a2191998zex-10_14.htm EXHIBIT 10.14

Exhibit 10.14

DAN MOEN
EMPLOYMENT AGREEMENT, AS AMENDED AND RESTATED

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is dated as of May 29, 2007, and amended and restated December 23, 2008, by and between Coldwater Creek Inc., a Delaware corporation (the “Company”), and Dan Moen (the “Executive”).

WHEREAS, the Company desires to employ the Executive as its Senior Vice President and Chief Information Officer and the Executive desires to accept such employment, on the terms set forth below.

Accordingly, the parties hereto agree as follows:

2. Duties. The Executive, in his capacity as Senior Vice President and Chief Information Officer shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer or board of directors or similar governing body of the Company (the “Board”) (including the performance of services for, and serving on the Board of Directors of, any subsidiary or affiliate of the Company without any additional compensation). The Executive will be based at the Company’s headquarters, presently located in Sandpoint, Idaho. The Executive shall devote substantially all of the Executive’s business time and effort to the performance of the Executive’s duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Chief Executive Officer or the Board, so long as such activities do not materially and adversely interfere with the Executive’s duties for the Company.

3. Compensation.

Committee of the Board of Directors (the “Compensation Committee”), and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary for purposes of this Agreement.

3.2 Bonus. The Executive will be entitled to such bonuses as may be authorized by the Board. The Executive’s target bonus will be expressed as a percentage of Annual Salary, provided, however, that Executive’s Annual Bonus, if any, may be below, at, or above the target based upon the achievement of individual and objective Company annual performance criteria established by the Compensation Committee. Any Annual Bonus payable to the Executive hereunder shall be paid no later than 2 ½ months of the fiscal year following the fiscal year with respect to which the bonus is earned.

3.4 Benefits — In General. The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.

Upon death of the Executive or upon termination of the Executive’s employment by virtue of disability the Executive (or the Executive’s estate or beneficiaries in the case of the

death of the Executive) shall have no right to receive any compensation or benefit under this Agreement on and after the Effective Date of the Termination (as defined below in this Section 4) other than the Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, a pro-rata bonus for the year of termination based on the target and portion of year completed, and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination). In the event of termination by virtue of disability, in addition to the foregoing, the Executive will also be entitled to monthly cash payments equal to one twelfth (1/12th) of the Executive’s Annual Salary in effect on the day of termination for a period of twelve (12) months. This Agreement shall otherwise terminate upon the Effective Date of the Termination and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.13). For purposes of this Section 4, the “Effective Date of the Termination” shall mean the date of death or the date on which a notice of termination by virtue of disability is given by the Company or any later date set forth in such notice of termination.

5. Other Terminations of Employment.

5.1 Termination for Cause; Termination of Employment by the Executive Without Good Reason.

(a) For purposes of this Agreement, “Cause” shall mean:

(i) the Executive’s commission of any felony;

(ii) the Executive’s commission of an act of fraud, theft or dishonesty;

(iii) the continuing failure or habitual neglect by the Executive to perform the Executive’s duties hereunder;

(iv) any material violation of Company policy, including without limitation, the Company’s Corporate Standards of Conduct;

(v) any material violation by the Executive of Section 6 below; or

(vi) the Executive’s material breach of this Agreement.

Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Cause under clause (iii), (iv), (v) or (vi) above, the Executive shall

have 30 days from the date written notice is given by the Company of such event or condition to cure such event or condition and, if the Executive does so, such event or condition shall not constitute Cause hereunder.

(b) For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by the Executive:

(ii) a material reduction in Annual Salary of the Executive except in connection with a reduction in compensation generally applicable to senior management employees of the Company;

(iii) a requirement by the Company that the Executive’s work location be moved more than 50 miles from the Company’s principal place of business in Sandpoint, Idaho; or

(iv) the Company’s material and willful breach of this Agreement.

(c) The Company may terminate the Executive’s employment for Cause and such termination in and of itself shall not be, nor shall it be deemed to be, a breach of this Agreement. If the Company terminates the Executive for Cause, (i) the Executive shall have no right to receive any compensation or benefit under this Agreement on and after the Effective Date of the Termination (as defined below in this Section 5.1(c)) other than Annual Salary and other benefits, including payment for accrued but unused vacation (but excluding any bonuses) earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the provisions of Section 5.3 shall apply and (iii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(c), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Company or any later date set forth in such notice of termination.

Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive a cash payment equal to the Severance Payment (as defined below in this Section 5.2) payable no later than 30 days after the Effective Date of the Termination, (iii) all unvested equity awards held by the Executive shall fully vest, provided, however, that if the equity awards are subject to performance vesting requirements and such Effective Date of Termination is after May 29, 2010, such vesting will only occur to the extent the performance goals for any pending bonus period are subsequently determined to have been achieved, (iv) the Executive shall continue to receive health benefits for 12 months and (v) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). Notwithstanding the foregoing sentence, if the Company terminates Executive’s employment without Cause or Executive terminates employment for Good Reason on or within 12 months after a Change in Control, the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than (i) the Executive shall receive his Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus (at target level) for any pending bonus periods in the current year and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive the applicable Severance Payment, payable no later than 30 days after the Effective Date of the Termination (iii) the Executive shall receive continuation of health benefits for 12 months, (iv) all unvested equity awards held by the Executive shall fully vest and (v) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). The “Severance Payment” means one and one-half (1 1/2) times the Executive’s Annual Salary in effect on the day of termination provided that, if the Effective Date of Termination occurs within 365 days following the occurrence of a Change in Control pursuant to the Company’s termination without Cause or the Executive’s termination for Good Reason (as defined below in this Section 5.1(b)), the Severance Payment means one and one-half (1 1/2) times the Executive’s Annual Salary and annual bonus at target level in effect on the day of termination. For purposes of this Section 5.2, (i) the “Effective Date of the Termination” shall mean the date of termination specified in the Company’s or the Executive’s notice of termination, as applicable, and (ii) a “Change in Control” shall mean: (a) the acquisition directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities; (b) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for

election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (c) a sale of all or substantially all of the assets of the Company to another person or entity (other than a person or entity that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction).

