Document:

Exhibit 10.40

 

AMENDED AND RESTATED CREDIT AND
SECURITY AGREEMENT

BY AND BETWEEN

CHRISTOPHER & BANKS COMPANY AND 

CHRISTOPHER & BANKS SERVICES COMPANY,

CHRISTOPHER & BANKS, INC., 

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION

Acting through its WELLS FARGO BUSINESS CREDIT
operating division

 

Dated November 4, 2005

TABLE
OF CONTENTS

	
  ARTICLE I – DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  Section 1.2

  	
   

  	
  Other Definitional Terms; Rules of Interpretation

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II – AMOUNT AND TERMS OF THE CREDIT FACILITY

  	
   

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
   

  	
  Revolving Advances

  	
   

  	
  9

  
	
  Section 2.2

  	
   

  	
  Procedures for Requesting Advances

  	
   

  	
  10

  
	
  Section 2.3

  	
   

  	
  Letters of Credit

  	
   

  	
  10

  
	
  Section 2.4

  	
   

  	
  Special Account

  	
   

  	
  11

  
	
  Section 2.5

  	
   

  	
  Interest; Default Interest Rate; Application of
  Payments; Participations; Usury

  	
   

  	
  11

  
	
  Section 2.6

  	
   

  	
  Fees

  	
   

  	
  12

  
	
  Section 2.7

  	
   

  	
  Time for Interest Payments; Payment on Non-Business
  Days; Computation of Interest and Fees

  	
   

  	
  14

  
	
  Section 2.8

  	
   

  	
  Lockbox and Collateral Account; Sweep of Funds

  	
   

  	
  15

  
	
  Section 2.9

  	
   

  	
  Voluntary Prepayment; Reduction of the Maximum Line
  Amount; Termination of the Credit Facility by the Borrower

  	
   

  	
  15

  
	
  Section 2.10

  	
   

  	
  Mandatory Prepayment

  	
   

  	
  16

  
	
  Section 2.11

  	
   

  	
  Revolving Advances to Pay Obligations

  	
   

  	
  16

  
	
  Section 2.12

  	
   

  	
  Use of Proceeds

  	
   

  	
  16

  
	
  Section 2.14

  	
   

  	
  Liability Records

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III – SECURITY INTEREST; OCCUPANCY; SETOFF

  	
   

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
   

  	
  Grant of Security Interest

  	
   

  	
  16

  
	
  Section 3.2

  	
   

  	
  Notification of Account Debtors and Other Obligors

  	
   

  	
  17

  
	
  Section 3.3

  	
   

  	
  Assignment of Insurance

  	
   

  	
  17

  
	
  Section 3.4

  	
   

  	
  Occupancy

  	
   

  	
  17

  
	
  Section 3.5

  	
   

  	
  License

  	
   

  	
  18

  
	
  Section 3.6

  	
   

  	
  Financing Statement

  	
   

  	
  18

  
	
  Section 3.7

  	
   

  	
  Setoff

  	
   

  	
  19

  
	
  Section 3.8

  	
   

  	
  Collateral

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV – CONDITIONS OF LENDING

  	
   

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
   

  	
  Conditions Precedent to the Initial Advances and
  Letter of Credit

  	
   

  	
  19

  
	
  Section 4.2

  	
   

  	
  Conditions Precedent to All Advances and Letters of
  Credit

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V – REPRESENTATIONS AND WARRANTIES

  	
   

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
   

  	
  Existence and Power; Name; Chief Executive Office;
  Inventory and Equipment Locations; Federal Employer Identification Number and
  Organizational Identification Number

  	
   

  	
  22

  

 

 i
 

 

	
  Section 5.2

  	
   

  	
  Capitalization

  	
   

  	
  22

  
	
  Section 5.3

  	
   

  	
  Authorization of Borrowing; No Conflict as to Law or
  Agreements

  	
   

  	
  22

  
	
  Section 5.4

  	
   

  	
  Legal Agreements

  	
   

  	
  22

  
	
  Section 5.5

  	
   

  	
  Subsidiaries

  	
   

  	
  23

  
	
  Section 5.6

  	
   

  	
  Financial Condition; No Adverse Change

  	
   

  	
  23

  
	
  Section 5.7

  	
   

  	
  Litigation

  	
   

  	
  23

  
	
  Section 5.8

  	
   

  	
  Regulation U

  	
   

  	
  23

  
	
  Section 5.9

  	
   

  	
  Taxes

  	
   

  	
  23

  
	
  Section 5.10

  	
   

  	
  Titles and Liens

  	
   

  	
  23

  
	
  Section 5.11

  	
   

  	
  Intellectual Property Rights

  	
   

  	
  23

  
	
  Section 5.12

  	
   

  	
  Plans

  	
   

  	
  24

  
	
  Section 5.13

  	
   

  	
  Default

  	
   

  	
  24

  
	
  Section 5.14

  	
   

  	
  Environmental Matters

  	
   

  	
  24

  
	
  Section 5.15

  	
   

  	
  Submissions to Lender

  	
   

  	
  25

  
	
  Section 5.16

  	
   

  	
  Financing Statements

  	
   

  	
  25

  
	
  Section 5.17

  	
   

  	
  Rights to Payment

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI – COVENANTS

  	
   

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
   

  	
  Reporting Requirements

  	
   

  	
  26

  
	
  Section 6.2

  	
   

  	
  Financial Covenants

  	
   

  	
  28

  
	
  Section 6.3

  	
   

  	
  Permitted Liens; Financing Statements

  	
   

  	
  29

  
	
  Section 6.4

  	
   

  	
  Indebtedness

  	
   

  	
  30

  
	
  Section 6.5

  	
   

  	
  Guaranties

  	
   

  	
  30

  
	
  Section 6.6

  	
   

  	
  Investments and Subsidiaries

  	
   

  	
  31

  
	
  Section 6.7

  	
   

  	
  Dividends and Distributions

  	
   

  	
  31

  
	
  Section 6.8

  	
   

  	
  Books and Records; Collateral Examination;
  Inspection and Appraisals

  	
   

  	
  31

  
	
  Section 6.9

  	
   

  	
  Account Verification

  	
   

  	
  32

  
	
  Section 6.10

  	
   

  	
  Compliance with Laws

  	
   

  	
  32

  
	
  Section 6.11

  	
   

  	
  Payment of Taxes and Other Claims

  	
   

  	
  33

  
	
  Section 6.12

  	
   

  	
  Maintenance of Properties

  	
   

  	
  33

  
	
  Section 6.13

  	
   

  	
  Insurance

  	
   

  	
  33

  
	
  Section 6.14

  	
   

  	
  Preservation of Existence

  	
   

  	
  34

  
	
  Section 6.15

  	
   

  	
  Delivery of Instruments, etc.

  	
   

  	
  34

  
	
  Section 6.16

  	
   

  	
  Sale or Transfer of Assets; Suspension of Business
  Operations

  	
   

  	
  34

  
	
  Section 6.17

  	
   

  	
  Consolidation and Merger; Asset Acquisitions

  	
   

  	
  34

  
	
  Section 6.18

  	
   

  	
  Sale and Leaseback

  	
   

  	
  35

  
	
  Section 6.19

  	
   

  	
  Restrictions on Nature of Business

  	
   

  	
  35

  
	
  Section 6.20

  	
   

  	
  Accounting

  	
   

  	
  36

  
	
  Section 6.21

  	
   

  	
  Plans

  	
   

  	
  36

  
	
  Section 6.22

  	
   

  	
  Place of Business; Name

  	
   

  	
  36

  
	
  Section 6.23

  	
   

  	
  Constituent Documents; S Corporation Status

  	
   

  	
  36

  
	
  Section 6.24

  	
   

  	
  Performance by the Lender

  	
   

  	
  36

  
						

 

 ii
 

 

	
  ARTICLE VII – EVENTS OF DEFAULT, RIGHTS AND
  REMEDIES

  	
   

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
   

  	
  Events of Default

  	
   

  	
  37

  
	
  Section 7.2

  	
   

  	
  Rights and Remedies

  	
   

  	
  39

  
	
  Section 7.3

  	
   

  	
  Certain Notices

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII – MISCELLANEOUS

  	
   

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
   

  	
  No Waiver; Cumulative Remedies; Compliance with Laws

  	
   

  	
  40

  
	
  Section 8.2

  	
   

  	
  Amendments, Etc.

  	
   

  	
  40

  
	
  Section 8.3

  	
   

  	
  Notices; Communication of Confidential Information;
  Requests for Accounting

  	
   

  	
  40

  
	
  Section 8.4

  	
   

  	
  Further Documents

  	
   

  	
  41

  
	
  Section 8.5

  	
   

  	
  Costs and Expenses

  	
   

  	
  41

  
	
  Section 8.6

  	
   

  	
  Indemnity

  	
   

  	
  41

  
	
  Section 8.7

  	
   

  	
  Participants

  	
   

  	
  42

  
	
  Section 8.8

  	
   

  	
  Execution in Counterparts; Telefacsimile Execution

  	
   

  	
  42

  
	
  Section 8.9

  	
   

  	
  Retention of Borrower’s Records

  	
   

  	
  42

  
	
  Section 8.10

  	
   

  	
  Binding Effect; Assignment; Complete Agreement;
  Sharing Information

  	
   

  	
  42

  
	
  Section 8.11

  	
   

  	
  Severability of Provisions

  	
   

  	
  43

  
	
  Section 8.12

  	
   

  	
  Headings

  	
   

  	
  43

  
	
  Section 8.13

  	
   

  	
  Governing Law; Jurisdiction, Venue; Waiver of Jury
  Trial

  	
   

  	
  43

  
	
  Section 8.14

  	
   

  	
  Confidentiality

  	
   

  	
  43

  

 

 iii

AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

Dated as of November 4,
2005

Christopher & Banks,
Inc., Christopher & Banks Company and Christopher & Banks Services
Company, each a Minnesota corporation (jointly and severally, the “Borrower”
and each a “Borrower” as the context requires), and WELLS FARGO BANK, NATIONAL
ASSOCIATION (“Lender”) entered into that certain Amended and Restated Revolving
Credit and Security Agreement dated March 15, 1999 (the “1999 Credit Agreement”).  The Borrower and the Lender, through its
WELLS FARGO BUSINESS CREDIT operating division, wish to extend the term of the
1999 Credit Agreement, increase the amount of the revolving credit commitment
thereunder and make certain other changes in the terms and conditions under
which the Lender provides to the Borrower the revolving credit commitment.  In order to accomplish the foregoing, the
parties have agreed to execute and deliver this Amended and Restated Credit and
Security Agreement.

The parties hereby agree
as follows:

ARTICLE I

DEFINITIONS

Section
1.1            Definitions.  Except as otherwise expressly provided in
this Agreement, the following terms shall have the meanings given them in this
Section:

“Accounts” shall have the
meaning given it under the UCC.

“Advance” means a
Revolving Advance.

“Affiliate” or “Affiliates”
means Christopher & Banks, Inc., Christopher & Banks Company and
Christopher & Banks Services Company, and any other Person controlled by,
controlling or under common control with the Borrower, including any Subsidiary
of the Borrower.  For purposes of this
definition, “control,” when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.

“Aggregate Outstanding”
means the sum of the outstanding principal balance of the Revolving Note and
the L/C Amount.”

“Agreement” means this
Amended and Restated Credit and Security Agreement.

“Availability” means the
amount, if any, by which the Borrowing Base exceeds the sum of (i) the
outstanding principal balance of the Revolving Note and (ii) the L/C Amount.

“Borrowing Base” means at
any time the lesser of:

(a)           The
Maximum Line Amount; or

(b)           Subject to change from time to time
in the Lender’s sole discretion with prior written or telefacsimile notice to
the Borrower, the sum of

(i)            either (A) between
June 1 and August 31 in any year, and so long as there are no outstanding
Advances, 80% of Eligible Inventory, or (B) at all other times, 70% of Eligible
Inventory; plus

(ii)           50% of Eligible In-Transit Inventory;
less

(iii)          Obligations that the Borrower owes to
the Lender that have not yet been advanced on the Revolving Note, and the
dollar amount that the Lender in its discretion believes are a reasonable
determination of the Borrower’s credit exposure with respect to Wells Fargo
Affiliate Obligations.

“Business
Day” means a day on which the Federal Reserve Bank of New York is open for
business.

“Capital Expenditures”
means for a period, any expenditure of money during such period for the
purchase or construction of assets, or for improvements or additions thereto,
which are capitalized on the Borrower’s balance sheet.

“Cash Flow” means, for
any period of determination, Net Income, plus depreciation and amortization,
plus any Interest Expense that is accrued but not paid currently, minus Capital
Expenditures to the extent such Capital Expenditures are paid in cash, minus
all scheduled repayment of principal on Debt (whether or not actually paid),
minus all funds expended for the repurchase, redemption or retirement of the
Guarantor’s issued and outstanding capital stock to the extent permitted
hereunder, minus cash stock dividends, all as determined in accordance with
GAAP on a consolidated basis.

“Collateral” means all of
the Borrower’s Equipment, General Intangibles, Inventory, letter-of-credit
rights, letters of credit, all sums on deposit in any Collateral Account, and
any items in any Lockbox; together with (i) all substitutions and replacements
for and products of any of the foregoing; (ii) in the case of all goods, all
accessions; (iii) all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any goods;
(iv) all warehouse receipts, bills of lading and other documents of title now
or hereafter covering such goods; (v) all collateral subject to the Lien of any
Security Document; (vi) all sums on deposit in the Special Account; (vii)
proceeds of any and all of the foregoing; and (viii) all of the foregoing,
whether now owned or existing or hereafter acquired or arising or in which the
Borrower now has or hereafter acquires any rights.

“Collateral Account”
means the “Lender Account” as defined in the Wholesale Lockbox and Collection
Account Agreement.

 2
 

“Commercial Letter of
Credit Agreement” means an agreement governing the issuance of documentary
letters of credit by the Lender, entered into between the Borrower as applicant
and the Lender as issuer.

“Commitment” means the
Lender’s commitment to make Advances to  and
to issue Letters of Credit for the account of,
the Borrower.

“Constituent Documents”
means with respect to any Person, as applicable, such Person’s certificate of
incorporation, articles of incorporation, by-laws, certificate of formation,
articles of organization, limited liability company agreement, management
agreement, operating agreement, shareholder agreement, partnership agreement or
similar document or agreement governing such Person’s existence, organization
or management or concerning disposition of ownership interests of such Person
or voting rights among such Person’s owners.

“Credit Facility” means
the credit facility under which Revolving Advances and Letters of Credit may be
made available to the Borrower by the Lender under Article II.

“Cut-off Time” means 1:00
p.m. Minneapolis, Minnesota  time.

“Debt” means of a Person
as of a given date, all items of indebtedness or liability which in accordance
with GAAP would be included in determining total liabilities as shown on the
liabilities side of a balance sheet for such Person and shall also include the
aggregate payments required to be made by such Person at any time under any
lease that is considered a capitalized lease under GAAP.

“Default” means an event
that, with giving of notice or passage of time or both, would constitute an
Event of Default.

“Default Period” means
any period of time beginning on the day a Default or Event of Default occurs
and ending on the date identified by the Lender in writing as the date that
such Default or Event of Default has been cured or waived.

“Default Rate” means an
annual interest rate in effect during a Default Period or following the
Termination Date, which interest rate shall be equal to two percent (2.0%) over
the applicable Floating Rate, as such rate may change from time to time.

