COLDWATER CREEK INC
10-Q, 1997-10-14
CATALOG & MAIL-ORDER HOUSES
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<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   Form 10-Q
                                        
     [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
                 FOR THE FISCAL QUARTER ENDED AUGUST 30, 1997

                                      OR

     [_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934

                    Commission File Number 0-26772

                             COLDWATER CREEK INC.
            (Exact name of registrant as specified in its charter)
 
 
       DELAWARE                                        82-0419266
(State of other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                     Identification No.)
 

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

                                (208) 263-2266
           (Registrant's telephone number, including area code)

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     X                             NO ____
                 -------                                 

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

     Class                         Shares outstanding as of August 30, 1997
- ----------------------------   -------------------------------------------------
 
Common Stock ($.01 par value)                       10,120,118

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
 
                               INDEX TO FORM 10-Q
                                        

PART I.     FINANCIAL INFORMATION
<TABLE> 
<CAPTION>                                                                                                          
                                                                                                            Page
Item 1.  Financial Statements
<S>                                                                                                       <C> 
Consolidated Balance Sheets at August 30, 1997 and March 1, 1997.............................................. 4

Consolidated Statements of Operations for the three and six month periods ended 
 August 30, 1997 and August 31, 1996.......................................................................... 5

Consolidated Statements of Cash Flows for the six month periods ended
August 30, 1997 and August 31, 1996........................................................................... 6

Notes to Consolidated Financial Statements.................................................................... 7

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations................ 9

Item 3.  Quantitative and Qualitative Disclosures About Market Risk........................................... 14

PART II.   OTHER INFORMATION

Item 1.  Legal Proceedings.................................................................................... 15

Item 2.  Changes in Securities................................................................................ 15

Item 3.  Defaults Upon Senior Securities...................................................................... 15

Item 4.  Submission of Matters to a Vote of Security Holders.................................................. 15

Item 5.  Other Information.................................................................................... 15

Item 6.  Exhibits and Reports on Form 8-K..................................................................... 15

</TABLE> 

The following discussion may contain forward-looking statements that involve
risks and uncertainties. When used in this discussion, the words "anticipate,"
"believe," "estimate," "expect," and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Factors that could cause or contribute to such differences
include, among others, the following: general economic and business conditions;
competition; success of operating initiatives; development and operating costs;
advertising and promotional efforts; brand awareness; the existence or absence
of adverse publicity; catalog response rates, merchandise return rates;
availability, locations and terms of sites for store development; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; and
construction costs; as well as those factors discussed in "Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
elsewhere in this Form 10-Q.

                                                                               2
<PAGE>
 
PART I

Item 1.   FINANCIAL STATEMENTS (unaudited)

                                                                               3
<PAGE>
 
                             COLDWATER CREEK INC.
                          CONSOLIDATED BALANCE SHEETS
                           (unaudited, in thousands)
 
                                    ASSETS

<TABLE>
<CAPTION>

                                                                                         AUGUST 30                 MARCH 1
                                                                                           1997                     1997
                                                                                   ------------------        ---------------
CURRENT ASSETS:
<S>                                                                                   <C>                       <C>
    Cash and cash equivalents                                                                 $     -                $ 9,095
    Receivables                                                                                 4,290                  2,342
    Inventories                                                                                35,272                 25,279
    Prepaid expenses                                                                            1,583                    456
    Prepaid catalog costs                                                                         800                  1,375
                                                                                   ------------------        ---------------
            Total current assets                                                               41,945                 38,547

            
 
Deferred catalog costs                                                                          6,727                  3,347
Property and equipment, net of accumulated depreciation                                        23,050                 20,080
Executive loans (Note 3)                                                                        1,286                      -
                                                                                   ------------------        ---------------
            Total assets                                                                      $73,008                $61,974
                                                                                   ==================        ===============
 
                                     LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable                                                                          $21,148                $18,061
    Accrued expenses, including accrued sales returns                                           7,919                  6,045
    Revolving line of credit                                                                    3,275                      -
    Income taxes payable                                                                          492                    451
                                                                                   ------------------        ---------------
            Total current liabilities                                                          32,834                 24,557
 
Deferred income taxes                                                                             499                    230
                                                                                   ------------------        ---------------
            Total liabilities                                                                  33,333                 24,787
                                                                                   ------------------        ---------------
 
STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value, 1,000,000 shares
     authorized,
     none issued and outstanding                                                                    -                      -
    Common stock, $.01 par value, 15,000,000 shares
     authorized,
     10,120,118 shares issued and outstanding                                                     101                    101
    Additional paid-in capital                                                                 38,748                 38,748
    Retained earnings (accumulated deficit)                                                       826                 (1,662)
                                                                                   ------------------        ---------------
 
            Total stockholders' equity                                                         39,675                 37,187
                                                                                   ------------------        ---------------
            Total liabilities and stockholders' equity                                        $73,008                $61,974
                                                                                   ==================        ===============
</TABLE> 
 
 
   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

                                                                               4
<PAGE>
 
                             COLDWATER CREEK INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (unaudited, in thousands except per share data)
 

<TABLE>
<CAPTION>
                                                 Three months ended                                      Six months ended
                                        -----------------------------------------         ------------------------------------------

                                             August 30              August 31                 August 30                August 31
                                               1997                   1996                       1997                    1996
                                        ----------------      -----------------         ------------------      -------------------
<S>                                        <C>                   <C>                       <C>                     <C>
Net sales                                        $36,389                $15,781                    $87,391                  $39,385
Cost of sales                                     18,152                  7,520                     42,489                   19,032
                                        ----------------      -----------------         ------------------      -------------------
                                                                                                            
            Gross profit                          18,237                  8,261                     44,902                   20,353
                                                                                                     
Selling, general and                                                                                        
  administrative expenses                         17,495                  8,489                     40,869                   19,036
                                        ----------------      -----------------         ------------------      -------------------
                                                                                                            
            Income (loss) from operations            742                   (228)                     4,033                    1,317
                                                                                                            
Interest, net, and other (Note 3)                     57                    (30)                       193                      (44)

                                        ----------------      -----------------         ------------------      -------------------
                                                                                                            
            Income (loss) before provision 
               for income taxes                      799                   (258)                     4,226                    1,273

Provision for income taxes                           384                      -                      1,738                        -
                                        ----------------      -----------------         ------------------      -------------------
                                                                                                            
            Net income (loss)                    $   415                $  (258)                   $ 2,488                  $ 1,273
                                        ================      =================         ==================      ===================
                                                                                                            
            Net income per share                   $0.04                    n/a                      $0.24                      n/a
                                        ================                                ==================  
                                                                                                            
            Weighted  average shares                                                                                          
            outstanding                           10,599                    n/a                     10,520                      n/a
                                        ================                                ==================  
                                                                                                            
PRO FORMA INCOME DATA (NOTE 6):                                                                             
- -----------------------------                                                                                                   
                                                                                                            
            Net income (loss) as                     
            reported above                           n/a                $  (258)                       n/a                  $ 1,273

            Pro forma                                                                                       
            provision for                                                                                             
            (benefit from)                                                                                           
            income taxes                             n/a                   (102)                       n/a                      503
                                                              -----------------                                 -------------------
                                                                                                            
            Pro forma                                
            net income (loss)                        n/a                $  (156)                       n/a                  $   770
                                                              =================                                 ===================
                                                                                                            
