10-K

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

FORM 10-K

(Mark One)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                              to

Commission File Number: 0-19902

PROVELL, INC.
(Exact name of Registrant as specified in its charter)

Minnesota (State or other jurisdiction of incorporation or organization)	41-1551116 (IRS Employer Identification Number)
301 Carlson Parkway, Suite 201 Minneapolis, Minnesota 55305 (Address of principal executive offices)	952-258-2000 (Registrant's telephone number including area code)

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

Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.01 par value.

        Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the preceding 12 months; and (2) has been subject to such filing requirements for the past 90 days: Yes     X         No      .

        Indicate by check mark if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained herein, and such disclosure will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment hereof: Yes                No   X .

        As of the latest practicable date, indicate the number of shares of each of the Registrant's classes of common stock outstanding: On March 22, 2002, there were 7,402,536 shares of Class A Common Stock and no shares of Class B Common Stock outstanding.

        As of the latest practicable date, indicate the aggregate market value of the Registrant's voting stock held by non-affiliates: On March 22, 2002, based on the last sale price reported by The Nasdaq Stock Market ($0.58 per share), such securities had an aggregate market value of $3,715,083.

DOCUMENTS INCORPORATED BY REFERENCE:

None

TABLE OF CONTENTS

PART I. ITEM 1. BUSINESS		3
	General	3
	Continuing Operations	3
	Marketing	5
	Operations	5
	Discontinued Operations	6
	Information Systems	6
	Government Regulation	6
	Competition	7
	Employees	7
	Trademarks and Trade Names	7
PART I. ITEM 2. PROPERTIES		8
PART I. ITEM 3. LEGAL PROCEEDINGS		8
PART I. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		9
PART I. ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT		9
PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS		9
PART II. ITEM 6. SELECTED FINANCIAL DATA		11
PART II. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		12
	General	12
	Critical Accounting Policies	12
	Results of Continuing Operations	13
	Discontinued Operations	15
	Liquidity and Capital Resources	16
	Seasonality	19
	Inflation	19
	Recently Issued Accounting Pronouncements	19
	Forward-Looking Information	19
PART II. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		21
PART II. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		21
	Index to Consolidated Financial Statements	21
PART II. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		42
PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT		42
PART III. ITEM 11. EXECUTIVE COMPENSATION		43
PART III. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		46
PART III. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		48
PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K		49
SIGNATURES		50
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K		52

PART I.

ITEM 1. BUSINESS

General

        Provell, Inc. ("Provell" or the "Company"), incorporated in Minnesota in 1986, develops, markets, and manages an extensive portfolio of unique and leading-edge membership and customer relationship management programs. Effective April 24, 2001, the Company changed its name from Damark International, Inc. to Provell, Inc. Members of the Company's proprietary programs receive value-added benefits, insightful information, and exclusive savings opportunities on a wide range of related products and services in areas of shopping, travel, hospitality, entertainment, health/fitness, finance and affinity activities such as cooking and home improvement. As of December 31, 2001, nearly 2.8 million consumers enjoyed benefits provided through Provell's membership programs.

        The Company's overall strategic objective has been to develop mutually beneficial, long-term relationships with clients and consumers. The Company believes it differentiates itself by its ability to develop high value renewable programs, products and services; deliver these value propositions seamlessly; and construct customized and integrated relationship management marketing offers.

        The Company had historically operated in three distinct businesses and marketplaces: catalog marketing, membership and e-fulfillment. The Company now operates in a single business segment: membership and customer relationship management programs. During 2000, the Company exited its non-member catalog marketing business and redeployed the order capture, product fulfillment, and customer service capabilities from this business segment into a wholly owned subsidiary named ClickShip Direct, Inc. ("ClickShip"). ClickShip's strategy was to provide outsourcing of order fulfillment and customer care services to retailers, e-tailers, direct marketers, and manufacturers. These planned services included online and offline order-capture, payment processing, inventory receipt, warehousing, merchandise shipment, after-the-sale customer service and support, and returns management. The ClickShip business was discontinued in February 2001. The results of ClickShip and the non-member catalog marketing businesses are reported as discontinued operations. See Note 2 to the Company's Consolidated Financial Statements.

Continuing Operations

        The Company believes the overall market for membership and customer relationship management programs is expanding and is under-penetrated by providers of such services. Provell currently offers twenty-one core membership value propositions through four distribution channels. In general, key factors that drive the Company's economic results are market size and growth prospects, sales conversion rates, new member acquisition costs, renewal rates and operating costs. New member acquisition efforts usually require an investment in the first year, which is recovered in subsequent years through membership renewal efforts. The level of the Company's profitability in any particular year is therefore dependent on the mix of acquisition and renewal business. See the selected financial data contained in Item 6 herein for the Company's revenues, net income or loss, total assets and other selected financial information for fiscal years 1997 through 2001.

Clubs

        In general, memberships in the Company's clubs provide discounts, value-added services, and other benefits related to consumer needs in the areas of shopping, travel, hospitality, entertainment, health/fitness, finance, and affinity activities such as cooking and home improvement. The Company currently markets the membership value propositions described below under its own brand names and those of its clients. During 2001, Provell introduced four new clubs and intends to continue to bring to market what it believes to be individually relevant and uniquely compelling membership concepts. The Company currently has several new membership value propositions in various stages of development, including line extensions to existing offerings and other affinity or hobby clubs.

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        The following table summarizes the Company's existing membership value propositions:

Membership Value Propositions

Club	Major Benefits
Preferred Buyers' Club®	•	Catalog shopping, including best price guarantees
Insiders®	•	All benefits of the Preferred Buyers' Club® in addition to premium best price guarantees and discounted memberships with other service companies
Vacation Passport®	•	Discounted travel services and travel offers
Sensations	•	Vacation travel packages at exclusive rates with full-service travel arrangement services
Essentials for Home®	•	Savings on home merchandise and home-related services
Value PlusSM	•	Editorial based catalog with deeply discounted merchandise offers
Gift Gallery®	•	Gift-giving service containing members-only offers from renowned giftware and novelty companies at discounted, members-only prices
Buyer's Guard®	•	Increased manufacturers' warranties, best price guarantees, and discounted repair services
Budget Savers®	•	Household budget management and savings opportunities
Value Access®	•	Subscription to shopping catalog with discounted values
Rewards	•	Coupon-based catalog shopping program
Traveler's Choice®	•	Expanded travel services and members-only offers
Small Business Alliance®	•	Discounts to small business owners on a variety of business needs
Buyers PlusSM	•	Savings coupons on automotive merchandise and a variety of related services
Cooking In StyleSM	•	Cooking and entertaining resource
Today's Handyman®	•	Access to home improvement tips and ideas, merchandise, discounts and services
HomePlaySM	•	Discounts and unique product offerings for home entertainment enthusiasts
Credit RadarSM	•	Credit card registration, identity theft protection and household repair coverage
TechnoPerks	•	Catalog shopping for high-tech merchandise at a members-only discount
1to1shopper.com	•	Internet only shopping service
Explore USASM	•	Member services and discounts for travel by car

        All memberships are one year in duration, renewable annually, and generally offered on a one-month trial basis. The Company does not record any revenue during the trial period; however, during this time, members may use benefits as detailed in the original customer contact and the fulfillment literature subsequently delivered. Written materials for each program detail terms and conditions and provide information on how to access benefits. In the event consumers elect to cancel their memberships during the trial period, they must contact the Company to avoid billing. If a membership is not canceled, the annual fee is charged to the member's credit card. Renewal communications are delivered in advance of the expiration of a membership term and, unless the Company is notified to the contrary, members are charged the next year's fee. The Company's members are generally permitted to return their memberships at any time for either a full or pro-rated refund, depending upon the terms and conditions of the club.

4

Marketing

        Prior to closing the non-member catalog business in 2000, the Company marketed primarily to its proprietary house customer file. Membership acquisition was driven by mailing a catalog to targeted consumers and then offering the Preferred Buyers' Club® or another targeted membership program during an inbound telephone call in response to a catalog order. In other situations, names of prospective members selected from the Company's proprietary lists were called on an outbound basis by third-party telesales providers for the sole purpose of marketing a specific membership opportunity.

        In 1997, the Company began offering customized membership programs to customers of its clients to enhance the clients' brand equity and promote loyalty within client customer bases. Clients provide their customer lists to the Company, in strict accordance with consumer privacy safeguards, and the Company, in cooperation with its clients, identifies those customers most likely to become prospective membership purchasers. These prospects are then offered a membership program generally through either a direct mail or outbound telesales campaign managed by the Company using third-party providers, or through clients' own call centers during an inbound customer service contact (the "client inbound" business).

        During 2000 and 2001 the Company aggressively expanded its business with clients in order to replace the declining number of member leads from its proprietary house file. The expansion of the client business has resulted in membership acquisitions in 2000 and 2001 higher than any other years in the Company's experience. Gross acquisitions were 4.1 million in 2001, up from 3.5 million in 2000 and 2.3 million in 1999. Membership acquisitions obtained via client contracts were 98.5% of total acquisitions in 2001 as compared to 72.3% in 2000 and 49.7% in 1999.

        Currently, the Company's client base is comprised primarily of large financial institutions, oil companies, and consumer marketing organizations. In an effort to reduce acquisition costs, the Company expanded its client inbound marketing during 2001 by securing several contracts with consumer marketers. Under these contracts, the clients' telemarketing representatives solicit acquisitions to the Company's membership programs during inbound customer contacts. These contracts provide access to a large number of membership acquisition leads at favorable economics to the Company.

        With the exception of the client inbound business, the Company generally incurs all marketing expenses. The Company also bears all order processing and customer service expenses for client programs and pays commissions to clients based in most cases on membership revenues generated from their customer lists.

        Because the Company obtains substantially all of its marketing information from clients' customer lists, the Company must obtain client approval before marketing new programs to existing client customers. A majority of the client contracts may be terminated with 30 to 90 day written notice without cause or penalty. Upon termination of a client agreement, the Company usually retains the right to continue its relationship with the client's customers who have become members, but may not resolicit those members upon cancellation or non-renewal of their memberships.

Operations

Order Capture

        Provell receives a majority of its new member acquisitions data from third-party telemarketers and clients' inbound call centers. This information is entered into the Company's order capture system on a daily basis. Daily sales information received from these third parties and membership renewal data are sent by the Company's system on a daily basis to the Company's merchant processors. The Company also has product sales from its shopping club catalogs, all of which are received and processed by a third party. The third-party processor remits all billing information to the Company's merchant processors and sends the order information to the Company's system on a monthly basis.

Fulfillment

        Members receive membership kits that outline and provide access to the benefits offered by the membership program. The membership kits are designed in-house by the Company's creative department and then printed and

5

mailed by third-party printers and fulfillment companies. Third-party marketing partners provide a majority of the products and services offered in the Company's membership programs. In exchange for the increased marketing exposure and potential increased sales volume, these vendors offer their products or services at discounted prices to members. Typically, the Company does not receive any payment from these vendors. Product orders are fulfilled through drop-ship arrangements with product distributors.

Customer Service

        Following the liquidation of ClickShip in 2001, Provell assumed management of the customer service call centers in Fayetteville, North Carolina and Junction City, Kansas. The Fayetteville facility was closed on June 30, 2001, and the Junction City location employed a total of 320 service representatives as of February 28, 2002. In addition, the Company utilizes a third-party inbound call services provider to assist with inquiries during peak call times. All call center agents receive training to familiarize themselves with each membership program.

Discontinued Operations

        In January 2000, the Company announced its plans to wind down its non-member catalog marketing and merchandising activities as a result of recurring losses. This business offered brand name, value-priced merchandise in the categories of computers, home office, electronics, home décor, home improvement and sports/fitness through a variety of catalog titles and an e-commerce web site. The wind-down was substantially completed by the end of the second quarter of 2000. The order capture, product fulfillment and customer service capabilities developed by the Company were re-deployed into ClickShip, which was formed in January 2000. While ClickShip developed business relationships with several e-commerce customers, it was unable to generate sufficient revenues at sufficient margins to cover its high fixed-cost structure. In addition, negative capital market conditions prevented ClickShip from raising essential start-up capital. The ClickShip business was discontinued in February 2001.

        Both the former non-member catalog business and ClickShip are reported as discontinued operations effective December 31, 2000, and the consolidated financial statements have been restated to report separately the net assets and operating results of the discontinued businesses for all periods presented. Prior to the fourth quarter of 2000, these businesses had been reported by the Company as the "Catalog Retail" segment. In addition, certain corporate expenses have been reclassified as discontinued operations in accordance with generally accepted accounting principles.

Information Systems

        The Company believes that the effective and efficient use of information systems technology is critical to its long-term success, and its operations are highly dependent upon multiple management information systems consisting of computer hardware and software. The Company utilizes custom software solutions based on n-tiered client-server architecture for its on-line transaction processing systems that manage order capture, fulfillment and customer service operations. Off-the-shelf packages and custom software utilize an internally developed data warehouse to support marketing and accounting functions.

Government Regulation

        The primary means by which the Company markets its membership programs is telemarketing. The telemarketing industry has become subject to an increased amount of federal and state regulation as well as general public scrutiny. Federal legislation limits the hours during which telemarketers may call consumers, prohibits the use of automated telephone dialing equipment to call certain telephone numbers and prohibits the use of deceptive, unfair or abusive practices in telemarketing sales. The Federal Trade Commission and state attorneys general have the authority to prevent telemarketing activities deemed by them to be "unfair or deceptive acts or practices." Further, some states have enacted laws and others are considering enacting laws targeted directly at regulating telemarketing practices. There can be no assurance that any such laws, if enacted, will not adversely affect or limit the Company's ability to successfully market its membership programs.

6

        Compliance with these laws and regulations is generally the responsibility of the Company, and the Company could be subject to a variety of enforcement or private actions for any failure to comply with such laws and regulations. Additionally, the Gramm-Leach-Bliley Act ("GLB") and accompanying rules, which became mandatory in 2001, regulate the disclosure of personal information by banks and other financial institutions as defined under GLB. With few exceptions, financial institutions are prohibited from disclosing any account or credit card numbers to third parties for use in telemarketing or direct mail marketing, which impacts the Company's billing procedures with certain clients.

        Operating in the membership industry requires the Company to comply with certain state regulations, changes in which could materially increase the Company's operating costs associated with complying with such regulations. Noncompliance by the Company with any rules and regulations enforced by a federal or state consumer protection authority may subject the Company or its management to fines or various forms of civil or criminal prosecution, any of which could materially adversely affect the Company's business, financial condition and results of operations.

        The Company currently has specific quality assurance controls and procedures in place to ensure that its programs and marketing practices meet or exceed industry standards and all state and federal regulations. The Company only collects and maintains customer data that is required to administer its membership business, including customer name, address and billing information in strict accordance with consumer privacy guidelines. Only public information, such as demographic and lifestyle data, is used for marketing and modeling purposes. The Company does not resell any confidential customer information that is obtained or derived from its marketing efforts, nor does it purchase consumer information from financial institutions. In addition, in December 1999, the Company entered into an agreement with the Minnesota Attorney General's Office adopting leading edge marketing practices to strengthen its advocacy of consumer privacy.

Competition

        The Company's principal competitors include MemberWorks, Inc. and Trilegiant, an affiliate and former division of Cendant Corporation. The Company also competes with large retailers, travel agencies, insurance companies and financial service institutions. Many of its competitors have substantially larger customer bases and greater financial and other resources than the Company, and offer membership programs that provide services analogous to, or which directly compete with, those provided by the Company. To date, the Company believes it has effectively competed with other industry players. However, there can be no assurance that the Company's competitors will not increase their emphasis on programs similar to those offered by the Company to compete more directly with the Company, or provide programs comparable or superior to those provided by the Company at lower membership prices, or adapt more quickly than the Company to evolving industry trends or changing market requirements, or that new competitors will not enter the market or that other businesses will not themselves introduce competing programs. Such increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations.

Employees

        As of February 28, 2002, the Company employed 295 persons on a full-time basis and 154 on a part-time basis. None of the Company's employees is party to a collective bargaining agreement. The Company's operations depend in part on its ability to attract, train and retain qualified personnel.

Trademarks and Trade Names

        The Company registers a majority of its membership program names as service marks with the U.S. Patent and Trademark Office. In addition to its membership program service marks, the Company's registered service marks include a pending registration for "Provell". The Company has several registration applications pending and will pursue other registrations as appropriate to establish and preserve its intellectual property rights.

7

ITEM 2. PROPERTIES

        The Company leases the following properties:

•

A 471,000 square foot distribution facility in Brooklyn Park, Minnesota under a two-year net lease that was terminated in January 2002,



•

A 250,000 square foot office and warehouse facility and adjoining 12-acre parcel in Brooklyn Park, Minnesota under a ten-year net lease expiring in June 2002,



•

A 38,000 square foot telemarketing facility in Junction City, Kansas under a ten-year net lease expiring in May 2006,



•

A 30,000 square foot telemarketing facility in Fayetteville, North Carolina under a five-year net lease expiring in July 2002,



•

A 25,000 square foot telemarketing facility in Brooklyn Center, Minnesota under a ten-year net lease expiring in January 2008,



•

A 17,000 square foot marketing support facility in Brooklyn Center, Minnesota under a five-year net lease expiring in March 2003,



•

A 32,000 square foot office facility in Minnetonka, Minnesota under a five-year net lease expiring in June 2005; and,



•

A 1,600 square foot business development office in Stamford, Connecticut under a two-year net lease expiring in October 2002.

        In January 2000, the Brooklyn Center telemarketing facility was closed in conjunction with the wind-down of the Company's non-member catalog retail business. A tenant is currently subleasing this facility. The Company has subleased substantially all of the warehouse space in its 250,000 square foot office and warehouse facility through the end of its lease term. In February 2002, the Company subleased the 17,000 square foot marketing support facility in Brooklyn Center through the end of its lease term. The Company believes that its properties are well maintained and in good operating condition and will be sufficient to accommodate its operations in 2002.

ITEM 3. LEGAL PROCEEDINGS

        On August 29, 2000, the Company was served with a complaint styled as a class action in Minnesota State Court brought by four customers seeking to represent a class of consumers. The complaint is similar to complaints previously settled by the Company with the Minnesota Attorney General on December 3, 1999, but also contends that certain business practices violate other Minnesota consumer protection laws. Plaintiffs seek both damages and injunctive relief. The Company believes it has strong factual and legal defenses and is vigorously defending the allegations both on the merits and in regard to class status. The Company's and plaintiffs' cross-motions for summary judgment are currently pending. Management believes that the resolution of this action will not have a material adverse effect on the financial condition or operations of the Company.

        On April 17, 2001, four former ClickShip employees filed a complaint styled as a class action in Federal District Court in Minnesota against the Company, alleging that the Company had failed to provide appropriate notice to employees and pay annual performance bonuses when ClickShip's operations were ceased. Plaintiffs seek payment in lieu of notice, incentive pay, and statutory penalties. The Company believes it has strong factual and legal defenses and is vigorously defending the allegations. This matter is currently in the discovery phase of litigation. Management believes that the resolution of this action will not have a material adverse effect on the financial condition or operations of the Company.

        The Company is a party to various claims, legal actions and other complaints arising in the ordinary course of business. Management believes that any losses that may occur are adequately covered by insurance or are otherwise provided for and the ultimate outcome of these matters will not have a material effect on the financial position or operations of the Company.

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

        The Company did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report.

ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT

        Set forth below are the executive officers of the Company as of March 22, 2002, their ages, titles, the date first appointed as an officer of the Company and employment history for the past five years:

Name	Age	Title
George S. Richards	37	Chairman, President and Chief Executive Officer
Rodney C. Merry	45	Senior Vice President and Chief Information Officer
Michael T. McGowan	38	Senior Vice President of Marketing
Michael T. Del Viscio	53	Vice President of Merchandising

        Executive officers of the Company are elected at the discretion of the Board with no fixed term. There are no family relationships between or among any of the executive officers or directors of the Company.

Mr. Richards has been the Company's Chairman, President and Chief Executive Officer since February 2001, and President and Chief Operating Officer since September 1998. Mr. Richards has served in various executive capacities of Provell since 1995. Prior to that, Mr. Richards held a variety of senior management positions at Montgomery Ward Direct and Sears, Roebuck & Co. and was a Senior Consultant in the Consumer Interest Group practice at McKinsey & Company, Inc. in New York and Chicago.

Mr. Merry has been the Company's Senior Vice President and Chief Information Officer since September 1998 and has served as an officer since November 1997 and senior manager since September 1996. From February to September 1996, Mr. Merry served as Vice President of Operations for Publishing Business Systems. From January 1995 to February 1996, Mr. Merry served as the Company's Director of Application Development.

Mr. McGowan was promoted to Senior Vice President of Marketing in January 2002 and had formerly served as Vice President of Marketing since January 1999. During this time he has also assumed various responsibilities for Catalog Marketing and Call Center Operations. From January 1998 through December 1998, he served as Director of Membership Marketing, Business Development and Ancillary Services. Mr. McGowan joined Provell in November 1996 as Manager of Membership Marketing and Ancillary Services.

Mr. Del Viscio joined Provell in February 1999 as Vice President of Merchandising. Prior to Provell, he served as President and Chief Executive Officer of Head to Toe, a division of ACI Capital, from January 1997 through February 1999. From May 1994 through January 1997, Mr. Del Viscio was Senior Vice President of the Penn Traffic Company.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's Class A Common Stock (the "Common Stock") trades on the Nasdaq Stock Market under the symbol "PRVL." The Company has received notice from Nasdaq that it is not in compliance with the Nasdaq National Market's minimum stock price and minimum market value requirements for publicly held shares. See additional discussion in Item 7. under the caption "Liquidity". As of March 22, 2002, there were 7,402,536 shares outstanding and 489 holders of record.

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        The following table sets forth, for the periods indicated, the range of high and low sale prices of the Common Stock.

	High		Low
2001
Fourth quarter (September 30 to December 31)	$	1.950	$	0.760
Third quarter (July 1 to September 29)		4.080		1.200
Second quarter (April 1 to June 30)		4.610		2.990
First quarter (January 1 to March 31)		10.750		2.719
2000
Fourth quarter (October 1 to December 31)	$	13.500	$	5.938
Third quarter (July 2 to September 30)		20.313		12.250
Second quarter (April 2 to July 1)		34.000		16.750
First quarter (January 1 to April 1)		48.500		15.375

        The Company has never declared or paid cash or stock dividends on its Common Stock. The Company currently intends to retain earnings, if any, for use in the operation and expansion of its business and does not anticipate paying dividends in the foreseeable future. In addition, the Company's credit agreement limits the payment of dividends.

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ITEM 6. SELECTED FINANCIAL DATA

        The selected financial data presented below are derived from the consolidated financial statements of the Company. This information is qualified in its entirety by, and should be read in conjunction with, the consolidated financial statements and notes thereto and other financial and statistical information referenced elsewhere herein, including the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Selected Consolidated Financial Data

(Amounts in thousands except for per share data)

		Years Ended December 31
		2001			2000			1999			1998			1997
Statement of Operations Data:
Net revenues		$	138,080		$	135,940		$	138,188		$	89,369		$	64,356
Costs and expenses(1)			162,708			108,117			108,823			75,569			45,295
	Operating income		(24,628	)		27,823			29,365			13,800			19,061
Amortization of discount on Senior Convertible Notes			14,084			—			—			—			—
Other expense, net			1,421			436			118			222			67
	(Loss) income from continuing operations before income taxes and cumulative effect of change in accounting		(40,133	)		27,387			29,247			13,578			18,994
Income tax provision			(40,436	)		(10,406	)		(9,944	)		(4,617	)		(6,458	)
	(Loss) income from continuing operations before cumulative effect of change in accounting		(80,569	)		16,981			19,303			8,961			12,536
Discontinued operations, net of tax(1),(2)			1,321			(63,189	)		(18,067	)		(28,576	)		(6,231	)
Cumulative effect of accounting change, net of tax(3)			—			(14,201	)		—			—			—
	Net (loss) income		(79,248	)		(60,409	)		1,236			(19,615	)		6,305
Preferred stock-related charges			(3,521	)		(2,786	)		—			—			—
	Net (loss) income available to common shareholders	$	(82,769	)	$	(63,195	)	$	1,236		$	(19,615	)	$	6,305
Basic (loss) income per share:
	(Loss) income from continuing operations	$	(12.49	)	$	2.94		$	3.28		$	1.23		$	1.56
	Discontinued operations, net of tax		0.20			(10.96	)		(3.07	)		(3.94	)		(0.78	)
	Cumulative effect of accounting change, net of tax		—			(2.46	)		—			—			—
	Preferred stock-related charges		(0.54	)		(0.48	)		—			—			—
	Net (loss) income per share available to common shareholders	$	(12.83	)	$	(10.96	)	$	0.21		$	(2.71	)	$	0.78
	Weighted average common shares outstanding		6,453			5,766			5,877			7,250			8,033
Diluted (loss) income per share:
	(Loss) income from continuing operations	$	(12.49	)	$	2.94		$	3.13		$	1.23		$	1.47
	Discontinued operations, net of tax		0.20			(10.96	)		(2.93	)		(3.94	)		(0.73	)
	Cumulative effect of accounting change, net of tax		—			(2.46	)		—			—			—
	Preferred stock-related charges		(0.54	)		(0.48	)		—			—			—
	Net (loss) income per share available to common shareholders	$	(12.83	)	$	(10.96	)	$	0.20		$	(2.71	)	$	0.74
	Weighted average common and common-equivalent shares outstanding		6,453			5,766			6,177			7,250			8,480

	December 31
	2001			2000			1999			1998		1997
Balance Sheet Data:
Working capital	$	(73,351	)	$	(23,601	)	$	(204	)	$	789	$	24,299
Total assets		95,361			156,724			93,705			91,572		148,212
Total indebtedness		4,233			5,150			—			5,140		44,400
Redeemable preferred stock		29,991			16,417			—			—		—
Common shareholders' (deficit) equity		(88,898	)		(24,040	)		29,417			34,062		68,663

(1)

Includes $9,852 of asset impairment charges in 1998, including $2,301 of software written off as part of the Company's Year 2000 compliance initiative. Costs and expenses from continuing operations include $2,394 of the total charge while the remaining $7,458 has been allocated to discontinued operations.

(2)

Reflects the results of operations for the Company's non-member catalog and e-fulfillment businesses and certain corporate expenses. Results of operations for these businesses were included in the Company's Catalog Retail segment prior to fourth quarter 2000. Prior year results of operations have been restated. See Note 2 to the Company's Consolidated Financial Statements.

(3)

Reflects the cumulative effect of adopting Staff Accounting Bulletin (SAB) No. 101—Revenue Recognition in Financial Statements. Prior period financial statements have not been restated. See Note 1 to the Company's Consolidated Financial Statements.