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means
any trade or business (whether or not incorporated) that is a member of a group
which includes the Borrower and which is treated as a single employer under
Section 414 of the IRC.

“Eligible In-Transit
Inventory” means Eligible Inventory that is in-transit and backed by a
documentary Letter of Credit issued by the Lender.

 3
 

“Eligible Inventory”
means all Inventory of the Borrower, valued at the lower of cost or market in
accordance with GAAP; but excluding any Inventory having any of the following
characteristics:

(i)            Inventory that is: in-transit
(except for Eligible In-Transit Inventory); located at any warehouse, job site
or other premises not approved by the Lender in writing; not subject to a duly
perfected first priority security interest in the Lender’s favor; subject to
any lien or encumbrance that is subordinate to the Lender’s first priority
security interest; covered by any negotiable or non-negotiable warehouse
receipt, bill of lading or other document of title; on consignment from any
Person; on consignment to any Person or subject to any bailment unless such
consignee or bailee has executed an agreement with the Lender;

(ii)           Supplies, packaging, parts or sample
Inventory, or customer supplied parts or Inventory;

(iii)          Work-in-process Inventory;

(iv)          Inventory that is damaged, defective,
obsolete, slow moving (that is, over four months old), or not currently
saleable in the normal course of the Borrower’s operations;

(v)           Inventory that the Borrower has
returned, has attempted to return, is in the process of returning or intends to
return to the vendor thereof;

(vi)          Inventory that is perishable or live;

(vii)         Inventory manufactured by the Borrower
pursuant to a license unless the applicable licensor has agreed in writing to
permit the Lender to exercise its rights and remedies against such Inventory;

(viii)        Inventory that is subject to a Lien in
favor of any Person other than the Lender;

(ix)           Inventory otherwise deemed ineligible
by the Lender in its sole discretion.

“Environmental Law” means
any federal, state, local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the environment.

“Equipment” means all of
the Borrower’s equipment, as such term is defined in the UCC, whether now owned
or hereafter acquired, including all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including specifically the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.

“Event of Default” is
defined in Section 7.1.

“Financial Covenants”
means the covenants set forth in Section 6.2.

 4
 

“Floating Rate” means an
annual interest rate equal to the sum of the Prime Rate plus one-quarter
percent (0.25%), which interest rate shall change when and as the Prime Rate
changes.

“Floating Rate Advance”
means an Advance bearing interest at the Floating Rate.

“Funding Date” is defined
in Section 2.1.

“GAAP” means generally
accepted accounting principles, applied on a basis consistent with the
accounting practices applied in the financial statements described in Section
5.6.

“General Intangibles”
shall have the meaning given it under the UCC.

“Guarantor(s)” means
Christopher & Banks Corporation  and
any other Person now or in the future guaranteeing the Obligations.

“Guarantor Security
Agreement” means the security agreement of even date executed by Guarantor in
favor of the Lender.

“Guaranty” means each
unconditional continuing guaranty or unconditional continuing guaranty by
corporation executed by a Guarantor in favor of the Lender (collectively, the “Guaranties”)

“Hazardous Substances”
means pollutants, contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals, wastes, substances
and materials listed in, regulated by or identified in any Environmental Law.

“Indemnified Liabilities”
is defined in Section 8.6

“Indemnitees” is defined
in Section 8.6.

“Interest Expense” means,
for the fiscal year-to-date period, the Borrower’s total gross interest expense
during such period (excluding interest income), and shall in any event include,
without limitation, (i) interest expensed (whether or not paid) on all Debt,
(ii) the amortization of debt discounts, (iii) the amortization of all fees
payable in connection with the incurrence of Debt to the extent included in
interest expense, and (iv) the portion of any capitalized lease obligation
allocable to interest expense.

“IRC” means the Internal
Revenue Code of 1986, as amended from time to time.

“Infringement” or “Infringing”
when used with respect to Intellectual Property Rights means any material
infringement or other material violation of Intellectual Property Rights.

“Intellectual Property
Rights” means all actual or prospective rights arising in connection with any
intellectual property or other proprietary rights, including all rights arising
in connection with copyrights, patents, service marks, trade dress, trade
secrets, trademarks, trade names or mask works.

 5
 

“Interest
Payment Date” is defined in Section 2.7(a).

“Inventory” shall have
the meaning given it under the UCC.

“Inventory Turns Ratio”
means, for any period, the product obtained by dividing the total net sales for
the prior 12-month period by the average month-end retail value of all
Inventory for the same 12-month period, all as determined in accordance with
GAAP.

“L/C Amount” means the
sum of (i) the aggregate face amount of any issued and outstanding Letters of
Credit and (ii) the unpaid amount of the Obligation of Reimbursement.

“L/C Application” means
an application for the issuance of standby  or
documentary  letters of credit
pursuant to the terms of a Standby Letter of Credit Agreement or a Commercial
Letter of Credit Agreement,  in
form acceptable to the Lender.

“Letter
of Credit” is defined in 2.3(a).

“Licensed Intellectual
Property” is defined in Section 5.11(c) .

“Lien” means any security
interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title
retention agreement or analogous instrument or device, including the interest
of each lessor under any capitalized lease and the interest of any bondsman
under any payment or performance bond, in, of or on any assets or properties of
a Person, whether now owned or subsequently acquired and whether arising by
agreement or operation of law.

“Loan Documents” means
this Agreement, the Revolving Note, the  Guaranty,
any L/C Applications and  the
Security Documents, together with every other agreement, note, document,
contract or instrument to which the Borrower now or in the future may be a
party and which is required by the Lender.

“Lockbox” means “Lockbox” as defined in the Wholesale
Lockbox and Collection Account Agreement.

“Maturity Date” means
June 30, 2008.

“Maximum Line Amount”
means $50,000,000  unless this amount
is reduced pursuant to Section 2.9, in which event it means such lower amount.

“Multiemployer Plan”
means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which
the Borrower or any ERISA Affiliate contributes or is obligated to contribute.

“Net Cash Proceeds” means
in connection with any asset sale, the cash proceeds (including any cash
payments received by way of deferred payment whether pursuant to a note,
installment receivable or otherwise, but only as and when actually received)
from such asset sale, net of (i) attorneys’ fees, accountants’ fees, investment
banking fees, brokerage commissions and amounts required to be applied to the
repayment of any portion of the Debt secured by a Lien not prohibited hereunder
on the asset which is the subject of such sale, and (ii) taxes paid or
reasonably estimated to be payable as a result of such asset sale.

 6
 

“Net Income” means fiscal
year-to-date after-tax  net income
from continuing operations,  but
excluding  extraordinary gains, all
as determined in accordance with GAAP.

“Obligation of
Reimbursement” means the obligation of the Borrower to reimburse the Lender
pursuant to the terms of the Standby Letter of Credit Agreement  or the Commercial Letter of Credit
Agreement and any applicable L/C Application.

“Obligations”
means the Revolving Note, the Obligation of Reimbursement and each and every
other debt, liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether such debt,
liability or obligation now exists or is hereafter created or incurred, whether
it arises in a transaction involving the Lender alone or in a transaction
involving other creditors of the Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
including all indebtedness of the Borrower arising under any Loan Document or
guaranty between the Borrower and the Lender, whether now in effect or
subsequently entered into and all Wells Fargo Affiliate Obligations.

“Officer” means with
respect to the Borrower, William J. Prange, Chief Executive Officer, Joseph E.
Pennington, President and Chief Operating Officer and Andrew K. Moller, Chief
Financial Officer, or their successors.

“OFAC” is defined in
Section 6.10(c).

“Overadvance” means the
amount, if any, by which the outstanding principal balance of the Revolving
Note , plus the L/C Amount,  is in excess of the then-existing Borrowing
Base.

“Owned Intellectual
Property” is defined in Section 5.11(a).

“Owner” means with
respect to the Borrower, each Person having legal or beneficial title to an
ownership interest in the Borrower or a right to acquire such an interest.

“Pension Plan” means a
pension plan (as defined in Section 3(2) of ERISA) maintained for employees of
the Borrower or any ERISA Affiliate and covered by Title IV of ERISA.

“Permitted Lien” and “Permitted
Liens” are defined in Section 6.3(a) .

“Person” means any individual,
corporation, partnership, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

“Plan” means an employee
benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of
the Borrower or any ERISA Affiliate.

“Premises” means all
locations where the Borrower conducts its business or has any rights of
possession, including the locations legally described in Exhibit C attached
hereto.

 7
 

“Prime Rate” means at any
time the rate of interest most recently announced by the Lender at its
principal office as its Prime Rate, with the understanding that the Prime Rate
is one of the Lender’s base rates, and serves as the basis upon which effective
rates of interest are calculated for those loans making reference thereto, and
is evidenced by the recording thereof in such internal publication or
publications as the Lender may designate. 
Each change in the rate of interest shall become effective on the date
each Prime Rate change is announced by the Lender.

“Reportable Event” means
a reportable event (as defined in Section 4043 of ERISA), other than an event
for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the Pension Benefit Guaranty Corporation.

“Revolving Advance” is
defined in Section 2.1.

“Revolving Note” means
the Borrower’s revolving promissory note, payable to the order of the Lender in
substantially the form of Exhibit A hereto, as same may be renewed and amended
from time to time, and all replacements thereto.

“Security Documents”
means this Agreement, the Wholesale Lockbox and Collection Account Agreement, the Guarantor Security Agreement, and any
other document delivered to the Lender from time to time to secure the
Obligations.

“Security Interest” is
defined in Section 3.1.

“Special Account” means a
specified cash collateral account maintained with Lender or another financial
institution acceptable to the Lender in connection with Letters of Credit, as
contemplated by Section 2.4.

“Standby Letter of Credit
Agreement” means an agreement governing the issuance of standby letters of
credit by Lender entered into between the Borrower as applicant and Lender as
issuer.

“Subsidiary” means any Person
of which more than 50% of the outstanding ownership interests having general
voting power under ordinary circumstances to elect a majority of the board of
directors or the equivalent of such Person, regardless of whether or not at the
time ownership interests of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the time
directly or indirectly owned by the Borrower, by the Borrower and one or more
other Subsidiaries, or by one or more other Subsidiaries.

“Termination Date” means
the earliest of (i) the Maturity Date, (ii) the date the Borrower terminates
the Credit Facility, or (iii) the date the Lender demands payment of the
Obligations, following an Event of Default, pursuant to Section 7.2.

 8
 

“UCC” means the Uniform
Commercial Code in effect in the state designated in this Agreement as the
state whose laws shall govern this Agreement, or in any other state whose laws
are held to govern this Agreement or any portion of this Agreement.

“Wells
Fargo Affiliate Obligations” means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower or its
Subsidiaries to any Person that is owned in material part by the Lender, and
that relates to any service or facility extended to the Borrower or its
Subsidiaries, including: (a) credit cards, (b) credit card processing services,
(c) debit cards, and (d) purchase cards, as well as any other services or
facilities from time to time specified by the Lender, whether direct or
indirect, absolute or contingent, due or to become due, and whether existing
now or in the future.

“Wholesale Lockbox and
Collection Account Agreement” means the Wholesale Lockbox and Collection
Account Agreement by and between the Borrower and the Lender dated the same
date as this Agreement.

Section
1.2            Other Definitional
Terms; Rules of Interpretation.  The words “hereof”, “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.  All accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP.  All terms defined in the UCC and
not otherwise defined herein have the meanings assigned to them in the
UCC.  References to Articles, Sections,
subsections, Exhibits, Schedules and the like, are to Articles, Sections and
subsections of, or Exhibits or Schedules attached to, this Agreement unless
otherwise expressly provided.  The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation”.  Unless the context in which
used herein otherwise clearly requires, “or” has the inclusive meaning
represented by the phrase “and/or”. 
Defined terms include in the singular number the plural and in the
plural number the singular.  Reference to
any agreement (including the Loan Documents), document or instrument means such
agreement, document or instrument as amended or modified and in effect from time
to time in accordance with the terms thereof (and, if applicable, in accordance
with the terms hereof and the other Loan Documents), except where otherwise
explicitly provided, and reference to any promissory note includes any
promissory note which is an extension or renewal thereof or a substitute or
replacement therefor.  Reference to any
law, rule, regulation, order, decree, requirement, policy, guideline, directive
or interpretation means as amended, modified, codified, replaced or reenacted,
in whole or in part, and in effect on the determination date, including rules
and regulations promulgated thereunder.

ARTICLE II

AMOUNT
AND TERMS OF THE CREDIT FACILITY

Section
2.1            Revolving Advances.  The Lender agrees, subject to the terms and
conditions of this Agreement, to make advances (“Revolving Advances”) to the
Borrower from time to time from the date that all of the conditions set forth
in 4.1 are satisfied (the “Funding Date”) to and until (but not including) the
Termination Date in an amount not in excess of the Maximum Line Amount.  The Lender shall have no obligation to make a
Revolving Advance to the extent that the amount of the requested Revolving
Advance exceeds Availability.  The

 9
 

Borrower’s
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral. 
Within the limits set forth in this Section 2.1, the Borrower may
borrow, prepay pursuant to Section 2.9, and reborrow.

Section
2.2            Procedures for
Requesting Advances. 
The Borrower shall comply with the following procedures in requesting
Revolving Advances:

(a)           Time
for Requests.  The Borrower shall
request each Advance not later than the Cut-off Time on the Business Day on
which  the Advance is
to be made. 
Each request that conforms to the terms of this Agreement shall be
effective upon receipt by the Lender, shall be in writing or by telephone or
telecopy transmission, and shall be confirmed in writing by the Borrower if so
requested by the Lender, by (i) an
Officer of any Borrower; or (ii) a Person designated as any Borrower’s agent by
an Officer of the Borrower in a writing delivered to the Lender; or (iii) a
Person whom the Lender reasonably believes to be an Officer of any Borrower or
such a designated agent.  The Borrower shall repay all Advances even if
the Lender does not receive such confirmation and even if the Person requesting
an Advance was not in fact authorized to do so. 
Any request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth in
Section 4.2 have been satisfied as of the time of the request.

(b)           Disbursement.  Upon fulfillment of the applicable conditions
set forth in Article IV, the Lender shall disburse the proceeds of the
requested Advance by crediting the same to the Borrower’s demand deposit
account maintained with the Lender  unless the
Lender and the Borrower shall agree in writing to another manner of
disbursement.

Section
2.3            Letters of Credit.

(a)           The
Lender agrees, subject to the terms and conditions of this Agreement, to issue,
at any time after the Funding Date and prior to the Termination Date, one or
more irrevocable standby or documentary letters of credit (each, a “Letter of
Credit”) for the Borrower’s account.  The
Lender will not issue any Letter of Credit if the face amount of the Letter of
Credit to be issued would exceed Availability.

Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application made by the Borrower to the Lender, which must be completed in
a manner satisfactory to the Lender.  The
terms and conditions set forth in each such L/C Application shall supplement
the terms and conditions of the Standby Letter of Credit Agreement  or the Commercial Letter of Credit
Agreement, as applicable.

(b)           No
Letter of Credit shall be issued with an expiration date later than one (1)
year from the date of issuance or the Maturity Date in effect as of the date of
issuance, whichever is earlier.

(c)           Any
request for issuance of a Letter of Credit shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2
have been satisfied as of the date of the request.