            Pro forma                                                                                       
            net income                                                                                      
            (loss)                                                                                          
            per share                                n/a                 $(0.02)                       n/a                    $0.09
                                                              =================                                 ===================
                                                                                                            
            Pro forma weighted                                                                                        
            average shares                                                                                          
            outstanding                              n/a                  8,210                        n/a                    8,459
                                                              =================                                 ===================
 
</TABLE> 
   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

                                                                               5
<PAGE>
 
                             COLDWATER CREEK INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (unaudited, in thousands)
 
<TABLE> 
<CAPTION> 
                                                                                               Six Months Ended
                                                                                ----------------------------------------------
                                                                                      August 30                  August 31
                                                                                        1997                        1996
                                                                                ------------------         -------------------
<S>                                                                             <C>                        <C> 
OPERATING ACTIVITIES:                                                         
Net income                                                                                 $ 2,488                     $ 1,273
                                                                                ------------------         -------------------
Noncash items:                                                                
    Depreciation                                                                             1,758                         706
    Deferred income tax provision                                                              269                           -
Net change in current assets and liabilities:                                 
    Receivables                                                                             (1,948)                       (234)
    Inventories                                                                             (9,993)                     (8,200)
    Prepaid expenses                                                                        (1,127)                       (138)
    Prepaid catalog costs                                                                      575                      (1,216)
    Accounts payable                                                                         3,087                       8,050
    Accrued expenses                                                                         1,874                         921
    Income taxes payable                                                                        41                           -
Increase in deferred catalog costs                                                          (3,380)                     (2,500)
                                                                                ------------------         -------------------
                                                                              
       NET CASH USED IN OPERATING ACTIVITIES                                                (6,356)                     (1,338)
                                                                                ------------------         -------------------
                                                                              
INVESTING ACTIVITIES:                                                         
    Purchase of short term investments                                                      (5,105)                          -
    Sale of short term investments                                                           5,105                           -
    Loans to executives (Note 3)                                                            (1,286)                          -
    Purchase of property and equipment                                                      (4,728)                     (4,418)
                                                                                ------------------         -------------------
                                                                              
        Net cash used in investing activities                                               (6,014)                     (4,418)
                                                                                ------------------         -------------------
                                                                              
FINANCING ACTIVITIES:                                                         
    Advances under revolving line of credit                                                  3,275                       7,338
    Distributions to stockholders                                                                -                      (2,000)
                                                                                ------------------         -------------------
                                                                              
        Net cash provided by financing activities                                            3,275                       5,338
                                                                                ------------------         -------------------
                                                                              
        Net increase (decrease) in cash and                                   
          cash equivalents                                                                  (9,095)                       (418)
        Cash and cash equivalents, beginning                                                 9,095                         418
                                                                                ------------------         -------------------
                                                                              
        Cash and cash equivalents, ending                                                  $     -                     $     -
                                                                                ==================         ===================
                                                                              
SUPPLEMENTAL CASH FLOW DATA:                                                  
- ---------------------------                                                                     
    Cash paid for interest                                                                 $    43                     $    49
    Cash paid for income taxes                                                               1,354                           -
</TABLE> 
 
   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

                                                                               6
<PAGE>
 
COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS


1.  INTERIM FINANCIAL STATEMENTS

The condensed consolidated financial statements included herein have been
prepared by Coldwater Creek Inc. (the Company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and in the
opinion of management, contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Company's financial
position, results of operations and cash flows for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading.  The results of operations for the interim periods
disclosed within this report are not necessarily indicative of future financial
results.  These consolidated financial statements are condensed and should be
read in conjunction with the financial statements and the notes thereto included
in the Company's latest Annual Report on Form 10-K, which includes financial
statements for the fiscal year ended March 1, 1997.

References to a fiscal year refer to the calendar year in which such fiscal year
commenced.  The Company's fiscal year ends on the Saturday closest to February
28.  References to three and six month periods refer to the thirteen and twenty-
six weeks ended on the date indicated.

In March 1997, the Company incorporated Coldwater Creek Outlet Stores, Inc. as a
wholly-owned subsidiary.


2.  RECLASSIFICATIONS

Certain amounts in the prior period financial statements have been reclassified
to be consistent with the current period presentation.


3.  EXECUTIVE LOAN PROGRAM

Effective June 30, 1997, the Company established an Executive Loan Program under
which the Company may make, at its sole discretion and with prior approvals from
the Chief Executive Officer and the Board of Directors' Compensation Committee,
secured long-term loans to key executives.  On July 31, 1997, $1,286,000 in the
aggregate was loaned to six key executives.  Each loan is secured by the
executive's personal net assets, inclusive of all vested stock options in the
Company, bears interest at three percent per annum, and becomes due and payable
on the earlier of (i) the date ten days before the date on which the vested
stock options serving as partial security expire or  (ii) ninety days from the
                                                 ---                          
date on which the executive's employment with the Company terminates for any
reason.  If material, compensation expense is recognized by the Company for the
difference between the stated interest rate and the prevailing prime rate.


4.  EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which will be implemented in the fourth quarter of fiscal
1997.  The statement revises the computation and presentation of earnings per
share.  Fully diluted earnings per share will be renamed diluted earnings per
share, and primary earnings per share will be replaced with basic earnings per
share.  All previously reported amounts will be restated.  For the three and six
months ended August 30, 1997, SFAS No. 128 would not have had a material impact
on the Company's reported earnings per share.

                                       7
<PAGE>
 
COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


5.  INCOME TAXES

A reconciliation of the statutory U.S. Federal tax provision and the Company's
reported tax provisions for the three and six months ended August 30, 1997 is as
follows:
<TABLE>
<CAPTION>
 
                                                           THREE MONTHS ENDED    SIX MONTHS ENDED
                                                             AUGUST 30, 1997      AUGUST 30, 1997
                                                           -------------------   -----------------
<S>                                                        <C>                   <C>
 
Federal statutory rate                                                   35.0%               35.0%
State income taxes, net of federal income tax benefit                     5.5                 5.5
Other                                                                     7.6                 0.6
                                                                         ----                ----
Effective tax rate                                                       48.1%               41.1%
                                                                         ====                ====
</TABLE>


6.  PRO FORMA ADJUSTMENTS

The pro forma data appearing on the statements of operations reflects historical
net income adjusted for pro forma income taxes.  Pro forma income taxes are
reported at an assumed effective rate of 39.5%, reflecting prevailing federal
and state statutory rates at the time of the Company's initial public offering,
as if the Company had been a C corporation rather than an S corporation for the
three and six months ended August 31, 1996.  Pro forma net income per share is
based on the weighted average shares of common stock and stock equivalents
outstanding, consisting of  (i) actual shares outstanding, (ii) shares issuable
under stock plans for which the effect of their inclusion would be dilutive, and
(iii) additional shares from which the proceeds, based on the Company's initial
public offering price of $15 per share, would have been necessary to fund an
assumed S corporation distribution of the retained earnings balance at August
31, 1996.

                                       8
<PAGE>
 
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS


This Form 10-Q contains certain forward-looking statements within the meaning of
the federal securities laws.  Actual results and the timing of certain events
could differ materially from those projected in the forward-looking statements
due to a number of factors.  See Index to Form 10-Q for a more detailed
description.