6. Noncompetition.

6.1 Noncompetition. The Executive agrees with the Company that, during the Term of this Agreement and for twelve (12) months thereafter (the “Non-Competition Restriction Period”), the Executive will not, directly or indirectly (whether as an officer, director, employee, consultant, agent, advisor, stockholder, partner, joint venturer, proprietor or otherwise) engage, be engaged by or otherwise become interested in any direct competitor of the Company or any of its subsidiaries (or any of their successors), as the Company’s business is conducted or contemplated to be conducted during his period of employment with the Company.

7. Other Provisions.

preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by the Executive. The Executive hereby acknowledges and warrants that he will be fully able to earn a livelihood for himself and his dependents if these covenants are specifically enforced against him. The Executive hereby further acknowledges and agrees that the Company shall not be required to post bond as a condition to obtaining or exercising such remedies, and the Executive hereby waives any such requirement or condition.

(i) if to the Executive, to the address set forth in the records of the Company; and

(ii) if to the Company,

Coldwater Creek Inc.

One Coldwater Creek Drive

Sandpoint, Idaho 83864

Attention: Chief Executive Officer

Facsimile: [ ]

Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.

7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IDAHO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

7.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.

7.15 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

7.16 Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a Subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such termination, the Executive would receive any payment that, absent the application of this Section 7.16, would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (1) 6 months after the Executive’s termination date, (2) the Executive’s death or (3) such other date as will cause such payment not to be subject to such interest and additional tax.

(d) Amounts payable under this Agreement following the Executive’s

termination of employment, other than those expressly payable on a deferred or installment basis, will be paid as promptly as practical after such a termination of employment and, in any event, within 2 ½ months after the end of the year in which employment terminates.

7.17 Certain Definitions. For purposes of this Agreement:

(b) A “business day” means the period from 9:00 am to 5:00 pm on any weekday that is not a banking holiday in New York City, New York.

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

	COLDWATER CREEK INC.

	By:	/s/ Daniel Griesemer
	Name:	Daniel Griesemer
	Title:	Chief Executive Officer


	/s/ Dan Moen
	DAN MOEN

EX-10.15 6 a2191998zex-10_15.htm EXHIBIT 10.15

Exhibit 10.15

GERARD EL CHAAR

EMPLOYMENT AGREEMENT, AS AMENDED AND RESTATED

WHEREAS, the Company desires to employ the Executive as its Senior Vice President-Operations and the Executive desires to accept such employment, on the terms set forth below.

Accordingly, the parties hereto agree as follows:

2. Duties. The Executive, in his capacity as Senior Vice President-Operations shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer or board of directors or similar governing body of the Company (the “Board”) (including the performance of services for, and serving on the Board of Directors of, any subsidiary or affiliate of the Company without any additional compensation). The Executive will be based at the Company’s headquarters, presently located in Sandpoint, Idaho, or at such other location as is designated by the Board of Directors. The Executive shall devote substantially all of the Executive’s business time and effort to the performance of the Executive’s duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Chief Executive Officer or the Board, so long as such activities do not materially and adversely interfere with the Executive’s duties for the Company.

3. Compensation.

Upon death of the Executive or upon termination of the Executive’s employment by virtue of disability the Executive (or the Executive’s estate or beneficiaries in the case of the

5. Other Terminations of Employment.

5.1 Termination for Cause; Termination of Employment by the Executive Without Good Reason.

(a) For purposes of this Agreement, “Cause” shall mean:

(i) the Executive’s commission of any felony;

(ii) the Executive’s commission of an act of fraud, theft or dishonesty;

(iii) the continuing failure or habitual neglect by the Executive to perform the Executive’s duties hereunder;

(iv) any material violation of Company policy, including without limitation, the Company’s Corporate Standards of Conduct;

(v) any material violation by the Executive of Section 6 below; or

(vi) the Executive’s material breach of this Agreement.

Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Cause under clause (iii), (iv), (v) or (vi) above, the Executive shall

(b) For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by the Executive:

(ii) a material reduction in Annual Salary of the Executive except in connection with a reduction in compensation generally applicable to senior management employees of the Company;

(iii) a requirement by the Company that the Executive’s work location be moved more than 50 miles from the Executive’s current principal place of business other than to the Company’s principal place of business in Sandpoint, Idaho or its facility in Coeur d’Alene, Idaho; or

(iv) the Company’s material and willful breach of this Agreement.