 10
 

(d)           If
a draft is submitted under a Letter of Credit when the Borrower is unable,
because a Default Period exists or for any other reason, to obtain a Revolving
Advance to pay the Obligation of Reimbursement, the Borrower shall pay to the
Lender on demand and in immediately available funds, the amount of the
Obligation of Reimbursement together with interest, accrued from the date of
the draft until payment in full at the Default Rate.  Notwithstanding the Borrower’s inability to
obtain a Revolving Advance for any reason, the Lender is irrevocably
authorized, in its sole discretion, to make a Revolving Advance in an amount
sufficient to discharge the Obligation of Reimbursement and all accrued but
unpaid interest thereon.

Section 2.4            Special
Account.  If
the Credit Facility is terminated for any reason while any Letter of Credit is
outstanding, the Borrower shall thereupon pay the Lender in immediately
available funds for deposit in the Special Account an amount equal to the L/C
Amount plus any anticipated fees and costs. 
If the Borrower fails to promptly make any such payment in the amount
required hereunder, then the Lender may make a Revolving Advance against the
Credit Facility in an amount sufficient to fulfill this obligation and deposit
the proceeds to the Special Account.  The
Special Account shall be an interest bearing account either maintained with the
Lender or with a financial institution acceptable to the Lender.  Any interest earned on amounts deposited in
the Special Account shall be credited to the Special Account.  The Lender may apply amounts on deposit in
the Special Account at any time or from time to time to the Obligations in the
Lender’s sole discretion.  The Borrower
may not withdraw any amounts on deposit in the Special Account as long as the
Lender maintains a security interest therein. 
The Lender agrees to transfer any balance in the Special Account to the
Borrower when the Lender is required to release its security interest in the
Special Account under applicable law.

Section
2.5            Interest; Default
Interest Rate; Application of Payments; Participations; Usury.

(a)           Interest.  Except as provided in Section 2.5(b) and
Section 2.5(e), the principal amount of each Advance shall bear interest at the
Floating Rate.

(b)           Default
Interest Rate.  At any time during
any Default Period, in the Lender’s sole discretion and without waiving any of
its other rights or remedies, the principal of the Revolving Note shall bear
interest at the Default Rate or such lesser rate as the Lender may determine,
effective for any periods designated by the Lender from time-to-time during the
Default Period.  The decision of the
Lender to impose a rate that is less than the Default Rate or to not impose the
Default Rate for the entire duration of the Default Period shall be made by the
Lender in its sole discretion and shall not be a waiver of any of its other
rights and remedies, including its right to retroactively impose the full
Default Rate for the entirety of any such Default Period or following the
Termination Date.

(c)           Application
of Payments.  Payments shall be applied to the
Obligations on the Business Day of receipt by the Lender in the Lender’s
general account.

(d)           Participations.  If any Person shall acquire a participation
in the Advances or the Obligation of Reimbursement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest calculated under
this Section 2.5, along with all other fees, charges and

 11
 

other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at a lower rate
than that calculated under this Section 2.5, or otherwise elects to accept less
than its prorata share of such fees, charges and other amounts due under this
Agreement.

(e)           Usury.  In any event no rate change shall be put into
effect that would result in a rate greater than the highest rate permitted by
law.  Notwithstanding anything to the
contrary contained in any Loan Document, all agreements which either now are or
which shall become agreements between the Borrower and the Lender are hereby
limited so that in no contingency or event whatsoever shall the total liability
for payments in the nature of interest, additional interest and other charges
exceed the applicable limits imposed by any applicable usury laws.  If any payments in the nature of interest,
additional interest and other charges made under any Loan Document are held to
be in excess of the limits imposed by any applicable usury laws, it is agreed
that any such amount held to be in excess shall be considered payment of
principal hereunder, and the indebtedness evidenced hereby shall be reduced by
such amount so that the total liability for payments in the nature of interest,
additional interest and other charges shall not exceed the applicable limits
imposed by any applicable usury laws, in compliance with the desires of the
Borrower and the Lender.  This provision
shall never be superseded or waived and shall control every other provision of
the Loan Documents and all agreements between the Borrower and the Lender, or
their successors and assigns.

Section
2.6            Fees.

(a)           Facility Fees.  Borrower shall pay to Lender a fee (the “Facility
Fees”) in an amount equal to one-quarter of one percent (0.25%) per annum of an
amount equal to the average daily difference between the Aggregate Outstanding
and Five Million Dollars ($5,000,000). 
To the extent the Aggregate Outstanding exceeds Five Million Dollars
($5,000,000) but is less than Seven Million Five Hundred Thousand Dollars
($7,500,000), the Facility Fees shall be determined on the average daily
difference between such Aggregate Outstanding and Seven Million Five Hundred
Thousand Dollars ($7,500,000). To the extent the Aggregate Outstanding exceeds
Seven Million Five Hundred Thousand Dollars ($7,500,000) but is less than Ten
Million Dollars ($10,000,000), the Facility Fees shall be determined on the
average daily difference between such Aggregate Outstanding and Ten Million
Dollars ($10,000,000). To the extent the Aggregate Outstanding exceeds Ten
Million Dollars ($10,000,000) but is less than Twelve Million Five Hundred
Thousand Dollars ($12,500,000), the Facility Fees shall be determined on the
average daily difference between such Aggregate Outstanding and Twelve Million
Five Hundred Thousand Dollars ($12,500,000). To the extent the Aggregate
Outstanding exceeds Twelve Million Five Hundred Thousand Dollars ($12,500,000)
but is less than Fifteen Million Dollars ($15,000,000), the Facility Fees shall
be determined on the average daily difference between such Aggregate
Outstanding and Fifteen Million Dollars ($15,000,000). To the extent the
Aggregate Outstanding exceeds Fifteen Million Dollars ($15,000,000) but is less
than Eighteen Million Dollars ($18,000,000), the Facility Fees shall be
determined on the average daily difference between such Aggregate Outstanding
and Eighteen Million Dollars ($18,000,000). To the extent the Aggregate

 12
 

Outstanding exceeds
Eighteen Million Dollars ($18,000,000) but is less than Twenty-One Million Five
Hundred Thousand Dollars ($21,500,000), the Facility Fees shall be determined
on the average daily difference between such Aggregate Outstanding and
Twenty-One Million Five Hundred Thousand Dollars ($21,500,000). To the extent
the Aggregate Outstanding exceeds Twenty-One Million Five Hundred Thousand
Dollars ($21,500,000) but is less than Twenty-Five Million Dollars ($25,000,000),
the Facility Fees shall be determined on the average daily difference between
such Aggregate Outstanding and Twenty-Five Million ($25,000,000).  To the extent the Aggregate Outstanding
exceeds Twenty- Five Million Dollars ($25,000,000) but is less than Thirty
Million Dollars ($30,000,000), the Facility Fees shall be determined on the
average daily difference between such Aggregate Outstanding and Thirty Million
($30,000,000).  To the extent the
Aggregate Outstanding exceeds Thirty Million Dollars ($30,000,000) but is less
than Thirty-Five Million Dollars ($35,000,000), the Facility Fees shall be
determined on the average daily difference between such Aggregate Outstanding
and Thirty-Five Million ($35,000,000). 
To the extent the Aggregate Outstanding exceeds Thirty-Five Million
Dollars ($35,000,000) but is less than Forty Million Dollars ($40,000,000), the
Facility Fees shall be determined on the average daily difference between such
Aggregate Outstanding and Forty Million ($40,000,000).  To the extent the Aggregate Outstanding
exceeds Forty Million Dollars ($40,000,000) but is less than Forty-Five Million
Dollars ($45,000,000), the Facility Fees shall be determined on the average
daily difference between such Aggregate Outstanding and Forty-Five Million
($45,000,000).  To the extent the
Aggregate Outstanding exceeds Forty-Five Million Dollars ($45,000,000) but is
less than Fifty Million Dollars ($50,000,000), the Facility Fees shall be
determined on the average daily difference between such Aggregate Outstanding
and Fifty Million ($50,000,000).

Such fee shall be
calculated monthly and paid in arrears commencing on the first Banking Day of
the month immediately following execution of this Agreement and continuing on
the first Banking Day of each month thereafter until Lender’s commitment to
extend the Credit has terminated pursuant to Section 2.9 or Section
7.2(a).  Borrower hereby authorizes
Lender to make an Advance, subject to Availability, in an amount equal to the
Facility Fees then due and payable and apply the same to the Facility Fees due.

(b)           Collateral Monitoring Fees.  So long as no Event of Default has occurred
and is continuing, Borrower shall pay to Lender a monthly collateral monitoring
fee of Two Hundred Fifty Dollars ($250) (the “Collateral Monitoring Fee”).  The monthly Collateral Monitoring Fee shall
be paid in arrears on the first Banking Day of each month until all of the
Obligations have been paid in full in money and the Commitment has been
terminated.  Borrower hereby authorized
Lender to make an Advance, subject to Availability, in an amount equal to the
Collateral Monitoring Fee then due and payable and apply the same to the
Collateral Monitoring Fee due.

(c)           Standby Letter of Credit Fees.  The Borrower shall pay to the Lender a fee
with respect to each standby Letter of Credit, if any, accruing on a daily
basis and computed at an

 13
 

annual rate of two  and one-half  percent (2.5%) of the
aggregate amount that may then be drawn, assuming compliance with all
conditions for drawing (the “Aggregate Face Amount”), from and including the
date of issuance of such standby Letter of Credit until such date as such
standby Letter of Credit shall terminate by its terms or be returned to the
Lender, due and payable monthly in arrears on the first day of each month and
on the date that the standby Letter of Credit shall terminate by its terms or
be returned to the Lender; provided, however, effective as of the
first day of the fiscal quarter in which any Default Period begins through the
last day of such Default Period, or any shorter time period that the Lender may
determine, in the Lender’s sole discretion and without waiving any of its other
rights and remedies, such fee shall increase to four and one-half percent
(4.5%) of the Aggregate Face Amount.  The
foregoing fee shall be in addition to any and all fees, commissions and charges
imposed by Lender with respect to or in connection with such standby Letter of
Credit.

(d)           Documentary
Letter of Credit Fees.  The Borrower
agrees to pay the Lender fees with respect to each documentary Letter of Credit
in accordance with the negotiated fee schedule with respect to documentary
Letters of Credit.

(e)           Letter of Credit Administrative
Fees.  The Borrower shall pay all
administrative fees charged by Lender in connection with the honoring of drafts
under any Letter of Credit, amendments thereto, transfers thereof and all other
activity with respect to the Letters of Credit at the then — current rates
published by Lender for such services rendered on behalf of customers of Lender
generally.

(f)            Other
Fees and Charges; Payment of Fees. 
The Lender may from time to time impose additional fees and charges as
consideration for Advances made in excess of Availability or for other events
that constitute an Event of Default or a Default hereunder, including fees and
charges for the administration of Collateral by the Lender, which may be
assessed in the Lender’s sole discretion on either an hourly, periodic, or flat
fee basis, and in lieu of or in addition to imposing interest at the Default
Rate.

Section 2.7            Time
for Interest Payments; Payment on Non-Business Days; Computation of Interest
and Fees.

(a)           Time For Interest Payments.  Accrued and unpaid interest  shall be due and payable on the first day of
each month and on the Termination Date (each an “Interest Payment Date”), or if
any such day is not a Business Day, on the next succeeding Business Day.
Interest will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of advance to the Interest
Payment Date.  If an Interest Payment
Date is not a Business Day, payment shall be made on the next succeeding
Business Day.

(b)           Payment on Non-Business Days.  Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Business Day, such payment
may be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of interest on the Advances
or the fees hereunder, as the case may be.

 14
 

(c)           Computation of Interest and Fees.  Interest accruing on the outstanding
principal balance of the Advances and fees hereunder outstanding from time to
time shall be computed on the basis of actual number of days elapsed in a year
of 360 days.

Section 2.8            Lockbox
and Collateral Account; Sweep of Funds.

(a)           Lockbox and Collateral Account.

(i)            (A) 
At any time Revolving Advances are outstanding, or (B) at any time that
a Default or Event of Default has occurred and is continuing, or (C) at any
time that the Lender notifies the Borrower in writing that Lender deems the
Collateral to be insufficient to support the Obligations of the Borrower,  the Borrower shall deposit all checks,
drafts, cash and other remittances in payment or as proceeds of, or on account
of Collateral regardless of source or nature directly into the Collateral
Account and, until so deposited, the Borrower shall hold all such payments and
cash proceeds in trust for and as the property of the Lender and shall not
commingle such property with any of its other funds or property.  All deposits in the Collateral Account shall
constitute proceeds of Collateral and shall not constitute payment of the
Obligations.

(ii)           All items deposited in the Collateral
Account shall be subject to final payment. 
If any such item is returned uncollected, the Borrower will immediately
pay the Lender, or, for items deposited in the Collateral Account, the bank
maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower’s commercial account
or other account.  The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account, whether
or not in fact endorsed by the Borrower.

(b)           Sweep of Funds. 
The Lender shall from time to time, in accordance with the Wholesale
Lockbox and Collection Account Agreement, cause funds in the Collateral Account
to be transferred to the Lender’s general account for payment of the
Obligations.  Amounts deposited in the
Collateral Account shall not be subject to withdrawal by the Borrower, except
after payment in full and discharge of all Obligations.

Section 2.9            Voluntary Prepayment; Reduction of the Maximum Line
Amount; Termination of the Credit Facility by the Borrower.  Except as otherwise provided herein, the
Borrower may prepay the Advances and Obligation of Reimbursement in whole at
any time or from time to time in part. 
The Borrower may terminate the Credit Facility or reduce the Maximum
Line Amount at any time if it  gives the
Lender at least 45 days advance written notice prior to the proposed
Termination Date.  Any reduction in the
Maximum Line Amount shall be in multiples of $100,000   and with a minimum
reduction of at least $500,000.   If the Borrower terminates the Credit
Facility or reduces the Maximum Line Amount to zero, all Obligations shall be
due and payable on the effective date of the termination as stated in Borrower’s
notice, and if the Borrower gives the Lender less than the required 45 days
advance written notice, then the interest rate applicable to borrowings
evidenced by Revolving Note shall be the Default Rate for the period of time
commencing 45 days prior to the proposed Termination Date through the date that
the Lender actually receives such written notice.  If the Borrower does not wish the Lender to
consider renewal of the Credit Facility on the next Maturity Date, then the
Borrower

 15
 

shall give the Lender at least 45 days written notice prior
to the Maturity Date that it will not be requesting renewal.  If the Borrower fails to give the Lender such
timely notice, then the interest rate applicable to borrowings evidenced by the
Revolving Note shall be the Default Rate for the period of time commencing 45
days prior to the Maturity Date through the date that the Lender actually
receives such written notice.  Upon
termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and
the Security Documents.

Section 2.10         Mandatory
Prepayment.  Without notice or demand, if
the sum of the outstanding principal balance of the Revolving Advances  plus the L/C Amount  shall at any time exceed the
Borrowing Base, the Borrower shall (i) first, immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess; and (ii) if
prepayment in full of the Revolving Advances is insufficient to eliminate such
excess, pay to the Lender in immediately available funds for deposit in the
Special Account an amount equal to the remaining excess.  Any payment received by the Lender hereunder
or under Section 2.9 may be applied to the Obligations, in such order and in
such amounts as the Lender in its sole discretion may determine from time to
time.