GENERAL
- -------

Coldwater Creek is a specialty direct mail retailer of apparel, gifts, jewelry
and home furnishings.  The Company markets its merchandise primarily through
four distinct catalogs.  NORTHCOUNTRY, which was introduced in 1985, is the
Company's core catalog and features casual, comfortable apparel, hard-to-find
jewelry, distinctive artwork, gifts and items for the home.  The Company's
premium catalog for women, SPIRIT OF THE WEST, was introduced in the Fall of
1993 and features fashionable, upscale apparel and hard-to-find jewelry and
accessories.  Created in the Spring of 1996, MILEPOST FOUR features upscale, yet
relaxed, natural-fiber men's clothing.  In response to customer demand for
selected, upscale bed and bath products periodically featured in Northcountry
and Spirit of the West, the Company introduced its BED & BATH catalog in mid-
August of this year.

Also, as part of the Company's brand building strategy, the Company operates a
unique complex of catalog-themed retail stores in Sandpoint, Idaho.  As a
continuation of this strategy, the Company opened a similar complex of catalog-
themed retail stores in Jackson Hole, Wyoming during June of 1997.

Management believes that the Company's success to date in identifying
prospective customers and in establishing and maintaining long-term customer
relationships is evidenced by the Company's growth in net sales, which have
increased every year since the Company's inception in 1984.  For instance,
during the five fiscal years ended March 1, 1997, the Company's net sales grew
at a compound annual growth rate of 66.1% from $18.8 million to $143.1 million.
The Company's success to date in managing this high rate of growth is evidenced
by its realization of profits every year since 1986.  In fact, despite certain
significant increases in paper and postage costs realized during the five fiscal
years ended March 1, 1997, the Company's operating income grew at a compound
annual growth rate of 62.9% from $1.7 million to $12.2 million.

An integral part of the Company's overall growth strategy over the years has
been an aggressive, yet targeted, catalog circulation strategy.  The Company's
continuing implementation of this strategy was evidenced during fiscal year 1996
by a 38.5% increase in circulation which resulted in the Company's proprietary
mailing list growing by nearly 50% to approximately 3.7 million names at March
1, 1997.

Management largely attributes the significant growth in net sales since 1994 to
the Company's increased offering of apparel.  However, while continuing to
provide the Company with new opportunities for growth, the logistical
difficulties inherent in the direct mail marketing of apparel, such as variances
in vendor sizing, have had, and continue to have, as management expected, the
effect of increasing merchandise return rates and markdowns.

In support of the Company's growth strategy, and consistent with its continuing
commitment to providing the finest customer service in the industry, the Company
hired additional management personnel and invested $26.0 million in
infrastructure during the three and one-half years ended August 30, 1997.  These
infrastructure investments included expanded and automated distribution,
customer service, and administrative facilities as well as improved
telecommunication and management information systems necessary to the Company's
customer service and marketing programs, inventory management, and market
analysis.

                                       9
<PAGE>
 
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS (continued)


GENERAL (CONTINUED)
- -------------------

In analyzing the Company's financial position, results of operations, and cash
flows, it should be noted that the Company has experienced, and will continue to
experience, seasonal fluctuations in its sales and operating results as is
typical for many specialty retailers.  In past fiscal years, the Company's net
sales and profits have been heavily reliant on the November and December holiday
season.  Management believes that this seasonality will continue in the future
although to a lesser degree as a result of the increased representation of
apparel within the Company's overall merchandise mix.

In anticipation of the increased sales activity expected during November and
December, the Company incurs certain significant additional expenses, including
the hiring of a substantial number of temporary employees to supplement its
permanent, full time staff.  In addition, due to the larger percentage of gifts
and accessories offered in the second half of the fiscal year related to holiday
gift giving, the Company expects higher gross margins in the second half of the
fiscal year than in the first half.  If, for any reason, the Company's net sales
were to fall below its expectations during November and December, the Company's
financial condition, results of operations and cash flows would be adversely
affected.

It should be further noted that the Company's revenues and results of operations
have fluctuated, and are likely to continue to fluctuate, on a quarterly basis
as a result of a number of other factors including, among other things, the
timing of new merchandise and catalog offerings, recognition of costs or net
sales contributed by new merchandise and catalog offerings, fluctuations in
response rates, fluctuations in paper, production and postage costs and
expenses, merchandise returns, adverse weather conditions that affect
distribution or shipping, shifts in the timing of holidays and changes in the
Company's merchandise mix.

                                       10
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS (continued)


RESULTS OF OPERATIONS
- ---------------------

The following table sets forth certain information regarding the Company's costs
and expenses expressed as a percentage of net sales:
<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED                                SIX MONTHS ENDED
                                            --------------------------------                   --------------------------------
                                            AUGUST 30                AUGUST 31                  AUGUST 30              AUGUST 31
(AS A PERCENTAGE OF NET SALES)                1997                     1996                       1997                   1996
                                            ---------              -----------                 -----------             ----------
<S>                                         <C>                    <C>                         <C>                     <C> 
Net sales                                    100.0%                   100.0%                     100.0%                 100.0%
Cost of sales                                 49.9                     47.7                       48.6                   48.3
                                            ---------              -----------                 -----------             ----------
    GROSS PROFIT                              50.1                     52.3                       51.4                   51.7
Selling, general and                    
  administrative expenses                     48.1                     53.7                       46.8                   48.4
                                            ---------              -----------                 -----------             ----------
    INCOME (LOSS) FROM OPERATIONS              2.0                     (1.4)                        4.6                    3.3
Interest, net, and other                       0.2                     (0.2)                        0.2                   (0.1)
                                            ---------              -----------                 -----------             ----------
                                                             
    INCOME (LOSS) BEFORE PROVISION FOR  
      INCOME TAXES                             2.2                     (1.6)                        4.8                    3.2
Provision for income taxes                     1.1                        -                         2.0                      -
                                            ---------              -----------                 -----------             ----------
    NET INCOME (LOSS)                          1.1 %                   (1.6)%                       2.8%                   3.2%
                                            ---------              -----------                 -----------             ----------
Pro forma provision for (benefit from)  
  income taxes                                 n/a                     (0.6)                        n/a                    1.3
                                            ---------              -----------                 -----------             ----------
    PRO FORMA NET INCOME (LOSS)                 N/A%                   (1.0)%                       N/A%                   1.9
                                            =========              ===========                 ===========             ==========
</TABLE>
                                                                               

The following table sets forth certain information regarding the Company's
customer service:
<TABLE>
<CAPTION>

                                         Three Months Ended                    SIX MONTHS ENDED
                                   -----------------------------        -----------------------------
                                      AUGUST 30        AUGUST 31           AUGUST 30        AUGUST 31 
                                        1997             1996                 1997             1996
                                   ------------     ------------        ------------     ------------
<S>                                <C>               <C>                <C>              <C> 
AVERAGE ANSWER SPEEDS
  (IN SECONDS)                          4.11             2.72                3.76             2.65
 
AVERAGE CALL PROCESSING SPEEDS
  (IN MINUTES:SECONDS)                  3:42             3:41                3:52             3:39

ABANDONED CALL RATE
  (AS A PERCENT OF TOTAL CALLS)         0.48%            0.35%               0.42%            0.41%
</TABLE> 

Net sales increased by $20.6 million, or 130.6%, to $36.4 million during the
three months ended August 30, 1997 from $15.8 million during the three months
ended August 31, 1996.  Net sales increased by $48.0 million, or 121.9%, to
$87.4 million during the six months ended August 30, 1997 from $39.4 million
during the six months ended August 31, 1996.  These increases are primarily
attributable to favorable response rates to the Company's core Northcountry
catalog as well as increased circulation of, and favorable response rates to,
the Company's Spirit of the West and Milepost Four catalogs.  Total catalog
mailings were 17.2 million and 42.1 million during the three and six months
ended August 30, 1997, respectively, reflecting increases of approximately 56%
and 106% from the 11.0 million and 20.4 million catalogs mailed during the
comparable periods in fiscal 1996.

The investment made by the Company in increased catalog mailings has resulted in
the active customer file, comprised of customers who have made a purchase in the
preceding twelve months, increasing approximately 27% to 1.4 million at August
30, 1997 from 1.1million at March 1, 1997.  The Company's proprietary mailing
list increased approximately 16% to 4.3 million names at August 30, 1997 from
3.7 million names at March 1, 1997.

                                       11
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS (continued)


RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------

Gross profit increased $10.0 million, or 120.8%, to $18.2 million during the
three months ended August 30, 1997 from $8.3 million during the three months
ended August 31, 1996.  Gross profit increased $24.5 million, or 120.6%, to
$44.9 million during the six months ended August 30, 1997 from $20.4 million
during the six months ended August 31, 1996.  Gross profit decreased as a
percentage of net sales to 50.1% in the three months ended August 30, 1997 from
52.3% of net sales in the three months ended August 31, 1996.  Gross profit
decreased as a percentage of net sales to 51.4% in the six months ended August
30, 1997 from 51.7% of net sales in the six months ended August 31, 1996.  The
decreases in gross profit percentages are attributable to increased sales of
marked down merchandise associated with a greater percentage of apparel and
management's decision, in light of the continued growth in the Company's overall
merchandise offering, to more aggressively liquidate slow-moving merchandise.
The Company's fiscal 1997 gross margins also reflect the increasingly favorable
effects of lower inventory procurement costs as a percentage of net sales.

Selling, general and administrative expenses primarily consist of marketing,
distribution and general and administrative expenses.  Marketing expenses
primarily consist of catalog production and postage costs. Production costs
primarily consist of paper, printing, computer services and list rental costs
(net of list rental revenue).  Selling, general and administrative expenses
increased by $9.0 million, or 106.1%, to $17.5 million during the three months
ended August 30, 1997 from $8.5 million in the three months ended August 31,
1996.  Selling, general and administrative expenses increased by $21.8 million,
or 114.7%, to $40.9 million during the six months ended August 30, 1997 from
$19.0 million in the six months ended August 31, 1996.  Selling, general and
administrative expenses decreased as percentages of net sales to 48.1% and 46.8%
during the three and six months ended August 30, 1997 from 53.7% and 48.4%
during the three and six months ended August 31, 1996, respectively.  The
increases in selling, general and administrative expenses are primarily
attributable to the circulation costs incurred in connection with increased
catalog mailings and various infrastructure investments considered necessary to
support the Company's anticipated growth.  The decreases in selling, general and
administrative expenses as percentages of net sales are attributable to the
growth in net sales and the fixed or semi-fixed nature of certain infrastructure
costs.

As a result of the foregoing, operating income (loss) increased by $1.0 million,
or 425.4%, to $0.7 million for the three months ended August 30, 1997 from
$(0.2) million for the three months ended August 31, 1996.  Similarly, operating
income increased by $2.7 million, or 206.2%, to $4.0 million for the six months
ended August 30, 1997 from $1.3 million for the six months ended August 31,
1996.

After applying a combined federal and state statutory income tax rate of 39.5%
to the fiscal 1996 periods when the Company remained an S-corporation, the
Company realized net income of $0.4 million and $2.5 million for the three and
six months ended August 30, 1997 versus pro forma net income (loss) of $(0.2)
million and $0.8 million for the three and six months ended August 31, 1996,
respectively.  This equates to net income per share of $0.04 and $0.24 for the
three and six months ended August 30, 1997, versus pro
forma net income (loss) per share of $(0.02) and $0.09 for the three and six
months ended August 31, 1996, respectively.

                                       12
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS (continued)


LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

Coldwater Creek has historically funded its growth through a combination of
funds generated from operations and short-term bank credit facilities.  Working
capital requirements generally precede the realization of sales on a monthly
basis.

During the six months ended August 30, 1997, operating activities consumed $6.4
million while financing activities provided $3.3 million.  Similarly, during the
six months ended August 31, 1996, operating activities consumed $1.3 million
while financing activities provided $5.3 million.  The above reflects the
Company's partial financing of inventory purchases, as well as catalog
production and distribution costs, during the second fiscal quarter in
anticipation of the increased consumer demand traditionally realized during the
third and fourth fiscal quarters.

Investing activities consumed $6.0 million during the six months ended August
30, 1997, versus $4.4 million during the six months ended August 31, 1996.  This
reflects the Company's capital expenditures for infrastructure improvements such
as expanded distribution facilities, administrative offices, upgrades in
telecommunications and management information systems.

The Company recently entered into a preliminary agreement with the State of West
Virginia to locate its planned second distribution center in Parkersburg, West
Virginia.  The proposed agreement calls for the facility to open in early 1999.
The Company anticipates that it will phase in shipments of packages from its new
Bed & Bath catalog at a temporary, short-term facility located in the
Parkersburg area beginning in the second half of 1998, in order to allow for
potential growth of this new vehicle.  Coldwater Creek and the State of Virginia
are continuing to negotiate the definitive agreement, including all related
financing.

In January 1997, the Company amended its revolving lines of credit agreement
with U.S. Bank of Idaho to provide for: (i) an unsecured revolving line of
credit allowing the Company to borrow up to $17,500,000 at an interest rate, at
the option of the Company, which is five basis points below the bank's Prime
rate or LIBOR plus one and three quarters percent (1.75%); the unsecured line
expires on June 30, 1998; (ii) a secured line of credit which allows the Company
to borrow up to $17,500,000 at an interest rate equal to the bank's Prime rate
or LIBOR plus one and eighty five hundredths percent (1.85%) and is secured with
certain real property, equipment and fixtures of the Company; the secured line
expires on June 30, 2000; and (iii) a separate unsecured line of credit
exclusively for the purpose of issuing standby and commercial letters of credit
with an aggregate face value of no more than $1,000,000. Letters of credit under
this facility can be issued up through June 30, 1998 for expiration by no later
than June 30, 1999. As a condition of the unsecured line of credit only,
borrowings thereunder must be fully repaid for at least thirty consecutive days
during each twelve month period.

The Company believes that cash flow from operations and borrowing capacity under
its credit facilities will be sufficient to support operations and future growth
through at least fiscal 1998.  The Company may be required to seek additional
sources of funds for accelerated growth or continued growth after that point,
and there can be no assurance that such funds will be available on satisfactory
terms.  Failure to obtain such financing could delay or prevent the Company's
planned growth, which could adversely affect the Company's business, financial
condition and results of operations.

                                       13
<PAGE>
 
ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

                                       14
<PAGE>
 
PART II

Item 1.   Legal Proceedings

     There are no material legal proceedings presently pending to which
     Coldwater Creek, Inc. is a party or of which any of its property is the
     subject.

Item 2.   Changes in Securities

     None.

Item 3.   Defaults Upon Senior Securities

     The Annual Meeting of Stockholders of Coldwater Creek Inc. (the Company)
     was held on July 11, 1997.  At such meeting, proposals to re-elect two
     directors to the Company's Board of Directors and to ratify the selection
     of Arthur Andersen LLP as the Company's independent public accountants were
     voted upon and approved by the Company's stockholders.

Item 4.   Submission of Matters to a Vote of Security Holders

     None

Item 5.   Other Information

     None.

Item 6.   Exhibits and Reports on Form 8-K

Exhibit
NUMBER    DESCRIPTION OF DOCUMENT
- -------   --------------------------
3.1       *Amended and Restate Certificate of Incorporation
3.2       *Bylaws
4.3       *Specimen of Stock Certificate
10.1.1    *Form of Indemnity Agreement between the Registrant and each of its
           Directors
10.1.2    *Form of Agreement for Distribution of Retained Earnings and Tax
           Indemnification between the Company and Dennis and Ann Pence
10.1.3    *Lease to Coeur d'Alene Call Facility
10.1.4    *Lease to Cedar Street Bridge Store
10.1.5    *Lease to Jackson Hole Retail Store
10.1.6    *Loan Agreement dated September 9, 1996 between the Company and U.S.
           Bank of Idaho, formerly West One Bank, Idaho
10.1.7    *Credit Agreement with MBNA America
10.1.8    *Seaside Lease Agreement
10.2      *1996 Stock Option/Stock Issuance Plan
10.2.1    *Form of Stock Option Agreement under 1996 Stock Option/Stock
           Issuance Plan
10.2.2     1997 Employee Stock Purchase Plan
10.2.3     Form of Executive Loan Agreement
11         Computation of Net Income Per Share
24.1      *Power of Attorney (included on the signature page to S-1)
27.1       Financial Data Schedule

* Previously filed

     There were no reports filed on Form 8-K during the six months ended August
30, 1997.

                                       15
<PAGE>
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 14th day of October 1997.


 
                                  COLDWATER CREEK INC.


                                  By: * Dennis Pence
                                     ------------------------------------
                                     Dennis Pence

                                     President and Chief Executive Officer
                                     and Vice Chairman of the Board of Directors


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:


<TABLE>
<CAPTION>
              SIGNATURE                                      TITLE                                Date
              ---------                                      -----                                ----
<S>                                        <C>                                               <C> 
            * Dennis Pence
- --------------------------------------     President, Chief Executive Officer, Vice
             Dennis Pence                  Chairman of the Board of Directors, and
                                           Director
            * Ann Pence
- --------------------------------------     Chairman of the Board of Directors, Creative
              Ann Pence                    Director and Director

            * Donald Robson
- --------------------------------------     Chief Financial Officer, Vice President of
              Donald Robson                Finance and Administration, Treasurer,
                                           Secretary, and Director (Principal Financial
                                           and Accounting Officer)

            * Robert H. McCall
- --------------------------------------     Director
              Robert H. McCall

            * James R. Alexander
- --------------------------------------     Director
              James R. Alexander

            * Curt Hecker
- --------------------------------------     Director
              Curt Hecker
</TABLE> 

*By: /s/  Donald Robson
    ------------------------------------
          Donald Robson
       (Attorney-in-fact)

                                       16

<PAGE>

                                                                  EXHIBIT 10.2.2
 

                             COLDWATER CREEK INC.
                         EMPLOYEE STOCK PURCHASE PLAN
                         ----------------------------



     I.     PURPOSE OF THE PLAN


     This Employee Stock Purchase Plan is intended to promote the interests of
Coldwater Creek Inc. by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.

     Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.


     II.    ADMINISTRATION OF THE PLAN


     The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.


     III.   STOCK SUBJECT TO PLAN


     A.  The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock purchased
on the open market.  The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed seven hundred fifty thousand
(750,000) shares.

     B.  Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and class of securities issuable under the Plan,
(ii) the maximum number and class of securities purchasable per Participant on
any one Purchase Date and (iii) the number and class of securities and the price
per share in effect under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits thereunder.


     IV.    OFFERING PERIODS


     A.  Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
<PAGE>
 
     B. Each offering period shall be of such duration (not to exceed twenty-
four (24) months) as determined by the Plan Administrator prior to the start
date. The initial offering period shall commence on July 1, 1997 (the "Effective
Time") and terminate on the last business day in March 1999. The next offering
period shall commence on the first business day in April 1999, and subsequent
offering periods shall commence as designated by the Plan Administrator.

     C.  Each offering period shall be comprised of a series of one or more
successive Purchase Intervals.  Purchase Intervals shall run from the first
business day in April each year to the last business day in September of the
same year and from the first business day in October each year to the last
business day in March of the following year.  However, the initial Purchase
Interval in effect under the initial offering period shall commence at the
Effective Time and terminate on the last business day in March 1998.

     D.  Should the Fair Market Value per share of Common Stock on any Purchase
Date within an offering period be less than the Fair Market Value per share of
Common Stock on the start date of that offering period, then that offering
period shall automatically terminate with the purchase of shares of Common Stock
on such Purchase Date, and a new offering period shall commence on the next
business day.  The new offering period shall have a duration of twenty-four (24)
months, unless a shorter duration is established by the Plan Administrator
within five (5) business days following the start date of that offering period.


     V.     ELIGIBILITY


     A. Each individual who is an Eligible Employee on the start date of any
offering period under the Plan may enter that offering period on such start date
or on any subsequent Semi-Annual Entry Date within that offering period,
provided he or she remains an Eligible Employee.

     B. Each individual who first becomes an Eligible Employee after the start
date of an offering period may enter that offering period on any subsequent 
Semi-Annual Entry Date within that offering period on which he or she is an
Eligible Employee.

     C. The date an individual enters an offering period shall be designated his
or her Entry Date for purposes of that offering period.

     D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.


     VI.    PAYROLL DEDUCTIONS
 

     A. The payroll deduction authorized by the Participant for purposes of

                                      2.
<PAGE>
 
acquiring shares of Common Stock during any offering period may be any multiple
of one percent (1%) of the Base Salary paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:


               (i) The Participant may, at any time during the offering period,
     reduce his or her rate of payroll deduction to become effective as soon as
     possible after filing the appropriate form with the Plan Administrator.
     The Participant may not, however, effect more than one (1) such reduction
     per Purchase Interval.


               (ii) The Participant may, prior to the commencement of any new
     Purchase Interval within the offering period, increase the rate of his or
     her payroll deduction by filing the appropriate form with the Plan
     Administrator.  The new rate (which may not exceed the fifteen percent
     (15%) maximum) shall become effective as of the start date of the first
     Purchase Interval following the filing of such form.


     B.  Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period.  The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account.  The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.

     C. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of the Plan.

     D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.


     VII.   PURCHASE RIGHTS


     A.  GRANT OF PURCHASE RIGHT.  A Participant shall be granted a separate
         -----------------------                                            
purchase right for each offering period in which he or she participates.  The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below.  The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.

                                      3.
<PAGE>
 
     Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or any
Corporate Affiliate.

     B.  EXERCISE OF PURCHASE RIGHT.  Each purchase right shall be automatically
         --------------------------                                             
exercised in installments on each successive Purchase Date within the offering
period, and shares of Common Stock shall accordingly be purchased on behalf of
each Participant (other than any Participant whose payroll deductions have
previously been refunded in accordance with the Termination of Purchase Right
provisions below) on each such Purchase Date.  The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.

     C.  PURCHASE PRICE.  The purchase price per share at which Common Stock 
         --------------                                        
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall be equal to eighty-five percent (85%) of the lower of (i)
                                                                   -----       
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.

     D.  NUMBER OF PURCHASABLE SHARES.  The number of shares of Common Stock
         ----------------------------                                       
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of shares obtained by dividing the amount collected from the
Participant through payroll deductions during the Purchase Interval ending with
that Purchase Date by the purchase price in effect for the Participant for that
Purchase Date.  However, the maximum number of shares of Common Stock
purchasable per Participant on any one Purchase Date shall not exceed one
thousand (1,000) shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization.

     E.   EXCESS PAYROLL DEDUCTIONS.  Any payroll deductions not applied to the
          -------------------------                                            
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date.  However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.

     F.  TERMINATION OF PURCHASE RIGHT.  The following provisions shall govern
         ----------------------------- 
the termination of outstanding purchase rights:


               (i) A Participant may, at any time prior to the next scheduled
     Purchase Date in the offering period, terminate his or her outstanding
     purchase right by filing the appropriate form with the Plan Administrator
     (or its designate), and no further payroll deductions shall be collected
     from the Participant 

                                      4.
<PAGE>
 
     with respect to the terminated purchase right. Any payroll deductions
     collected during the Purchase Interval in which such termination occurs
     shall, at the Participant's election, be promptly refunded or held for the
     purchase of shares on the next Purchase Date. If no such election is made
     at the time such purchase right is terminated, then the payroll deductions
     collected with respect to the terminated right shall be refunded as soon as
     possible.


               (ii) The termination of such purchase right shall be irrevocable,
     and the Participant may not subsequently rejoin the offering period for
     which the terminated purchase right was granted.  In order to resume
     participation in any subsequent offering period, such individual must re-
     enroll in the Plan (by making a timely filing of the prescribed enrollment
     forms) on or before his or her scheduled Entry Date into that offering
     period.


               (iii) Should the Participant cease to remain an Eligible
     Employee for any reason (including death, disability or change in status)
     while his or her purchase right remains outstanding, then that purchase
     right shall immediately terminate, and all of the Participant's payroll
     deductions for the Purchase Interval in which the purchase right so
     terminates shall be promptly refunded.  However, should the Participant
     cease to remain in active service by reason of an approved unpaid leave of
     absence, then the Participant shall have the right, exercisable up until
     the last business day of the Purchase Interval in which such leave
     commences, to (a) withdraw all the payroll deductions collected to date on
     his or her behalf for that Purchase Interval or (b) have such funds held
     for the purchase of shares on his or her behalf on the next scheduled
     Purchase Date.  In no event, however, shall any further payroll deductions
     be collected on the Participant's behalf during such leave.  Upon the
     Participant's return to active service, his or her payroll deductions under
     the Plan shall automatically resume at the rate in effect at the time the
     leave began, unless the Participant withdraws from the Plan prior to his or
     her return.


     G.  CORPORATE TRANSACTION.  Each outstanding purchase right shall
         ---------------------                                        
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
                                 -----                                          
Common Stock on the Participant's Entry Date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction.  However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to any such
purchase.

  The Corporation shall use its best efforts to provide at least ten (10) days
prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the 

                                      5.
<PAGE>
 
receipt of such notice, have the right to terminate their outstanding purchase
rights prior to the effective date of the Corporate Transaction.

     H.  PRORATION OF PURCHASE RIGHTS.  Should the total number of shares of 
         ---------------------------- 
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.

     I.  ASSIGNABILITY.  The purchase right shall be exercisable only by the
         -------------                                                      
Participant and shall not be assignable or transferable by the Participant.

     J.  STOCKHOLDER RIGHTS.  A Participant shall have no stockholder rights 
         ------------------  
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.


     VIII.  ACCRUAL LIMITATIONS


     A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value per share on the date or dates
such rights are granted) for each calendar year such rights are at any time
outstanding.

     B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:


               (i) The right to acquire Common Stock under each outstanding
     purchase right shall accrue in a series of installments on each successive
     Purchase Date during the offering period on which such right remains
     outstanding.


               (ii) No right to acquire Common Stock under any outstanding
     purchase right shall accrue to the extent the Participant has already
     accrued in the same calendar year the right to acquire Common Stock under
     one (1) or more other purchase rights at a rate equal to Twenty-Five
     Thousand Dollars ($25,000) worth of Common Stock (determined on the basis
     of the Fair Market Value per share on the date or dates of grant) for each
     calendar year such rights were at any time outstanding.

                                      6.
<PAGE>
 
     C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.

     D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.


     IX.    EFFECTIVE TIME AND TERM OF THE PLAN


     A. The Plan was adopted by the Board and approved by the stockholders of
the Corporation on January 28, 1996 and shall become effective at the Effective
Time, provided no purchase rights granted under the Plan shall be exercised, and
      --------                                                                  
no shares of Common Stock shall be issued hereunder, until the Corporation shall
have complied with all applicable requirements of the 1933 Act (including the
registration of the shares of Common Stock issuable under the Plan on a Form S-8
registration statement filed with the Securities and Exchange Commission), all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock is listed for trading and all
other applicable requirements established by law or regulation.  In the event
such stockholder approval is not obtained, or such compliance is not effected,
within twelve (12) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect and all sums
collected from Participants during the initial offering period hereunder shall
be refunded.

     B. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest to occur of (i) the last business day in January 2007, (ii) the date on
- --------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.


     X.     AMENDMENT OF THE PLAN


     The Board may alter, amend, suspend or discontinue the Plan at any time to
become effective immediately following the close of any Purchase Interval.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan, or (iii) modify the eligibility
requirements for participation in the Plan.

     XI.  GENERAL PROVISIONS

                                      7.
<PAGE>
 
     A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation; however, each Plan Participant shall bear all costs
and expenses incurred by such individual in the sale or other disposition of any
shares purchased under the Plan.

     B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.

     C. The provisions of the Plan shall be governed by the laws of the State of
Delaware without resort to that State's conflict-of-laws rules.

                                      8.
<PAGE>
 
                                 Schedule A
                                 ----------



                         CORPORATIONS PARTICIPATING IN
                         EMPLOYEE STOCK PURCHASE PLAN
                           As of the Effective Time
                           ------------------------



                             Coldwater Creek Inc.
<PAGE>
 
                                    APPENDIX
                                    --------



  The following definitions shall be in effect under the Plan:

  A.  BASE SALARY shall mean the regular base salary paid to a Participant by
      -----------                                                            
one or more Participating Companies during such individual's period of
participation in the Plan, plus any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate.  The following items of compensation shall NOT be
included in Base Salary:  (i) all overtime payments, bonuses, commissions,
profit-sharing distributions and other incentive-type payments and (ii) any and
all contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or hereafter
established.