Section 5.1(c), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Company or any later date set forth in such notice of termination.

pending bonus period shall be paid only to the extent the performance goals for such pending bonus period are subsequently determined to have been achieved) and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive a cash payment equal to the Severance Payment (as defined below in this Section 5.2) payable no later than 30 days after the Effective Date of the Termination, (iii) all unvested equity awards held by the Executive shall fully vest, provided, however, that if the equity awards are subject to performance vesting requirements such vesting and such Effective Date of Termination is after May 29, 2010, will only occur to the extent the performance goals for any pending bonus period are subsequently determined to have been achieved, (iv) the Executive shall continue to receive health benefits for 12 months and (v) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). Notwithstanding the foregoing sentence, if the Company terminates Executive’s employment without Cause or Executive terminates employment for Good Reason on or within 12 months after a Change in Control, the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than (i) the Executive shall receive his Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus (at target level) for any pending bonus periods in the current year and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive the applicable Severance Payment, payable no later than 30 days after the Effective Date of the Termination (iii) the Executive shall receive continuation of health benefits for 12 months, (iv) all unvested equity awards held by the Executive shall fully vest and (v) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). The “Severance Payment” means one and one-half (1 1/2) times the Executive’s Annual Salary in effect on the day of termination provided that, if the Effective Date of Termination occurs within 365 days following the occurrence of a Change in Control pursuant to the Company’s termination Without Cause or the Executive’s termination for Good Reason (as defined below in this Section 5.1(b)), the Severance Payment means one and one-half (1 1/2) times the Executive’s Annual Salary and annual bonus at target level in effect on the day of termination. For purposes of this Section 5.2, (i) the “Effective Date of the Termination” shall mean the date of termination specified in the Company’s or the Executive’s notice of termination, as applicable, and (ii) a “Change in Control” shall mean: (a) the acquisition directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities; (b) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a

majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (c) a sale of all or substantially all of the assets of the Company to another person or entity (other than a person or entity that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction).

6. Noncompetition.

7. Other Provisions.

remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, covenants, agreements and other provisions of Section 6 of this Agreement specifically performed by the Executive, and the Company shall have the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by the Executive. The Executive hereby acknowledges and warrants that he will be fully able to earn a livelihood for himself and his dependents if these covenants are specifically enforced against him. The Executive hereby further acknowledges and agrees that the Company shall not be required to post bond as a condition to obtaining or exercising such remedies, and the Executive hereby waives any such requirement or condition.

(i) if to the Executive, to the address set forth in the records of the Company; and

(ii) if to the Company,

Coldwater Creek Inc.

One Coldwater Creek Drive

Sandpoint, Idaho 83864

Attention: Chief Executive Officer

Facsimile: [ ]

Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.

7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IDAHO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

7.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.

7.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all

such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto.

7.15 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

7.16 Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a Subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such termination, the Executive would receive any payment that, absent the application of this Section 7.16, would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (1) 6 months after the Executive’s termination date, (2) the Executive’s death or (3) such other date as will cause such payment not to be subject to such interest and additional tax.

be treated as the Executive’s separation from service as defined under 409A.

7.17 Certain Definitions. For purposes of this Agreement:

(b) A “business day” means the period from 9:00 am to 5:00 pm on any weekday that is not a banking holiday in New York City, New York.

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

	COLDWATER CREEK INC.

	By:	/s/ Daniel Griesemer
	Name:	Daniel Griesemer
	Title:	President and Chief Executive Officer


	/s/ Gerard El Chaar
	GERARD EL CHAAR

EX-10.16 7 a2191998zex-10_16.htm EXHIBIT 10.16

Exhibit 10.16

TIMOTHY O. MARTIN

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is dated as of December 23, 2008, by and between Coldwater Creek Inc., a Delaware corporation (the “Company”), and Timothy O. Martin (the “Executive”).

WHEREAS, the Company desires to employ the Executive as its Senior Vice President and Chief Financial Officer and the Executive desires to accept such employment, on the terms set forth below.

Accordingly, the parties hereto agree as follows:

1. Term. The Company hereby employs the Executive, and the Executive hereby accepts such employment for an initial term commencing as of the date hereof and ending January 28, 2012, unless sooner terminated in accordance with the provisions of Section 4 or Section 5, and which shall automatically renew for an additional one year term unless six months advance notice is given of non-renewal (the period during which the Executive is employed hereunder being hereinafter referred to as the “Term”).

2. Duties. The Executive, in his capacity as Senior Vice President and Chief Financial Officer shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer or board of directors or similar governing body of the Company (the “Board”) (including the performance of services for, and serving on the Board of Directors of, any subsidiary or affiliate of the Company without any additional compensation). The Executive will be based at the Company’s headquarters, presently located in Sandpoint, Idaho. The Executive shall devote substantially all of the Executive’s business time and effort to the performance of the Executive’s duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Chief Executive Officer or the Board, so long as such activities do not materially and adversely interfere with the Executive’s duties for the Company.

3. Compensation.

3.1 Salary. The Company shall pay the Executive during the Term a base salary at the rate of $325,000 per annum (the “Annual Salary”), payable semi-monthly and subject to regular deductions and withholdings as required by law. The Annual Salary may be increased annually by an amount as may be approved by the Board or the Compensation Committee of the Board of Directors (the “Compensation Committee”), and, upon such

increase, the increased amount shall thereafter be deemed to be the Annual Salary for purposes of this Agreement.

3.2 Bonus. The Executive will be entitled to such bonuses as may be authorized by the Board. The Executive’s target bonus will be expressed as a percentage of Annual Salary, provided, however, that Executive’s Annual Bonus, if any, may be below, at, or above the target based upon the achievement of individual and objective Company annual performance criteria established by the Compensation Committee. Any Annual Bonus payable to the Executive hereunder shall be paid no later than 2 ½ months following the fiscal year with respect to which the bonus is earned.