Section 2.11         Revolving Advances to Pay Obligations.  Notwithstanding the terms of Section 2.1, the Lender may,
in its discretion at any time or from time to time, without the Borrower’s
request and even if the conditions set forth in Section 4.2 would not be
satisfied, make a Revolving Advance in an amount equal to the portion of the
Obligations from time to time due and payable
and may deliver the proceeds of any such Revolving Advance to any
affiliate of the Lender in satisfaction of any Wells Fargo Affiliate
Obligations.

Section 2.12         Use
of Proceeds.  The Borrower shall use the
proceeds of Advances and each Letter of Credit for ordinary working capital and
other general lawful corporate purposes.

Section 2.13         Liability
Records.  The Lender may maintain from
time to time, at its discretion, records as to the Obligations.  All entries made on any such record shall be
presumed correct until the Borrower establishes the contrary.  Upon the Lender’s demand, the Borrower will
admit and certify in writing the exact principal balance of the Obligations
that the Borrower then asserts to be outstanding.  Any billing statement or accounting rendered
by the Lender shall be conclusive and fully binding on the Borrower unless the
Borrower gives the Lender specific written notice of exception within 45 days
after receipt.

ARTICLE III

SECURITY INTEREST; OCCUPANCY; SETOFF

Section 3.1            Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender, for the benefit of itself and as agent for
any affiliate of the Lender that may provide credit or services to the Borrower
that constitute Wells Fargo Affiliate Obligations, a lien and security interest
(collectively referred to as the “Security Interest”) in the Collateral, as
security for the payment and performance of the Obligations. Upon request by
the Lender, the Borrower will grant the Lender, for the benefit of itself and
as agent for any affiliate of the Lender that may provide credit or services to
the Borrower that constitute Wells Fargo Affiliate

 16
 

Obligations,  a
security interest in all commercial tort claims that the Borrower may have
against any Person.  The security
interests granted by the Borrower to the Lender under this Agreement are in
addition to, and shall be consolidated with, the liens and security interests
granted by the Borrower to the Lender under the 1999 Credit Agreement and any
other prior security agreement, mortgage or other document, without affecting
the lien, priority or effectiveness of those prior liens, security interests
and agreements.

Section 3.2            Notification
of Account Debtors and Other Obligors. 
The
Lender may at any time during a Default Period notify any account debtor or
other Person obligated to pay the amount due that such right to payment has
been assigned or transferred to the Lender for security and shall be paid directly
to the Lender.  The Borrower will join in
giving such notice if the Lender so requests. 
At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, after ten (10) days’ written notice to the
Borrower, the Lender may, but need not, in the Lender’s name or in the Borrower’s
name, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.

Section
3.3            Assignment of Insurance.  As additional security for
the payment and performance of the Obligations, the Borrower hereby assigns to
the Lender any and all monies (including proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the
Lender.  At any time, whether or not a
Default Period then exists, the Lender may (but need not), in the Lender’s name
or in the Borrower’s name, execute and deliver proof of claim, receive all such
monies, endorse checks and other instruments representing payment of such
monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.  Any monies
received as payment for any loss under any insurance policy mentioned above (other
than liability insurance policies) or as payment of any award or compensation
for condemnation or taking by eminent domain, shall be paid over to the Lender
to be applied, at the option of the Lender, either to the prepayment of the
Obligations or shall be disbursed to the Borrower under staged payment terms
reasonably satisfactory to the Lender for application to the cost of repairs,
replacements, or restorations.  Any such
repairs, replacements, or restorations shall be effected with reasonable promptness
and shall be of a value at least equal to the value of the items or property
destroyed prior to such damage or destruction.

Section 3.4            Occupancy.(a)      The Borrower hereby irrevocably grants to the Lender the right
to take possession of the at any time during a Default Period notice .

(b)           The Lender may use the Premises only
to hold, process, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the Lender may
in good faith deem to be related or incidental purposes.

 17
 

(c)           The Lender’s right to use the
Premises shall cease and terminate upon the earlier of (i) payment in full and
discharge of all Obligations and termination of the Credit Facility, and (ii)
final sale or disposition of all goods constituting Collateral and delivery of
all such goods to purchasers.

(d)           The Lender shall not be obligated to
pay or account for any rent or other compensation for the occupancy or use of
any of the Premises; provided, however, that if the Lender does
pay or account for any rent or other compensation for the occupancy or use of
any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof.  In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees, duties,
imposts, charges and expenses at any time incurred by or imposed upon the
Lender by reason of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the provisions of this Section
3.4.

Section 3.5            License.  Without limiting the
generality of any other Security Document, the Borrower hereby grants to the
Lender a non-exclusive, worldwide and royalty-free license to use or otherwise
exploit all Intellectual Property Rights of the Borrower for the purpose of
selling, leasing or otherwise disposing of any or all Collateral during any
Default Period.

Section 3.6            Financing
Statement.  The Borrower authorizes the
Lender to file from time to time, such financing statements against collateral
described as “all personal property” or “all assets” or describing specific
items of collateral including commercial tort claims as the Lender deems
necessary or useful to perfect the Security Interest.  All financing statements filed before the
date hereof to perfect the Security Interest were authorized by the Borrower
and are hereby re-authorized.  A carbon,
photographic or other reproduction of this Agreement or of any financing
statements signed by the Borrower is sufficient as a financing statement and
may be filed as a financing statement in any state to perfect the security
interests granted hereby.  For this
purpose, the Borrower represents and warrants that the following information is
true and correct:

Name and address of Debtors: 

Christopher & Banks, Inc.

2400 Xenium Lane

Plymouth, Minnesota 55441

State Organizational
Identification No. 1B-321

Christopher & Banks Company

2400 Xenium Lane

Plymouth, Minnesota 55441

State Organizational
Identification No. 11X-528

Christopher & Banks Services Company

2400 Xenium Lane

Plymouth, Minnesota 55441

State Organizational
Identification No. 1081636-2

 18
 

Name and address of Secured
Party:

Wells Fargo Business Credit

MAC 9312-040

Sixth & Marquette Street

Minneapolis, MN  55429

Section 3.7            Setoff.  The Lender may at any time or from time to time, at its
sole discretion and without demand and without notice to anyone, setoff any
liability owed to the Borrower by the Lender, whether or not due, against any
Obligation, whether or not due.  In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed by such Person to the Borrower, whether or not due, and apply the
same to the payment of said participating interest, as fully as if such Person
had lent directly to the Borrower the amount of such participating
interest.  Lender agrees to provide
Borrower with prompt notice after exercising its rights under this Section 3.7.

Section 3.8            Collateral.  This Agreement does not
contemplate a sale of accounts, contract rights or chattel paper, and, as
provided by law, the Borrower is entitled to any surplus and shall remain
liable for any deficiency.  The Lender’s
duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third Person, exercises reasonable care in the selection of the
bailee or other third Person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. 
The Lender shall not be obligated to preserve any rights the Borrower
may have against prior parties, to realize on the Collateral at all or in any
particular manner or order or to apply any cash proceeds of the Collateral in
any particular order of application.  The
Lender has no obligation to clean up or otherwise prepare the Collateral for
sale.  The Borrower waives any right it
may have to require the Lender to pursue any third Person for any of the
Obligations.

ARTICLE IV

CONDITIONS OF LENDING

Section
4.1            Conditions Precedent to
the Initial Advances and Letter of Credit. 
The
Lender’s obligation to make the initial Advances or to cause any Letters of
Credit to be issued  shall
be subject to the condition precedent that the Lender shall have received all
of the following, each properly executed by the appropriate party and in form
and substance satisfactory to the Lender:

(a)           This Agreement.

(b)           The Revolving Note.

(c)           A Standby Letter of Credit Agreement and a Commercial
Letter of Credit Agreement, and L/C Application for each Letter of Credit that
the Borrower wishes to have issued thereunder.

 19

(d)           A complete and accurate list of all
stores operated by the Borrower, with the following information for each such
location:  store number, address, and
telephone number, name of landlord and, if applicable, property manager,
together with such landlord’s and property manager’s address.

(e)           A true and correct copy of any and
all agreements pursuant to which the Borrower’s property is in the possession
of any Person other than the Borrower, together with, in the case of any goods
held by such Person for resale, (i) a consignee’s acknowledgment and waiver of
Liens, (ii) UCC financing statements sufficient to protect the Borrower’s and
the Lender’s interests in such goods, and (iii) UCC searches showing that no
other secured party has filed a financing statement against such Person and
covering property similar to the Borrower’s other than the Borrower, or if
there exists any such secured party, evidence that each such secured party has
received notice from the Borrower and the Lender sufficient to protect the
Borrower’s and the Lender’s interests in the Borrower’s goods from any claim by
such secured party.

(f)            An acknowledgment and waiver of
Liens from each warehouse in which the Borrower is storing Inventory.

(g)           A true and correct copy of any and
all agreements pursuant to which the Borrower’s property is in the possession
of any Person other than the Borrower, together with, (i) an acknowledgment and
waiver of Liens from each subcontractor who has possession of the Borrower’s
goods from time to time, (ii) UCC financing statements sufficient to protect
the Borrower’s and the Lender’s interests in such goods, and (iii) UCC searches
showing that no other secured party has filed a financing statement covering
such Person’s property other than the Borrower, or if there exists any such
secured party, evidence that each such secured party has received notice from
the Borrower and the Lender sufficient to protect the Borrower’s and the Lender’s
interests in the Borrower’s goods from any claim by such secured party.

(h)           The Wholesale Lockbox and Collection
Account Agreement.

(i)            Current searches of appropriate
filing offices showing that (i) no Liens have been filed and remain in effect
against the Borrower except Permitted Liens or Liens held by Persons who have
agreed in writing that upon receipt of proceeds of the initial Advances, they
will satisfy, release or terminate such Liens in a manner satisfactory to the
Lender, and (ii) the Lender has duly filed all financing statements necessary
to perfect the Security Interest, to the extent the Security Interest is
capable of being perfected by filing.

(j)            A certificate of the Borrower’s
Secretary or Assistant Secretary certifying that attached to such certificate
are (i) the resolutions of the Borrower’s Directors and, if required, Owners,
authorizing the execution, delivery and performance of the Loan Documents, (ii)
true, correct and complete copies of the Borrower’s Constituent Documents, and
(iii) examples of the signatures of the Borrower’s Officers or agents authorized
to execute and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower’s behalf.

 20
 

(k)           A current certificate issued by the
Secretary of State of Minnesota, certifying that each Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.

(l)            Evidence that the Borrower is duly
licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary.

(m)          A certificate of an Officer of the
Borrower confirming, in his personal capacity, the representations and
warranties set forth in Article V.

(n)           Certificates of the insurance
required hereunder, with all hazard insurance containing a lender’s loss
payable endorsement in the Lender’s favor and with all liability insurance
naming the Lender as an additional insured.

(o)           The separate Guaranty of each
Guarantor, pursuant to which each Guarantor unconditionally guarantees the full
and prompt payment of all Obligations, together with the Guarantor Security
Agreement.

(p)           A certificate of the Guarantor’s
Secretary or Assistant Secretary certifying that attached to such certificate
are (i) the resolutions of the Guarantor’s Directors authorizing the execution,
delivery and performance of the Loan Documents to which the Guarantor is a
party, (ii) true, correct and complete copies of the Guarantor’s Constituent
Documents, and (iii) examples of the signatures of the Guarantor’s Officers or
agents authorized to execute and deliver the Loan Documents to which the
Guarantor is a party and other instruments, agreements and certificates,
including Advance requests, on the Borrower’s behalf.

(q)           An opinion of counsel to each
Borrower and the Guarantor, addressed to the Lender.

(r)            Payment of the fees and commissions
due under Section 2.6 through the date of the initial Advance or Letter of
Credit and expenses incurred by the Lender through such date and required to be
paid by the Borrower under Section 8.5, including all legal expenses incurred
through the date of this Agreement.

(s)           Such other documents as the Lender in
its sole discretion may require.

Section 4.2            Conditions
Precedent to All Advances and Letters of Credit.  The Lender’s obligation to
make each Advance or to cause the issuance of a Letter of Credit shall be
subject to the further conditions precedent that:

(a)           the representations and warranties
contained in Article V are correct on and as of the date of such Advance or
issuance of a Letter of Credit as though made on and as of such date, except to
the extent that such representations and warranties relate solely to an earlier
date; and

(b)           no event has occurred and is continuing,
or would result from such Advance or issuance of a Letter of Credit that
constitutes a Default or an Event of Default.

 21
 

ARTICLE V

REPRESENTATIONS AND WARRANTIES

Each
Borrower each represents and warrants to the Lender as follows:

Section 5.1            Existence
and Power; Name; Chief Executive Office; Inventory and Equipment Locations;
Federal Employer Identification Number and Organizational Identification Number.  The Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary.  The Borrower
has all requisite power and authority to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents.  During its
existence, the Borrower has done business solely under the names set forth in
Schedule 5.1.  The Borrower’s chief
executive office and principal place of business is located at the address set
forth in Schedule 5.1, and all of the Borrower’s records relating to its
business or the Collateral are kept at that location.  All Inventory and Equipment is located at
that location or at one of the other locations listed in Schedule 5.1.  The Borrower’s federal employer
identification number and organization identification number are correctly set
forth in Section 3.6.

Section 5.2            Capitalization.  There are no rights to
acquire ownership interests which if fully exercised would cause such Person to
hold more than five percent (5%) of all ownership interests of the Borrower on
a fully diluted basis.

Section 5.3            Authorization
of Borrowing; No Conflict as to Law or Agreements.  The execution, delivery and
performance by the Borrower of the Loan Documents and the borrowings from time
to time hereunder have been duly authorized by all necessary corporate action
and do not and will not (i) require any consent or approval of the Borrower’s
Owners; (ii) require any authorization, consent or approval by, or
registration, declaration or filing with, or notice to, any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any third party, except such authorization, consent, approval,
registration, declaration, filing or notice as has been obtained, accomplished
or given prior to the date hereof; (iii) violate any provision of any law, rule
or regulation (including Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in effect
having applicability to the Borrower or of the Borrower’s Constituent
Documents; (iv) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other material agreement, lease or
instrument to which the Borrower is a party or by which it or its properties
may be bound or affected; or (v) result in, or require, the creation or
imposition of any Lien (other than the Security Interest) upon or with respect
to any of the properties now owned or hereafter acquired by the Borrower.

Section
5.4            Legal Agreements.  This Agreement constitutes
and, upon due execution by the Borrower, the other Loan Documents will
constitute the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.

 22
 

Section 5.5            Subsidiaries.  Christopher & Banks,
Inc.  has one Subsidiary, Christopher
& Banks Company.  Christopher &
Banks Company has one Subsidiary, Christopher & Banks Services
Company.  There are no rights to acquire
ownership interests which if fully exercised would cause such Person to hold
more than five percent (5%) of all ownership interests of the Borrower on a
fully diluted basis.  Borrower will
provide Lender not less than thirty (30) days’ notice prior to the creation of
any new Subsidiary, provided further that such Subsidiary shall immediately
execute and deliver to Lender a guaranty in favor of the Lender, in form and
substance satisfactory to the Lender, guaranteeing the Obligations of the
Borrower, or, at Lender’s discretion, such Subsidiary shall become a Borrower.

Section 5.6            Financial
Condition; No Adverse Change.  The Borrower has furnished
to the Lender its audited financial statements for its fiscal year ended
February 26, 2005, and unaudited financial statements for the
fiscal-year-to-date period ended August 27, 2005, and those statements fairly
present the Borrower’s financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared
in accordance with GAAP.  Since the date
of the most recent financial statements, there has been no material adverse  change in the Borrower’s
business, properties or condition (financial or otherwise).