  B.  BOARD shall mean the Corporation's Board of Directors.
      -----                                                 

  C.  CODE shall mean the Internal Revenue Code of 1986, as amended.
      ----                                                          

  D.  COMMON STOCK shall mean the Corporation's common stock.
      ------------                                           

  E.  CORPORATE AFFILIATE shall mean any "parent" or "subsidiary" corporation of
      -------------------                                                       
the Corporation, whether now existing or subsequently established.  "Parent" and
"subsidiary" shall be determined as follows:


           (i) "parent" shall mean any corporation (other than the Corporation)
     in an unbroken chain of corporations ending with the Corporation, provided
     each corporation in the unbroken chain (other than the Corporation) owns,
     at the time of the determination, stock possessing fifty percent (50%) or
     more of the total combined voting power of all classes of stock in one of
     the other corporations in such chain, and



           (ii) "subsidiary" shall mean any corporation (other than the
     Corporation) in an unbroken chain of corporations beginning with the
     Corporation, provided each corporation (other than the last corporation) in
     the unbroken chain owns, at the time of the determination, stock possessing
     fifty percent (50%) or more of the total combined voting power of all
     classes of stock in one of the other corporations in such chain.


  F.  CORPORATE TRANSACTION shall mean either of the following stockholder-
      ---------------------                                               
approved transactions to which the Corporation is a party:


           (i) a merger or consolidation in which securities possessing more
     than fifty percent (50%) of the total combined voting power of the
     Corporation's outstanding securities are transferred to a person or persons
     different from the persons holding those securities immediately prior to
     such transaction, or

                                     A-1.
<PAGE>
 
           (ii) the sale, transfer or other disposition of all or substantially
     all of the assets of the Corporation in complete liquidation or dissolution
     of the Corporation.


  G.  CORPORATION shall mean Coldwater Creek Inc., a Delaware corporation, and
      -----------                                                             
any corporate successor to all or substantially all of the assets or voting
stock of Coldwater Creek Inc. which shall by appropriate action adopt the Plan.

  H.  EFFECTIVE TIME shall mean July 1, 1997.  Any Corporate Affiliate which
      --------------                                                        
becomes a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.

  I.  ELIGIBLE EMPLOYEE shall mean any person who is employed by a Participating
      -----------------                                                         
Corporation on a basis under which he or she is regularly expected to render
more than twenty (20) hours of service per week for more than five (5) months
per calendar year for earnings considered wages under Code Section 3401(a).

  J.  ENTRY DATE shall mean the date an Eligible Employee first commences
      ----------                                                         
participation  in the offering period in effect under the Plan.  The earliest
Entry Date under the Plan shall be the Effective Time.

  K.  FAIR MARKET VALUE per share of Common Stock on any relevant date shall be
      -----------------                                                        
determined in accordance with the following provisions:


           (i) If the Common Stock is at the time traded on the Nasdaq National
     Market, then the Fair Market Value shall be the closing selling price per
     share of Common Stock on the date in question, as such price is reported by
     the National Association of Securities Dealers on the Nasdaq National
     Market or any successor system. If there is no closing selling price for
     the Common Stock on the date in question, then the Fair Market Value shall
     be the closing selling price on the last preceding date for which such
     quotation exists.



           (ii) If the Common Stock is at the time listed on any Stock Exchange,
     then the Fair Market Value shall be the closing selling price per share of
     Common Stock on the date in question on the Stock Exchange determined by
     the Plan Administrator to be the primary market for the Common Stock, as
     such price is officially quoted in the composite tape of transactions on
     such exchange. If there is no closing selling price for the Common Stock on
     the date in question, then the Fair Market Value shall be the closing
     selling price on the last preceding date for which such quotation exists.


  L.  1933 ACT shall mean the Securities Act of 1933, as amended.
      --------                                                   

                                     A-2.
<PAGE>
 
  M.  PARTICIPANT shall mean any Eligible Employee of a Participating
      -----------                                                    
Corporation who is actively participating in the Plan.

  N.  PARTICIPATING CORPORATION shall mean the Corporation and such Corporate
      -------------------------                                              
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees.  The Participating
Corporations in the Plan as of the Effective Time are listed in attached
Schedule A.

  O.  PLAN shall mean the Corporation's Employee Stock Purchase Plan, as set 
      ----
forth in this document.

  P.  PLAN ADMINISTRATOR shall mean the committee of two (2) or more Board
      ------------------                                                  
members appointed by the Board to administer the Plan.

  Q.  PURCHASE DATE shall mean the last business day of each Purchase Interval.
      -------------                                                             
The initial Purchase Date shall be September 30, 1997.

  R.  PURCHASE INTERVAL shall mean each successive six (6)-month period within
      -----------------                                                       
the offering period at the end of which there shall be purchased shares of
Common Stock on behalf of each Participant.  The initial Purchase Interval,
however, shall end on March 31, 1998.

  S.  SEMI-ANNUAL ENTRY DATE shall mean the first business day in April and
      ----------------------                                               
October each year on which an Eligible Employee may first enter an offering
period.

  T.  STOCK EXCHANGE shall mean either the American Stock Exchange or the New
      --------------                                                         
York Stock Exchange.

  U.  UNDERWRITING AGREEMENT shall mean the agreement between the Corporation
      ----------------------                                                 
and the underwriter or underwriters managing the initial public offering of the
Common Stock.


                                     A-3.

<PAGE>
 

                                                                  EXHIBIT 10.2.3


                                              __________________  ___, 199__


                  SECURED LOAN AGREEMENT (WITH RECOURSE)

          For the mutual considerations contained herein, Coldwater Creek, Inc.
(hereinafter "Employer") and _____________________ (hereinafter "Employee") do
hereby make the following loan agreement, wherein Employer is making a secured
loan, with recourse, to Employee upon the following terms and conditions:


       1. Employer does hereby loan to Employee the cash sum of $____________.

       2. This loan shall be all due and payable to Employer on the earlier of 
          (a) the date ten (10) days before the date that the vested stock
          options serving as partial security for this loan expire; or (b)
          Ninety (90) days from the date that the Employee's Employment with
          Employer terminates for any reason.

       3. Employee does hereby grant and pledge to Employer, as security for
          this loan, all of the Employee's right, title, and interest in any and
          all vested stock options in Coldwater Creek Inc.

       4. Interest shall accrue on said loan at a rate equal to the Wall Street
          Journal Prime Rate during the term of this loan, and Employee shall
          pay accrued interest annually, on the anniversary date of this loan;
          provided, however, that so long as Employee is employed by Employer,
          the interest rate shall be abated to a rate of three (3) percent per
          annum. Employee and Employer understand and acknowledge that the
          difference between the loan interest rate and the abated interest rate
          is income realized by the Employee.

       5. Should Employee become in default of this loan, Employer shall, upon
          ten (10) days written notice to Employee, be entitled to take
          possession of and realize upon Employee's vested stock option in
          Coldwater Creek, and at the discretion of Employer, exercise said
          options. Employer may, at its discretion, also waive its security
          interest in the vested stock options and pursue collection directly
          from the Employee.