3.4 Benefits – In General. The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.

4) other than the Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, a pro-rata bonus for the year of termination based on the target and portion of year completed, and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination). In the event of termination by virtue of disability, in addition to the foregoing, the Executive will also be entitled to monthly cash payments equal to one twelfth (1/12th) of the Executive’s Annual Salary in effect on the day of termination for a period of twelve (12) months. This Agreement shall otherwise terminate upon the Effective Date of the Termination and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.13). For purposes of this Section 4, the “Effective Date of the Termination” shall mean the date of death or the date on which a notice of termination by virtue of disability is given by the Company or any later date set forth in such notice of termination.

5. Other Terminations of Employment.

5.1 Termination for Cause; Termination of Employment by the Executive Without Good Reason.

(a) For purposes of this Agreement, “Cause” shall mean:

(i) the Executive’s commission of any felony;

(ii) the Executive’s commission of an act of fraud, theft or dishonesty;

(iii) the continuing failure or habitual neglect by the Executive to perform the Executive’s duties hereunder;

(iv) any material violation of Company policy, including without limitation, the Company’s Corporate Standards of Conduct;

(v) any material violation by the Executive of Section 6 below; or

(vi) the Executive’s material breach of this Agreement.

(b) For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by the Executive:

(ii) a material reduction in Annual Salary of the Executive except in connection with a reduction in compensation generally applicable to senior management employees of the Company;

(iii) a requirement by the Company that the Executive’s work location be moved more than 50 miles from the Company’s principal place of business in Sandpoint, Idaho; or

(iv) the Company’s material and willful breach of this Agreement.

Section 5.1(d)) other than Annual Salary and other benefits, including payment for accrued but unused vacation (but excluding any bonuses) earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the provisions of Section 5.3 shall apply and (iii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(d), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Executive or any later date set forth in such notice of termination.

5.2 Termination Without Cause; Termination for Good Reason. The Company may terminate the Executive’s employment at any time without Cause, for any reason or no reason, and the Executive may terminate the Executive’s employment with the Company for Good Reason. If the Company or the Executive terminates the Executive’s employment and such termination is not described in Section 4 or Section 5.1, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus for any pending bonus periods in the current year (to the extent the performance goals for any such pending bonus period are subsequently determined to have been achieved) and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive a cash payment equal to the Severance Payment (as defined below in this Section 5.2) payable no later than 30 days after the Effective Date of the Termination, (iii) all unvested equity awards held by the Executive shall fully vest, provided, however, that if the equity awards are subject to performance vesting requirements such vesting will only occur to the extent the performance goals for any pending bonus period are subsequently determined to have been achieved, (iv) the Executive shall continue to receive

health benefits for 12 months and (v) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). Notwithstanding the foregoing sentence, if the Company terminates Executive’s employment without Cause or Executive terminates employment for Good Reason on or within 12 months after a Change in Control, the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than (i) the Executive shall receive his Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus (at target level) for any pending bonus periods in the current year and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive the applicable Severance Payment, payable no later than 30 days after the Effective Date of the Termination (iii) the Executive shall receive continuation of health benefits for 12 months, (iv) all unvested equity awards held by the Executive shall fully vest and (v) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). The “Severance Payment” means one and one-half (1 1/2) times the Executive’s Annual Salary in effect on the day of termination provided that, if the Effective Date of Termination occurs within 365 days following the occurrence of a Change in Control pursuant to the Company’s termination without Cause or the Executive’s termination for Good Reason (as defined below in this Section 5.1(b)), the Severance Payment means one and one-half (1 1/2) times the Executive’s Annual Salary and annual bonus at target level in effect on the date of termination. For purposes of this Section 5.2, (i) the “Effective Date of the Termination” shall mean the date of termination specified in the Company’s or the Executive’s notice of termination, as applicable, and (ii) a “Change in Control” shall mean: (a) the acquisition directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities; (b) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (c) a sale of all or substantially all of the assets of the Company to another person or entity (other than a person or entity that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction).

6. Noncompetition.

7. Other Provisions.

7.1 Specific Performance. The Executive acknowledges that the obligations undertaken by such Executive pursuant to Section 6 of this Agreement are unique and that the Company likely will have no adequate remedy at law if the Executive shall fail to perform any of such Executive’s obligations hereunder, and the Executive therefore confirms that the Company’s right to specific performance of the terms of Section 6 of this Agreement is essential to protect the rights and interests of the Company. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, covenants, agreements and other provisions of Section 6 of this Agreement specifically performed by the Executive, and the Company shall have the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by the Executive. The Executive hereby acknowledges and warrants that he will be fully able to earn a livelihood for himself and his dependents if these covenants are specifically enforced against him. The Executive hereby further acknowledges and agrees that the Company shall not be required to post bond as a condition to obtaining or exercising such remedies, and the Executive hereby waives any such requirement or condition.

unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.

(i) if to the Executive, to the address set forth in the records of the Company; and

(ii) if to the Company,

Coldwater Creek Inc.

One Coldwater Creek Drive

Sandpoint, Idaho 83864

Attention: Chief Executive Officer

Facsimile: [ ]

Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.

privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IDAHO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

7.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.

7.15 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

7.16 Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a Subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such termination, the Executive would receive any payment that, absent the application of this Section 7.16, would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (1) 6 months after the Executive’s termination date, (2) the Executive’s death or (3) such other date as will cause such payment not to be subject to such interest and additional tax.

7.17 Certain Definitions. For purposes of this Agreement:

(b) A “business day” means the period from 9:00 am to 5:00 pm on any weekday that is not a banking holiday in New York City, New York.

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

	COLDWATER CREEK INC.