Section 5.7            Litigation.  There are no actions, suits
or proceedings pending or, to the Borrower’s knowledge, threatened against or
affecting the Borrower or any of its Affiliates or the properties of the
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.

Section 5.8            Regulation
U.  The Borrower is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.

Section 5.9            Taxes.  The Borrower and its
Affiliates have paid or caused to be paid to the proper authorities when due
all federal, state and local taxes required to be withheld by each of
them.  The Borrower and its Affiliates
have filed all federal, state and local tax returns which to the knowledge of
the Officers of the Borrower or any Affiliate, as the case may be, are required
to be filed, and the Borrower and its Affiliates have paid or caused to be paid
to the respective taxing authorities all taxes as shown on said returns or on
any assessment received by any of them to the extent such taxes have become
due.

Section 5.10         Titles
and Liens.  The Borrower has good and
marketable title to all Collateral free and clear of all Liens other than
Permitted Liens.  No financing statement
naming the Borrower as debtor is on file in any office except to perfect only
Permitted Liens.

Section 5.11         Intellectual
Property Rights.  Schedule 5.11 is a complete
list of all patents, applications for patents, trademarks, applications to
register trademarks, service marks, applications to register service marks,
mask works, trade dress and copyrights for which the

 23
 

Borrower is the
owner of record (the “Owned Intellectual Property”).  Except as disclosed on Schedule 5.11, (i) the
Borrower owns the Owned Intellectual Property free and clear of all
restrictions (including covenants not to sue a third party), court orders,
injunctions, decrees, writs or Liens, whether by written agreement or
otherwise, (ii) no Person other than the Borrower owns or has been granted any
right in the Owned Intellectual Property, (iii) all Owned Intellectual Property
is valid, subsisting and enforceable and (iv) the Borrower has taken all
commercially reasonable action necessary to maintain and protect the Owned
Intellectual Property.

Section 5.12         Plans.  Except as disclosed to the
Lender in writing prior to the date hereof, neither the Borrower nor any ERISA
Affiliate (i) maintains or has maintained any Pension Plan, (ii) contributes or
has contributed to any Multiemployer Plan or (iii) provides or has provided
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required under Section 601 of ERISA,
Section 4980B of the IRC or applicable state law).  Neither the Borrower nor any ERISA Affiliate
has received any notice or has any knowledge to the effect that it is not in
full compliance with any of the requirements of ERISA, the IRC or applicable
state law with respect to any Plan.  No
Reportable Event exists in connection with any Pension Plan.  Each Plan that is intended to qualify under
the IRC is so qualified, and no fact or circumstance exists which may have an
adverse effect on the Plan’s tax-qualified status.  Neither the Borrower nor any ERISA Affiliate
has (i) any accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the IRC) under any Plan, whether or not waived, (ii) any
liability under Section 4201 or 4243 of ERISA for any withdrawal, partial
withdrawal, reorganization or other event under any Multiemployer Plan or (iii)
any liability or knowledge of any facts or circumstances which could result in
any liability to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or any participant in connection with any Plan
(other than routine claims for benefits under the Plan).

Section 5.13         Default.  The Borrower is in
compliance with all provisions of all agreements, instruments, decrees and
orders to which it is a party or by which it or its property is bound or
affected, the breach or default of which could have a material adverse effect
on the Borrower’s financial condition, properties or operations.

Section
5.14         Environmental Matters.

(a)           Except as disclosed on Schedule 5.14,
to the best of Borrower’s knowledge, (i) there are not present in, on or under
the Borrower’s headquarters at 2400 Xenium Lane North, Plymouth, Minnesota any
Hazardous Substances in such form or quantity as to create any material
liability or obligation for either the Borrower or the Lender under the common
law of any jurisdiction or under any Environmental Law, and (ii) no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Borrower’s headquarters at 2400 Xenium Lane
North, Plymouth, Minnesota in such a way as to create any such material
liability.

(b)           Except as disclosed on Schedule 5.14,
to the best of Borrower’s knowledge, the Borrower has not disposed of Hazardous
Substances in such a manner as to create any material liability under any
Environmental Law.

 24
 

(c)           Except as disclosed on Schedule 5.14,
to the best of Borrower’s knowledge, there are no threatened or impending
requests, claims, notices, investigations, demands, administrative proceedings,
hearings or litigation relating in any way to the Borrower’s headquarters at
2400 Xenium Lane North, Plymouth, Minnesota or the Borrower, alleging material
liability under, violation of, or noncompliance with any Environmental Law or
any license, permit or other authorization issued pursuant thereto.

(d)           Except as disclosed on Schedule 5.14,
to the best of Borrower’s knowledge, the Borrower’s businesses are and have in
the past always been conducted in accordance with all Environmental Laws and
all licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient operation of such
businesses are in the Borrower’s possession and are in full force and effect,
nor has the Borrower been denied insurance on grounds related to potential
environmental liability.  No permit
required under any Environmental Law is scheduled to expire within 12 months
and there is no threat that any such permit will be withdrawn, terminated,
limited or materially changed.

(e)           Except as disclosed on Schedule 5.14,
to the best of Borrower’s knowledge, the Borrower’s headquarters at 2400 Xenium
Lane North, Plymouth, Minnesota has not and has never been listed on the
National Priorities List, the Comprehensive Environmental Response,
Compensation and Liability Information System or any similar federal, state or
local list, schedule, log, inventory or database.

(f)            The Borrower has delivered to the
Lender all environmental assessments, audits, reports, permits, licenses and
other documents describing or relating in any way to the Borrower’s
headquarters at 2400 Xenium Lane North, Plymouth, Minnesota or the Borrower’s
businesses.

Section 5.15         Submissions
to Lender.  All financial and other
information provided to the Lender by or on behalf of the Borrower in
connection with the Borrower’s request for the credit facilities contemplated
hereby (i) is true and correct in all material respects, (ii) does not omit any
material fact necessary to make such information not misleading and, (iii) as
to projections, valuations or proforma financial statements, presents a good
faith opinion as to such projections, valuations and proforma condition and results.

Section 5.16         Financing Statements. 
The
Borrower has authorized the filing of financing statements sufficient when
filed to perfect the Security Interest and the other security interests created
by the Security Documents.  When such
financing statements are filed in the offices noted therein, the Lender will
have a valid and perfected security interest in all Collateral that is capable
of being perfected by filing financing statements.  None of the Collateral is or will become a
fixture on real estate, unless a sufficient fixture filing is in effect with
respect thereto.

Section
5.17       Rights to Payment.  Each right to payment and
each instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or, in the case of all future Collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower’s records pertaining thereto as being
obligated to pay such obligation.

 25
 

ARTICLE VI

COVENANTS

So long as the Obligations shall remain unpaid, or the
Credit Facility shall remain outstanding, the Borrower will comply with the
following requirements, unless the Lender shall otherwise consent in writing:

Section 6.1            Reporting
Requirements.  The Borrower will deliver,
or cause to be delivered, to the Lender each of the following, which shall be
in form and detail acceptable to the Lender, provided that all financial
statements required to be submitted by the Borrower shall be submitted on an
unconsolidated basis as well as on a consolidated basis including Borrower and
Guarantor:

(a)           Annual Financial Statements.  As soon as available, and in any event within
120 days after the end of each fiscal year of the Borrower, the Borrower’s
audited financial statements with the unqualified opinion of independent
certified public accountants selected by the Borrower and acceptable to the
Lender, which annual financial statements shall include the Borrower’s balance
sheet as at the end of such fiscal year and the related statements of the
Borrower’s income, retained earnings and cash flows for the fiscal year then
ended, prepared, if the Lender so requests, on a consolidating and consolidated
basis to include any Affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; and (ii) a certificate of the Borrower’s chief
financial officer stating that such financial statements have been prepared in
accordance with GAAP, fairly represent the Borrower’s financial position and
the results of its operations, and whether or not such Officer has knowledge of
the occurrence of any Default or Event of Default and, if so, stating in
reasonable detail the facts with respect thereto.

(b)           Monthly Financial Statements.  As soon as available and in any event within
20 days after the end of each month, the unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the end of and
for such month and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the figures
for the corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end audit adjustments and which fairly
represent the Borrower’s financial position and the results of its operations;
and accompanied by a certificate of the Borrower’s chief financial officer,
substantially in the form of Exhibit B hereto stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end
audit adjustments, and fairly represent the Borrower’s financial position and
the results of its operations, (ii) whether or not such Officer has knowledge
of the occurrence of any Default or Event of Default not theretofore reported
and remedied and, if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
Financial Covenants.

(c)           Collateral Reports.  Within twenty (20) days after the end of each
moth or more frequently if the Lender so requires, agings of the Borrower’s
accounts receivable and its accounts payable, and within fifteen (15) days
after the end of each month, an inventory

 26
 

certification
report, and a calculation of the Borrower’s Accounts, Inventory, Eligible
Inventory and Eligible In-Transit Inventory as of each month, or more
frequently as the Lender requires.

(d)           Projections.  No later than forty-five (45) days after the
last day of each fiscal year, the Borrower’s projected balance sheets, income
statements, statements of cash flow and projected Availability for each month
of the succeeding fiscal year, each in reasonable detail.  Such items will be certified by the Officer
who is the Borrower’s chief financial officer as being the most accurate
projections available and identical to the projections used by the Borrower for
internal planning purposes and be delivered with a statement of underlying
assumptions and such supporting schedules and information as the Lender may in
its discretion require.

(e)           Litigation.  Immediately after the commencement thereof,
notice in writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower (i) of the type
described in Section 5.14(c) or (ii) which seek a monetary recovery against the
Borrower in excess of $500,000.

(f)            Defaults.  When any Officer of the Borrower becomes
aware of the occurrence of any Default or Event of Default, and no later than
five (5) business days after such Officer becomes aware of such Default or
Event of Default, notice of such occurrence, together with a detailed statement
by a responsible Officer of the Borrower of the steps being taken by the
Borrower to cure the effect thereof.

(g)           Plans.  As soon as possible, and in any event within
30 days after the Borrower knows or has reason to know that any Reportable
Event with respect to any Pension Plan has occurred, a statement signed by the
Officer who is the Borrower’s chief financial officer setting forth details as
to such Reportable Event and the action which the Borrower proposes to take
with respect thereto, together with a copy of the notice of such Reportable
Event to the Pension Benefit Guaranty Corporation.  As soon as possible, and in any event within
10 days after the Borrower fails to make any quarterly contribution required
with respect to any Pension Plan under Section 412(m) of the IRC, the Borrower
will deliver to the Lender a statement signed by the Officer who is the
Borrower’s chief financial officer setting forth details as to such failure and
the action which the Borrower proposes to take with respect thereto, together
with a copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation.  As
soon as possible, and in any event within ten days after the Borrower knows or
has reason to know that it has or is reasonably expected to have any liability
under Sections 4201 or 4243 of ERISA for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan, the Borrower will
deliver to the Lender a statement of the Borrower’s chief financial officer
setting forth details as to such liability and the action which the Borrower
proposes to take with respect thereto.

(h)           Officers.  Promptly upon knowledge thereof, notice of
the termination of employment of William Prange, Chief Executive Officer of
Christopher & Banks, Inc., Joseph Pennington, President of Christopher
& Banks, Inc., or Andrew Moller, Chief Financial Officer of Christopher
& Banks, Inc.

 27
 

(i)            Collateral.  Promptly upon knowledge thereof, notice of
any loss of or material damage to any Collateral or of any substantial adverse
change in any Collateral or the prospect of payment thereof.

(j)            Commercial Tort Claims.  Promptly upon knowledge thereof, notice of
any commercial tort claims it may bring against any Person, including the name
and address of each defendant, a summary of the facts, an estimate of the
Borrower’s damages, copies of any complaint or demand letter submitted by the
Borrower, and such other information as the Lender may request.

(k)           Intellectual Property.

(i)            30 days prior written notice of
Borrower’s intent to acquire material Intellectual Property Rights; except for
transfers permitted under Section 6.16, the Borrower will give the Lender 30
days prior written notice of its intent to dispose of material Intellectual
Property Rights and upon request shall provide the Lender with copies of all
proposed documents and agreements concerning such rights.

(ii)           Promptly upon knowledge thereof,
notice of (A) any Infringement of its Intellectual Property Rights by others,
(B) claims that the Borrower is Infringing another Person’s Intellectual
Property Rights and (C) any threatened cancellation, termination or material
limitation of its Intellectual Property Rights.

(iii)          Promptly upon receipt, copies of all
material registrations and filings with respect to its Intellectual Property
Rights.

(l)            Reports to Shareholders.  Promptly upon their distribution, copies of
all financial statements, reports and proxy statements which the Guarantor
shall have sent to its shareholders.

(m)          SEC Filings.  If Lender so requests, promptly after the
sending or filing thereof, copies of all regular and periodic reports which the
Guarantor shall file with the Securities and Exchange Commission or any
national securities exchange.

(n)           Violations of Law.  Promptly upon knowledge thereof, notice of
the Borrower’s violation of any law, rule or regulation, the non-compliance
with which could materially and adversely affect the financial condition,
properties or operations of the Borrower.

(o)           Other Reports.  From time to time, with reasonable
promptness, any and all receivables schedules, inventory reports, collection
reports, deposit
records, equipment schedules, copies of invoices to account debtors and such
other material, reports, records or information as the Lender may request.

Section 6.2            Financial
Covenants.  The following financial
covenants shall be calculated on a consolidated basis including the Borrower
and the Guarantor:

(a)           Minimum Cash Flow;
Minimum Cash on Hand.  The Borrower will
maintain on a rolling twelve-month basis, determined as at the end of each
fiscal quarter, Cash Flow at or above $0. 
Notwithstanding the foregoing, in the event the Borrower fails to
maintain the

 28
 

required level of
Cash Flow set forth in the foregoing sentence, such failure will not constitute
an Event of Default hereunder if the sum of Borrower’s cash, cash equivalents
and short-term investments (as determined in accordance with GAAP) as of the
end of such measurement prior equals or exceeds the following amounts during
the periods set forth opposite such amounts:

	
  Period

  	
   

  	
  Minimum Cash, Cash Equivalents

  and Short-Term Investments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  End of
  first fiscal quarter

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  End of second fiscal quarter

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  End of
  third fiscal quarter

  	
   

  	
  $

  	
  10,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  End of fourth fiscal quarter

  	
   

  	
  $

  	
  25,000,000

  	
   

  

 

(b)           Minimum Inventory Turns Ratio.  The Borrower will maintain, on a rolling
twelve-month basis, determined as at the end of each fiscal quarter, an
Inventory Turns Ratio of not less than 3.0 to 1.0.

Section 6.3            Permitted
Liens; Financing Statements.