       6. Employee agrees that this loan is personal to the Employee, and that
          Employer is relying upon the financial condition of Employee. Employee
          has provided, contemporaneously with this agreement, a financial
          statement summarizing the Employee financial position which will be
          used to satisfy all or any portion of the loan, and whether or not
          Employer exercises discretion to seek re-payment from its security
          interest in the options.
<PAGE>
 
       7. Employee further acknowledges and agrees that Employee will submit an
          updated financial statement each year, upon the anniversary date of
          this agreement, as well as any such time as reasonably requested by
          Employer. Employee also agrees to pledge any and all of his or her net
          assets reflected in said financial statement, as may be reasonably
          requested by Employer to secure this obligation. Employee acknowledges
          that failure to pledge such assets as security is a separate and
          distinct event of default under this loan, which shall enable Employer
          to demand payment in full of said loan by Employee, without resorting
          the security pledged for this loan.

       8. Should Employer, upon default of Employee, be required to collect this
          loan, Employee shall be responsible to Employer for all costs,
          including reasonable attorney's fees and other expenses, incurred by
          Employer in collection hereunder.
           
                                      _________________________________
                                      Employee


                                      _________________________________
                                      COLDWATER CREEK INC.
                                      Dennis C. Pence

<PAGE>
 
Coldwater Creek Inc.--Exhibit 11
- --------------------------------

Schedule of Historical and Pro Forma Net Income (Loss) Per Common and Common 
Equivalent Share Outstanding Three and Six Months Ended August 30, 1997 and 
August 31, 1996

<TABLE> 
<CAPTION> 
                                                             Three Months Ended           Six Months Ended
                                                          ------------------------      ----------------------
                                                           August 30    August 31        August 30   August 31
                                                              1997        1996              1997       1996
                                                          ------------------------      ----------------------   
<S>                                                         <C>         <C>               <C>        <C> 

Primary:
- -------

Weighted Average Shares Outstanding:
 Shares Outstanding at Beginning of Period                  10,120,118   7,245,118     10,120,118   7,245,118
                                                          ------------------------    -----------------------   
Officer Options:

 FY 1997:443,067-[(443,067*$6.58)/$23.54]                      319,219           -              -           -
 FY 1997:443,067-[(443,067*$6.58)/$19.72]                            -           -        295,228           -
 FY 1996:443,067-[(443,067*$6.58)/$15.00]                            -   anti-dilutive          -           -
 FY 1996:443,067-[(443,067*$6.58)/$15.00]                            -           -              -     248,708

Employee Options:
 FY 1997:439,128-[(439,128*$15.00)/$23.54]                     159,310           -              -           -
 FY 1997:439,128-[(439,128*$15.00)/$19.72]                           -           -        105,105           -

S-Corp. Distribution:
 Pro Forma FY1996: $14,480,487/$15.00                                -     965,366              -     965,366  
                                                          ------------------------      ----------------------   
  Weighted Average Common and common Equivalent
   Shares Outstanding:
          Historical                                        10,598,647         n/a     10,520,452         n/a 
          Pro Forma                                                n/a   8,210,484            n/a   8,459,192 

Net Income (Loss): 
          Historical                                      $    415,000         n/a    $ 2,488,000         n/a     
          Pro Forma                                                n/a  $ (156,000)           n/a   $ 770,000  
                                                          ------------------------    -----------------------   
Net Income (Loss) Per Weighted Average Common
 and Common Equivalent Share Outstanding:
          Historical                                      $       0.04         n/a    $      0.24         n/a   
          Pro Forma                                                n/a  $    (0.02)           n/a   $    0.09  
                                                          ========================    =======================
</TABLE>
<PAGE>
 
Coldwater Creek Inc. - Exhibit 11 (continued)
- ---------------------------------------------

Schedule of Historical and Pro Forma Net Income (Loss) Per Common and Common  
Equivalent Share Outstanding Three and Six Months Ended August 30, 1997 and 
August 31, 1996
<TABLE> 
<CAPTION> 
                                                     Three Months Ended           Six Months Ended
                                                  --------------------------   ------------------------
                                                   August 30      August 31     August 30    August 31
                                                     1997           1996          1997         1996 
                                                  ------------------------   ------------------------
<S>                                                <C>            <C>           <C>          <C>  
Fully Diluted:
- --------------
Weighted Average Shares Outstanding:
 Shares Outstanding at Beginning of Period         10,120,118     7,245,118     10,120,118   7,245,118
                                                  --------------------------   ------------------------

Officer Options:
 FY1997: 443,067 - [(443,067*$6.58)/23.54]            319,219             -              -           -
 FY1997: 443,067 - [(443,067*$6.58)/$23.50]                 -             -        319,008           -  
 FY1996: 443,067 - [(443,067*$6.58)/$15.00]                 -  anti-dilutive             -           -
 FY1996: 443,067 - [(443,067*$6.58)/$15.00]                 -             -              -     248,708

Employee Options:
 FY1997: 439,128 - [(439,128*$15.00)/$23.54]          159,310             -              -           -
 FY1997: 439,128 - [(439,128*$15.00)/$23.50]                -             -        158,834           -

S-Corp. Distribution:
 Pro Forma FY1996: $14,480,487/$15.00                       -       965,366              -     965,366
                                                  --------------------------   ------------------------
  Weighted Average Common and Common Equivalent
    Shares Outstanding:
           Historical                              10,598,647           n/a     10,597,960         n/a
           Pro Forma                                      n/a     8,210,484            n/a   8,459,192

 Net Income (Loss):
           Historical                             $   415,000           n/a    $ 2,488,000         n/a
           Pro Forma                                      n/a     $(156,000)           n/a   $ 770,000
                                                  --------------------------   ------------------------
  Net Income (Loss) Per Weighted Average Common
   and Common Equivalent Share Outstanding:
           Historical                             $      0.04           n/a    $      0.23         n/a
           Pro Forma                                      n/a    $    (0.02)           n/a   $    0.09
                                                  ==========================   ========================
</TABLE> 

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   3-MOS                   6-MOS
<FISCAL-YEAR-END>                          FEB-28-1998             FEB-28-1998
<PERIOD-START>                             JUN-01-1997             MAR-02-1997
<PERIOD-END>                               AUG-30-1997             AUG-30-1997
<CASH>                                               0                       0
<SECURITIES>                                         0                       0
<RECEIVABLES>                                    4,290                   4,290
<ALLOWANCES>                                         0                       0
<INVENTORY>                                     35,272                  35,272
<CURRENT-ASSETS>                                41,945                  41,945
<PP&E>                                          23,050                  23,050
<DEPRECIATION>                                       0                       0
<TOTAL-ASSETS>                                  73,008                  73,008
<CURRENT-LIABILITIES>                           32,834                  32,834
<BONDS>                                              0                       0
                                0                       0
                                          0                       0
<COMMON>                                           101                     101
<OTHER-SE>                                      39,574                  39,574
<TOTAL-LIABILITY-AND-EQUITY>                    73,008                  73,008
<SALES>                                         36,389                  87,391
<TOTAL-REVENUES>                                     0                       0
<CGS>                                           18,152                  42,489
<TOTAL-COSTS>                                        0                       0
<OTHER-EXPENSES>                                17,495                  40,869
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                  57                     193
<INCOME-PRETAX>                                    799                   4,226
<INCOME-TAX>                                       384                   1,738
<INCOME-CONTINUING>                                415                   2,488
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                       415                   2,488
<EPS-PRIMARY>                                     0.04                    0.24
<EPS-DILUTED>                                     0.04                    0.23
        

</TABLE>


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