COLDWATER CREEK INC.

Charter of the Audit Committee of the Board of Directors

Revised June 10, 2005

I. Audit Committee Purpose

The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Audit Committee shall strive to set the “tone at the top” for quality financial reporting and sound internal controls. The Audit Committee's primary duties and responsibilities are to:

While the Audit Committee has the responsibilities and duties set forth in this Charter, it is not the responsibility of the Audit Committee to plan and conduct the audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. The Audit Committee's responsibility in this regard is one of oversight and review.

The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as anyone in the organization. The Audit Committee has the ability to retain, at the Company's expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its duties.

II. Audit Committee Composition and Meetings

The Audit Committee will be comprised of three or more directors as determined by the Board. The members of the Audit Committee will meet the independence requirements of the Securities and Exchange Commission and the Nasdaq National Market with allowed exceptions (as determined by the Board). The members of the Audit Committee will meet the experience and financial literacy requirements of the Nasdaq National Market. Members of the Audit Committee shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the Audit Committee shall have accounting or related financial management expertise as required by the listing standards of the Nasdaq National Market and applicable law.

Audit Committee members and the Audit Committee Chair shall be appointed annually by the Board at which time the Board shall reassess the independence and financial expertise of the members to be appointed to the Audit Committee for the following year.

The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. The Audit Committee Chair shall approve the agenda for each meeting. The Audit Committee will meet privately in executive session at least annually with management, the director of the internal auditing department, the independent auditors, and as a committee to discuss any matters that the Audit Committee or each of these groups believe should be discussed. The Audit Committee shall encourage executive sessions at each of its meetings in order to assist in providing a regular forum for candid discussion. In addition, the Audit Committee will communicate with management and the independent auditors quarterly to review the Company's financial statements and significant findings based upon the auditors' limited review procedures.

III. Audit Committee Responsibilities and Duties

Review Procedures

  1. Review and reassess the adequacy of this Charter at least annually. Submit the Charter to the Board of Directors for approval and have the document published at least every three years in accordance with Securities and Exchange Commission (SEC) regulations.
  2. Review the Company's annual audited financial statements prior to filing or public disclosure. Review should include discussion with management and independent auditors of significant issues or disagreements regarding accounting principles, practices, and judgments, including critical accounting policies, alternative accounting treatments under GAAP (including the ramifications of such alternative treatments and the treatment preferred by the auditors), and review all management letters and other material written communication between the auditors and management.
  3. In consultation with management, the independent auditors, and the internal auditors, consider the integrity of the Company's financial reporting processes and controls. Discuss significant financial risk exposures and the steps management has taken to monitor, control, and report such exposures. Review the significant findings prepared by the independent auditors and the internal auditing department together with managements' responses, including the status of previous recommendations.
  4. Review with financial management and the independent auditors the Company's quarterly financial results prior to the release of earnings and/or the Company's quarterly financial statements prior to filing or distribution. Discuss any significant changes to the Company's accounting principles and any items required to be communicated by the independent auditors in accordance with Statement of Auditing Standards (SAS) 61 as amended by SAS 90.
  5. Review the Company's stock exchange certification and proxy statement disclosures related to the audit committee.

Independent Auditors

  1. The independent auditors shall report directly to the Audit Committee. The Audit Committee shall review annually the independence of the auditors, and shall have sole authority for the evaluation, appointment, funding, oversight (including resolution of any disagreements between management and the independent auditors regarding financial reporting) and, when circumstances warrant, the discharge of the independent auditors.
  2. The Audit Committee shall approve in advance all audit, review or attest engagements and any non-audit services (to the extent permitted under applicable law) and the audit fees and all other compensation to be paid to the independent auditors. The following non-audit services are not to be provided by the independent auditors: (1) bookkeeping or other services related to the accounting records or financial statements of the audit client; (2) financial information systems design and implementation; (3) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (4) actuarial services; (5) internal audit outsourcing services; (6) management functions; (7) human resources; (8) broker-dealer, investment adviser or investment banking services; (9) legal services; or (10) expert services unrelated to the audit. The Audit Committee may adopt pre-approval policies and procedures that are detailed as to the particular service or delegate pre-approval responsibility to a member of the Audit Committee. The Audit Committee shall be promptly informed of all services approved pursuant to any pre-approval policies and procedures or by a member delegated with pre-approval authority.
  3. On an annual basis, the Audit Committee should review and discuss with the independent auditors all significant relationships they have with the Company that could impair the auditors' independence and obtain a formal written statement delineating all relationships between the auditors and the Company consistent with Independence Standards Board Standard No. 1.
  4. Review the independent auditors audit plan and engagement letter - discuss scope, staffing, locations, reliance upon management, and internal audit and general audit approach.
  5. Prior to releasing the year-end earnings, discuss the results of the audit with the independent auditors. Discuss certain matters required to be communicated to audit committees in accordance with American Institute of Certified Public Accountants (AICPA) SAS 61 as amended by SAS 90.
  6. Consider the independent auditors' judgments about the quality and appropriateness of the Company's accounting principles as applied in its financial reporting. Discuss with management and the independent auditors the quality of the accounting principles and underlying estimates used in the preparation of the Company's financial statements.

Internal Audit Department and Legal Compliance

  1. Review the budget, plan, changes in plan, activities, organizational structure, independence and authority of its reporting obligations, and qualifications of the internal audit department, as needed.
  2. Review the appointment, performance, and, if necessary, replacement of the senior internal audit executive.
  3. Review and oversee the bonus compensation program for internal audit personnel and other designated finance and accounting personnel.
  4. Review significant reports prepared by the internal audit department together with management's response and follow-up to these reports.
  5. On at least an annual basis, review with the Company's counsel, any legal matters that could have a significant impact on the organization's financial statements, the Company's compliance with applicable laws and regulations, and inquiries received from regulators or governmental agencies. Review all reports concerning any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls, or regulatory noncompliance that occurs at the Company. This review should include consideration of the internal controls that should be strengthened to reduce the risk of a similar event in the future.

Other Audit Committee Responsibilities

  1. Annually prepare a report to shareholders as required by the SEC. The report should be included in the Company's annual proxy statement.
  2. Maintain minutes of meetings and periodically report to the Board of Directors on significant results of the foregoing activities.
  3. Review financial and accounting human resources and succession planning within the Company.
  4. Establish procedures for the confidential submission, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters. These procedures must allow for the confidential, anonymous submission of complaints by employees regarding any questionable accounting or auditing matter.
  5. Perform any other activities consistent with the Charter, the Company's by-laws, and governing law, as the Audit Committee or the Board deems necessary or appropriate.
  6. Review and approve any related party transactions in which the Company's officers or directors have an interest and that are required to be disclosed by the Company in SEC filings pursuant to the rules and regulations of the SEC.