(a)           The Borrower will not create, incur
or suffer to exist any Lien upon or of any of its assets, now owned or
hereafter acquired, to secure any indebtedness; excluding, however,
from the operation of the foregoing, the following (each a “Permitted Lien”;
collectively, “Permitted Liens”):

(i)            In the case of any of the Borrower’s
property which is not Collateral, covenants, restrictions, rights, easements
and minor irregularities in title which do not materially interfere with the
Borrower’s business or operations as presently conducted;

(ii)           Liens in existence on the date hereof
and listed in Schedule 6.3 hereto, securing indebtedness for borrowed money
permitted under Section 6.4;

(iii)          The Security Interest and Liens
created by the Security Documents and other liens in favor of the Lender or the
Lender’s affiliates;

(iv)          Purchase money Liens relating to
indebtedness or capitalized lease obligations for the acquisition of machinery
and equipment of the Borrower not exceeding the lesser of cost or fair market
value thereof and so long as no Default Period is then in existence and none
would exist immediately after such acquisition;

(v)           mortgages, pledges, liens or security
interests in that certain real property located at 2400 Xenium Lane North,
Plymouth, Minnesota, provided, however, that Borrower shall have obtained the
prior written consent of Lender, which consent shall not be unreasonably
withheld, and provided that there is not an Event of Default;

 29
 

(vi)          Liens on property or assets acquired
pursuant to a permitted acquisition under Section 6.17 provided that such Liens
do not attach to any other asset of the Borrower or any of its Subsidiaries;

(vii)         Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;

(viii)        Liens
encumbering leasehold improvements and fixtures granted in favor of Borrower’s
landlords pursuant to leases;

(ix)           inchoate Liens for taxes, assessments
or governmental charges or levies not yet due or Liens for taxes, assessments
or governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP; and

(x)            Liens
in respect of property or assets of any Borrower imposed by law, which were
incurred in the ordinary course of business and do not secure Indebtedness for
borrowed money, such as carriers’, warehousemen’s, materialmen’s and mechanics’
liens and other similar Liens arising in the ordinary course of business, and
(i) which do not in the aggregate materially detract from the value of any of
Borrower’s property or assets or materially impair the use thereof in the
operation of the business of Borrower or (ii) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien.

(b)           The Borrower will not amend any
financing statements in favor of the Lender except as permitted by law.  Any authorization by the Lender to any Person
to amend financing statements in favor of the Lender shall be in writing.

Section 6.4            Indebtedness.  The Borrower will not incur,
create, assume or permit to exist any indebtedness or liability on account of
deposits or advances or any indebtedness for borrowed money or letters of
credit issued on the Borrower’s behalf, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:

(a)           Indebtedness arising hereunder;

(b)           Indebtedness of the Borrower in
existence on the date hereof and listed in Schedule 6.4 hereto;

(c)           Indebtedness relating to Permitted
Liens;

(d)           Trade
debt owed to vendors incurred in the ordinary course of business.

Section 6.5            Guaranties.  The Borrower will not
assume, guarantee, endorse or otherwise become directly or contingently liable
in connection with any obligations of any other Person, except:

 30
 

(a)           The endorsement of negotiable
instruments by the Borrower for deposit or collection or similar transactions
in the ordinary course of business; and

(b)           Guaranties, endorsements and other
direct or contingent liabilities in connection with the obligations of other
Persons, in existence on the date hereof and listed in Schedule 6.4 hereto.

Section 6.6            Investments
and Subsidiaries.  The Borrower will not make
or permit to exist any loans or advances to, or make any investment or acquire
any interest whatsoever in, any other Person or Affiliate, including any
partnership or joint venture, nor purchase or hold beneficially any stock or
other securities or evidence of indebtedness of any other Person or Affiliate,
except:

(a)           Investments in direct obligations of
the United States of America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the United States
of America having a maturity of one year or less, commercial paper issued by
U.S.  corporations rated “A-1” or “A-2”
by Standard & Poor’s Ratings Services or “P-1” or “P-2” by
Moody’s Investors Service, tax advantaged securities having a maturity of three
(3) years or less issued by a municipality rated “A” by at least two rating
agencies, corporate debt having a maturity of two (2) years or less rated “A”
by at least two rating agencies, money market funds, repurchase agreements with
a maturity of seven (7) days or less or certificates of deposit or bankers’
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers’ acceptances are fully insured by the
Federal Deposit Insurance Corporation);

(b)           Travel advances not exceeding at any
one time an aggregate of $50,000; and

(c)           Prepaid rent not exceeding two months
or security deposits; and

(d)           Current investments in the Subsidiaries
in existence on the date hereof and listed in Schedule 5.5 hereto.

Borrower may create
additional Subsidiaries provided that Borrower will provide Lender thirty (30)
days notice prior to the creation of any Subsidiary; provided further that such
Subsidiary shall immediately execute and deliver to the Lender a counterpart of this
Agreement and become a Borrower.

Section 6.7            Dividends
and Distributions.  So long as no Event of
Default exists or will occur as a result thereof, the Borrower may declare and
pay dividends on its capital stock.

Section 6.8            Books
and Records; Collateral Examination, Inspection and Appraisals.

(a)           The Borrower will
keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower’s business and financial condition
and such other matters as the Lender may from time to time request in which
true and complete entries will be made in accordance with GAAP and, upon the
Lender’s request, will permit any officer, employee, attorney, accountant or
other agent of the Lender to audit, review, make extracts from

 31
 

or copy any and all
company and financial books and records of the Borrower at all times during
ordinary business hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower’s affairs with any of its senior offices and independent
accountants.

(b)           Upon two (2) Banking
Days’ notice to the Borrower, the Borrower will permit the Lender or its
employees, accountants, attorneys or agents, to examine and inspect any
Collateral or any other property of the Borrower at any time during ordinary
business hours;  provided, however, that
if the Lender reasonably believes that a Default or an Event of Default may
have occurred, Lender shall not be required to give prior notice of such
inspections.  For purposes of this
subsection (c), visits by employees or agents of Lender to stores operated by
Borrower shall not be deemed to be inspections requiring prior notice so long
as such visits are conducted during normal business hours.

(c)           The
Lender may also obtain during the continuance of a Default or an Event of
Default, obtain at the Borrower’s expense an appraisal of Inventory by an
appraiser acceptable to the Lender in its sole discretion.

Section 6.9            Account
Verification.

(a)           During any Default Period, the Lender
or its agent may at any time and from time to time send or require the Borrower
to send requests for verification of accounts or notices of assignment to
account debtors and other obligors.  At
any time during any Default Period, the Lender or its agent may also at any
time and from time to time telephone account debtors and other obligors to
verify accounts.

(b)           The Borrower shall pay when due each
account payable due to a Person holding a Permitted Lien (as a result of such
payable) on any Collateral.

Section 6.10         Compliance
with Laws.

(a)           The Borrower shall (i) comply  with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition and
(ii) use and keep the Collateral, and require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state
or local law, statute or ordinance.

(b)           Without limiting the foregoing
undertakings, the Borrower specifically agrees that it will comply with all
applicable Environmental Laws and obtain and comply with all permits, licenses
and similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous Substances
in such a manner as to create any material liability or obligation under the
common law of any jurisdiction or any Environmental Law.

(c)           The Borrower shall (i) ensure that no Owner shall be
listed on the Specially Designated Nationals and Blocked Person List or other
similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the
Department of the Treasury or included in any Executive Orders, (ii) not use or
permit the use of the proceeds of the Credit Facility or any other financial

 32
 

accommodation from the
Lender to violate any of the foreign asset control regulations of OFAC or other
applicable law, (iii) comply  with
all applicable Bank Secrecy Act laws and regulations, as amended from time to
time, and (iv) otherwise comply with the USA Patriot Act as required by federal
law and the Lender’s policies and practices.

Section 6.11         Payment
of Taxes and Other Claims.  The Borrower will pay or discharge,
when due, (a) all taxes, assessments and governmental charges levied or imposed
upon it or upon its income or profits, upon any properties belonging to it
(including the Collateral) or upon or against the creation, perfection or
continuance of the Security Interest, prior to the date on which penalties
attach thereto, (b) all federal, state and local taxes required to be withheld
by it, and (c) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a Lien upon any properties of the Borrower;
provided, that the Borrower shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.

Section 6.12         Maintenance
of Properties.

(a)           The Borrower will keep and maintain
the Collateral and all of its other properties necessary or useful in its
business in good condition, repair and working order (normal wear and tear
excepted) and will from time to time replace or repair any worn, defective or
broken parts; provided, however, that nothing in this covenant
shall prevent the Borrower from discontinuing the operation and maintenance of
any of its properties if such discontinuance is, in the Borrower’s judgment,
desirable in the conduct of the Borrower’s business and not disadvantageous in
any material respect to the Lender.  The
Borrower will take all commercially reasonable steps necessary to protect and
maintain its Intellectual Property Rights.

(b)           The Borrower will defend the
Collateral against all Liens, claims or demands of all Persons (other than the
Lender) claiming the Collateral or any interest therein.  The Borrower will keep all Collateral free
and clear of all Liens except Permitted Liens. 
The Borrower will take all commercially reasonable steps necessary to
prosecute any Person Infringing its Intellectual Property Rights and to defend
itself against any Person accusing it of Infringing any Person’s Intellectual
Property Rights.

Section 6.13         Insurance.  The Borrower will obtain and
at all times maintain insurance with insurers acceptable to the Lender, in such
amounts, on such terms (including any deductibles) and against such risks as
may from time to time be required by the Lender, but in all events in such
amounts and against such risks as is usually carried by companies engaged in
similar business and owning similar properties in the same general areas in
which the Borrower operates.  Without
limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance for its headquarters at 2400 Xenium
Lane North, Plymouth, Minnesota, including coverage for force majeure and 
keep
all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender’s loss payable
endorsement for the Lender’s

 33
 

benefit.  All policies of liability insurance required
hereunder shall name the Lender as an additional insured.

Section 6.14         Preservation
of Existence.  The Borrower will preserve
and maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.

Section 6.15         Delivery
of Instruments, etc.  Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel paper constituting Collateral, duly endorsed or assigned
by the Borrower.

Section 6.16         Sale
or Transfer of Assets; Suspension of Business Operations.  The Borrower will not sell,
lease, assign, transfer or otherwise dispose of (i) the stock of any
Subsidiary, (ii) all or a substantial part of its assets, or (iii) any
Collateral or any interest therein (whether in one transaction or in a series
of transactions) to any other Person other than the sale of Inventory in the
ordinary course of business and will not liquidate, dissolve or suspend
business operations, without the prior written consent of the Lender.  The Borrower will not transfer any part of
its ownership interest in any Intellectual Property Rights and will not permit
any agreement under which it has licensed Licensed Intellectual Property to
lapse, except that (i) the Borrower may transfer such rights or permit
such agreements to lapse if it shall have reasonably determined that the
applicable Intellectual Property Rights are no longer useful in its business
and (ii) the Borrower may enter into intracompany transfers.  If the Borrower transfers any Intellectual
Property Rights for value, the Borrower will pay over the proceeds to the
Lender for application to the Obligations. 
The Borrower will not license any other Person to use any of the
Borrower’s Intellectual Property Rights, except that the Borrower may grant
licenses in the ordinary course of its business in connection with sales of
Inventory or provision of services to its customers.

Section 6.17         Consolidation
and Merger; Asset Acquisitions.  Neither a Borrower nor the
Guarantor will consolidate with or merge into any Person, or permit any other
Person to merge into it, acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person unless:

(a)           the corporation
formed by such consolidation or into which the Borrower or the Guarantor, as
the case may be, is merged (if the Borrower or the Guarantor is not the
surviving entity) or the Person that acquires by conveyance or transfer all or
substantially all of the properties and assets of the Borrower or the
Guarantor, as the case may be, (i) shall be a corporation organized and
existing under the laws of the Unites States of America or any State or the
District of Columbia, (ii) shall expressly assume by an amendment to or restatement
of this Agreement, or the Guaranty, as applicable, the performance of every
covenant of this Agreement on the part of the Borrower or of the Guaranty on
the part the Guarantor to be performed or observed and (iii) if such
corporation is a holding company with a significant portion of its operations
conducted and assets held by one or more subsidiaries, shall provide for
guaranties from such subsidiaries on substantially the same terms and
conditions as are set forth in the Guaranty;

 34

(b)           immediately after giving effect to such transaction, no
Event of Default, and no event that, after notice or lapse of time, or both,
would become an Event of Default, shall have occurred and be continuing;

(c)           immediately after giving effect to such transaction, the
corporation formed by such consolidation or into which the Borrower or the
Guarantor, as the case may be, is merged or the Person that acquired by
conveyance or transfer all or substantially of the properties and assets of the
Borrower or the Guarantor, as the case may be, shall have a tangible net worth
of not less than the consolidated tangible net worth of the Borrower and
Guarantor immediately preceding such transaction;

(d)           the Borrower and the Guarantor have delivered to the Lender an officer’s
certificate and opinion of counsel (which opinion may rely, as to factual
matters, upon a certificate of an executive officer of the Borrower or the
Guarantor) stating that such consolidation , merger conveyance or transfer and
such amendment or restatement complies with this Section 6.17 and that all
conditions precedent herein relating to such transaction have been complied
with; and

(e)           such merger, consolidation or sale has been approved prior
to the transaction in writing by the Lender.

Upon any consolidation or
merger of the Borrower or
the Guarantor into another entity, or any conveyance or transfer of all or
substantially all of the properties and assets of the Borrower or the Guarantor
in accordance herewith, the successor entity formed by such consolidation or
into which the Borrower or the Guarantor, as the case may be, is merged or to
which such conveyance or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of the Borrower under this Agreement
with the same effect as if such successor entity had been named as the Borrower
herein.

Any Borrower may acquire another Person or substantially all the assets
of another Person so long as the cash consideration for such acquisition does
not exceed $20,000,000 for all such transactions in any fiscal year of the
Borrowers; and further provided that immediately after giving effect to such
transaction, (i) no Event of Default, and no event which, after notice or lapse
of time, or both, would become an Event of Default, shall have occurred and be
continuing and (ii) the Borrowers’ actual amount of aggregate cash and
marketable securities that are permitted investments under Section 6.6  as of the measurement date
immediately following such transaction, shall not be less than 60% of the
aggregate of such items set forth in the Borrowers’ projections delivered to
Lender for the applicable period.

Section 6.18         Sale
and Leaseback.  The Borrower will not enter
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now
owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower intends
to use for substantially the same purpose or purposes as the property being
sold or transferred; provided, however, that the Borrower may enter into such
transaction with respect to the real property on which its headquarters is
presently located and with respect to any personal property related thereto.

 35
 

Section 6.19         Restrictions
on Nature of Business.  Without the advance written
consent of the Lender, which consent shall not be unreasonably withheld, the
Borrower will not engage in any line of business except for retail and direct
apparel and accessory sales and will not purchase, lease or otherwise acquire
assets not related to its business.

Section 6.20         Accounting.  The Borrower will not adopt
any material change in accounting principles other than as required by
GAAP.  The Borrower will not adopt,
permit or consent to any change in its fiscal year unless such change is made
in accordance with GAAP and all applicable tax laws and regulations.

Section 6.21         Plans.  Unless disclosed to the
Lender pursuant to Section 5.12, neither the Borrower nor any ERISA Affiliate
will (i) adopt, create, assume or become a party to any Pension Plan, (ii)
incur any obligation to contribute to any Multiemployer Plan, (iii) incur any
obligation to provide post-retirement medical or insurance benefits with
respect to employees or former employees (other than benefits required by law)
or (iv) amend any Plan in a manner that would materially increase its funding
obligations.

Section 6.22         Place
of Business; Name.  The Borrower will not
transfer its chief executive office or principal place of business.  The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest.  The Borrower will not change its name or
jurisdiction of organization without the prior written consent of Lender, which
consent shall not be unreasonably withheld.

Section 6.23         Constituent
Documents; S Corporation Status.  The Borrower will not amend
its Constituent Documents in a manner adverse to the interests of Lender or
become an S Corporation.

Section 6.24         Performance
by the Lender.  If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Section 6.11 and Section 6.13,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender’s option,
in the Lender’s name) and may, but need not, take any and all other actions
which the Lender may reasonably deem necessary to cure or correct such failure
(including the payment of taxes, the satisfaction of Liens, the performance of
obligations owed to account debtors or other obligors, the procurement and
maintenance of insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of instruments); and the Borrower
shall thereupon pay to the Lender on demand the amount of all monies expended
and all costs and expenses (including reasonable attorneys’ fees and legal
expenses) incurred by the Lender in connection with or as a result of the
performance or observance of such agreements or the taking of such action by
the Lender, together with interest thereon from the date expended or incurred
at the Default Rate.  To facilitate the
Lender’s performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender’s delegate,
acting alone, as the Borrower’s

 36
 

attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower hereunder.

ARTICLE VII

EVENTS OF DEFAULT, RIGHTS AND
REMEDIES

Section 7.1            Events
of Default.  “Event of Default”, wherever
used herein, means any one of the following events:

(a)           Default in the payment of any
Obligations when they become due and payable,;

(b)           Failure to pay when due any amount
specified in Section 2.3 relating to the Borrower’s Obligation of
Reimbursement, or failure to pay immediately when due or upon termination of the
Credit Facility any amounts required to be paid for deposit in the Special
Account under Section 2.4;

(c)           An
Overadvance arises as the result of any reduction in the Borrowing Base, or
arises in any manner on terms not otherwise approved of in advance by the
Lender in writing;

(d)           Any Financial Covenant shall become
inapplicable due to the lapse of time and the failure to amend any such
covenant to cover future periods;

(e)           The Borrower or any Guarantor shall
be or become insolvent, or admit in writing its or his inability to pay its or
his debts as they mature, or make an assignment for the benefit of creditors;
or the Borrower or any Guarantor shall apply for or consent to the appointment
of any receiver, trustee, or similar officer for it or him or for all or any
substantial part of its or his property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of the Borrower
or such Guarantor, as the case may be; or the Borrower or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the laws of
any jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower or any such Guarantor; or any
judgment, writ, warrant of attachment or execution or similar process shall be
issued or levied against a substantial part of the property of the Borrower or
any Guarantor;

(f)            A petition shall be filed by or
against the Borrower or any Guarantor under the United States Bankruptcy Code
naming the Borrower or such Guarantor as debtor;

(g)           Any representation or warranty made
by the Borrower in this Agreement, by any Guarantor in any Guaranty delivered
to the Lender, or by the Borrower (or any of its Officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in connection
with this Agreement or any such guaranty shall prove to have been incorrect in
any material respect when deemed to be effective;

 37
 

(h)           The rendering against the Borrower of
an arbitration award, final judgment, decree or order for the payment of money
in excess of $1,000,000 and the continuance of such arbitration award,
judgment, decree or order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution;

(i)            A default under any bond, debenture,
note or other evidence of material indebtedness of the Borrower owed to any
Person other than the Lender, or under any indenture or other instrument under
which any such evidence of indebtedness has been issued or by which it is
governed, or under any material lease or other contract, and the expiration of
the applicable period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument, lease or contract;

(j)            Any Reportable Event, which the
Lender determines in good faith might constitute grounds for the termination of
any Pension Plan or for the appointment by the appropriate United States
District Court of a trustee to administer any Pension Plan, shall have occurred
and be continuing 30 days after written notice to such effect shall have been
given to the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Pension Plan; or
the Pension Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension
Plan; or the Borrower or any ERISA Affiliate shall have filed for a distress
termination of any Pension Plan under Title IV of ERISA; or the Borrower or any
ERISA Affiliate shall have failed to make any quarterly contribution required
with respect to any Pension Plan under Section 412(m) of the IRC, which the
Lender determines in good faith may by itself, or in combination with any such
failures that the Lender may determine are likely to occur in the future,
result in the imposition of a Lien on the Borrower’s assets in favor of the
Pension Plan; or any withdrawal, partial withdrawal, reorganization or other
event occurs with respect to a Multiemployer Plan which results or could
reasonably be expected to result in a material liability of the Borrower to the
Multiemployer Plan under Title IV of ERISA;

(k)           An event of default shall occur under
any Security Document;

(l)            The Borrower shall liquidate,
dissolve, terminate or suspend its business operations or otherwise fail to
operate its business in the ordinary course, merge with another Person unless
the Borrower is the surviving entity; or sell or attempt to sell all or
substantially all of its assets, without the Lender’s prior written consent;

(m)          Default in the payment of any amount
owed by the Borrower to the Lender other than any indebtedness arising
hereunder;

(n)           Any Guarantor shall repudiate,
purport to revoke or fail to perform any obligation under such Guaranty in
favor of the Lender, or any Guarantor shall cease to exist;

(o)           Any event or circumstance with
respect to the Borrower shall occur such that the Lender shall believe in good
faith that the prospect of payment of all or any part of the Obligations or the
performance by the Borrower under the Loan Documents is impaired or any
material adverse change in the business or financial condition of the Borrower
shall occur;

 38
 

(p)           Any breach, default or event of
default by or attributable to any Affiliate under any agreement between such
Affiliate and the Lender shall occur;

(q)           Default
in the performance, or breach, of any covenant or agreement of the Borrower
contained in this Agreement, other than those identified in Sections 7.1(a)
through (p) above and other than a breach of the requirements of Section 6.2,
the breach of which covenant is not cured to the Lender’s satisfaction within
ten (10) Banking Days, provided that Lender shall have no obligation to make an
Advance during any such cure period.

Section 7.2            Rights
and Remedies.  During any Default Period,
the Lender may exercise any or all of the following rights and remedies:

(a)           The Lender may, by notice to the
Borrower, declare the Commitment to be terminated, whereupon the same shall
forthwith terminate;

(b)           The Lender may, by notice to the
Borrower, declare the Obligations to be forthwith due and payable, whereupon
all Obligations shall become and be forthwith due and payable, without
presentment, notice of dishonor, protest or further notice of any kind, all of
which the Borrower hereby expressly waives;

(c)           The Lender may, without notice to the
Borrower and without further action, apply any and all money owing by the
Lender to the Borrower to the payment of the Obligations;

(d)           The Lender may exercise and enforce
any and all rights and remedies available upon default to a secured party under
the UCC, including the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives)
and the right to sell, lease or otherwise dispose of any or all of the
Collateral (with or without giving any warranties as to the Collateral, title
to the Collateral or similar warranties), and, in connection therewith, the
Borrower will on demand assemble the Collateral and make it available to the
Lender at a place to be designated by the Lender which is reasonably convenient
to both parties;

(e)           The Lender may make demand upon the
Borrower and, forthwith upon such demand, the Borrower will pay to the Lender
in immediately available funds for deposit in the Special Account pursuant to
Section 2.4 an amount equal to the aggregate maximum amount available to be
drawn under all Letters of Credit then outstanding, assuming compliance with
all conditions for drawing thereunder;

(f)            The Lender may exercise and enforce
its rights and remedies under the Loan Documents; and

(g)           The Lender may exercise any other
rights and remedies available to it by law or agreement.

 39
 

Notwithstanding the
foregoing, upon the occurrence of an Event of Default described in Section 7.1(e) or (f),
the Obligations shall be immediately due and payable automatically without
presentment, demand, protest or notice of any kind.  If the Lender sells any of the Collateral on
credit, the Obligations will be reduced only to the extent of payments actually
received.  If the purchaser fails to pay
for the Collateral, the Lender may resell the Collateral and shall apply any
proceeds actually received to the Obligations.

Section 7.3            Certain
Notices.  If notice to the Borrower of
any intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.3) at least ten
calendar days before the date of intended disposition or other action.

ARTICLE VIII

MISCELLANEOUS

Section 8.1            No
Waiver; Cumulative Remedies; Compliance with Laws.  No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents.  The remedies provided in the Loan Documents
are cumulative and not exclusive of any remedies provided by law.  The Lender will comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and such compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.

Section 8.2            Amendments,
Etc.  No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the parties
hereto, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

Section 8.3            Notices; Communication of Confidential Information;
Requests for Accounting.  Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, (d) transmitted by
telecopy, or (e) sent as electronic mail, in each case delivered or sent to the
party to whom notice is being given to the business address, telecopier number,
or e mail address set forth below next to its signature or, as to each party,
at such other business address, telecopier number, or e mail address as it may
hereafter designate in writing to the other party pursuant to the terms of this
Section.  All such notices, requests,
demands and other communications shall be deemed to be an authenticated record
communicated or given and effective when received by the Lender or the
Borrower, as the case may be.  All
notices, financial information, or other business records sent by either party
to this Agreement may be transmitted, sent, or otherwise communicated via such
medium as the sending party may deem appropriate and commercially
reasonable.  All requests for an
accounting under Section 9-210 of the UCC (i) shall be made in a writing signed
by a Person authorized under Section 2.2(a), (ii)

 40
 

shall be personally delivered, sent by registered or
certified mail, return receipt requested, or by overnight courier of national
reputation, (iii) shall be deemed to be sent when received by the Lender and
(iv) shall otherwise comply with the requirements of Section 9-210.  The Borrower requests that the Lender respond
to all such requests that on their face appear to come from an authorized
individual and releases the Lender from any liability for so responding.  The Borrower shall pay the Lender the maximum
amount allowed by the UCC for responding to such requests.

Section 8.4            Further
Documents.  The Borrower will from time
to time execute, deliver, endorse and authorize the filing of any and all
instruments, documents, conveyances, assignments, security agreements,
financing statements, control agreements and other agreements and writings that
the Lender may reasonably request in order to secure, protect, perfect or
enforce the Security Interest or the Lender’s rights under the Loan Documents
(but any failure to request or assure that the Borrower executes, delivers,
endorses or authorizes the filing of any such item shall not affect or impair
the validity, sufficiency or enforceability of the Loan Documents and the
Security Interest, regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion).

Section 8.5            Costs
and Expenses.  The Borrower shall pay on
demand all costs and expenses, including reasonable attorneys’ fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, any Letter of Credit and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.

Section 8.6            Indemnity.  In addition to the payment
of expenses pursuant to Section 8.5, the Borrower shall indemnify, defend and
hold harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and all
present and future officers, directors, employees, attorneys and agents of the
foregoing (the “Indemnitees”) from and against any of the following
(collectively, “Indemnified Liabilities”):

(i)            Any and all transfer taxes,
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents or the making of the
Advances;

(ii)           Any claims, loss or damage to which
any Indemnitee may be subjected if any representation or warranty contained in
Section 5.14 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.10(b) ; and

(iii)          Any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel)
in connection with the foregoing and any other investigative, administrative or
judicial proceedings, whether or not such Indemnitee shall be designated a
party thereto, which may be imposed on, incurred by or asserted

 41
 

against any such Indemnitee, in any manner
related to or arising out of or in connection with the making of the Advances
and the Loan Documents or the use or intended use of the proceeds of the
Advances.  Notwithstanding the foregoing,
the Borrower shall not be obligated to indemnify any Indemnitee for any
Indemnified Liability caused by the gross negligence or willful misconduct of
such Indemnitee.

If any
investigative, judicial or administrative proceeding arising from any of the
foregoing is brought against any Indemnitee, upon such Indemnitee’s request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower’s sole costs and
expense.  Each Indemnitee will use its
best efforts to cooperate in the defense of any such action, suit or
proceeding.  If the foregoing undertaking
to indemnify, defend and hold harmless may be held to be unenforceable because
it violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law.  The Borrower’s obligation under this Section
8.6 shall survive the termination of this Agreement and the discharge of the
Borrower’s other obligations hereunder.

Section 8.7            Participants.  The Lender and its
participants, if any, are not partners or joint venturers, and the Lender shall
not have any liability or responsibility for any obligation, act or omission of
any of its participants.  All rights and
powers specifically conferred upon the Lender may be transferred or delegated
to any of the Lender’s participants, successors or assigns.

Section 8.8            Execution
in Counterparts; Telefacsimile Execution. 
This
Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same instrument. 
Delivery of an executed counterpart of this Agreement by telefacsimile
shall be equally as effective as delivery of an original executed counterpart
of this Agreement.  Any party delivering
an executed counterpart of this Agreement by telefacsimile also shall deliver
an original executed counterpart of this Agreement but the failure to deliver
an original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.

Section 8.9            Retention
of Borrower’s Records.  The Lender shall have no
obligation to maintain any electronic records or any documents, schedules,
invoices, agings, or other papers delivered to the Lender by the Borrower or in
connection with the Loan Documents for more than 30 days after receipt by the
Lender.  If there is a special need to
retain specific records, the Borrower must inform the Lender of its need to
retain those records with particularity, which must be delivered in accordance
with the notice provisions of Section 8.3 within 30 days of the Lender taking
control of same.

Section 8.10         Binding
Effect; Assignment; Complete Agreement; Sharing Information.  The Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights thereunder or any interest therein without the
Lender’s prior written consent.  This
Agreement shall also bind all Persons who become a party to this Agreement as a
borrower.  This Agreement, together with
the Loan Documents, comprises the

 42
 

complete and integrated agreement of the parties on the subject matter
hereof and supersedes all prior agreements, written or oral, on the subject
matter hereof.  To the extent that any
provision of this Agreement contradicts other provisions of the Loan Documents,
this Agreement shall control. Without limiting the Lender’s right to share
information regarding the Borrower and its Affiliates with the Lender’s
participants, accountants, lawyers and other advisors, the Lender and Wells
Fargo Bank may share any and all information they may have in their possession
regarding the Borrower and its Affiliates solely in connection with the
performance of services by Lender under this Agreement.

Section 8.11         Severability
of Provisions.  Any provision of this
Agreement that is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.

Section 8.12         Headings.  Article, Section and
subsection headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.

Section 8.13         Governing
Law; Jurisdiction, Venue; Waiver of Jury Trial.  The Loan Documents shall be
governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Minnesota. 
The parties hereto hereby (i) consent to the personal jurisdiction of
the state and federal courts located in the State of Minnesota in connection
with any controversy related to this Agreement; (ii) waive any argument that
venue in any such forum is not convenient; (iii) agree that any litigation
initiated by the Lender or the Borrower in connection with this Agreement or
the other Loan Documents may be venued in either the state or federal courts
located in the City of Minneapolis, Minnesota and (iv) agree that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.

Section 8.14         Confidentiality.  Lender agrees that it will use
its reasonable efforts not to disclose without the prior consent of the
Borrower (other than to its employees, auditors, advisors or counsel, provided
such Persons shall be subject to the provisions of this Section 8.14 to the
same extent as the Lender) any information with respect to the Borrower which
is now or in the future furnished pursuant to this Agreement or any of the Loan
Documents and which is designated by the Borrower to the Lender as
confidential, provided that the Lender may disclose any such information (i) as
has become generally available to the public other than by virtue of a breach
of this Section 8.4 by the Lender, (ii) as may be required or appropriate in
any report, statement or testimony submitted to any municipal, state or Federal
regulatory body having or claiming to have jurisdiction over such Lender or to
the Federal Reserve Board or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors, (iii) as may be required or appropriate in respect to any summons
or subpoena or in connection with any litigation and (iv) in order to comply
with any law, order, regulation or ruling applicable to the Lender.