(4)

Includes a charge of $48.7 million in 2001 to record a deferred tax valuation allowance. See Note 9 to the Company's Consolidated Financial Statements.

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

General

        Provell develops, markets and manages an extensive portfolio of unique leading-edge membership and customer relationship management programs. Members of the Company's proprietary programs receive value-added benefits, insightful information, and exclusive savings opportunities on a wide range of related products and services in the areas of shopping, travel, hospitality, entertainment, health/fitness, finance, and affinity activities such as cooking and home improvement. As of December 31, 2001, nearly 2.8 million consumers enjoyed benefits provided through Provell's membership programs. The Company was founded in 1986 and is headquartered in Minneapolis, Minnesota.

        The Company currently operates in a single business segment: membership and customer relationship management programs. During 2000, the Company exited the non-member catalog marketing business and redeployed the order capture, product fulfillment, and customer service capabilities from this business segment into ClickShip, a wholly owned subsidiary. ClickShip's strategy was to provide outsourcing of order fulfillment and customer care services to retailers, e-tailers, direct marketers, and manufacturers. These planned services included online and offline order-capture, payment processing, inventory receipt, warehousing, merchandise shipment, after-the-sale customer service and support, and returns management. The ClickShip operations were closed in February 2001. Prior period results of operations for the non-member catalog marketing business and ClickShip have been reported as discontinued operations in the Company's financial statements. See Note 2 to the Company's Consolidated Financial Statements.

        Following the liquidation of ClickShip, Provell assumed management of the call centers and data center. Provell also outsources certain teleservices activities and customer service with carefully selected telemarketing providers.

Critical Accounting Policies

        The Company believes the following are its critical accounting policies:

Revenue and Solicitation Costs Recognition

        The Company adopted Staff Accounting Bulletin No. 101—Revenue Recognition in Financial Statements ("SAB 101") effective January 1, 2000 and recorded a non-cash charge of $22.9 million ($14.2 million net of taxes) in 2000. Prior period financial statements were not restated. Under SAB 101, the Company defers all membership revenues, net of estimated returns, and amortizes them into revenue on a straight-line basis after the trial period has elapsed and over the remaining membership period, generally eleven months. The allowance for returns is based on the Company's most recent return experience and is updated each quarter. The majority of the Company's members can return a membership at any time prior to expiration of the membership term and receive either a full or pro-rated refund for the remaining portion of the membership period.

        In accordance with SAB 101, the cost of membership kits and vouchers are expensed when distributed. Direct response advertising costs (i.e., telemarketing and direct mail), refundable fees for commissions paid to clients and transaction processing costs, net of expected refunds, are capitalized as part of deferred membership solicitation costs and are amortized as expense in the same manner in which the related revenue is recognized. Other direct and indirect costs incurred with enrolling customers are expensed when incurred. Deferred membership solicitation costs incurred to obtain new members are generally less than the associated membership fees charged to customers. However, if deferred membership solicitation costs were to exceed membership fees, an adjustment would be made to the extent of any impairment.

        Prior to the adoption of SAB 101, membership revenues with respect to clubs for which the Company had an ongoing obligation were recorded on the balance sheet net of direct solicitation and other costs and, once the trial period had lapsed, amortized into income over the remaining membership period, generally eleven months. Revenues and related expenses on clubs for which the Company had no significant ongoing obligation were recognized immediately, net of an accrual for future anticipated returns, once any trial period had elapsed.

12

Accounting for Income Taxes and Valuation of Deferred Tax Assets

        The Company estimates the actual current tax expense together with assessing temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, as well as operating loss carryforwards. In addition, the Company assesses the likelihood that the deferred tax asset will be recovered from future taxable income and to the extent management believes that recovery is not more likely than not, a valuation allowance is established. To the extent the valuation allowance is established or increased in a period, an additional tax provision is recorded.

        Management judgment is required in determining the provision for income taxes, the net deferred tax asset and any valuation allowance recorded against the deferred tax asset. As a result of the financing transactions discussed in Note 6, in February 2001, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code. Accordingly, the Company's net operating loss ("NOL") carryforwards generated prior to the ownership change will be subject to an annual limitation that will limit or defer the utilization of these losses. The NOLs expire in 20 years. At December 31, 2001, the Company assessed its deferred tax asset position and concluded that the entire asset did not meet the "more likely than not" criteria required by generally accepted accounting principles for realization.

Results of Continuing Operations

        During 2001, the Company maintained the membership acquisition pace established during the second half of 2000, despite paring back less economically attractive member acquisition marketing. Acquisition levels have been relatively consistent for the last six quarters, which is intended to help minimize quarterly fluctuations in future renewal levels. Gross new member acquisitions during 2001 increased to 4.1 million from 3.5 million in 2000 and 2.3 million in 1999. The significant increase in membership acquisitions was driven by the Company's effort to grow its membership base and replace membership acquisition leads lost due to the wind-down of its non-member catalog retail business through increasing revenues, programs and relationships with its clients, who are large consumer list owners. Member acquisition from clients' lists accounted for 98.5% of the new member acquisitions in 2001 as compared to 72.3% in 2000 and 49.7% in 1999. At December 31, 2001, the Company's membership count was nearly 2.8 million members, up from 2.6 million and 2.2 million at December 31, 2000 and 1999, respectively. The Company's client roster now includes several of the nation's largest credit card issuers, as well as a number of premier consumer marketing organizations.

        The Company reported 2001 net revenue of $138.1 million, as compared to $135.9 million in 2000 and $138.2 million in 1999. The average membership fee was $83.49 in 2001 as compared to $79.81 in 2000 and $65.63 in 1999.

        The Company reported an operating loss of $(24.6) million in 2001 as compared to operating income of $27.8 million in 2000 and $29.4 million in 1999. Operating income (loss) before deferral accounting was $(23.3) million in 2001 as compared to $5.7 million in 2000 and $32.3 million in 1999. As more fully discussed below, the operating loss for 2001 is attributable primarily to the high member acquisition costs incurred during the fourth quarter of 2000 and the first half of 2001, a lower mix of renewal revenue, and the high cost infrastructure following the closing of ClickShip in the first quarter of 2001.

        During the fourth quarter of 2000 and continuing throughout the first quarter and a portion of the reported second quarter of 2001, the Company marketed to a larger proportion of lists with comparatively less attractive first year economics than in prior periods, primarily using outbound telemarketing, in order to generate the short-term cash flow necessary to fund liabilities associated with the wind-down of ClickShip and to replace the Company's bank line of credit. Following its closing on a $20.0 million revolving credit facility on March 27, 2001, the Company shifted its focus to reducing the cost per net name acquired ("CPNN") and by fourth quarter of 2001, had successfully reduced its CPNN by 73.0% relative to the first quarter of 2001. The reduction in CPNN was achieved by shifting the mix of membership acquisitions to the more economically attractive consumer client sector, increasing membership fees and expanding multiple sale marketing occasions, while paring less attractive member acquisition marketing. During 2001, the consumer client marketing sector accounted for 27.4% of membership acquisitions as compared to 17.1% in 2000 and 2.7% in 1999. Increased marketing within the consumer client sector also led to increased inbound telemarketing at the clients' call centers, which is a more efficient first year marketing method as compared to outbound telemarketing and direct mail solicitation. Member enrollments obtained via inbound telemarketing during 2001 increased 68.4%

13

over 2000. While the CPNN improved dramatically throughout 2001, the high marketing costs incurred in the fourth quarter of 2000 and first quarter of 2001 were amortized into expense throughout the year as required under deferral accounting rules. The financial benefit from marketing to lists with a lower CPNN will be recognized ratably over the remaining membership period. Reductions in the CPNN have also increased the deferred gross margin on the Company's balance sheet. At December 31, 2001, the deferred gross margin, which will be recognized in the Company's 2002 income statement, had increased to $15.2 million from $5.6 million at the end of the first quarter of 2001 and $14.0 million at December 31, 2000.

        The mix of acquisition and renewal revenues has also had a negative impact on operating income in 2001. Profitability and cash flow generated from renewal memberships exceed that of new memberships due to the absence of significant, first year marketing costs, much like a catalog business. During 2001, gross renewal revenue was 26.1% of total gross revenue as compared to 30.0% in 2000 and 33.9% in 1999. In addition, the shift away from the Company's house file has also had a negative impact on operating income since no client commissions are paid on the house file renewals. During 2001, the house file accounted for 33.7% of total gross renewal revenues, down from 65.8% in 2000 and 82.3% in 1999. As previously discussed, the Company has focused on attempting to level out the quarterly fluctuations in its renewal portfolio by maintaining a consistent acquisition pace since the third quarter of 2000.

        Finally, Provell assumed a high cost information technology and call center infrastructure, required to be accounted as part of continuing operations following the closing of ClickShip. Accordingly, the Company reduced its corporate staff by 29% and closed its Fayetteville call center during the second quarter, rationalized computer hardware maintenance and lease payments throughout the year and late in the third quarter, deployed additional call routing and membership save strategy technologies in order to minimize labor costs in the Company's call center. Management believes that the cost savings resulting from these initiatives will benefit future operating results.

        Operating income for 2000 was $27.8 million, a 5.3% decrease from 1999 operating income of $29.4 million. On a pro forma basis, assuming SAB 101 had been adopted retroactively, 2000 operating income would have increased 6.9%. Operating income for 1999 reflects a charge of $19.1 million for commissions to the former Catalog Retail segment. In conjunction with the non-member catalog wind-down, these costs were not incurred during 2000 but were generally replaced by commissions paid to clients as the Company shifted its marketing efforts to client business. The increase in the Company's membership base and club price increases were the primary contributors to the operating income growth in 2000.

        Consolidated reported net losses were $64.2 million in 2001, $60.4 million in 2000, and in 1999 the Company reported net income of $1.2 million. The results for 2001 include an after-tax, non-cash charge of $14.1 million for amortization of the note discount related to the private placement of $14.2 million in 10% Senior Convertible Notes (the "Notes") in February 2001. The 2000 net loss includes $63.2 million of operating losses, net of taxes, from the Company's discontinued operations and a $14.2 million after tax non-cash charge related to the cumulative effect of adopting SAB 101. The results for 1999 include $18.1 million of operating losses, net of taxes, from the Company's discontinued operations.

        The Company's effective tax rate was 38.0% in 2000 and 34.0% in 1999. The effective tax rate in 2001 was not meaningful because of the net loss in 2001, which included non-deductible charges of $14.8 million for the amortization of discount and interest associated with the Notes, which have been treated as permanent differences for tax purposes. Additionally, a charge of $48.7 million was recorded in 2001 to establish a deferred tax valuation allowance. In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not, in accordance with generally accepted accounting principles. The effective tax rate increased to 38% in 2000 from 34% in 1999 as a result of additional state income taxes associated with the restructuring of the Company's operations.

        As a result of the financing transactions discussed in Note 6, the Company experienced an ownership change in February 2001 as defined under Section 382 of the Internal Revenue Code. Accordingly, the Company's NOL carryforwards generated prior to the ownership change will be subject to an annual limitation that will limit or defer the utilization of these losses. The NOLs expire in 20 years.

14

Discontinued Operations

        The aggregate loss from discontinued operations includes losses from the Company's non-member catalog marketing and merchandising activities and from ClickShip, as well as certain corporate expenses. The non-member catalog marketing and merchandising activities were wound down during 2000. ClickShip operations were closed in February 2001.

        Net liabilities of discontinued operations include the following at December 31, 2001 and 2000 (in thousands):

		2001			2000
Assets:
Lease deposit and other		$	1,939		$	2,312
Property and equipment, net of estimated loss on disposal			—			500
Note receivable from former officer			954			871
Other current assets, net			13			1,909
Liabilities:
Accounts payable			(960	)		(6,529	)
Future lease obligations			(3,324	)		(6,906	)
Operating losses through disposal date			—			(4,000	)
Interest			(312	)		(1,300	)
Other wind-down related expenses			(5,179	)		(13,383	)
	Net liabilities of discontinued operations		(6,869	)		(26,526	)
Less: Current portion			(6,869	)		(23,830	)
	Net liabilities of discontinued operations, long-term	$	—		$	(2,696	)

        The note receivable from a former officer is due on January 2, 2003, bears interest at prime plus 3% on the unpaid principal balance and is secured by future payments owing to the former officer.

        The estimated loss on disposal recorded in 2000 was $18.2 million, net of a tax benefit of $11.2 million. The loss included $9.2 million for the impairment and write-off of property and equipment and other assets, operating losses through the disposal date and other estimated costs to exit these operations of approximately $18.9 million plus future interest expense of $1.3 million. During the fourth quarter of 2001, reserves for estimated losses were reduced by $2.1 million, $1.3 million net of tax, following the favorable resolution of certain liabilities and asset sales. Actual amounts could differ from these estimates.

        Summary operating results of the discontinued operations for the two years ended December 31 are as follows (in thousands):

	2000			1999
Net revenues	$	62,772		$	292,758
Operating loss		(68,337	)		(27,386	)
Interest expense		(1,387	)		(372	)
Loss on sale-leaseback of building		(2,741	)		—
Other		(80	)		(67	)
Loss before taxes and extraordinary item		(72,545	)		(27,825	)
Tax benefit		27,567			9,461
Extraordinary gain on land condemnation, net of taxes of $153		—			297
Net loss	$	(44,978	)	$	(18,067	)

        In December 2000, the Company sold ClickShip's fulfillment center for $22.0 million and entered into an agreement, which was terminated in January 2002, to lease back 471,000 square feet of the facility. The Company will record the termination of this agreement in the first quarter of 2002 by offsetting the lease deposit against the

15

corresponding lease obligation. The net proceeds from the sale were $11.7 million after repayment of a construction loan. A pre-tax loss of $2.7 million on the sale has been included as part of discontinued operations in 2000. Additionally, the lease commitment was included in the estimated loss on disposal.

Liquidity and Capital Resources

General

        Currently, the Company's liquidity needs arise primarily from funding the growth of its continuing membership business, liquidating its discontinued operations, and from capital expenditures.

        On March 5, 2002, the Company received notice through its payment processor that the Company will be disqualified from participating in the Visa program as a merchant, effective April 4, 2002. According to the notice, there is a right to appeal the decision at the payment processor's choice. The Company's payment processor, with the Company's cooperation, has submitted an appeal. On April 1, 2002, the Company received notice through its payment processor that the effective date of its pending disqualification would be extended to May 17, 2002 while the appeal is being considered.

        If an appeal is not successful, the Company would no longer be able to participate in the Visa program as a merchant and therefore would no longer have the independent ability to bill a significant number of its customers for membership enrollments and renewals. The Company is currently exploring other billing methods and alternative marketing and reselling approaches for its membership programs to Visa cardholders, including wholesale relationships with its clients and/or an outright sale of its renewal book to a third party. Termination of the Company's participation as a merchant in the Visa program without alternative marketing and/or reselling approaches in place would reduce the Company's revenue and cash flow but would also reduce the Company's expected operating loss for 2002 due to reduced investments in new member acquisitions and lower credit card fees.

        Since December 2001, the Company's payment processor has increased from $5.3 million to $10 million the amount of reserves the Company must keep on deposit with the payment processor. The magnitude of these reserves substantially reduces the borrowing availability under the Company's amended credit facility. The payment processor has denied the Company's requests for the release of a significant or any portion of the reserves but has indicated a willingness to consider proposals from the Company for alternative "near cash" forms of collateral such as a letter of credit.

        Management believes that, unless the Company quickly obtains additional financing or the Company's payment processor releases a significant portion of the reserves it is currently holding, cash expected to be generated from continuing operations and availability under the Company's amended credit facility will not be sufficient to provide adequate liquidity in the immediate short-term and during the balance of 2002 to fund the operations of the Company.

        The Company's ability to obtain additional financing will depend upon a number of factors, including the outcome of the appeal discussed above, the Company's future performance and financial results, and general economic and capital market conditions. The Company cannot predict whether it will be able to raise additional capital on reasonable terms or at all. In addition, the Company is exploring other possible strategic alternatives to meet its immediate and future liquidity needs, including filing a petition under Chapter 11 of the United States Bankruptcy Code.

        The Company has received notice from the Nasdaq Stock Market that it is not in compliance with the Nasdaq National Market's minimum-stock-price and minimum-market-value requirements for publicly held shares. The Company is exploring means of regaining compliance before May 15, 2002, the date by which Nasdaq has indicated these requirements must be addressed. Failure to maintain its Nasdaq listing would materially and adversely affect the Company's ability to raise capital. Such a failure, among others, would also be an event of default under the terms of the Company's Series D and Series E Preferred Stock, which would allow the holders of those shares to force the Company to redeem their shares at 125% of the purchase price, or approximately $40.1 million in the aggregate. See the discussion under "Financing" below regarding other events that would allow the holders of the Series D and E preferred stock to require the Company to redeem their shares.

16

Cash Flow

        The Company used $4.9 million of cash for operations during 2001 as compared to generating $8.0 million in 2000 and $32.9 million in 1999. Cash usage in 2001 reflects aggressive acquisition marketing, funding of returns from increased acquisition quarters in the last half of 2000 and a shift in mix between renewals and acquisitions year over year as the Company focused on leveling its book of renewal business for future quarters. In addition, reserves required by key business partners increased significantly during 2001. During the third quarter of 2001, the requirements of the Gramm-Leach-Bliley Act ("GLB") regarding consumer privacy and credit card security became mandatory, negatively impacting the timing of cash collections. Several clients migrated to direct settlement processes and away from the interchange system, thereby delaying remittances to the Company. These delays in the collection cycle have been partially mitigated by renegotiated vendor payment terms to more closely correspond with the timing of cash collections. Despite the challenges imposed by GLB and increased acquisition activity, the Company generated $16.2 million in cash from operations during the second half of 2001. The Company was able to generate cash during the second half of 2001 due to higher renewal levels resulting from the increased acquisition activity that began during the second half of 2000 and due to the decreases in CPNN achieved during the second half of 2001.

Capital Expenditures

        During 2001, the Company incurred capital expenditures of $1.9 million in its continuing operations, as compared to $2.6 million in 2000. The investment in 2001 was primarily related to its management information systems. Management estimates that, if sufficient funds are available, the Company would invest up to an additional $5.0 million in capital expenditures during 2002, principally related to its management information systems.

Financing

        On March 27, 2001, the Company entered into a $20.0 million revolving credit facility. The facility, as amended, expires on January 31, 2003, and is available for working capital and general corporate needs. As amended, the maximum revolver amount under the facility will be gradually reduced from $17.5 million in April 2002 to $10 million in December 2002. Availability under the facility is determined monthly based upon the sufficiency of eligible receivables and cash collections and can be adjusted at any time within the bank's permitted discretion. The reserve currently held by the Company's payment processor negatively affects availability under the facility. See the discussion under "Liquidity" above.

        Borrowings outstanding under the credit facility bear interest at the prime rate of interest plus 3.0% (7.75% at December 31, 2001) and are secured by all assets of the Company. The credit facility includes covenants, which require the Company to satisfy certain quarterly financial tests, including minimum earnings before interest and taxes and net worth. As of December 31, 2001 there was a $0.9 million reserve against borrowing availability under the credit agreement for future expenditures associated with the liquidation of ClickShip. At December 31, 2001, the Company had $4.2 million outstanding under the credit facility, $13.8 million available for additional borrowings (not including amounts reserved for ClickShip expenditures) and was in compliance with all covenant requirements except for its earnings before interest and taxes ("EBIT") and net worth covenants. In amending the facility, the Company's lending syndicate waived the covenant violations and agreed to new covenant thresholds for minimum levels of EBIT, adjusted tangible net worth and customer base, among other matters.

        In February 2001, the Company terminated its former $10.0 million commercial credit facility, which was available for working capital and general corporate needs. Borrowings outstanding under this line of credit bore interest at the federal funds rate of interest plus 0.5%, bank prime or LIBOR plus 3.25% and were secured by all assets of the Company except real property.

        On February 27, 2001, the Company completed a private placement with five institutional investors of $14.2 million in 10% Senior Convertible Notes due February 4, 2002 ("Notes"). Following the satisfaction of certain specified conditions, the Notes plus accrued interest were converted into 144,856 shares of the Company's Series E Preferred Stock on June 8, 2001. In July 2001, 13,500 shares of Series E Preferred Stock were converted into Common Stock. The Series E Preferred Stock has a stated value of $100 per share and is convertible into the Company's Common Stock at $3.00 per share subject to certain adjustments for future dilutive events. The Company received $10.0 million

17

of the proceeds at closing, and the balance, less transaction fees of approximately $1.1 million, was received in June 2001.

        Because the conversion price on the Notes was less than the stock price on the date of issuance, the Company recorded a $14.2 million beneficial conversion feature as additional paid-in capital and as a discount on the original note obligation. Prior to conversion to Series E Preferred Stock, the discount was amortized ratably over the original term of the Notes using the effective interest method. Prior to the conversion of the Notes, the Company recorded a charge of $14.1 million or $2.18 per share of amortization expense pertaining to the note discount. This amount is not deductible for income tax purposes.

        The Series E Preferred Stock is redeemable at 125% of the outstanding stated value upon the occurrence of a triggering event (such as failure to maintain applicable resale registration statement covering the Company's Common Stock issuable upon conversion of the Series E Preferred Stock or inability to maintain Nasdaq listing of the Company's Common Stock) or a major transaction (such as a sale or merger of the Company) as defined in the Certificate of Designations, Preferences and Rights for the Series E Preferred Stock. Unless converted to Common Stock, the Series E Preferred Stock will be redeemed on February 27, 2003 at the stated value of the shares in cash or, at the Company's option, for shares of the Company's Common Stock valued at 90% of then-current market price. The Series E Preferred Stock ranks pari passu with the Series D Preferred Stock issued in September 2000.

        On September 29, 2000, the Company completed a $20.0 million private placement of Series D Preferred Stock with four institutional investors. The Company issued 200,000 shares of Series D Preferred Stock with a par value of $0.01 per share and a stated value of $100 per share. The net proceeds were used to supplement working capital needs. Initially the Series D Preferred Stock was convertible at any time at the option of the holder into the Company's Common Stock at $12.94 per share, subject to certain adjustments for future events. In February 2001, the conversion price was reset to $3.00 in conjunction with the sale of the Notes. In July 2001, 10,800 shares of Series D Preferred Stock were converted into Common Stock. The Series D Preferred Stock has a dividend rate of 6.5% per annum payable quarterly in cash or, at the Company's option, shares of the Company's Common Stock valued at 90% of its then-current market price. Unless previously converted to Common Stock, the Series D Preferred Stock will be redeemed on September 29, 2002 at the stated value of the shares in cash or, at the Company's option, for shares of the Company's Common Stock valued at 90% of its then-current market price. The Company may also be required to redeem the Series D Preferred Stock at the stated value plus a 25% premium and accrued dividends for cash at any time following a consolidation or merger with another company or the occurrence of other triggering events as detailed in the Certificate of Designations, Preferences and Rights of the Series D Preferred Stock.

        In addition, the Company issued Common Stock Purchase Warrants ("Warrants") to the purchasers of the Series D Preferred Stock for an aggregate of 772,798 shares of Common Stock at an exercise price of $16.17 per share, subject to adjustments similar to the Series D Preferred Stock. As a result of the issuance of the Notes in February 2001, the exercise price was adjusted to $11.65 per share and the number of shares of Common Stock subject to the Warrants increased to 1,072,815 shares. The Company allocated the net proceeds of $18.9 million (cash proceeds of $20.0 million net of transaction costs of $1.1 million) from the issuance of the Series D Preferred Stock and Warrants between the relative fair values of the preferred stock and Warrants. The value allocated to the Warrants, $2.8 million, is reflected as a component of shareholders' deficit. The remaining Series D Preferred Stock is being accreted to its redemption value of $18.9 million over the two-year period ending on the mandatory redemption date.

        Because the proceeds allocated to the Series D preferred shares were less than the fair value of the Common Stock that would be issuable upon assumed conversion as of September 29, 2000, the issuance of the preferred shares resulted in a non-detachable beneficial conversion feature that was recognized by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The beneficial conversion feature of $2.0 million was accounted for as an immediate dividend to the Series D preferred shareholders since the Series D preferred shareholders have immediate conversion rights. Since the Company had an accumulated deficit as of the approval date, the beneficial conversion feature and the preferred stock accretion was netted against additional paid-in capital rather than accumulated deficit, resulting in no change to net shareholders' deficit.

        The Company has received notice from Nasdaq that it is not in compliance with the Nasdaq National Market's minimum stock price and minimum market value requirements for publicly held shares. The Company is exploring

18

means of regaining compliance before May 15, 2002, the date by which Nasdaq has indicated these requirements must be addressed. Failure to maintain its Nasdaq listing would materially and adversely affect the Company's ability to raise capital and would be an event of default under the terms of the Company's Series D and Series E Preferred Stock, which would allow the holders of such preferred stock to force the Company to redeem their shares at 125% of the purchase price, or approximately $40.1 million in the aggregate.

Share Repurchases

        During 1999, the Company repurchased approximately 794,000 shares of its Common Stock at an aggregate cost of $7.1 million. Repurchased shares were acquired under a series of programs authorized by the Company's Board of Directors (the "Board") that included private and open market transactions. During the fourth quarter of 1999, the Board authorized a one million share open-market repurchase program. As of December 31, 2001 no shares had been purchased under this program, and all share repurchases authorized under previous programs were completed. The Company's revolving credit facility executed in March 2001 prohibits any further share repurchases by the Company.

Seasonality

        Following the wind-down of the Catalog Retail segment, management expects the seasonal variation in consumer demand to have less of an impact on the operations of the Company; however, as the Company enters into more marketing arrangements with retailers and catalog companies, seasonality could have a greater impact on the Company.

Inflation

        Inflation has not had, and the Company does not expect it to have, a material impact on operating results. There can be no assurances, however, that the Company's business will not be affected by inflation in the future.

Recently Issued Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, "Business Combinations" ("SFAS 141"), which is effective for business combinations initiated after June 30, 2001. SFAS 141 eliminates the pooling of interests method of accounting for business combinations and requires that all business combinations occurring on or after July 1, 2001 be accounted for under the purchase method.

        In July 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective for fiscal years beginning after December 15, 2001. SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in the financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather be tested at least annually for impairment, and intangible assets that have finite useful lives be amortized over their useful lives. SFAS 142 provides specific guidance for testing goodwill and intangible assets that will not be amortized for impairment. Management believes that the adoption of this statement will not have a material impact on the Company's financial position or results of operations.

        In September 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") effective for fiscal years beginning after December 15, 2001. SFAS 144 requires that long-lived assets to be disposed of by sale, including discontinued operations, be measured at the lower of the carrying cost or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. Management believes that the adoption of this statement will not have a material impact on the Company's financial position or results of operations.