	By:	/s/ Daniel Griesemer
	Name:	Daniel Griesemer
	Title:	President and Chief Executive Officer


	/s/ Timothy O. Martin
	TIMOTHY O. MARTIN

EX-10.17 8 a2191998zex-10_17.htm EXHIBIT 10.17

Exhibit 10.17

JEFFREY PARISIAN
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is dated as of June 28, 2008, by and between Coldwater Creek Inc., a Delaware corporation (the “Company”), and Jeffrey Parisian (the “Executive”).

WHEREAS, the Company desires to employ the Executive as its Senior Vice President of Administration and the Executive desires to accept such employment, on the terms set forth below.

Accordingly, the parties hereto agree as follows:

2. Duties. The Executive, in his capacity as Senior Vice President of Administration shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer or board of directors or similar governing body of the Company (the “Board”) (including the performance of services for, and serving on the Board of Directors of, any subsidiary or affiliate of the Company without any additional compensation). The Executive will be based at the Company’s headquarters, presently located in Sandpoint, Idaho. The Executive shall devote substantially all of the Executive’s business time and effort to the performance of the Executive’s duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Chief Executive Officer or the Board, so long as such activities do not materially and adversely interfere with the Executive’s duties for the Company.

3. Compensation.

3.1 Salary. The Company shall pay the Executive during the Term a base salary at the rate of $350,000 per annum (the “Annual Salary”), payable semi-monthly and subject to regular deductions and withholdings as required by law. The Annual Salary may be increased annually by an amount as may be approved by the Board or the Compensation Committee of the Board of Directors (the “Compensation Committee”), and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary for purposes of this Agreement.

3.4 Benefits – In General. The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.

vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination). In the event of termination by virtue of disability, in addition to the foregoing, the Executive will also be entitled to monthly cash payments equal to one twelfth (1/12th) of the Executive’s Annual Salary in effect on the day of termination for a period of twelve (12) months. This Agreement shall otherwise terminate upon the Effective Date of the Termination and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.13). For purposes of this Section 4, the “Effective Date of the Termination” shall mean the date of death or the date on which a notice of termination by virtue of disability is given by the Company or any later date set forth in such notice of termination.

5. Other Terminations of Employment.

5.1 Termination for Cause; Termination of Employment by the Executive Without Good Reason.

(a) For purposes of this Agreement, “Cause” shall mean:

(i) the Executive’s commission of any felony;

(ii) the Executive’s commission of an act of fraud, theft or dishonesty;

(iii) the continuing failure or habitual neglect by the Executive to perform the Executive’s duties hereunder;

(iv) any material violation of Company policy, including without limitation, the Company’s Corporate Standards of Conduct;

(v) any material violation by the Executive of Section 6 below; or

(vi) the Executive’s material breach of this Agreement.

(b) For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by the Executive:

(ii) a material reduction in Annual Salary of the Executive except in connection with a reduction in compensation generally applicable to senior management employees of the Company;

(iii) a requirement by the Company that the Executive’s work location be moved more than 50 miles from the Company’s principal place of business in Sandpoint, Idaho; or

(iv) the Company’s material and willful breach of this Agreement.

incurred but not paid prior to the Effective Date of the Termination), (ii) the provisions of Section 5.3 shall apply and (iii) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). For purposes of this Section 5.1(d), the “Effective Date of the Termination” shall mean the date on which a notice of termination is given by the Executive or any later date set forth in such notice of termination.

terminates Executive’s employment without Cause or Executive terminates employment for Good Reason on or within 12 months after a Change in Control, the Executive shall have no right to receive any compensation or benefit hereunder on and after the Effective Date of the Termination (as defined below in this Section 5.2) other than (i) the Executive shall receive his Annual Salary earned and accrued under this Agreement prior to the Effective Date of the Termination, any bonus for the prior year not yet paid, a pro rata bonus (at target level) for any pending bonus periods in the current year and other benefits, including payment for accrued but unused vacation, earned and accrued under this Agreement prior to the Effective Date of the Termination (and reimbursement under this Agreement for expenses incurred but not paid prior to the Effective Date of the Termination), (ii) the Executive shall receive the applicable Severance Payment, payable no later than 30 days after the Effective Date of the Termination (iii) the Executive shall receive continuation of health benefits for 12 months, (iv) all unvested equity awards held by the Executive shall fully vest and (v) this Agreement shall otherwise terminate upon the Effective Date of the Termination and the Executive shall have no further rights hereunder (except as provided in Section 7.13). The “Severance Payment” means one and one-half (1 1/2) times the Executive’s Annual Salary in effect on the day of termination provided that, if the Effective Date of Termination occurs within 365 days following the occurrence of a Change in Control pursuant to the Company’s termination without Cause or the Executive’s termination for Good Reason (as defined below in this Section 5.1(b)), the Severance Payment means one and one-half (1 1/2) times the Executive’s Annual Salary and annual bonus at target level in effect on the day of termination. For purposes of this Section 5.2, (i) the “Effective Date of the Termination” shall mean the date of termination specified in the Company’s or the Executive’s notice of termination, as applicable, and (ii) a “Change in Control” shall mean: (a) the acquisition directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities; (b) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (c) a sale of all or substantially all of the assets of the Company to another person or entity (other than a person or entity that directly or indirectly controls, is controlled by, or is under common control with, the Company prior to the transaction).