 43
 

THE
BORROWER AND THE LENDER WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW
OR IN EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT. Borrower’s Initials                   
; Lender’s Initials                   
;

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.

	
  Christopher & Banks, Inc. 

  	
   

  	
  CHRISTOPHER
  & BANKS, INC.

  
	
  Christopher
  & Banks Company 

  	
   

  	
   

  
	
  Christopher
  & Banks Services Company 

  	
   

  	
  By: 

  	
   

  
	
  2400
  Xenium Lane 

  	
   

  	
  Andrew K. Moller 

  
	
  Plymouth,
  Minnesota 55441 

  	
   

  	
  Senior Vice President & Chief

  
	
   

  	
   

  	
  Financial Officer 

  
	
  Telecopier:
  763) 551-5161 

  	
   

  	
   

  
	
  Attention:
  Andrew K. Moller 

  	
   

  	
   

  
	
  e-mail:
  amoller@christopherandbanks.com

  	
   

  	
   

  
	
   

  	
   

  	
  CHRISTOPHER
  & BANKS COMPANY 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Andrew K. Moller 

  
	
   

  	
   

  	
  Senior Vice President & Chief

  
	
   

  	
   

  	
  Financial Officer 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CHRISTOPHER
  & BANKS SERVICES 

  
	
   

  	
   

  	
  COMPANY 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Andrew K. Moller 

  
	
   

  	
   

  	
  Senior Vice President & Chief

  
	
   

  	
   

  	
  Financial Officer 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Wells
  Fargo Bank, National Association, 

  	
   

  	
  WELLS
  FARGO BANK, NATIONAL 

  
	
  acting
  through its Wells Fargo Business Credit 

  	
   

  	
  ASSOCIATION,
  acting through its Wells 

  
	
  operating
  division 

  	
   

  	
  Fargo
  Business Credit operating division 

  
	
  MAC-
  9312-040 

  	
   

  	
   

  
	
  Sixth
  & Marquette 

  	
   

  	
  By: 

  	
   

  
	
  Minneapolis,
  Minnesota 55479 

  	
   

  	
  Kerri L. Otto

  
	
  Telecopier:
  ((612) 673-8589 

  	
   

  	
  Its Assistant Vice President

  
	
  Attention:
  Kerri L. Otto 

  	
   

  	
   

  
	
  e-mail:
  kerri.l.Otto@wellsfargo.com

  	
   

  	
   

  
						

 

 44

Table of Exhibits and Schedules

	
  Exhibit A

  	
   

  	
  Form of
  Revolving Note

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Compliance
  Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Premises

  
	
   

  	
   

  	
   

  
	
  Schedule
  5.1

  	
   

  	
  Trade
  Names, Chief Executive Office, Principal Place of Business, and Locations of
  Collateral

  
	
   

  	
   

  	
   

  
	
  Schedule
  5.2

  	
   

  	
  Capitalization
  and Organizational Chart

  
	
   

  	
   

  	
   

  
	
  Schedule
  5.5

  	
   

  	
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
  Schedule
  5.7

  	
   

  	
  Litigation
  Matters

  
	
   

  	
   

  	
   

  
	
  Schedule
  5.11

  	
   

  	
  Intellectual
  Property Disclosures

  
	
   

  	
   

  	
   

  
	
  Schedule
  5.14

  	
   

  	
  Environmental
  Matters

  
	
   

  	
   

  	
   

  
	
  Schedule
  6.3

  	
   

  	
  Permitted
  Liens

  
	
   

  	
   

  	
   

  
	
  Schedule
  6.4

  	
   

  	
  Permitted
  Indebtedness and Guaranties

  

 

Exhibit A to Credit and Security Agreement

REVOLVING NOTE

$50,000,000.00                                                                                                                                                        November
4, 2005

For value received, the undersigned CHRISTOPHER &
BANKS, INC., CHRISTOPHER & BANKS COMPANY AND CHRISTOPHER & BANKS
SERVICES COMPANY, each a Minnesota corporation (the “Borrower”), hereby jointly
and severally promise to pay on the Termination Date under the Credit Agreement
(defined below), to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Lender”),
acting through its Wells Fargo Business Credit operating division, at its
office in Minneapolis, Minnesota, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Fifty Million and 00/100
Dollars ($50,000,000.00) or the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Amended and Restated Credit and Security Agreement dated the same date as this Note
(the “Credit Agreement”) by and between the Lender and the Borrower.  The principal hereof and interest accruing
thereon shall be due and payable as provided in the Credit Agreement.  This Note may be prepaid only in accordance
with the Credit Agreement.

This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof.  This Note is the Revolving Note referred to
in the Credit Agreement.  This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or
more other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.

The Borrower shall pay all costs of collection, including
reasonable attorneys’ fees and legal expenses if this Note is not paid when
due, whether or not legal proceedings are commenced.

 A-1
 

Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.  Each
of the undersigned is primarily liable herein as co-maker; and neither are
merely “accommodation parties.”  The
undersigned each waive all defenses based upon the status of an accommodation
party.

	
  

  	
   

  	
  CHRISTOPHER
  & BANKS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Andrew K. Moller 

  
	
   

  	
   

  	
  Senior Vice President & Chief Financial 

  
	
   

  	
   

  	
  Officer 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CHRISTOPHER
  & BANKS COMPANY 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Andrew K. Moller 

  
	
   

  	
   

  	
  Senior Vice President & Chief Financial 

  
	
   

  	
   

  	
  Officer 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CHRISTOPHER
  & BANKS SERVICES 

  
	
   

  	
   

  	
  COMPANY 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Andrew K. Moller 

  
	
   

  	
   

  	
  Senior Vice President & Chief Financial 

  
	
   

  	
   

  	
  Officer 

  
						

 

 A-2

Exhibit B to Credit and Security Agreement

COMPLIANCE CERTIFICATE

To:                          Wells
Fargo Business Credit

Date:                                           , 20    

Subject:                  Financial
Statements

In accordance with our Amended and Restated Credit and
Security Agreement dated as of November 4, 2005 (the “Credit Agreement”),
attached are the financial statements of 
(the “Borrower”) as of and for                  ,
20    (the “Reporting Date”) and the year-to-date period then
ended (the “Current Financials”).  All
terms used in this certificate have the meanings given in the Credit Agreement.

I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower’s financial condition as of the date thereof.

I further
hereby certify as follows: Events of Default.  (Check one):

	
  

  	
  o

  	
  The
  undersigned does not have knowledge of the occurrence of a Default or Event
  of Default under the Credit Agreement except as previously reported in
  writing to the Lender.

  
	
   

  	
   

  	
   

  
	
   

  	
  o

  	
  The
  undersigned has knowledge of the occurrence of a Default or Event of Default
  under the Credit Agreement not previously reported in writing to the Lender
  and attached hereto is a statement of the facts with respect to thereto. The
  Borrower acknowledges that pursuant to 2.5(b) of the Credit Agreement, the
  Lender may impose the Default Rate at any time during the resulting Default
  Period.

  

 

Material Adverse Change in Litigation Matters of the
Borrower.  I further hereby certify as follows (check
one):

	
   

  	
  o

  	
  The undersigned has no knowledge of any material adverse
  change to the litigation exposure of the Borrower or any of its Guarantors or
  Affiliates.

  
	
   

  	
   

  	
   

  
	
   

  	
  o

  	
  The
  undersigned has knowledge of material adverse changes to the litigation
  exposure of the Borrower or any of its Guarantors or Affiliates not
  previously disclosed in Schedule 5.7. Attached to this Certificate is a
  statement of the facts with respect thereto.

  

 

Financial
Covenants.  I further hereby certify as follows (check
and complete each of the following):

1.             Minimum Cash Flow; Maximum Cash
on Hand.  Pursuant to Section 6.2(a) of the Credit
Agreement, as of the Reporting Date, the Borrower’s Cash Flow was $            

 B-1
 

which o satisfies o does not satisfy the
requirement that such amount be not less than $0 on the Reporting Date, or such
Cash Flow was less than $0 but the Borrower’s cash and cash equivalents as of
such date o satisfies o does not satisfy the
requirement that such amount be not less than the amount set forth in the table
below:

	
  Period

  	
   

  	
  Minimum Cash and Cash Equivalents

  	
   

  
	
  End of first fiscal quarter

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
  End of second fiscal quarter

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  End of third fiscal quarter

  	
   

  	
  $

  	
  10,000,000

  	
   

  
	
  End of fourth fiscal
  quarter

  	
   

  	
  $

  	
  25,000,000

  	
   

  

 

2.             Minimum Inventory Turns Ratio.  Pursuant to Section 6.2(b) of the Credit
Agreement, as of the Reporting Date, the Borrower’s Inventory Turns Ratio was     
to 1:00 which o satisfies o does not satisfy the
requirement that such ratio be no less than  3.00 to 1.00 on the Reporting Date.

Attached hereto are all relevant facts in reasonable detail
to evidence, and the computations of the financial covenants referred to
above.  These computations were made in
accordance with GAAP.

	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Its Chief
  Financial Officer

  

 

 B-2

Exhibit C to Credit and Security Agreement

PREMISES

The
Premises referred to in the Credit and Security Agreement are as follows:

1.  Headquarters and Distribution Center:

2400 Xenium Lane North

Plymouth, Minnesota 55441

2.  Stores:

See attached spreadsheets.

Schedule 5.1 to Credit and Security
Agreement

TRADE
NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF BUSINESS,

AND
LOCATIONS OF COLLATERAL

TRADE
NAMES

Christopher
& Banks

C.J. Banks

Acorn

CHIEF
EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS

2400 Xenium Lane
North

Plymouth, Minnesota 55441

OTHER
INVENTORY AND EQUIPMENT LOCATIONS

None.

Schedule 5.2 to Credit and Security
Agreement

CAPITALIZATION
AND ORGANIZATIONAL CHART

Christopher & Banks Corporation, a Delaware corporation
(“CBK”), is the parent organization and traded on the New York Stock
Exchange.  Christopher & Banks, Inc.,
a Minnesota corporation (“CBI”), a wholly owned subsidiary of CBK, is the
operating company and the Borrower under the Credit and Security Agreement.
Christopher & Banks Company, a Minnesota corporation (“CBC”), is a wholly
owned subsidiary of CBI.  Christopher
& Banks Services Company, a Minnesota corporation, is a wholly owned
subsidiary of CBC. 

Schedule 5.7 to Credit and Security
Agreement

LITIGATION MATTERS

None.

Schedule 5.11 to Credit and Security
Agreement

INTELLECTUAL
PROPERTY DISCLOSURES

The Borrower has the following trademarks:

Christopher
& Banks

C&B by
Christopher & Banks

C.J. Banks

Shapely Siloutettes

Braun’s

The Borrower files a copyright on many of its designs. This
list constantly changes and a copy may be obtained by contacting the Borrower’s
Chief Financial Officer.

Schedule 5.14 to Credit and Security
Agreement

ENVIRONMENTAL MATTERS 

None.

Schedule 6.3 to Credit and Security
Agreement

PERMITTED
LIENS

None.

Schedule 6.4 to Credit and Security
Agreement

Permitted
Indebtedness and Guaranties

INDEBTEDNESS

NONE.

GUARANTIES

NONE.Exhibit 10.41

AMENDMENT
TO EXECUTIVE EMPLOYMENT AGREEMENT

EFFECTIVE DATE:             December 14, 2006

PARTIES:

	
  Christopher & Banks
  Corporation

  	
  (“Corporation”)

  
	
   

  	
   

  
	
  Matthew Dillon

  	
  (“Executive”)

  

 

WHEREAS,
the Corporation and Executive are parties to an existing Executive Employment
Agreement dated June 12, 2006 (hereinafter referred to as “Executive Employment
Agreement”); and

WHEREAS,
the Corporation and Executive desire to amend the Executive Employment
Agreement in certain respects.

NOW,
THEREFORE, the Corporation and Executive agree that as of the Effective Date
written above the following amendments shall be made a part of the Executive
Employment Agreement:

1.                                       Section 1.1 of the
Executive Employment Agreement is deleted in its entirety and replaced  with the following new 

Section 1.1:

1.1          The Corporation hereby employs Executive, and Executive
agrees to be employed by the Corporation as President and Chief Merchandising
Officer through December 31, 2006. 
Effective January 1, 2007, Executive will assume the position of
President and Chief Executive Officer. 
The appointment of Executive to the position of President and CEO will
not require further Board approval.  Upon
his appointment to the position of President and CEO, Executive agrees to
perform such duties as are customarily incident to the positions of President
and CEO and are assigned to him from time to time by the Board of Directors of
the Corporation.  Concurrently with
Executive’s appointment as President and CEO of the Corporation, Executive will
be appointed to the Board of Directors of the Corporation to serve until his
successor is appointed or shall have been elected.  However, in the event that Executive is
terminated or elects to resign as an employee of the Corporation, Executive
agrees to submit his resignation as a director of the Corporation effective
concurrently with the effective date of his termination or resignation as an
employee of the Corporation.

2.                                       Section 2.1 of the Executive Employment Agreement is deleted in its entirety and replaced
with the following new

Section 2.1:

 1
 

2.1          The term of this Agreement shall be the period commencing
on June 12, 2006 and ending on February 28, 2010, unless sooner terminated as
hereinafter provided in Article 13.  The
term of this Agreement will continue on a year-to-year basis after February 28,
2010 unless either party gives written notice of non-renewal of this Agreement
to the other party at least 90 days prior to the end of the term ending
February 28, 2010 or any one-year extension. The severance payments described
in Section 13.1 of this Agreement shall not apply in the event of non-renewal
of this Agreement.

3.                                       Section 3.1 of the Executive Employment Agreement is deleted in its entirety and  replaced with the following new

Section 3.1:

3.1          Executive agrees to devote his full time and effort, to the
best of his ability, to carry out his duties as an Executive of the Corporation
for the profit, benefit and advantage of the business of the Corporation.  Through December 31, 2006, Executive shall
report directly to the Chief Executive Officer of the Corporation.  Beginning January 1, 2007, Executive shall
report directly to the Board of Directors.

4.                                       Section 4.1 of the Executive
Employment Agreement is deleted in its entirety and replaced with the following
new 

Section 4.1:

4.1          Until December 31, 2006, Executive’s base salary will
continue to be $475,000.  Effective
January 1, 2007, and upon the Executive’s appointment as President and CEO of
the Corporation, the Corporation agrees to pay Executive an annual base salary
of $775,000, less required and authorized deductions and withholding.  For fiscal 2008 and for each fiscal year
thereafter, Executive’s base salary shall be reviewed and increases, if any,
shall be awarded to Executive by the Board of Directors in its sole discretion,
but the base salary shall not be reduced from that of the prior fiscal
year.  Executive’s base salary shall be
payable at the same intervals as the Corporation pays other executives.

This
Amendment shall be attached to and be a part of the Executive Employment
Agreement between Christopher & Banks Corporation and Matthew Dillon.

Except
as set forth herein, the Executive Employment Agreement shall remain in full
force without modification.

In
consideration of the mutual covenants contained herein, the parties have
executed this Amendment effective as of the date and year above written.

	
  CHRISTOPHER & BANKS CORPORATION

  	
  MATTHEW DILLON

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Larry C. Barenbaum

  	
   

  	
  /s/ Matthew Dillon

  	
   

  
	
  By:

  	
  Larry C. Barenbaum

  	
  Matthew Dillon

  	
   

  
	
  Its:

  	
  Chairman

  	
   

  	
   

  
						

 

 2

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