Forward-Looking Information

        Certain of the matters discussed herein are "forward-looking statements" intended to qualify for the safe harbor provisions from liability provided by the Private Securities Litigation Reform Act of 1995. Important factors exist that could cause results to differ materially from those anticipated by some of the statements herein. Forward-looking

19

statements in this document include the adequacy of reserves for discontinued operations; the impact of the Company's legal proceedings on the financial condition or operations of the Company; the ability to participate as a merchant in the Visa program or the ability to migrate a substantial portion of the Company's Visa business to other billing methods and/or alternative marketing and reselling approaches; the ability to maintain Nasdaq listing requirements; the expected decrease in quarterly fluctuation in future renewal levels; the adequacy of current and future taxable income to utilize the Company's credit for NOL carryforwards; the impact of seasonal variation in consumer demand and inflation; and the Company's anticipated liquidity and capital expenditures. In addition, the words "believe", "expect", "anticipate","estimates", "intend", "designed", "goal", "priority", "will", "target", and similar expressions identify forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations, including those identified below:

•

The economic outlook, including the continuing war on terrorism, and its effects on credit availability, interest rates, consumer spending patterns and the Company's marketing operations and cash flows;



•

Deepening of the economic recession;



•

Inability to participate in the Visa program without migrating a substantial portion of the Company's Visa business to other billing methods and/or alternative marketing and reselling approaches;



•

Adverse changes in relationships with vendors and business partners who provide club benefits or process credit card transactions;



•

Increasing reserve requirements by business partners such as the Company's payment processor;



•

Higher than expected cash requirements to fund the Company's continuing operations and capital expenditures;



•

Lower than expected borrowing availability under the Company's current credit facility;



•

Inability to retain Nasdaq listing of the Company's Common Stock, and the associated risk related to potential redemption of the Company's preferred stock;



•

Lower than expected membership renewal rates;



•

Higher than expected membership cancellation rates;



•

Higher than expected fluctuations in quarterly renewal rates;



•

Inability to profitably expand in the membership services market;



•

Inability to generate sufficient cash to provide adequate liquidity;



•

Excessive new member acquisition costs;



•

Inability to retain existing clients and attract new clients in the membership services market;



•

Inability to develop new membership programs;



•

Loss of key management and executive talent, especially the Company's Chairman, President and Chief Executive Officer;



•

Effects of possible system failures and rapid changes in technology;



•

Higher than expected cash requirements to settle known or unknown obligations of the Company's discontinued operations;



•

Lower than expected taxable income to utilize the Company's credit for NOL carryforwards;



•

Effects of possible unfavorable court rulings related to the Company's pending legal proceedings;



•

Externally mandated changes in accounting guidelines and telemarketing practices;



•

Possible adverse effects of seasonal variation in consumer demand and inflation;

20

•

Availability of capital on acceptable terms; and



•

Availability of financing on acceptable terms.

        Shareholders, potential investors and other readers are urged to consider these and other factors in evaluating the forward-looking statements made herein, all of which speak only as of the date on which they are made and as to which the Company has no obligation to update publicly.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company has a $20.0 million bank credit facility which bears interest at the prime rate of interest plus 3.0%. There were $4.2 million of borrowings outstanding under this bank credit facility as of December 31, 2001. Management believes that an increase in the commercial lending rate or the Federal Funds rate would not be material to the Company's financial position or its results of operations. If the Company would need to replace its existing credit facility agreement, it is possible that any replacement lending facility obtained by the Company may be more sensitive to interest rate changes. The Company does not currently hedge interest rates with respect to its outstanding debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Because of the uncertainty surrounding the impact of the Company's pending appeal concerning its potential disqualification from participation in the Visa program, the level of reserves currently held by the Company's payment processor, and the Company's pending delisting from the Nasdaq Stock Market, together with the uncertainty of whether the Company can obtain additional financing, the Company is not able at this time to produce (without unreasonable cost or expense) audited financial statements as of December 31, 2001 and the year then ended. Therefore, no auditor has opined that the unaudited financial statements present fairly, in all material respects, the financial position, the results of operations, cash flows and the changes in shareholders' deficit of the Company for the fiscal 2001 periods in accordance with generally accepted accounting principles.

Index to Consolidated Financial Statements

	Page
Consolidated Balance Sheets December 31, 2001 (unaudited) and 2000	22
Consolidated Statements of Operations Years Ended December 31, 2001 (unaudited), 2000, and 1999	23
Consolidated Statements of Shareholders' (Deficit) Equity Years Ended December 31, 2001 (unaudited), 2000, and 1999	24
Consolidated Statements of Cash Flows Years Ended December 31, 2001 (unaudited), 2000, and 1999	25
Notes to Consolidated Financial Statements	26
Selected Quarterly Financial Data	41

21

PROVELL, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

(Amounts in thousands except per share data)				2001			2000
				(unaudited)
Assets:
Current assets:
	Cash and cash equivalents			$	78		$	13,107
	Trade accounts receivable, net				31,033			39,586
	Deferred membership solicitation costs				40,487			41,728
	Prepaid membership materials and marketing costs				7,629			15,408
	Deferred income taxes				—			26,490
	Other				1,690			1,731
		Total current assets			80,917			138,050
Property and equipment, net					4,226			3,959
Other assets, net					45			50
Noncurrent deferred income taxes					10,173			14,665
		Total assets		$	95,361		$	156,724
Liabilities and Shareholders' Deficit:
Current liabilities:
	Borrowings under revolving credit facility			$	4,233		$	5,150
	Accounts payable				22,604			20,387
	Accrued expenses:
		Payroll and benefits			1,204			3,352
		Returns			31,737			40,339
		Marketing and solicitation			12,902			10,091
		Other			8,822			2,819
	Deferred membership revenue				55,724			55,683
	Deferred income taxes				10,173			—
	Net liabilities of discontinued operations, current				6,869			23,830
		Total current liabilities			154,268			161,651
Net liabilities of discontinued operations, long-term					—			2,696
Series D redeemable convertible preferred stock, liquidation preference $23,650 and $25,000, respectively, net of unamortized discount of $1,580 and $3,583, respectively					17,441			16,417
Series E redeemable convertible preferred stock, liquidation preference $16,420, net of unamortized discount of $679					12,550			—
Commitments and contingencies (Notes 1 and 10)
Shareholders' deficit:
	Class A Common Stock, $.01 par, 75,000 and 20,000 shares authorized at December 31, 2001 and December 31, 2000, respectively; 7,132 and 5,857 shares issued and outstanding at December 31, 2001 and December 31, 2000, respectively				71			58
	Class B Common Stock, $.01 par, 2,000 shares authorized; none issued or outstanding				—			—
	Series C Junior Participating Preferred Stock, $.01 par, 400 shares authorized; none issued or outstanding				—			—
	Paid-in capital				72,818			58,594
	Common stock warrants				2,800			2,800
	Preferred stock dividends payable				318			165
	Accumulated deficit				(164,905	)		(85,657	)
		Total shareholders' deficit			(88,898	)		(24,040	)
			Total liabilities and shareholders' deficit	$	95,361		$	156,724

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

22

PROVELL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31

(Amounts in thousands except per share data)		2001			2000			1999
		(unaudited)
Net revenues		$	138,080		$	135,940		$	138,188
Costs and expenses:
Operating and marketing expenses			143,442			88,911			93,414
General and administrative expenses			19,266			19,206			15,409
	Total costs and expenses		162,708			108,117			108,823
	Operating (loss) income		(24,628	)		27,823			29,365
Interest expense, net			1,403			—			—
Amortization of discount on Senior Convertible Notes			14,084			—			—
Other expenses, net			18			436			118
(Loss) income from continuing operations before income taxes and cumulative effect of change in accounting			(40,133	)		27,387			29,247
Income tax provision			(40,436	)		(10,406	)		(9,944	)
	(Loss) income from continuing operations before cumulative effect of change in accounting		(80,569	)		16,981			19,303
Discontinued operations:
	Loss from operations, net of taxes of $27,567 and $9,308 in 2000 and 1999, respectively		—			(44,978	)		(18,067	)
	Estimated gain (loss) on disposal, net of taxes of $(809) and $11,162 in 2001 and 2000, respectively		1,321			(18,211	)		—
Cumulative effect of change in accounting, net of taxes of $8,703			—			(14,201	)		—
	Net (loss) income		(79,248	)		(60,409	)		1,236
Beneficial conversion feature related to issuance of Series D Preferred Stock			—			(1,989	)		—
Preferred stock dividends and amortization			(3,521	)		(797	)		—
	Net (loss) income available to common shareholders	$	(82,769	)	$	(63,195	)	$	1,236
Basic loss per common share:
	(Loss) income from continuing operations	$	(12.49	)	$	2.94		$	3.28
	Income (loss) from discontinued operations		0.20			(10.96	)		(3.07	)
	Cumulative effect of change in accounting		—			(2.46	)		—
	Preferred stock dividends and amortization		(0.54	)		(0.48	)		—
	Net (loss) income available to common shareholders	$	(12.83	)	$	(10.96	)	$	0.21
	Weighted average common shares outstanding		6,453			5,766			5,877
Diluted loss per common share:
	(Loss) income from continuing operations	$	(12.49	)	$	2.94		$	3.13
	Income (loss) from discontinued operations		0.20			(10.96	)		(2.93	)
	Cumulative effect of change in accounting		—			(2.46	)		—
	Preferred stock dividends and amortization		(0.54	)		(0.48	)		—
	Net (loss) income available to common shareholders	$	(12.83	)	$	(10.96	)	$	0.20
	Weighted average common shares outstanding		6,453			5,766			6,177
Pro forma amounts assuming retroactive application of Staff Accounting Bulletin No. 101:
	Net loss available to common shareholders		N/A		$	(48,994	)	$	(1,045	)
	Basic and diluted loss per common share		N/A		$	(8.50	)	$	(0.18	)

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

23

PROVELL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31

	Class A Common Stock
											Preferred stock dividends payable						Total shareholders' equity (deficit)
(Amounts in thousands)	Number of shares		Par value			Paid-in Capital			Common stock warrants					Accumulated deficit
Balance, December 31, 1998	6,119		$	61		$	60,485		$	—	$	—		$	(26,484	)	$	34,062
Exercise of stock options and issuance of stock	195			2			1,208			—		—			—			1,210
Repurchase and retirement of Common Stock	(794	)		(8	)		(7,083	)		—		—			—			(7,091	)
Net income	—			—			—			—		—			1,236			1,236
Balance, December 31, 1999	5,520			55			54,610			—		—			(25,248	)		29,417
Exercise of stock options and issuance of stock	337			3			4,781			—		—			—			4,784
Issuance of warrants	—			—			—			2,800		—			—			2,800
Preferred stock dividends declared	—			—			(330	)		—		165			—			(165	)
Amortization of preferred stock discount	—			—			(467	)		—		—			—			(467	)
Net loss	—			—			—			—		—			(60,409	)		(60,409	)
Balance, December 31, 2000	5,857			58			58,594			2,800		165			(85,657	)		(24,040	)
Exercise of stock options and issuance of stock	20			1			34			—		—			—			35
Expense associated with issuance of stock options to a consultant	—			—			55			—		—			—			55
Issuance of common stock upon conversion of preferred stock	811			8			2,322			—		—			—			2,330
Beneficial conversion feature related to issuance of senior convertible notes	—			—			14,200			—		—			—			14,200
Preferred stock dividends declared	—			—			(1,285	)		—		1,285			—			—
Common stock issued for preferred dividends	444			4			1,128			—		(1,132	)		—			—
Amortization of preferred stock discount	—			—			(2,230	)		—		—			—			(2,230	)
Net loss	—			—			—			—		—			(79,248	)		(79,248	)
Balance, December 31, 2001 (unaudited)	7,132		$	71		$	72,818		$	2,800	$	318		$	(164,905	)	$	(88,898	)

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

24

PROVELL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31

(Amounts in thousands)			2001			2000			1999
			(unaudited)
Operating Activities:
	Net (loss) income available to common shareholders		$	(82,769	)	$	(63,195	)	$	1,236
	Adjustments to reconcile net (loss) income to net cash (used for) provided by continuing operations:
		Discontinued operations, net of tax		(1,321	)		63,189			18,067
		Cumulative effect of change in accounting, net of tax		—			14,201			—
		Preferred stock-related charges		3,521			2,786			—
		Depreciation and amortization		2,979			1,513			2,357
		Amortization of note discount		14,084			—			—
		Interest expense on senior convertible notes		286			—			—
		Deferred income taxes		40,346			3,984			8,119
		Loss on disposal of property and equipment		—			19			22
	Changes in working capital items:
		Trade accounts receivable, net		8,553			(6,744	)		(11,817	)
		Deferred costs and other current assets		9,634			(29,644	)		2,534
		Accounts payable and accrued liabilities		(225	)		26,935			9,619
		Deferred membership revenue		41			(5,031	)		2,792
	Net cash (used for) provided by operating activities			(4,871	)		8,013			32,929
Investing Activities:
	Property and equipment additions, net			(1,931	)		(2,561	)		(911	)
	Other			—			(8	)		19
	Net cash used for investing activities			(1,931	)		(2,569	)		(892	)
Financing Activities:
	(Repayments) borrowings under revolving credit facility, net			(917	)		5,150			(5,140	)
	Net proceeds from issuance of senior convertible notes/preferred stock and warrants			13,133			18,853			—
	Payment of loan origination fees			(943	)		—			—
	Dividends paid			(165	)		—			—
	Repurchase and retirement of Common Stock			—			—			(7,091	)
	Net proceeds from exercise of stock options			35			2,463			932
	Net cash provided by (used for) financing activities			11,143			26,466			(11,299	)
	Net cash used in discontinued operations			(17,370	)		(22,730	)		(16,860	)
	Net (decrease) increase in cash and cash equivalents			(13,029	)		9,180			3,878
	Cash and cash equivalents, beginning of year			13,107			3,927			49
	Cash and cash equivalents, end of year		$	78		$	13,107		$	3,927
Supplemental Cash Flow Information:
Interest paid during the year			$	1,108		$	1,214		$	372
Income taxes (refunded) paid during the year				(583	)		834			(4,368	)

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

25

PROVELL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Description of Business

        The consolidated financial statements include the accounts of Provell, Inc., incorporated in Minnesota in 1986, and its subsidiaries, each of which is wholly owned (collectively, "Provell" or the "Company"). All significant inter-company transactions have been eliminated in consolidation. Effective April 24, 2001, the Company changed its name from Damark International, Inc. to Provell, Inc.

        Provell develops, markets, and manages an extensive portfolio of unique and leading-edge membership and customer relationship management programs. Members of the Company's proprietary programs receive value-added benefits, insightful information, and exclusive savings opportunities on a wide range of related products and services in areas of shopping, travel, hospitality, entertainment, health/fitness, finance and affinity activities such as cooking and home improvement. As of December 31, 2001, nearly 2.8 million consumers enjoyed benefits provided through Provell's membership programs.

        The Company had historically operated in three distinct businesses and marketplaces: catalog marketing, membership and e-fulfillment. The Company currently operates in a single business segment: membership and customer relationship management programs. During 2000, the Company exited its non-member catalog marketing business and redeployed the order capture, product fulfillment, and customer service capabilities from this business segment into ClickShip. The ClickShip business was discontinued in February 2001. The results of ClickShip and the non-member catalog marketing businesses are reported as discontinued operations (see Note 2).

Status of Operations

        Currently, the Company's liquidity needs arise primarily from funding the growth of its continuing membership business, liquidating its discontinued operations, and from capital expenditures.

        On March 5, 2002, the Company received notice through its payment processor that the Company will be disqualified from participating in the Visa program as a merchant, effective April 4, 2002. According to the notice, there is a right to appeal the decision at the payment processor's choice. The Company's payment processor, with the Company's cooperation, has submitted an appeal. On April 1, 2002, the Company received notice through its payment processor that the effective date of its pending disqualification would be extended to May 17, 2002 while the appeal is being considered.

        If an appeal is not successful, the Company would no longer be able to participate in the Visa program as a merchant and therefore would no longer have the independent ability to bill a significant number of its customers for membership enrollments and renewals. The Company is currently exploring other billing methods and alternative marketing and reselling approaches for its membership programs to Visa cardholders, including wholesale relationships with its clients and/or an outright sale of its renewal book to a third party. Termination of the Company's participation as a merchant in the Visa program without alternative marketing and/or reselling approaches in place would reduce the Company's revenue and cash flow but would also reduce the Company's expected operating loss for 2002 due to reduced investments in new member acquisitions and lower credit card fees.

        Since December 2001, the Company's payment processor has increased from $5.3 million to $10 million the amount of reserves the Company must keep on deposit with the payment processor. The magnitude of these reserves substantially reduces the borrowing availability under the Company's amended credit facility. The payment processor has denied the Company's requests for the release of a significant or any portion of the reserves but has indicated a willingness to consider proposals from the Company for alternative "near cash" forms of collateral such as a letter of credit.

26

        Management believes that, unless the Company quickly obtains additional financing or the Company's payment processor releases a significant portion of the reserves it is currently holding, cash expected to be generated from continuing operations and availability under the Company's amended credit facility will not be sufficient to provide adequate liquidity in the immediate short-term and during the balance of 2002 to fund the operations of the Company.

        The Company's ability to obtain additional financing will depend upon a number of factors, including the outcome of the appeal discussed above, the Company's future performance and financial results, and general economic and capital market conditions. The Company cannot predict whether it will be able to raise additional capital on reasonable terms or at all. In addition, the Company is exploring other possible strategic alternatives to meet its immediate and future liquidity needs, including filing a petition under Chapter 11 of the United States Bankruptcy Code.

        The Company has received notice from the Nasdaq Stock Market that it is not in compliance with the Nasdaq National Market's minimum-stock-price and minimum-market-value requirements for publicly held shares. The Company is exploring means of regaining compliance before May 15, 2002, the date by which Nasdaq has indicated these requirements must be addressed. Failure to maintain its Nasdaq listing would materially and adversely affect the Company's ability to raise capital. Such a failure, among others, would also be an event of default under the terms of the Company's Series D and Series E Preferred Stock, which would allow the holders of those shares to force the Company to redeem their shares at 125% of the purchase price. See the discussion under Note 6 below regarding other events that would allow the holders of the Series D and E Preferred Stock to require the Company to redeem their shares.

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may affect the amounts reported in the financial statements and accompanying notes. Consequently, actual results could differ because of the use of these estimates and assumptions. Estimates have been used primarily in recording accrued returns and accounts receivable, as well as discontinued operations and other judgmental reserves.

Revenue and Solicitation Costs Recognition

        The Company adopted Staff Accounting Bulletin No. 101—Revenue Recognition in Financial Statements ("SAB 101") effective January 1, 2000 and recorded a non-cash charge of $22.9 million ($14.2 million net of taxes) in 2000. Prior period financial statements were not restated. Under SAB 101, the Company defers all membership revenues, net of estimated returns, and amortizes them into revenue on a straight-line basis after the trial period has elapsed and over the remaining membership period, generally eleven months. The allowance for returns is based on the Company's most recent return experience and is updated each quarter. The majority of the Company's members can return a membership at any time prior to expiration of the membership term and receive either a full or pro-rated refund for the remaining portion of the membership period.

        In accordance with SAB 101, the cost of membership kits and vouchers are expensed when distributed. Direct response advertising costs (i.e., telemarketing and direct mail), refundable fees for commissions paid to clients and transaction processing costs, net of expected refunds, are capitalized as part of deferred membership solicitation costs and are amortized as expense in the same manner in which the related revenue is recognized. Other direct and indirect costs incurred with enrolling customers are expensed when incurred. Deferred membership solicitation costs incurred to obtain new members are generally less than the associated membership fees charged to customers. However, if deferred membership solicitation costs were to exceed membership fees, an adjustment would be made to the extent of any impairment.

27

        Prior to the adoption of SAB 101, membership revenues with respect to clubs for which the Company had an ongoing obligation were recorded on the balance sheet net of direct solicitation and other costs and, once the trial period had lapsed, amortized into income over the remaining membership period, generally eleven months. Revenues and related expenses on clubs for which the Company had no significant ongoing obligation were recognized immediately, net of an accrual for future anticipated returns, once any trial period had elapsed. During the fourth quarter of 1999, the Company refined its estimates of membership returns to reflect revised membership return policies and current cancellation and refund amount experience. The impact of this change in estimate was to increase net revenues by $3.2 million.

        Activity in the deferred membership revenue and accrued membership returns accounts is summarized as follows (in thousands):

	Balance at Beginning of Period		Additions	Reductions		Adjustments(1)	Balance at End of Period
Deferred membership revenue:
Year ended December 31, 2001	$	55,683	125,413	(125,421	)	49	$	55,724
Year ended December 31, 2000	$	24,749	110,718	(121,281	)	41,497	$	55,683
Accrued membership returns:
Year ended December 31, 2001	$	40,339	177,069	(186,135	)	464	$	31,737
Year ended December 31, 2000	$	16,911	139,640	(117,195	)	983	$	40,339

(1)

Adjustments relate primarily to the initial adoption of SAB 101 and reclassifications between accrued returns and deferred income.

        During 2000, the Company recognized $34.7 million of net revenue that was included as a component of the "cumulative effect of change in accounting" adjustment.

Cash Equivalents

        Cash includes cash equivalents consisting of highly liquid, short-term investments purchased with original maturities of three months or less and are recorded at cost, which approximates market value.

Property and Equipment

        Property and equipment are stated at cost. Depreciation and amortization for financial reporting purposes is generally accounted for using the straight-line method over the estimated useful lives of the respective assets as follows:

	Years
Computer hardware and software	3 to 5
Furniture and fixtures	7 to 10
Leasehold improvements	2 to 10

        Leasehold improvements are amortized over the shorter of their estimated useful lives or the applicable lease period. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of is removed from the related accounts and any residual balance is charged or credited to operations.

28

Income Taxes

        Deferred income taxes are provided for differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes based on income tax rates in effect at the balance sheet date.

Stock Option Plans

        The Company accounts for its stock option grants under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and provides the pro forma footnote disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") (see Note 8).

Fair Value of Financial Instruments

        Financial instruments held by or owed to the Company include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings. The carrying amounts as reported in the accompanying consolidated balance sheets approximate their fair values due principally to their short maturities.

Note 2. Discontinued Operations

        In January 2000, the Company announced its plans to wind-down its non-member catalog marketing and merchandising activities as a result of recurring losses. This business offered brand name, value-priced merchandise in the categories of computers, home office, electronics, home décor, home improvement and sports/fitness through a variety of catalog titles and an e-commerce web site. The wind-down was substantially completed by the end of the second quarter of 2000. The order capture, product fulfillment and customer service capabilities developed by the Company were re-deployed into ClickShip, which was formed in January 2000. While ClickShip developed some business relationships with several e-commerce customers, it was unable to generate sufficient revenues at sufficient margins to cover its high fixed-cost structure. In addition, negative capital market conditions prevented ClickShip from raising essential start-up capital. The ClickShip business was discontinued in February 2001.

        Both the former non-member catalog business and ClickShip are reported as discontinued operations effective December 31, 2000, and the consolidated financial statements have been restated to report separately the net assets and operating results of the discontinued businesses for all periods presented. Prior to the fourth quarter of 2000, these businesses had been reported by the Company as the "Catalog Retail" segment. In addition, certain corporate expenses have been reclassified as discontinued operations in accordance with generally accepted accounting principles.

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        Net liabilities of discontinued operations include the following at December 31, 2001 and 2000 (in thousands):

Assets:		2001			2000
Lease deposit and other		$	1,939		$	2,312
Property and equipment, net of estimated loss on disposal			—			500
Note receivable from former officer			954			871
Other current assets, net			13			1,909
Liabilities:
Accounts payable			(960	)		(6,529	)
Future lease obligations			(3,324	)		(6,906	)
Operating losses through disposal date			—			(4,000	)
Interest			(312	)		(1,300	)
Other wind-down related expenses			(5,179	)		(13,383	)
	Net liabilities of discontinued operations		(6,869	)		(26,526	)
Less: Current portion			(6,869	)		(23,830	)
	Net liabilities of discontinued operations, long-term	$	—		$	(2,696	)

        The note receivable from a former officer is due on January 2, 2003, bears interest at prime plus 3% on the unpaid principal balance and is secured by future payments owing to the former officer (see Note 10).

        The estimated loss on disposal recorded in 2000 was $18.2 million, net of a tax benefit of $11.2 million. The loss included $9.2 million for the impairment and write-off of property and equipment and other assets, operating losses through the disposal date and other estimated costs to exit these operations of approximately $18.9 million plus future interest expense of $1.3 million. During the fourth quarter of 2001, reserves for estimated losses were reduced by $2.1 million, $1.3 million net of tax, following the favorable resolution of certain liabilities and asset sales. Actual amounts could differ from these estimates.

        Summary operating results of the discontinued operations for the years ended December 31, 2000 and 1999 are as follows (in thousands):

		2000			1999
Net revenues		$	62,772		$	292,758
Operating loss			(68,337	)		(27,386	)
Interest expense			(1,387	)		(372	)
Loss on sale-leaseback of building			(2,741	)		—
Other			(80	)		(67	)
	Loss before taxes and extraordinary item		(72,545	)		(27,825	)
Tax benefit			27,567			9,461
Extraordinary gain on land condemnation, net of taxes of $153			—			297
	Net loss	$	(44,978	)	$	(18,067	)

        In December 2000, the Company sold ClickShip's fulfillment center for $22.0 million and entered into an agreement, which was terminated in January 2002, to lease back 471,000 square feet of the facility. The Company will record the termination of this agreement in the first quarter of 2002 by offsetting the lease deposit against the corresponding lease obligation. The net proceeds from the sale were $11.7 million after repayment of a construction

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loan. A pre-tax loss of $2.7 million on the sale has been included as part of discontinued operations in 2000. Additionally, the lease commitment was included in the estimated loss on disposal.

Note 3. Income (Loss) Per Share

        Basic income (loss) per share is computed based on the weighted average shares of common stock outstanding during the applicable periods while diluted earnings (loss) per share assumes conversion of potentially dilutive securities to shares of common stock outstanding during the applicable periods. Potentially dilutive securities include stock options that have been granted to employees and directors of the Company, convertible preferred stock and warrants and restricted stock.

        Options to purchase 2.7 million shares of the Company's Class A Common Stock (the "Common Stock"), 7.4 million shares issuable upon conversion of the Series D Preferred Stock and exercise of the related common stock warrants, 4.4 million shares issuable upon conversion of the Series E Preferred Stock and 25,000 shares of restricted stock at December 31, 2001 were not included in the computation of diluted loss per share as their effect would be anti-dilutive. In 2000, options to purchase 1.9 million shares of the Company's Common Stock and 2.7 million shares of convertible preferred stock and warrants were not included in the computation of diluted loss per share as their inclusion would have been anti-dilutive. In 1999, the dilutive effect of outstanding stock options was 300,000 shares that were included in diluted income per share.