6. Noncompetition.

7. Other Provisions.

7.1 Specific Performance. The Executive acknowledges that the obligations undertaken by such Executive pursuant to Section 6 of this Agreement are unique and that the Company likely will have no adequate remedy at law if the Executive shall fail to perform any of such Executive’s obligations hereunder, and the Executive therefore confirms that the Company’s right to specific performance of the terms of Section 6 of this Agreement is essential to protect the rights and interests of the Company. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, covenants, agreements and other provisions of Section 6 of this Agreement specifically performed by the Executive, and the Company shall have the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by the Executive. The Executive hereby acknowledges and warrants that he will be fully able to earn a livelihood for himself and his dependents if these covenants are specifically enforced against him. The Executive hereby further acknowledges and agrees that the Company shall not be required to post bond as a condition to obtaining or exercising such remedies, and the Executive hereby waives any such requirement or condition.

unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.

(i) if to the Executive, to the address set forth in the records of the Company; and

(ii) if to the Company,

Coldwater Creek Inc.

One Coldwater Creek Drive

Sandpoint, Idaho 83864

Attention: Chief Executive Officer

Facsimile: [ ]

Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.

privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IDAHO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

7.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.

7.15 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

7.16 Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a Subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such termination, the Executive would receive any payment that, absent the application of this Section 7.16, would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (1) 6 months after the Executive’s termination date, (2) the Executive’s death or (3) such other date as will cause such payment not to be subject to such interest and additional tax.

7.17 Certain Definitions. For purposes of this Agreement:

(b) A “business day” means the period from 9:00 am to 5:00 pm on any weekday that is not a banking holiday in New York City, New York.

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

	COLDWATER CREEK INC.

	By:	/s/ Daniel Griesemer
	Name:	Daniel Griesemer
	Title:	President and Chief Executive Officer


	/s/ Jeffrey Parisian
	JEFFREY PARISIAN

EX-10.18 9 a2191998zex-10_18.htm EXHIBIT 10.18

Exhibit 10.18

JOHN E. HAYES, III

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is dated as of February 23, 2009, by and between Coldwater Creek Inc., a Delaware corporation (the “Company”), and John E. Hayes, III (the “Executive”).

WHEREAS, the Company desires to employ the Executive as its Senior Vice President and General Counsel, and the Executive desires to accept such employment, on the terms set forth below.

Accordingly, the parties hereto agree as follows:

1. Term. The Company hereby employs the Executive, and the Executive hereby accepts such employment for an initial term commencing as of the date hereof and ending February 23, 2012, unless sooner terminated in accordance with the provisions of Section 4 or Section 5, and which shall automatically renew for an additional one year term unless six months advance notice is given of non-renewal (the period during which the Executive is employed hereunder being hereinafter referred to as the “Term”).

2. Duties. The Executive, in his capacity as Senior Vice President and General Counsel shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer or board of directors or similar governing body of the Company (the “Board”) (including the performance of services for, and serving on the Board of Directors of, any subsidiary or affiliate of the Company without any additional compensation). The Executive will be based at the Company’s headquarters, presently located in Sandpoint, Idaho. The Executive shall devote substantially all of the Executive’s business time and effort to the performance of the Executive’s duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Chief Executive Officer or the Board, so long as such activities do not materially and adversely interfere with the Executive’s duties for the Company.

3. Compensation.

3.1 Salary. The Company shall pay the Executive during the Term a base salary at the rate of $375,000 per annum (the “Annual Salary”), payable semi-monthly and subject to regular deductions and withholdings as required by law. The Annual Salary may be increased annually by an amount as may be approved by the Board or the Compensation Committee of the Board of Directors (the “Compensation Committee”), and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary for purposes of this Agreement.

3.2 Bonus. The Executive will be entitled to such bonuses as may be authorized by the Board. The Executive’s target bonus will be expressed as a percentage of Annual Salary, provided, however, that Executive’s Annual Bonus, if any, may be below, at, or above the target based upon the achievement of individual and objective Company annual performance criteria established by the Compensation Committee. Any Annual Bonus payable to the Executive hereunder shall be paid no later than 2 ½ months following the fiscal year with respect to which the bonus is earned.

3.4 Benefits – In General. The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.

5. Other Terminations of Employment.

5.1 Termination for Cause; Termination of Employment by the Executive Without Good Reason.

(a) For purposes of this Agreement, “Cause” shall mean:

(i) the Executive’s commission of any felony;

(ii) the Executive’s commission of an act of fraud, theft or dishonesty;

(iii) the continuing failure or habitual neglect by the Executive to perform the Executive’s duties hereunder;

(iv) any material violation of Company policy, including without limitation, the Company’s Corporate Standards of Conduct;

(v) any material violation by the Executive of Section 6 below; or

(vi) the Executive’s material breach of this Agreement.

(b) For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by the Executive:

(ii) a material reduction in Annual Salary of the Executive except in connection with a reduction in compensation generally applicable to senior management employees of the Company;

(iii) a requirement by the Company that the Executive’s work location be moved more than 50 miles from the Company’s principal place of business in Sandpoint, Idaho; or

(iv) the Company’s material and willful breach of this Agreement.

6. Noncompetition.

7. Other Provisions.

7.1 Specific Performance. The Executive acknowledges that the obligations undertaken by such Executive pursuant to Section 6 of this Agreement are unique and that the Company likely will have no adequate remedy at law if the Executive shall fail to perform any of such Executive’s obligations hereunder, and the Executive therefore confirms that the Company’s right to specific performance of the terms of Section 6 of this Agreement is essential to protect the rights and interests of the Company. Accordingly, in addition to any other remedies that the Company may have at law or in equity, the Company shall have the right to have all obligations, covenants, agreements and other provisions of Section 6 of this Agreement specifically performed by the Executive, and the Company shall have the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by the Executive. The Executive hereby acknowledges and warrants that he will be fully able to earn a livelihood for himself and his dependents if these covenants are specifically enforced against him. The Executive hereby further acknowledges and agrees that the Company shall not be required to post bond as a condition to obtaining or exercising such remedies, and the Executive hereby waives any such requirement or condition.

unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.