Note 4. Property and Equipment

        At December 31, property and equipment related to continuing operations consisted of the following (in thousands):

		2001			2000
Computer hardware and software		$	8,255		$	6,325
Furniture and fixtures			1,501			1,501
Leasehold improvements			572			572
	Total		10,328			8,398
Accumulated depreciation and amortization			(6,102	)		(4,439	)
	Property and equipment, net	$	4,226		$	3,959

        Depreciation expense related to continuing operations was $1.7 million, $1.5 million and $2.4 million in 2001, 2000 and 1999, respectively

Note 5. Financing Arrangements

        On March 27, 2001, the Company entered into a $20.0 million revolving credit facility. The facility, as amended, expires on January 31, 2003, and is available for working capital and general corporate needs. As amended, the maximum revolver amount under the facility will be gradually reduced from $17.5 million in April 2002 to $10 million in December 2002. Availability under the facility is determined monthly based upon the sufficiency of eligible receivables and cash collections and can be adjusted at any time within the bank's permitted discretion. The reserve currently held by the Company's payment processor negatively affects availability under the facility. See additional discussion in Note 1.

        Borrowings outstanding under the credit facility bear interest at the prime rate of interest plus 3.0% (7.75% at December 31, 2001) and are secured by all assets of the Company. The credit facility includes covenants, which require

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the Company to satisfy certain quarterly financial tests, including minimum earnings before interest and taxes and net worth. As of December 31, 2001 there was a $0.9 million reserve against borrowing availability under the credit agreement for future expenditures associated with the liquidation of ClickShip. At December 31, 2001, the Company had $4.2 million outstanding under the credit facility, $13.8 million available for additional borrowings (not including amounts reserved for ClickShip expenditures) and was in compliance with all covenant requirements except for its earnings before interest and taxes ("EBIT") and net worth covenants. In amending the facility, the Company's lending syndicate waived the covenant violations and agreed to new covenant thresholds for minimum levels of EBIT, adjusted tangible net worth and customer base, among other matters.

        In February 2001, the Company terminated its former $10.0 million commercial credit facility, which was available for working capital and general corporate needs. Borrowings outstanding under this line of credit bore interest at the federal funds rate of interest plus 0.5%, bank prime or LIBOR plus 3.25% and were secured by all assets of the Company except real property.

Note 6. Preferred Stock

        On February 27, 2001, the Company completed a private placement with five institutional investors of $14.2 million in 10% Senior Convertible Notes due February 4, 2002 (the "Notes"). Following the satisfaction of certain specified conditions, the Notes plus accrued interest were converted into 144,856 shares of the Company's Series E Preferred Stock on June 8, 2001. In July 2001, 13,500 shares of Series E Preferred Stock were converted into Common Stock. The Series E Preferred Stock has a stated value of $100 per share and is convertible into the Company's Common Stock at $3.00 per share subject to certain adjustments for future dilutive events. The Company received $10.0 million of the proceeds at closing, and the balance, less transaction fees of approximately $1.1 million, was received in June 2001.

        Because the conversion price on the Notes was less than the stock price on the date of issuance, the Company recorded a $14.2 million beneficial conversion feature as additional paid-in capital and as a discount on the original note obligation. Prior to conversion to Series E Preferred Stock, the discount was amortized ratably over the original term of the Notes using the effective interest method. Prior to the conversion of the Notes, the Company recorded a charge of $14.1 million or $2.18 per share of amortization expense pertaining to the note discount. This amount is not deductible for income tax purposes.

        The Series E Preferred Stock is redeemable at 125% of the outstanding stated value upon the occurrence of a triggering event (such as failure to maintain applicable resale registration statement covering the Company's Common Stock issuable upon conversion of the Series E Preferred Stock or inability to maintain Nasdaq listing of the Company's Common Stock) or a major transaction (such as a sale or merger of the Company) as defined in the Certificate of Designations, Preferences and Rights for the Series E Preferred Stock. Unless converted to Common Stock, the Series E Preferred Stock will be redeemed on February 27, 2003 at the stated value of the shares in cash or, at the Company's option, for shares of the Company's Common Stock valued at 90% of then-current market price. The Series E Preferred Stock ranks pari passu with the Series D Preferred Stock issued in September 2000.

        On September 29, 2000, the Company completed a $20.0 million private placement of Series D Preferred Stock with four institutional investors. The Company issued 200,000 shares of Series D Preferred Stock with a par value of $0.01 per share and a stated value of $100 per share. The net proceeds were used to supplement working capital needs. Initially the Series D Preferred Stock was convertible at any time at the option of the holder into the Company's Common Stock at $12.94 per share, subject to certain adjustments for future events. In February 2001, the conversion price was reset to $3.00 in conjunction with the sale of the Notes. In July 2001, 10,800 shares of Series D Preferred Stock were converted into Common Stock. The Series D Preferred Stock has a dividend rate of 6.5% per annum payable quarterly in cash or, at the Company's option, shares of the Company's Common Stock valued at 90% of its

32

then-current market price. Unless previously converted to Common Stock, the Series D Preferred Stock will be redeemed on September 29, 2002 at the stated value of the shares in cash or, at the Company's option, for shares of the Company's Common Stock valued at 90% of its then-current market price. The Company may also be required to redeem the Series D Preferred Stock at the stated value plus a 25% premium and accrued dividends for cash at any time following a consolidation or merger with another company or the occurrence of other triggering events as detailed in the Certificate of Designations, Preferences and Rights of the Series D Preferred Stock.

        In addition, the Company issued Common Stock Purchase Warrants ("Warrants") to the purchasers of the Series D Preferred Stock for an aggregate of 772,798 shares of Common Stock at an exercise price of $16.17 per share, subject to adjustments similar to the Series D Preferred Stock. As a result of the issuance of the Notes in February 2001, the exercise price was adjusted to $11.65 per share and the number of shares of Common Stock subject to the Warrants increased to 1,072,815 shares. The Company allocated the net proceeds of $18.9 million (cash proceeds of $20.0 million net of transaction costs of $1.1 million) from the issuance of the Series D Preferred Stock and Warrants between the relative fair values of the preferred stock and Warrants. The value allocated to the Warrants, $2.8 million, is reflected as a component of shareholders' deficit. The remaining Series D Preferred Stock is being accreted to its redemption value of $18.9 million over the two-year period ending on the mandatory redemption date.

        Because the proceeds allocated to the Series D preferred shares were less than the fair value of the Common Stock that would be issuable upon assumed conversion as of September 29, 2000, the issuance of the preferred shares resulted in a non-detachable beneficial conversion feature that was recognized by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The beneficial conversion feature of $2.0 million was accounted for as an immediate dividend to the Series D preferred shareholders since the Series D preferred shareholders have immediate conversion rights. Since the Company had an accumulated deficit as of the approval date, the beneficial conversion feature and the preferred stock accretion was netted against additional paid-in capital rather than accumulated deficit, resulting in no change to net shareholders' deficit.

        The Company has received notice from Nasdaq that it is not in compliance with the Nasdaq National Market's minimum stock price and minimum market value requirements for publicly held shares. The Company is exploring means of regaining compliance before May 15, 2002, the date by which Nasdaq has indicated these requirements must be addressed. Failure to maintain its Nasdaq listing would materially and adversely affect the Company's ability to raise capital and would be an event of default under the terms of the Company's Series D and Series E Preferred Stock, which would allow the holders of such preferred stock to force the Company to redeem their shares at 125% of the purchase price, or approximately $40.1 million in the aggregate.

        During 1998, a series of junior participating preferred stock ("Series C Preferred Stock") was established. The holders of shares of Series C Preferred Stock are entitled to receive, if declared by the Board of Directors (the "Board"), quarterly dividends equal to the greater of $1 or one hundred times the aggregate per share amount of all cash dividends, and one hundred times the aggregate per share amount of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock, declared on the Common Stock. Each share of Series C Preferred Stock entitles the holder to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. There were no shares of Series C Preferred Stock outstanding at December 31, 2001 or 2000.

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Note 7. Shareholders' (Deficit) Equity

        During 1999, the Company repurchased approximately 794,000 shares of its Common Stock at an aggregate cost of $7.1 million. Repurchased shares were acquired under a series of programs authorized by the Company's Board that included private and open market transactions. During the fourth quarter of 1999, the Board authorized a one million share open-market repurchase program. As of December 31, 2001 no shares had been purchased under this program and all share repurchases authorized under previous programs were completed. The Company's revolving credit facility executed in March 2001 prohibits any further share repurchases by the Company.

        On January 30, 1998, the Board approved a stock purchase plan pursuant to which non-employee directors could purchase in aggregate 50,000 shares of Common Stock at a price per share equal to the average of the last reported selling price for the 20 trading days preceding the date of purchase. The plan was amended in November 1998 to reduce the number of shares available for purchase to 25,000. At December 31, 2001, 20,000 shares remained available for purchase.

Note 8. Stock Option Plans

        In 1991, the Damark International, Inc. Stock Option Plan (the "1991 Plan") was adopted to provide for the granting of incentive stock options ("ISOs") or non-statutory stock options to key employees. On March 20, 2001, the 1991 Plan expired, and stock options can no longer be granted under this plan. In May 2001, the Provell, Inc. 2001 Stock Option Plan (the "2001 Plan") was approved by the shareholders of the Company. ISOs or non-statutory stock options may be granted under the 2001 Plan. Options may be granted to key employees and consultants of the Company and can automatically be granted to non-employee directors. The purchase price of the shares of Common Stock subject to options granted under the 2001 Plan is determined by the Board but shall not be less than 100% of market value on the date of grant for ISOs or less than 85% of market value on the date of grant for non-statutory options. Options granted under the 2001 Plan shall vest at such rate and upon such conditions as the Board shall determine at the time the option is granted. All options will accelerate upon retirement after the normal retirement date, death or disability of an optionee or when a change of control, as defined, occurs. At December 31, 2001, 1.5 million shares of Common Stock were reserved for issuance, of which approximately 780,000 shares remained available for grant.

        In addition, from time to time, options to purchase Common Stock have been granted to certain members of the Board. These options vest in three equal annual installments on the anniversary of the date of grant and expire upon the earlier of one year after retirement from the Board or ten years from the date of grant.

        On January 30, 1998, the Company granted its former chief executive officer an option to purchase 400,000 shares of Common Stock at $10.00 per share contemporaneously with an assignment by him to the Company of his right to purchase 456,548 shares of Common Stock. The option vests in five equal annual installments beginning in 1999, expires ten years from the date of grant and was not granted under the 1991 Plan. The Company exercised its assigned purchase rights in 1998, which repurchased shares are included in the aggregate shares repurchased in 1998.

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        Information regarding the Company's stock options is summarized below (in thousands except price data):

			2001				2000				1999
			Option shares		Weighted average exercise price		Option shares		Weighted average exercise price		Option shares		Weighted average exercise price
Options outstanding:
	Beginning of year		1,866		$	11.14	1,803		$	8.60	1,901		$	8.43
		Granted	1,092			3.04	450			18.14	200			8.23
		Canceled	(202	)		9.64	(61	)		7.89	(103	)		12.11
		Exercised	(7	)		5.03	(326	)		7.32	(195	)		4.78
	End of year		2,749		$	8.05	1,866		$	11.14	1,803		$	8.60
Options exercisable:
	End of year		1,571		$	8.49	952		$	8.93	993		$	8.37

        Options outstanding at December 31, 2001 had exercise prices between $1.15 and $18.25 per share and a weighted average remaining contractual life of 7.1 years.

        The Company accounts for its stock option grants under APB No. 25. Since options have not been granted at less than fair market value on the date of grant, no compensation expense has been recognized for stock options granted. Had compensation cost for option grants been determined consistent with SFAS No. 123, the Company's net income and earnings per share, on a pro forma basis, would have been reported as follows:

			2001			2000			1999
Net (loss) income (in thousands):
	As reported		$	(67,769	)	$	(63,195	)	$	1,236
	Pro forma		$	(71,266	)	$	(66,878	)	$	(388	)
(Loss) income per share:
	As reported:
		Basic	$	(10.50	)	$	(10.96	)	$	0.21
		Diluted	$	(10.50	)	$	(10.96	)	$	0.20
	Pro forma basic and diluted		$	(11.04	)	$	(11.60	)	$	(0.07	)

        Since the method of accounting required by SFAS No. 123 has not been applied to options granted by the Company prior to January 1, 1995, the above pro forma compensation cost may not be representative of that to be expected in future years. In determining the compensation cost of options granted, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized below:

	2001			2000			1999
Weighted average risk-free interest rate		3.62	%		5.11	%		6.28	%
Weighted average expected life		5 years			4 years			4 years
Weighted average expected volatility		96.40	%		68.49	%		61.41	%
Weighted average fair value	$	2.30		$	10.63		$	5.74

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Note 9. Income Taxes

        The Company's provision (benefit) for income taxes for the years ended December 31 is summarized as follows (in thousands):

		2001		2000			1999
Current		$	90	$	710		$	2,106
Deferred			41,155		(37,736	)		(1,470	)
	Total	$	41,245	$	(37,026	)	$	636

        A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate for the years ended December 31 is as follows:

		2001		2000		1999
Statutory federal income tax rate		34.0%		(34.0	)%	34.0	%
State income taxes		3.0	%	(4.0	)%	3.0	%
Increase in deferred tax valuation allowance		80.1	%	—	%	—	%
Deferred income tax adjustments		—	%	—	%	(2.8	)%
Nondeductible amortization and loan fees		(13.9	)%	—	%	—	%
Other		(2.4	)%	—	%	(0.2	)%
	Effective income tax rate	100.8	%	(38.0	)%	34.0	%

        The components of the Company's net deferred income tax asset as of December 31 are as follows (in thousands):

				2001			2000
Current deferred income tax asset (liability):
	Deferred membership revenue			$	21,360		$	20,301
	Accrued returns				11,743			15,864
	Deferred membership solicitation and marketing costs				(17,746	)		(21,652	)
	Reserves for discontinued operations				5,338			11,823
	Accrued commissions				(3,889	)		(1,169	)
	Other, net				(572	)		1,323
	Valuation allowance				(26,407	)		—
		Net current deferred income tax asset (liability)			(10,173	)		26,490
Long-term deferred income tax asset (liability):
	NOL and tax credit carryforwards				29,349			14,060
	Depreciation and amortization				3,139			1,461
	Other, net				—			(856	)
	Valuation allowance				(22,315	)		—
		Net long-term deferred income tax asset			10,173			14,665
			Total deferred income tax asset	$	—		$	41,155

        As a result of the financing transactions discussed in Note 6, in February 2001, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code. Accordingly, the Company's NOL

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carryforwards generated prior to the ownership change will be subject to an annual limitation that will limit or defer the utilization of these losses. The NOLs expire in 20 years.

        At December 31, 2001, the Company assessed its deferred tax asset position and concluded that the entire asset did not meet the "more likely than not" criteria required by generally accepted accounting principles for realization.

Note 10. Commitments and Contingencies

Leases

        The Company leases its offices and certain other equipment under renewable operating lease agreements expiring at various dates through 2006. Lease expense for continuing operations for the years ended December 31, 2001, 2000 and 1999 was $1.6 million, $1.3 million, and $1.4 million, respectively. Future minimum lease commitments under non-cancelable operating leases for continuing operations as of December 31, 2001 are as follows (in thousands):

2002		$	1,521
2003			1,068
2004			748
2005			398
2006			49
	Total	$	3,784

Certain Agreements

        The Company has entered into a severance and change of control agreement with its Chairman, President and Chief Executive Officer. If (i) there is a change of control, (ii) the Company terminates the executive's employment without cause, or (iii) the executive terminates his employment for good reason, the Company has agreed to pay the executive a severance payment equal to $593,750 plus two times the sum of his then current base salary, but not less than $475,000, and his annual bonus, and the executive has agreed not to compete with the Company for one year and to honor certain nonsolicitation and nondisparagement obligations for one year. In addition, if there is a change of control during the term of the agreement, the executive will receive an additional payment based on a formula presented in the agreement, along with continued participation in the Company's benefit plans for two years. In July 2001, the executive also received a restricted stock award of 25,000 shares of Common Stock which vests in July 2003.

        The Company has also entered into a severance and change of control agreement with its Senior Vice President of Marketing. If (i) the Company terminates the executive's employment without cause, (ii) the executive terminates his employment for good reason, or (iii) the executive's employment is terminated, whether voluntarily or involuntarily, for any reason other than for cause upon or within thirteen months after a change of control, the executive will receive a severance payment equal to the product of two times the sum of the executive's base salary and annual bonus, along with continued participation in the Company's benefit plans for two years. If (i) there is a change of control, (ii) the Company terminates the executive's employment without cause, or (iii) the executive terminates his employment for good reason, the executive has agreed not to compete with the Company for one year and to honor certain nonsolicitation and nondisparagement obligations for one year.

        The Company has entered into a separation agreement with its former Chairman and Chief Executive Officer in connection with his resignation in February 2001. Under this agreement, the Company terminated various agreements with its former Chief Executive Officer, including his employment agreement and the agreement obligating the Company to purchase his shares of Common Stock upon his death. This separation agreement states that for three years

37

after his resignation, he would receive certain employee benefits and his base annual salary of $475,000, except that the last salary payments were to be used to repay his current indebtedness to the Company under the 1999 loan to him (see Note 2). The Company has reflected this liability as part of discontinued operations. His stock options will also continue to vest and be exercisable during this three-year period. In the event of a change of control, the balance of the salary payments (less the amount necessary to repay the loan) will be accelerated and any unvested option will become vested. The Company and its former Chief Executive Officer are currently in a dispute regarding the separation agreement. Management believes that the resolution of this dispute will not have a material adverse effect on the financial condition or operations of the Company.

        The Company has entered into a severance, confidentiality and noncompete agreement with an executive officer. Prior to a change in control, if the executive's employment is terminated without cause, the executive is entitled to receive his base salary for 24 months, a pro rata bonus for the current year if the termination is on or after July 1, continued participation in benefit plans for 24 months and outplacement services. If the executive voluntarily resigns, the Company has the option to waive the noncompete covenants of the agreement and pay no severance benefits or reduce the term of the noncompete covenant to one year and pay 50% of the severance benefits. The Company can terminate the executive's employment for cause prior to a change in control by the Company without triggering any severance benefits under this agreement.

        In addition, the Company has entered into change in control, confidentiality and noncompete agreements with certain executive officers. If, within 24 months following a change in control, the Company terminates the executives' employment without cause or the executives terminate for good reason or, within the 60-day period after the first anniversary of the change in control, the executives terminate employment for any reason, the executives will receive salary, bonus and continued participation in the benefit plans for 24 months. If the Company terminates the executives' employment for cause or the executives terminate without good reason or outside the 60-day window previously described, no special severance is provided under the agreements. In the event of a change of control, the executives have agreed not to compete with the Company for a period of one year regardless of the reason for termination.

        The Provell 401(k) Retirement Plan (the "Retirement Plan") is an employee savings plan qualified under Section 401(k) of the Internal Revenue Code of 1954. The Retirement Plan covers substantially all employees of the Company who have attained age 21 and have completed at least 90 days of service, as defined. Under the Retirement Plan, employees generally may elect to make, subject to limitations, pre-tax salary reduction contributions of up to 20% of their annual base salary. The Company's matching contribution to the Retirement Plan is currently 50% of the first four percentage points of each employee's contribution, subject to certain limitations. Although the Retirement Plan also allows the Company to make certain discretionary contributions, no such contributions were made in 2001, 2000 or 1999.

        The Company has a deferred compensation plan for non-employee members of its Board. Under this plan, such directors are able to defer all or part of their fees for service and have such fees invested in Common Stock equivalents distributable as Common Stock upon termination of services, death or a change in control.

Contingencies

        In conjunction with the construction of its distribution and warehouse facility in 1994, the Company entered into a contract with the Brooklyn Park Economic Development Authority (the "Authority") in which the Authority agreed to reimburse the Company for certain development costs incurred. Such costs were reimbursable from tax increment funds directly attributed to the development. In December 1998, the Company obtained a note from the Authority for the remaining funds to be reimbursed and assigned the note to the Authority in exchange for a payment equal to the

38

$2.4 million principal amount of the note. In the event there is insufficient tax increment to make scheduled payments of principal and interest on the note, the Company is obligated, at the Authority's request, to repurchase the note.

        On August 29, 2000, the Company was served with a complaint styled as a class action in Minnesota State Court. The complaint is similar to complaints previously settled by the Company with the Minnesota Attorney General on December 3, 1999, but also contends that certain business practices violate other Minnesota consumer protection laws. Plaintiffs seek both damages and injunctive relief. The Company believes it has strong factual and legal defenses and is vigorously defending the allegations both on the merits and in regard to class status. The Company's and plaintiffs' cross-motions for summary judgment are currently pending. Management believes that the resolution of this action will not have a material adverse effect on the financial condition or operations of the Company.

        On April 17, 2001, four former ClickShip employees filed a complaint styled as a class action in Federal District Court in Minnesota against the Company, alleging that the Company had failed to provide appropriate notice to employees and pay annual performance bonuses when ClickShip's operations were ceased. Plaintiffs seek payment in lieu of notice, incentive pay, and statutory penalties. The Company believes it has strong factual and legal defenses and is vigorously defending the allegations. This matter is currently in the discovery phase of litigation. Management believes that the resolution of this action will not have a material adverse effect on the financial condition or operations of the Company

        The Company is a party to various claims, legal actions and other complaints arising in the ordinary course of business. Management believes that any losses that may occur are adequately covered by insurance or are otherwise provided for and the ultimate outcome of these matters will not have a material effect on the financial position or operations of the Company.

Note 11. Related Party Transactions

        Marvin Traub, a director of the Company, is President of Marvin Traub Associates, Inc. Marvin Traub Associates, Inc. provided consulting services to the Company and received fees of $125,000 in 2001 and $100,000 in 2000. In addition, 50,000 stock options were granted for such services during 2001. The Company is amortizing the estimated value of these options over the respective service periods by charging general and administrative expense and crediting paid-in capital. During 2001, the Company recorded $55,000 of expense related to these options.

        Charles Wenger, a director of the Company, is the President and Founder of c. wenger group. c. wenger group provided market research services to the Company. Fees for these services were $111,500, $49,400, and $41,600 in 2001, 2000 and 1999, respectively.

Note 12. Recently Issued Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, "Business Combinations" ("SFAS 141"), which is effective for business combinations initiated after June 30, 2001. SFAS 141 eliminates the pooling of interests method of accounting for business combinations and requires that all business combinations occurring on or after July 1, 2001 be accounted for under the purchase method.

        In July 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective for fiscal years beginning after December 15, 2001. SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in the financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather be tested at least annually for impairment, and intangible assets that have finite useful lives be amortized over their useful lives. SFAS 142 provides specific guidance for

39

testing goodwill and intangible assets that will not be amortized for impairment. Management believes that the adoption of this statement will not have a material impact on the Company's financial position or results of operations.

        In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") effective for fiscal years beginning after December 15, 2001. SFAS 144 requires that long-lived assets to be disposed of by sale, including discontinued operations, be measured at the lower of the carrying cost or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. Management believes that the adoption of this statement will not have a material impact on the Company's financial position or results of operations.

40

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

		2001
		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
		(Amounts in thousands except per share amounts)
Net revenues		$	32,948		$	34,793		$	36,902		$	33,437
Loss from continuing operations			(15,829	)		(7,459	)		(4,263	)		(53,018	)
Discontinued operations, net of tax			—			—			—			1,321
Net loss			(15,829	)		(7,459	)		(4,263	)		(51,697	)
Preferred stock-related charges			(790	)		(862	)		(922	)		(947	)
Net loss available to common stockholders		$	(16,619	)	$	(8,321	)	$	(5,185	)	$	(52,644	)
Basic and diluted income (loss) per common share:
	Income from continuing operations	$	(2.69	)	$	(1.24	)	$	(0.66	)	$	(7.43	)
	Discontinued operations, net of tax		—			—			—			0.18
	Preferred stock-related charges		(0.13	)		(0.14	)		(0.14	)		(0.13	)
Net loss available to common stockholders		$	(2.82	)	$	(1.38	)	$	(0.80	)	$	(7.38	)

		2000
		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
		(Amounts in thousands except per share amounts)
Net revenues		$	36,139		$	34,044		$	31,766		$	33,991
Income from continuing operations before cumulative effect of change in accounting			7,197			5,965			2,757			1,062
Discontinued operations, net of tax			(19,157	)		(14,783	)		(6,020	)		(23,229	)
Cumulative effect of change in accounting, net of tax			(14,201	)		—			—			—
Net loss			(26,161	)		(8,818	)		(3,263	)		(22,167	)
Preferred stock-related charges			—			—			(1,989	)		(797	)
Net loss available to common stockholders		$	(26,161	)	$	(8,818	)	$	(5,252	)	$	(22,964	)
Basic and diluted income (loss) per common share:
	Income from continuing operations before cumulative effect of change in accounting	$	1.27		$	1.00		$	0.46		$	0.23
	Discontinued operations, net of tax		(3.39	)		(2.53	)		(1.03	)		(4.01	)
	Cumulative effect of change in accounting, net of tax		(2.52	)		—			—			—
	Preferred stock-related charges		—			—			(0.34	)		(0.14	)
Net loss available to common stockholders		$	(4.64	)	$	(1.53	)	$	(0.91	)	$	(3.92	)

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

        None.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Information regarding members of the Company's Executive Officers is included in Part I of this Annual Report on Form 10-K under heading "Item X. Executive Officers of the Registrant." Information regarding members of the Company's Board of Directors is set forth below:

Derek R. Reisfield (39) was a Managing Principal of I-Hatch Ventures LLC, a partnership providing capital and advisory services to early stage Internet and technology companies, from 1999 until December 2001. During 1999, Mr. Reisfield served as Vice Chairman and Executive Vice President of Luminant Worldwide Corporation, a technology professional services firm advising Fortune 1,000 companies. From 1996 to 1999, Mr. Reisfield was employed by the CBS Corporation in various executive capacities, including President of CBS New Media Group and Vice President of Business Development. He also served as Chairman of the Board of Marketwatch.com, LLC. For ten years prior to 1996, Mr. Reisfield was a senior consultant with McKinsey & Company and later a Partner with Mitchell Madison Group advising major media and telecommunications companies on their strategies. Mr. Reisfield was elected as a director of the Company at its Annual Meeting of Shareholders in 2001 for a term expiring at the Annual Meeting of Shareholders in 2003.