(i) if to the Executive, to the address set forth in the records of the Company; and

(ii) if to the Company,

Coldwater Creek Inc.

One Coldwater Creek Drive

Sandpoint, Idaho 83864

Attention: Chief Executive Officer

Facsimile: [ ]

Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.

privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IDAHO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

7.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.

7.15 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

7.16 Section 409A of the Internal Revenue Code.

(a) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a Subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)) and (B) as a result of such termination, the Executive would receive any payment that, absent the application of this Section 7.16, would be subject to interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (1) 6 months after the Executive’s termination date, (2) the Executive’s death or (3) such other date as will cause such payment not to be subject to such interest and additional tax.

7.17 Certain Definitions. For purposes of this Agreement:

(b) A “business day” means the period from 9:00 am to 5:00 pm on any weekday that is not a banking holiday in New York City, New York.

IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.

	COLDWATER CREEK INC.

	By:	/s/ Daniel Griesemer
	Name:	Daniel Griesemer
	Title:	President and Chief Executive Officer


	/s/ John E. Hayes, III
	JOHN E. HAYES, III

EX-21 10 a2191998zex-21.htm EXHIBIT 21
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Exhibit 21

List of Significant Subsidiaries at January 31, 2009

Name of Subsidiary		State or Country of Organization

Coldwater Creek, U.S. Inc.		Delaware
Aspenwood Advertising, Inc.		Delaware
Coldwater Creek The Spa Inc.		Idaho

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Exhibit 21

List of Significant Subsidiaries at January 31, 2009
EX-23 11 a2191998zex-23.htm EXHIBIT 23
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Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-31699; 333-60099; 333-82260; and 333-137025 on Form S-8 of our reports dated March 30, 2009, relating to the consolidated financial statements of Coldwater Creek Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)), and the effectiveness of Coldwater Creek Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Coldwater Creek Inc. for the year ended January 31, 2009.

/s/ DELOITTE & TOUCHE LLP

Boise, Idaho
March 30, 2009

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Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1 12 a2191998zex-31_1.htm EXHIBIT 31.1
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Exhibit 31.1

I, Daniel Griesemer, certify that:

1.

I have reviewed this annual report on Form 10-K of Coldwater Creek Inc.

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.: Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.: Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.: Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.: All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.: Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 1, 2009


/s/ DANIEL GRIESEMER Daniel Griesemer President and Chief Executive Officer (Principal Executive Officer)

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Exhibit 31.1

EX-31.2 13 a2191998zex-31_2.htm EXHIBIT 31.2
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Exhibit 31.2

I, Timothy O. Martin, certify that:

1.

I have reviewed this annual report on Form 10-K of Coldwater Creek Inc.

2.

3.

4.

a.: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.: Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.: Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.: Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a.: All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.: Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 1, 2009


/s/ TIMOTHY O. MARTIN Timothy O. Martin Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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Exhibit 31.2

EX-32 14 a2191998zex-32.htm EXHIBIT 32
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Exhibit 32

PERIODIC REPORT CERTIFICATION
of the Chief Executive Officer and Chief Financial Officer

I, Daniel Griesemer, President and Chief Executive Officer of Coldwater Creek Inc. (the Company), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the report of the Company on Form 10-K for the fiscal year ended January 31, 2009, as filed with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


/s/ DANIEL GRIESEMER Daniel Griesemer President and Chief Executive Officer (Principal Executive Officer)
April 1, 2009

I, Timothy O. Martin, Senior Vice President and Chief Financial Officer of Coldwater Creek Inc. (the Company), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


/s/ TIMOTHY O. MARTIN Timothy O. Martin Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
April 1, 2009

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Exhibit 32

PERIODIC REPORT CERTIFICATION of the Chief Executive Officer and Chief Financial Officer
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MZ#\8"=Z#_P`T`?PA^()?PA%\.O>M^M9YG$E&_+^:6`SX#`C!\8=#T`8=[V$8 M="UO03`[^H#`^AA][^$6O>\_,E.G+%K99!)8OE_!\190`"^#YHS/A^((="^' MY@QF>O?KY@Q&?]<6][!3)M$")T03HD?Q;&3\H'RA;WO8A;$7\/P"V(7U%[#O MXM_47O>1:E=.UN[]?TQ1:='H@#9%9_+*K=Y ~~-----END PRIVACY-ENHANCED MESSAGE-----~~

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

(a) From and after the Closing Date until the first Adjustment Date, the percentages set forth in Level I of the pricing grid below; and

2

(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

(d) In the case of any component of the calculation of Reserves or Borrowing Base that provides for a determination to be made in the Administrative Agent’s discretion, such discretion shall be exercised by the Administrative Agent in its Permitted Discretion.

1.03 Accounting Terms

ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS

(i) after giving effect to any Committed Borrowing, the Total Outstandings shall not exceed the lesser of (A) the Aggregate Commitments, or (B) the Borrowing Base;

(iii) the Outstanding Amount of all L/C Obligations shall not at any time exceed the Letter of Credit Sublimit; and

(iv) after giving effect to all Credit Extensions, no Overadvance shall exist.