Marvin S. Traub (76) has been President of Marvin Traub Associates, Inc., a consulting firm specializing in manufacturing, marketing and retailing industries, since he founded the company in February 1992. Mr. Traub also serves as Senior Advisor to Financo, an investment banking firm he joined in 1994. Mr. Traub was President of Bloomingdales from 1969 to 1978, and was Chairman and Chief Executive Officer from 1978 to 1991 when he retired. He held various other executive positions with Bloomingdales since 1950. Mr. Traub served as a director of Federated Department Stores, Inc. from 1978 to 1988 and as Director and Vice Chairman of Campeau Corporation from 1988 to 1991. Mr. Traub also serves as Chairman of The Home Co., a national retail furniture chain. Mr. Taub was elected as a director of the Company at its Annual Meeting of Shareholders in 2001 for a term expiring at the Annual Meeting of Shareholders in 2004.

Charles D. Wenger (67) is founder and president of c. wenger group, a consulting and research firm focused in the areas of customer retention, service quality measurement and improvement, and marketing research. Based in Des Moines, Iowa, the firm has been in business for 26 years serving clients in the direct marketing, telecom, financial services, electronics, hospitality, and entertainment industries. c. wenger group has worked with Provell since 1995 providing call center quality improvement strategies as well as marketing research for Provell's membership clubs. Mr. Wenger serves on several corporate boards including the Bergquist Company, a privately held manufacturer of electronic and thermal management components based in Chanhassen, Minnesota. Mr. Wenger was appointed a director of the Company in 2001 for a term expiring at the Annual Meeting of Shareholders in 2002.

George S. Richards (37) has been the Company's Chairman, President and Chief Executive Officer since February 2001, and President and Chief Operating Officer since September 1998. Mr. Richards has served in various executive capacities of Provell since 1995. Prior to that, Mr. Richards held a variety of senior management positions at Montgomery Ward Direct and Sears, Roebuck & Co. and was a Senior Consultant in the Consumer Interest Group practice at McKinsey & Company, Inc. in New York and Chicago. Mr. Richards was elected as a director of the Company at its Annual Meeting of Shareholders in 2000 for a term expiring at the Annual Meeting of Shareholders in 2003.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who own more than ten percent of the Company's outstanding Common Stock to file with the Securities and

42

Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Directors, executive officers and persons owning more than ten percent of the Company's outstanding Common Stock are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports that they file. To the Company's knowledge and based solely on a review of the copies of such reports furnished to the Company during 2001 and until the date of this Annual Report on Form 10-K, the Company's directors and executive officers and persons owning more than ten percent of the Company's outstanding Common Stock complied with all applicable Section 16(a) filing requirements, except that Mr. Wenger was late in filing his Form 3 Initial Report upon election to the Board of Directors and Mr. Traub was late in filing a Form 4 Statement of Changes in Beneficial Ownership.

ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation and Other Information

SUMMARY COMPENSATION TABLE

        The following table shows, for each of the persons who served as the Company's Chief Executive Officer and each of the four other most highly compensated executive officers of the Company, information concerning compensation earned for services in all capacities during the fiscal year ended December 31, 2001, as well as compensation earned by each such person for the two previous fiscal years.

	Annual Compensation ($)				Long-Term Compensation
Name and Principal Position	Year	Salary	Bonus(1)		Common Shares Underlying Options (#)	Restricted Stock Awards ($)	Other ($)(2)
Mark A. Cohn     Former Chairman of the Board and     Chief Executive Officer	2001 2000 1999	438,462 475,000 475,000	— — 712,500		— — —	— — —	— — —
George S. Richards     Chairman of the Board,     President and Chief Executive Officer	2001 2000 1999	476,718 473,282 325,000	— 406,627 487,500	(3)	482,500(4) 400,000(4) 30,000(4)	95,250(4) — —	1,700 1,700 1,440
Rodney C. Merry     Senior Vice President and     Chief Information Officer	2001 2000 1999	200,000 200,000 200,000	— 154,641 270,000		60,000(5) — —	— — —	1,546 1,700 1,440
Michael T. McGowan     Senior Vice President of     Marketing	2001 2000 1999	175,000 174,840 164,043	— 120,172 197,999		135,000(6) — 40,000(7)	— — —	1,700 1,700 1,440
Michael T. Del Viscio     Vice President of     Merchandising	2001 2000 1999	185,000 180,599 139,813	— 127,149 214,855		25,000(7) — 40,000(7)	— — —	1,513 1,700 —
Kim M. Mageau     Former Senior Vice President and     Chief Financial Officer	2001 2000 1999	141,538 81,538 —	250,000 65,800 —		— 50,000(8) —	— — —	1,483 336 —

(1)

Reflects bonus earned during the fiscal year indicated although all or a portion of the bonus may have been paid during the next fiscal year. Mr. Del Viscio's 1999 bonus includes a $26,000 signing bonus. Ms. Mageau's 2001 bonus was paid under a special bonus agreement under which she was entitled to $250,000, one-half payable three

43

months after completion of a certain financing transaction and the remaining one-half payable three months thereafter.

(2)

Amounts represent the Company's matching contribution for each respective executive's individual contribution to the Company's 401(k) Plan.

(3)

In January 2002, Mr. Richards was awarded a bonus of $169,000 for fiscal 2001, contingent upon availability of funds, among other things. As of April 1, 2002, this bonus had not been paid.

(4)

In July 2001, Mr. Richards received an option to purchase 300,000 shares of Common Stock at $3.81 per share, 200,000 of which vested immediately and the remainder of which vest in equal installments in July 2002, 2003 and 2004, and a restricted stock award of 25,000 shares of Common Stock which vests in July 2003. In March 2001, Mr. Richards received an option to purchase 182,500 shares of Common Stock at $2.906 per share, vesting in equal installments in March 2002, 2003 and 2004. In May 2000, Mr. Richards received an option to purchase 400,000 shares of Common Stock at $18.25 per share, vesting in equal installments in May 2001, 2002, and 2003. In August 1999, Mr. Richards received an option to purchase 30,000 shares of Common Stock at $6.625 per share, vesting in equal installments in August 2000, 2001, and 2002.

(5)

In December 2001, Mr. Merry received an option to purchase 50,000 shares of Common Stock at $1.15 per share, vesting in equal installments in December 2002, 2003 and 2004. In March 2001, Mr. Merry received an option to purchase 10,000 shares of Common Stock at $2.906 per share, vesting in equal installments in March 2002, 2003 and 2004.

(6)

In December 2001, Mr. McGowan received an option to purchase 100,000 shares of Common Stock at $1.15 per share, 15,000 of which vested immediately and the remainder of which vest in equal installments in December 2002, 2003 and 2004. In March 2001, Mr. McGowan received an option to purchase 35,000 shares of Common Stock at $2.906 per share, vesting in equal installments in March 2002, 2003 and 2004. In 1999 Mr. McGowan received options to purchase 40,000 shares of Common Stock at $7.56 per share, vesting in equal installments over 2000, 2001 and 2002.

(7)

In December 2001, Mr. Del Viscio received an option to purchase 15,000 shares of Common Stock at $1.15 per share, vesting in equal installments in December 2002, 2003 and 2004. In March 2001, Mr. Del Viscio received an option to purchase 10,000 shares of Common Stock at $2.906 per share, vesting in equal installments in March 2002, 2003 and 2004. In 1999 Mr. Del Viscio received options to purchase 40,000 shares of Common Stock at $8.63 per share, vesting in equal installments over 2000, 2001, and 2002.

(8)

In July 2000, Ms. Mageau received an option to purchase 50,000 shares of Common Stock at $17.25 per share, vesting in equal installments in July 2001, 2002, and 2003. Ms. Mageau resigned her employment with the Company on September 10, 2001 and forfeited her unexercised options.

44

Option Grants During Fiscal Year Ended December 31, 2001

        The following table summarizes information relating to options granted during the fiscal year ended December 31, 2001 to the executive officers named in the Summary Compensation Table above.

OPTION GRANTS IN LAST FISCAL YEAR

							Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2)
		Percent of Total Options Granted to Employees in Fiscal Year
	Common Shares Underlying Options Granted (#)(1)
Name				Exercise or Base Price per Share		Expiration Date
							5%		10%
Mark A. Cohn	—	—		$	—	—	$	—	$	—
George S. Richards	482,500	44	%		3.468	07/2011		1,757,012		4,340,226
Rodney C. Merry	60,000	5	%		1.443	12/2011		90,888		224,514
Michael T. McGowan	135,000	12	%		1.605	12/2011		227,545		562,090
Michael T. Del Viscio	25,000	2	%		1.853	12/2011		48,625		120,116
Kim M. Mageau	—	—			—	—		—		—

(1)

With respect to Mr. Richards', options, 200,000 shares were exercisable immediately, with the remaining shares vesting on the first three annual anniversaries of the date of grant, subject to continued employment with the Company. The options of Messrs. Merry and Del Viscio vest in equal installments on the first three annual anniversaries of the date of grant, subject to continued employment with the Company. With respect to Mr. McGowan's options, 15,000 shares were exercisable immediately, with the remaining shares vesting in equal installments on the first three annual anniversaries of the date of grant, subject to continued employment with the Company.

(2)

The 5% and 10% assumed rates of growth are for illustrative purposes only. They are not intended to predict future stock price, which depend on market conditions and other factors such as the Company's performance.

Option Exercises and Year-End Value Table

        The following table summarizes information relating to options exercised in 2001 and unexercised stock options as of December 31, 2001 of the executive officers named in the Summary Compensation Table above. There were no stock appreciation rights (SARs) outstanding at December 31, 2001.

45

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES

			Number of Securities Underlying Unexercised Options/SARs at December 31, 2001 (#)
					Value of Unexercised In the Money Options/SARs at December 31, 2001($)(1)
	Shares Acquired upon Exercise (#)
Name		Value Realized ($)
			Exercisable	Unexercisable	Exercisable	Unexercisable
Mark A. Cohn	—	—	36,667	120,000
George S. Richards	—	—	553,334	559,166	—	—
Rodney C Merry	—	—	75,000	60,000	—	24,500
Michael T. Del Viscio	—	—	26,666	38,334	—	7,350
Michael T. McGowan	—	—	64,666	133,334	7,350	41,650
Kim M. Mageau	—	—	—	—	—	—

(1)

The dollar amount represents the positive spread between the exercise price of options and the year-end price per share. The price per share of the Company's Common Stock on the Nasdaq National Market tier of the Nasdaq Stock Market on December 31, 2001, the last trading day of the year, was $1.64 per share.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of February 28, 2002 by each shareholder known to the Company who then beneficially owned more than 5% of the outstanding shares of Common Stock, each director of the Company, each nominee for director, each executive officer named in the Summary Compensation Table and all executive officers and directors as a group. As of February 28, 2002, there were 7,132,393 shares of Common Stock outstanding.

Name and Address of Beneficial Owners(1)	Amount and Nature of Beneficial Ownership		Percent of Ownership
Mark A. Cohn(2)	1,321,157	(3)	18.5	%
SAFECO Asset Management Company(4)	1,076,300		15.5	%
Perkins Capital Management, Inc.(5)	988,300		13.9	%
Calm Waters Partnership(6)	468,000		6.6	%
Dimensional Fund Advisors(7)	398,500		5.6	%
Neuberger Berman, LLC(8)	393,160		5.5	%
George S. Richards(2)	614,168	(9)	8.6	%
Michael T. McGowan(2)	89,667	(10)	1.3	%
Rodney C. Merry(2)	78,334	(11)	1.2	%
Michael T. Del Viscio(2)	43,334	(12)	0.6	%
Kim M. Mageau(2)	—		—	%
Derek R. Reisfield(2)	10,200		0.1	%
Marvin S. Traub(2)	120,500	(13)	1.7	%
Charles D. Wenger(2)	7,000		0.1	%
All executive officers and directors as a group (8 Persons)	963,203		13.5	%

(1)

Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission, and generally includes voting power and/or investment power with respect to securities. Shares of Common Stock subject to options currently exercisable are deemed outstanding for computing the percentage of ownership for the person holding such options, but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.

46

(2)

The address of Mr. Cohn is 20400 Lakeview Ave., Deephaven, Minnesota, 55331. The address of Messrs. Richards, Merry, McGowan, and Del Viscio is 301 Carlson Parkway, Suite 201, Minneapolis, Minnesota 55305. The address of Ms. Mageau is 5267 Program Avenue, Mounds View, Minnesota 55112. The address of Mr. Reisfield is 450 East 52^nd Street, New York, New York 10022. The address of Mr. Traub is 535 Madison Avenue, 3^rd Floor, New York, New York 10022. The address of Mr. Wenger is 4220 Patricia Drive, Des Moines, Iowa 50322.

(3)

Includes 69,970 shares held in trust for the benefit of Mr. Cohn's children for which Mr. Cohn disclaims any beneficial ownership interest. Includes 66,667 shares of Common Stock, which can be purchased at $9.00 per share and 270,000 shares of Common Stock which can be purchased at $10.00 per share pursuant to vested options.

(4)

The address of SAFECO Asset Management Company is 601 Union Street, Suite 2500, Seattle, Washington 98101. The information set forth herein is based on information filed with the Securities and Exchange Commission.

(5)

The address of Perkins Capital Management, Inc. is 730 East Lake Street, Wayzata, Minnesota 55391. The information set forth herein is based on information filed with the Securities and Exchange Commission.

(6)

The address of Calm Waters Partnership is 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051. The information set forth herein is based on information filed with the Securities and Exchange Commission.

(7)

The address of Dimensional Fund Advisors is 1299 Ocean Avenue, 11^th Floor, Santa Monica, California 90401. The information set forth herein is based on information filed with the Securities and Exchange Commission.

(8)

The address of Neuberger Berman, LLC is 605 Third Avenue, New York, New York 10158. The information set forth herein is based on information filed with the Securities and Exchange Commission.

(9)

Includes 60,000 shares of Common Stock that can be purchased at $6.50 per share, 20,000 shares of Common Stock that can be purchased at $6.625 per share, 60,000 shares of Common Stock that can be purchased at $7.50 per share, 50,000 shares of Common Stock that can be purchased at $8.25 per share, 30,000 shares of Common Stock that can be purchased at $13.625 per share, 133,334 shares of Common Stock that can be purchased at $18.25 per share, 60,834 shares of Common Stock that can be purchased at $2.906 per share, and 200,000 shares of Common Stock that can be purchased at $3.81 per share, each pursuant to vested options.

(10)

Includes 3,000 shares of Common Stock that can be purchased at $9.50 per share, 20,000 shares of Common Stock that can be purchased at $8.25 per share, 40,000 shares of Common Stock that can be purchased at $7.563 per share, 15,000 shares of Common Stock that can be purchased at $1.15 per share, each pursuant to vested options and 11,667 shares of Common Stock that can be purchased at $2.906, pursuant to options vesting in March 2002.

(11)

Includes 10,000 shares of Common Stock which can be purchased at $6.50 per share, 35,000 shares of Common Stock that can be purchased at $9.00 per share, 25,000 shares of Common Stock that can be purchased at $12.75 per share, and 5,000 shares of Common Stock that can be purchased at $6.50 per share, each pursuant to vested options and 3,334 shares of Common Stock that can be purchased at $2.906 per share, pursuant to options vesting in March 2002.

(12)

Includes 40,000 shares of Common Stock that can be purchased at $8.625 per share, pursuant to vested options and 3,334 shares of Common Stock that can be purchased at $2.906 per share, pursuant to options vesting in March 2002.

(13)

Includes 25,000 shares of Common Stock that can be purchased at $2.906 per share and 30,000 shares of Common Stock that can be purchased at $4.00 per share, each pursuant to vested options.

47

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Marvin S. Traub, a director of the Company, is President of Marvin Traub Associates, Inc. Marvin Traub Associates, Inc. provided consulting services to the Company and received fees of $125,000 in 2001 and $100,000 in 2000. In addition, 50,000 stock options were granted for such services during 2001. The Company is amortizing the estimated value of these options over the respective service periods by charging general and administrative expense and crediting paid-in capital. During 2001, the Company recorded $55,000 of expense related to these options. The Company has retained Marvin Traub Associates, Inc. to provide consulting services in 2002.

        Charles D. Wenger, a director of the Company, is the President and Founder of c. wenger and associates. c. wenger and associates provided market research services to the Company. Fees for these services were $111,500, $49,400, and $41,600 in 2001, 2000 and 1999, respectively. The Company has retained c. wenger and associates to provide market research services in 2002.

        During 2001, the Company paid $250,000 to Kim M. Mageau, the Company's former Senior Vice President and Chief Financial Officer who resigned on September 10, 2001, pursuant to the terms of a special bonus agreement with Ms. Mageau. The Company also owes $87,500 to Michael M. McGowan, Senior Vice President of Marketing, pursuant to the terms of a special bonus agreement with Mr. McGowan. Mr. McGowan will receive an additional $87,500 if he remains employed through August 27, 2002.

        The Company has entered into a separation agreement with Mark A. Cohn in connection with his resignation as Chairman and Chief Executive Officer in February 2001. Under this agreement, the Company terminated various agreements with Mr. Cohn, including his employment agreement and the agreement obligating the Company to purchase Mr. Cohn's shares upon his death. For three years after his resignation, the Company will pay Mr. Cohn his base annual salary of $475,000, except that the last salary payments will be used to repay Mr. Cohn's current indebtedness to the Company under the 1999 loan to him. During the three years, the Company will also provide Mr. Cohn with health and other employee benefits. Mr. Cohn's stock options will also continue to vest and be exercisable during this three-year period. In the event of a change of control, the balance of the salary payments (less the amount necessary to repay the loan) will be accelerated and any unvested option will become vested. The Company and its former Chief Executive Officer are currently in a dispute regarding the separation agreement.

        The Company has entered into a severance and change of control agreement with Mr. Richards, an executive officer of the Company. If (i) there is a change of control, (ii) the Company terminates Mr. Richards' employment without cause, or (iii) Mr. Richards terminates his employment for good reason, the Company has agreed to pay Mr. Richards a severance payment equal to $593,750 plus two times the sum of his then current base salary, but not less than $475,000, and his annual bonus, and Mr. Richards has agreed not to compete with the Company for one year and to honor certain nonsolicitation and nondisparagement obligations for one year. In addition, if there is a change of control during the term of Mr. Richards' agreement, Mr. Richards will receive an additional payment based on a formula presented in Mr. Richards' agreement, along with continued participation in the Company's benefit plans for two years.

        The Company has also entered into a severance and change of control agreement with Mr. McGowan, an executive officer of the Company. If (i) the Company terminates Mr. McGowan's employment without cause, (ii) Mr. McGowan terminates his employment for good reason, or (iii) Mr. McGowan's employment is terminated, whether voluntarily or involuntarily, for any reason other than for cause upon or within thirteen months after a change of control, Mr. McGowan will receive a severance payment equal to the product of two times the sum of Mr. McGowan's base salary and annual bonus, along with continued participation in the Company's benefit plans for two years. If (i) there is a change of control, (ii) the Company terminates Mr. McGowan's employment without cause, or (iii) Mr. McGowan terminates his employment for good reason, Mr. McGowan has agreed not to compete with the Company for one year and to honor certain nonsolicitation and nondisparagement obligations for one year.

        None of the obligations of the Company under any of the bonus, severance or change of control agreements are funded obligations.

48

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

Documents Filed as Part of Form 10-K Report:

        (1)  Financial Statements: The consolidated financial statements of the Company are included herein as Part II. Item 8.

        (2)  Financial Statement Schedules: For the fiscal years ended December 31, 2001, 2000 and 1999, Schedule II. Valuation and Qualifying Accounts.

        (3)  Exhibits: The exhibits required to be a part of this Report are listed in the Exhibit Index that follows the signature page included herein. A copy of these exhibits will be furnished to any person at a reasonable cost upon receipt of a written request. Such request should be sent to Provell, 301 Carlson Parkway, Suite 201, Minneapolis, Minnesota 55305, Attention: Investor Relations.

(b)

Reports on Form 8-K:

        The Company filed a Current Report on Form 8-K on October 26, 2001, reporting under "Item 5. Other Events" that the Company issued a press release dated October 25, 2001 announcing third quarter financial results and filing under "Item 7. Financial Statements and Exhibits" a copy of the press release, dated October 25, 2001.

49

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

PROVELL, INC.
By:	/s/  GEORGE S. RICHARDS George S. Richards Chairman, President and Chief Executive Officer
April 17, 2002

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

/s/  GEORGE S. RICHARDS George S. Richards	President, Chief Executive Officer and Director (Principal Executive Officer)	April 17, 2002
/s/  TERRY D. PETERSON Terry D. Peterson	Acting CFO, Controller, and Assistant Secretary (Principal Financial and Accounting Officer)	April 17, 2002
* Derek R. Reisfield	Director	April 17, 2002
* Marvin S. Traub	Director	April 17, 2002
* Charles D. Wenger	Director	April 17, 2002

*By:
/s/  GEORGE S. RICHARDS George S. Richards
              Attorney in Fact
April 17, 2002

*

George S. Richards, pursuant to Powers of Attorney executed by each of the directors listed above whose name is marked by an "*" and filed as an exhibit hereto, by signing his name hereto, does hereby sign and execute this Annual Report on Form 10-K on behalf of each of such directors.

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PROVELL, INC.

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

For the Fiscal Years Ended December 31, 2001, 2000, and 1999
(Dollars in thousands)

Column A	Column B		Column C				Column D		Column E
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts		Deductions		Balance at end of period
Accrued membership returns
2001	$	40,339		177,069	464	(a)	(186,135	)(b)	$	31,737
2000	$	16,911		139,640	983	(a)	(117,195	)(b)	$	40,339
1999	$	16,687		67,195	—		(66,971	)(b)	$	16,911
Reserve for wind-down of discontinued operations
2001	$	23,108		—	(2,130	)(c)	(12,191	)(d)	$	8,787
2000		—	$	23,108	—		—		$	23,108
1999		—		—	—		—			—

(a)

Adjustment relates to the initial adoption of SAB 101 and reclassification between accrued returns and deferred income.

(b)

Membership fee refunds are charged against the reserve.

(c)

Adjustment relates to a reduction in the reserves following the favorable resolution of certain liabilities and asset sales.

(d)

Payment of liabilities incurred from the former non-member catalog business and ClickShip operations are charged against the reserve.

51

PROVELL, INC.

EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2001

Regulation S-K Exhibit Table Reference	Title of Document	Manner of Filing
3.1	Amended and Restated Articles of Incorporation of the Company	Filed Electronically
3.2	Amended and restated Bylaws of the Company (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 1998)	Incorporated by Reference
3.3	Certificate of Designation, Preferences and Rights for Series D Stock (filed as Exhibit 3.1 to the Company's Report on Form 8-K dated October 2, 2000)	Incorporated by Reference
3.4	Certificate of Designation, Preferences and Rights for Series E Stock (filed as Exhibit 3.2 to the Company's Report on Form 8-K dated March 2, 2001)	Incorporated by Reference
4.1	Specimen Certificate of Class A Common Stock (filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001)	Incorporated by Reference
4.2	Rights Agreement dated as of April 16, 1998 between the Company and Norwest Bank Minnesota, N.A., as Rights Agent (filed as Exhibit 1 to the Company's Report on Form 8-K filed May 4, 1998)	Incorporated by Reference
4.3	First Amendment to Rights Agreement dated as of July 15, 1998 (filed as Exhibit 4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998)	Incorporated by Reference
4.4	Second Amendment to Rights Agreement dated as of October 25, 1999 (filed as Exhibit 4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)	Incorporated by Reference
4.5	Third Amendment to Rights Agreement dated as of September 29, 2000 (filed as Exhibit 1 to the Company's Report on Form 8-K dated October 18, 2000)	Incorporated by Reference
10.1	Facilities Lease between the Company and Steven B. Hoyt, dated December 26, 1989 (filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1 (No. 33-45056))	Incorporated by Reference
10.2	Securities Purchase Agreement dated September 29, 2000 (filed as Exhibit 10.1 to the Company's Report on Form 8-K dated October 2, 2000)	Incorporated by Reference
10.3	Sublease Agreement dated as of November 1, 1999 between the Company and xpedx, a division of International Paper Company (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)	Incorporated by Reference
10.4	Form of Common Stock Purchase Warrant (filed as Exhibit 10.2 to the Company's Report on Form 8-K dated October 2, 2000)	Incorporated by Reference

52

10.5	Registration Rights Agreement dated September 29, 2000 (filed as Exhibit 10.3 to the Company's Report on Form 8-K dated October 2, 2000)	Incorporated by Reference
10.6	Securities Purchase Agreement dated February 26, 2001 (filed as Exhibit 10.1 to the Company's Report on Form 8-K dated March 2, 2001)	Incorporated by Reference
10.7	Amendment to Securities Purchase Agreement dated March 26, 2001 (filed as Exhibit 10.4 to the Company's Report on Form 8-KA dated March 29, 2000)	Incorporated by Reference
10.8	Amendment to Securities Purchase Agreement, dated April 23, 2001 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2001)	Incorporated by Reference
10.9	Registration Rights Agreement dated February 26, 2001 (filed as Exhibit 10.2 to the Company's Report on Form 8-K dated March 2, 2001)	Incorporated by Reference
10.10	Escrow Agreement dated February 26, 2001 (filed as Exhibit 10.3 to the Company's Report on Form 8-K dated March 2, 2001)	Incorporated by Reference
10.11	Escrow Agreement dated February 28, 2001 (filed as Exhibit 10.3 to the Company's Report on Form 8-KA dated March 29, 2001)	Incorporated by Reference
*10.12	1991 Stock Option Plan (As Amended) (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998)	Incorporated by Reference
*10.13	2001 Stock Option Plan (filed as Exhibit B to the Company's Definitive Proxy Statement for its 2001 Annual Meeting)	Incorporated by Reference
*10.14	Nonqualified Stock Option Agreement, dated February 26, 1991, for Ralph Strangis (filed as Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No. 33-45056))	Incorporated by Reference
*10.15	Amendment to Stock Option Agreement, dated February 22, 2001, for Ralph Strangis (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference
*10.16	Nonqualified Stock Option Agreement, dated June 16, 1997, for Stephen J. Hemsley (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (No. 333-31773))	Incorporated by Reference
*10.17	Amendment to Stock Option Agreement, dated February 22, 2001, for Stephen J. Hemsley (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference
*10.18	Nonqualified Stock Option Agreement, dated May 10, 1995, for Ralph Strangis (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995)	Incorporated by Reference
*10.19	Amendment to Stock Option Agreement, dated February 22, 2001, for Ralph Strangis (filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference

53

*10.20	Nonqualified Stock Option Agreement, dated December 17, 1998, for Stephen J. Hemsley (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998)	Incorporated by Reference
*10.21	Amendment to Stock Option Agreement, dated February 22, 2001, for Stephen J. Hemsley (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference
*10.22	Amendment of Nonqualified Stock Option Agreement, dated February 10, 1999, for Stephen J. Hemsley (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998)	Incorporated by Reference
*10.23	Assignment of Stock Option Agreement, dated as of January 30, 1998 between Mark A. Cohn and the Company (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997)	Incorporated by Reference
*10.24	Stock Option Agreement (Non-Statutory Options) for Mark A. Cohn dated January 30, 1998 (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997)	Incorporated by Reference
*10.25	Separation Agreement between the Company and Mark A. Cohn, dated as of February 26, 2001 (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference
*10.26	Restated 1998 Provell, Inc. Non-Employee Director Stock Purchase Plan (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998)	Incorporated by Reference
*10.27	Provell, Inc. Deferred Compensation Plan for Non-Employee Directors, dated October 24, 1996 (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (no. 333-16139))	Incorporated by Reference
*10.28	Change of Control, Confidentiality and Noncompete Agreement dated as of March 2, 1998 between the Company and Rodney C. Merry (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)	Incorporated by Reference
*10.29	First Amendment to Change of Control, Confidentiality and Noncompete Agreement dated as of April 19, 1999 between the Company and Rodney C. Merry (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)	Incorporated by Reference
*10.30	Severance, Confidentiality and Noncompete Agreement dated as of March 2, 1998 between the Company and Rodney C. Merry (filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)	Incorporated by Reference
*10.31	Change of Control, Confidentiality and Noncompete Agreement, dated as of March 12, 1999 between the Company and Michael T. Del Viscio	Filed Electronically
*10.32	Agreement between the Company and Michael McGowan, dated February 26, 2001 (filed as Exhibit 10.39 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference

54

*10.33	Severance and Change of Control Agreement, dated as of September 26, 2001 between the Company and George S. Richards (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 28, 2001)	Incorporated by Reference
*10.34	Severance and Change of Control Agreement, dated as of September 26, 2001 between the Company and Michael T. McGowan (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 28, 2001)	Incorporated by Reference
*10.35	Change of Control, Confidentiality and Noncompete Agreement dated as of June 22, 2000 between the Company and Kim Mageau (filed as Exhibit 10.37 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference
*10.36	Agreement between the Company and Kim Mageau, dated February 26, 2001 (filed as Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference
*10.37	Amendment to Agreement between the Company and Kim Mageau, dated April 5, 2001	Filed Electronically
10.38	Loan and Security Agreement, dated as of March 27, 2001, by and among the Company and Foothill Capital Corporation as Arranger and Administrative Agent for Lenders named therein (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)	Incorporated by Reference
10.39	Amendment Number One to Loan and Security Agreement, dated August 21, 2001	Filed Electronically
10.40	Amendment Number Two to Loan and Security Agreement, dated March 26, 2002 (filed as Exhibit 10 to the Company's Report on Form 8-K dated April 5, 2002)	Incorporated by Reference
21	Subsidiaries of Provell, Inc.	Filed Electronically
24	Powers of Attorney	Filed Electronically

*

Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.

55

QuickLinks

TABLE OF CONTENTS
PART I.

ITEM 1. BUSINESS

Membership Value Propositions
PART II.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PROVELL, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31
PROVELL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31
PROVELL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31
PROVELL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31
PROVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE
OPTION GRANTS IN LAST FISCAL YEAR
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SIGNATURES
PROVELL, INC. SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS For the Fiscal Years Ended December 31, 2001, 2000, and 1999 (Dollars in thousands)
PROVELL, INC. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended December 31, 2001

EX-3.1

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Exhibit 3.1

Amended and Restated
Articles of Incorporation
of
Provell, Inc.

        The undersigned, Samia C. Haddad, the Secretary of Provell, Inc., a Minnesota corporation, does hereby certify that the following Amended and Restated Articles of Incorporation were adopted by the corporation in accordance with Chapter 302A of the Minnesota Statutes:

Article I
Name

        The name of the corporation is Provell, Inc.

Article II
Registered Office

        The registered office of the corporation is located at 301 Carlson Parkway, Suite 201, Minneapolis, Minnesota 55305.

Article III
Capital Stock

        The aggregate number of shares of all classes of stock which the corporation shall have authority to issue is 87,000,000 shares. The authorized stock shall consist of 10,000,000 shares of preferred stock, par value $.01, and 77,000,000 shares of common stock, par value $.01. Of the authorized preferred stock, 2,400,000 shares shall be designated Series A Convertible Preferred Stock, par value $.01 (the "Series A Preferred Stock"), 1,165,000 shares shall be designated Series B Convertible Non-Voting Preferred Stock, par value $.01 (the "Series B Preferred Stock"), 400,000 shares shall be designated Series C Junior Preferred Stock ("Series C Preferred Stock"), 200,000 shares shall be designated Series D Convertible Preferred Stock ("Series D Preferred Stock, and 210,000 shares shall be designated Series E Convertible Preferred Stock ("Series E Preferred Stock"). The Series A Preferred Stock and the Series B Preferred Stock shall have the right and preferences described in Article IV hereof. The Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock shall have the rights and preferences as set forth in the Certificate of Designations for such respective series heretofore filed with the Minnesota Secretary of State. In addition, the Board of Directors of the corporation shall have the authority to authorize the issuance of preferred stock in accordance with applicable law and Article IV. Of the authorized common stock, 75,000,000 shares of common stock shall be designated as Class A Common Stock (the "Class A Common Stock") and 2,000,000 shares of common stock shall be designated as Class B Common Stock (the "Class B Common Stock"). The Class A Common Stock and the Class B Common Stock shall collectively be referred to as the Common Stock and shall have the rights and preferences described in Article V hereof.

Article IV
Preferred Stock

        A.    Undesignated Preferred Stock.    Authority is hereby expressly vested in the Board of Directors of the corporation, subject to the provisions hereof and to the limitations prescribed by law, to authorize the issuance from time to time of one or more series of preferred stock and, with respect to each such series, to fix by resolution or resolutions adopted by the affirmative vote of a majority of the

1

whole Board of Directors providing for the issuance of such series, the voting powers, full or limited, if any, of the shares of such series and the rights and preferences thereof, including:

        1.    The number of shares constituting such series and the designation of such series.

        2.    The dividend rate of such series, which may be fixed or variable, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or series of the corporation's capital stock, and whether such dividends shall be cumulative or noncumulative.

        3.    Whether the shares of such series shall be subject to redemption by the corporation at the option of either the corporation or the holder of both or upon the happening of a specified event, and, if made subject to any such redemption, the time or events, prices and other terms and conditions of such redemption.

        4.    The terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series.

        5.    Whether or not the shares of such series shall be convertible into or exchangeable for, at the option of either the holder or the corporation or the happening of a specified event, shares of any other class or classes or of any other series of the same or any other class or classes of the corporation's capital stock and, if provision be made for conversion or exchange, the time or events, prices, rates, adjustments and other terms and conditions of such conversions or exchanges.

        6.    The restrictions, if any, on the issue or reissue of any additional preferred stock, including increases or decreases in the number of shares of any series subsequent to the issue of shares of that series.

        7.    The rights of the holders of the shares of such series upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation.

        8.    Any right to vote with holders of shares of any other series or class and any right to vote as a class, either generally or as a condition to specified corporate action, in addition to any voting powers required by law.

        B.    Series A and Series B Preferred Stock.

        1.    Dividends.    The holders of Series A Preferred Stock or Series B Preferred Stock (collectively for the purposes of this Article IV(B) are herein referred to as the "Preferred Stock") shall be entitled to receive, when and as cash dividends are declared by the Board of Directors of the corporation upon the Common Stock, out of funds legally available for such purpose, cash dividends at the rate declared upon the Common Stock as if said Preferred Stock had been converted to Common Stock. In no event, so long as any Preferred Stock shall remain outstanding, shall any dividend whatsoever be declared or paid upon, nor shall any distribution be made upon, any Common Stock, nor shall any shares of Common Stock be purchased or redeemed by the corporation nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any Common Stock, without, in each such case (other than in the case of repurchases by the corporation of shares of Common Stock pursuant to the terms of (i) any Employment Agreement, Stock Option Agreement or similar arrangement between the corporation and its employees or the repurchase of shares pursuant to Section 2.14 or Article V of the Preferred Stock Purchase Agreement, dated as of January 4, 1991 (the "Purchase Agreement"), among the corporation and the Purchasers named therein, (ii) Article VI of the warrants of the corporation, dated November 15, 1989, as amended as of January 4, 1991, owned by Prudential Venture Partners II and Superior Ventures, respectively, and (iii) the Agreement, dated as of January 4, 1991, among the corporation, Mark A. Cohn and David A. Russ), the written consent

2

of the holders of a majority of the outstanding shares of Preferred Stock, voting together as a class.

        2.    Redemption.    The shares of Preferred Stock shall be redeemable as follows:

        2A.    Mandatory Redemption.    In case of the consolidation or merger of the corporation with or into any other corporation (other than a merger in which the corporation is the surviving corporation and which will not result in more than 49% of the capital stock of the corporation outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of such capital stock immediately prior to such merger), and in the case of a sale of all or substantially all of the properties and assets of the corporation as an entirety to any other person, the corporation shall, not later than 20 days prior to the effective date of any such consolidation, merger or sale of properties and assets, give notice thereof to the holder or holders of shares of Preferred Stock and, in the event that within 15 days after receipt of such notice the holders of record of at least a majority of the outstanding shares of Preferred Stock, voting together as a class, shall elect, by written notice to the corporation, to have all (but not less than all) of the outstanding shares of Preferred Stock redeemed, the corporation shall redeem the same (in the manner and with the effect provided in subparagraphs 2B through 2D below) not later than the day prior to the effective date of such consolidation, merger or sale of properties and assets. Such written notice shall be given by mail, postage prepaid, to the corporation and shall state that the holders of record of at least a majority of the outstanding shares of Preferred Stock request a redemption be made pursuant to this subparagraph 2A, and shall specify the number of shares to be redeemed, the Redemption Price and the place and date of such redemption, which date shall not be a day on which banks in the City of New York are required or authorized to close. The redemption date referred to above in this subparagraph 2A is hereinafter referred to as the "Redemption Date". Except as provided in this subparagraph 2A, the Preferred Stock shall not be redeemable.

        2B.    Redemption Price.    The Preferred Stock to be redeemed on the Redemption Date pursuant to subparagraph 2A above shall be redeemed by paying for each share in cash the sum of $5.00 per share plus an amount per share equal to any declared but unpaid dividends thereon to such Redemption Date, such amount being herein sometimes referred to as the "Redemption Price". If such notice of redemption shall have been duly given to the corporation pursuant to subparagraph 2A and if on or before such Redemption Date the funds necessary for redemption shall have been set aside so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares of Preferred Stock to be redeemed shall not have been surrendered for cancellation, after the close of business on such Redemption Date, the shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall, forthwith after the close of business on the Redemption Date, cease, except only the right of the holders thereof to receive, upon presentation of the certificate representing shares so called for redemption, the Redemption Price therefor, without interest thereon.

        2C.    Redeemed or Otherwise Acquired Shares to be Retired.    Any shares of the Preferred Stock redeemed pursuant to this paragraph 2 or otherwise acquired by the corporation in any manner whatsoever shall be permanently retired and shall not under any circumstances be reissued; and the corporation may from time to time take such appropriate corporate action as may be necessary to reduce the number of authorized shares of Preferred Stock accordingly.

        3.    Liquidation.    Upon any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, the holders of the shares of Preferred Stock, before any distribution or payment is made upon Common Stock, shall be entitled to be paid a sum, on a per share basis, equal to $5.00 per share plus an amount per share equal to any declared but unpaid dividends thereon to such date of liquidation, dissolution or winding up, and the holders of Preferred Stock

3

shall not be entitled to any further payment, such sums being sometimes referred to as the "Preferential Payments". If, upon such liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Preferred Stock shall be insufficient to permit payment to such holders of the Preferential Payments, then the entire assets of the corporation to be so distributed shall be distributed ratably among the holders of Preferred Stock. Upon any such liquidation, dissolution or winding up of the corporation, after the holders of Preferred Stock shall have been paid in full the amounts to which they shall be entitled, the remaining net assets of the corporation available for distribution to its shareholders shall be distributed ratably to the holders of Common Stock. Written notice of such liquidation, dissolution or winding up, stating a payment date, the amount of the Preferential Payments and the place where said Preferential Payments shall be payable, shall be given by mail, postage prepaid, not less than 30 days prior to the payment date stated therein, to the holders of record of Preferred Stock, such notice to be addressed to each such holder at his post office address as shown by the records of the corporation. Neither the consolidation or merger of the corporation into or with any other corporation or corporations, nor the sale or transfer by the corporation of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the corporation within the meaning of the provisions of this paragraph 3.

        4.    Conversion.

        4A.    Right to Convert.    Subject to the terms and conditions of this paragraph 4, the holder of any share or shares of Series A Preferred Stock or Series B Preferred Stock, as the case may be, shall have the right, at its option at any time, to convert any such shares of Series A Preferred Stock or Series B Preferred Stock, as the case may be (except that upon any liquidation, dissolution or winding up of the corporation the right of conversion shall terminate at the close of business on the last full business day next preceding the date fixed for payment of the amount distributable on the Preferred Stock), into such number of fully paid and nonassessable whole shares of Class A Common Stock, in the case of the Series A Preferred Stock, or such number of fully paid and nonassessable whole shares of Class B Common Stock, in the case of the Series B Preferred Stock, as is obtained by multiplying the number of shares of the series of Preferred Stock so to be converted by $5.00 and dividing the result by the conversion price of $5.00 per share, or by the conversion price as last adjusted and in effect at the date any share or shares of such series of Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the "Conversion Price"). Subject to the terms and conditions of this paragraph 4, the holder of any share or shares of Series B Preferred Stock shall have the right, at its option, to convert any such shares of Series B Preferred Stock into the same number of fully paid and nonassessable whole shares of Series A Preferred Stock, upon the occurrence of one of the following events ("Preferred Conversion Events") and then (except for the Preferred Conversion Events set forth in clauses (1) and (4) below) only during the 60-day period after receipt of written notice from the corporation of the occurrence of such Preferred Conversion Event (as provided in subparagraph 4J hereof):

        (1)  upon the transfer of shares of Series B Preferred Stock to an unaffiliated party by the initial holder thereof;

        (2)  upon a sale of substantially all the assets of the corporation or upon any other acquisition of the corporation by merger, a negotiated stock purchase or a purchase pursuant to a tender for substantially all of the outstanding shares of Common Stock of the corporation;

        (3)  upon any default or event of default, after the holder of Series B Preferred Stock has received notice of such, under any material agreement pursuant to which the corporation or any of its subsidiaries has incurred indebtedness for borrowed money in cases in which the

4

holder of series B Preferred Stock is not a holder of the defaulting debt instrument (unless and until such default or event of default is cured or waived);

        (4)  if upon exercising the option to convert Prudential Venture Partners II ("PVP II") and The Prudential Insurance Company of America or any affiliate thereof (collectively "Prudential") would not hold more than 19.9% of the voting capital stock of the corporation in the aggregate; or

        (5)  if a quarterly financial statement of the corporation shows that the corporation has suffered a decline in excess of 20% in net income from operations from the comparable quarterly period of the previous year, such net income from operations to be calculated in accordance with generally accepted accounting principles, but before taking into account any non-cash or extraordinary items of income or expense.

If the Class B Preferred Stock shall not be converted within the 60-day period following receipt of written notice from the corporation of the occurrence of a Preferred Conversion Event (as provided in subparagraph 4J hereof), the right to convert such shares of Series B Preferred Stock into shares of Series A Preferred Stock shall lapse, and such shares of Series B Preferred Stock shall cease to be convertible until the occurrence of another Preferred Conversion Event, in which case the provisions of this and the preceding sentence shall once again be applicable. The rights of conversion contained in this subparagraph 4A shall be exercised by the holder of shares of Preferred Stock by giving written notice that such holder elects to convert a stated number of shares of Series A Preferred Stock into Class A Common Stock, of Series B Preferred Stock into Class B Common Stock or of Series B Preferred Stock into Series A Preferred Stock, as the case may be, and by surrender of a certificate or certificates for the shares so to be converted to the corporation at its principal office (or such other office or agency of the corporation as the corporation may designate by notice in writing to the holder or holders of the Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Class A Common Stock, Class B Common Stock or Series A Preferred Stock, as the case may be, shall be issued.

        4B.    Issuance of Certificates; Time Conversion Effected.    Promptly after the receipt of the written notice referred to in subparagraph 4A and surrender of the certificate or certificates for the share or shares of Preferred Stock to be converted, the corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Class A Common Stock, Class B Common Stock or Series A Preferred Stock, as the case may be, issuable upon the conversion of such share or shares of Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected, and the Conversion Price shall be determined, as of the close of business on the date on which such written notice shall have been received by the corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Class A Common Stock, Class B Common Stock or Series A Preferred Stock, as the case may be, shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

        4C.    Fractional Shares; Dividends; Partial Conversion.    No fractional shares shall be issued upon conversion of the Preferred Stock into Common Stock or Series A Preferred Stock, as the case may be, and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock or the Series A Preferred Stock, as the case may be, issued

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upon such conversion. At the time of each conversion, the corporation shall pay in cash an amount equal to all dividends accrued and unpaid on the shares surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 4B. In case the number of shares of Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 4A exceeds the number of shares converted, the corporation shall, upon such conversion, execute and deliver to the holder thereof, at the expense of the corporation, a new certificate or certificates for the number of shares of Preferred Stock, represented by the certificate or certificates surrendered which are not to be converted. If any fractional interest in a share of Common Stock would, except for the provisions of the first sentence of this subparagraph 4C, be deliverable upon any such conversion, the corporation, in lieu of delivering the fractional share thereof, shall pay to the holder surrendering the Preferred Stock for conversion an amount in cash equal to the fair market value of such fractional interest as determined in good faith by the Board of Directors of the corporation.

        4D.    Adjustment of Price Upon Issuance of Common Stock.    Except as provided in subparagraph 4F hereof, if and whenever the corporation shall issue or sell, or is in accordance with subparagraphs 4D(1) through 4D(7) deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, the Conversion Price shall be reduced to an amount equal to the aggregate consideration received, or deemed to have been received pursuant to subparagraphs 4D(1) through 4D(7), by the corporation upon such issue or sale, or deemed issuance or sale, divided by the number of shares so issued or sold or deemed to be so issued or sold. For purposes of this subparagraph 4D, the following subparagraphs 4D(1) to 4D(7), shall also be applicable:

        4D(1).    Issuance of Rights or Options.    In case at any time the corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than thy Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph 4D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

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        4D(2).    Issuance of Convertible Securities.    In case the corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 4D(3) below, no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 4D, no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

        4D(3).    Change in Option Price or Conversion Rate.    If (i) the purchase price provided for in any Option referred to in subparagraph 4D(1), (ii) the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 4D(1) or 4D(2) or (iii) the rate at which any Convertible Securities referred to in subparagraph 4D(1) or 4D(2) are convertible into or exchangeable for Common Stock shall change at any time (in each case other than under or by reason of provisions designed to protect against dilution), then the Conversion Price in effect at the time of such event shall, as required, forthwith be readjusted to such Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect hereunder shall, as required, forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such Option referred to in subparagraph 4D(1) or the rate at which any Convertible Securities referred to in subparagraph 4D(1) or 4D(2) are convertible into or exchangeable for Common Stock shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then, in case of the delivery of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Securities, the Conversion Price then in effect hereunder shall, as required, forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Securities never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced.

        4D(4).    Stock Dividends.    In case the corporation shall declare a dividend or make any other distribution upon any stock of the corporation payable in Common Stock, Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may

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be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration, and the Conversion Price shall be reduced as if the corporation had subdivided its outstanding shares of Common Stock into a greater number of shares, as provided in subparagraph 4E hereof.

        4D(5).    Consideration for Stock.    In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the corporation, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the corporation in connection therewith. The amount of consideration deemed to be received by the corporation pursuant to the foregoing provisions of this subparagraph 4D(5) upon any issuance and/or sale of shares of Common Stock, Options or Convertible Securities, pursuant to an established compensation plan of the corporation, to directors, officers or employees of the corporation in connection with their employment shall be increased by the amount of any tax benefit realized by the corporation as a result of such issuance and/or sale, the amount of such tax benefit being the amount by which the Federal and/or state income or other tax liability of the corporation shall be reduced by reason of any deduction or credit in respect of such issuance and/or sale. In case any Options shall be issued in connection with the issue and sale of other securities of the corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the corporation, such Options shall be deemed to have been issued without consideration, and the Conversion Price shall be reduced as if the corporation had subdivided its outstanding shares of Common Stock into a greater number of shares, as provided in subparagraph 4E hereof.

        4D(6).    Record Date.    In case the corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

        4D(7).    Treasury Shares.    The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purposes of this subparagraph 4D.

        4E.    Subdivision or Combination of Stock.    In case the corporation shall at any time subdivide its outstanding shares of Common Sock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the corporation shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.

        4F.    Certain Issues of Common Stock Excepted.    Anything herein to the contrary notwithstanding, the corporation shall not be required to make any adjustment of the Conversion

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Price upon the occurrence of any of the following events: (i) the issuance of Common Stock upon conversion of outstanding shares of Preferred Stock, the issuance of Series A Preferred Stock upon conversion of outstanding shares of Series B Preferred Stock or the issuance of Class A Common Stock upon conversion of outstanding shares of Class B Common Stock; (ii) the issuance of options to employees, officers and directors of the corporation as contemplated by the Purchase Agreement; and (iii) the issuance of Common Stock upon the exercise of the options, warrants and convertible securities listed on Schedule 2.04 to the Purchase Agreement or upon the exercise of options permitted to he issued pursuant to clause (ii) above.

        4G.    Reorganization, Reclassification, Consolidation, Merger or Sale.    If any capital reorganization or reclassification of the capital stock of the corporation or any consolidation or merger of the corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way (including, without limitation, by way of consolidation or merger) that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions (in form reasonably satisfactory to the holders of at least a majority of the outstanding shares of Preferred Stock, voting together as a class) shall be made whereby each holder of a share or shares of Preferred Stock shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the corporation immediately theretofore receivable upon the conversion of such shares or shares of the Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price) shall thereafter be applicable, as nearly practicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights (including, if necessary to effect the adjustments contemplated herein, an immediate adjustment, by reason of such reorganization, reclassification, consolidation, merger or sale, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization, reclassification, consolidation, merger or sale if the value so reflected is less than the Conversion Price in effect immediately prior to such reorganization, reclassification, consolidation, merger or sale). In the event of a merger or consolidation of the corporation as a result of which a greater or lesser number of shares of common stock of the surviving corporation is issuable to holders of Common Stock of the corporation outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the corporation. The corporation will not effect any such consolidation or merger, or any sale of all or substantially all of its assets and properties, unless prior to the consummation thereof the successor corporation (if other than the corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument (in form reasonably satisfactory to the holders of at least a majority of the outstanding shares of Preferred Stock, voting together as a class), executed and mailed or delivered to each holder of shares of Preferred Stock at the last address of such holder appearing on the books of the corporation, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive.

        4H.    Automatic Conversion.    In the event that, at any time while any of the Preferred Stock shall be outstanding, the corporation shall complete a public offering involving the sale by the corporation of shares of Class A Common Stock (i) at a per share price to the public equal to not

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less than (x) the product of 2 times the Conversion Price then in effect hereunder, if such offering shall be completed on or before December 31, 1992 or (y) the product of 2.5 times the Conversion Price then in effect hereunder, if such offering shall be completed thereafter, and (ii) providing gross proceeds to the corporation (before deducing underwriting discounts and expenses) of at least $20,000,000, then all outstanding shares of Series A Preferred Stock and Series B Preferred Stock shall, automatically and without further action on the part of the holders of the Preferred Stock, be converted into shares of Class A Common Stock and Class B Common Stock, respectively, in accordance with the terms of this paragraph 4 with the same effect as if the certificates evidencing such shares had been surrendered for conversion, such conversion to be effective simultaneously with the closing of such public offering; provided, however, that certificates evidencing the shares of Common Stock issuable upon such conversion shall not be issued except on surrender of the certificates for the shares of the Preferred Stock so converted.

        4I.    [Intentionally Omitted.]

        4J.    Notice of Adjustment.    Upon any adjustment of the Conversion Price, then and in each such case the corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each holder of shares of Preferred Stock at the address of such holder as shown on the books of the corporation, which notice shall state the Conversion Price, resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

        4K.    Other Notices.    In case at any time:

        (1)  the corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;

        (2)  the corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights;

        (3)  there shall be any capital reorganization or reclassification of the capital stock of the corporation, or a consolidation or merger of the corporation with, or a sale of all or substantially all its assets to, another corporation;

        (4)  there shall be a voluntary or involuntary dissolution, liquidation or winding up of the corporation; or

        (5)  the corporation shall take any action or there shall be any event which would result in (i) an automatic conversion of the Preferred Stock pursuant to subparagraph 4H or (ii) any Preferred Conversion Event shall occur,

then, in any one or more of said cases, the corporation shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Preferred Stock at the address of such holder as shown on the books of the corporation, (a) at least 20 days' prior written notice of the date on which the books of the corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place, (c) in the case of any event which would result in an automatic conversion of the Preferred Stock pursuant to subparagraph 4H, at least 20 days' prior written notice of the date on which the same is expected to be completed and (d) in the case of the occurrence of a Conversion Event, promptly upon such occurrence. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the

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date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.

        4L.    Stock to be Reserved.    The corporation will at all times reserve and keep available out of its authorized Common Stock or its treasury shares, solely for the purpose of issue upon the conversion of the Preferred Stock as herein provided, such number of shares of the appropriate class of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Preferred Stock (including as outstanding all shares of Series A Preferred Stock issuable upon conversion of all outstanding shares of Series B Preferred Stock) and will at all times reserve and keep available out of its authorized Series A Preferred Stock, solely for the purpose of issue upon the conversion of the Series B Preferred Stock as herein provided, such number of shares of Series A Preferred Stock as shall then be issuable upon the conversion of all outstanding shares of Series B Preferred Stock. The corporation covenants that all shares of Common Stock or Series A Preferred Stock, as the case may be, which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. The corporation will take all such action as may be necessary to assure that all such shares of Common Stock or Series A Preferred Stock, as the case may be, may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Class A Common Stock of the corporation may be listed. The corporation will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Preferred Stock would exceed the total number of shares of either class of Common Stock then authorized by the corporation's Articles of Incorporation.

        4M.    No Reissuance of Preferred Stock.    Shares of Preferred Stock which are converted into shares of Common Stock and shares of Series B Preferred Stock which are converted into shares of Series A Preferred Stock as provided herein shall not be reissued.

        4N.    Issue Tax.    The issuance of certificates for shares of Common Stock upon conversion of the Preferred Stock and the issuance of certificates for shares of Series A Preferred Stock upon conversion of the Series B Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Preferred Stock which is being converted.

        4O.    Closing of Books.    The corporation will at no time close its transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Preferred Stock in any manner which interferes with the timely conversion of such Preferred Stock.

        4P.    Definition of Common Stock.    As used in this paragraph 4, the term "Common Stock" shall mean and include the corporation's authorized Class A Common Stock, $.01 par value, and Class B Common Stock, $.01 par value, as constituted on January 4, 1991, and shall also include any capital stock of any class of the corporation thereafter authorized which shall not be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation; provided that the shares of Common Stock receivable upon conversion of shares of the Preferred Stock of the corporation, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets

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provided for in subparagraph 4G, shall include only shares designated as Common, Stock of the corporation on January 4, 1991.

        5.    Voting Rights.

        5A.    Series A Preferred Stock.    Except as otherwise provided by law and these Articles of Incorporation, the holders of Class A Common Stock and Series A Preferred Stock shall vote together as a class on all matters to be voted on by the stockholders of the corporation on the basis that each holder of Series A Preferred Stock shall be entitled to one vote for each share of Class A Common Stock which would be issuable to such holder upon the conversion of all the shares of Series A Preferred Stock so held on the record date for the determination of stockholders entitled to vote.

        5B.    Series B Preferred Stock.    Holders of Series B Preferred Stock shall have no rights to vote except as provided in paragraph 5 and paragraph 6 of these Articles of Incorporation or as otherwise expressly provided by law. Each holder of Series B Preferred Stock shall be entitled to one vote for each share of Class B Common Stock which would be issuable to such holder upon the conversion of all the shares of Series B Preferred Stock held by such holder on the record date for the determination of stockholders entitled to vote and shall be entitled to notice of any stockholders meeting in accordance with the Bylaws of the corporation, only with respect to the following corporate actions ("Voting Events"):

        (a)  Amendments to the Articles of Incorporation or Bylaws of the corporation or any subsidiary of the corporation, at such time, in the case of such subsidiary, as such matters shall be subject to a vote of the shareholders of the corporation;

        (b)  The liquidation, dissolution, winding up, bankruptcy or recapitalization of the corporation;

        (c)  The consolidation or merger of the corporation or any of its subsidiaries with or into any other corporation (other than a merger in which the corporation or such subsidiary is the surviving corporation), the reorganization, reclassification or recapitalization of the capital stock of the corporation or any of its subsidiaries, or the sale of all or substantially all of the property and assets of the corporation or any of its subsidiaries at such time, in the case of such subsidiary, as such matters shall be subject to a vote of the shareholders of the corporation;

        (d)  The issuance or sale of any shares or capital stock of the corporation or any of its subsidiaries or of any options, warrants or other rights to acquire any such shares; and

        (e)  At such time as it shall be subject to a vote of the shareholders of the corporation, any material change in the nature of the corporation's business from that of a direct mail catalog retailer.

        6.    Restrictions.    At any time when shares of Series A Preferred Stock are outstanding, except where the vote or written consent of the holders of a greater number of shares of the corporation is required by law or by these Articles of Incorporation and in addition to any other vote required by law and these Articles of Incorporation, without the prior consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting together as a class, given in person or by proxy, either in writing or at a special meeting called for that purpose, at which meeting the holders of the shares of such Series A Preferred Stock shall vote together as a separate class:

        6A.    Additional Classes of Shares.    The corporation will not create or authorize the creation of any additional class of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the corporation, or

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increase the authorized amount of the Preferred Stock or increase the authorized amount of any additional class of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the corporation, or create or authorize any obligation or security convertible into shares of Preferred Stock or into shares of any other class of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the corporation, whether any such creation or authorization or increase shall be by means of amendment of the corporation's Articles of Incorporation or by merger, consolidation or otherwise.

        6B.    Articles of Incorporation; Bylaws.    The corporation will not amend, alter or repeal its Articles of Incorporation or Bylaws.

        6C.    Consolidation, Merger or Sale of Assets.    The consolidation or merger of the corporation or any of its subsidiaries with or into any other corporation (other than a merger in which the corporation or such subsidiary is the surviving corporation), the reorganization, reclassification or recapitalization of the capital stock of the corporation or any of its subsidiaries, or the sale of all or substantially all of the property and assets of the corporation or any of its subsidiaries.

        6D.    Acquisitions.    The corporation shall not acquire, or permit any of its subsidiaries to acquire, the equity securities of any corporation or other business entity or any other asset, or group of assets, or effect a merger permitted pursuant to paragraph 6C above, involving an aggregate consideration in each case of more than $5,000,000.

        6E.    Restrictions on Issuance of Securities and Convertible Debt.    Subject to subparagraph 4F, the corporation shall not, and shall not permit any of its subsidiaries to, issue any shares of preferred stock, common stock, warrants or other securities (including, without limitation, any evidence of indebtedness) convertible into any of the foregoing, or make any commitments to issue the same.

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Article V
Common Stock

        A.    Class A Common Stock.

        1.    Dividends.    The holders of shares of Class A Common Stock shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the corporation, subject to the provisions of Article IV with respect to the rights of holders of the Preferred Stock and subject to the simultaneous payment of dividends on the Class B Common Stock as set forth in Part B of this Article V hereof.

        2.    Liquidation.    In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, after payment shall have been made to holders of all shares of Preferred Stock of the full amounts of Preferential Payments to which they shall respectively be entitled as stated and expressed herein or as may be stated and expressed pursuant hereto, the holders of Class A Common Stock and the holders of Class B Common Stock shall be entitled to share ratably based upon the number of shares of Common Stock held by them in all remaining assets of the corporation available for distribution to its shareholders.

        3.    Voting Rights.    All shares of Class A Common Stock shall be identical with each other in every respect. The shares of Class A Common Stock shall entitle the holders thereof to one vote for each share upon all matters upon which shareholders have the right to vote.

        B.    Class B Common Stock.

        1.    Dividends.    The holders of shares of Class B Common Stock shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the corporation, subject to the provisions of Article IV with respect to the rights of holders of the Preferred Stock. Such dividends shall be equal to dividends declared on Class A Stock; provided, however, that in the event that the holders of Class A Common Stock receive a dividend payable in shares of Class A Common Stock, then holders of Class B Common Stock shall receive a number of shares of Class B Common Stock which is equal to the number of shares of Class A Common Stock which they would, but for this proviso, have received pursuant to this paragraph 1.

        2.    Liquidation.    In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, after payment shall have been made to holders of all shares of Preferred Stock of the full amounts of Preferential Payments to which they shall respectively be entitled as stated and expressed herein or as may be stated and expressed pursuant hereto, the holders of Class B Common Stock and the holders of Class A Common Stock shall be entitled to share ratably based upon the number of shares of Common Stock held by them in all remaining assets of the corporation available for distribution to its shareholders.

        3.    Voting Rights.    Holders of Class B Common Stock shall have no rights to vote except as provided in this Paragraph 3, upon the occurrence of a Voting Event as defined in subparagraph 5B of Article IV (and then as a class with the Class A Common Stock) and as otherwise expressly provided by law. On all matters on which holders of Class B Common Stock are entitled to vote, each holder of shares of Class B Common Stock shall be entitled to one vote for each share and shall be entitled to notice of any shareholders meeting in accordance with the Bylaws of the corporation.

        4.    Conversion.

        4A.    Right to Convert.    Subject to the terms and conditions of this paragraph 4, the holder of any share or shares of Class B Common Stock shall have the right, at its option, to convert any such shares of Class B Common Stock (except that upon any liquidation, dissolution or winding up

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of the corporation the right of conversion shall terminate at the close of business on the last full business day next preceding the date fixed for payment of the amount distributable on Class B Common Stock) into an equal number of fully paid and nonassessable whole shares of Class A Common Stock upon the occurrence of an event specified in subparagraph 4B hereof. Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of Class B Common Stock into Class A Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the corporation at its principal office (or such other office or agency of the corporation as the corporation may designate by notice it writing to the holder or holders of Class B Common Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Class A Common Stock shall be issued.

        4B.    Conversion Events.    The holders of shares of Class B Common Stock may exercise their option to convert such shares into shares of Class A Common Stock only upon the occurrence of a Common Conversion Event and then (except upon a transfer of shares of the Class B Common Stock to an unaffiliated party by the initial holder thereof or upon occurrence of the Preferred Conversion Event set forth in clause 4 of subparagraph 4A of Article IV) only during the 60-day period after receipt of written notice from the corporation of the occurrence of such Common Conversion Event (as provided in subparagraph 4G hereof). "Common Conversion Event shall include the events set forth in clauses (2), (4) and (5) of the definition of Preferred Conversion Event in subparagraph 4A of Article IV and shall also include (x) a transfer of the shares of Class B Common Stock to an unaffiliated party by the initial holder thereof and (y) a default or event of default, after the holder of Class B Common Stock has received notice of such, under any material agreement pursuant to which the corporation or any of its material subsidiaries has incurred indebtedness for borrowed money in cases in which the holder of Class B Common Stock is not a holder (or in the case of Prudential or any of its affiliates, neither Prudential nor any of its affiliates is a holder) of the defaulting debt instrument. If the Class B Common Stock shall not be converted within the 60-day period following receipt of written notice from the corporation of the occurrence of a Common Conversion Event, the right to convert such shares of Class B Common Stock into shares of Class A Common Stock shall lapse, and such shares of Class B Common Stock shall cease to be convertible until the occurrence of another Common Conversion Event, in which case the provisions of this and the preceding sentence shall once again be applicable.

        4C.    Issuance of Certificates; Time Conversion Effected.    Promptly after the receipt of the written notice referred to in subparagraph 4A and surrender of the certificate or certificates for the share or shares of Class B Common Stock to be converted, the corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Class A Common Stock issuable upon the conversion of such share or shares of Class B Common Stock. To the extent permitted by law, such conversion shall be deemed to have been effected immediately prior to the close of business on the day the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Class B Common Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Class A Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

        4D.    Fractional Shares; Dividends; Partial Conversion.    No fractional shares shall be issued upon conversion of Class B Common Stock into Class A Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Class A Common Stock issued upon such conversion. At the time of each conversion, the corporation shall

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pay in cash an amount equal to all dividends accrued and unpaid on the shares surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 4C. In case the number of shares of Class B Common Stock represented by the certificate or certificates surrendered pursuant to subparagraph 4A exceeds the number of shares converted, the corporation shall, upon such conversion, execute and deliver to the holder thereof, at the expense of the corporation, a new certificate or certificates for the number of shares of Class B Common Stock represented by the certificate or certificates surrendered which are not to be converted.

        4E.    Subdivision or Combination of Stock.    In case the corporation shall at any time subdivide its outstanding shares of Class A Common Stock into a greater number of shares, then the Class B Common Stock shall be similarly subdivided, and conversely, in case the outstanding shares of Class A Common Stock shall be combined into a smaller number of shares, then the number of shares of Class B Common Stock immediately prior to such combination shall be proportionately reduced.

        4F.    Notice of Adjustment.    Upon any adjustment made pursuant to subparagraph 4E, then and in each such case the corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each holder of shares of Class B Common Stock at the address of such holder as shown on the books of the corporation, which notice shall state the number of shares of Class A Common Stock issuable upon conversion of the Class B Common Stock resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

        4G.    Other Notices.    In case at any time:

        (1)  the corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;

        (2)  the corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights;

        (3)  there shall be any capital reorganization or reclassification of the capital stock of the corporation, or a consolidation or merger of the corporation with, or a sale of all or substantially all its assets to, another corporation;

        (4)  there shall be a voluntary or involuntary dissolution, liquidation or winding up of the corporation; or

        (5)  the corporation shall take any action or there shall be any event which would result in (i) an automatic conversion of the Preferred Stock or (ii) a Common Conversion Event,

then, in any one or more of said cases, the corporation shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Class B Common Stock at the address of such holder as shown on the books of the corporation, (a) at least 20 days prior written notice of the date on which the books of the corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place, (c) in the case of any event which would result in an automatic conversion of the Preferred Stock pursuant to subparagraph 4H of Article IV, at least 20 days prior written notice of the date on which the same is expected to be completed and (d) in the case of the occurrence of a Conversion Event, promptly upon such occurrence. Such notice in

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accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.

        4H.    Stock to be Reserved.    The corporation will at all times reserve and keep available out of its authorized Class A Common Stock or its treasury shares, solely for the purpose of issue upon the conversion of the Class B Common Stock as herein provided such number of shares of Class A Common Stock as shall then be issuable upon the conversion of all outstanding shares of Class B Common Stock. The corporation covenants that all shares of Class A Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. The corporation will take all such action as may be necessary to assure that all such shares of Class A Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Class A Common Stock of the corporation may be listed. The corporation will not take any action which results in any adjustment of the number of shares of Class A Common Stock issuable upon conversion of the Class B Common Stock if the total number of shares of Class A Common Stock issued and issuable after such action upon conversion of the Class B Common Stock would exceed the total number of shares of Class A Common Stock then authorized by the corporation's Articles of Incorporation.

        4I.    No Reissuance of Common Stock.    Shares of Class B Common Stock which are converted into shares of Class A Common Stock as provided herein shall not be reissued.

        4J.    Issue Tax.    The issuance of certificates for shares of Class A Common Stock upon conversion of the Class B Common Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Class B Common Stock which is being converted.

        4K.    Closing the Books.    The corporation will at no time close its transfer books against the transfer of any Class B Common Stock or of any shares of Class A Common Stock issued or issuable upon the conversion of any shares of Class B Common Stock in any manner which interferes with the timely conversion of such Class B Common Stock.

Article VI
Board Of Directors

        A.    Number, Classification and Term of Office.    The number of directors of the corporation shall initially be not less than three and no more than nine and shall be fixed from time to time by the Board of Directors or by the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote generally in the election of directors, voting together as a single class, at a duly held meeting. The directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1993 annual meeting of shareholders, the term of office of the second class to expire at the 1994 annual meeting of shareholders and the term of office of the third class to expire at the 1995 annual meeting of shareholders. At each annual meeting of shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders after their election.

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        B.    Vacancies.    Subject to the rights of the holders of any series of preferred stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled by a majority vote of the directors then in office though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of shareholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

        C.    Removal.    Any directors, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of the capital stock of the corporation entitled to vote generally, in the election of directors, voting together as a single class.

        D.    Amendment.    The provisions of this Article VI may not be repealed or amended in any respect unless such action is approved by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.

Article VII
Cumulative Voting Denied

        No holder of stock of this corporation shall be entitled to any cumulative voting rights.

Article VIII
Pre-Emptive Rights Denied

        No holder of stock of this corporation shall have any preferential, pre-emptive or other rights of subscription to any shares of any class or series of stock of this corporation allotted or sold or to be allotted or sold and now or hereafter authorized, or to any obligations or securities convertible into any class or series of stock of this corporation, nor any right of subscription to any part thereof.

Article IX
Limitation on Liability of Directors

        No director of this corporation shall be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, provided that this Article shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 302A.559 or 80A.23, Minnesota Statutes, (iv) for any transaction from which the director derived an improper personal benefit, or (v) for any act or omission occurring prior to the effective date of this Article. No amendment or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

        IN WITNESS WHEREOF, I have hereunto set my hand this    day of January, 2002.

Samia C. Haddad
Secretary

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Amended and Restated Articles of Incorporation of Provell, Inc.
Article I Name
Article II Registered Office
Article III Capital Stock
Article IV Preferred Stock
Article V Common Stock
Article VI Board Of Directors
Article VII Cumulative Voting Denied
Article VIII Pre-Emptive Rights Denied
Article IX Limitation on Liability of Directors

EX-10.31

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Exhibit 10.31

CHANGE OF CONTROL, CONFIDENTIALITY AND NONCOMPETE AGREEMENT

-oOo-

        This Change of Control, Confidentiality and Noncompete Agreement is entered into as of March 12, 1999, between Damark International, Inc., a Minnesota corporation (including its subsidiaries, the "Company"), located in Minneapolis, Minnesota, and Michael T. Del Viscio, an individual at 7101 Winnetka Avenue North, Minneapolis, Minnesota 55428 ("Executive").

RECITALS:

          A.  The Executive is now and has been the Vice President—Merchandising of the Company and, as such, is a key executive of the Company.

          B.  The Board of Directors of the Company believes that it is imperative to diminish the inevitable distraction to the Executive that arises by virtue of the personal uncertainties and risks created by any pending or threatened Change in Control (as defined herein) of the Company.

          C.  The Company believes that it is important that it receive certain assurances with respect to its Confidential Information and the Executive's Work Product (each as defined herein) and that the Company receive certain protections with respect to the Executive's activities following termination of his employment.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:

        1.    Definitions.    The following terms as used herein shall have the following meanings:

        (a)  "Annual Bonus" means the cash annual bonus based on the achievement by the Company of performance goals or any other short-term incentive or bonus plan established by the Board of Directors or the Compensation Committee of the Board of Directors from time to time.

        (b)  "Base Salary" means the base salary payable to the Executive as determined by the Company from time to time, including modifications by the Compensation Committee prior to any Change in Control.

        (c)  "Cause" means termination of the Executive in the event that the Executive: (i) has repeatedly failed to perform the material duties specified for the position to which the Executive has been elected, which failure is willful and deliberate; (ii) has engaged in an act or acts of dishonesty which is or are intended to result in substantial personal enrichment for the Executive: (iii) has knowingly engaged in conduct which is materially injurious to the Company; (iv) is convicted of, or pleads nolo contendere to (A) any felony (other than any felony arising out of negligence), or (B) any crime or offense involving dishonesty with respect to the Company; (v) has failed to comply with the covenants contained in paragraphs 7, 9 or 10 of this Agreement as determined in accordance with paragraph 12 hereof; or (vi) knowingly provides materially misleading information concerning the Company to the Board of Directors of the Company, any governmental body or regulatory agency or any lender or other financing source or proposed financing source of the Company.

        (d)  A "Change in Control" shall be deemed to have occurred if:

          (i)  any "Person" or "Persons" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) (other than the Company, any employee benefit plan of the Company, Mark A. Cohn or any entity which reports beneficial ownership of the Company's outstanding securities on Schedule 13G pursuant to Regulation §240.13d-1 promulgated under the Securities Exchange Act of 1934) becomes a beneficial owner, directly or indirectly, of

securities of the Company representing 35% or more of the voting power of all of the Company's then outstanding securities; or

        (ii)  during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (the "Incumbent Directors") together with any director (the "New Incumbent Director") whose nomination or election was approved by at least two-thirds of the Incumbent Directors and any New Incumbent Director who was previously elected, cease for any reason to constitute at least a majority of the Board of Directors of the Company; or

        (iii)  the shareholders of the Company approve the sale of all, or substantially all, of the business or assets of the Company or the liquidation or dissolution of the Company, or the shareholders of the Company approve the merger, consolidation or other corporate reorganization of the Company under circumstances in which the Company will not be the surviving party.

        (e)  "Confidential Information" means any information which is proprietary or unique to the Company of the Company, including but not limited to trade secret information, matters of a technical nature such as processes, devices, techniques, data and formulas, research subjects and results, marketing methods, plans and strategies, operations, products, revenues, expenses, profits, key personnel, customers, suppliers, pricing policies, any information concerning the marketing and other business affairs and methods of the Company which is not readily available in the Company's industry, and any information the Company has indicated is confidential.

          (f)  "Good Reason" means termination by the Executive in the event that (i) the Executive is not at all times the duly elected to the position held by the Executive immediately prior to a Change in Control (or comparable position); (ii) there is any material reduction in the scope of the Executive's authority and responsibility; (iii) there is a reduction in the Executive's Base Salary, a material reduction in the amount of Annual Bonus for which the Executive is eligible, an amendment to any Stock Incentives or employee retirement plan applicable to the Executive which is materially adverse to the Executive, or a material reduction in the other benefits to which the Executive is entitled; (iv) the Company requires the Executive's principal place of employment to be anywhere other than the Company's principal executive offices, or there is a relocation of the Company's principal executive offices outside of Minneapolis/St. Paul, Minnesota metropolitan area; (v) the Company otherwise fails to perform its obligations under this Agreement; (vi) a Change in Control has occurred and the Executive either (x) dies or becomes permanently disabled (as determined by reference to the Company's long-term disability plan) prior to the first anniversary of the Change of Control, or (y) elects to terminate employment with the Company, regardless of the reason therefor, by giving the Company written notice thereof within the 60-day period immediately following the first anniversary of the Change in Control or (vii) the Company fails to obtain the agreement of a successor referred by paragraph 16 hereof prior to the effectiveness of any succession (unless the opinion described in paragraph 16 hereof is rendered to the Executive).

        (g)  "Stock Incentives" means stock options, restricted stock, stock appreciation rights, stock performance units or other stock incentives granted to the Executive by the Compensation Committee of the Board of Directors under any stock-based plan from time to time adopted by the Company.

        (h)  "Termination Date" means the date on which the Executive ceases to be an employee of the Company.

          (i)  "Work Product" means all inventions, creations, innovations, improvements, technical information, systems, software developments, methods, designs, analyses, drawings, reports, service

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marks, trademarks, tradenames, logos and all similar or related information (whether patentable or unpatentable) which relate to the Company's actual or anticipated business, research and development or existing or future products or services which are conceived, developed or made by the Executive (whether or not during usual business hours and whether or not alone or in conjunction with any other person) while employed by the Company (including those conceived, developed or made prior to the date of this Agreement), together with all patent applications, letters patent, trademark, tradename and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing.

        2.    Termination Following a Change in Control of the Company.    In the event of a Change in Control and if, either upon or within (and including) 24 months after such Change in Control, the following provisions shall apply:

        (a)    Termination for Cause by the Company.    By following the procedure set forth in paragraph 2(d)(i), the Company shall have the right to terminate the employment of the Executive for Cause. If the employment of the Executive is terminated by the Company for Cause, the Executive's rights to compensation and benefits shall be determined under the Company's benefit plans and policies applicable to executives of the Company then in effect.

        (b)    Termination for Good Reason by the Executive.    By following the procedure set forth in paragraph 2(d)(ii), the Executive shall have the right to terminate the Executive's employment with the Company for Good Reason and shall be entitled to the severance benefits set forth in paragraph 2(e).

        (c)    Termination Without Cause; Voluntary Resignation.    If the Company terminates the Executive's employment without Cause upon or within (and including) 24 months after a Change in Control, the Executive shall be entitled to the severance benefits set forth in paragraph 2(e). The Executive may voluntarily terminate his employment without Good Reason, and in such event the Executive's right to further Base Salary payments and Annual Bonus (except Annual Bonus prorated to the Termination Date) shall terminate on the effective date of such resignation, the Executive's rights to other compensation and benefits shall be determined under the benefit plans and policies applicable to the Company's executives as then in effect, and the Executive shall continue to be obligated under paragraph 7, 9 and 10 hereof.

        (d)    Notice and Right to Cure.

        (i)    Termination by Company for Cause.    If the Company proposes to terminate the employment of the Executive for Cause under paragraph 2(a), the Company shall give written notice to the Executive specifying the reasons for such proposed termination with particularity and, in the case of a termination for Cause under clauses (i), (ii), (iii) and (vi) of the definition thereof, the Executive shall have a reasonable opportunity to correct any curable situation to the reasonable satisfaction of the Board of Directors of the Company, which period shall be no less than 30 days from the Executive's receipt of the notice of proposed termination nor longer than the period specified in such notice. Notwithstanding the foregoing, the Executive's employment shall not be terminated for Cause unless and until there shall be delivered to the Executive a copy of the resolution duly adopted by the affirmative vote of not less than the majority of the members of the Board of Directors of the Company at a meeting called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's legal counsel, to be heard before the Board of Directors) finding that, in the opinion of the Company's Board of Directors, the Executive has engaged in conduct justifying a termination for Cause.

        (ii)    Termination by Executive for Good Reason.    If the Executive proposes to terminate the Executive's employment for Good Reason under paragraph 2(b) (other than a termination

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for Good Reason under clause (vi) of the definition thereof, the Executive shall give written notice to the Company, specifying the reason therefor with particularity. In the event the Executive proposes to terminate employment for Good Reason under clauses (i), (ii), (iii), (iv) or (vii) of the definition thereof, the Termination Date shall be the date of such notice. In the event the Executive proposes to terminate under clause (vi) of the definition of "Good Cause," the Termination Date shall be the tenth calendar day following such notice or, in the case of disability or death, the date on which the Executive dies or becomes disabled. In the event the Executive proposes to terminate employment for Good Reason under clause (v) of the definition thereof, the Company will have an opportunity to correct any curable situation to the reasonable satisfaction of the Executive within the period of time specified in the Executive's notice which shall not be less than 30 days. If such correction is not so made or the circumstances or situation is such that it is not curable, within 30 days after the expiration of the time so fixed within which to correct such situation, the Executive may give written notice to the Company that the Executive's employment is terminated for Good Reason and the Termination Date shall be the date of such notice.

        (e)    Severance Benefits for Change in Control.

        (i)    Base Salary.    The Company shall pay the Executive a lump sum cash payment, no later than 10 days after the Termination Date, in an amount equal to the Executive's Base Salary multiplied by two.

        (ii)    Annual Bonus.    The Company shall pay the Executive a lump sum cash payment, no later than 10 days after the Termination Date, in an amount equal to (a) the greater of (x) the quotient obtained by dividing the sum of the Annual Bonuses, if any, paid to the Executive during the three calendar years immediately preceding the Termination Date by three (the "Prior Bonus Amount"), and (y) the Executive's target Annual Bonus for the current calendar year, assuming achievement of performance permitting payment of 100% of the target Annual Bonus, plus (b) the Executive's target Annual Bonus for the current calendar year, assuming achievement of performance permitting payment of 100% of the target Annual Bonus, pro rated for the number of calendar months (including any partial month as a full calendar month) preceding the Termination Date. If the Annual Bonus for the calendar year immediately preceding the Termination Date has not been determined, the Company shall pay the Executive the target Annual Bonus for the current calendar year, calculate the Prior Bonus Amount as soon as practicable, and pay the Executive the Prior Bonus Amount promptly following calculation.

        (iii)    Disability, Life Insurance and Medical/Dental Coverage: No Unpaid Vacation or Sick Leave.    The Company shall continue the disability, life insurance and medical/dental coverage provided to the Executive immediately prior to the Termination Date. Such coverage shall be provided by the Company at its sole cost until the second anniversary of the Termination Date. If and to the extent additional benefits are available, the Executive has the right to continue health and life insurance benefits under COBRA laws in effect on the Termination Date. The Executive acknowledges that the number of months of health and life insurance benefits available under this Agreement exceed by six months the number of required months under current law. The Executive shall not be deemed to have and shall not be paid for any unpaid vacation or sick leave.

        (iv)    Stock Incentives.    Not later than 30 days after the Termination Date, the Company shall pay the Executive a lump sum cash payment equal to the amount by which the fair market value (determined as of the Termination Date) of the number of shares of stock subject to any Stock Incentive granted to the Executive is in excess of the exercise price or other amount of payment required to be made by the Executive thereunder, but only to the

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extent that the Executive is not entitled to exercise his Stock Incentives after the Termination Date under the provisions of the Executive's Stock Incentive agreements.

        (v)    Other Deferred Benefits.    Not later than 30 days after the Termination Date, the Company shall pay the Executive a lump sum cash payment in an amount equal to the sum of the unvested portion of all other deferred benefits, including without limitation deferred compensation, retirement and profit-sharing plans, but only to the extent that the Executive is not entitled to receive such benefits immediately following the Termination Date under the provisions of the applicable agreements.

        (vi)    Outplacement Services.    The Company shall pay reasonable fees and expenses, in an amount equal to 15% of the Executive's Base Salary, for the Executive's use of a qualified outplacement service, provided that the use of such outplacement counseling is initiated within 180 days of the Termination Date.

        (vii)    Withholding.    Notwithstanding anything to the contrary herein, the Company shall withhold from all severance benefits payable hereunder the sum of federal, state and local taxes and other amounts which the Company is required by law or believes appropriate to withhold.

        3.    Certain Additional Payments by the Company.

        (a)    Gross-Up Payment.    Anything to the contrary notwithstanding, in the event it shall be determined that any payment, distribution or benefit made or provided by the Company to or for the benefit of the Executive (whether pursuant to this Agreement or otherwise) (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, being collectively referred to as the "Excise Tax"), then the Company shall pay the Executive in cash an amount (the "Gross-Up Payment") such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including but not limited to income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payments. An example of the calculation of the Gross-Up Payment is attached hereto as Exhibit A.

        (b)    Determination of Gross-Up Payment.    Subject to paragraph 3(c), all determinations required to be made under this paragraph 3, including whether a Gross-Up Payment is required and the amount of the Gross-Up Payment, shall be made by the firm of independent public accountants selected by the Company to audit its financial statements for the year immediately preceding the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations to the Company and the Executive within 30 days after the Termination Date. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required under this paragraph 3 (which accounting firm shall then be referred to as the "Accounting Firm"). All fees and expenses of the Accounting Firm in connection with the work it performs pursuant to this paragraph 3 shall be promptly paid by the Company. Any Gross-Up Payment (as determined pursuant to this paragraph 3) shall be paid by the Company to the Executive within 5 days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or a similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm, it is possible that Gross-

5

Up Payments which will not have been made by the Company should have been made ("Underpayment"). In the event that the Company exhausts its remedies pursuant to paragraph 3(c), and the Executive is thereafter required to make a payment of Excise Tax, the Accounting Firm shall promptly determine the amount of the Underpayment that has occurred and any such Underpayment shall be paid by the Company to the Executive within 5 days after such determination.

        (c)    Contest.    The Executive shall notify the Company in writing of any claim made by the Internal Revenue Service that, if successful, would require the Company to pay a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall:

          (i)  give the Company any information reasonably requested by the Company relating to such claim;

        (ii)  take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to the Executive;

        (iii)  cooperate with the Company in good faith in order to effectively contest such claim;

        (iv)  permit the Company to participate in any proceedings relating to such claim, provided that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph 3(c), the Company shall control all proceedings taken in connection with such contest. At its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. The Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, provided that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance, and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

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        (d)    Refund.    If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 3(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph 3(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 3(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

        4.    Benefits in Lieu of Severance Pay Policy.    The severance benefits provided for in paragraphs 2 and 3 hereof are in lieu of any benefits that would otherwise be provided to the Executive under any severance arrangements or agreement between the Company and the Executive or under any other Company severance pay policy, and the Executive shall not be entitled to any such benefits.

        5.    No Funding of Severance.    Nothing contained in this Agreement or otherwise shall require the Company to segregate, earmark or otherwise set aside any funds or other assets to provide for any payments required to be made under paragraphs 2 and 3 hereof, and the rights of the Executive to any benefits hereunder shall be solely those of a general, unsecured creditor of the Company.

        6.    Beneficiaries.    In the event of the Executive's death, any amount or benefit payable or distributable to him pursuant to this Agreement shall be paid to the beneficiary designated by the Executive for such purpose in the last written instrument received by the Company prior to the Executive's death, if any, or, if no beneficiary has been designated, to the Executive's estate, but such designation shall not be deemed to supersede any beneficiary designation under any benefit plan of the Company. Whenever this Agreement provides for the written designation of a beneficiary or beneficiaries of the Executive, the Executive shall have the right to revoke such designation and to redesignate a beneficiary or beneficiaries by written notice to the Company, except to the extent, if any, restricted by law.

        7.    Covenant to Protect Confidential Information.    The Executive acknowledges that in connection with the Executive's employment by the Company, the Executive will be brought into contact with Confidential Information, and the Executive agrees that:

        (a)  The Executive will not disclose to any Person or entity any Confidential Information, either during or after the term of his employment, except to designated employees of the Company (only as such employees need such information and are designated by the Company as needing such information), and attorneys, accountants or other representatives of the Company as may be necessary or appropriate in the ordinary course of performing the Executive's duties as an executive of the Company, or otherwise with the Company's express prior written consent.

        (b)  The Executive will not disclose or transfer any Confidential Information to any third party without the express prior written consent of the Company.

        (c)  The Executive will deliver to the Company promptly upon termination of employment, or at any other time that the Company may so request, all memoranda, notes, records (including electronic data records), reports and other documents (and all copies thereof) relating to the Confidential Information which he may then possess or have within his control.

        8.    Termination of Obligation of Confidentiality.    The confidentiality obligations imposed by Section 7 of this Agreement shall cease to apply to Confidential Information after the earliest of the date on which the Executive provides the Company with written evidence clearly establishing that the Confidential Information which has been treated by the Company as Confidential Information: (i) was

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known to Executive before it was obtained from the Company; (ii) was publicly available on the date of first receipt from the Company; (iv) has become generally known to the public in the United States through no fault of the Executive; (v) has been disclosed to Executive free of any obligation of confidentiality by a third party who has the right to disclose the same and who did not derive the information from the Company; or (vi) was independently developed by the Executive without the use of the Confidential Information.

        9.    Work Product.    The Executive acknowledges that Work Product belongs solely to the Company.

        (a)  At the request of the Company, the Executive shall (i) promptly and fully inform the Company in writing of Work Product made, created or conceived during the Executive's employment, (ii) assign (and the Executive does hereby assign) to the Company all of his ownership in and rights to such Work Product, and (iii) assist the Company as requested during and after employment to evidence, perfect and enforce the rights of the Company in and ownership of such Work Product by promptly executing and delivering to the Company, the necessary written instruments and by performing such other acts as may be necessary, in the opinion of the Company, so as to enable the Company to obtain and maintain patent, copyright or other intellectual property rights in such Work Product and so as to vest the entire right and title thereto in the Company.

        (b)  Pursuant to the provisions of Minn. Stat. Section 181.78, the Company hereby notifies the Executive that this Section 9 does not apply to an invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Executive's own time, and (i) which does not relate (A) directly to the business of the Company, or (B) to the Company's actual or demonstrably anticipated research or development, or (ii) which does not result from any work performed by the Executive for the Company.

        10.    Noncompetition, Nonsolicitation and Nondisparagement.    The Executive acknowledges and agrees with the Company that, during the course of the Executive's employment with the Company, the Executive has had and will continue to have the opportunity to develop relationships with existing employees, customers and other business associates of the Company, which relationships constitute goodwill of the Company, and the Executive acknowledges and agrees that the Company would be irreparably damaged if the Executive were to take actions that would damage or misappropriate such goodwill. The Executive accordingly covenants and agrees as follows:

        (a)  The Executive acknowledges that the Company currently conduct throughout the United States (the "Territory") the business of direct marketing merchandise and membership services including without limitation customer segmentation and modeling (the "Subject Business"). Accordingly, in consideration of the covenants of the Company pursuant to this Agreement, from the date hereof until the first anniversary of the Termination Date (the "Noncompete Period"), the Executive shall not, directly or indirectly, enter into, engage in, assist, give or lend funds to or otherwise finance, be employed by or consult with, or have a financial or other interest in, any business which engages in the Subject Business and markets programs, products or services similar to those of the Company as of the Termination Date, whether for or by himself or as an independent contractor, agent, stockholder, partner or joint venturer for any other Person, provided that the aggregate ownership by the Executive of no more than two percent of the outstanding equity securities of any Person, which securities are traded on a national or foreign securities exchange, quoted on the Nasdaq Stock Market or other automated quotation system shall not be deemed to be giving or lending funds to, otherwise financing or having a financial interest in a competitor. In the event that any Person in which the executive has any financial or other interest directly or indirectly enters into the Subject Business in the Territory during the Noncompete Period, the Executive shall divest all of his interest (other than any amount permitted

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under this paragraph) in such Person within 30 days after such Person enters into the Subject Business in the Territory.

        (b)  The Executive covenants and agrees that during the period commencing with the date of this Agreement and ending on the first anniversary of the Termination Date, the Executive will not, directly or indirectly, either for himself or for any other Person (i) solicit any employee of the Company to terminate his or her employment with the Company or employ any such individual during his or her employment with the Company and for a period of six months after such individual terminates employment with the Company, (ii) solicit any supplier to the Company as of the Termination Date to purchase or distribute information, products or services of or on behalf of the Executive or such other Person that are competitive with the information, products or services provided by the Company, or (iii) make any disparaging statements concerning the Company or its officers, directors or employees, to any lessor, lessee, vendor, supplier, customer, distributor, employee, consultant or other business associate of the Company, as such relationship relates to the Company's conduct of the Subject Business.

        (c)  The Executive understands that the foregoing restrictions may limit the Executive's ability to earn a livelihood in a business similar to the business of the Company, but the Executive nevertheless believes that the Executive has received and will receive sufficient consideration and other benefits as an employee of the Company and as otherwise provided hereunder to clearly justify such restrictions which, in any event (given the Executive's education, skills and ability), the Executive does not believe would prevent him from otherwise earning a living.

        11.    Remedies.    In the event of the violation or threatened violation by the Executive of any of the covenants contained in this Agreement, in addition to any other remedy available in law or in equity, the Company shall have (i) the right and remedy of specific enforcement, including injunctive relief, it being acknowledged and agreed that any such violation or threatened violation will cause irreparable injury to the Company and that monetary damages will not provide an adequate remedy, (ii) the right and remedy to terminate forthwith any payments or benefits required to be made or provided to the Executive hereunder upon violation by the Executive of any provisions of paragraphs 7, 9 or 10 hereof, but without limiting the Executive's obligations under paragraphs 7, 9 or 10 hereof, provided that all such payments shall be promptly paid over to the Executive if a court of competent jurisdiction determines that the Executive did not violate such provisions, (iii) the right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments, or other benefits, other than those payable under this Agreement, derived or received by the Executive or the entity in competition with the Company as the result of any transactions constituting a breach of any part of paragraphs 7, 9 or 10 of this Agreement, and Executive agrees to account for and pay over to the Company such amounts promptly upon final determination by a court of competent jurisdiction, (iv) the right to any and all damages available as a matter of law, and (v) if the Company is the prevailing party, costs and expenses incurred by the Company in pursuing its rights under this Agreement, including reasonable attorneys' fees and other litigation expenses.

        12.    Arbitration.    In the event of a dispute between the Company and the Executive regarding the Executive's failure to comply with the covenants contained in paragraphs 7, 9 or 10 of this Agreement for purposes of determining a basis for a termination for Cause pursuant to clause (v) of the definition thereof or regarding the entitlement of the Executive to benefits under paragraph 2(e) or the amount thereof, it is the intention of the parties that the dispute shall be resolved as expeditiously as possible, consistent with fairness to both sides. Accordingly, any such matters shall be resolved by binding private arbitration before three arbitrators. Within 30 days of receipt of such notice by the opposing party, each party shall appoint a disinterested arbitrator and the two arbitrators selected thereby shall appoint a third neutral arbitrator. In the event the two arbitrators cannot agree upon the third arbitrator within 10 days after their appointment, then the neutral arbitrator shall be appointed by the Chief Judge of

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Hennepin County (Minnesota) District Court. Any arbitration proceeding conducted hereunder shall be in the City of Minneapolis and shall follow the procedures set forth in the Rules of Commercial Arbitration of the American Arbitration Association, and both sides shall cooperate in as expeditious a resolution of the proceeding as is reasonable under the circumstances. The arbitrators shall apply the law of the State of Minnesota. The arbitration panel shall have the power to enter any relief it deems fair and just on any claim, including interim and final equitable relief, along with any procedural order that is reasonable under the circumstances. Any award rendered by any arbitration panel, or a majority thereof, may be filed and a judgment obtained in any court having jurisdiction over the parties unless the relief granted in the award is delivered within 10 days of the award. Either party may request arbitration by written notice to the other party.

        13.    Severability.    Should any covenant, term or condition contained in this Agreement become or be declared invalid or unenforceable by a court of competent jurisdiction, the parties agree that the court shall be requested to judicially modify such unenforceable provision consistent with the intent of this Agreement so that it shall be enforceable to the fullest extent possible.

        14.    Applicable Law; Jurisdiction.    This Agreement shall be construed, interpreted and enforced according to the statutes, rules of law and court decisions of the State of Minnesota without regard to conflict of law provisions. The Executive hereby submits to the jurisdiction of, and waives any venue objections against, the State of Minnesota and the federal courts of the United States located in such state in respect of all actions arising out of or in connection with the interpretation or enforcement of paragraphs 7, 9 or 10 of this Agreement, and the Executive consents to the personal jurisdiction of such courts for such purposes.

        15.    Amendments; Waivers.    This Agreement may be amended, modified, superseded or cancelled, and the terms or covenants waived, only by a written instrument executed by both of the parties hereto or, in the case of a waiver, by the Company. The failure to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver of any term, whether by conduct or otherwise, shall be deemed to be a further or continuing waiver of any such breach, or a waiver of the breach of any other term contained in this Agreement.

        16.    Successors.    The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform its obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform them if no succession had taken place unless, in the opinion of legal counsel mutually acceptable to the Company and the Executive, such obligations have been assumed by the successor as a matter of law. The Executive's rights under this Agreement shall inure to the benefit of, and shall be enforceable by, the Executive's legal representative or other successors in interest, but shall not otherwise be assignable or transferable.

        17.    Term of Agreement; Survival.    Unless earlier terminated pursuant to paragraph 2 hereof, this Agreement shall terminate on the second anniversary of a Change in Control, provided that the obligations of the Executive under paragraphs 7 and 9 shall continue forever and the obligations of the Executive under paragraph 10 shall continue for the period stated therein. The rights and obligations of the parties pursuant to this Agreement shall survive the Termination Date to the extent that any performance is required hereunder after the expiration or termination of such term.

        18.    Notices.    All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person (in the Company's case, to its Chief Financial Officer) or 48 hours after deposit thereof in the U.S. mails, postage prepaid, addressed, in the case of the Executive, to the Executive's last known address as carried on the personnel records of the Company and, in the case of the Company, to the corporate headquarters, attention of the Chief Financial Officer, or to such other address as the party to be notified may specify by written notice to the other party,

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        19.    Construction.    Paragraph headings are for convenience only and shall not be considered a part of the terms and provisions of the Agreement.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the day and year first above written.

DAMARK INTERNATIONAL, INC.
By:	/s/  MARK A. COHN
Its:	Chairman/CEO
EXECUTIVE
/s/  MICHAEL T. DEL VISCIO Name: Michael T. Del Viscio

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EXHIBIT A

Calculation of Gross-Up Payment

        Pursuant to Section 3 of the Change of Control, Confidentiality and Noncompete Agreement to which this Exhibit A is attached, a gross-up payment shall be paid to the Executive by the Company within the time period specified in the Agreement for the amount of excise tax incurred by the Executive as a result of Internal Revenue Code Section 4999. The following is an example of the result intended by Section 3 of the Agreement.

Definition of terms:
	G=	Gross-up payment due,
	P=	Amount of the parachute payment,
	B=	Base amount,
	R=	Aggregate applicable Federal and State (net of Federal benefit) income tax rate
Example assumptions:
	G=	X,
	P=	$800,000,
	B=	$200,000, and
	R=	.4
Based upon the assumptions listed, the gross-up payment is calculated as follows:
	G=	(.2P - .2B)/(.8-R)
	G=	[(.2($800,000) - .2($200,000)]/(.8 - .4)
	G=	($160,000 - $40,000) /.4
	G=	$120,000 /.4
	G=	$300,000

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Exhibit 10.31

CHANGE OF CONTROL, CONFIDENTIALITY AND NONCOMPETE AGREEMENT
RECITALS
EXHIBIT A
Calculation of Gross-Up Payment

EX-10.37

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Exhibit 10.37

AMENDMENT

THIS AMENDMENT made and entered into as of April 5, 2001 by and between DAMARK INTERNATIONAL, INC., a Minnesota corporation (the "Company") and KIM MAGEAU (the "Executive").

W I T N E S S E T H :

WHEREAS, the Company and the Executive entered into an agreement, dated February 26, 2001 (the "Agreement") pursuant to which the Company provided certain financial incentives to the Executive to remain in the employment of the Company.

WHEREAS, the Company and the Executive desire to alter, amend and modify the Agreement as hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto mutually agree as follows:

        1.    Subparagraph 1(a) of the Agreement is hereby deleted therefrom in its entirety and the following is hereby inserted in lieu thereof:

        "(a) 50% of the Bonus shall be paid three (3) months after the Company has raised $14,200,000 in the aggregate as a result of its issuance of its 10% Senior Convertible Note due February 4, 2002 (the "Senior Convertible Notes") and 50% of the bonus shall be paid six (6) months after completion of raising the aforedescribed amount from the issuance of the Senior Convertible Notes (the "Financing Event"), provided that payment of the Bonus is conditioned on the Executive continuing in the Company's employ through the date on which the payment is scheduled to be made."

        2.    Except as herein set forth, the Agreement shall remain in full force and effect without amendment, alternation of modification.

DAMARK INTERNATIONAL, INC.
By:	/s/ George S. Richards
Its:	Chief Executive Officer
EXECUTIVE:
/s/ Kim Mageau Kim Mageau

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Exhibit 10.37

EX-10.39

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Exhibit 10.39

AMENDMENT NUMBER ONE
TO LOAN AND SECURITY AGREEMENT

        This AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (the "Amendment") is entered into as of August 21, 2001, between FOOTHILL CAPITAL CORPORATION, a California corporation ("Agent"), with a place of business located at 2450 Colorado Avenue, Suite 3000 West, Santa Monica, California 90404, as Agent and as a Lender, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders", and together with Agent, as the "Lender Group"), and PROVELL, INC. (formerly known as DAMARK INTERNATIONAL, INC.), a Minnesota corporation ("Borrower"), with its chief executive office located at 301 Carlson Parkway, Suite 201, Minnetonka, Minnesota 55305, with reference to the following:

WHEREAS, Borrower previously has entered into that certain Loan and Security Agreement, dated as of March 27, 2001 (as amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement"), with Agent and Lenders pursuant to which Lenders have made certain loans and financial accommodations available to Borrower;

WHEREAS, Borrower has requested that Agent amend the Loan Agreement to permit Borrower to retain the Escrow Proceeds (as defined in the Loan Agreement) following their release from the Escrow Account (as defined in the Loan Agreement);

WHEREAS, subject to the terms and conditions set forth herein, Agent is willing to so amend the Loan Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

        1.    Defined Terms.    All terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement.

        2.    Amendments To The Loan Agreement.

        (a)  Section 1.1 of the Loan Agreement hereby is amended by:

(i)

adding the following defined terms in proper alphabetical order:

        "First Amendment" means that certain Amendment Number One to Loan and Security Agreement, dated as of August 21, 2001, by and between Borrower, Agent and Lenders.

        "First Amendment Effective Date" means the date, if ever, that all of the conditions set forth in Section 3 of the First Amendment shall be satisfied (or waived by Agent in its sole discretion).

(ii)

deleting the text "7,000,000" appearing in the defintion of "Clickship Reserve" and inserting the text "8,640,000" in lieu thereof.



(iii)

deleting the definition of "Escrow Proceeds Fee" in its entirety.

        (b)  Section 2.11(d) of the Loan Agreement hereby is deleted in its entirety.

        (c)  Section 6.16 of the Loan Agreement hereby is deleted in its entirety.

        3.    Conditions Precedent to Amendment.    The satisfaction of each of the following, unless waived or deferred by Agent in its sole discretion, shall constitute conditions precedent to the effectiveness of this Amendment and each and every provision hereof:

        (a)  Agent shall have received this Amendment, duly executed by the parties hereto, and the same shall be in full force and effect.

        (b)  Agent shall have received the reaffirmation and consent of each of the Guarantors attached hereto as Exhibit A (the "Consent"), duly executed and delivered by each Guarantor.

        (c)  The representations and warranties in this Amendment, the Loan Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date).

        (d)  Borrower shall be in good standing in the jurisdiction of its incorporation and in each other jurisdiction in which any of Borrower's assets are located or in which Borrower's failure to be duly qualified or licensed would constitute a Material Adverse Change.

        (e)  After giving effect to this Amendment, no Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein

        (f)    No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against Borrower, Agent or any Lender, or any of their Affiliates.

        4.    Representations and Warranties.    Borrower hereby represents and warrants to the Agent that (a) the execution, delivery, and performance of this Amendment and of the Loan Agreement are within Borrower's powers, have been duly authorized by all necessary action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or Governmental Authority, or of the terms of its Governing Documents, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected, (b) this Amendment and the Loan Agreement constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms, and (c) this Amendment has been duly executed and delivered by Borrower.

        5.    Choice of Law.    The validity of this Amendment, its construction, interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the laws of the State of New York.

        6.    Counterparts; Telefacsimile Execution.    This Amendment may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment or Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. Any party delivering an executed counterpart of this Amendment or the Consent by telefacsimile also shall deliver a manually executed counterpart of this Amendment or Consent, as applicable, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment or the Consent.

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        7.    Effect on Loan Documents.

        (a)  The Loan Agreement, as amended hereby, and the other Loan Documents shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not, except as expressly set forth herein, operate as a waiver of or, except as expressly set forth herein, as an amendment of, any right, power, or remedy of Agent or any Lender under the Loan Agreement, as in effect prior to the date hereof. The waivers, consents, and modifications herein are limited to the specifics hereof, shall not apply with respect to any facts or occurrences other than those on which the same are based, shall not excuse future non-compliance with the Loan Agreement, and shall not operate as a consent to any further or other matter, under the Loan Documents.

        (b)  Upon and after the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to "the Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as modified and amended hereby.

        (c)  To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Loan Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Loan Agreement as modified or amended hereby.

        8.    Further Assurances.    Borrower shall execute and deliver all agreements, documents, and instruments, in form and substance satisfactory to Agent, and take all actions as Agent may reasonably request from time to time, to perfect and maintain the perfection and priority of Agent's security interests in the Collateral (for the benefit of the Lender Group) and to fully consummate the transactions contemplated under this Amendment and the Loan Agreement.

        9.    Entire Agreement.    This Amendment, together with all other instruments, agreements, and certificates executed by the parties in connection herewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings, and inducements, whether express or implied, oral or written.

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        IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written.

PROVELL, INC., a Minnesota corporation (formerly known as DAMARK INTERNATIONAL, INC.)
By:	/s/  KIM MAGEAU
Title:	Sr. V.P. and CFO
FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent and as a Lender
By:	/s/  TODD A. DAVOCK
Title:	Vice President
ABLECO FINANCE LLC, a Delaware limited liability company, as a Lender
By:	/s/  KEVIN GENDA
Title:	SVP-Chief Credit Officer

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Exhibit A

        REAFFIRMATION AND CONSENT

Dated as of August 21, 2001

        Reference hereby is made to that certain Amendment Number One to Loan and Security Agreement, dated as of the date hereof (the "Amendment"), between Provell, Inc. (formerly known as Damark International, Inc.), a Minnesota corporation ("Borrower"), Foothill Capital Corporation, a California corporation, as Agent ("Agent") and as a Lender and the lenders signatory thereto. Capitalized terms used herein shall have the meanings ascribed to them in that certain Loan and Security Agreement, dated as of March 27, 2001 (as amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement"), between Borrower, Agent and the Lenders signatory thereto. The undersigned hereby (a) represents and warrants to Agent that the execution, delivery, and performance of this Reaffirmation and Consent ("Consent") are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or Governmental Authority or of any contract or undertaking to which the undersigned is a party or by which any of the properties of the undersigned may be bound or affected; (b) consents to the amendment of the Loan Agreement by the Amendment; (c) acknowledges and reaffirms all obligations owing by the undersigned to Agent; and (d) agrees that each Loan Document to which the undersigned is a party is and shall remain in full force and effect. Although the undersigned has been informed of the matters set forth herein and has acknowledged and agreed to same, the undersigned understands that Agent shall have no obligation to inform the undersigned of such matters in the future or to seek the undersigned's acknowledgement or agreement to future amendments or modifications, and nothing herein shall create such a duty.

        IN WITNESS WHEREOF, the undersigned has executed this Consent as of the date first set forth above.

DAMARK FINANCIAL SERVICES, INC., a Minnesota corporation
By:	/s/  KIM MAGEAU
Title:	Sr. V.P. and CFO
TEXAS TELEMARKETING, INC., a Minnesota corporation
By:	/s/  KIM MAGEAU
Title:	Sr. V.P. and CFO

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AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT
Exhibit A

EX-21

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Exhibit 21

SUBSIDIARIES OF PROVELL, INC.

	State of Incorporation
Provell Financial Services, Inc.	Minnesota
Texas Telemarketing, Inc.	Minnesota
ClickShip Direct, Inc.	Minnesota

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SUBSIDIARIES OF PROVELL, INC.

EX-24

Exhibit 24

POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that PROVELL, INC., a Minnesota corporation (the "Company"), and each of the undersigned directors of the Company, hereby constitutes and appoints George S. Richards his true and lawful attorney in fact and agent, for him and on this behalf in his name, place and stead, in any and all capacities to sign, execute, affix his seal thereto and file the Annual Report on Form 10-K for the year ended December 31, 2001 under the Securities Exchange Act of 1934, as amended, including any amendment or amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority.

        There is hereby granted to said attorney full power and authority to do and perform each and every act and thing, requisite and necessary to be done in respect of the foregoing as fully as he or himself might or could do if personally present, thereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof.

        This Power of Attorney may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument and any of the undersigned directors may execute this Power of Attorney by signing any such counterpart.

        IN WITNESS WHEREOF, the undersigned directors of PROVELL, INC. have hereunto set their hands as of the nineteenth day of March, 2002.

/s/  DEREK R. REISFIELD Derek R. Reisfield

/s/  MARVIN S. TRAUB Marvin S. Traub

/s/  CHARLES D. WENGER Charles D. Wenger