(b) The following are the Reserves which may be established as of the Closing Date:

(ii) Customer Credit Liabilities (an Availability Reserve);

(iii) self funded health insurance (an Availability Reserve);

(iv) Shrink (an Inventory Reserve); and

(v) any additional Reserves described in the Borrowing Base Certificate delivered on the Closing Date.

(c) The Administrative Agent shall have the right, at any time and from time to time on or after the Closing Date in its discretion to establish new, or modify or eliminate any existing, eligibility criteria or Reserves.

outstanding, then the proceeds of such Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrowers as provided above.

(g) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than five (5) Interest Periods in effect with respect to Committed Loans.

(a) The Letter of Credit Commitment.

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.

(c) Drawings and Reimbursements; Funding of Participations.

(d) Repayment of Participations.

(f) Role of L/C Issuer. Each Lender and the Borrowers agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to

such funds shall be applied, to the extent permitted under applicable Laws, to reimburse the L/C Issuer and, to the extent not so applied, shall thereafter be applied to satisfy other Obligations.

(k) Consignment of Bill of Lading. The Borrowers shall, upon the request of the Administrative Agent, consign to the L/C Issuer any bill of lading for Inventory which is supported by a Commercial Letter of Credit issued by the L/C Issuer.

(l) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

(c) Refinancing of Swing Line Loans.

(d) Repayment of Participations.

(f) Payments Directly to Swing Line Lender. The Borrowers shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.

(b) If, after giving effect to any reduction of the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Commitments, such Letter of Credit Sublimit or Swing Line Sublimit shall be automatically reduced by the amount of such excess.

(a) The Borrowers shall repay to the Lenders on the Termination Date the aggregate principal amount of Committed Loans outstanding on such date.

(b) The Administrative Agent shall deliver to each of the Lenders promptly after a Settlement Date a summary statement of the amount of outstanding Committed Loans for the

(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

(ii) duly completed copies of Internal Revenue Service Form W-8ECI,

(iii) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or LIBO Rate Loans made by such Lender or any Letter of Credit or participation therein;

(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

(b) any failure by the Borrowers (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Lead Borrower; or

(i) executed counterparts of this Agreement sufficient in number for distribution to the Administrative Agent, each Lender and the Lead Borrower;

(ii) (A) a Committed Loan Note executed by the Borrowers in favor of each Lender requesting a Committed Loan Note, and (B) a Swing Line Loan Note executed by the Borrowers in favor of Wells Fargo Retail Finance, LLC;

(vii) a duly completed Compliance Certificate as of the last day of the Fiscal Month of the Parent and its Subsidiaries most recently ended prior to the Closing Date, signed by a Responsible Officer of the Lead Borrower;

(viii) evidence that all insurance required to be maintained pursuant to the Loan Documents and all endorsements in favor of the Agents required under the Loan Documents have been obtained and are in effect;

(x) a certificate from the chief financial officer of the Lead Borrower, satisfactory in form and substance to the Administrative Agent, attesting to the Solvency of the Loan Parties as of the Closing Date after giving effect to the transactions contemplated hereby;

(xi) the Security Documents and certificates evidencing any stock being pledged thereunder, together with undated stock powers executed in blank (other than the certificate and stock powers being delivered pursuant to Section 6.22), each duly executed by the applicable Loan Parties;

(xii) all other Loan Documents, each duly executed by the applicable Loan Parties;

(xiii) the Disbursement Letter, duly executed by each of the parties thereto;

(xvii) Collateral Access Agreement, as required by the Collateral Agent; and

(xviii) such other assurances, certificates, documents, consents or opinions as the Agents reasonably may require.

(c) The Administrative Agent shall have received a Borrowing Base Certificate dated the Closing Date, relating to the month ended on January 31, 2009, and executed by a Responsible Officer of the Lead Borrower.

(f) There shall not be pending any litigation or other proceeding, the result of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(g) There shall not have occurred any default of any Material Contract of any Loan Party which could reasonably be expected to have a Material Adverse Effect.

(h) The consummation of the transactions contemplated hereby shall not violate any applicable Law or any Organization Document.

(i) All fees and expenses required to be paid to the Agents on or before the Closing Date shall have been paid in full, and all fees required to be paid to the Lenders on or before the Closing Date shall have been paid in full.

proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrowers and the Administrative Agent).

(l) No material changes in governmental regulations or policies affecting any Loan Party or any Credit Party shall have occurred prior to the Closing Date.

(n) Each Lender shall have received final credit approval to enter into the Agreement and the other Loan Documents (to which it is a party) and for its applicable Commitment, and to perform its obligations thereunder.

(o) The Agents shall have completed, and be satisfied with, its corporate and legal due-diligence of each Loan Party (including, but not limited to solvency), its examination of the Collateral, the Stores and distribution centers of the Loan Parties, and the capital structure of the Loan Parties.

(b) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.

(c) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.

(e) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Borrower, any Agent, any Lender or any of their Affiliate.

(c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

(c) The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Liens set forth on Schedule 7.01, and Permitted Encumbrances.

(d) Schedule 7.02 sets forth a complete and accurate list of all Investments other than Equity Interests disclosed pursuant to Schedule 5.13 held by any Loan Party or any Subsidiary of a Loan

Party on the Closing Date, showing as of the Closing Date hereof the amount, obligor or issuer and maturity, if any, thereof.

(e) Schedule 7.03 sets forth a complete and accurate list of all Indebtedness of each Loan Party and any Subsidiary of each Loan Party as of the Closing Date, showing as of the Closing Date the amount, obligor or issuer and maturity thereof.

ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS