As filed with the Securities and Exchange
    Commission on July 7, 2011
 
 No. 333-173668
    UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
 
 Amendment No. 2
 
 to
 Form S-1
 REGISTRATION
    STATEMENT
 UNDER
 THE
    SECURITIES ACT OF 1933
 Bluestem
    Brands, Inc.
 (Exact
    name of registrant as specified in its charter)
  Delaware

5961

61-1425164(State or other jurisdiction
    of
    incorporation or organization)

(Primary Standard Industrial
    Classification Code Number)

(I.R.S. Employer
    Identification No.)   6509
    Flying Cloud Drive
 Eden
    Prairie, Minnesota 55344
 (952) 656-3700
 (Address,
    including zip code, and telephone number,
 including
    area code, of registrants principal executive
    offices)
  Brian A.
    Smith
 Chief
    Executive Officer
 Bluestem
    Brands, Inc.
 6509
    Flying Cloud Drive
 Eden
    Prairie, Minnesota 55344
 (952) 656-3700
 (Name,
    address, including zip code, and telephone number,
 including
    area code, of agent for service)
 Copies
    of all communications, including communications sent to agent
    for service, should be sent to:
  David B. Miller, Esq.
    Erik J. Romslo, Esq.
    Faegre & Benson LLP
    90 South Seventh Street
    Minneapolis, Minnesota 55402(612) 766-7000

David Lopez, Esq.
    Cleary Gottlieb Steen & Hamilton LLP
    One Liberty Plaza
    New York, NY 10006
    (212) 225-2000   Approximate
    date of commencement of proposed sale to the
    public: As
    soon as practicable after this Registration Statement becomes
    effective.
  If any of
    the securities being registered on this Form are to be offered
    on a delayed or continuous basis pursuant to Rule 415 under
    the Securities Act, check the following
    box: o
  If this Form
    is filed to register additional securities for an offering
    pursuant to Rule 462(b) under the Securities Act, please check
    the following box and list the Securities Act registration
    statement number of the earlier effective registration statement
    for the same
    offering. o
  If this Form
    is a post-effective amendment filed pursuant to Rule 462(c)
    under the Securities Act, check the following box and list the
    Securities act registration statement number of the earlier
    effective registration statement for the same
    offering. o
  If this Form
    is a post-effective amendment filed pursuant to Rule 462(d)
    under the Securities Act, check the following box and list the
    Securities Act registration statement number of the earlier
    effective registration statement for the same
    offering. o
  Indicate by
    check mark whether the registrant is a large accelerated filer,
    an accelerated filer, a non-accelerated filer, or a smaller
    reporting company. See the definitions of large
    accelerated filer, accelerated filer and
    smaller reporting company in Rule
    12b-2 of the
    Exchange Act. (Check one):
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller reporting
    company o (Do
    not check if a smaller reporting company)
  CALCULATION
    OF REGISTRATION FEE
  Proposed
    Maximum


Amount
    ofTitle of
    Each Class of


Aggregate


RegistrationSecurities
    to be Registered


Offering
    Price (1)(2)


Fee (2)Common Stock, $0.00001 par value per share


$150,000,000


$17,415(3)   (1)
    
    Includes
    shares of common stock that the underwriters may purchase from
    us and from the selling stockholders(2)
    
    Estimated
    solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o) under the Securities Act of 1933, as
    amended(3)
    
    Previously
    Paid  The
    Registrant hereby amends this Registration Statement on such
    date or dates as may be necessary to delay its effective date
    until the Registrant shall file a further amendment which
    specifically states that this Registration Statement shall
    thereafter become effective in accordance with Section 8(a)
    of the Securities Act of 1933, as amended, or until this
    Registration Statement shall become effective on such date as
    the Securities and Exchange Commission, acting pursuant to said
    Section 8(a), may determine.




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##### 



The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities and we are not soliciting an
offer to buy these securities in any state where the offer or
sale is not permitted.


Subject
    to Completion, Dated July 7, 2011
 
  Bluestem Brands,
    Inc.
  
  Shares
 Common Stock
  Investing in our common stock involves risk. See Risk
    Factors beginning on page 12.
  Neither the Securities and Exchange Commission nor any state
    securities commission has approved or disapproved of these
    securities or passed upon the adequacy or accuracy of this
    prospectus. Any representation to the contrary is a criminal
    offense.
  Per share

TotalInitial public offering price

$



$Underwriting discounts and commissions

$



$Proceeds to Bluestem, before expenses

$



$Proceeds to selling stockholders, before expenses

$



$       Deutsche
    Bank Securities
    Piper Jaffray  Oppenheimer &
    Co.
    William Blair & Company




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##### 



Bluestem brands, inc.
Now you can
FiNGERHUT. Gettington.com




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##### 



TABLE OF
    CONTENTS
  
 Prospectus Summary


1Risk Factors


12Forward Looking Statements


38Use of Proceeds


40Dividend Policy


41Capitalization


42Dilution


45Selected Consolidated Financial and Other Data


47Managements Discussion and Analysis of Financial Condition
    and Results of Operations


53Business


98Management


117Executive Compensation


127Principal and Selling Stockholders


151Certain Relationships and Related Party Transactions


155Description of Capital Stock


164Shares Eligible for Future Sale


171Material U.S. Federal Income and Estate Tax Considerations to
    Non-U.S.
    Holders


174Underwriting


178Conflict of Interest


180Market and Industry Data


182Legal Matters


182Experts


182Where You Can Find More Information


182Index to Financial Information


F-1  
   i




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ABOUT THIS
    PROSPECTUS
        TRADEMARKS AND
    TRADE NAMES
  ® ® sm ® sm tm ® sm tm
 ii




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##### 



PROSPECTUS
    SUMMARY  This summary highlights information contained elsewhere in
    this prospectus. This summary is a brief overview of the key
    aspects of this offering and does not contain all of the
    information that you should consider in making your investment
    decision. You should read the following summary together with
    the entire prospectus, including the more detailed information
    regarding us, the common stock being sold in this offering and
    our financial statements and the related notes appearing
    elsewhere in this prospectus. You should carefully consider,
    among other things, the matters discussed in the sections
    entitled Risk Factors and Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations in this prospectus before deciding to invest in
    our common stock. Some of the statements in this prospectus
    constitute forward looking statements. See Forward Looking
    Statements.
  Company
    Overview
      e-commerce e-commerce
    
    Homeincluding housewares, bed and bath, lawn and
    garden, home furnishings and hardware;
    Entertainmentincluding electronics, video games,
    toys and sporting goods; and
    Fashionincluding apparel, footwear, cosmetics,
    fragrances and jewelry.
 1




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##### 



Our
    History
    Industry
    Overview
  e-commerce
  General Merchandise
  Catalog
  E-commerce
  Our Target
    Market
    Our Competitive
    Strengths
    Highly
    Recognized Brand with Significant Customer Loyalty
 2




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##### 



Expertise in
    Serving a Niche Customer Segment
    Integrated and
    Differentiated Business Model
    Sophisticated,
    Proprietary Marketing and Credit Decision-Making
    Technologies
    Established
    Multi-Channel Platform
  e-commerce
  Highly
    Experienced Management Team
    Our Growth
    Strategy
    Increasing
    Penetration with Existing and Prospective
    Customers
 3




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##### 



Increasing
    Internet Penetration
    Expanding Our
    Demographic Reach
  sub-population
  Growing
    Gettington.com and Continuing to Introduce New
    Concepts
  e-commerce
  Introducing
    New Credit Offerings
    Risk
    Factors
    
    our dependence on the two financial institutions that make
    credit available to our customers;
    regulatory risks faced by us and these financial institutions in
    connection with the extension of credit to our customers;
    taxation of Internet and catalog based
    out-of-state
    sales, and the imposition on us of associated obligations;
    our ability to retain and attract customers and increase sales;
 4




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##### 




    the dependence of our customers, who are generally low to middle
    income, on credit to make purchases from us;
    weak economic conditions, economic uncertainty and lower
    consumer confidence and discretionary spending;
    unanticipated delinquencies and losses in our customer accounts
    receivable portfolio;
    our ability to comply with, and successfully operate our
    business under, the covenants in our credit facilities;
    changes in laws and regulations, or the application of existing
    laws and regulations to our business;
    competition from other retailers and lenders; and
    significant ownership of our voting stock and potential for
    control by our principal existing stockholders.  Corporate and
    Other Information
  (952) 656-3700. www.bluestembrands.com
 5




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##### 



The
    Offering
  Common stock offered by us
    
    sharesCommon Stock offered by the selling stockholders
    
    sharesCommon stock to be outstanding immediately after this offering
    
    sharesOver-allotment option
    
    We have granted the underwriters an option to purchase up to an
    additional           shares
    of common stock within 30 days of the date of this
    prospectus in order to cover over-allotments, if any.Offering price
    
    We expect the offering price to be between
    $          
    and
    $          
    per share.Use of Proceeds
    
    We estimate that the net proceeds to us from this offering,
    after deducting underwriting discounts and commissions and
    estimated offering expenses payable by us, will be approximately
    $           million,
    assuming the shares are offered at
    $          
    per share, the midpoint of the price range set forth on the
    cover of this prospectus. We intend to use the net proceeds from
    the sale of common stock by us in this offering to retire long
    term indebtedness plus accrued and unpaid interest and
    prepayment penalties thereon, and the balance of net proceeds to
    reduce the outstanding balance under the revolving credit
    tranche of our account receivable credit facility. See Use
    of Proceeds and Capitalization.We will not receive proceeds from the sale of shares by the
    selling stockholders.Conflict of Interest
    
    Because an affiliate of one of the underwriters of this offering
    is also a lender under the revolving credit tranche of our
    account receivable credit facility, and because more than 5% of
    the proceeds of this offering will be used to repay the share of
    the revolving credit tranche of the account receivable facility
    attributable to such underwriters affiliate, a conflict of
    interest under FINRA Rule 5121 is deemed to exist.
    Accordingly, this offering will be conducted in accordance with
    that rule and Piper Jaffray & Co. will act as
    qualified independent underwriter for this offering.Dividend Policy
    
    Following the consummation of the offering, we do not expect to
    pay any dividends on our common stock for the foreseeable
    future. Any determination to pay dividends and other
    distributions in cash, stock or property of Bluestem will be at
    the discretion of our board of directors and will be dependent
    on
    then-existing
    conditions, including our financial condition and results of
    operations, contractual restrictions, capital requirements and
    other factors. See Dividend Policy.
 6




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##### 



Risk Factors
    
    Investing in our common stock involves a high degree of risk.
    See Risk Factors beginning on page 12 of this
    prospectus for a discussion of factors you should carefully
    consider before deciding to invest in our common stock.Proposed symbol for trading on the NASDAQ Global Select Market
    
    BSTM    
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2003 Equity Incentive Plan, which we refer to
    herein as the 2003 Plan, at a weighted average exercise price of
    $          
    per share;
    shares
    of our common stock issuable upon exercise of outstanding
    options under our Amended and Restated 2005 Non-Employee
    Directors Equity Compensation Plan, which we refer to herein as
    the 2005 Plan, at a weighted average exercise price of
    $          
    per share;
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2008 Equity Incentive Plan, which we refer to
    herein as the 2008 Plan, at a weighted average exercise price of
    $          
    per share;
    shares
    of our common stock reserved for future grants under our 2008
    Plan; and
    shares
    of our common stock issuable upon exercise of outstanding
    warrants having a weighted average exercise price of
    $          
    per share, and an
    additional           shares
    of common stock that will become issuable upon exercise of
    outstanding warrants upon completion of this offering as an
    anti-dilution adjustment due to the payment of accrued and
    unpaid dividends on our preferred stock in the form of shares of
    common stock.    
    no exercise of the underwriters over-allotment option to
    purchase an
    additional           shares;
    all outstanding shares of our two series of preferred stock will
    convert into shares of common stock upon the closing of this
    offering;
    no outstanding options or warrants have been exercised or
    forfeited
    since          ,
    2011; and
    all of the accrued and unpaid dividends payable to our preferred
    stockholders will be paid in common stock on an assumed
    conversion date
    of          ,
    2011. Dividends accrue on our outstanding preferred stock at an
    aggregate rate of
    $          
    per day and will continue to accrue until the conversion date,
    which is the closing date of this offering. For this purpose,
    common stock is valued based on the price to the public set
    forth on the cover page of this prospectus, less the
    underwriting discount. Based on the midpoint of the range set
    forth on the cover page of this prospectus, the price to the
    public is assumed to
    be          ,
    the discount of the underwriters is assumed to
    be          ,
    the accrued and unpaid preferred stock dividends on the assumed
    conversion date are assumed to
    be          ,
    and the number of shares of common stock to be issued in
    satisfaction of accrued and unpaid dividends is assumed to
    be          .
 7




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##### 



SUMMARY
    CONSOLIDATED FINANCIAL AND OTHER DATA
 8




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##### 



Fiscal Year Ended (a)


13 Weeks Ended (a)January 30,


January 29,


January 28,


April 30,


April 29,2009


2010 (b)


2011


2010


2011(in thousands, except per share data)Consolidated Statement of Operations Data:Net sales

$
423,338


$
438,189


$
521,307


$
87,106


$
99,206Cost of sales


220,294



226,140



275,521



44,944



51,755Gross profit


203,044



212,049



245,786



42,162



47,451Sales and marketing expenses


110,404



109,384



130,091



23,706



24,761Net credit expense (income) (c)


1,105



(22,316
)


(36,896
)


(11,156
)


(14,444
)General and administrative expenses


59,533



69,087



84,031



18,225



20,906Loss from derivatives in our own equity (d)






6,500



32,607







14,944Loss on early extinguishment of debt (e)










5,109







Interest expense, net (f)


29,839



31,216



30,750



8,173



7,395Income (loss) before income taxes


2,163



18,178



94



3,214



(6,111
)Income tax expense (benefit)


828



8,956



11,618



1,175



3,156Net income (loss)


1,335



9,222



(11,524
)


2,039



(9,267
)Series B Preferred Stock accretion


(2,399
)


(3,491
)


(3,710
)


(887
)


(931
)Series A Preferred Stock accretion


(8,890
)


(9,111
)


(9,824
)


(2,412
)


(2,603
)Net income (loss) available to common shareholders

$
(9,954
)

$
(3,380
)

$
(25,058
)

$
(1,260
)

$
(12,801
)Impact of pro forma adjustments (g):Loss from derivatives in our own equity









$
30,012






$
13,738Series B Preferred Stock accretion










3,710







931Series A Preferred Stock accretion










9,824







2,603Net income available to common shareholders, pro forma (g)









$
18,488






$
4,471Pro forma income per share (g)Basic









$







$Diluted









$







$   As of April 29, 2011 (a)(h)Pro Forma,Actual


Pro Forma


As Adjusted(in thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
306


$
306


$Customer accounts receivable (net of allowance for doubtful
    accounts)


455,298



455,298Merchandise inventories


51,447



51,447Total assets


585,960



585,960Derivative liabilities in our own equity (d)


58,225



7,975Total debt


304,322



304,322Series B and Series A Preferred Stock


201,573



Shareholders (deficit) equity


(64,679
)


187,144
 9




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##### 



Fiscal Year Ended (a)


13 Weeks Ended (a)January 30,


January 29,


January 28,


April 30,


April 29,2009


2010 (b)


2011


2010


2011(in thousands, except average order size)Selected Operating Data:New customer credit accounts (i)


430



439



599



90



143Average order size (j)

$
161.61


$
166.30


$
179.51


$
168.91


$
177.05Number of orders (k)


2,708



2,728



2,985



529



573Contribution Margin (l)

$
91,535


$
124,981


$
152,591


$
29,612


$
37,134Net income before loss from derivatives in our own
    equity (l)

$
1,335


$
15,722


$
21,083


$
2,039


$
5,677Adjusted EBITDA (l)

$
41,009


$
63,784


$
78,416


$
13,450


$
19,056As a % of net sales


9.7
%


14.6
%


15.0
%


15.4
%


19.2
%Selected Credit Data:Finance charge and fee income as a % of average customer
    accounts receivable (m)


32.1
%


32.7
%


32.9
%


32.8
%


35.6
%Net charge-offs as a % of average customer accounts
    receivable (m)


22.0
%


19.5
%


16.1
%


15.7
%


13.2
%Balances 30+ days delinquent as a % of customer accounts
    receivable (n)


16.5
%


14.5
%


13.2
%


13.9
%


14.3
%     (a)
    Our fiscal year ends on the Friday closest to
    January 31st

    of each year, resulting in fiscal years of 52 or 53 weeks
    in length. Fiscal 2008, 2009 and 2010 are presented above as
    52-week fiscal years ended January 30, 2009,
    January 29, 2010 and January 28, 2011, respectively.
    Our first fiscal quarter of fiscal year 2011 and fiscal year
    2010 included 13 weeks.(b)
    Includes the effects of the restatement of our 2009 financial
    statements discussed in Note 14 to the consolidated
    financial statements.(c)
    Our net credit expense (income) consists of finance charge and
    fee income, less the provision for doubtful accounts and credit
    management costs.  (d)
    We have derivative liabilities relating to certain of our common
    stock warrants, preferred stock warrants, embedded derivatives
    in preferred stock, and a contingent fee agreement. These
    derivative liabilities are recorded at their estimated fair
    value at each balance sheet date. Changes in fair value are
    reflected in the consolidated statement of operations as gains
    or losses from derivatives in our own equity as described in the
    notes to the consolidated financial statements.  (e)
    On August 20, 2010, we entered into our $365 million
    A/R Credit Facility. The proceeds were used to prepay our Senior
    Secured Revolving Credit Facility due May 15, 2011. We
    accounted for our prepayment as an extinguishment and recognized
    a $5.1 million pre-tax loss on early extinguishment of debt.(f)
    Interest expense, net includes interest income of
    $0.6 million, $0.1 million, zero, zero, and zero for
    the fiscal years ended January 30, 2009, January 29,
    2010, January 28, 2011, and the 13 weeks ended
    April 30, 2010, and April 29, 2011, respectively.(g)
    Pro forma net income available to common shareholders and pro
    forma basic and diluted net income per share reflect the
    following events as if they had occurred on January 30,
    2010, or January 29, 2011:  
    the conversion of all outstanding shares of our preferred stock
    into shares of our common stock upon the closing of this
    offering;
    the payment of the accrued and unpaid dividends payable to our
    preferred stockholders upon conversion of their shares of
    preferred stock into shares of our common stock in the form of
    additional shares of common stock on the closing of this
    offering;
    the lapse of certain anti-dilution rights of the holders of the
    216,045,882 common stock warrants issued May 2008;
 10




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##### 




    the termination of a contingent fee agreement; and
    the issuance of additional common stock warrants as an
    anti-dilution adjustment due to the payment of accrued and
    unpaid dividends on our preferred stock in the form of common
    stock.  (h)
    The consolidated balance sheet data as of April 29, 2011 is
    presented:  
    on an actual basis;
    on a pro forma basis to reflect the following events as if they
    had occurred on April 29, 2011:  
    the conversion of all outstanding shares of our preferred stock
    into shares of our common stock upon the closing of this
    offering;
    the payment of the accrued and unpaid dividends payable to our
    preferred stockholders upon conversion of their shares of
    preferred stock into shares of our common stock in the form of
    additional shares of common stock on the closing of this
    offering;
    the lapse of certain anti-dilution rights of the holders of the
    216,045,882 common stock warrants issued May 2008;
    the termination of a contingent fee agreement; and
    the issuance of additional common stock warrants as an
    anti-dilution adjustment due to the payment of accrued and
    unpaid dividends on our preferred stock in the form of common
    stock.  
    on a pro forma, as adjusted basis to reflect the following
    events as if they had occurred on April 29, 2011:  
    the sale
    of           shares
    of our common stock in this offering by us at an assumed initial
    public offering price of
    $          
    per share, the midpoint of the price range set forth on the
    cover of this prospectus, less estimated underwriting discounts
    and commissions and estimated offering expenses payable by
    us; and
    the ultimate application of the net proceeds from this offering
    to retire our $30 million Senior Subordinated Secured
    Notes, plus accrued and unpaid interest, the $75 million
    Term Loan Tranche of our A/R Credit Facility, plus prepayment
    penalties of $1.5 million and accrued and unpaid interest
    (assuming for these purposes that the Term Loan Tranche was
    prepayable immediately upon closing of this offering,
    notwithstanding the fact that it cannot be prepaid until
    August 21, 2011) and, with all remaining proceeds,
    outstanding borrowings under the Revolving Credit Tranche of our
    A/R Credit Facility.    (i)
    Customers that have made their initial order on account during
    the fiscal period presented.(j)
    Average order size represents retail merchandise sales including
    shipping and handling revenue divided by the number of
    merchandise orders fulfilled during the fiscal period presented.(k)
    Number of fulfilled merchandise orders.(l)
    To supplement our consolidated financial statements which are
    presented in accordance with U.S. generally accepted
    accounting principles, or GAAP, we use Contribution Margin, net
    income before loss from derivatives in our own equity and
    Adjusted EBITDA as non-GAAP performance measures. See
    notes (h), (i) and (j) to Selected Consolidated
    Financial and Other Data for details on these non-GAAP
    financial measures.(m)
    Finance charge and fee income and net charge-offs each as a
    percentage of average customer accounts receivable for the
    13 weeks ended April 30, 2010 and April 29, 2011
    have been annualized to a comparable 52-week basis.(n)
    Delinquent balances as of the customers statement cycle
    dates prior to or on fiscal period end as a percentage of total
    customer accounts receivable as of the customers statement
    cycle dates prior to or on fiscal period end.
 11




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##### 



RISK
    FACTORS  This offering and an investment in our common stock involve a
    high degree of risk. You should consider carefully the risks
    described below, together with the financial and other
    information contained in this prospectus, before you decide to
    purchase shares of our common stock. If any of the following
    risks actually occurs, our business, financial condition,
    results of operations, cash flow and prospects could be
    materially and adversely affected. As a result, the trading
    price of our common stock could decline and you could lose all
    or part of your investment in our common stock.
  Risks Related to
    the Operation of Our Business
  Substantially
    all of our sales are made on credit, and we are dependent upon
    the availability of third party financial institutions to issue
    credit accounts to our customers; recent developments involving
    credit offerings unrelated to Bluestem have resulted in
    regulatory actions directed at these financial
    institutions.
       12




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##### 



and/or
      Commercial
    credit provided by external financing sources is crucial to our
    business operations; loss of commercial borrowing capacity or
    increases in our cost of capital would jeopardize our
    business.
      
    The amount of credit available to us under our credit facilities
    is subject to borrowing base limitations. See
    Managements Discussion and Analysis of Financial
    Condition and Results of OperationsLiquidity and Capital
    ResourcesAccounts Receivable Credit Facility and
    Inventory Line of Credit. The amount and
    performance of our customer accounts receivable are key
    components of the borrowing base formula under the A/R Credit
    Facility. If the receivables do not perform within the
    parameters required under the A/R Credit Facility or if we are
    in default of our agreements with the Credit Issuers, our
    Receivable Lenders may reduce the amount of financing to
    purchase receivables from Credit Issuers or terminate the A/R
    Credit Facility, which could have a negative impact on net
    sales. The Inventory Line of Credit has a borrowing base formula
    tied to the value of our inventory. Deterioration in the value
    of our inventory due to lack of consumer 13




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##### 



demand, overstock, obsolescence or other factors could restrict
    the availability of funding for additional merchandise inventory
    and have a negative impact on net sales.  
    Our credit facilities have financial covenants tied to our
    financial performance, the performance of the receivables and
    our liquidity. If there is deterioration in the performance of
    the receivables portfolio or in our financial condition, or if
    we breach the representations, warranties or covenants that we
    make in the agreements governing our credit arrangements, our
    creditors will have the right to refuse to extend additional
    credit to us and to accelerate the repayment of our debts.
    Further, if our Receivables Lenders refuse or fail to make new
    advances to us for any reason, we will be unable to purchase the
    receivables from the Credit Issuers, which will cause defaults
    under our receivables purchase agreements with the Credit
    Issuers. If we default under our receivables purchase
    agreements, the Credit Issuers may refuse to extend new credit
    to our customers which will prevent our customers from making
    new purchases from us.
    Additional covenants under our credit facilities restrict our
    ability to incur additional indebtedness, pay dividends, make
    investments, sell assets and amend our agreements with the
    Credit Issuers or enter into similar agreements with other
    consumer lenders without the consent of the lenders. A failure
    by us to comply with these covenants could result in an event of
    default. Such covenants could also adversely affect our ability
    to respond to changes in our business, to manage our business
    and to grow our business. 
  
    The Revolving Credit Tranche of our A/R Credit Facility and our
    Inventory Line of Credit each have a variable interest rate
    based on LIBOR plus an applicable spread. An increase in the
    variable rate under our credit facilities could adversely affect
    our financial performance, in particular because the revolving
    credit accounts that our customers establish provide for fixed
    interest rates. See Managements Discussion and
    Analysis of Financial Condition and Results of
    OperationsLiquidity and Capital
    ResourcesQuantitative and Qualitative Disclosure about
    Market RiskInterest Rate Risk. 
  
    Servicing our debt requires a significant amount of cash. Our
    ability to generate sufficient cash depends on sales, the
    availability of credit to finance such sales, the availability
    of credit to fund the resulting receivables and the collection
    of those receivables. We may not be successful in managing these
    critical cash drivers, which are affected by a variety of
    factors, many of which are beyond our control, and we may be
    unable to generate sufficient cash flow to service our debt
    obligations. Additionally, our debt level could make us more
    vulnerable than our competitors, many of whom have greater
    financial resources.   14




---



##### 



Our agreements
    with the Credit Issuers obligate us to bear many of the risks
    related to making credit available to our customers, including
    those associated with various federal and state laws and
    regulations governing credit extensions to consumers, and our
    failure to comply with applicable laws and regulations, and any
    adverse changes in those laws or regulations could have a
    negative impact on our business.
     15




---



##### 



We are not
    licensed to extend credit and rely on the Credit Issuers to
    extend credit to our customers, and a successful challenge to
    our arrangements with the Credit Issuers could result in a
    requirement to be licensed as a creditor in states in which we
    do business, unenforceability of the receivables purchased from
    the Credit Issuers, material modification or termination of our
    relationships with the Credit Issuers, discontinuance of our
    marketing activity or other adverse changes in our current
    business practices.
   16




---



##### 



We do not
    collect state sales, use or other taxes, which could subject us
    to liability for past sales and any imposition of an obligation
    to do so in the future could negatively impact our financial
    results.
     17




---



##### 



Our sales are
    highly dependent on consumer discretionary
    spending.
    Our customer
    base is largely comprised of low to middle income consumers, who
    depend on the credit arranged through us to purchase our
    products, are sensitive to changes in economic conditions and
    present significant risk of default for
    non-payment
    and collection of accounts receivable acquired by
    us.
     18




---



##### 



We rely on
    internal models to manage risk, to provide accounting estimates
    and to make other business decisions. Our results could be
    adversely affected if those models do not provide reliable
    estimates or predictions of future activity.
        New
    initiatives, adding new customers and an evolving business model
    are important to our growth strategy and may not be
    successful.
   19




---



##### 



start-up and/or
  We face
    intense competition.
  e-commerce
       20




---



##### 



Changes in
    regulations or customer concerns, in particular as they relate
    to privacy and protection of customer data, could adversely
    affect our business.
        We could be
    liable for breaches of security and any failure to protect the
    security of personal information about our
    customers.
   21




---



##### 



Challenges in
    anticipating merchandising trends and forecasting sales may
    adversely affect our business.
      Failure to
    successfully manage the use of catalogs and
    e-commerce
    could adversely affect our business.
    Increases in
    postage and paper and other operating costs could negatively
    affect our results of operation and financial
    condition.
       22




---



##### 



Current and
    future government regulation of our catalog and Internet retail
    operations could substantially harm our business.
      We rely on
    third party carriers as part of our fulfillment operations, and
    these carriers could fail to adequately serve our
    customers.
    System
    interruption and the lack of integration and redundancy in our
    order entry and online systems may adversely affect our net
    sales.
     23




---



##### 



Our
    anticipated growth is subject to a number of uncertainties that
    could adversely affect our plans and our results of
    operations.
  and/or
    If we engage
    in acquisitions, significant investments in new businesses, or
    other strategic transactions, we will incur a variety of risks,
    any of which may adversely affect our business.
    
    failure to achieve the financial and strategic goals for the
    acquired and combined business;
    overpayment for the acquired companies or assets;
    difficulty integrating the operations and personnel of the
    acquired businesses;
    disruption of our existing business; 24




---



##### 




    distraction of management from our ongoing business;
    dilution of our existing stockholders and earnings per share;
    unanticipated liabilities, legal risks and costs;
    increased regulatory and compliance requirements;
    retention of key personnel; and
    impairment of relationships with employees and customers as a
    result of integration of new management personnel.    General
    economic factors may adversely affect our financial
    performance.
    The
    seasonality of our business increases the strain on our
    operations and results in fluctuations in our quarterly
    results.
     25




---



##### 



Our
    international sourcing relationships and service providers
    subject us to risks that could adversely affect our
    business.
            If we are
    unable to maintain vendor relationships and obtain adequate
    supplies of inventory, our results of operations will be
    negatively impacted.
   26




---



##### 



Because our
    single fulfillment center is located in Minnesota, we are
    subject to regional risks and adverse effects upon our business
    and results of operations if our fulfillment operations are
    interrupted for any significant period of time.
    Strikes, work
    stoppages and slowdowns by our employees could adversely affect
    our business, financial position and results of
    operations.
    We face risk
    related to the strength of our operational, technological and
    organizational infrastructure.
     27




---



##### 



If we do not
    respond to technological changes, our services could become
    obsolete and we could lose customers.
  e-commerce
  We are
    dependent on third parties to fulfill key operational tasks,
    including with respect to our credit and payment processing
    system, and are vulnerable to various risks with respect to
    these relationships.
      
    vendors that print and mail our catalogs;
    vendors that handle credit applications, remittance and
    collections;
    shipping companies;
    telephone and Internet providers;
    e-commerce
    service providers;
    outside call centers handling customer telephone orders, account
    servicing and collections, many of which reside in foreign
    countries;
    outside service providers to provide repairs under extended
    service plans; and
    factory direct vendors for timely fulfillment of merchandise
    orders. 28




---



##### 



The loss of
    key senior management personnel could negatively affect our
    business.
    We may not be
    able to adequately protect our intellectual property rights or
    may be accused of infringing intellectual property rights of
    third parties.
          Complaints or
    litigation may adversely affect our business and results of
    operations.
   29




---



##### 



and/or
  We may face
    potential claims and reputational risk arising out of the
    fraudulent activities of Thomas J. Petters.
 
   
     30




---



##### 



31




---



##### 



We may be
    subject to product liability claims if people or property are
    harmed by products we sell.
    Adverse
    publicity, or any failure to maintain our brand image and
    corporate reputation, could adversely affect our business and
    results of operations, as could various other social factors
    affecting credit use and consumption.
        Risks Related to
    this Offering and Ownership of Our Common Stock
  An active
    public market for our common stock may not develop following
    this offering, which could limit your ability to sell your
    shares of our common stock at an attractive price, or at
    all.
    Our principal
    existing stockholders will continue to own a large percentage of
    our voting stock after this offering, which may allow them to
    collectively control substantially all matters requiring
    stockholder approval.
   32




---



##### 



Our stock
    price may be volatile or may decline regardless of our operating
    performance, and you may not be able to resell your shares at or
    above the initial public offering price.
    
    our ability to retain and attract customers and increase net
    sales;
    availability and pricing of, and the regulatory environment for,
    consumer and commercial credit;
    varying response rates to catalogs and other marketing
    activities;
    unanticipated delinquencies and losses in our customer accounts
    receivable portfolio;
    our ability to offer products on favorable terms, manage
    inventory, and fulfill orders;
    pricing pressures due to competition or otherwise;
    changes in consumer tastes and demand for particular products;
    changes in consumer willingness to purchase goods on credit via
    catalogs and through the Internet;
    weak economic conditions, economic uncertainty and lower
    consumer confidence and discretionary spending;
    timing, effectiveness, and costs of expansion and upgrades of
    our systems and infrastructure;
    variations in the mix of products and services we offer and
    level of vendor returns;
    changes in key personnel;
    entry into new markets;
    developments concerning Thomas Petters and his former affiliates;
    announcements by us or our competitors of new product offerings
    or significant acquisitions;
    the publics response to press releases or other public
    announcements by us or third parties, including our filings with
    the Securities and Exchange Commission, or SEC, and
    announcements relating to litigation; 33




---



##### 




    the financial projections we may provide to the public, any
    changes in these projections or our failure to meet these
    projections;
    changes in financial estimates by any securities analysts who
    follow our common stock, our failure to meet these estimates or
    failure of those analysts to initiate or maintain coverage of
    our common stock;
    ratings downgrades by any securities analysts who follow our
    common stock;
    the development and sustainability of an active trading market
    for our common stock;
    future sales of our common stock by our officers, directors and
    significant stockholders;
    other events or factors, including those resulting from war,
    acts of terrorism, natural disasters or responses to these
    events; and
    changes in accounting principles.    We may need
    additional equity capital, and raising additional capital may
    dilute existing stockholders.
    Future sales
    of our common stock, or the perception in the public markets
    that these sales may occur, may depress our stock
    price.
     34




---



##### 



Anti-takeover
    provisions in our charter documents and Delaware law might
    discourage or delay acquisition attempts for us that you might
    consider favorable.
    
    permit our board of directors to issue up
    to           shares
    of preferred stock, with any rights, preferences and privileges
    as our board may designate, including the right to approve an
    acquisition or other change in our control;
    provide that the authorized number of directors may be changed
    by resolution of the board of directors;
    divide our board of directors into three classes;
    provide that all vacancies, including newly created
    directorships, may, except as otherwise required by law, be
    filled by the affirmative vote of a majority of directors then
    in office, even if less than a quorum;
    provide that stockholders seeking to present proposals before a
    meeting of stockholders or to nominate candidates for election
    as directors at a meeting of stockholders must provide notice in
    writing in a timely manner, and also specify requirements as to
    the form and content of a stockholders notice; and
    do not provide for cumulative voting rights.     35




---



##### 



If you
    purchase shares of common stock sold in this offering, you will
    incur immediate and substantial dilution.
    If securities
    or industry analysts do not publish research or publish
    inaccurate or unfavorable research about our business, our stock
    price and trading volume could decline.
    We do not
    expect to pay any cash dividends for the foreseeable
    future.
    We will incur
    increased costs as a result of becoming a public
    company.
   36




---



##### 



Compliance
    with Section 404 of the Sarbanes-Oxley Act of 2002 will
    require significant expenditures and effort by management, and
    if our independent registered public accounting firm is unable
    to provide an unqualified attestation report on our internal
    controls, our stock price could be adversely
    affected.
  Form 10-K
 37




---



##### 



FORWARD LOOKING
    STATEMENTS    
    our dependence upon the availability of third party financial
    institutions to issue credit accounts to our customers;
    loss of commercial borrowing capacity or increases in our cost
    of capital;
    regulatory risks faced by us and the Credit Issuers in
    connection with the extension of credit to our customers;
    taxation of Internet and catalog based
    out-of-state
    sales, and the imposition on us of associated obligations;
    changes in customer discretionary spending;
    our customers dependence on credit to make purchases from
    us;
    failure of our internal models to provide reliable estimates or
    predictions of future activity in connection with risk
    management, accounting estimates and other business decisions;
    our ability to successfully implement new initiatives, add new
    customers and evolve our business model;
    competition from other retailers and lenders;
    changes in regulations or customer concerns about privacy and
    protection of customer data;
    security breaches and any failure to protect private customer
    information;
    challenges in anticipating merchandising trends and forecasting
    sales;
    failure to successfully manage the use of catalogs and
    e-commerce;
    increases in postage and paper and other operating costs;
    current and future government regulation of our catalog and
    Internet retail operations;
    our reliance on third party carriers as part of our fulfillment
    operations;
    system interruption and the lack of integration and redundancy
    in our order entry and online systems;
    uncertainties upon which our anticipated growth depends;
    risk related to acquisitions, significant investments in new
    businesses, or other strategic transactions in which we may
    engage 38




---



##### 




    weak economic conditions, economic uncertainty and lower
    consumer confidence and discretionary spending;
    seasonality of our business;
    our reliance on international sourcing relationships and service
    providers, and related foreign risks and uncertainties;
    our ability to maintain vendor relationships and obtain adequate
    supplies of inventory;
    regional risks and adverse effects related to having a single
    fulfillment center;
    potential strikes, work stoppages and slowdowns by our employees;
    operational risks related to the strength of our operational,
    technological and organizational infrastructure;
    our ability to respond to technological changes;
    our reliance on third parties to fulfill key operational tasks,
    including with respect to our credit and payment processing
    system;
    changes in key senior management personnel;
    our ability to protect our intellectual property;
    potential complaints or litigation relating to our business;
    risks related to significant ownership of our voting stock and
    potential for control by our principal existing stockholders;
    potential claims and reputational risk arising out of the
    fraudulent activities of Thomas J. Petters;
    potential product liability claims if people or property are
    harmed by products we sell; and
    adverse publicity or any failure to maintain our brand image and
    corporate reputation.     39




---



##### 



USE OF
    PROCEEDS     
   
   40




---



##### 



DIVIDEND
    POLICY   41




---



##### 



CAPITALIZATION    
    on an actual basis; and
    on a pro forma basis to reflect the following events as if they
    had occurred on April 29, 2011:  
    the conversion of all outstanding shares of our preferred stock
    into shares of our common stock upon the closing of this
    offering;
    the payment of the accrued and unpaid dividends payable to our
    preferred stockholders upon conversion of their shares of
    preferred stock into shares of our common stock in the form of
    additional shares of common stock on the closing of this
    offering;
    the lapse of certain anti-dilution rights of the holders of the
    216,045,882 common stock warrants issued May 2008;
    the termination of a contingent fee agreement; and
    the issuance of additional common stock warrants as an
    anti-dilution adjustment due to the payment of accrued and
    unpaid dividends on our preferred stock in the form of common
    stock.  
    on a pro forma, as adjusted basis to reflect the following
    additional events as if they too had occurred on April 29,
    2011:  
    the sale
    of           shares
    of our common stock in this offering by us at an assumed initial
    public offering price of
    $          
    per share, the midpoint of the price range set forth on the
    cover of this prospectus, less estimated underwriting discounts
    and commissions and estimated offering expenses payable by
    us; and
    the ultimate application of all net proceeds from this offering
    to (i) retire our $30 million Senior Subordinated
    Secured Notes, plus accrued and unpaid interest,
    (ii) retire the $75 million Term Loan Tranche of our
    A/R Credit Facility, plus prepayment penalties of
    $1.5 million and accrued and unpaid interest (assuming for
    these purposes that the Term Loan Tranche was prepayable
    immediately upon closing of this offering, notwithstanding the
    fact that it cannot be prepaid until August 21,
    2011) and (iii) pay down the Revolving Credit Tranche
    of our A/R Credit Facility.    42




---



##### 



As of April 29, 2011Pro Forma,Actual


Pro Forma


As Adjusted(in thousands, except share and per share data)Cash and cash equivalents

$
306


$
306Derivative liabilities in our own equity (a)

$
58,225


$
7,975Debt:A/R Credit FacilityRevolving Credit Tranche (b)(c)

$
181,000


$
181,000A/R Credit FacilityTerm Loan Tranche (b)(c)


75,000



75,000Inventory Line of Credit (c)(d)


18,481



18,481Senior Subordinated Secured Notes (b)(e)


28,868



28,868Other


973



973Total debt


304,322



304,322Mezzanine equity (f):Series B Preferred Stock, $.00001 par value;
    753,523,962 shares authorized, 753,256,768 shares
    issued and outstanding, actual; no shares issued and
    outstanding, pro forma and pro forma, as adjusted


66,230



Series A Preferred Stock, $.00001 par value;
    791,738,012 shares authorized, 749,995,554 shares
    issued and outstanding, actual; no shares issued and
    outstanding, pro forma and pro forma, as adjusted


135,343



Shareholders (deficit) equity (f):Common stock, $0.00001 par value; 2,592,550,586 shares
    authorized, 342,236,552 shares issued and outstanding,
    actual;           shares
    issued and outstanding, pro
    forma;           shares
    authorized,           shares
    issued and outstanding, pro forma, as adjusted


3



3Additional paid-in capital






251,823Accumulated deficit


(64,682
)


(64,682
)Total shareholders (deficit) equity


(64,679
)


187,144Total capitalization

$
499,441


$
499,441     (a)
    
    We have derivative liabilities
    relating to certain of our common stock warrants, preferred
    stock warrants, embedded derivatives in preferred stock, and a
    contingent fee agreement. These derivative liabilities are
    recorded at their estimated fair value at each balance sheet
    date. Changes in fair value are reflected in the consolidated
    statement of operations as gains or losses from derivatives in
    our own equity as described in the notes to the consolidated
    financial statements. Upon an initial public offering, all of
    the Preferred Stock will be converted to common stock and the
    fair value of the derivative liabilities related to 216,045,882
    common stock warrants issued in May 2008, the contingent fee
    agreement and the embedded derivatives in our Preferred Stock
    would be reclassified from liabilities to shareholders
    (deficit) equity. The derivative liabilities related to the
    preferred stock warrants and 33,116,154 common stock warrants
    issued in February and November of 2004 will continue to be
    recorded as derivative liabilities with changes in fair value
    being reflected in the consolidated statements of operations
    until the warrants expire, are exercised or are otherwise
    settled. 
  (b)
    
    The A/R Credit Facility consists of
    a $290 million Revolving Credit Tranche and a
    $75 million Term Loan Tranche, of which $181 million
    and $75 million, respectively, was outstanding as of
    April 29, 2011. Upon completion of this offering, we will
    initially use all proceeds not used to repay the Senior
    Subordinated Secured Notes to pay down the Revolving Credit
    Tranche of our A/R Credit Facility, and when prepayment is 
 43




---



##### 



first allowed on August 22,
    2011, we intend to draw from the Revolving Credit Tranche to
    retire the entire $75 million Term Loan Tranche of our A/R
    Credit Facility and pay the prepayment penalty of
    $1.5 million. The Revolving Credit Tranche of our A/R
    Credit Facility allows us to pay down and borrow funds on a
    recurring basis, subject to borrowing base limits. The pro
    forma, as adjusted column reflects the intended prepayment of
    the Senior Subordinated Security Notes, the Term Loan Tranche,
    $1.5 million prepayment penalty and the ultimate
    application of remaining net proceeds to reduction of the
    Revolving Credit Tranche. See Note 4 of the notes to our
    consolidated financial statements included elsewhere in this
    prospectus. 
 
  (c)
    
    At April 29, 2011, we had
    availability under our A/R Credit Facility of $40.3 million
    and under our Inventory Line of Credit of $7.7 million. See
    Managements Discussion and Analysis of Financial
    Condition and Results of OperationsLiquidity and Capital
    Resources for details on these facilities, including
    borrowing base limitations thereunder and an amendment to our
    A/R Credit Facility that we expect to become effective on or
    about August 22, 2011. 
  (d)
    
    Our Inventory Line of Credit is a
    $50 million line of credit secured by inventory and our
    other unencumbered assets maturing in August 2013.(e)
    
    Our Senior Subordinated Secured
    Notes were issued, together with warrants to acquire
    41.7 million shares of our Series A Preferred Stock,
    in March 2006 in an aggregate principal amount at maturity of
    $30 million and mature on November 21, 2013. Upon
    issuance, $4.2 million of value was attributable to the
    issuance of the warrants, which was reflected as derivative
    liabilities in our own equity and as a discount to the Senior
    Secured Subordinated Notes. Such discount has been amortized
    into interest expense and increased the amount recorded as
    Senior Secured Subordinated Notes on the balance sheet. Upon
    completion of this offering, we intend to use a portion of the
    net proceeds to retire these notes for $30 million, plus
    accrued and unpaid interest. There is no prepayment penalty.(f)
    
    Upon completion of this offering,
    our preferred stockholders will convert all of their shares of
    Preferred Stock into common stock, and the rights of the holders
    of our Preferred Stock will terminate. As a result, the amount
    reported as Preferred Stock at that time will be converted into
    common stock and additional paid-in capital. In addition, we
    intend to satisfy all of the accrued and unpaid dividends
    payable on the Preferred Stock by issuance of our common stock
    at the date of conversion of shares.    
    increase or decrease the amount of debt to be retired by
    approximately          ;
    increase or decrease additional paid-in capital by approximately
    $          ; and
    increase or decrease each of total stockholders equity and
    total capitalization by approximately
    $          .    
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2003 Plan, at a weighted average exercise
    price of
    $          
    per share;
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2005 Plan, at a weighted average exercise
    price of
    $          
    per share;
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2008 Plan, at a weighted average exercise
    price of
    $          
    per share;
    shares
    of our common stock reserved for future grants under our 2008
    Plan; and
    shares
    of our common stock issuable upon exercise of outstanding
    warrants having a weighted average exercise price of
    $          
    per share, an
    additional           shares
    of common stock to be issuable as a result of anti-dilution
    adjustments on certain warrants in connection with this offering. 44




---



##### 



DILUTION        Assumed initial public offering price per share





$Pro forma net tangible book value per share as
    of

$Increase per share attributable to this offering

$Pro forma as adjusted net tangible book value per share after
    this offering





$Dilution per share to new investors purchasing our common stock
    in this offering





$    45




---



##### 



AverageShares Purchased


Total Consideration


Price PerNumber


Percent


Amount


Percent


ShareExisting stockholders









$







$New investors









$







$Total









$







$         
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2003 Plan, at a weighted average exercise
    price of
    $          
    per share;
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2005 Plan, at a weighted average exercise
    price of
    $          
    per share;
    shares
    of our common stock issuable upon exercise of outstanding
    options under our 2008 Plan, at a weighted average exercise
    price of
    $          
    per share;
    shares
    of our common stock reserved for future grants under our 2008
    Plan; and
    shares
    of our common stock issuable upon exercise of outstanding
    warrants having a weighted average exercise price of
    $          
    per share, which amount
    includes          
    additional shares of common stock to be issuable as a result of
    anti-dilution adjustments on certain warrants in connection with
    this offering.   46




---



##### 



SELECTED
    CONSOLIDATED FINANCIAL AND OTHER DATA          47




---



##### 



Fiscal Year Ended (a)


13 Weeks Ended (a)February 2,


February 1,


January 30,


January 29,


January 28,


April 30,


April 29,2007


2008


2009


2010 (b)


2011


2010


2011(in thousands, except average order size)Consolidated Statement of Operations Data:Net sales

$
310,251


$
448,518


$
423,338


$
438,189


$
521,307


$
87,106


$
99,206Cost of sales


162,622



231,851



220,294



226,140



275,521



44,944



51,755Gross profit


147,629



216,667



203,044



212,049



245,786



42,162



47,451Sales and marketing expenses


72,624



101,630



110,404



109,384



130,091



23,706



24,761Net credit expense (income) (c)


496



17,766



1,105



(22,316
)


(36,896
)


(11,156
)


(14,444
)General and administrative expenses


44,150



51,838



59,533



69,087



84,031



18,225



20,906Loss from derivatives in our own equity (d)














6,500



32,607







14,944Loss on early extinguishment of debt (e)


















5,109







Interest expense, net (f)


14,957



19,037



29,839



31,216



30,750



8,173



7,395Income before income taxes


15,402



26,396



2,163



18,178



94



3,214



(6,111
)Income tax expense (benefit)


1,134



(2,081
)


828



8,956



11,618



1,175



3,156Net income (loss)


14,268



28,477



1,335



9,222



(11,524
)


2,039



(9,267
)Series B Preferred Stock accretion










(2,399
)


(3,491
)


(3,710
)


(887
)


(931
)Series A Preferred Stock accretion


(7,708
)


(8,301
)


(8,890
)


(9,111
)


(9,824
)


(2,412
)


(2,603
)Allocation of net income to participating preferred shareholders


(5,766
)


(17,311
)


















Net income (loss) available to common shareholders

$
794


$
2,865


$
(9,954
)

$
(3,380
)

$
(25,058
)

$
(1,260
)

$
(12,801
)Net income (loss) per share available to common stockholders:Basic

$
0.0077


$
0.0230


$
(0.0691
)

$
(0.0188
)

$
(0.1138
)

$
(0.0064
)

$
(0.0531
)Diluted


0.0049



0.0127



(0.0691
)


(0.0188
)


(0.1138
)


(0.0064
)


(0.0531
)Pro forma income per share (g):Basic

















$







$Diluted

















$







$Weighted-average common stock outstanding:Basic


102,459



124,468



144,114



179,757



220,181



195,672



241,222Diluted


162,661



226,130



144,114



179,757



220,181



195,672



241,222Margins and Expenses as a Percentage of Net Sales:Gross profit rate


47.6
%


48.3
%


48.0
%


48.4
%


47.1
%


48.4
%


47.8
%Contribution Margin (h)

$
74,509


$
97,271


$
91,535


$
124,981


$
152,591


$
29,612


$
37,134As a % of net sales


24.0
%


21.7
%


21.6
%


28.5
%


29.3
%


34.0
%


37.4
%General and administrative expenses


14.2
%


11.6
%


14.1
%


15.8
%


16.1
%


20.9
%


21.1
%Interest expense, net


4.8
%


4.2
%


7.0
%


7.1
%


5.9
%


9.4
%


7.5
%Net income before loss from derivatives in our own
    equity (i)

$
14,268


$
28,477


$
1,335


$
15,722


$
21,083


$
2,039


$
5,677As a % of net sales


4.6
%


6.3
%


0.3
%


3.6
%


4.0
%


2.3
%


5.7
%Adjusted EBITDA (j)

$
35,386


$
52,533


$
41,009


$
63,784


$
78,416


$
13,450


$
19,056As a % of net sales


11.4
%


11.7
%


9.7
%


14.6
%


15.0
%


15.4
%


19.2
%Consolidated Balance Sheet Data (at end of period):Cash and cash equivalents

$
1,658


$
9,547


$
558


$
2,614


$
1,055


$
462


$
306Customer accounts receivable (net of allowance for doubtful
    accounts)


213,801



311,389



342,413



390,842



492,836



356,779



455,298Merchandise inventories


38,149



45,622



45,390



41,534



44,396



44,768



51,447Total assets


299,554



442,113



497,129



524,329



614,002



483,426



585,960Derivative liabilities in our own equity (d)


4,174



4,174



4,174



10,674



43,281



10,674



58,225Total debt (k)


168,766



286,073



289,878



275,743



329,983



248,817



304,322Series B Preferred Stock and Series A Preferred
    Stock (l)


96,514



104,915



171,703



184,305



197,939



187,603



201,573Shareholders deficit


(32,526
)


(14,696
)


(24,521
)


(27,503
)


(52,207
)


(28,664
)


(64,679
) 48




---



##### 



Fiscal Year Ended (a)


13 Weeks Ended (a)February 2,


February 1,


January 30,


January 29,


January 28,


April 30,


April 29,2007


2008


2009


2010 (b)


2011


2010


2011(in thousands, except average order size)Selected Operating Data:New customer credit accounts (m)


558



700



430



439



599



90



143Average order size (n)

$
150.51


$
157.32


$
161.61


$
166.30


$
179.51


$
168.91


$
177.05Number of orders (o)


2,155



2,958



2,708



2,728



2,985



529



573Customer repurchase rate (p)


63
%


63
%


58
%


58
%


57
%


57
%


57
%Percentage of orders placed online (q)


26
%


31
%


35
%


38
%


44
%


39
%


40
%Selected Credit Data:Balances 30+ days delinquent (r)

$
32,135


$
64,274


$
72,670


$
71,019


$
79,630


$
62,925


$
81,246As a % of customer accounts receivable (s)


12.6
%


16.1
%


16.5
%


14.5
%


13.2
%


13.9
%


14.3
%Finance charge and fee income as a % of average customer
    accounts receivable (t)


33.0
%


33.9
%


32.1
%


32.7
%


32.9
%


32.8
%


35.6
%Provision for doubtful accounts as a % of average customer
    accounts receivable (t)


22.4
%


30.5
%


24.4
%


19.9
%


18.3
%


16.3
%


19.1
%Net charge-offs as a % of average customer accounts
    receivable (t)


12.6
%


15.3
%


22.0
%


19.5
%


16.1
%


15.7
%


13.2
%Cash Flow Data:Net cash (used in) provided by:Operating activities

$
(50,757
)

$
(84,275
)

$
(24,878
)

$
11,943


$
(59,095
)

$
19,179


$
29,383Investing activities


(9,380
)


(22,370
)


(33,431
)


4,766



14,784



5,736



(4,696
)Financing activities


59,932



114,534



49,320



(14,653
)


42,752



(27,067
)


(25,436
)     (a)
    
    We operate on a fiscal calendar
    widely used by the retail industry that results in a given
    fiscal year consisting of a 52- or 53-week period ending on the
    Friday closest to January 31 of the following year. Fiscal year
    2006 ended on February 2, 2007, fiscal year 2007 ended on
    February 1, 2008, fiscal year 2008 ended on
    January 30, 2009, fiscal year 2009 ended on
    January 29, 2010, and fiscal year 2010 ended on
    January 28, 2011. Fiscal year 2006 included 53 weeks
    and fiscal years 2007, 2008, 2009 and 2010 included
    52 weeks. Our first fiscal quarters of fiscal year 2011 and
    fiscal year 2010 each included 13 weeks.(b)
    
    Includes the effects of the
    restatement of our 2009 financial statements as discussed in
    Note 14 to the consolidated financial statements.(c)
    
    Our net credit expense (income)
    consists of finance charge and fee income, less the provision
    for doubtful accounts and credit management costs.(d)
    
    We have derivative liabilities
    relating to certain of our common stock warrants, preferred
    stock warrants, embedded derivatives in preferred stock, and a
    contingent fee agreement. These derivative liabilities are
    recorded at their estimated fair value at each balance sheet
    date. Changes in fair value are reflected in the consolidated
    statement of operations as gains or losses from derivatives in
    our own equity as described in the notes to the consolidated
    financial statements.(e)
    
    On August 20, 2010, we entered
    into our $365 million A/R Credit Facility. The proceeds
    were used to prepay our Senior Secured Revolving Credit Facility
    due May 15, 2011. We accounted for our prepayment as an
    extinguishment and recognized a $5.1 million pre-tax loss
    on early extinguishment of debt.(f)
    
    Interest expense, net includes
    interest income of $0.1 million, $0.5 million,
    $0.6 million, $0.1 million, zero, zero, and zero for
    the fiscal years ended February 2, 2007, February 1,
    2008, January 30, 2009, January 29, 2010, and
    January 28, 2011, and the 13 weeks ended
    April 30, 2010 and April 29, 2011, respectively.  (g)
    Pro forma basic and diluted net income per share reflects the
    following events as if they had occurred on January 30,
    2010, or January 29, 2011:  
    the conversion of all outstanding shares of our preferred stock
    into shares of our common stock upon the closing of this
    offering;
    the payment of the accrued and unpaid dividends payable to our
    preferred stockholders upon conversion of their shares of
    preferred stock into shares of our common stock in the form of
    additional shares of common stock on the closing of this
    offering;
    the lapse of certain anti-dilution rights of the holders of the
    216,045,882 common stock warrants issued May 2008;
    the termination of a contingent fee agreement; and 49




---



##### 




    the issuance of additional common stock warrants as an
    anti-dilution adjustment due to the payment of accrued and
    unpaid dividends on our preferred stock in the form of common
    stock.  (h)
    
    To supplement our consolidated
    financial statements which are presented in accordance with U.S.
    generally accepted accounting principles, or GAAP, we use
    Contribution Margin as a non-GAAP performance measure. We
    believe Contribution Margin is a meaningful measure of the
    profitability of our customer relationships. Contribution Margin
    is defined as net sales less cost of sales, sales and marketing
    expenses and net credit expense (income) and represents the
    combined performance of merchandising, marketing and credit
    management activities. The long-term profitability of our
    customer relationships is dependent upon strategically managing
    these three elements of our business as a whole, rather than
    focusing on any one or more component of Contribution Margin. We
    present Contribution Margin because it is used by our board of
    directors and management to evaluate our operating performance,
    and we consider it an important supplemental measure of our
    operating performance. We believe that Contribution Margin is
    useful to investors in analyzing the performance and value of
    our business. 
  Contribution Margin is not in
    accordance with, or an alternative to, measures prepared in
    accordance with GAAP. In addition, this non-GAAP measure is not
    based on any comprehensive set of accounting rules or
    principles. As a result, our calculation of Contribution Margin
    is likely not comparable to other calculations of such measure
    used by other companies. As a non-GAAP measure, Contribution
    Margin has limitations in that it does not reflect all of the
    amounts associated with our results of operations as determined
    in accordance with U.S. GAAP. Although we use Contribution
    Margin as a financial measure to assess the performance of our
    business compared to that of others in our industry,
    Contribution Margin has limitations as an analytical tool, and
    you should not consider it in isolation, or as a substitute for
    analysis of our results as reported under GAAP. 
  The following table reconciles our
    Contribution Margin to the nearest U.S. GAAP performance
    measure, which is net income:  Fiscal Year Ended


13 Weeks EndedFebruary 2,


February 1,


January 30,


January 29,


January 28,


April 30,


April 29,2007


2008


2009


2010


2011


2010


2011(in thousands)Contribution Margin:Net income (loss)

$
14,268


$
28,477


$
1,335


$
9,222


$
(11,524
)

$
2,039


$
(9,267
)Income tax expense (benefit)


1,134



(2,081
)


828



8,956



11,618



1,175



3,156Interest expensenet


14,957



19,037



29,839



31,216



30,750



8,173



7,395Loss on early extinguishment of debt


















5,109







Loss from derivatives in our own equity














6,500



32,607







14,944General and administrative expenses


44,150



51,838



59,533



69,087



84,031



18,225



20,906Contribution Margin

$
74,509


$
97,271


$
91,535


$
124,981


$
152,591


$
29,612


$
37,134   (i)
    
    To supplement our consolidated
    financial statements which are presented in accordance with
    U.S. generally accepted accounting principles, or GAAP, we
    use net income (loss) before gain (loss) from derivatives in our
    own equity as a non-GAAP performance measure. We believe net
    income (loss) before gain (loss) from derivatives in our own
    equity is a meaningful measure of profitability and we are
    providing this information as we believe it facilitates annual
    and year over year comparisons for investors and financial
    analysts. We present net income (loss) before gain (loss) from
    derivatives in our own equity because it eliminates estimated
    non-cash gains and losses due to derivative accounting relating
    to certain of our common stock warrants, preferred stock
    warrants, embedded derivatives in preferred stock, and a
    contingent fee agreement, and is used by our board of directors
    and management to evaluate our profitability, and we consider it
    an important supplemental measure of our operating performance
    and profitability. We believe that net income (loss) before gain
    (loss) from derivatives in our own equity is useful to investors
    in analyzing the performance and value of our business.Net income (loss) before gain
    (loss) from derivatives in our own equity is not in accordance
    with, or an alternative to, measures prepared in accordance with
    GAAP. In addition, this non-GAAP measure is not based on any
    comprehensive set of accounting rules or principles. As a
    non-GAAP measure, net income (loss) before gain (loss) from
    derivatives in our own equity has limitations in that it does
    not reflect all of the amounts associated with our results of
    operations as determined in accordance with U.S. GAAP.
    Although we use net income (loss) before gain (loss) from
    derivatives in our own equity as a financial measure to assess
    the performance of our business compared to that of others in
    our industry, net income (loss) before gain (loss) from
    derivatives in our own equity has limitations as an analytical
    tool, and you should not consider it in isolation, or as a
    substitute for analysis of our results as reported under GAAP. 50




---



##### 



The following table reconciles our
    net income (loss) before gain (loss) from derivatives in our own
    equity to the nearest U.S. GAAP performance measure, which
    is net income (loss):  Fiscal Year Ended


13 Weeks EndedFebruary 2,


February 1,


January 30,


January 29,


January 28,


April 30,


April 29,2007


2008


2009


2010


2011


2010


2011(In thousands)Net income (loss) before gain (loss) from derivatives in our
    own equity:Net income (loss)

$
14,268


$
28,477


$
1,335


$
9,222


$
(11,524
)

$
2,039


$
(9,267
)Loss from derivatives in our own equity














6,500



32,607







14,944Net income before loss from derivatives in our own equity

$
14,268


$
28,477


$
1,335


$
15,722


$
21,083


$
2,039


$
5,677   (j)
    
    To supplement our consolidated
    financial statements which are presented in accordance with U.S.
    generally accepted accounting principles, or GAAP, we use
    Adjusted EBITDA as a non-GAAP performance measure. We present
    Adjusted EBITDA because it is used by our board of directors and
    management to evaluate our operating performance and in
    determining incentive compensation, and we consider it an
    important supplemental measure of our operating performance. We
    believe that Adjusted EBITDA is useful to investors in
    evaluating our operating performance compared to other companies
    in our industry because it assists in analyzing and benchmarking
    the performance and value of our business. The calculation of
    Adjusted EBITDA eliminates variations in derivative accounting
    for common stock warrants and the conversion feature of our
    Series A and Series B Preferred Stock, capital
    structure (affecting interest expense), income taxes, and the
    accounting effects of capital spending. These items may vary for
    different companies for reasons unrelated to the overall
    operating performance of a companys business. Adjusted
    EBITDA, as we present it, represents net income before loss from
    derivatives in our own equity, interest expense, income tax
    (benefit)/expense, depreciation and amortization, stock-based
    compensation, further adjusted for the following additional
    items: realized loss on early
    extinguishment of our Senior Secured Revolving Credit Facility
    during August 2010; asset impairments and
    loss on disposal of assets; and other costs that are
    added back consistent with covenant calculations under our
    applicable credit agreements such as certain financing costs
    including bank administration and servicer fees.    
    Adjusted EBITDA does not reflect our cash expenditures, future
    requirements for capital expenditures, or contractual
    commitments;
    Adjusted EBITDA does not reflect changes in, or cash
    requirements for, our working capital needs;
    Adjusted EBITDA does not reflect the significant interest
    expense or the cash requirements necessary to service interest
    or principal payments on our debts;
    although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be
    replaced in the future, and Adjusted EBITDA does not reflect any
    cash requirements for such replacements;
    Adjusted EBITDA does not reflect our income tax expense or cash
    requirements to pay our taxes; and
    other companies in our industry may calculate Adjusted EBITDA
    differently than we do, limiting its usefulness as a comparative
    measure.   51




---



##### 



Fiscal Year Ended


13 Weeks EndedFebruary 2,


February 1,


January 30,


January 29,


January 28,


April 30,


April 29,2007


2008


2009


2010


2011


2010


2011(In thousands)Adjusted EBITDA:Net income (loss)

$
14,268


$
28,477


$
1,335


$
9,222


$
(11,524
)

$
2,039


$
(9,267
)Interest expense


15,053



19,507



30,461



31,310



30,752



8,174



7,396Income tax expense (benefit)


1,134



(2,081
)


828



8,956



11,618



1,175



3,156Depreciation and amortization expense


4,096



5,076



6,285



7,246



8,746



1,924



2,588Stock-based compensation expense


389



313



110



321



282



90



55Loss from derivatives in our own equity














6,500



32,607







14,944Loss on early extinguishment of debt


















5,109







Asset impairments and loss on disposal of assets


412







411



37



497







Certain financing costs






1,217



1,661



192



329



48



184Other


34



24



(82
)














Adjusted EBITDA

$
35,386


$
52,533


$
41,009


$
63,784


$
78,416


$
13,450


$
19,056   (k)
    
    Upon completion of this offering,
    we will use a portion of the net proceeds to retire certain
    indebtedness. See Use of Proceeds.(l)
    
    See Note 5 to the consolidated
    financial statements for information concerning the relative
    rights and preferences of our outstanding preferred stock.(m)
    
    Customers that have made their
    initial order on account during the fiscal period presented.(n)
    
    Average order size represents
    retail merchandise sales including shipping and handling revenue
    divided by the number of merchandise orders fulfilled during the
    fiscal period presented.(o)
    
    Number of fulfilled merchandise
    orders.(p)
    
    Repurchase rate is calculated as
    the percentage of customers that were considered active
    12 months prior to the balance sheet date and that made a
    purchase during the 12 month period preceding the balance
    sheet date. We consider a customer to be active if the customer
    has made at least one purchase using a credit account within the
    previous 12 months and has made at least one payment on
    that credit account since the account was opened.(q)
    
    Number of online orders as a
    percentage of all orders taken during the fiscal period
    presented.(r)
    
    Delinquent balances as of the
    customers statement cycle dates prior to or on fiscal
    period end.(s)
    
    Delinquent balances as of the
    customers statement cycle dates prior to or on fiscal
    period end as a percentage of total customer accounts receivable
    as of the customers statement cycle dates prior to or on
    fiscal period end.(t)
    
    Finance charge and fee income,
    provision for doubtful accounts, and net charge-offs each as a
    percentage of average customer accounts receivable for the
    13 weeks ended April 30, 2010 and April 29, 2011
    have been annualized to a comparable 52-week basis. 52




---



##### 



MANAGEMENTS
    DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS  You should read the following discussion together with
    Selected Consolidated Financial and Other Data, and
    the historical financial statements and related notes included
    elsewhere in this prospectus. The statements in this discussion
    regarding industry outlook, our expectations regarding our
    future performance, liquidity and capital resources and other
    non-historical statements in this discussion are forward looking
    statements. These forward looking statements are based upon
    current expectations and involve risks and uncertainties. Our
    actual results may differ materially from those anticipated in
    these forward looking statements as a result of various factors,
    including those set forth under Risk Factors and
    Forward Looking Statements or elsewhere in this
    prospectus. See Risk Factors and Forward
    Looking Statements for a discussion of some of the
    uncertainties, risks and assumptions associated with those
    forward looking statements. The following discussion reflects
    the effects of the restatement of our 2009 financial statements
    as discussed in Note 14 to the consolidated financial
    statements.
  Overview
  e-commerce
  mark-up
       53




---



##### 



Assessing the
    Performance of Our Business
  Contribution
    Margin
 
  shop-at-home
 
 
  mark-up
 
  Net
    Sales
      
    Homeincluding housewares, bed and bath, lawn and
    garden, home furnishings and hardware;
    Entertainmentincluding electronics, video games,
    toys and sporting goods; and
    Fashionincluding apparel, footwear, cosmetics,
    fragrances and jewelry.  Gross Profit
    Rate
   54




---



##### 



Sales and
    Marketing Expenses
    Net Credit
    Expense (Income)
        General and
    Administrative Expenses
     55




---



##### 



Interest
    Expense, net
    Factors Affecting
    Comparability
    Loss from
    Derivatives in Our Own Equity
      Performance of
    Our Credit Portfolio
   56




---



##### 



Migration of
    Sales to the Internet
    Income
    Taxes
      Preferred
    Stock Accretion
      Financing
     57




---



##### 



Regulatory and
    Public Company Expenses
      Results of
    Operations
    Fiscal Year Ended


13 Weeks EndedJanuary 30,


% of


January 29,


% of


January 28,


% of


April 30,


% of


April 29,


% of2009


Net Sales


2010


Net Sales


2011


Net Sales


2010


Net Sales


2011


Net Sales(in thousands)Net sales

$
423,338



100.0
%

$
438,189



100.0
%

$
521,307



100.0
%

$
87,106



100.0
%

$
99,206



100.0
%Cost of sales


220,294



52.0
%


226,140



51.6
%


275,521



52.9
%


44,944



51.6
%


51,755



52.2
%Gross profit


203,044



48.0
%


212,049



48.4
%


245,786



47.1
%


42,162



48.4
%


47,451



47.8
%Sales and marketing expenses


110,404



26.1
%


109,384



25.0
%


130,091



25.0
%


23,706



27.2
%


24,761



25.0
%Net credit expense (income)


1,105



0.3
%


(22,316
)


(5.1
)%


(36,896
)


(7.1
)%


(11,156
)


(12.8
)%


(14,444
)


(14.6
)%General and administrative expenses


59,533



14.1
%


69,087



15.8
%


84,031



16.1
%


18,225



20.9
%


20,906



21.1
%Loss from derivatives in our own equity






0.0
%


6,500



1.5
%


32,607



6.3
%






0.0
%


14,944



15.1
%Loss on early extinguishment of debt






0.0
%






0.0
%


5,109



1.0
%






0.0
%






0.0
%Interest expense, net


29,839



7.0
%


31,216



7.1
%


30,750



5.9
%


8,173



9.4
%


7,395



7.5
%Income before income taxes


2,163



0.5
%


18,178



4.1
%


94



0.0
%


3,214



3.7
%


(6,111
)


(6.2
)%Income tax expense


828



0.2
%


8,956



2.0
%


11,618



2.2
%


1,175



1.3
%


3,156



3.2
%Net income (loss)

$
1,335



0.3
%

$
9,222



2.1
%

$
(11,524
)


(2.2
)%

$
2,039



2.3
%

$
(9,267
)


(9.3
)% 58




---



##### 



Fiscal Year Ended


13 Weeks EndedJanuary 30,


% of


January 29,


% of


January 28,


% of


April 30,


% of


April 29,


% of2009


Net Sales


2010


Net Sales


2011


Net Sales


2010


Net Sales


2011


Net Sales(in thousands)Contribution Margin (a):Net income (loss)

$
1,335



0.3
%

$
9,222



2.1
%

$
(11,524
)


(2.2
)%

$
2,039



2.3
%

$
(9,267
)


(9.3
)%Loss from derivatives in our own equity






0.0
%


6,500



1.5
%


32,607



6.3
%






0.0
%


14,944



15.1
%Net income before loss from derivatives in our own equity

$
1,335



0.3
%

$
15,722



3.6
%

$
21,083



4.0
%

$
2,039



2.3
%

$
5,677



5.7
%Income tax expense


828



0.2
%


8,956



2.0
%


11,618



2.2
%


1,175



1.3
%


3,156



3.2
%Interest expense, net


29,839



7.0
%


31,216



7.1
%


30,750



5.9
%


8,173



9.4
%


7,395



7.5
%Loss on early extinguishment of debt






0.0
%






0.0
%


5,109



1.0
%






0.0
%






0.0
%General and administrative expenses


59,533



14.1
%


69,087



15.8
%


84,031



16.1
%


18,225



20.9
%


20,906



21.1
%Contribution Margin

$
91,535



21.6
%

$
124,981



28.5
%

$
152,591



29.3
%

$
29,612



34.0
%

$
37,134



37.4
%    
  (a)
    
    See note (h) to Selected
    Consolidated Financial and Other Data for a discussion of
    Contribution Margin. 
  Comparison of
    13 Weeks Ended April 29, 2011 to 13 Weeks Ended
    April 30, 2010
 
  Net (Loss)
    Income
 
 
   
  Contribution
    Margin
    Net
    Sales
   59




---



##### 



13 Weeks EndedApril 30, 2010


April 29, 2011


Increase/% of





% of


(Decrease)$


Sales


$


Sales


$


%(in thousands)Sales by Merchandise Category:Home

$
46,588



52.1
%

$
53,100



52.3
%

$
6,512



14.0
%Entertainment


31,458



35.2
%


36,214



35.7
%


4,756



15.1
%Fashion


11,306



12.7
%


12,134



12.0
%


828



7.3
%Total merchandise sales


89,352



100.0
%


101,448



100.0
%


12,096



13.5
%Returns and allowances


(4,937
)






(5,115
)






178



3.6
%Commissions


2,691







2,873







182



6.8
%Net sales

$
87,106






$
99,206






$
12,100



13.9
%    60




---



##### 



Gross Profit
    Rate
  mark-ups.
  Sales and
    Marketing Expenses
  13 Weeks EndedApril 30, 2010


April 29, 2011


Increase/% of





% of


(Decrease)$


Net Sales


$


Net Sales


$


%(in thousands)Sales and Marketing Expenses:Catalog direct mail

$
19,540



22.4
%

$
19,500



19.7
%

$
(40
)


(0.2
)%Digital marketing


1,838



2.1
%


2,028



2.0
%


190



10.3
%Order entry and customer service


1,787



2.1
%


2,663



2.7
%


876



49.0
%Premium (free gift with purchase)


541



0.6
%


570



0.6
%


30



5.5
%Total sales and marketing expenses

$
23,706



27.2
%

$
24,761



25.0
%

$
1,056



4.5
%    61




---



##### 



Net Credit
    Expense (Income)
  13 Weeks EndedApril 30, 2010


April 29, 2011


Increase/% of





% of


(Decrease)$


Net Sales


$


Net Sales


$


%(in thousands)Net Credit Expense (Income):Finance charge and fee income

$
(38,110
)


(43.8
)%

$
(51,260
)


(51.7
)%

$
13,150



34.5
%Provision for doubtful accounts


18,896



21.7
%


27,500



27.7
%


8,604



45.5
%Credit management costs


8,058



9.3
%


9,316



9.4
%


1,258



15.6
%Total net credit expense (income)

$
(11,156
)


(12.8
)%

$
(14,444
)


(14.6
)%


3,288



29.5
%Average customer accounts receivable

$
464,552






$
575,418






$
110,866



23.9
%Annualized finance charge and fee income as a percentage of
    average customer accounts receivable


32.8
%






35.6
%Annualized provision for doubtful accounts as a percentage of
    average customer accounts receivable


16.3
%






19.1
%      62




---



##### 



General and
    Administrative Expenses
  13 Weeks Ended


Increase/April 30, 2010


April 29, 2011


(Decrease)$


% of Sales


$


% of Sales


$


%(in thousands)General and Administrative Expenses:Salaries, wages and benefits

$
8,622



9.9
%

$
9,134



9.2
%

$
512



5.9
%Incentive based compensation


1,645



1.9
%


1,805



1.8
%


160



9.7
%Professional fees


2,210



2.5
%


3,516



3.6
%


1,306



59.1
%Depreciation and software amortization


1,924



2.2
%


2,416



2.4
%


492



25.6
%Rents and occupancy costs


3,425



3.9
%


3,523



3.6
%


99



2.9
%Other


399



0.5
%


511



0.5
%


112



27.9
%Total general and administrative expenses

$
18,225



20.9
%

$
20,906



21.1
%

$
2,681



14.7
%     Loss from
    Derivatives in Our Own Equity
    Interest Expense,
    net
    Income
    Taxes
   63




---



##### 



Preferred Stock
    Accretion
    Comparison of
    Fiscal Year 2010 to Fiscal Year 2009
 
  Net (Loss)
    Income
 
 
   
  Contribution
    Margin
    Net
    Sales
   64




---



##### 



Fiscal Year Ended


Increase/January 29, 2010


January 28, 2011


(Decrease)$


% of Sales


$


% of Sales


$


%(in thousands)Sales by Merchandise Category:Home

$
207,177



45.7
%

$
236,555



44.1
%

$
29,378



14.2
%Entertainment


189,157



41.7
%


225,060



42.0
%


35,903



19.0
%Fashion


57,339



12.6
%


74,232



13.9
%


16,893



29.5
%Total merchandise sales


453,673



100.0
%


535,847



100.0
%


82,174



18.1
%Returns and allowances


(26,871
)






(27,871
)






1,000



3.7
%Commissions


11,387







13,331







1,944



17.1
%Net sales

$
438,189






$
521,307






$
83,118



19.0
%     Gross Profit
    Rate
  mark-ups,
  Sales and
    Marketing Expenses
  Fiscal Year EndedJanuary 29, 2010


January 28, 2011


Increase/% of





% of


(Decrease)$


Net Sales


$


Net Sales


$


%(in thousands)Sales and Marketing Expenses:Catalog direct mail

$
89,435



20.4
%

$
103,912



19.9
%

$
14,477



16.2
%Digital marketing


7,644



1.8
%


10,996



2.1
%


3,352



43.9
%Order entry and customer service


9,113



2.1
%


11,752



2.3
%


2,639



29.0
%Premium (free gift with purchase)


3,192



0.7
%


3,431



0.7
%


239



7.5
%Total sales and marketing expenses

$
109,384



25.0
%

$
130,091



25.0
%

$
20,707



18.9
%  65




---



##### 



Net Credit
    Expense (Income)
  Fiscal Year EndedJanuary 29, 2010


January 28, 2011


Increase/% of





% of


(Decrease)$


Net Sales


$


Net Sales


$


%(in thousands)Net Credit Expense (Income):Finance charge and fee income

$
(136,924
)


(31.3
)%

$
(160,778
)


(30.9
)%

$
23,854



17.4
%Provision for doubtful accounts


83,102



19.0
%


89,524



17.2
%


6,422



7.7
%Credit management costs


31,506



7.2
%


34,358



6.6
%


2,852



9.1
%Total net credit expense (income)

$
(22,316
)


(5.1
)%

$
(36,896
)


(7.1
)%


14,580



65.3
%Average customer accounts receivable

$
418,640






$
488,562






$
69,922



16.7
%Finance charge and fee income as a percentage of average
    customer accounts receivable


32.7
%






32.9
%Provision for doubtful accounts as a percentage of average
    customer accounts receivable


19.9
%






18.3
%    66




---



##### 



General and
    Administrative Expenses
  Fiscal Year EndedJanuary 29, 2010


January 28, 2011


Increase/% of





% of


(Decrease)$


Net Sales


$


Net Sales


$


%(in thousands)General and Administrative Expenses:Salaries, wages and benefits

$
30,384



6.9
%

$
32,921



6.3
%

$
2,537



8.3
%Incentive based compensation


6,579



1.5
%


10,883



2.1
%


4,304



65.4
%Professional fees


8,263



1.9
%


14,264



2.7
%


6,001



72.6
%Depreciation and software amortization


7,246



1.7
%


8,066



1.6
%


820



11.3
%Rents and occupancy costs


14,392



3.3
%


14,618



2.8
%


226



1.6
%Other


2,223



0.5
%


3,279



0.6
%


1,056



47.5
%Total general and administrative expenses

$
69,087



15.8
%

$
84,031



16.1
%

$
14,944



21.6
%     Loss from
    Derivatives in Our Own Equity
    Loss on Early
    Extinguishment of Debt
   67




---



##### 



Interest Expense,
    net
    Income
    Taxes
    Preferred Stock
    Accretion
    Comparison of
    Fiscal Year 2009 to Fiscal Year 2008
 
  Net
    Income
 
 
   
  Contribution
    Margin
    Net
    Sales
   68




---



##### 



Fiscal Year EndedJanuary 30, 2009


January 29, 2010


Increase/(Decrease)% of





% of$


Sales


$


Sales


$


%(in thousands)Sales by Merchandise Category:Home

$
209,483



47.9
%

$
207,177



45.7
%

$
(2,306
)


(1.1
)%Entertainment


179,439



41.0
%


189,157



41.7
%


9,718



5.4
%Fashion


48,678



11.1
%


57,339



12.6
%


8,661



17.8
%Total merchandise sales


437,600



100.0
%


453,673



100.0
%


16,073



3.7
%Returns and allowances


(25,862
)






(26,871
)






1,009



3.9
%Commissions


11,600







11,387







(213
)


(1.8
)%Net sales

$
423,338






$
438,189






$
14,851



3.5
%     Gross Profit
    Rate
   69




---



##### 



Sales and
    Marketing Expenses
  Fiscal Year EndedJanuary 30, 2009


January 29, 2010


Increase/(Decrease)% of





% of$


Net Sales


$


Net Sales


$


%(in thousands)Sales and Marketing Expenses:Catalog direct mail

$
93,784



22.2
%

$
89,435



20.4
%

$
(4,349
)


(4.6
)%Digital marketing


3,526



0.8
%


7,644



1.8
%


4,118



116.8
%Order entry and customer service


9,474



2.2
%


9,113



2.1
%


(361
)


(3.8
)%Premium (free gift with purchase)


3,620



0.9
%


3,192



0.7
%


(428
)


(11.8
)%Total sales and marketing expenses

$
110,404



26.1
%

$
109,384



25.0
%

$
(1,020
)


(0.9
)%      70




---



##### 



Net Credit
    Expense (Income)
  Fiscal Year EndedJanuary 30, 2009


January 29, 2010


Increase/(Decrease)% of





% of$


Net Sales


$


Net Sales


$


%(in thousands)Net Credit Expense (Income):Finance charge and fee income

$
(122,896
)


(29.0
)%

$
(136,924
)


(31.3
)%

$
14,028



11.4
%Provision for doubtful accounts


93,332



22.1
%


83,102



19.0
%


(10,230
)


(11.0
)%Credit management costs


30,669



7.2
%


31,506



7.2
%


837



2.7
%Total net credit expense (income)

$
1,105



0.3
%

$
(22,316
)


(5.1
)%


23,421Average customer accounts receivable

$
382,595






$
418,640






$
36,045



9.4
%Finance charge and fee income as a percentage of average
    customer accounts receivable


32.1
%






32.7
%Provision for doubtful accounts as a percentage of average
    customer accounts receivable


24.4
%






19.9
%        71




---



##### 



General and
    Administrative Expenses
  Fiscal Year EndedJanuary 30, 2009


January 29, 2010


Increase/(Decrease)% of





% of$


Net Sales


$


Net Sales


$


%(in thousands)General and Administrative Expenses:Salaries, wages and benefits

$
24,484



5.8
%

$
30,384



6.9
%

$
5,900



24.1
%Incentive based compensation


1,823



0.4
%


6,579



1.5
%


4,756



260.9
%Professional fees


8,880



2.1
%


8,263



1.9
%


(617
)


(6.9
)%Depreciation and software amortization


6,285



1.5
%


7,246



1.7
%


961



15.3
%Rents and occupancy costs


13,854



3.3
%


14,392



3.3
%


538



3.9
%Other


4,207



1.0
%


2,223



0.5
%


(1,984
)


(47.2
)%Total general and administrative expenses

$
59,533



14.1
%

$
69,087



15.8
%

$
9,554



16.0
%     Loss from
    Derivatives in Our Own Equity
    Interest Expense,
    net
    Income
    Taxes
   72




---



##### 



Preferred Stock
    Accretion
    Quarterly Results
    of Operations and Seasonal Influences
        73




---



##### 



2009


2010


2011First


Second


Third


Fourth


First


Second


Third


Fourth


FirstQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter(in thousands)Consolidated statements of operations:Net sales

$
76,099


$
93,931


$
93,344


$
174,815


$
87,106


$
106,376


$
107,214


$
220,611


$
99,206Cost of sales


39,015



47,618



48,282



91,225



44,944



54,899



56,364



119,314



51,755Gross profit


37,084



46,313



45,062



83,590



42,162



51,477



50,850



101,297



47,451Sales and marketing expenses


21,603



24,881



24,711



38,189



23,706



27,848



29,870



48,667



24,761Net credit expense (income)


(12,619
)


(8,021
)


(6,881
)


5,205



(11,156
)


(6,087
)


(19,362
)


(291
)


(14,444
)General and administrative expenses


15,164



16,508



17,101



20,314



18,225



18,543



19,788



27,475



20,906Loss from derivatives in our own equity














6,500











2,445



30,162



14,944Loss on early extinguishment of debt


























5,109







Interest expense, net


8,194



7,352



7,379



8,291



8,173



7,969



7,256



7,352



7,395Income (loss) before income taxes


4,742



5,593



2,752



5,091



3,214



3,204



5,744



(12,068
)


(6,111
)Income tax expense


1,697



2,000



1,000



4,259



1,175



1,175



2,935



6,333



3,156Net income (loss)

$
3,045


$
3,593


$
1,752


$
832


$
2,039


$
2,029


$
2,809


$
(18,401
)

$
(9,267
)Net sales as a percentage of annual


17.4
%


21.4
%


21.3
%


39.9
%


16.7
%


20.4
%


20.6
%


42.3
%Net income before loss from derivatives in our own equity

$
3,045


$
3,593


$
1,752


$
7,332


$
2,039


$
2,029


$
5,254


$
11,761


$
5,677Net income before loss from derivatives in our own equity as a
    percentage of annual


19.4
%


22.9
%


11.1
%


46.6
%


9.7
%


9.6
%


24.9
%


55.8
%   Customer Accounts
    Receivable Asset Quality and Management
      As ofJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011(in thousands)Customer accounts receivable

$
439,507


$
489,236


$
602,047


$
455,804


$
573,014Less allowance for doubtful accounts


(97,094
)


(98,394
)


(109,211
)


(99,025
)


(117,716
)Customer accounts receivable, net

$
342,413


$
390,842


$
492,836


$
356,779


$
455,298  74




---



##### 



Delinquencies
        As ofApril 30,


April 29,January 30, 2009


January 29, 2010


January 28, 2011


2010


2011(in thousands)Delinquent (a):30 to 59 days

$
21,435



4.9
%

$
21,798



4.5
%

$
26,238



4.3
%

$
19,657



4.3
%

$
25,592



4.5
%60 to 89 days


14,176



3.2
%


13,917



2.8
%


16,117



2.7
%


12,665



2.8
%


17,132



3.0
%90 or more days


37,059



8.4
%


35,304



7.2
%


37,275



6.2
%


30,603



6.8
%


38,522



6.8
%30 or more days

$
72,670



16.5
%

$
71,019



14.5
%

$
79,630



13.2
%

$
62,925



13.9
%

$
81,246



14.3
%Re-aged balances

$
8,002



1.8
%

$
12,468



2.5
%

$
16,152



2.7
%

$
13,049



2.9
%

$
16,898



3.0
%     (a)
    
    Delinquent customer accounts
    receivable balances are as of the customers statement
    cycle dates prior to or on fiscal period-end.    
   75




---



##### 



Charge-Offs
    and Recoveries
    Fiscal Year Ended


13 Weeks EndedJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011(in thousands)Principal charge-offs

$
90,180


$
89,094


$
86,813


$
20,873


$
21,690Recoveries


(5,961
)


(7,292
)


(8,106
)


(2,608
)


(2,695
)Net charge-offs

$
84,219


$
81,802


$
78,707


$
18,265


$
18,995Average customer accounts receivable

$
382,595


$
418,640


$
488,562


$
464,552


$
575,418Net charge-offs as a percentage of average customer accounts
    receivable (a)


22.0
%


19.5
%


16.1
%


15.7
%


13.2
%     (a)
    
    Net charge-offs each as a
    percentage of average customer accounts receivable for the
    13 weeks ended April 30, 2010 and April 29, 2011
    have been annualized to a comparable 52-week basis.         76




---



##### 



Allowance for
    Doubtful Accounts
      Fiscal Year Ended


13 Weeks EndedJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011(in thousands)Allowance for doubtful accounts at beginning of period

$
87,981


$
97,094


$
98,394


$
98,394


$
109,211Provision for doubtful accounts


93,332



83,102



89,524



18,896



27,500Principal charge-offs (a)


(90,180
)


(89,094
)


(86,813
)


(20,873
)


(21,690
)Recoveries


5,961



7,292



8,106



2,608



2,695Allowance for doubtful accounts at end of period

$
97,094


$
98,394


$
109,211


$
99,025


$
117,716As a percentage of period end receivables


22.1
%


20.1
%


18.1
%


21.7
%


20.5
%As a percentage of balances 30+ days delinquent


133.6
%


138.5
%


137.1
%


157.4
%


144.9
%     (a)
    
    Excludes accrued and unpaid finance
    charges.      Time Since
    Origination of Customer Accounts
   77




---



##### 



As ofJanuary 30, 2009


January 29, 2010


January 28, 2011


April 30, 2010


April 29, 2011% of


% of


% of


% of


% of


% of


% of


% of


% of


% ofTime Since Origination

Accounts


Receivables


Accounts


Receivables


Accounts


Receivables


Accounts


Receivables


Accounts


Receivables0 - 6 months


11.4
%


9.2
%


11.6
%


10.0
%


15.7
%


12.0
%


11.1
%


9.5
%


15.6
%


11.8
%7 - 12 months


8.0
%


7.8
%


7.2
%


7.7
%


7.8
%


8.6
%


7.7
%


8.4
%


9.4
%


9.5
%13 - 24 months


24.2
%


28.4
%


14.2
%


16.5
%


13.0
%


17.6
%


13.6
%


16.2
%


12.6
%


17.3
%25+ months


51.6
%


53.8
%


60.6
%


64.8
%


56.7
%


61.0
%


60.7
%


64.9
%


55.5
%


60.4
%Closed (a)


4.8
%


0.8
%


6.4
%


1.0
%


6.8
%


0.8
%


6.9
%


1.0
%


6.9
%


1.0
%100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%     (a)
    
    Closed customer credit accounts in
    the above table result from, (i) the absence of account
    activity or suspicious account activity that results in our
    decision to close the customers account, as well as
    (ii) our response to our customers request to close
    their account.  Credit Limits
    and Account Balance Range
        As ofJanuary 30,


January 29,


January 28,


April 30,


April 29,Account Balance Range

2009


2010


2011


2010


2011$1 - $500


53.9
%


45.9
%


38.8
%


45.9
%


39.3
%$501 - $1,000


36.7
%


38.8
%


34.9
%


37.6
%


33.5
%$1,001 - $1,500


7.7
%


11.7
%


16.5
%


12.1
%


16.2
%Over $1,501


0.9
%


2.6
%


8.9
%


3.4
%


10.0
%Closed


0.8
%


1.0
%


0.9
%


1.0
%


1.0
%100.0
%


100.0
%


100.0
%


100.0
%


100.0
%  78




---



##### 



Credit
    Score
      Liquidity and
    Capital Resources
         79




---



##### 



As ofMaturity or

Maximum


January 30, 2009


January 29, 2010


January 28, 2011


April 30, 2010


April 29, 2011Extinguishment

Capacity





Additional





Additional





Additional





Additional





AdditionalFunding Source

Date

(as amended)


Outstanding


Availability


Outstanding


Availability


Outstanding


Availability


Outstanding


Availability


Outstanding


Availability(in thousands)A/R Credit Facility (a):Revolving Credit Tranche

Matures

$
290,000


















$
215,000


$
24,474










$
181,000


$
40,322Term Loan Tranche

August 2013


75,000



















75,000















75,000



$
365,000Senior SecuredRevolving Credit

ExtinguishedFacility

August 2010

$
280,000


$
253,000


$
27,000


$
241,000


$
39,000










$
206,000


$
74,000Inventory Line of Credit

Matures August 2013

$
50,000



8,156



13,803



5,339



14,369



10,100



11,334



12,945



9,410



18,481



7,682Senior Subordinated

MaturesSecured Notes

November 2013

$
30,000



27,530







28,124







28,719







28,273







28,868Other

Various


Various



1,192







1,280







1,164







1,599







973Total







$
289,878






$
275,743






$
329,983






$
248,817






$
304,322     (a)
    
    Replaced the Senior Secured
    Revolving Credit Facility.    Fiscal Year Ended


13 Weeks EndedJanuary 30, 2009


January 29, 2010


January 28, 2011


April 30, 2010


April 29, 2011Weighted-


Weighted-


Weighted-


Weighted-


Weighted-


Weighted-


Weighted-


Weighted-


Weighted-


Weighted-Maturity or

Average


Average


Average


Average


Average


Average


Average


Average


Average


AverageFunding Source

Extinguishment Date

Outstanding


Rate (a)


Outstanding


Rate (a)


Outstanding


Rate (a)


Outstanding


Rate (a)


Outstanding


Rate (a)(in thousands)A/R Credit Facility:Revolving Credit Tranche

Matures August 2013

















$
67,907



6.7%










$
189,404



6.1%Term Loan Tranche

Matures August 2013


















33,288



15.8%











75,000



15.8%Senior Secured Revolving Credit Facility

Extinguished August 2010

$
136,090



13.1%


$
201,459



12.8%



116,847



12.7%


$
214,293



12.7%







Inventory Line of Credit

Matures August 2013


12,219



7.4%



10,516



6.1%



16,514



7.4%



10,053



6.5%



16,543



8.0%Securitization Facility

Extinguished May 2008


64,715



10.7%































Senior Subordinated Secured Notes

Matures November 2013


27,233



17.4%



27,827



17.3%



28,421



16.8%



28,199



17.1%



28,793



16.5%Other

Various


810



0% - 9%



1,079



0% - 9%



1,099



0% -9%



1,305



0% - 9%



1,052



0% - 9%     (a)
    
    Weighted-average interest rates
    include the effect of amortization of debt issuance costs and
    any original issue discount. Refer to the notes to our
    consolidated financial statements for a further discussion of
    our debt financing. 
   
   80




---



##### 



Accounts
    Receivable Credit Facility
   
   
 
   
 
 
 
   
 81




---



##### 



Eligible
    Underlying Receivables Portfolio Covenants
  Financing
 
  
    Three-month average Principal Payment Rate shall be greater than
    5% (or, following effectiveness of the July 2011 Amendment,
    greater than 4.75% from February through October and greater
    than 4.5% from November through January). 
  
    Three-month average Principal Default Ratio shall be less than
    24% from April through August and less than 28% from September
    through March.
    Three-month average Principal Delinquency Ratio shall be less
    than 14.5%.
    Three-month average Excess Spread Ratio shall be greater than 8%.
    Three-month average Adjusted Excess Spread Ratio, defined as the
    Adjusted Portfolio Yield less the Principal Default Ratio and
    the Receivables Base Rate, shall be greater than −4%. 
  
    One month Principal Delinquency Ratio shall be less than 16%
    (this covenant will be eliminated upon effectiveness of the July
    2011 Amendment). 
 
  
    One month Total Payment Rate shall be greater than 6.5% (this
    covenant will be eliminated upon effectiveness of the July 2011
    Amendment). 
    As ofJanuary 28, 2011


April 29, 2011Covenant

Covenant Level


Actual


Covenant Level


ActualPrincipal Payment Rate (three-month average)


> 5.00
%


5.60
%


> 5.00
%


6.33
%Principal Default Ratio (three-month average)


< 28.00
%


19.37
%


< 24.00
%


15.28
%Principal Delinquency Ratio (three-month average)


< 14.50
%


8.74
%


< 14.50
%


7.93
%Excess Spread Ratio (three-month 
         average)


> 8.00
%


22.12
%


> 8.00
%


29.78
%Adjusted Excess Spread Ratio 
         (three-month average)


> (4.00
)%


8.45
%


> (4.00
)%


22.84
%Principal Delinquency Ratio (one month)


< 16.00
%


8.41
%


< 16.00
%


7.93
%Total Payment Rate (one month)


> 6.50
%


8.14
%


> 6.50
%


9.10
%    82




---



##### 



Cash
    Collateral Requirements
    CashExcess Spread Ratio

Collateral> 14.0%



%> 12.5%
    £14.0%


2> 11.0%
    £12.5%


4> 9.5%
    £11.0%


6£ 9.5%


8  
   
  CashTotal Payment Rate

Collateral> 8.0%



%> 7.25%
    £
    8.0%


1£
    7.25%


2  
   
  CashPrincipal Delinquency Ratio

Collateral< 12.5%



%3
    12.5% < 14.0%


13
    14.0%


2     Financial and
    Other Covenants under Our Credit Facilities
   
  
    Minimum Net LiquidityThe sum of unrestricted cash
    and cash equivalents, availability under the A/R Credit Facility
    and availability under the Inventory Line of Credit must be at
    least $25 million in each fiscal month from February
    through November, and must be at least $20 million in the
    fiscal months of December and January of each year (or,
    following effectiveness of the July 2011 Amendment, at least
    $22.5 million throughout the year). 
 83




---



##### 




    Tangible Net WorthAt least $120 million, plus
    75% of consolidated net earnings before gain or loss on
    derivatives in our own equity (if positive) for each full fiscal
    year following August 20, 2010, and 85% of the gross
    proceeds on any issuance of equity as determined quarterly. 
  
    Last Twelve Months (LTM) Adjusted EBITDA
    MarginLTM adjusted earnings before gain or loss on
    derivatives in our own equity, interest expense, taxes,
    depreciation, amortization, and certain other adjustments
    (Adjusted EBITDA) margin must be at least 8.5% (this requirement
    will be eliminated upon effectiveness of the July 2011
    Amendment). 
  
    Fixed Charge Coverage RatioMust be at least 1.0x
    through October 2011, 1.05x from November 2011 through October
    2012 and 1.1x from November 2012 through August 2013.   
  
    Minimum Adjusted EBITDAAdjusted EBITDA must be at
    least $52.3 million for 2011 and $57 million for 2012
    and any fiscal year thereafter (this requirement will be
    eliminated upon effectiveness of the July 2011 Amendment). 
        Inventory Line
    of Credit
    Senior
    Subordinated Secured Notes
     84




---



##### 



Preferred
    Stock
        Cash
    Flows
    Fiscal Year Ended


13 Weeks EndedJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011(in thousands)Net cash (used in) provided by:Operating activities

$
(24,878
)

$
11,943


$
(59,095
)

$
19,179


$
29,383Investing activities


(33,431
)


4,766



14,784



5,736



(4,696
)Financing activities


49,320



(14,653
)


42,752



(27,067
)


(25,436
)Net (decrease) increase in cash and cash equivalents

$
(8,989
)

$
2,056


$
(1,559
)

$
(2,152
)

$
(749
)   Cash Flows
    from Operating Activities
   85




---



##### 



Fiscal Year Ended


13 Weeks EndedJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011(in thousands)Net income (loss)

$
1,335


$
9,222


$
(11,524
)

$
2,039


$
(9,267
)Adjustments to reconcile net income (loss) to net cash (used in)
    provided by operating activities:Depreciation and amortization


6,285



7,246



8,746



1,924



2,588Amortization of deferred charges and original issue discount


4,076



4,168



4,328



1,034



1,126Loss from derivates in our own equity






6,500



32,607







14,944Non-cash component of loss on early extinguishment of debt










2,309







Loss on disposal of assets


411



37



497







Provision for doubtful accounts


93,332



83,102



89,524



18,896



27,500Provision for merchandise returns


11,355



13,061



12,984



2,229



2,421Deferred income taxes


(851
)


6,303



(1,969
)


(478
)


423Stock-based compensation


110



321



282



90



55Other non-cash items affecting income


12,645



10,788



13,423



3,006



2,565Changes in operating assets and liabilities:Customer accounts receivable


(150,937
)


(157,650
)


(218,350
)


9,611



2,848Merchandise inventories


1,947



6,987



(1,649
)


(3,343
)


(6,548
)Promotional material inventories


4,142



(576
)


(1,976
)


(425
)


(2,865
)Prepaid expenses and other current assets


(1,080
)


(881
)


(910
)


1,955



483Current income taxes payable


(6,346
)


3,117



3,001



(2,095
)


(4,054
)Accounts payable and other liabilities


(1,610
)


20,466



9,582



(15,264
)


(2,836
)Other


308



(268
)










Net cash (used in) provided by operating activities

$
(24,878
)

$
11,943


$
(59,095
)

$
19,179


$
29,383    86




---



##### 



Cash Flows
    from Investing Activities
    87




---



##### 



Fiscal Year Ended


13 Weeks EndedJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011(in thousands)Purchases of fixed assets, internal-use software and website
    development

$
(6,635
)

$
(9,177
)

$
(12,570
)

$
(2,945
)

$
(2,268
)Net (increase) decrease in restricted cash


(26,796
)


13,943



27,354



8,681



(2,428
)Net cash (used in) provided by investing activities

$
(33,431
)

$
4,766


$
14,784


$
5,736


$
(4,696
)     Cash Flows
    from Financing Activities
    Fiscal Year Ended


13 Weeks EndedJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011(in thousands)Net (repayments) borrowings on revolving credit facilities

$
(6,197
)

$
(14,730
)

$
42,580


$
(27,075
)

$
(25,810
)Issuance of Series B Preferred Stock


55,499







100







100Issuance of common stock


18



77



72



8



274Net cash provided by (used in) financing activities

$
49,320


$
(14,653
)

$
42,752


$
(27,067
)

$
(25,436
)    88




---



##### 



Future Liquidity
    Requirements
    Contractual
    Obligations
    Payments Due by Period2011


2012 and 2013


2014 and 2015


2016 +Less Than 1


1 - 3


3 - 5


More ThanTotal


Year


Years


Years


5 Years(in thousands)Operating lease commitments (a)

$
57,320


$
6,252


$
10,547


$
8,992


$
31,529Long-term debt (b)


104,883



409



103,806



104



564Interest paymentslong-term debt (c)


37,666



15,332



22,264



41



29Series B Preferred Stock


78,099











78,099
(d)


Series A Preferred Stock


172,723











172,723
(e)


Contractual obligations

$
450,691


$
21,993


$
136,617


$
259,959


$
32,122     (a)
    
    Operating lease commitments
    primarily consist of leases for our office facilities in Eden
    Prairie, Minnesota and our distribution center and additional
    warehouse space in Saint Cloud, Minnesota. Refer to note 9
    of the notes to consolidated financial statements for a further
    description of leases. We did not have any current or future
    capital lease commitments as of January 28, 2011.(b)
    
    Long-term debt consists of amounts
    outstanding on the Term Loan Tranche of our A/R Credit Facility,
    our Senior Subordinated Secured Notes, and other notes payable.
    We expect to retire the Term Loan Tranche of our A/R Credit
    Facility and our existing Senior Subordinated Secured Notes with
    the proceeds of this offering. The Revolving Credit Tranche of
    our A/R Credit Facility is classified as current on our
    consolidated balance sheet and accordingly, is excluded from the
    table above. In the event of a decrease in the quality of the
    underlying receivables collateralizing the Revolving Credit
    Tranche, accelerated repayment of our A/R Credit Facility may
    occur.(c)
    
    We make quarterly interest payments
    based on fixed rates of interest on our Senior Subordinated
    Secured Notes and bi-monthly interest payments on amounts
    outstanding on the Term Loan Tranche of our A/R Credit Facility.(d)
    
    Under our certificate of
    incorporation in effect prior to completion of this offering, if
    a Qualified Public Offering (as defined in such document) has
    not occurred prior to February 28, 2014, we would be
    required, upon demand of 66% of our Series B Preferred
    Stock holders, to redeem all outstanding shares of our
    Series B Preferred Stock for an amount equal to the greater
    of (i) the Series B Purchase Price for all such
    shares, plus accrued and unpaid dividends thereon (which is the
    amount reflected in the table, assuming dividends have accrued
    through February 28, 2014), or (ii) an amount mutually
    agreed to by our board of directors and 66% of our Series B
    Preferred Stock holders. Upon completion of the offering
    contemplated hereby, all outstanding shares of preferred stock
    will convert into common stock and thus the potential obligation
    reflected hereby will no longer exist. 89




---



##### 



(e)
    
    Under our certificate of
    incorporation in effect prior to completion of this offering, if
    the required holders of our Series B Preferred Stock demand
    redemption as described in the preceding footnote, we would be
    required, upon demand of 50% of our Series A Preferred
    Stock holders, to redeem all outstanding shares of our
    Series A Preferred Stock for an amount equal to the greater
    of (i) the Series A Purchase Price for all such
    shares, plus accrued and unpaid dividends thereon (which is the
    amount reflected in the table, assuming dividends have accrued
    through February 28, 2014), or (ii) an amount mutually
    agreed to by our board of directors and 50% of our Series A
    Preferred Stock holders. Upon completion of the offering
    contemplated hereby, all outstanding shares of preferred stock
    will convert into common stock and thus the potential obligation
    reflected hereby will no longer exist. The amount reflected in
    the table also includes the amount we could be required to pay
    to redeem the shares of Series A Preferred Stock underlying
    our existing Series A Preferred Stock warrants that were
    issued in March 2006. The holders of such warrants have the
    right to exercise and immediately redeem the shares upon a
    redemption demand by the Series A Preferred Stock holders,
    provided that they would not receive any amount in respect of
    accrued dividends.                Off-Balance Sheet
    Arrangements
   90




---



##### 



Quantitative and
    Qualitative Disclosure about Market Risk
    Interest Rate
    Risk
        Foreign
    Currency Risk
    Impact of
    Inflation
    Critical
    Accounting Policies and Use of Estimates
   91




---



##### 




    allowance for doubtful accounts;
    promotional material inventories;
    income taxes; and
    valuation of stock-based awards, warrants and derivatives in our
    own equity.  Allowance for
    Doubtful Accounts
      Promotional
    Material Inventories
   92




---



##### 



Income
    Taxes
    and/or
  Valuation of
    Stock-Based Awards, Warrants and Derivatives in Our Own
    Equity
  Stock-Based
    Compensation
       93




---



##### 



Fiscal Year Ended


13 Weeks EndedJanuary 30,


January 29,


January 28,


April 30,


April 29,2009


2010


2011


2010


2011Expected volatility


33.8
%


35.5
%


30.0
%


30.0
%


38.3
%Expected term (years)


5.0



5.0



2.9



3.0



2.0Risk-free interest rate


3.0
%


1.8
%


1.3
%


1.4
%


0.6
%Forfeiture rate


30.0
%


30.0
%


30.0
%


30.0
%


30.0
%Expected dividend yield


















              94




---



##### 



Pre-IPO Common
    Stock Valuation
  Valuation of
    Privately-Held-Company Equity Securities Issued as
    Compensation
       95




---



##### 



Common StockNumber of Common Shares


Fair Value per


VestingRestricted


Stock


Share at Grant


PeriodFiscal Period of Grant

Shares


Options


Date


(Years)Q1 2008






Q2 2008






Q3 2008


106,100,000



12,360,000


$
0.0090



4Q4 2008


1,550,000



1,100,000



0.0090



4Total 2008


107,650,000



13,460,000Q1 2009


26,604,588



1,000,000


$
0.0010



4Q2 2009


31,604,588



700,000



0.0010



4Q3 2009


7,369,676



700,000



0.0010



4Q4 2009


5,200,000



600,000



0.0010



4Total 2009


70,778,852



3,000,000Q1 2010






5,000,000


$
0.0040



4Q2 2010






14,767,200



0.0040



4Q3 2010






Q4 2010


10,225,000



2,200,000



0.0110



4Total 2010


10,225,000



21,967,200Q1 2011


6,450,000



400,000


$
0.0490



4     Warrants
    Warrant Fair


Number of Warrants OutstandingValue per


Series AExercise


Share at Grant


Preferred


CommonIssue Date

Expiration Date

Price


Date


Stock


StockFebruary 24, 2004

June 21, 2012


0.01000



0.01000







31,689,078November 1, 2004

June 21, 2012


0.01000



0.01000







1,427,076March 24, 2006

March 23, 2016


0.01000



0.10000



41,742,458May 15, 2008

May 15, 2018


0.01000



0.00000







216,045,88241,742,458



249,162,036    96




---



##### 



Estimation of
    Fair Value of Derivatives in Our Own Equity
  and/or
      Impact of Recent
    Accounting Pronouncements
     97




---



##### 



BUSINESS  Company
    Overview
      e-commerce e-commerce
    
    Homeincluding housewares, bed and bath, lawn and
    garden, home furnishings and hardware;
    Entertainmentincluding electronics, video games,
    toys and sporting goods; and
    Fashionincluding apparel, footwear, cosmetics,
    fragrances and jewelry.   98




---



##### 



Our
    History
        2002-2004

Our new management team, including Brian Smith, our Chairman and
    Chief Executive Officer, moved quickly to build essential
    infrastructure and acquire a new customer base by targeting
    historical Fingerhut brand purchasers and generating enough
    revenue to support operations. Management also moved the company
    towards a multi-channel, web-enabled model.We achieved $135 million of net sales in 2003, our first
    full year of operations.We reached breakeven Adjusted EBITDA in 2004.2005-2007

We introduced a new marketing strategy of extending pre-approved
    credit offers to new prospects, accelerating growth in customers
    and revenue.We became net income positive in 2006.2009

We launched the Gettington.com brand as an alternative
    e-commerce
    platform targeting a slightly younger, more
    e-commerce
    focused customer.2010

We changed our name to Bluestem Brands, Inc. to reflect our
    transition to a multi-branded company.We introduced Fingerhut FreshStart, a new installment credit
    product designed for customers unable to qualify for the
    revolving credit products we offer.We launched the 360 Degree Spanish language
    initiative including catalogs, credit documentation, and website
    that is fully translated in Spanish in an effort to improve our
    marketing to this customer demographic.We achieved $521 million of net sales in 2010.  99




---



##### 



Industry
    Overview
  e-commerce e-commerce
  General
    Merchandise
    Catalog
    E-commerce
  E-commerce
    Our Target
    Market
   100




---



##### 



Our Competitive
    Strengths
    Highly
    Recognized Brand with Significant Customer Loyalty
    Expertise in
    Serving a Niche Customer Segment
    Integrated and
    Differentiated Business Model
    Sophisticated,
    Proprietary Marketing and Credit Decision-Making
    Technologies
   101




---



##### 



Established
    Multi-Channel Platform
  e-commerce
  Highly
    Experienced Management Team
  T-Mobile,
  Our Growth
    Strategy
    Increasing
    Penetration with Existing and Prospective
    Customers
   102




---



##### 



Increasing
    Internet Penetration
  ask-and-answer
  Expanding Our
    Demographic Reach
  sub-population
  Growing
    Gettington.com and Continuing to Introduce New
    Concepts
  e-commerce
 103




---



##### 



Introducing
    New Credit Offerings
    Marketing
    Fingerhut
  shop-at-home shop-at-home
    Gettington.com
     104




---



##### 



24/7.
  New Customer
    Acquisition
    Addressable
    Marketing
    Broad Based
    Marketing
      105




---



##### 



Fiscal Year EndedJanuary 30,


January 29,


January 28,2009


2010


2011Addressable Marketing


389,227



387,711



472,649Broad Based Marketing


40,338



51,136



126,437Total


429,565



438,847



599,086   Customer
    Retention
    set-up
  Credit
       106




---



##### 



Underwriting
    Account
    Management
      
    Low and Grow Line Management:  Our credit
    philosophy involves starting new customers with low credit lines
    of $330 on average for Fingerhut customers, or $140 on average
    for Fingerhut FreshStart customers, and $600 on average for
    Gettington.com customers during 2010. Subsequent line increases
    are also low, typically $200 for the first increase and $260 for
    the second increase, and generally occur at six month intervals
    with demonstrated account performance. See
    Managements Discussion and Analysis of Financial
    Condition and Results of OperationsCredit Limits and
    Account Balance Ranges.
    Integrate Customer Basket with Customer Credit
    Profile:  For point of sale authorizations via the
    Internet or telephone orders, our models integrate information
    about both customer credit profile and product margins of the
    merchandise in an attempt to make profitable real-time decisions. 107




---



##### 




    Educate our Customers:  We proactively educate
    our customers about the importance of maintaining good credit
    through various credit education tools, including how to read
    your statement brochures, online credit education and credit
    tips within each catalog to improve and build credit.
    Reward Good Performance:  We reward customers
    with good credit payment history through a variety of credit and
    merchandise enticements. Proactive credit line increase
    programs, deferred payment promotions, free shipping, dollar or
    percentage-off discounts and free gifts are some of the offers
    we use to retain good customers.
    Mitigate the Risk:  We utilize credit line
    decrease strategies at point of sale, as well as proactive
    offline reductions and closures, to minimize the impact of high
    risk accounts with significant balance at risk.  Collection and
    Recoveries
  follow-up,
      Credit
    Issuers
  back-up back-up back-up
 108




---



##### 




    Promoting the credit programs;
    Processing applications;
    Determining whether applicants meet the established credit
    eligibility requirements;
    Delivering customer communications and notices required by
    applicable law;
    Maintaining credit program records; and
    Servicing accounts for as long as a Credit Issuer owns credit
    program accounts.      Merchandising
    
    Homeincluding housewares, bed and bath, lawn and
    garden, home furnishings and hardware;
    Entertainmentincluding electronics, video games,
    toys and sporting goods; and
    Fashionincluding apparel, footwear, cosmetics,
    fragrances and jewelry. 109




---



##### 



Fiscal Year EndedJanuary 30,


January 29,


January 28,2009


2010


2011Percentage of Sales by Merchandise Category:Home


47.9
%


45.7
%


44.1
%Entertainment


41.0
%


41.7
%


42.0
%Fashion


11.1
%


12.6
%


13.9
%Total merchandise sales


100.0
%


100.0
%


100.0
%   Merchandise
    Assortment
             110




---



##### 



Pricing
    Strategy
  shop-at-home
    Quality
    Assurance
    Fulfillment
    Information
    Technology
  business-to-consumer off-the-shelf
 111




---



##### 



Property
      Employees
    Outsourcing
      Intellectual
    Property
  and/or
 112




---



##### 



Competition
  e-commerce
    Seasonality
    Government
    Regulation
  General
  e-commerce.
  e-mails
 113




---



##### 



e-commerce
      e-mail
    Consumer
    Lending
   114




---



##### 




    The
    Truth-in-Lending
    Act, and Regulation Z adopted pursuant thereto, requires
    disclosure of the principal terms of each transaction to every
    customer. Disclosure is required of, among other things, the
    pertinent elements of consumer credit transactions, including
    the annual percentage rate, or APR, of periodic interest
    charges, as well as other charges and fees associated with the
    transaction. In May 2009, the Credit Card Accountability
    Responsibility and Disclosure Act, or the CARD Act, was signed
    into law. The CARD Act primarily amends the Truth in Lending Act
    and establishes a number of new substantive and disclosure
    requirements in connection with open-end consumer plans and
    practices. The credit practices addressed by the CARD Act and
    Regulation Z include, but are not limited to, restrictions
    on the application of rate increases to existing and new
    balances, payment allocation, default pricing, and imposition of
    late fees.
    The Equal Credit Opportunity Act prohibits discrimination
    against any credit applicant on the basis of any protected
    category such as race, color, religion, national origin, sex,
    marital status or age. If an applicant is denied credit, we are
    required to provide the applicant with a notice of adverse
    action on the Credit Issuers behalf, informing the
    applicant of the action taken regarding the credit application,
    a statement of the prohibition on discrimination, the name and
    address of both the creditor and the federal agency that
    monitors compliance, and the applicants right to learn the
    specific reasons for the denial.
    The Fair Credit Reporting Act governs the assembly, evaluation
    and dissemination of information about consumers that is to be
    used for evaluating their qualification for credit. While it
    primarily regulates consumer reporting agencies, it also governs
    lenders that obtain consumer reports by limiting the reasons for
    which they can obtain and use such reports and requiring
    disclosures to consumers. The Act also governs lenders that
    supply information to the consumer reporting agencies, imposing
    duties regarding the accuracy of that information and an
    obligation to reinvestigate the information if it is disputed.
    The Gramm-Leach-Bliley Act requires financial institutions and
    their servicer providers, such as Bluestem, to maintain a
    written information security program that includes
    administrative, technical and physical safeguards relating to
    customer information and to provide an initial and annual
    privacy notice to certain customers that describe in general
    terms information sharing practices. The Act also limits the
    ability of the Credit Issuers, or Bluestem, to share some of the
    nonpublic personal information we collect about customers.
    The Uniting and Strengthening America by Providing Appropriate
    Tools Required to Intercept and Obstruct Terrorism Act, or the
    PATRIOT Act, requires financial institutions to maintain an
    anti-money laundering compliance program that includes the
    development of internal policies, procedures, and controls to
    ensure that an institution knows its customer and
    takes other actions to prevent violations of federal law.   115




---



##### 



Recent
    Developments for the Credit Issuers
  back-up
    Legal
    Proceedings
   116




---



##### 



MANAGEMENT  Directors and
    Executive Officers
 
   
  
 Name

Age

PositionBrian A. Smith


52


Chairman and Chief Executive OfficerJohn F. Damrow


56


PresidentChidambaram A. Chidambaram


44


Executive Vice President and Chief Marketing OfficerRaymond G. Frigo


48


Executive Vice President and Chief Operating OfficerSabyasachi Sengupta


45


Executive Vice President and Chief Credit Risk OfficerGina D. Sprenger


49


Executive Vice President, MerchandisingMark P. Wagener


51


Executive Vice President and Chief Financial OfficerBrad T. Atkinson


37


Vice President and Corporate ControllerErica C. Street


53


Vice President, General Counsel and SecretaryMichael M. Brown


39


DirectorJohn A. Giuliani


50


DirectorRoy A. Guthrie


57


DirectorMichael A. Krupka


46


DirectorAlice M. Richter


57


DirectorScott L. Savitz


42


Director  
  Executive
    Officers
  Brian A. Smith
    John F. Damrow
  Chidambaram A. Chidambaram
 117




---



##### 



T-Mobile
  Raymond G. Frigo
  Sabyasachi Sengupta
  Gina D. Sprenger
  Mark P. Wagener
  Brad T. Atkinson
  Erica C. Street
 118




---



##### 



Directors
  Michael M. Brown
    John A. Giuliani
    Roy A. Guthrie
    Michael A. Krupka
 119




---



##### 



Alice M. Richter
   
  Scott L. Savitz
 
    Corporate
    Governance
  Board
    Composition
   120




---



##### 



Board
    Independence
      Board
    Representation and Observation Rights
       121




---



##### 



Board
    Committees
      Audit Committee

Compensation
    CommitteeMs. Richter (chair)

Mr. Brown (chair)Mr. Brown

Mr. GiulianiMr. Krupka

Mr. KrupkaMr. Guthrie

Mr. Savitz   Audit
    Committee
    
    oversees managements processes for ensuring the quality
    and integrity of the companys financial statements, the
    companys accounting and financial reporting processes, and
    other financial information provided by the company to an
    governmental body or to the public;
    evaluates the qualifications, independence and performance of
    the companys independent auditor and internal audit
    function; and
    supervises managements processes for ensuring compliance
    by the company with legal, ethical and regulatory requirements.  Rule 10A-3(b)(1)
 122




---



##### 



Compensation
    Committee
    
    reviews and approves compensation and employment arrangements
    for executive officers;
    administers compensation plans for employees;
    evaluates the compensation structure for management
    employees; and
    determines the compensation of non-employee directors.    Governance
    Committee
    
    identify qualified individuals to become board members;
    determine the composition of the board and its committees,
    assess and enhance the effectiveness of the board and individual
    directors;
    develop and implement corporate governance guidelines for the
    company;
    evaluate the performance of our Chief Executive Officer; and
    ensure that succession planning takes place for critical senior
    management positions.    Board
    Leadership Structure
    Board
    Involvement in Risk Oversight
  day-to-day
 123




---



##### 



Code of
    Conduct
    Compensation
    Committee Interlocks and Insider Participation
    Compensation
    of Directors
      Non-Employee
    Director Compensation for Fiscal 2010
  Fees Earnedor Paid


Stock Awards


TotalName

in Cash ($)


($)(1)


($)Michael M. Brown (2)










John A. Giuliani


25,000







25,000Michael A. Krupka (2)










Alice M. Richter


25,000



14,025
(3)


39,025Roy A. Guthrie


6,250
(4)


43,450
(4)


49,700  124




---



##### 



(1)
    
    The following table summarizes for
    each of our non-employee directors the number of unvested shares
    subject to outstanding restricted stock awards and the number of
    shares underlying unexercised option awards as of
    January 28, 2011, the end of our most recent fiscal year.  As of January 28, 2011Number of SharesNumber of Unvested


Underlying UnexercisedName

Restricted Shares


OptionsMichael M. Brown






John A. Giuliani


1,025,000



1,900,000Michael A. Krupka






Alice M. Richter


2,456,250



Roy A. Guthrie


3,950,000



   (2)
    
    Messrs. Brown and Krupka are
    affiliated with 5% or greater stockholders and therefore do not
    receive compensation for service as non-employee directors of
    the company.(3)
    
    In November 2010, Ms. Richter
    received a supplemental restricted stock award of
    1,275,000 shares to equalize her aggregate restricted stock
    awards with those provided to Messrs. Giuliani and Guthrie.
    The amount shown represents the grant date fair value of this
    award computed in accordance with Financial Accounting Standards
    Board Accounting Standards Codification Topic 718,
    CompensationStock Compensation(FASB ASC
    Topic 718) by multiplying the number of shares granted by
    the fair market value of our common stock as of the grant date.
    See Managements Discussion and Analysis of Financial
    Condition and Results of OperationsCritical Accounting
    Policies and Use of Estimates for discussion regarding the
    determination of the fair market value of our common stock.(4)
    
    In connection with his initial
    election as a director in November 2010, Mr. Guthrie
    received a restricted stock award of 3,950,000 shares. The
    amount shown in the Stock Awards column represents
    the grant date fair value of this award computed in the manner
    described in note 3 above. Mr. Guthrie also received
    one-fourth of the annual cash retainer for his service as a
    director during the fourth quarter of fiscal 2010.     
   
 125




---



##### 



retail/wholesale
 
 
  
    Annual cash retainer$50,000; 
 
  
    Annual cash retainer for committee chairsAudit
    Committee: $10,000; Compensation Committee: $6,000; Governance
    Committee: $6,000; 
 
  
    Annual equity award$50,000 in restricted shares,
    vesting in equal annual installments over three years. 
 
   
 126




---



##### 



EXECUTIVE
    COMPENSATION  Compensation
    Discussion and Analysis
    
    Brian A. Smith, Chairman and Chief Executive Officer (principal
    executive officer),
    John F. Damrow, President,
    Chidambaram A. Chidambaram, Executive Vice President and Chief
    Marketing Officer,
    Raymond G. Frigo, Executive Vice President and Chief Operating
    Officer, and
    Mark P. Wagener, Executive Vice President and Chief Financial
    Officer (principal financial officer).  Compensation
    Philosophy and Objectives
          
    We pay for performance, focusing both on the results achievedand how the results are achieved.
    We provide greater compensation opportunities for the people who
    have the most significant responsibilities and have the greatest
    ability to influence our achievement of operating goals and
    strategic initiatives.
    Compensation structure and programs should be understandable and
    easily communicated to executives, stockholders and other
    constituencies.
    We seek to maintain a high degree of symmetry between returns to
    stockholders and compensation provided to management employees
    responsible for developing and executing our business strategies
    (employees in director-level and above positions). 127




---



##### 




    We place more emphasis on incentive/variable compensation for
    employees in director-level and above positions. The
    incentive/variable percentage of total compensation increases as
    the responsibilities of the position increase.
    Benefit programs available to senior executives should be
    consistent with those provided to salaried employees generally.    Compensation
    Decisions and Processes
    time-to-time,
    and/or
 128




---



##### 



Compensation
    Consultant
      Review of
    Compensation Data
      Elements of
    Total Compensation
   129




---



##### 



Form(s) ofCompensation Component

Compensation

PurposeBase Salary

   Cash

   Compensate each NEO relative to
    individual experience and technical/functional contributions
       Provide steady cash flow not contingent
    on short-term variations in company performance during fiscal
    yearShort-Term Incentives (a)

   Cash

   Align compensation with our annual
    corporate performance and returns to stockholders
       Provide participants with a meaningful
    total cash compensation opportunity (base salary + short-term
    incentive compensation)
       Reward corporate and individual
    performance resultsLong-Term Incentives (b)

   Non-Qualified Stock Options
       Restricted Stock

   Drive behaviors that lead to long-term
    growth and financial success
       Create a balance between a short-term
    and a long-term performance focus
       Align compensation with our long-term
    corporate performance and returns to stockholders
       Provide executive ownership
    opportunities     (a)
    
    In addition to our annual cash
    incentive plan as described below under Short-Term
    Incentive Plans, short-term incentives may include, at the
    compensation committees discretion, supplemental
    incentives such as hiring bonuses and other supplemental plans
    designed to facilitate the achievement of specific short-term
    objectives, such as the one-time 2010 Supplemental Executive
    Incentive Plan described below under Short-Term
    Incentive PlansSupplemental Executive Incentive Plan for
    Fiscal 2010.(b)
    
    Equity-based awards have
    historically been granted upon hire and promotion rather than on
    an annual basis. 130




---



##### 



Annual Short-Term

Total Annual CashBase Salary

Incentive (1)

CompensationChief Executive Officer


39
%


61
%


100
%Other NEOs (averaged)


51
%


49
%


100
%     (1)
    
    Does not reflect the additional
    incentive paid to each NEO under the one-time 2010 Supplemental
    Executive Incentive Plan.    Base
    Salary
      2010 Base
    Salaries
   131




---



##### 



2011 Base
    Salaries
      Short-Term
    Incentive Plans
  and/or and/or
    2010 Short-Term
    Incentive Plan
      
    Corporate financial objectives:  
    Revenue; and
    Adjusted EBITDA. 132




---



##### 




    Individual objectives:  
    The non-employee directors reviewed and agreed upon the
    individual objectives for the Chief Executive Officer at the
    beginning of the short-term incentive plan year.
    Individual objectives for the other NEOs were agreed upon by
    each executive officer and the Chief Executive Officer and
    documented at the beginning of the short-term incentive plan
    year.        2010
    Short-Term Incentive Plan Objectives and
    Weightings
  Executive Position

Objectives

Threshold (1)


Target (1)


Maximum (1)Chief Executive Officer

Revenue


5.6
%


28
%


56
%Adjusted EBITDA


5.6
%


28
%


56
%Individual
    Objectives


4.8
%


24
%


48
%Totals


16
%


80
%


160
%Other NEOs

Revenue


3.5
%


17.5
%


35
%Adjusted EBITDA


3.5
%


17.5
%


35
%Individual
    Objectives


3
%


15
%


30
%Totals


10
%


50
%


100
%     (1)
    
    Expressed as a percentage of actual
    base salary. Performance between the specified levels of
    achievement results in the application of a pro-rated percentage
    between the two amounts indicated.   133




---



##### 



Fiscal 2010Fiscal 2010 Revenue

Payout Factor (1)

Adjusted EBITDA(In $ millions)



(In $ millions)Less than 468

No Payout

Less than 48.0468 to less than 470

Threshold Level= 20% of Target Payout

48.0 to less than 49.0484 to less than 486

Target Level= 100% of Target Payout

53.0 to less than 53.5508 and above

Maximum Level= 200% of Target Payout

60.0 and above     (1)
    
    Payout factors increase in 10%
    increments for revenue and Adjusted EBITDA performance between
    the indicated ranges.    Fiscal 2010
    Corporate Financial Objectives and Actual
    Achievements
  Actual PayoutThreshold

Target

Maximum

Actual Achievement

Factors For NEOsRevenue

$
468 million


$
484 million


$
508 million


$
521.3 million



200
%Adjusted EBITDA

$
48 million


$
53 million


$
60 million


$
78.4 million



200
%      134




---



##### 




    Revenue Payout = Payout factor for revenues achieved Xtarget revenue weighting Xsalary
    Adjusted EBITDA Payout = Payout factor for Adjusted EBITDA
    achieved Xtarget Adjusted EBITDA weighting Xsalary
    Individual Objectives Payout for each objective = Percent of
    individual objectives achieved Xtarget weighting for
    individual objectives Xsalary    Revenue Payout+

Adjusted EBITDA Payout+

Sum of Payouts for Individual ObjectivesTotal Payout     Revenue Payout

=

200% X28% X$323,077

=

$
180,923Adjusted EBITDA Payout

=

200% X28% X$323,077

=

$
180,923Individual Objectives Payout

=

188% X24% X$323,077

=

$
145,772Total Payout

=

$
507,618     Revenue


Adjusted


IndividualNEOs

($)


EBITDA ($)


Objectives ($)


Total ($)Brian A. Smith
    Chairman and Chief Executive Officer


180,923



180,923



145,772



507,618John F. Damrow
    President


93,423



93,423



73,404



260,250Chidambaram A. Chidambaram
    EVP and Chief Marketing Officer


98,512



98,512



75,572



272,596Raymond G. Frigo
    EVP and Chief Operating Officer


93,585



93,585



68,183



255,353Mark P. Wagener
    EVP and Chief Financial Officer


90,731



90,731



71,548



253,010   Supplemental
    Executive Incentive Plan for Fiscal 2010
     135




---



##### 



Incentive Payoutfor eachIncremental $1million of Revenueover the Maximum2010 Short-Term


Actual PayoutsIncentive Plan


Under theRevenue Objective


Supplemental EIPNamed Executive Officer

($)


($)Brian A. Smith
    Chairman and Chief Executive Officer


37,500



487,500John F. Damrow
    President


18,750



243,750Chidambaram A. Chidambaram
    EVP and Chief Marketing Officer


18,750



243,750Raymond G. Frigo
    EVP and Chief Operating Officer


18,750



243,750Mark P. Wagener
    EVP and Chief Financial Officer


18,750



243,750   2011 Short-Term
    Incentive Plan
    
    Corporate financial objectives, established based on the annual
    financial plan and weighted equally:  
    Revenue; and
    Adjusted EBITDA.  
    Individual objectives:  
    Individual objectives for the 2011 short-term incentive plan
    were established using the same process described above for the
    2010 short-term incentive plan.
    Individual objectives for NEOs in fiscal 2011 were established
    to support our strategic objectives, which again include
    increasing market share, making the Fingerhut brand more
    web-centric, and building the Gettington.com brand.   136




---



##### 



2011
    Short-Term Incentive Plan Objectives and
    Weightings
  Executive Position

Objectives

Threshold (1)


Target (1)


Maximum (1)Chief Executive Officer

Revenue


5.6
%


28
%


56
%Adjusted EBITDA


5.6
%


28
%


56
%Individual Objectives


4.8
%


24
%


48
%Totals


16
%


80
%


160
%President

Revenue


4.2
%


21
%


42
%Adjusted EBITDA


4.2
%


21
%


42
%Individual Objectives


3.6
%


18
%


36
%Totals


12
%


60
%


120
%Other NEOs

Revenue


3.5
%


17.5
%


35
%Adjusted EBITDA


3.5
%


17.5
%


35
%Individual Objectives


3
%


15
%


30
%Totals


10
%


50
%


100
%     (1)
    
    Expressed as a percentage of actual
    base salary.      Annual Short-Term

Total Annual CashAssumptions

Base Salary

Incentive

CompensationShort-Term Incentive Payout at Target


56
%


44
%


100
%Short-Term Incentive Payout at Maximum


38
%


62
%


100
%   Long-Term
    Equity-Based Compensation
     137




---



##### 



2010 Equity
    Grants to NEOs
      Other
    Executive Benefits and Perquisites
    
    Health, Dental and Vision Insurance;
    Paid Time Off and Holidays;
    Company-paid disability benefits;
    Company-paid Life and Accidental Death & Dismemberment
    Insurance;
    Voluntary Life and Accidental Death & Dismemberment
    Insurance; and
    401(k) Retirement Savings Plan with discretionary company
    matching contributions.   138




---



##### 



gross-up Summary Compensation Table
    Employment
    Agreements and Severance and Change in Control
    Benefits
        Section 162(m)
    Compliance
   139




---



##### 



Summary
    Compensation Table
    Non-EquityStock


Option


Incentive Plan


All OtherAwards


Awards


Compensation


CompensationName and Principal Position

Year


Salary ($)


($)(1)


($)(2)


($)(3)


($)(4)


Total ($)Brian A. Smith,
    Chairman and Chief Executive Officer


2010



323,077











995,118



960



1,319,155John F. Damrow, 
    President


2010



266,924



55,000



272



504,000



2,768



828,964Chidambaram A. Chidambaram,
    EVP and Chief Marketing Officer


2010



281,462











516,346



418,703



1,216,511Raymond G. Frigo,
    EVP and Chief Operating Officer


2010



267,385











499,103



832



767,320Mark P. Wagener,
    EVP and Chief Financial Officer


2010



259,231











496,760



2,787



758,778     (1)
    
    The amount shown for stock awards
    represents the grant date fair value of the restricted stock
    award granted during the year computed in accordance with FASB
    ASC Topic 718 by multiplying the number of shares granted by the
    fair market value of our common stock as of the grant date. See
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Critical
    Accounting Policies and Use of Estimates for discussion
    regarding the determination of the fair market value of our
    common stock.(2)
    
    The amount shown for option awards
    represents the incremental fair value of an exchange option
    granted to Mr. Damrow in July 2010 to replace an option
    granted to him in April 2003. The incremental fair value
    represents the difference between the grant date fair value of
    the exchange option and the fair value of the earlier option
    determined as of the grant date of the exchange option, such
    values computed in accordance with FASB ASC Topic 718 utilizing
    the assumptions discussed in Note 6 to our consolidated
    financial statements for the fiscal year ended January 28,
    2011 and disregarding the effects of any estimate of forfeitures
    related to service-based vesting.(3)
    
    The Non-Equity Incentive Plan
    Compensation column presents cash incentives earned during
    fiscal 2010 under our short-term incentive plan and under our
    2010 supplemental executive incentive plan. Payouts earned under
    both plans were made within 75 days of the close of the
    2010 fiscal year.(4)
    
    Amounts shown in the All
    Other Compensation column for fiscal 2010 include company
    contributions to the 401(k) Retirement Savings Plan, the value
    of long-term disability insurance premiums paid on behalf of our
    NEOs for insurance benefits between $75,000 and $300,000 in
    annual earnings, the reimbursement of relocation expenses and
    tax gross-up
    payments in connection with the relocation expenses, as shown in
    the following table. The relocation expenses for
    Mr. Chidambaram represent costs related to house hunting,
    temporary living, movement of household goods and closing costs
    related to his new home (totaling approximately $116,721); costs
    related to the sale of his former home (approximately $72,202);
    and a payment to Mr. Chidambaram related to the loss on the
    sale of his former home (approximately $95,000).  Long-TermDisability





Gross-up on401(k) Plan


Insurance


Relocation


RelocationName

Contributions ($)


Imputed Income ($)


Expenses ($)


Expenses ($)


Total ($)Brian A. Smith






960











960John F. Damrow


1,808



960











2,768Chidambaram A. Chidambaram


1,048



879



283,923



132,853



418,703Raymond G. Frigo






832











832Mark P. Wagener


2,035



752











2,787  140




---



##### 



Grants of
    Plan-Based Awards in Fiscal 2010
    All Other Stock


All Other Option


Exercise of


Grant DateEstimated Possible Payouts Under


Awards: Number


Awards: Number


Base Price


Fair ValueNon-Equity Incentive Plan Awards


of Shares of


of Securities


of Option


of StockThreshold


Target


Maximum


Stock or Units


Underlying


Awards


and OptionName

Grant Date


($)


($)


($)


(#)


Options (#)


($/Sh)


Awards ($)Brian A. Smith


(1
)


51,692



258,462



516,923















(2
)


37,500John F. Damrow


(1
)


26,692



133,462



266,924















(2
)


18,7507/22/2010



















339,500
(3)


0.004



272
(3)11/15/2010















5,000,000
(4)










55,000
(4)Chidambaram A. Chidambaram


(1
)


28,146



140,731



281,462















(2
)


18,750Raymond G. Frigo


(1
)


26,738



133,692



267,385















(2
)


18,750Mark P. Wagener


(1
)


25,923



129,616



259,231















(2
)


18,750     (1)
    
    The amounts associated with these
    awards represent possible payouts under our 2010 short-term
    incentive plan. The actual payouts for fiscal 2010 under this
    plan are included in the Summary Compensation Table in the
    column titled Non-Equity Incentive Plan
    Compensation. Additional information regarding the design
    of the 2010 short-term incentive plan, including a description
    of the corporate and individual performance objectives
    applicable to fiscal 2010 awards and actual payouts for fiscal
    2010, is provided above in Compensation Discussion and
    AnalysisShort-Term Incentive Plans2010 Short-Term
    Incentive Plan.(2)
    
    Each amount associated with these
    awards represents the threshold payout that could have been
    earned during fiscal 2010 under our 2010 supplemental executive
    incentive plan. That plan provided that each NEO would receive a
    payment equal to a specified percentage of the amount by which
    our fiscal 2010 revenue exceeded $508 million. No estimated
    target payout amounts under that plan were determinable at the
    beginning of fiscal 2010, and payouts under the plan were not
    limited to any maximum amount. The actual payouts for fiscal
    2010 under this plan are included in the Summary Compensation
    Table in the column titled Non-Equity Incentive Plan
    Compensation. Additional information regarding the design
    of the 2010 supplemental executive incentive plan, including a
    description of the revenue objectives applicable to fiscal 2010
    awards and actual payouts for fiscal 2010, is provided above in
    Compensation Discussion and AnalysisShort-Term
    Incentive PlansSupplemental Executive Incentive
    Plan.(3)
    
    Mr. Damrow received this
    option award under our 2008 Plan in exchange for an option award
    issued to him in April 2003 with an exercise price of $0.80 per
    share and an expiration date of April 9, 2013. The
    replacement 2010 grant will vest in two equal installments on
    the first two anniversaries of the grant date, and will expire
    on July 22, 2020. The effect of a change in control on this
    award is described below under the caption Potential
    Payments Upon Termination or Change in Control. The
    incremental fair value of this option award was computed in
    accordance with FASB ASC Topic 718, as described in Note 2
    to the Summary Compensation Table.(4)
    
    Mr. Damrow received this
    restricted stock award under our 2008 Plan. This award vests and
    becomes non-forfeitable as to 25% of the shares subject to the
    award on each of the first four anniversaries of the grant date,
    assuming the recipients continued employment. Termination
    of employment results in the forfeiture of unvested shares,
    unless the termination is due to death or disability, in which
    case vesting is accelerated in full. The effect of a change in
    control on this award is described below under the caption
    Potential Payments upon Termination or Change in
    Control. The grant date fair value of this award was
    computed in accordance with FASB ASC Topic 718, as described in
    Note 1 to the Summary Compensation Table. 141




---



##### 



Outstanding
    Equity Awards at 2010 Fiscal Year End
    Option Awards

Stock AwardsMarketNumber of

Number of





Number of

ValueSecurities

Securities





Shares or

of Shares orUnderlying

Underlying





Units of

Units ofUnexercised

Unexercised

Option

Option

Stock

StockOptions

Options

Exercise

Expiration

That Have

That Have NotName

(#) Exercisable

(#) Unexercisable

Price ($)

Date

Not Vested (#)

Vested ($)(1)Brian A. Smith


















15,130,000
(2)


741,370John F. Damrow


1,000,000
(3)





$
0.02



6/15/2014







250,000
(4)





$
0.02



4/13/2015











339,500
(5)

$
0.004



7/22/2020























10,523,816
(6)


515,667Chidambaram A. Chidambaram


















16,203,441
(7)


793 969Raymond G. Frigo


















16,203,441
(8)


793,969Mark P. Wagener


















8,453,442
(9)


414,219     (1)
    
    The fair market value has been
    determined based on the number of shares not vested as of
    January 28, 2011 using the fair market value of our common
    stock as of January 28, 2011 ($0.049 per share). See
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Critical
    Accounting Policies and Use of Estimates for discussion
    regarding the determination of the fair market value of our
    common stock.(2)
    
    2,500,000 restricted shares were
    granted on August 8, 2008 with 625,000 shares vesting
    on each of January 29, 2009, 2010, 2011 and 2012; and
    34,700,000 restricted shares were granted on August 8, 2008
    with 6,940,000 shares vesting on November 21, 2008 and
    on each of May 21, 2009, 2010, 2011 and 2012.(3)
    
    Option award became fully vested on
    April 15, 2008.(4)
    
    Option award became fully vested on
    April 13, 2009.(5)
    
    An option to acquire
    339,500 shares was granted on July 22, 2010 with
    169,750 shares vesting on each of July 22, 2011 and
    2012.(6)
    
    10,500,000 restricted shares were
    granted on August 8, 2008 with 2,100,000 shares
    vesting on November 21, 2008 and on each of May 21,
    2009, 2010, 2011 and 2012; and 1,765,088 restricted shares were
    granted on August 1, 2009 with 441,272 shares vesting
    on each of July 23, 2010, 2011, 2012 and 2013; 5,000,000
    restricted shares were granted on November 15, 2010 with
    1,250,000 shares vesting on each November 15, 2011,
    2012, 2013 and 2014.(7)
    
    21,604,588 restricted shares were
    granted on June 19, 2009 with 5,401,147 shares vesting
    on each of June 19, 2010, 2011, 2012 and 2013.(8)
    
    21,604,588 restricted shares were
    granted on April 7, 2009 with 5,401,147 shares vesting
    on each of April 7, 2010, 2011, 2012 and 2013.(9)
    
    8,500,000 restricted shares were
    granted on August 8, 2008 with 2,125,000 shares
    vesting on each of May 21, 2009, 2010, 2011 and 2012; and
    5,604,588 restricted shares were granted on August 1, 2009
    with 1,401,147 shares vesting on each of July 23,
    2010, 2011, 2012 and 2013. 142




---



##### 



Option Exercises
    and Stock Vested During Fiscal 2010
    Stock AwardsNumber of Shares


Value Realized onName

Acquired on Vesting (#)


Vesting ($)(1)Brian A. Smith


8,440,000



33,760John F. Damrow


3,581,397



14,326Chidabaram A. Chidambaram


5,401,147



21,605Raymond G. Frigo


5,401,147



21,605Mark P. Wagener


5,401,147



34,730     (1)
    
    Represents the fair market value of
    the shares on the date they vested during fiscal 2010, ranging
    from $0.004 to $0.011 per share. See Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Critical Accounting Policies and Use of
    Estimates for discussion regarding the determination of
    the fair market value of our common stock.  Pension Benefits
    and Non-Qualified Deferred Compensation for Fiscal
    2010
    Potential
    Payments upon Termination or Change in Control
       143




---



##### 



and/or and/or and/or
     144




---



##### 



Value Realized on AcceleratedVesting ($)Name

(1)(2)Brian A. Smith


741,370John F. Damrow


531,963
(3)Chidambaram A. Chidambaram


793,969Raymond G. Frigo


793,969Mark P. Wagener


414,219     (1)
    
    The amount shown for each NEO other
    than Mr. Damrow represents the value of restricted stock
    awards whose vesting would have been accelerated, and in each
    case is equal to (1) the number of shares of restricted
    stock that would vest as a direct result of the employment
    termination due to death or disability or in connection with the
    change in control, multiplied by (2) the fair market value
    of a share of our common stock as of January 28, 2011
    ($0.049 per share). See Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Critical Accounting Policies and Use of
    Estimates for discussion regarding the determination of
    the fair market value of our common stock.(2)
    
    Accelerated vesting of an
    NEOs restricted stock or option awards would occur in full
    upon:  
    
    the death or disability of the NEO;
    
    upon a change in control, in the
    case of Mr. Smith, or, in the case of the other NEOs, if
    the awards are not continued, assumed or replaced; or
    
    if the awards to the other NEOs are
    continued, assumed or replaced in connection with a change in
    control, upon termination of the NEOs employment by the
    company without cause or by the NEO for good reason within
    18 months of the change in control.  (3)
    
    The amount shown for
    Mr. Damrow includes $515,667 representing the value of
    restricted stock awards that would have been accelerated as
    described in footnote 1, and $16,296 representing the value of a
    stock option award whose vesting would have been accelerated.
    The value of the option is calculated based on the difference
    between the fair market value of our common stock on
    January 28, 2011 (as discussed in footnote 1) and the
    exercise price of that option. 
  Equity-Based
    Compensation Plans
 
 
  2011 Long-Term
    Incentive Plan
 
 
   
 
  Share Reserve.
 
 
  Administration of Plan.
 
 145




---



##### 



Eligibility.
 
 
  Awards.
 
 
  
    Stock Options.  Stock options permit the holder
    to purchase a specified number of shares of our common stock at
    a set price during a specified period of time. Options granted
    under the 2011 Plan may be either incentive or non-statutory
    stock options. The per share exercise price of options granted
    under the 2011 Plan generally may not be less than the fair
    market value of a share of our common stock on the date of grant. 
 
  
    Stock Appreciation Rights.  SARs provide for
    payment to the holder of all or a portion of the excess of the
    fair market value of a specified number of shares of our common
    stock on the date of exercise over a specified exercise price.
    The per share exercise price of SARs granted under the 2011 Plan
    generally may not be less than the fair market value of a share
    of our common stock on the date of grant. Payment of an SAR may
    be made in cash or shares of our common stock or a combination
    of both, as determined by the compensation committee. 
 
  
    Restricted Stock.  Restricted stock awards are
    awards of shares of our common stock that are subject to
    transfer restrictions and forfeiture conditions until such time
    as the shares vest, as determined by the compensation committee.
    Recipients of a restricted stock award will have the rights of a
    stockholder except as limited by the 2011 Plan or the award
    agreement. 
 
  
    Stock Units.  Stock units provide the holder
    with the right to receive, in cash or shares of our common stock
    or a combination of both, the fair market value of a share of
    our common stock and will be subject to such vesting and
    forfeiture conditions and other restrictions as the compensation
    committee determines. 
 
  
    Other Stock-Based Awards.  The compensation
    committee, in its discretion, may grant stock and other awards
    that are valued by reference to
    and/or
    payable in whole or in part in shares of our common stock under
    the 2011 Plan. The compensation committee will set the terms and
    conditions of such awards. 
 146




---



##### 




    Cash Incentive Awards.  A cash incentive award
    is to be a performance-based award, the payment of which is
    contingent upon the degree to which one or more specified
    performance goals have been achieved over the relevant
    performance period. Payment of a cash incentive award may be
    made in cash, in shares of our common stock, in other forms of
    awards under the 2011 Plan, or in some combination of these
    alternatives. 
 
  Dividends and Dividend Equivalents.
 
 
  Substitute Awards.
 
 
  Transferability.
 
 
  Termination of Service.
 
 
  Change in Control.
 
 147




---



##### 



Adjustment of Awards.
 
 
  Amendment and Termination.
 
 
  Registration. Form S-8
 
 
  2008 Equity
    and Incentive Plan
 
 
   
 148




---



##### 



Administration of Plan.
 
 
  Awards.
 
 
  
    Stock Options.  Stock options granted under the
    2008 Plan may only be nonqualified stock options. The per share
    exercise price of options granted under the 2008 Plan generally
    may not be less than the fair market value of a share of our
    common stock on the date of grant. The stock options that are
    outstanding under the 2008 Plan generally have a 10 year
    term and are generally scheduled to vest and become exercisable
    in four equal annual installments. 
 
  
    Restricted Stock.  Restricted stock awards that
    are outstanding under the 2008 Plan generally are scheduled to
    vest in either four or five equal annual installments.
    Recipients of such awards are entitled to vote and receive all
    dividends on such restricted shares, but have no other rights of
    a stockholder until such restricted shares vest. 
 
  Termination of Service.
 
 
  Transferability.
 
 
  Change in Control.
 
 
  Adjustment of Awards.
 
 
  Registration. Form S-8
 
 
  2003 Equity
    Incentive Plan
 
 
   
 149




---



##### 



Administration.
 
 
  Stock Options.
 
 
  Termination of Service.
 
 
  Transferability.
 
 
  Adjustment of Awards.
 
 
  Registration. Form S-8
 
 
  2005
    Non-Employee Directors Stock Option Plan
 
 
   
 
  Registration. Form S-8
 
 150




---



##### 



PRINCIPAL AND
    SELLING STOCKHOLDERS    
    each person or group who is known by us to own beneficially more
    than 5% of outstanding shares of any class of our stock;
    each of our named executive officers;
    each of our directors;
    all of the executive officers and directors as a group; and
    each selling stockholder.       151




---



##### 



c/o Bluestem
  Beneficial Ownership After this OfferingPercent


PercentBeneficial Ownership


Shares to





(Assuming no


(Assuming FullPrior to this Offering


be Sold in





Exercise of


Exercise ofName

Number


Percent


this Offering


Number


Over-Allotment)


Over-Allotment)Executive Officers and Directors:Brian A. Smith


85,295,564
(1)


5
%











%



%John F. Damrow


27,777,300
(2)


2
%











%



%Chidambaram A. Chidambaram


21,604,588



1
%











%



%Raymond G. Frigo


21,604,588



1
%











%



%Mark P. Wagener


21,604,588



1
%











%



%Michael M. Brown


535,299,432
(3)


29
%











%



%John A. Giuliani


7,586,309
(4)



*











%



%Roy A. Guthrie


5,292,462
(5)



*











%



%Michael A. Krupka


265,208,692
(6)


14
%











%



%Alice M. Richter


5,602,631
(7)



*











%



%Scott L. Savitz


5,025,268
(17)



*











%



%Executive officers and directors as a
    group (15 persons)


1,017,576,422
(8)


55
%











%



%5% and Selling Stockholders:Funds affiliated with Bain Capital


265,208,692
(6)


14
%











%



%Funds affiliated with Battery Ventures


535,299,432
(3)


29
%











%



%Brookside Capital Partners Fund, L.P.


267,887,562
(9)


15
%











%



%Petters Group Worldwide and affiliates


393,740,676
(10)


21
%











%



%CCP Credit Acquisition Holdings, L.L.C.


23,147,772
(11)


1
%











%



%CIGPF I Corp.


37,682,799
(12)


2
%











%



%Eton Park Fund, L.P.


19,289,810
(13)


1
%











%



%Goldman, Sachs & Co.


86,804,150
(14)


5
%











%



%Funds affiliated with Prudential Capital


108,865,562
(15)


6
%











%



%Funds affiliated with Fortress Investment Group LLC


86,804,150
(16)


5
%











%



%     *
    
    Indicates ownership of less than 1%.  (1)
    
    Includes 10,407,564 shares of
    common stock issuable upon conversion of preferred stock.(2)
    
    Includes 1,342,462 shares of
    common stock issuable upon conversion of preferred stock, and
    26,434,838 shares of common stock owned by Mr. Damrow
    and Michele Naze-Damrow as trustees of the John Damrow Trust.(3)
    
    Includes 513,887,455 shares of
    common stock issuable upon conversion of preferred stock owned
    by Battery Ventures VI, L.P. and 21,411,977 shares of
    common stock issuable upon conversion of preferred stock owned
    by Battery Investment Partners VI, LLC. Battery Partners VI,
    LLC, the sole general partner of Battery Ventures VI, L.P., and
    its managing members Thomas J. Crotty, Oliver D. Curme, Richard
    D. Frisbie, Morgan M. Jones, Kenneth P. Lawler, R. David Tabors
    and Scott R. Tobin may be deemed to have shared voting and
    investment 152




---



##### 



power over the shares held by
    Battery Ventures VI, L.P. Each of Messrs. Crotty, Curme,
    Frisbie, Jones, Lawler, Tabors and Tobin disclaim beneficial
    ownership of such shares except to the extent of his pecuniary
    interest therein. Messrs. Crotty and Curme hold voting and
    investment power over the shares held by Battery Investment
    Partners VI, LLC, and Michael Brown is a member of Battery
    Investment Partners VI, LLC. Each of Messrs. Crotty, Curme
    and Brown disclaim beneficial ownership of such shares except to
    the extent of his pecuniary interest therein. The address of the
    funds affiliated with Battery Ventures is 930 Winter Street,
    Suite 2500, Waltham, MA 02451.(4)
    
    Includes 3,636,309 shares of
    common stock issuable upon conversion of preferred stock.
    Includes 1,900,000 shares of common stock subject to
    options that are exercisable within 60 days of the date of
    the table.(5)
    
    Includes 1,342,462 shares of
    common stock issuable upon conversion of preferred stock.(6)
    
    Includes 83,218,962 shares of
    common stock issuable upon conversion of preferred stock owned
    by Bain Capital Venture Fund 2001, L.P., whose sole general
    partner is Bain Capital Venture Partners 2001, L.P., whose sole
    general partner is Bain Capital Venture Investors, LLC
    (BCVI), 14,826,222 shares of common stock
    issuable upon conversion of preferred stock owned by BCIP
    Associates III, LLC, whose manager is BCIP Associates III, whose
    sole managing general partner is Bain Capital Investors, LLC
    (BCI), which has appointed BCVI as attorney-in-fact
    with respect to such shares, 1,033,824 shares of common
    stock issuable upon conversion of preferred stock owned by BCIP
    Associates III-B, LLC, whose manager is BCIP Associates III-B,
    whose sole managing partner is BCI, which has appointed BCVI as
    attorney-in-fact with respect to such shares,
    20,586,298 shares of common stock issuable upon conversion
    of preferred stock owned by BCIP Venture Associates,
    325,131 shares of common stock issuable upon conversion of
    preferred stock owned by BCIP Venture Associates-B, and
    145,218,255 shares of common stock issuable upon conversion
    of preferred stock owned by Bain Capital Venture Fund 2007,
    L.P., whose sole general partner is Bain Capital Venture
    Partners 2007, L.P., whose sole general partner is BCVI. By
    virtue of the relationships of the funds affiliated with Bain
    Capital, BCVI and Michael A. Krupka, sole managing member of
    BCVI, may be deemed to have shared voting and investment power
    over the shares held by funds affiliated with Bain Capital.
    Mr. Krupka disclaims beneficial ownership of such shares
    except to the extent of his pecuniary interests therein. The
    address of the funds affiliated with Bain Capital is 7
    Bennington Rd, Lexington, MA
    02421-5602.(7)
    
    Includes 1,652,631 shares of
    common stock issuable upon conversion of preferred stock. All
    shares are owned by Ms. Richter and Charles H. Richter as
    trustees of the Alice M. Richter Revocable Trust dated
    February 25, 2000.(8)
    
    Includes 4,694,750 shares of
    common stock subject to options that are exercisable within
    60 days of the date of the table.(9)
    
    Includes 267,887,562 shares of
    common stock issuable upon conversion of preferred stock.
    Brookside Capital Investors, L.P., the sole general partner of
    Brookside Capital Partners Fund, L.P., and Brookside Capital
    Management, LLC, the sole general partner of Brookside Capital
    Investors, L.P., and Domenic Ferrante, the sole managing member
    of Brookside Capital Management, LLC, may be deemed to have
    shared voting and investment power over the shares held by
    Brookside Capital Partners Fund, L.P., however each disclaims
    beneficial ownership of such shares except to the extent of
    their pecuniary interest therein. The address of Brookside
    Capital Partners Fund, L.P. is 7 Bennington Rd, Lexington, MA
    02421-5602.(10)
    
    Includes 338,731,641 shares of
    common stock issuable upon conversion of preferred stock owned
    by Petters Group Worldwide, LLC, 53,687,483 shares of
    common stock owned by EBP Select Holdings, LLC and
    1,321,552 shares of common stock owned by RTB Holding, LLC.
    Douglas A. Kelly, solely in his capacity as the court-appointed
    trustee or receiver, as applicable, for Petters Group Worldwide,
    LLC, Thomas Petters and entities formerly controlled by Thomas
    Petters, may be deemed to have voting and investment power over
    the shares held by Petters Group Worldwide and its affiliates.
    Mr. Kelly disclaims beneficial ownership of such shares.
    The address of Petters Group Worldwide and its affiliates is
    Kelley, Wolter & Scott, P.A., 431 S. Seventh
    Street, Suite 2530, Minneapolis, MN 55415.(11)
    
    Includes 23,147,772 shares of
    common stock subject to warrants that are exercisable within
    60 days of the date of the table. Amounts listed for
    beneficial ownership after this offering
    include          
    additional shares that will be subject to such warrants due to
    anti-dilution adjustments thereunder as a result of the payment
    of the accrued dividends on our Series B Preferred Stock in
    connection with this offering. Centerbridge Credit Partners,
    L.P., a Delaware limited partnership and Centerbridge Credit
    Partners Master, L.P., a Cayman Islands exempted limited
    partnership are the sole members of CCP Credit Acquisition
    Holdings, L.L.C., a Delaware limited liability company. Mark T.
    Gallogly and Jeffery H. Aronson, share the power to vote the
    shares held by CCP Credit Acquisition Holdings, L.L.C. Each of
    the funds and Mr. Gallogly and Mr. Aronson disclaim
    beneficial ownership of the shares held by CCP Credit
    Acquisition Holdings, L.L.C. The address of CCP Credit
    Acquisition Holdings, L.L.C. is 375 Park Ave., Floor 12, New
    York, NY
    10152-1300.(12)
    
    Includes 33,116,154 shares of
    common stock subject to warrants that are exercisable within
    60 days of the date of the table and 4,566,645 shares
    of common stock issuable upon conversion of preferred stock.
    Citigroup, Inc. is a public company (NYSE: C) with ultimate
    voting and dispositive power over the shares. The address of
    CIGPF I Corp. is 390 Greenwich Street, Floor 4, New York, NY
    10013-2375. 153




---



##### 



(13)
    
    Includes 19,289,810 shares of
    common stock subject to warrants that are exercisable within
    60 days of the date of the table. Amounts listed for
    beneficial ownership after this offering
    include          
    additional shares that will be subject to such warrants due to
    anti-dilution adjustments thereunder as a result of the payment
    of the accrued dividends on our Series B Preferred Stock in
    connection with this offering. Eton Park Associates, L.P., the
    general partner of Eton Park Fund, L.P., Eton Park Associates,
    L.L.C., the general partner of Eton Park Associates, L.P., and
    Eric M. Mindich, the managing member of Eton Park Associates,
    L.L.C., may be deemed to have shared voting and investment power
    over the shares held by Eton Park Fund, L.P., however each
    disclaims beneficial ownership of such shares except to the
    extent of their pecuniary interest therein. Eton Park Fund, L.P.
    is a client of Eton Park Capital Management, L.P. and Eton Park
    Capital Management, L.L.C. serves as the general partner of Eton
    Park Capital Management, L.P. Mr. Mindich is the managing
    member of Eton Park Capital Management, L.L.C. and may, by
    virtue of his position as managing member, be deemed to have
    shared voting and investment power over the shares held by Eton
    Park Fund, L.P., however Mr. Mindich disclaims beneficial
    ownership of such shares except to the extent of his pecuniary
    interest therein. The address of Eton Park Fund, L.P. is 825
    Third Avenue, Floor 29, New York, NY 10022.(14)
    
    Includes 86,804,150 shares of
    common stock subject to warrants that are exercisable within
    60 days of the date of the table. Amounts listed for
    beneficial ownership after this offering
    include          
    additional shares that will be subject to such warrants due to
    anti-dilution adjustments thereunder as a result of the payment
    of the accrued dividends on our Series B Preferred Stock in
    connection with this offering. The address of Goldman,
    Sachs & Co. is 200 West Street, New York, NY
    10282.(15)
    
    Includes
    (i) 4,300,326 shares of common stock issuable upon
    conversion of preferred stock subject to warrants that are
    exercisable within 60 days of the date of the table and
    6,915,051 shares of common stock issuable upon conversion
    of preferred stock owned by Prudential Capital Partners
    (Parallel Fund) II, L.P., (ii) 35,773,013 shares of
    common stock issuable upon conversion of preferred stock subject
    to warrants that are exercisable within 60 days of the date
    of the table and 57,524,060 shares of common stock issuable
    upon conversion of preferred stock owned by Prudential Capital
    Partners II L.P., and (iii) 1,669,119 shares of
    common stock issuable upon conversion of preferred stock subject
    to warrants that are exercisable within 60 days of the date
    of the table and 2,683,993 shares of common stock issuable
    upon conversion of preferred stock owned by Prudential Capital
    Partners Management Fund II, L.P. The Prudential Capital
    Partners (Parallel Fund) II, L.P., Prudential Capital
    Partners II L.P. and Prudential Capital Partners Management
    Fund II, L.P. are related entities whose general partners
    are ultimately under the common control of Prudential Investment
    Management, Inc., a Delaware corporation and a wholly-owned
    subsidiary of Prudential Financial, Inc. The address of the
    funds affiliated with Prudential Capital is
    180 N. Stetson Ave, Chicago, IL
    60601-6710.(16)
    
    Fortress Investment Group, LLC, a
    public company (NYSE: FIG) indirectly controls the voting and
    disposition of the shares as follows: 55,940,452 shares of
    common stock subject to warrants that are exercisable within
    60 days of the date of the table owned by DB FHUT LLC,
    15,431,849 shares of common stock subject to warrants that
    are exercisable within 60 days of the date of the table
    owned by FPF FHUT LLC and 15,431,849 shares of common stock
    subject to warrants that are exercisable within 60 days of
    the date of the table owned by FCOF UB Investments LLC. Amounts
    listed for beneficial ownership after this offering
    include          
    additional shares that will be subject to such warrants due to
    anti-dilution adjustments thereunder as a result of the payment
    of the accrued dividends on our Series B Preferred Stock in
    connection with this offering. Drawbridge Special Opportunities
    Fund LP (DBSO Fund LP) holds a 100%
    interest in DB FHUT LLC. Drawbridge Special Opportunities GP LLC
    (DBSO GP) is the general partner of DBSO
    Fund LP. Fortress Principal Investment Holdings IV LLC
    (Principal Holdings) is the managing member of DBSO
    GP. Drawbridge Special Opportunities Advisors LLC (DBSO
    Advisors) is the investment advisor for DBSO Fund LP.
    Fortress Credit Opportunities Fund (A) LP (FCO
    Fund A) holds a 29.419632% interest in FCOF UB
    Investments LLC (FCOF UB). Fortress Credit
    Opportunities Fund (B) LP (FCO Fund B)
    holds a 38.509638% interest in FCOF UB. Fortress Credit
    Opportunities Fund (C) LP (FCO Fund C)
    holds a 32.070730% interest in FCOF UB. FCO Fund GP LLC
    (FCO GP) is the general partner for each of FCO
    Fund A, FCO Fund B and FCO Fund C. Fortress
    Operating Entity I LP (FOE I) is the managing member
    of FCO GP. Fortress Credit Opportunities Advisors LLC (FCO
    Advisors) is the investment advisor for each of FCO
    Fund A, FCO Fund B and FCO Fund C. Fortress
    Partners Fund LP (FPF LP) holds a 100% interest
    in FPF FHUT LLC. Fortress Partners GP LLC (FP GP
    LLC) is the general partner of FPF LP. Principal Holdings
    is the managing member of FP GP LLC. Fortress Partners Advisors
    LLC (FP Advisors) is the investment advisor for FPF
    LP. FIG LLC (FIG) holds a 100% interest in DBSO
    Advisors, FCO Advisors and FP Advisors. FOE I is the sole
    managing member of each of FIG and Principal Holdings. FIG Corp.
    is the general partner of FOE I. FIG Corp. is wholly-owned by
    Fortress Investment Group LLC. Fortress Investment Group LLC and
    the affiliated entities listed above may be deemed to have
    shared voting and investment power over the shares held by FPF
    FHUT LLC, FCOF UB Investments LLC and DB FHUT LLC. Each of
    Fortress Investment Group LLC and the affiliated entities
    disclaim beneficial ownership of such shares. The address of the
    funds affiliated with Fortress Investment Group is 1345 Avenue
    of the Americas Floor 46, New York, NY
    10105-2200.(17)
    
    Includes 1,075,268 shares of
    common stock issuable upon conversion of preferred stock. 154




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##### 



CERTAIN
    RELATIONSHIPS AND RELATED PARTY TRANSACTIONS    Issuance of
    Series A Preferred Stock
        March 2006
    Financing
   155




---



##### 



May 2008
    Financings
  Issuance of
    Series B Preferred Stock
    Shares of Series BInvestors

Preferred StockDirectors and executive officers:John Giuliani


2,684,924William Dunlap (1)


872,600Alice Richter


872,600Brian Smith (also a 5% stockholder)


6,712,310John Damrow


1,342,462Other 5% stockholders:Funds affiliated with Bain Capital (2)


166,129,684Funds affiliated with Battery Ventures (3)


335,615,518Brookside Capital Partners Fund, L.P.


167,807,760Funds affiliated with Prudential Capital (4)


67,123,104     (1)
    
    At the time of the sale of our
    Series B Preferred Stock, Mr. Dunlap was serving on
    our board of directors.(2)
    
    Includes 145,218,255 shares
    purchased by Bain Capital Venture Fund 2007, L.P.,
    20,586,298 shares purchased by BCIP Venture Associates, and
    325,131 shares purchased by BCIP Venture Associates-B.(3)
    
    Includes 322,190,898 shares
    purchased by Battery Ventures VI, L.P. and
    13,424,620 shares purchased by Battery Investment Partners
    VI, LLC.(4)
    
    Includes 57,524,060 shares
    purchased by Prudential Capital Partners II, L.P.,
    6,915,051 shares purchased by Prudential Capital Partners
    (Parallel Fund) II, L.P. and 2,683,993 shares purchased by
    Prudential Capital Partners Management Fund II, L.P.  Accounts
    Receivable Credit Facility
       156




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##### 



Stockholders
    Agreement
    Directors:

John Giuliani, William Dunlap, who resigned from our board in
    2008, Alice Richter, Roy Guthrie and Scott SavitzExecutive Officers:

Brian Smith, who is also a director and 5% stockholder of the
    company, and John DamrowOther 5% Stockholders:

Brookside Capital Investors, L.P., funds affiliated with Bain
    Capital, funds affiliated with Battery Ventures, Petters Group
    Worldwide and affiliates, affiliates of Prudential Capital,
    Goldman Sachs & Co., Fortress Credit Corp. and affiliates
    and CIGPF I Corp.   Investor
    Rights Agreement
   157




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##### 



Directors:

John Giuliani, William Dunlap, who resigned from our board in
    2008, Alice Richter, Roy Guthrie and Scott SavitzExecutive Officers:

Brian Smith, who is also a director and 5% stockholder of the
    company, and John DamrowOther 5% Stockholders:

Brookside Capital Investors, L.P., funds affiliated with Bain
    Capital, funds affiliated with Battery Ventures, Petters Group
    Worldwide and affiliates, affiliates of Prudential Capital,
    Goldman Sachs & Co., Fortress Credit Corp. and affiliates,
    and CIGPF I Corp.   Thomas J.
    Petters and Affiliates
         158




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##### 



159




---



##### 



August 2010 Debt
    Refinancing
 
   
 160




---



##### 



Sale of
    Series B Preferred Stock to New Directors
    Conversion of
    Preferred Stock and Payment of Dividends
    Amount of


Number ofCommon


Accrued and


DividendShares


Unpaid


SharesIssuable


Dividends


IssuablePreferred


upon


Payable upon


UponPreferred Stockholder

Shares


Conversion


Conversion (1)


Conversion (1)Funds affiliated with Bain CapitalSeries A Preferred Stock


99,079,008Series B Preferred Stock


166,129,684Brookside Capital Partners Fund, L.P.Series A Preferred Stock


100,079,802Series B Preferred Stock


167,807,760Funds affiliated with Battery VenturesSeries A Preferred Stock


199,683,914Series B Preferred Stock


335,615,518Petters AffiliatesSeries A Preferred Stock


338,731,641Affiliates of Prudential CapitalSeries B Preferred Stock


67,123,104Brian SmithSeries A Preferred Stock


3,695,254Series B Preferred Stock


6,712,310 161




---



##### 



Amount of


Number ofCommon


Accrued and


DividendShares


Unpaid


SharesIssuable


Dividends


IssuablePreferred


upon


Payable upon


UponPreferred Stockholder

Shares


Conversion


Conversion (1)


Conversion (1)John GiulianiSeries A Preferred Stock


951,385Series B Preferred Stock


2,684,924Alice RichterSeries A Preferred Stock


780,031Series B Preferred Stock


872,600Roy GuthrieSeries B Preferred Stock


1,342,462John DamrowSeries B Preferred Stock


1,342,462Scott SavitzSeries B Preferred Stock


1,075,268     (1)
    
    At          ,
    2011 there was an aggregate
    of          
    in accrued and unpaid dividends on our preferred stock.
    Dividends in the aggregate will continue to accrue at a rate of
    $          
    per day until the closing of this offering. Common stock to be
    issued as a dividend is valued based on the price to the public
    set forth on the cover page of this prospectus, less the
    underwriting discount. Based on the midpoint of the range set
    forth on the cover page of this prospectus, the price to the
    public is assumed to
    be          ,
    the discount of the underwriters is assumed to
    be          ,
    the accrued and unpaid preferred stock dividends on the assumed
    conversion date are assumed to
    be          ,
    and the number of shares of common stock to be issued in
    satisfaction of accrued and unpaid dividends is assumed to
    be          .    Brian A. Smith
    Employment Agreement
    Policy for
    Approval of Related Party Transactions
   162




---



##### 



163




---



##### 



DESCRIPTION OF
    CAPITAL STOCK  The following is a description of the material terms of our
    amended and restated certificate of incorporation and amended
    and restated bylaws as they will be in effect upon completion of
    this offering. This description may not contain all of the
    information that is important to you. To understand them fully,
    you should read our amended and restated certificate of
    incorporation and amended and restated bylaws, copies of which
    are filed with the SEC as exhibits to the registration
    statement, of which this prospectus is a part.
  Authorized
    Capital
      Common
    Stock
  Voting
    Rights
    Dividend
    Rights
   164




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##### 



Liquidation
    and Preemptive Rights
  winding-up,
  Preferred
    Stock
    
    the number of shares;
    the designations, preferences and relative rights, including
    voting rights, dividend rights, conversion rights, redemption
    privileges and liquidation preferences; and
    any qualifications, limitations or restrictions.        Warrants
   165




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##### 



Registration
    Rights
    Demand
    Registration Rights
 
  Form S-1, Form S-3 12-month Form S-1 Form S-1 Form S-3, Form S-3
 
  Piggyback
    Registration Rights
   166




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##### 



Indemnification
    Rights
    Anti-Takeover
    Provisions
  Delaware
    Law
    
    prior to the date of the transaction, the board of directors of
    the corporation approved either the business combination or the
    transaction which resulted in the stockholder becoming an
    interested stockholder;
    the interested stockholder owned at least 85% of the voting
    stock of the corporation outstanding at the time the transaction
    commenced, excluding for purposes of determining the number of
    shares outstanding (a) shares owned by persons who are
    directors and also officers and (b) shares owned by
    employee stock plans in which employee participants do not have
    the right to determine confidentially whether shares held
    subject to the plan will be tendered in a tender or exchange
    offer; or 167




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##### 




    on or subsequent to the date of the transaction, the business
    combination is approved by the board of directors and authorized
    at an annual or special meeting of stockholders, and not by
    written consent, by the affirmative vote of at least two-thirds
    of the outstanding voting stock which is not owned by the
    interested stockholder.    
    any merger or consolidation involving the corporation and the
    interested stockholder;
    any sale, transfer, pledge or other disposition involving the
    interested stockholder of 10% or more of the assets of the
    corporation;
    subject to exceptions, any transaction that results in the
    issuance or transfer by the corporation of any stock of the
    corporation to the interested stockholder; and
    the receipt by the interested stockholder of the benefit of any
    loans, advances, guarantees, pledges or other financial benefits
    provided by or through the corporation.    Certificate of
    Incorporation and Bylaws
    
    provide for our board of directors to be divided into three
    classes with staggered three-year terms, with only one class of
    directors being elected at each annual meeting of our
    stockholders and the other classes continuing for the remainder
    of their respective three-year terms;
    permit our board of directors to issue up
    to           shares
    of preferred stock, with any rights, preferences and privileges
    as they may designate, including the right to approve an
    acquisition or other change in our control;
    provide that the authorized number of directors may only be
    fixed by resolution of the board of directors;
    provide that all vacancies, including newly created
    directorships, may, except as otherwise required by law, be
    filled by the affirmative vote of a majority of directors then
    in office, even if less than a quorum;
    provide that stockholders may not act by written consent in lieu
    of a meeting;
    provide that only directors may call a special meeting of
    stockholders;
    provide that any director may be removed from office only with
    cause and only by the affirmative vote of the holders of
    662/3%
    or more of the outstanding shares of capital stock then entitled
    to vote at an election of directors; 168




---



##### 




    provide that stockholders seeking to present proposals before a
    meeting of stockholders or to nominate candidates for election
    as directors at a meeting of stockholders must provide notice in
    writing in a timely manner, and also specify requirements as to
    the form and content of a stockholders notice; and
    do not provide for cumulative voting rights, therefore allowing
    the holders of a majority of the shares of common stock entitled
    to vote in any election of directors to elect all of the
    directors standing for election, if they should so choose.  Limitation on
    Liability of Directors and Indemnification
    
    breach of their duty of loyalty to us or our stockholders;
    act or omission not in good faith or that involves intentional
    misconduct or a knowing violation of law;
    unlawful payment of dividends or redemption of shares as
    provided in Section 174 of the Delaware General Corporation
    Law; or
    transaction from which the directors derived an improper
    personal benefit.          Corporate
    Opportunity
   169




---



##### 



Transfer Agent
    and Registrar
    NASDAQ Stock
    Market
   170




---



##### 



SHARES ELIGIBLE
    FOR FUTURE SALE    Sale of Restricted Shares
          
    shares
    will be eligible for sale immediately on the date of this
    prospectus pursuant to Rule 144;
    shares
    will be eligible for sale at various times beginning
    90 days after the date of this prospectus pursuant to
    Rules 144 and 701; and
    shares
    subject to the
    lock-up
    agreements will be eligible for sale at various times beginning
    180 days after the date of effectiveness of the
    registration statement of which this prospectus forms a part
    pursuant to Rules 144 and 701 (or upon earlier waiver).  Rule 144
     171




---



##### 




    1% of the number of shares of our common stock then outstanding,
    which will equal
    approximately           shares
    immediately after this offering; or
    the average weekly trading volume of our common stock on the
    NASDAQ Global Select Market during the four calendar weeks
    preceding the filing of a notice on Form 144 with respect
    to the sale.      Rule 701
  manner-of-sale
  Options and
    Warrants
  Form S-8
 172




---



##### 



lock-up
  Lock-Up
    Agreements
  lock-up
  Registration
    Rights
   173




---



##### 



MATERIAL U.S.
    FEDERAL INCOME  AND ESTATE TAX

CONSIDERATIONS TO
    NON-U.S.
    HOLDERS  non-U.S. holder non-U.S. holder
  
    a nonresident alien individual;
    a foreign corporation or an entity treated as a foreign
    corporation for U.S. federal income tax purposes;
    a foreign estate; or
    a foreign trust.      non-U.S. holders non-U.S., non-U.S. holders,
  
    U.S. expatriates;
    controlled foreign corporations;
    passive foreign investment companies;
    corporations that accumulate earnings to avoid U.S. federal
    income tax; and
    investors in pass-through entities that are subject to special
    treatment under the Code.  non-U.S. holders
  non-U.S. holder
   174




---



##### 



Dividends
      Form W-8BEN non-U.S. holders
    Gain on
    Disposition of Common Stock
    
    the gain is effectively connected with your trade or business in
    the United States (and, if required by an applicable income tax
    treaty, is attributable to your United States permanent
    establishment);
    if you are an individual, you are present in the United States
    for 183 days or more in the taxable year of the sale or
    other taxable disposition, and you have a tax home
    (as defined in the Code) in the United States; or
    we are or have been during a specified testing period a
    U.S. real property holding corporation for
    U.S. federal income tax purposes, and certain other
    conditions are met.   175




---



##### 



non-U.S. holder non-U.S. holder non-U.S. holder
  Federal Estate
    Tax
  non-U.S. holder
  Information
    Reporting and Backup Withholding Tax
    Form W-8BEN)
  
    If the proceeds are paid to or through the U.S. office of a
    broker, the proceeds generally will be subject to backup
    withholding tax and information reporting, unless you certify
    under penalties of perjury (usually on IRS
    Form W-8BEN)
    that you are not a U.S. person (and we do not have actual
    knowledge or reason to know that you are a U.S. person) or
    you otherwise establish an exemption.
    If the proceeds are paid to or through a
    non-U.S. office
    of a broker that is not a U.S. person and is not a foreign
    person with certain specified U.S. connections (a
    U.S.-related
    person), information reporting and backup withholding tax
    generally will not apply.
    If the proceeds are paid to or through a
    non-U.S. office
    of a broker that is a U.S. person or a
    U.S.-related
    person, the proceeds generally will be subject to information
    reporting (but not to backup withholding tax), unless you
    certify under penalties of perjury (usually on IRS
    Form W-8BEN)
    that you are not a U.S. person or you otherwise establish
    an exemption.   176




---



##### 



Additional
    Withholding Requirements
    THE SUMMARY OF MATERIAL U.S. FEDERAL INCOME AND ESTATE
    TAX CONSEQUENCES ABOVE IS INCLUDED FOR GENERAL INFORMATION
    PURPOSES ONLY. POTENTIAL PURCHASERS OF OUR COMMON STOCK ARE
    URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
    U.S. FEDERAL, STATE, LOCAL AND
    NON-U.S. TAX
    CONSIDERATIONS OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON
    STOCK.
 177




---



##### 



UNDERWRITING    Number ofUnderwriters

SharesDeutsche Bank Securities Inc.Piper Jaffray & Co.Oppenheimer & Co. Inc.William Blair & Company, L.L.C.Total          178




---



##### 



Total FeesWithout Exercise of

With Full Exercise ofFee per

Over-Allotment

Over-Allotmentshare

Option

OptionDiscounts and commissions paid by us

$



$



$Discounts and commissions paid by selling stockholders

$



$



$       lock-up
  
    transfers of shares of common stock made pursuant to this
    offering;
    transfers of shares of common stock acquired in the open market,
    provided no filing under the Exchange Act shall be required or
    shall be voluntarily made by the transferor in connection with
    such transfers;
    the establishment of a trading plan pursuant to
    Rule 10b5-1
    under the Exchange Act for the transfer of common stock,
    provided that such plan does not provide for the transfer of
    common stock during the restricted period;
    transfers of shares of common stock or our other securities as a
    bona fide gift;
    transfers of shares of common stock or our other securities to a
    family member or trust, or by will, revocable trust or similar
    instrument, or intestate succession upon the death of the
    transferor;
    distributions of shares of common stock or our other securities
    to a corporation, partnership, limited liability company or
    other business entity that is an affiliate, as defined in
    Rule 405 under the Securities Act, of the
    transferor, or
    as part of a distribution to shareholders, partners or members
    of, or owners of a similar equity interest in, the transferor.  lock-up
 179




---



##### 



lock-up
              over-the-counter
   Conflict of
    Interest   180




---



##### 



Other
    Relationships
    Pricing of this
    Offering
    
    prevailing market conditions;
    our results of operations in recent periods;
    the present stage of our development;
    the market capitalizations and stages of development of other
    companies that we and the representatives of the underwriters
    believe to be comparable to our business; and
    estimates of our business potential. 181




---



##### 



MARKET AND
    INDUSTRY DATA    LEGAL
    MATTERS    EXPERTS  815-40, Derivatives and Hedging
  WHERE YOU CAN
    FIND MORE INFORMATION  Form S-1
  1-800-SEC-0330. http://www.sec.gov.
 182




---



##### 



183




---



##### 



BLUESTEM BRANDS,
    INC.
  INDEX
    TO FINANCIAL INFORMATION
  PageReport of Independent Registered Public Accounting Firm


F-2CONSOLIDATED FINANCIAL STATEMENTS:Consolidated Balance Sheets as of January 28, 2011 and
    January 29, 2010


F-3Consolidated Statements of Operations for the Years Ended
    January 28, 2011, January 29, 2010 and
    January 30, 2009


F-4Consolidated Statements of Cash Flows for the Years Ended
    January 28, 2011, January 29, 2010 and
    January 30, 2009


F-5Consolidated Statements of Shareholders Deficit for the
    Years Ended January 28, 2011, January 29, 2010 and
    January 30, 2009


F-6Notes to Consolidated Financial Statements


F-7 to F-42UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:Condensed Consolidated Balance Sheets as of April 29, 2011,
    January 28, 2011 and April 30, 2010


F-43Condensed Consolidated Statements of Operations for the 13 Weeks
    Ended April 29, 2011 and April 30, 2010


F-44Condensed Consolidated Statements of Cash Flows for the 13 Weeks
    Ended April 29, 2011 and April 30, 2010


F-45Condensed Consolidated Statements of Shareholders Deficit
    for the 13 Weeks Ended April 30, 2010 and April 29,
    2011


F-46Notes to Unaudited Condensed Consolidated Financial Statements


F-47 to F-63CONDENSED PARENT ONLY FINANCIAL STATEMENTS:Schedule


Exhibit 99.1  F-1




---



##### 



INDEPENDENT
    REGISTERED PUBLIC ACCOUNTING FIRM              Topic 815-40, Derivatives and Hedging
      F-2




---



##### 



BLUESTEM BRANDS,
    INC.CONSOLIDATED BALANCE SHEETS
    As of January 28, 2011 and January 29, 2010(in thousands, except share
    information)
  January 28,


January 29,2011


2010as restated- see Note 14ASSETSCURRENT ASSETS:Cash and cash equivalents

$
1,055


$
2,614Restricted cash


8,303



35,657Customer accounts receivablenet of allowance of $109,211
    and $98,394, respectively


492,836



390,842Merchandise inventories


44,396



41,534Promotional material inventories


14,362



12,386Deferred income taxes


11,576



8,465Prepaid expenses and other assets


12,631



11,138Total current assets


585,159



502,636PROPERTY AND EQUIPMENTnet


22,526



19,169DEFERRED CHARGES


6,223



1,783OTHER ASSETS


94



741TOTAL ASSETS

$
614,002


$
524,329LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS EQUITY
    (DEFICIT)CURRENT LIABILITIES:Accounts payable

$
58,850


$
53,376Current income taxes payable


6,900



3,899Accrued costs and other liabilities


18,938



14,092Derivative liabilities in our own equity


43,281



10,674Short-term debt


225,509



246,828Total current liabilities


353,478



328,869LONG-TERM DEBT


104,474



28,915OTHER LONG-TERM LIABILITIES


10,318



9,743COMMITMENTS AND CONTINGENCIES (Note 9)MEZZANINE EQUITY:Series B convertible preferred stock, par value
    $0.00001753,523,962 shares authorized; 752,181,500
    and 750,839,038 shares issued and outstanding, respectively


65,199



61,389Series A convertible preferred stock, par value
    $0.00001791,738,012 shares authorized; 749,995,554
    and 749,995,554 shares issued and outstanding, respectively


132,740



122,916SHAREHOLDERS EQUITY (DEFICIT):Common stock, par value $0.000012,592,550,586 shares
    authorized; 333,670,246 and 322,028,884 shares issued and
    outstanding, respectively, actual


3



3Additional paid-in capital






Accumulated deficit


(52,210
)


(27,506
)Total shareholders equity (deficit)


(52,207
)


(27,503
)TOTAL LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS
    EQUITY (DEFICIT)

$
614,002


$
524,329    F-3




---



##### 



BLUESTEM BRANDS,
    INC.CONSOLIDATED STATEMENTS OF
    OPERATIONS
    For the Years Ended January 28, 2011,
    January 29, 2010 and January 30, 2009 (in thousands, except per share
    information)
  January 28,


January 29,


January 30,2011


2010


2009as restated- see Note 14Net sales

$
521,307


$
438,189


$
423,338Cost of sales


275,521



226,140



220,294Gross profit


245,786



212,049



203,044Sales and marketing expenses


130,091



109,384



110,404Net credit expense (income)


(36,896
)


(22,316
)


1,105General and administrative expenses


84,031



69,087



59,533Loss from derivatives in our own equity


32,607



6,500



Loss on early extinguishment of debt


5,109







Interest expense, net


30,750



31,216



29,839Income before income taxes


94



18,178



2,163Income tax expense


11,618



8,956



828Net (loss) income


(11,524
)


9,222



1,335Series B convertible preferred stock accretion


(3,710
)


(3,491
)


(2,399
)Series A convertible preferred stock accretion


(9,824
)


(9,111
)


(8,890
)Net loss available to common shareholders

$
(25,058
)

$
(3,380
)

$
(9,954
)Net loss per common share:Basic

$
(0.1138
)

$
(0.0188
)

$
(0.0691
)Diluted


(0.1138
)


(0.0188
)


(0.0691
)Weighted average common shares used in computing net loss per
    common share:Basic


220,181



179,757



144,114Diluted


220,181



179,757



144,114    F-4




---



##### 



BLUESTEM BRANDS,
    INC.CONSOLIDATED STATEMENTS OF CASH
    FLOWS
    For the Years Ended January 28, 2011,
    January 29, 2010 and January 30, 2009 
    (in thousands)
  January 28,


January 29,


January 30,2011


2010


2009as restated- see Note 14CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(11,524
)

$
9,222


$
1,335Adjustments to reconcile net (loss) income to net cash provided
    by (used in) operating activities:Depreciation of fixed assetsincluding internal-use
    software and website development amortization


8,746



7,246



6,285Amortization of deferred charges and original issue discount


4,328



4,168



4,076Loss from derivatives in our own equity


32,607



6,500



Non-cash component of loss on early extinguishment of debt


2,309







Loss on disposal of assets


497



37



411Provision for doubtful accounts


89,524



83,102



93,332Provision for merchandise returns


12,984



13,061



11,355Deferred income taxes


(1,969
)


6,303



(851
)Stock-based compensation


282



321



110Other non-cash items affecting income


13,423



10,788



12,645Changes in operating assets and liabilities:Customer accounts receivable


(218,350
)


(157,650
)


(150,937
)Merchandise inventories


(1,649
)


6,987



1,947Promotional material inventories


(1,976
)


(576
)


4,142Prepaid expenses and other current assets


(910
)


(881
)


(1,080
)Current income taxes payable


3,001



3,117



(6,346
)Accounts payable and other liabilities


9,582



20,466



(1,610
)Other






(268
)


308Net cash (used in) provided by operating activities


(59,095
)


11,943



(24,878
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed assetsincluding internal-use software
    and website development


(12,570
)


(9,177
)


(6,635
)Decrease (increase) in restricted cashnet


27,354



13,943



(26,796
)Net cash provided by (used in) investing activities


14,784



4,766



(33,431
)CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings on revolving credit facilities


1,618,625



1,159,439



1,278,326Repayments on revolving credit facilities


(1,576,045
)


(1,174,169
)


(1,284,523
)Issuance of Series B convertible preferred stock


100







55,499Issuance of common stock


72



77



18Net cash provided by (used in) financing activities


42,752



(14,653
)


49,320NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS


(1,559
)


2,056



(8,989
)CASH AND CASH EQUIVALENTSBeginning of year


2,614



558



9,547CASH AND CASH EQUIVALENTSEnd of year

$
1,055


$
2,614


$
558SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid

$
27,310


$
27,324


$
25,670Income and franchise taxes paid


10,871



181



7,615NON-CASH TRANSACTIONS:Purchases of property and equipment on account

$
30


$
1,278


$
817Series B convertible preferred stock accretion


3,710



3,491



2,399Series A convertible preferred stock accretion


9,824



9,111



8,890    F-5




---



##### 



BLUESTEM BRANDS,
    INC.CONSOLIDATED STATEMENTS OF
    SHAREHOLDERS DEFICIT 
    For the Years Ended January 28, 2011, January 29, 2010
    and January 30, 2009(in thousands, except share information)
  Additional





TotalCommon Stock


Paid-In


Accumulated


ShareholdersShares


Amount


Capital


Deficit


DeficitBALANCEFebruary 1, 2008


162,245,335


$
2


$



$
(14,698
)

$
(14,696
)Issuance of restricted common stock


107,650,000



1











1Issuance of common stock


869,713







18







18Forfeitures of restricted common stock


(15,025,000
)














Stock-based compensation










110







110Series B convertible preferred stock accretion














(2,399
)


(2,399
)Series A convertible preferred stock accretion










(128
)


(8,762
)


(8,890
)Net income














1,335



1,335BALANCEJanuary 30, 2009


255,740,048


$
3


$



$
(24,524
)

$
(24,521
)Issuance of restricted common stock


70,778,852















Issuance of common stock


4,100,446







77







77Forfeitures of restricted common stock


(8,590,462
)














Stock-based compensation










321







321Series B convertible preferred stock accretion














(3,491
)


(3,491
)Series A convertible preferred stock accretion










(398
)


(8,713
)


(9,111
)Net income, as restated, see Note 14














9,222



9,222BALANCEJanuary 29, 2010, as restated, see Note 14


322,028,884


$
3


$



$
(27,506
)

$
(27,503
)Issuance of restricted common stock


10,225,000















Issuance of common stock


4,053,862







72







72Forfeitures of restricted common stock


(2,637,500
)














Stock-based compensation










282







282Series B convertible preferred stock accretion














(3,710
)


(3,710
)Series A convertible preferred stock accretion










(354
)


(9,470
)


(9,824
)Net loss














(11,524
)


(11,524
)BALANCEJanuary 28, 2011


333,670,246


$
3


$



$
(52,210
)

$
(52,207
)    F-6




---



##### 



BLUESTEM BRANDS,
    INC.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    As of January 28, 2011 and January 29, 2010 (Restated) and
    For the Years Ended January 28, 2011, January 29, 2010
    (Restated) and
    January 30, 2009  1.
    BUSINESS AND
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Business
  Customer Accounts Receivable
  Segment Information
  Principles of Consolidation
  Fiscal Year
  Use of Estimates
 F-7




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    Seasonality
  Cash and Cash Equivalents
  Restricted Cash
  Financing
     F-8




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    Allowance for Doubtful Accounts
  Merchandise Inventories
  Promotional Material Inventories
 F-9




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    January 28,


January 29,2011


2010Premium inventory

$
1,278


$
1,053Catalog advertising work in process


8,229



6,171Deferred promotional costs


4,855



5,162Promotional material inventories

$
14,362


$
12,386   Property and Equipmentnet Financing
    January 28,


January 29,2011


2010Software

$
39,893


$
31,620Computer hardware


4,688



8,195Machinery, equipment, and furniture


3,681



3,222Leasehold improvements


4,050



3,77352,312



46,810Less accumulated depreciation and amortization


(29,786
)


(27,641
)Property and equipmentnet

$
22,526


$
19,169     Deferred Charges
  Derivative Liabilities in Our Own Equity
 F-10




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Financing Shareholders Deficit
  Operating Leases
    Revenue Recognition
    January 28,


January 29,


January 30,2011


2010


2009Sales by merchandise category:Home

$
236,555


$
207,177


$
209,483Entertainment


225,060



189,157



179,439Fashion


74,232



57,339



48,678Total merchandise sales


535,847



453,673



437,600Returns and allowances


(27,871
)


(26,871
)


(25,862
)Commissions


13,331



11,387



11,600Net sales

$
521,307


$
438,189


$
423,338   Cost of Sales
  Sales and Marketing Expenses e-commerce
 F-11




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    Net Credit Expense (Income)
    January 28,


January 29,


January 30,2011


2010


2009Finance charge and fee income

$
(160,778
)

$
(136,924
)

$
(122,896
)Provision for doubtful accounts


89,524



83,102



93,332Credit management costs


34,358



31,506



30,669Net credit expense (income)

$
(36,896
)

$
(22,316
)

$
1,105   General and Administrative Expenses
  Impairment of Long-Lived Assets
  Stock-Based Compensation Stock-Based Compensation
  Comprehensive Income
 F-12




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Recently Adopted Accounting Standards 815-40 815-40), EITF 07-5, Determining Whether an Instrument (or Embedded Feature)
    Is Indexed to an Entitys Own Stock
  ASC 815-40, Financing
  Accounting Standards Not Yet Adopted
    2.
    CUSTOMER ACCOUNTS
    RECEIVABLE    January 28,


January 29,


January 30,2011


2010


2009Customer accounts receivable

$
602,047


$
489,236


$
439,507Less allowance for doubtful accounts


(109,211
)


(98,394
)


(97,094
)Customer accounts receivablenet

$
492,836


$
390,842


$
342,413Period-end balances 30+ days delinquent (a)

$
79,630


$
71,019


$
72,670Period-end balances 30+ days delinquent as a percentage of total
    customer accounts receivable


13.2
%


14.5
%


16.5
%   
    (a)
    
    Based on statement cycle date F-13




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
            F-14




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    January 28,


January 29,


January 30,2011


2010


2009Allowance for doubtful accountsbeginning of year

$
98,394


$
97,094


$
87,981Provision for doubtful accounts


89,524



83,102



93,332Principal charge-offs


(86,813
)


(89,094
)


(90,180
)Recoveries


8,106



7,292



5,961Allowance for doubtful accountsend of year

$
109,211


$
98,394


$
97,094As a percentage of period-end customer accounts receivable


18.1
%


20.1
%


22.1
%As a percentage of balances 30+ days delinquent


137.1
%


138.5
%


133.6
%       January 28,


January 29,


January 30,2011


2010


2009Time since origination, as segmented in our estimate of the
    allowance for doubtful accounts:0 - 3 months

$
41,562


$
25,919


$
19,5524 - 6 months


28,037



19,815



15,6007 - 9 months


29,871



20,481



16,83410 - 12 months


21,284



16,994



15,93613 - 15 months


39,104



26,709



36,65416 - 18 months


24,813



16,909



30,07819+ months


393,365



342,812



291,160Impaired(a)


24,011



19,597



13,693Period-end customer accounts receivable

$
602,047


$
489,236


$
439,507     (a)
    
    Includes qualified hardship,
    bankrupt, deceased, and re-aged customer accounts  3.
    NET INCOME (LOSS)
    PER SHARE   F-15




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
      January 28,


January 29,


January 30,2011


2010


2009Basic and Diluted Earnings per Share
    (Two-Class Method)Net (loss) income

$
(11,524
)

$
9,222


$
1,335Less: Preferred Stock accretion


(13,534
)


(12,602
)


(11,289
)Undistributed loss

$
(25,058
)

$
(3,380
)

$
(9,954
)Distributed Earnings per ShareBasic and DilutedPreferred Stock accretion

$
13,534


$
12,602


$
11,289Weighted-average preferred shares outstanding


1,501,030



1,500,835



1,288,372Distributed earnings per share preferred

$
0.0090


$
0.0084


$
0.0088Undistributed Earnings per ShareBasicUndistributed loss

$
(25,058
)

$
(3,380
)

$
(9,954
)Preferred ownership


87.2
%


89.3
%


89.9
%Preferred shareholders interest in undistributed income

$



$



$
Weighted-average preferred shares


1,501,030



1,500,835



1,288,372Undistributed earnings per sharepreferred

$



$



$
Undistributed loss

$
(25,058
)

$
(3,380
)

$
(9,954
)Common ownership


12.8
%


10.7
%


10.1
%Common shareholders interest in undistributed loss

$
(25,058
)

$
(3,380
)

$
(9,954
)Weighted-average common shares outstandingbasic


220,181



179,757



144,114Total basic loss per sharecommon

$
(0.1138
)

$
(0.0188
)

$
(0.0691
)   F-16




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  January 28,


January 29,


January 30,2011


2010


2009Diluted Earnings per Share (If-Converted Method)Net loss available to common shareholders

$
(25,058
)

$
(3,380
)

$
(9,954
)Earnings distributed to preferred shareholders










Undistributed earnings allocated to preferred shareholders










Net loss used in diluted earnings per share

$
(25,058
)

$
(3,380
)

$
(9,954
)Weighted average common shares outstandingbasic


220,181



179,757



144,114Preferred Stock










Series A Preferred Stock warrants










Common share equivalents










Shares used to compute loss per common sharediluted


220,181



179,757



144,114Total diluted loss per share

$
(0.1138
)

$
(0.0188
)

$
(0.0691
)     January 28,


January 29,


January 30,2011


2010


2009Preferred Stock


13,989,796



38,884,414



1,698,347Common stock warrants


261,054



261,054



200,851Unvested restricted stock awards


104,843



120,795



67,363Series A Preferred Stock warrants


41,742



41,742



41,742Common stock options


42,907



36,110



36,62814,440,342



39,344,115



2,044,931  F-17




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  4.
    FINANCING    January 28,


January 29,2011


2010Short-term debt:A/R Credit FacilityRevolving Credit Tranche
    (Tranche A)

$
215,000


$
Revolving Credit Facility






241,000Inventory Line of Credit


10,100



5,339Other notes payable


409



489Short-term debt

$
225,509


$
246,828Long-term debt:A/R Credit FacilityTerm Loan Tranche (Tranche B)

$
75,000


$
13% Senior Subordinated Secured Notesnet of discount
    of $1,281 and $1,876, respectively


28,719



28,124Debt Due to Affiliates


400



400Other notes payable


355



391Long-term debt

$
104,474


$
28,915     January 28,


January 29,


January 30,2011


2010


2009Interest on debt

$
26,424


$
27,142


$
26,385Amortization of deferred charges


3,733



3,573



3,481Amortization of original issue discount


595



595



595Interest income


(2
)


(94
)


(622
)Interest expensenet

$
30,750


$
31,216


$
29,839   Refinancing of Senior Secured Revolving Credit
    Facility
   F-18




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
      Eligible Underlying Receivables portfolio
    covenants
  
    Three-month average Principal Payment Rate shall be greater than
    5%.
    Three-month average Principal Default Ratio shall be less than
    24% from April through August and less than 28% from September
    through March.
    Three-month average Principal Delinquency Ratio shall be less
    than 14.5%.
    Three-month average Excess Spread Ratio shall be greater than 8%.
    Three-month average Adjusted Excess Spread Ratio (defined as the
    Adjusted Portfolio Yield less the Principal Default Ratio and
    the Receivables Base Rate) shall be greater than −4%.
    One month Principal Delinquency Ratio shall be less than 16%.
    One month Total Payment Rate shall be greater than 6.5%.    Covenant

Covenant Level


ActualPrincipal Payment Rate (three-month average) (a)


> 5.00
%


5.60
%Principal Default Ratio (three-month average) (b)


< 28.00
%


19.37
%Principal Delinquency Ratio (three-month average) (c)


< 14.50
%


8.74
%Excess Spread Ratio (three-month average) (d)


> 8.00
%


22.12
%Adjusted Excess Spread Ratio (three-month average) (e)


> (4.00
)%


8.45
%Principal Delinquency Ratio (one month)


< 16.00
%


8.41
%Total Payment Rate (one month) (f)


> 6.50
%


8.14
%  F-19




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    (a)
    
    The Principal Payment
    Rate is equal to, for a calendar month period, the
    principal collections on Eligible Underlying Receivables,
    divided by the principal portion of Eligible Underlying
    Receivables outstanding as of the last day of the preceding
    calendar month.(b)
    
    The Principal Default
    Ratio is equal to, for a calendar month period, 12 times
    the principal portion of Eligible Underlying Receivables that
    became defaulted accounts during the month, divided by the
    aggregate amount of the principal portion of Eligible Underlying
    Receivables outstanding as of the last day of the preceding
    calendar month.(c)
    
    The Principal Delinquency
    Ratio is equal to, for a calendar month period, the
    principal portion of Eligible Underlying Receivables that are
    two or more cycles delinquent at the end of the month, divided
    by the aggregate amount of the principal portion of Eligible
    Underlying Receivables outstanding at the end of the month.(d)
    
    The Excess Spread Ratio
    is equal to, for a calendar month period, the Portfolio Yield,
    minus the Principal Default Ratio, minus the Receivables Base
    Rate. The Portfolio Yield is equal to, for a
    calendar month period, 12 times the aggregate amount of certain
    finance charge collections including the intercompany 8%
    merchant fee on sales related to Eligible Underlying
    Receivables, recoveries on charged off accounts related to both
    Eligible and Non-eligible Underlying Receivables, and investment
    earnings on amounts on deposit in the finance charge collections
    account, divided by the aggregate amount of the principal
    portion of Eligible Underlying Receivables outstanding as of the
    last day of the preceding calendar month. The Receivables
    Base Rate is equal to 12 times the aggregate amount paid
    to the servicer for Eligible Underlying Receivables, plus
    interest and fees payable, and divided by the aggregate amount
    of the principal portion of Eligible Underlying Receivables
    outstanding as of the last day of the preceding calendar month.(e)
    
    The Adjusted Excess Spread
    Ratio is equal to, for a calendar month period, the
    Adjusted Portfolio Yield, less the Principal Default Ratio, less
    the Receivables Base Rate. The Adjusted Portfolio
    Yield is equal to, for a calendar month period, means,
    with respect to any Monthly Period, 12 times the aggregate
    amount of certain finance charge collections, divided by the
    aggregate amount of principal portion of Eligible Underlying
    Receivables outstanding as of the last day of the preceding
    calendar month.(f)
    
    The Total Payment Rate
    is equal to, for a calendar month period, the aggregate amount
    of certain principal collections, certain finance charge
    collections including the intercompany 8% merchant fee on sales
    related to Eligible Underlying Receivables, recoveries on
    charged off accounts related to both Eligible and Non-eligible
    Underlying Receivables, and investment earnings on amounts on
    deposit in the finance charge collections account, divided by
    the aggregate amount of Eligible Underlying Receivables
    outstanding as of the last day of the preceding calendar month.    Cash collateral requirements
  CashExcess Spread Ratio

Collateral> 14.0%



%> 12.5%
    £
    14.0%


2> 11.0%
    £
    12.5%


4> 9.5%
    £
    11.0%


6£
    9.5%


8  F-20




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    CashTotal Payment Rate

Collateral> 8.0%



%> 7.25%
    £
    8.0%


1£
    7.25%


2     CashPrincipal Delinquency Ratio

Collateral< 12.5%



%3
    12.5% < 14.0%


13
    14.0%


2     Financial and Other Covenants under Our Credit
    Facilities
  
    Minimum Net LiquidityThe sum of unrestricted cash
    and cash equivalents, availability under the A/R Credit Facility
    and availability under the Inventory Line of Credit must be at
    least $25 million in each fiscal month from February
    through November, and must be at least $20 million in the
    fiscal months of December and January of each year.
    Tangible Net WorthMust be at least
    $120 million, plus 75% of consolidated net earnings before
    gain or loss on derivatives in our own equity (if positive) for
    each full fiscal year following August 20, 2010, and 85% of
    the gross proceeds on any issuance of equity as determined
    quarterly.
    Last Twelve Months (LTM) Adjusted EBITDA
    MarginLTM adjusted earnings before gain or loss on
    derivatives in our own equity, interest expense, taxes,
    depreciation, amortization, and certain other adjustments
    (Adjusted EBITDA) margin must be at least 8.5%.
    Fixed Charge Coverage RatioMust be at least 1.0x
    through October 2011, 1.05x from November 2011 through October
    2012 and 1.1x from November 2012 through August 2013. F-21




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
     
    Minimum Adjusted EBITDAAdjusted EBITDA must be at
    least $52.3 million for 2011 and $57 million for 2012
    and any fiscal year thereafter.  Deferred Charges
  Loss on Early Extinguishment of Debt
  Senior Secured Revolving Credit Facility
      Shareholders
    DeficitWarrants
   F-22




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  ASC 815-10.
          AdditionalCashExcess Spread Ratio

Collateral> 15.5%



%> 13.5%
    £
    15.5%


2> 11.5%
    £
    13.5%


4> 9.5%
    £
    11.5%


6£
    9.5%


8     AdditionalCashTotal Payment Ratio

Collateral> 10%



%> 9%
    £
    10%


1£
    9%


2      F-23




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    
    Three-month average Principal Payment Ratio shall be greater
    than 5%.
    Three-month average Principal Default Ratio shall be less than
    29%.
    Twelve-month average Principal Default Ratio shall be less than
    24%.
    More than 50% of the principal receivables relating to Eligible
    Underlying Receivables with a credit score shall have an updated
    credit score greater than 600.
    More than 75% of the principal receivables relating to Eligible
    Underlying Receivables with a behavior score shall have an
    updated Behavior Score greater than 400.
    More than 50% of the Principal Receivables relating to Eligible
    Underlying Receivables with a behavior score shall have an
    updated Behavior Score greater than 450.
    Three-month average Principal Delinquency Ratio shall be less
    than 15%.
    Three-month average Excess Spread Ratio shall be greater than
    7.5%.
    Three-month average Total Payment Ratio shall be greater than 8%.    
    Minimum Net Liquidity IThe sum of unrestricted cash
    and cash equivalents, availability under the Senior Secured
    Revolving Credit Facility and availability under the Inventory
    Line of Credit must be at least $25 million in all fiscal
    months February through November, and must be at least
    $15 million in the fiscal months of December and January.
    Minimum Net Liquidity IIThe sum of
    unrestricted cash and cash equivalents and availability under
    the Senior Secured Revolving Credit Facility must be at least
    $10 million in all fiscal months February through November
    and must be at least $7.5 million in the fiscal months of
    December and January.
    Tangible Net WorthTangible net worth must be at
    least $105 million, plus 75% of net income for each full
    fiscal year following May 15, 2008, and 85% of the gross
    proceeds on any issuance of equity.
    LTM EBITDA MarginLast 12 months EBITDA
    margin must be at least 8.5%.
    Fixed Charge Coverage RatioFixed Charge Coverage
    Ratio must be at least 1.1:1.      Inventory Line of Credit
 F-24




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
      
    Effective April 1, 2010 through August 19,
    2010The maturity date became April 1, 2011. Daily
    outstanding balances incurred interest at LIBOR plus 2.75% to
    3.50%, or prime plus 1.50% to 2.25%, subject to outstanding
    balances. The unused commitment fee ranged from 0.500% to 1.000%
    based on the average daily-unused portion of the revolving
    commitment.
    Effective August 20, 2010The capacity increased from
    $40 million to $50 million and the maturity date
    became August 20, 2013. Daily outstanding balances incur
    interest at LIBOR plus 3.25% to 3.50%, or prime (with a floor
    not less than the one-month LIBOR rate) plus 2.00% to 2.25%,
    subject to outstanding balances. The unused commitment fee
    ranges from 0.375% to 0.500% based on the average daily-unused
    portion of the revolving commitment. Prior to this amendment, we
    were able to draw on the Inventory Line of Credit up to the
    borrowing capacity less a minimum capacity covenant of
    $4 million. This $4 million minimum availability
    covenant was removed with this amendment.    Senior Subordinated Secured Notes
  Shareholders
    Deficit Warrants
 F-25




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
      Debt Due to Affiliates
  Other Notes Payable Commitments and Contingencies
  5.
    SHAREHOLDERS
    DEFICIT  Certificate of Incorporation and Equity and Incentive Plan
    Amendments
       F-26




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
        Dividends
         F-27




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Redemption of Preferred Stock
  Liquidation Preference winding-up winding-up
  Conversion one-to-one
    Anti-dilution Rights
   F-28




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    Warrants
  Warrant


Number of Warrants OutstandingFair Value


Series AExercise


per Share at


Preferred


CommonIssue Date

Expiration Date

Price


Grant Date


Stock


Stock


ClassificationFebruary 18, 2004

February 18, 2011

$
0.10511


$
0.00000







11,892,312


EquityFebruary 24, 2004

June 21, 2012


0.01000



0.01000







31,689,078


LiabilityNovember 1, 2004

June 21, 2012


0.01000



0.01000







1,427,076


LiabilityMarch 24, 2006

March 23, 2016


0.01000



0.10000



41,742,458






LiabilityMay 15, 2008

May 15, 2018


0.01000



0.00000







216,045,882


Liability41,742,458



261,054,348     Valuation of Privately-Held-Company
    Equity Securities Issued as Compensation
    January 28,


January 29,2011


2010Expected volatility


38.3
%


27.3
%Expected time to a liquidity event (years)


1.9



2.9Risk-free interest rate


0.58
%


1.36
%     Subsequent EventsWarrant Exercise.
 F-29




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  6.
    STOCK-BASED
    COMPENSATION    Stock Options
  Weighted-


Weighted-Average


AverageExercise


RemainingPrice


ContractualStock Options


per Share


Term (Years)OutstandingFebruary 1, 2008


34,742,233


$
0.080



7.5Granted


13,460,000



0.009Forfeited


(7,456,700
)


0.090Exercised


(869,713
)


0.021OutstandingJanuary 30, 2009


39,875,820


$
0.058



7.5Granted


3,000,000



0.001Forfeited


(4,966,900
)


0.091Exercised


(4,100,446
)


0.019OutstandingJanuary 29, 2010


33,808,474


$
0.053



6.9Granted


21,967,200



0.005Forfeited


(3,565,000
)


0.181Exercised


(4,053,862
)


0.019OutstandingJanuary 28, 2011


48,156,812


$
0.024



7.6ExercisableJanuary 28, 2011


19,233,014


$
0.050



5.5     January 28,


January 29,


January 30,2011


2010


2009Weighted-average grant date fair value of stock options granted

$
0.0009


$
0.0003


$
0.003Cash received from the exercise of stock options


72



77



18Stock-based compensation expense


27



30



15    F-30




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Determining Fair Value
  
    Expected VolatilityExpected volatility was
    determined based on historical volatility of stock prices of a
    public company peer group.
    Expected TermExpected term represents the period
    that stock-based awards are expected to be outstanding and was
    determined based on historical experience and anticipated future
    exercise patterns, considering the contractual terms of
    unexercised stock-based awards.
    Risk-Free Interest RateThe risk-free interest rate
    was based on the implied yield currently available on
    U.S. Treasury zero-coupon issues with a term equal to the
    expected term.
    Forfeiture rateWe use historical data to estimate
    forfeitures.    January 28,


January 29,


January 30,2011


2010


2009Expected volatility


30.0
%


35.5
%


33.8
%Expected term (years)


2.9



5.0



5.0Risk-free interest rate


1.3
%


1.8
%


3.0
%Forfeiture rate


30.0
%


30.0
%


30.0
%Expected dividend yield










  F-31




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Restricted Stock Awards
  Weighted-AverageRestricted


Grant DateStock


Fair ValueOutstandingFebruary 1, 2008


29,841,512


$
0.020Granted


107,650,000



0.009Forfeited


(15,025,000
)


0.010Vested


(24,630,838
)


0.040OutstandingJanuary 30, 2009


97,835,674


$
0.010Granted


70,778,852



0.001Forfeited


(8,590,462
)


0.010Vested


(29,810,087
)


0.012OutstandingJanuary 29, 2010


130,213,977


$
0.005Granted


10,225,000



0.011Forfeited


(2,100,000
)


0.009Vested


(40,718,588
)


0.007OutstandingJanuary 28, 2011


97,620,389


$
0.005     7.
    INCOME
    TAXES   F-32




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    January 28,


January 29,2011


2010Allowance for doubtful accounts

$
31,024


$
26,512Net operating loss and other credit carryforwards


1,826



2,423Inventory


1,115



1,046Net other deferred assets


4,108



3,520Deferred tax assetnet


38,073



33,501Depreciation and amortization expense


(2,626
)


(2,063
)Deferred advertising


(1,710
)


(1,822
)Finance charge income not currently taxable


(21,646
)


(19,490
)Net other deferred liabilities


(994
)


(998
)Deferred tax liabilitynet


(26,976
)


(24,373
)Total deferred taxes

$
11,097


$
9,128Reflected as:Current assets

$
11,576


$
8,465Noncurrent (liabilities) assets


(479
)


663$
11,097


$
9,128     January 28,


January 29,


January 30,2011


2010


2009Current:Federal

$
13,395


$
2,354


$
1,046State


192



299



7Total current provision


13,587



2,653



1,053Deferred:Federal


(2,024
)


6,233



(303
)State


55



70



78Total deferred (benefit) provision


(1,969
)


6,303



(225
)Total provision

$
11,618


$
8,956


$
828  F-33




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    January 28,


January 29,


January 30,2011


2010


2009Statutory federal income tax rate


35.0
%


35.0
%


35.0
%State income taxesnet of federal benefit


173.4



1.3



0.3Loss from derivatives in our own equity


12,162.6



12.5



Othernet


10.3



0.5



3.0Effective income tax rate


12,381.3
%


49.3
%


38.3
%              F-34




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Unrecognized Tax Benefits
  FederalandState TaxBalance February 1, 2008

$
4,120Change related to prior year tax positions


Balance January 30, 2009

$
4,120Decreases related to prior year tax positions


(3
)Balance January 29, 2010


4,117Decreases related to prior year tax positions


(5
)Balance January 28, 2011

$
4,112       8.
    EMPLOYEE BENEFIT
    PLANS      9.
    COMMITMENTS AND
    CONTINGENCIES  Operating Lease Commitments
 F-35




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Distribution Center
  Headquarters Building
  Additional Warehouse Space
    Fiscal Years2011

$
6,2522012


5,8272013


4,7202014


4,4492015


4,543Thereafter


31,529$
57,320     Legal Proceedings
 F-36




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
      10.
    RELATED PARTY
    TRANSACTIONS          FinancingDebt Due to Affiliates
 F-37




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  11.
    SELECTED
    QUARTERLY FINANCIAL DATA (UNAUDITED)    Fiscal Year Ended January 28, 2011


Fiscal Year Ended January 29, 2010 (a)First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


QuarterNet sales

$
87,106


$
106,376


$
107,214


$
220,611


$
76,099


$
93,931


$
93,344


$
174,815Cost of sales


44,944



54,899



56,364



119,314



39,015



47,618



48,282



91,225Gross profit


42,162



51,477



50,850



101,297



37,084



46,313



45,062



83,590Sales and marketing expenses


23,706



27,848



29,870



48,667



21,603



24,881



24,711



38,189Net credit expense (income)


(11,156
)


(6,087
)


(19,362
)


(291
)


(12,619
)


(8,021
)


(6,881
)


5,205General and administrative expenses


18,225



18,543



19,788



27,475



15,164



16,508



17,101



20,314Loss from derivatives in our own equity










2,445



30,162















6,500Loss on early extinguishment of debt










5,109



















Interest expense, net


8,173



7,969



7,256



7,352



8,194



7,352



7,379



8,291Income (loss) before income taxes


3,214



3,204



5,744



(12,068
)


4,742



5,593



2,752



5,091Income tax expense (benefit)


1,175



1,175



2,935



6,333



1,697



2,000



1,000



4,259Net income (loss)


2,039



2,029



2,809



(18,401
)


3,045



3,593



1,752



832Series B Preferred Stock accretion


(887
)


(942
)


(940
)


(941
)


(852
)


(880
)


(887
)


(872
)Series A Preferred Stock accretion


(2,412
)


(2,451
)


(2,451
)


(2,510
)


(2,263
)


(2,269
)


(2,270
)


(2,309
)Allocation of net income to participating preferred shareholders






















(397
)






Net (loss) income available to common shareholders

$
(1,260
)

$
(1,364
)

$
(582
)

$
(21,852
)

$
(70
)

$
47


$
(1,405
)

$
(2,349
)Net (loss) income per common share:Basic

$
(0.0064
)

$
(0.0062
)

$
(0.0025
)

$
(0.0932
)

$
(0.0004
)

$
0.0003


$
(0.0075
)

$
(0.0123
)Diluted


(0.0064
)


(0.0062
)


(0.0025
)


(0.0932
)


(0.0004
)


0.0001



(0.0075
)


(0.0123
)Weighted-average shares used in computing net (loss) income per
    common share:Basic


195,672



219,297



231,403



234,351



160,096



181,498



187,044



190,392Diluted


195,672



219,297



231,403



234,351



160,096



38,975,382



187,044



190,392     (a)
    
    These financial statements that
    have not been previously presented have been prepared on the
    same restated basis as the consolidated financial statements of
    Bluestem Brands, Inc. for the fiscal year ended January 29,
    2010.  12.
    SUBSEQUENT
    EVENTS       F-38




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  13.
    FAIR VALUE
    MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS    Level 1
  Level 2
  Level 3
    Fair Value Measurement Using Level 3January 28,


January 29,


January 30,2011


2010


2009LiabilitiesFair value of warrants

$
15,281


$
4,174


$
4,174LiabilitiesFair value of conversion feature inpreferred stock


24,200



500



LiabilitiesFair value of Contingent Fee


3,800



6,000



$
43,281


$
10,674


$
4,174     Fair Value ofDerivativeLiabilitiesBalance January 30, 2009

$
4,174Change in fair value of conversion feature in preferred stock


500Change in fair value of Contingent Fee


6,000Balance January 29, 2010


10,674Change in fair value of common stock warrants


9,817Change in fair value of preferred warrants


1,290Change in fair value of conversion feature in preferred stock


23,700Change in fair value of Contingent Fee


(2,200
)Balance January 28, 2011

$
43,281  F-39




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  14.
    RESTATEMENT OF
    2009 FINANCIAL STATEMENTS  ASC 815-10.
          As PreviouslyReported


Adjustments


As RestatedNet sales

$
438,189


$



$
438,189Cost of sales


226,140







226,140Gross profit


212,049







212,049Sales and marketing expenses


109,384







109,384Net credit expense (income)


(22,316
)






(22,316
)General and administrative expenses


69,087







69,087Loss from derivatives in our own equity






6,500



6,500Interest expense, net


31,216







31,216Income (loss) before income taxes


24,678



(6,500
)


18,178Income tax expense


8,956







8,956Net income (loss)

$
15,722


$
(6,500
)

$
9,222  F-40




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    As PreviouslyReported


Adjustments


As RestatedCURRENT ASSETS:Prepaid expenses and other assets

$
12,044


$
(906
)

$
11,138Total current assets


503,542



(906
)


502,636TOTAL ASSETS

$
525,235


$
(906
)

$
524,329CURRENT LIABILITIES:Accounts payable

$
54,282


$
(906
)

$
53,376Derivative liabilities in our own equity






10,674



10,674Total current liabilities


319,101



9,768



328,869Series A Preferred Stock


127,090



(4,174
)


122,916SHAREHOLDERS DEFICIT:Common stock


3







3Accumulated deficit


(21,006
)


(6,500
)


(27,506
)Total shareholders deficit


(21,003
)


(6,500
)


(27,503
)TOTAL LIABILITIES, MEZZANINE EQUITY,AND SHAREHOLDERS DEFICIT

$
525,235


$
(906
)

$
524,329     As PreviouslyReported


Adjustments


As RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
15,722


$
(6,500
)

$
9,222Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:Loss from derivatives in our own equity






6,500



6,500Stock-based compensation


399



(78
)


321Prepaid expenses and other current assets


(1,787
)


906



(881
)Accounts payable and other liabilities


21,372



(906
)


20,466Other


(269
)


1



(268
)Net cash provided by operating activities

$
12,020


$
(77
)

$
11,943CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of common stock






77



77Net cash used in financing activities

$
(14,730
)

$
77


$
(14,653
)  F-41




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Stock-Based
    Compensation weighted-average weighted-average
 F-42




---



##### 



BLUESTEM BRANDS,
    INC.UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
    As of April 29, 2011, January 28, 2011 and
    April 30, 2010
    (in thousands, except share information)
  Pro FormaApril 29,2011


April 29,


January 28,


April 30,Note 10


2011


2011


2010ASSETSCURRENT ASSETS:Cash and cash equivalents





$
306


$
1,055


$
462Restricted cash






10,731



8,303



26,976Customer accounts receivablenet of allowance of $117,716,
    $109,211, and $99,025, respectively






455,298



492,836



356,779Merchandise inventories






51,447



44,396



44,768Promotional material inventories






17,227



14,362



12,810Deferred income taxes






11,180



11,576



8,943Prepaid expenses and other assets






12,167



12,631



10,092Total current assets






558,356



585,159



460,830PROPERTY AND EQUIPMENTNet






22,283



22,526



20,956DEFERRED CHARGES






5,227



6,223



898OTHER ASSETS






94



94



742TOTAL ASSETS





$
585,960


$
614,002


$
483,426LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS EQUITY
    (DEFICIT)CURRENT LIABILITIES:Accounts payable





$
63,622


$
58,850


$
43,373Current income taxes payable






2,846



6,900



1,804Accrued costs and other liabilities






9,729



18,938



10,085Derivative liabilities in our own equity

$
7,975



58,225



43,281



10,674Short-term debt






199,708



225,509



219,762Total current liabilities






334,130



353,478



285,698LONG-TERM DEBT






104,614



104,474



29,055OTHER LONG-TERM LIABILITIES






10,322



10,318



9,734COMMITMENTS AND CONTINGENCIES (Note 9)MEZZANINE EQUITY:Series B Preferred Stock, par value
    $0.00001753,523,962 shares authorized; 0,
    753,256,768, 752,181,500, and 750,839,038 shares issued and
    outstanding, respectively






66,230



65,199



62,276Series A Preferred Stock, par value
    $0.00001791,738,012 shares authorized; 0,
    749,995,554, 749,995,554, and 749,995,554 shares issued and
    outstanding, respectively






135,343



132,740



125,327SHAREHOLDERS EQUITY (DEFICIT):Common stock, par value $0.000012,592,550,586 shares
    authorized;          ,
    342,236,552, 333,670,246, and 322,291,384 shares issued and
    outstanding, respectively


3



3



3



3Additional paid-in capital


251,823











Accumulated deficit


(64,682
)


(64,682
)


(52,210
)


(28,667
)Total shareholders equity (deficit)


187,144



(64,679
)


(52,207
)


(28,664
)TOTAL LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS
    EQUITY (DEFICIT)





$
585,960


$
614,002


$
483,426    F-43




---



##### 



BLUESTEM BRANDS,
    INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
    OPERATIONS
    For the 13 Weeks Ended April 29, 2011 and April 30,
    2010
    (in thousands, except per share information)
  13 Weeks EndedApril 29,


April 30,2011


2010Net sales

$
99,206


$
87,106Cost of sales


51,755



44,944Gross profit


47,451



42,162Sales and marketing expenses


24,761



23,706Net credit expense (income)


(14,444
)


(11,156
)General and administrative expenses


20,906



18,225Loss from derivatives in our own equity


14,944



Interest expense, net


7,395



8,173(Loss) income before income taxes


(6,111
)


3,214Income tax expense


3,156



1,175Net (loss) income


(9,267
)


2,039Series B Preferred Stock accretion


(931
)


(887
)Series A Preferred Stock accretion


(2,603
)


(2,412
)Net loss available to common shareholders

$
(12,801
)

$
(1,260
)Net loss per common share:Basic and diluted

$
(0.0531
)

$
(0.0064
)Weighted-average common shares used in computing net loss per
    common share:Basic and diluted


241,222



195,672    F-44




---



##### 



BLUESTEM BRANDS,
    INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
    CASH FLOWS
    For the 13 Weeks Ended April 29, 2011 and April 30,
    2010
    (in thousands)
  13 Weeks EndedApril 29,


April 30,2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(9,267
)

$
2,039Adjustments to reconcile net (loss) income to net cash provided
    by (used in) operating activities:Depreciation of fixed assetsincluding internal-use
    software and website development amortization


2,588



1,924Amortization of deferred charges and original issue discount


1,126



1,034Loss from derivatives in our own equity


14,944



Provision for doubtful accounts


27,500



18,896Provision for merchandise returns


2,421



2,229Deferred income taxes


423



(478
)Stock-based compensation


55



90Other non-cash items affecting income


2,565



3,006Changes in operating assets and liabilities:Customer accounts receivable


2,848



9,611Merchandise inventories


(6,548
)


(3,343
)Promotional material inventories


(2,865
)


(425
)Prepaid expenses and other current assets


483



1,955Current income taxes payable


(4,054
)


(2,095
)Accounts payable and other liabilities


(2,836
)


(15,264
)Net cash provided by operating activities


29,383



19,179CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed assetsincluding internal-use software
    and website development


(2,268
)


(2,945
)(Increase) decrease in restricted cashnet


(2,428
)


8,681Net cash (used in) provided by investing activities


(4,696
)


5,736CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings on revolving credit facilities


317,053



270,464Repayments on revolving credit facilities


(342,863
)


(297,539
)Issuance of Series B Preferred Stock


100



Issuance of common stock


274



8Net cash used in financing activities


(25,436
)


(27,067
)NET DECREASE IN CASH AND CASH EQUIVALENTS


(749
)


(2,152
)CASH AND CASH EQUIVALENTSBeginning of year


1,055



2,614CASH AND CASH EQUIVALENTSEnd of year

$
306


$
462SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid

$
6,190


$
7,252Income and franchise taxes paid


6,828



3,890NON-CASH TRANSACTIONS:Purchases of property and equipment on account

$
77


$
767Series B Preferred Stock accretion


931



887Series A Preferred Stock accretion


2,603



2,412    F-45




---



##### 



BLUESTEM BRANDS,
    INC.UNAUDITED CONDENSED CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS DEFICIT
    For the 13 Weeks Ended April 30, 2010 and April 29,
    2011
    (in thousands, except share information)
  Additional





TotalCommon Stock


Paid-In


Accumulated


ShareholdersShares


Amount


Capital


Deficit


DeficitBALANCEJanuary 29, 2010


322,028,884


$
3


$



$
(27,506
)

$
(27,503
)Issuance of common stock


262,500







9







9Stock-based compensation










90







90Series B Preferred Stock accretion














(887
)


(887
)Series A Preferred Stock accretion










(99
)


(2,313
)


(2,412
)Net income














2,039



2,039BALANCEApril 30, 2010


322,291,384


$
3


$



$
(28,667
)

$
(28,664
)BALANCEJanuary 28, 2011


333,670,246


$
3


$



$
(52,210
)

$
(52,207
)Issuance of restricted common stock


6,450,000















Issuance of common stock


2,516,306







274







274Forfeitures of restricted common stock


(400,000
)














Stock-based compensation










55







55Series B Preferred Stock accretion














(931
)


(931
)Series A Preferred Stock accretion










(329
)


(2,274
)


(2,603
)Net loss














(9,267
)


(9,267
)BALANCEApril 29, 2011


342,236,552


$
3


$



$
(64,682
)

$
(64,679
)    F-46




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the
    13 Weeks Ended April 29, 2011 and April 30,
    2010
  1.
    BASIS OF
    PRESENTATION  Business
  Customer Accounts Receivable
  Interim Financial Statements
  Segment Information
  Principles of Consolidation
 F-47




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  2.
    SUMMARY OF
    SIGNIFICANT ACCOUNTING POLICIES  Fiscal Year year-to-date
  Use of Estimates
  Seasonality
  Allowance for Doubtful Accounts
 F-48




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Promotional Material Inventories
  April 29,


January 28,


April 30,2011


2011


2010Premium inventory

$
1,171


$
1,278


$
1,022Catalog advertising work in process


6,309



8,229



5,091Deferred promotional costs


9,747



4,855



6,697Promotional material inventories

$
17,227


$
14,362


$
12,810   Derivative Liabilities in Our Own Equity Fair Value Measurements and Fair Value of Financial
    Instruments
  Revenue Recognition
    13 Weeks EndedApril 29,


April 30,2011


2010Sales by merchandise category:Home

$
53,100


$
46,588Entertainment


36,214



31,458Fashion


12,134



11,306Total merchandise sales


101,448



89,352Returns and allowances


(5,115
)


(4,937
)Commissions


2,873



2,691Net sales

$
99,206


$
87,106   Net Credit Expense (Income)
  13 Weeks EndedApril 29,


April 30,2011


2010Finance charge and fee income

$
(51,260
)

$
(38,110
)Provision for doubtful accounts


27,500



18,896Credit management costs


9,316



8,058Net credit expense (income)

$
(14,444
)

$
(11,156
)  F-49




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Stock-Based Compensation Stock-Based Compensation
  Comprehensive Income
  3.
    CUSTOMER ACCOUNTS
    RECEIVABLE    April 29,


January 28,


April 30,2011


2011


2010Customer accounts receivable

$
573,014


$
602,047


$
455,804Less allowance for doubtful accounts


(117,716
)


(109,211
)


(99,025
)Customer accounts receivablenet

$
455,298


$
492,836


$
356,779Balances 30+ days delinquent(a)

$
81,246


$
79,630


$
62,925Balances 30+ days delinquent as a percentage of total customer
    accounts receivable(b)


14.3
%


13.2
%


13.9
%     (a)
    
    Delinquent balances as of the
    customers statement cycle dates prior to or on fiscal
    period end.(b)
    
    Delinquent balances as of the
    customers statement cycle dates prior to or on fiscal
    period end as a percentage of total customer accounts receivable
    as of the customers statement cycle dates prior to or on
    fiscal period end.       F-50




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    13 Weeks EndedApril 29,


April 30,2011


2010Allowance for doubtful accountsbeginning of period

$
109,211


$
98,394Provision for doubtful accounts


27,500



18,896Principal charge-offs


(21,690
)


(20,873
)Recoveries


2,695



2,608Allowance for doubtful accountsend of period

$
117,716


$
99,025As a percentage of period-end customer accounts receivable


20.5
%


21.7
%As a percentage of balances 30+ days delinquent


144.9
%


157.4
%       April 29,


January 28,


April 30,2011


2011


2010Time since origination, as segmented in our estimate of the
    allowance for doubtful accounts:0 - 3 months

$
16,355


$
41,562


$
11,1904 - 6 months


43,956



28,037



28,9177 - 9 months


27,337



29,871



19,11710 - 12 months


27,202



21,284



18,49613 - 15 months


19,813



39,104



15,63016 - 18 months


34,886



24,813



23,72819+ months


377,071



393,365



317,392Impaired(a)


26,394



24,011



21,334Period-end customer accounts receivable

$
573,014


$
602,047


$
455,804     (a)
    
    Includes qualified hardship,
    bankrupt, deceased, and re-aged customer accounts.  4.
    NET INCOME (LOSS)
    PER SHARE   F-51




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
      13 Weeks EndedApril 29,


April 30,2011


2010Basic and Diluted Earnings per Share
    (Two-Class Method)Net (loss) income

$
(9,267
)

$
2,039Less: Preferred Stock accretion


(3,534
)


(3,299
)Undistributed loss

$
(12,801
)

$
(1,260
)Distributed Earnings per ShareBasic and DilutedPreferred Stock accretion

$
3,534


$
3,299Weighted-average preferred shares outstanding


1,502,325



1,500,835Distributed earnings per sharepreferred

$
0.0024


$
0.0022Undistributed Earnings per ShareBasicUndistributed loss

$
(12,801
)

$
(1,260
)Preferred ownership


86.2
%


88.5
%Preferred shareholders interest in undistributed income

$



$
Weighted-average preferred shares


1,502,325



1,500,835Undistributed earnings per sharepreferred

$



$
Undistributed loss

$
(12,801
)

$
(1,260
)Common ownership


13.8
%


11.5
%Common shareholders interest in undistributed loss

$
(12,801
)

$
(1,260
)Weighted-average common shares outstandingbasic


241,222



195,672Total basic loss per sharecommon

$
(0.0531
)

$
(0.0064
)   F-52




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  13 Weeks EndedApril 29,


April 30,2011


2010Diluted Earnings per Share (If-Converted Method)Net loss available to common shareholders

$
(12,801
)

$
(1,260
)Earnings distributed to preferred shareholders






Undistributed earnings allocated to preferred shareholders






Net loss used in diluted earnings per share

$
(12,801
)

$
(1,260
)Weighted average common shares outstandingbasic


241,222



195,672Preferred Stock






Series A Preferred Stock warrants






Common share equivalents






Shares used to compute loss per common sharediluted


241,222



195,672Total diluted loss per share

$
(0.0531
)

$
(0.0064
)     13 Weeks EndedApril 29,


April 30,2011


2010Preferred Stock


2,705,063



12,620,513Common stock warrants


251,878



261,054Unvested restricted stock awards


95,375



126,359Series A Preferred Stock warrants


41,742



41,742Common stock options


47,806



33,9153,141,864



13,083,583  F-53




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  5.
    FINANCING    April 29,


January 28,


April 30,2011


2011


2010Short-term debt:A/R Credit FacilityRevolving Credit Tranche
    (Tranche A)

$
181,000


$
215,000


$
Senior Secured Revolving Credit Facility










206,000Inventory Line of Credit


18,481



10,100



12,945Other notes payable


227



409



817Short-term debt

$
199,708


$
225,509


$
219,762Long-term debt:A/R Credit FacilityTerm Loan Tranche (Tranche B)

$
75,000


$
75,000


$
13% Senior Subordinated Secured Notesnet of discount
    of $1,132, $1,281 and $1,727, respectively


28,868



28,719



28,273Debt due to affiliates


400



400



400Other notes payable


346



355



382Long-term debt

$
104,614


$
104,474


$
29,055     13 Weeks EndedApril 29,


April 30,2011


2010Interest on debt

$
6,270


$
7,128Amortization of deferred charges


977



897Amortization of original issue discount


149



149Interest income


(1
)


(1
)Interest expensenet

$
7,395


$
8,173  F-54




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Eligible Underlying Receivables portfolio
    covenants
  Covenant

Covenant Level


ActualPrincipal Payment Rate (three-month average)


> 5.00
%


6.33
%Principal Default Ratio (three-month average)


< 24.00
%


15.28
%Principal Delinquency Ratio (three-month average)


< 14.50
%


7.93
%Excess Spread (three-month average)


> 8.00
%


29.78
%Adjusted Excess Spread (three-month average)


> (4.00
)%


22.84
%Principal Delinquency Ratio (one month)


< 16.00
%


7.93
%Total Payment Rate (one month)


> 6.50
%


9.10
%       6.
    FAIR VALUE
    MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS    Level 1
  Level 2
  Level 3
  Conversion Feature one-to-one
   F-55




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  ASC 815-10.
        13 Weeks Ended


Fiscal Year EndedApril 29, 2011


January 28, 2011Average annual growth rates


13.5% to 22.5%



15.8% to 23.8%Equity discount rate


19.0% to 20.0%



20.0% to 22.0%Discount rate for the fixed income components of Preferred Stock


16.0% to 18.0%



18.0% to 20.0%Probability of a liquidity event occurring in:One year


60.0%



60.0%Two years


30.0%



30.0%Three years


5.0%



5.0%Four years


5.0%



5.0%  F-56




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  Warrants
  Warrant


Number of Warrants OutstandingFair Value


Series AExercise


per Share at


Preferred


CommonIssue Date

Expiration Date

Price


Grant Date


Stock


Stock


ClassificationFebruary 24, 2004

June 21, 2012


0.01000



0.01000







31,689,078


LiabilityNovember 1, 2004

June 21, 2012


0.01000



0.01000







1,427,076


LiabilityMarch 24, 2006

March 23, 2016


0.01000



0.10000



41,742,458






LiabilityMay 15, 2008

May 15, 2018


0.01000



0.00000







216,045,882


Liability41,742,458



249,162,036       13 Weeks Ended

Fiscal Year EndedApril 29, 2011

January 28, 2011Expected volatility

33.3%

38.3%Expected term (years)

1.14-1.75

1.40-2.00Risk-free interest rate

0.24%-0.64%

0.58%   Contingent Fee ASC 815-10.
   F-57




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
      13 Weeks Ended


Fiscal Year EndedApril 29, 2011


January 28, 2011Average annual growth rates


13.5% to 22.5%



15.8% to 23.8%Discount rate


15.0
%


16.0
%Probability of a liquidity event occurring in:One year


60.0
%


60.0
%Two years


30.0
%


30.0
%Three years


5.0
%


5.0
%Four years


5.0
%


5.0
%     Fair Value Measurement Using Level 3April 29,


January 28,


April 30,2011


2011


2010LiabilitiesFair value of warrants

$
19,425


$
15,281


$
4,174LiabilitiesFair value of conversion feature in preferred
    stock


35,800



24,200



500LiabilitiesFair value of Contingent Fee


3,000



3,800



6,000$
58,225


$
43,281


$
10,674     Fair Value ofDerivativeLiabilitiesBalance January 29, 2010

$
10,674Change in fair value of derivatives in our own equity


Balance April 30, 2010

$
10,674Balance January 28, 2011

$
43,281Change in fair value of common stock warrants


3,388Change in fair value of preferred warrants


756Change in fair value of conversion feature in preferred stock


11,600Change in fair value of Contingent Fee


(800
)Balance April 29, 2011

$
58,225  F-58




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
  7.
    STOCK-BASED
    COMPENSATION  Stock Options
  Weighted-


Weighted-Average


AverageExercise


RemainingPrice


ContractualStock Options


Per Share


Term (Years)OutstandingJanuary 29, 2010


33,808,474


$
0.053



6.9Granted


5,000,000



0.004Forfeited


(1,443,750
)


0.012Exercised


(112,500
)


0.046OutstandingApril 30, 2010


37,252,224


$
0.048



6.3OutstandingJanuary 28, 2011


48,156,812


$
0.024



7.6Granted


400,000



0.049Forfeited


(1,047,500
)


0.033Exercised


(25,000
)


0.001OutstandingApril 29, 2011


47,484,312


$
0.024



7.2ExercisableApril 29, 2011


20,694,264


$
0.045



5.4     13 Weeks EndedApril 29,


April 30,2011


2010Weighted-average grant date fair value of stock options granted

$
0.0108


$
0.0008Cash received from the exercise of stock options






8Stock-based compensation expense


6



7     Determining Fair Value
  
    Expected VolatilityExpected volatility was
    determined based on historical volatility of stock prices of a
    public company peer group.  
    Expected TermExpected term represents the period
    that stock-based awards are expected to be outstanding and was
    determined based on historical experience and anticipated future
    exercise patterns, considering the contractual terms of
    unexercised stock-based awards. F-59




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
   
    Risk-Free Interest RateThe risk-free interest rate
    was based on the implied yield currently available on
    U.S. Treasury zero-coupon issues with a term equal to the
    expected term.  
    Forfeiture RateWe use historical data to estimate
    forfeitures.    13 Weeks EndedApril 29,


April 30,2011


2010Expected volatility


38.3
%


30.0
%Expected term (years)


2.0



3.0Risk-free interest rate


0.6
%


1.4
%Forfeiture rate


30.0
%


30.0
%Expected dividend yield






   Restricted Stock Awards
  Weighted-AverageRestricted


Grant DateStock


Fair ValueOutstandingJanuary 29, 2010


130,213,977


$
0.005Granted






Forfeited






Vested


(10,247,522
)


0.007OutstandingApril 30, 2010


119,966,455


$
0.005OutstandingJanuary 28, 2011


97,620,389


$
0.005Granted


6,450,000



0.054Forfeited


(400,000
)


0.009Vested


(8,057,397
)


0.003OutstandingApril 29, 2011


95,612,992


$
0.008     8.
    INCOME
    TAXES     F-60




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    9.
    COMMITMENTS AND
    CONTINGENCIES      10.
    PRO FORMA
    (UNAUDITED)      
    the conversion of all outstanding shares of our preferred stock
    into shares of our common stock upon the closing of this
    offering;  
    the payment of the accrued and unpaid dividends payable to our
    preferred stockholders upon conversion of their shares of
    preferred stock into shares of our common stock in the form of
    additional shares of common stock on the closing of this
    offering;  
    the lapse of certain anti-dilution rights of the holders of the
    216,045,882 common stock warrants issued May 2008;  
    the termination of a contingent fee agreement; and  
    the issuance of additional common stock warrants as an
    anti-dilution adjustment due to the payment of accrued and
    unpaid dividends on our preferred stock in the form of common
    stock. F-61




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    13 Weeks


Fiscal YearEnded


EndedApril 29,


January 28,2011


2011Net loss available to common shareholders, as presented

$
(12,801
)

$
(25,058
)Impact of pro forma adjustments:Loss from derivatives in our own equity

$
13,738


$
30,012Series B Preferred Stock accretion


931



3,710Series A Preferred Stock accretion


2,603



9,824Impact of pro forma adjustments


17,272



43,546Net income available to common shareholders, pro forma

$
4,471


$
18,488Pro forma basic and diluted income per share:Basic

$



$Diluted

$



$Weighted-average
    common stock outstanding:Basic and diluted, as presentedConversion of Series B Preferred StockConversion of Series A Preferred StockConversion of Series B Preferred Stock accretionConversion of Series A Preferred Stock accretionPro forma weighted-average basic common stock outstandingCommon stock warrantsIssuance of additional common stock warrants as an anti-dilution
    adjustment to warrant holdersUnvested restricted stock awardsCommon stock optionsPro forma weighted-average diluted common stock outstanding  F-62




---



##### 



BLUESTEM BRANDS,
    INC.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS (Continued)
    13 Weeks


Fiscal YearEnded


EndedApril 29,


January 28,2011


2011Common stock warrantsIssuance of additional common stock warrants as an anti-dilution
    adjustment to warrant holdersUnvested restricted stock awardsCommon stock options   11.
    SUBSEQUENT
    EVENTS   F-63




---



##### 



Bluestem brands, inc.
Now you can
FiNGERHUT. Gettington.com




---



##### 



You should rely only on the information contained in this
    prospectus. We have not authorized anyone to provide information
    different from that contained in this prospectus. We are
    offering to sell, and seeking offers to buy, shares of common
    stock only in jurisdictions where offers and sales are
    permitted. The information contained in this prospectus is
    accurate only as of the date of this prospectus, regardless of
    the time of delivery of this prospectus or of any sale of our
    common stock.
  TABLE OF
    CONTENTS
  
 PageProspectus Summary


1Risk Factors


12Forward Looking Statements


38Use of Proceeds


40Dividend Policy


41Capitalization


42Dilution


45Selected Consolidated Financial and Other Data


47Managements Discussion and Analysis of Financial Condition
    and Results of Operations


53Business


98Management


117Executive Compensation


127Principal and Selling Stockholders


151Certain Relationships and Related Party Transactions


155Description of Capital Stock


164Shares Eligible for Future Sale


171Material U.S. Federal Income and Estate Tax Considerations to
    Non-U.S.
    Holders


174Underwriting


178Conflict of Interest


180Market and Industry Data


182Legal Matters


182Experts


182Where You Can Find More Information


182Index to Financial Information


F-1  
  Until          ,
    2011 (25 days after the date of this prospectus), all
    dealers that effect transactions in these securities, whether or
    not participating in this offering, may be required to deliver a
    prospectus. This is in addition to the dealers obligation
    to deliver a prospectus when acting as an underwriter and with
    respect to unsold allotments or subscriptions.
 Bluestem Brands,
    Inc.
   Shares
  Common
    Stock
   Deutsche Bank
    Securities
  Piper
    Jaffray
  Oppenheimer &
    Co.
  William
    Blair & Company
   Prospectus
  ,
    2011




---



##### 



PART II
  INFORMATION NOT
    REQUIRED IN PROSPECTUS
  Item 13.
    Other Expenses
    of Issuance and Distribution.    AmountSEC registration fee

$
17,415FINRA filing fee


15,500NASDAQ Global Select Market listing fee


25,000Legal fees and expenses


*Accounting fees and expenses


*Printing expenses


*Transfer agent and registrar fees and expenses


*Miscellaneous expenses


*Total     *
    
    To be filed by amendment.  Item 14.
    Indemnification
    of Directors and Officers.      
    breach of a directors duty of loyalty to the corporation
    or its stockholders;
    act or omission not in good faith or that involves intentional
    misconduct or a knowing violation of law; II-1




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##### 




    unlawful payment of dividends or redemption of shares; or
    transaction from which the director derives an improper personal
    benefit.          Item 15.
    Recent Sales
    of Unregistered Securities.    TotalPerson or Class of Person to whom Securities Sold

Type of Securities

Date of Sale

Preferred


Common


ConsiderationVarious investors (1)

Series B Preferred Stock

May 2008


750,839,038






$
55,937,507Director

Series B Preferred Stock

December 2010


1,342,462






$
100,000Director

Series B Preferred Stock

April 2011


1,075,268






$
100,000Employees and/or directors (option exercises)

common stock

January 2008






47,500


$
950Employees and/or directors (restricted stock awards)

common stock

August 2008






103,800,000




*Employees and/or directors (option exercises)

common stock

August 2008






789,200


$
15,784Employees and/or directors (option exercises)

common stock

September 2008






60,900


$
1,907Employees and/or directors (restricted stock awards)

common stock

September 2008






2,300,000




*Employees and/or directors (option exercises)

common stock

November 2008






19,613


$
1,273Employees and/or directors (restricted stock awards)

common stock

December 2008






1,550,000




*Employees and/or directors (restricted stock awards)

common stock

February 2009






5,000,000




*Employees and/or directors (restricted stock awards)

common stock

April 2009






21,604,588




*Employees and/or directors (option exercises)

common stock

April 2009






200,000


$
4,809Employees and/or directors (option exercises)

common stock

May 2009






1,950,000


$
39,000 II-2




---



##### 



TotalPerson or Class of Person to whom Securities Sold

Type of Securities

Date of Sale

Preferred


Common


ConsiderationEmployees and/or directors (option exercises)

common stock

June 2009






50,000


$
450Employees and/or directors (restricted stock awards)

common stock

June 2009






31,604,588




*Employees and/or directors (restricted stock awards)

common stock

August 2009






7,369,676




*Employees and/or directors (option exercises)

common stock

October 2009






1,900,446


$
32,977Employees and/or directors (restricted stock awards)

common stock

December 2009






5,200,000




*Employees and/or directors (option exercises)

common stock

April 2010






112,500


$
5,205Employees and/or directors (option exercises)

common stock

May 2010






50,000


$
725Employees and/or directors (option exercises)

common stock

June 2010






2,518,700


$
49,824Employees and/or directors (option exercises)

common stock

July 2010






225,000


$
425Employees and/or directors (option exercises)

common stock

August 2010






293,750


$
5,875Employees and/or directors (option exercises)

common stock

September 2010






262,500


$
3,737Various investors (warrant exercises) (2)

common stock

February 2011






2,616,306


$
275,000Employees and/or directors (option exercises)

common stock

February 2011






25,000


$
25Existing investors (exchange)

common stock

April 2011






16,503,658



#Employees and/or directors (restricted stock awards)

common stock

April 2011






6,450,000



*Employees and/or directors (option exercises)

common stock

May 2011






25,000


$
25     *
    
    Grants of restricted stock under
    our 2008 Equity Incentive  Plan pursuant to which the recipients
    did not pay cash consideration for their awards.#
    
    Common stock issued in exchanges
    for same number of common stock shares pursuant to exchange
    agreements.(1)
    
    Substantially all of these shares
    were sold to related parties, as described in the prospectus
    included in Part I of this registration statement under
    Certain Relationships and Related Party
    TransactionsMay 2008 FinancingsIssuance of
    Series B Preferred Stock.(2)
    
    The parties that exercised this
    warrant were transferees of a warrant that was originally issued
    to Piper Jaffray & Co. in February 2004.   II-3




---



##### 



Grant DateNumber of


Exercise PriceDate of Issuance

Options Granted


($/Sh)April 5, 2011


400,000


$
0.049December 7, 2010


100,000



0.011November 4, 2010


2,100,000



0.011July 22, 2010


1,017,500
*


0.004June 18, 2010


13,749,700



0.004April 9, 2010


5,000,000



0.004December 8, 2009


600,000



0.001September 23, 2009


700,000



0.001July 23, 2009


600,000



0.001June 19, 2009


100,000



0.001April 7, 2009


1,000,000



0.001December 9, 2008


1,100,000



0.009September 30, 2008


6,360,000



0.009September 16, 2008


100,000



0.009August 8, 2008


5,900,000



0.009     *
    
    Includes 717,500 options issued in
    exchange for options previously granted on April 9, 2003 at
    an exercise price of $0.80.    Item 16.
    Exhibits and
    Financial Statement Schedules.   II-4




---



##### 



Item 17.
    Undertakings                 II-5




---



##### 



II-6




---



##### 



SIGNATURES
 
   
  BLUESTEM BRANDS, INC.
  By:
    /s/  Mark
    P. Wagener   
    
 Signature

Title

Date*Brian
    A. Smith

Chairman and Chief Executive Officer (principal executive
    officer)

July 7, 2011*Mark
    P. Wagener

Executive Vice President and Chief
    Financial Officer (principal financial officer)

July 7, 2011*Brad
    T. Atkinson

Vice President and Corporate Controller (principal
    accounting officer)

July 7, 2011*Michael
    M. Brown

Director

July 7, 2011*John
    A. Giuliani

Director

July 7, 2011*Roy
    A. Guthrie

Director

July 7, 2011*Michael
    A. Krupka

Director

July 7, 2011*Alice
    M. Richter

Director

July 7, 2011*Scott
    L. Savitz

Director

July 7, 2011  
    By:
    Mark P. Wagener Attorney-in-Fact
    *
    
    Signed on individuals behalf
    by attorney-in-fact II-7




---



##### 



EXHIBIT INDEX
  
 ExhibitNumber

Description1
.1

Form of Underwriting Agreement3
.1#

Composite Certificate of Incorporation of the Registrant, as
    currently in effect3
.2*

Amended and Restated Certificate of Incorporation of the
    Registrant, to be in effect upon the completion of this offering3
.3#

Bylaws of the Registrant, as currently in effect3
.4*

Amended and Restated Bylaws of the Registrant, to be in effect
    upon completion of this offering4
.1

Specimen Common Stock Certificate of the Registrant4
.2#

Stock Purchase Agreement related to the Series A Preferred
    Stock dated as of February 24, 2004, among the Registrant,
    Bain Capital Venture Fund, L.P., Battery Ventures VI, L.P.,
    Petters Company, Inc., Theodore Deikel, and the Other Purchasers
    named on Schedule I thereto4
.3#

Supplement No. 1 to Stock Purchase Agreement related to the
    Series A Preferred Stock dated as of October 27, 2004,
    among the Registrant, Bain Capital Venture Fund, L.P., Battery
    Ventures VI, L.P., Petters Company, Inc., CIGPF I Corp., and the
    Supplemental Purchasers named on Supplemental Schedule I
    thereto4
.4#

Supplement No. 2 to Stock Purchase Agreement related to the
    Series A Preferred Stock dated as of November 1, 2004,
    among the Registrant, Bain Capital Venture Fund, L.P., Battery
    Ventures VI, L.P., Petters Company, Inc., CIGPF I Corp., and the
    Supplemental Purchasers named on Supplemental Schedule I
    thereto4
.5#

Stock Purchase Agreement related to Series B Preferred
    Stock dated as of May 15, 2008, among the Registrant, Bain
    Capital Venture Fund 2007, L.P., Battery Ventures VI, L.P.,
    Prudential Capital Partners II, L.P. and the Other Purchasers
    named on Schedule I thereto4
.6#

Amended and Restated Stockholders Agreement dated as of
    May 15, 2008, among the Registrant, the Investors listed on
    Exhibit A thereto and the Stockholders listed on
    Exhibit B thereto4
.7#

Amended and Restated Investor Rights Agreement dated as of
    May 15, 2008, among the Registrant and the Investors listed
    on Exhibit A thereto4
.8#

Common Stock Purchase Warrant dated as of February 24,
    2004, issued to CIGPF I Corp.4
.9#

Common Stock Purchase Warrant dated as of November 1, 2004,
    issued to CIGPF I Corp.4
.10#

Series A Preferred Stock Purchase Warrant dated as of
    March 24, 2006, issued to Prudential Capital Partners II,
    L.P.4
.11#

Series A Preferred Stock Purchase Warrant dated as of
    March 24, 2006, issued to Prudential Capital Partners
    (Parallel Fund) II, L.P.4
.12#

Series A Preferred Stock Purchase Warrant dated as of
    March 24, 2006, issued to Prudential Capital Partners
    Management Fund II, L.P.4
.13#

Common Stock Purchase Warrants dated as of May 15, 2008,
    issued to Eton Park Fund, L.P., and Amendment dated
    March 29, 20114
.14#

Common Stock Purchase Warrants dated as of May 15, 2008,
    issued to CCP Credit Acquisition Holdings, L.L.C., and Amendment
    dated March 29, 20114
.15#

Common Stock Purchase Warrant dated as of May 15, 2008,
    issued to DB FHUT LLC, and Amendment dated March 29, 20114
.16#

Common Stock Purchase Warrant dated as of May 15, 2008,
    issued to FCOF UB Investments LLC, and Amendment dated
    March 29, 20114
.17#

Common Stock Purchase Warrant dated as of May 15, 2008,
    issued to FPF FHUT LLC, and Amendment dated March 29, 2011




---



##### 



ExhibitNumber

Description4
.18#

Common Stock Purchase Warrant dated as of May 15, 2008,
    issued to Goldman, Sachs & Co. , and Amendment dated
    March 29, 20114
.19

Amendment No. 1 to Amended and Restated Stockholders Agreement
    dated May 20, 2011, among the Registrant and the Investors
    and Common Stockholders party thereto4
.20

Amendment No. 1 to Amended and Restated Investor Rights
    Agreement dated May 20, 2011, among the Registrant and the
    Investors party thereto5
.1

Form of Opinion of Faegre & Benson LLP10
.1#

2003 Equity Incentive Plan of the Registrant10
.2(i)#

Form of Non-Qualified Stock Option Agreement (Executives) under
    2003 Equity Incentive Plan10
.2(ii)#

Form of Incentive Stock Option Agreement (Non-Executives) under
    2003 Equity Incentive Plan10
.2(iii)#

Form of Restricted Stock Agreement (CEO) under 2003 Equity
    Incentive Plan10
.2(iv)#

Form of Restricted Stock Agreement (Executives) under 2003
    Equity Incentive Plan10
.2(v)#

Form of Restricted Stock Agreement (Non-Executives) under 2003
    Equity Incentive Plan10
.3#

2005 Non-Employee Directors Equity Compensation Plan of the
    Registrant10
.4(i)#

Form of Non-Qualified Stock Option Agreement under 2005
    Non-Employee Directors Equity Compensation Plan10
.4(ii)#

Form of Restricted Stock Award Agreement under 2005 Non-Employee
    Directors Equity Compensation Plan10
.5#

2008 Equity and Incentive Plan of the Registrant10
.6(i)#

Form of Non-Qualified Stock Option Agreement (CEO Direct
    Reports) under 2008 Equity and Incentive Plan10
.6(ii)#

Form of Non-Qualified Stock Option Agreement (Executive
    Employees) under 2008 Equity and Incentive Plan10
.6(iii)#

Form of Non-Qualified Stock Option Agreement (Non-Executive
    Employees) under 2008 Equity and Incentive Plan10
.6(iv)#

Form of Restricted Stock Agreement (CEO) under 2008 Equity and
    Incentive Plan10
.6(v)#

Form of Restricted Stock Agreement (CEO Direct Reports) under
    2008 Equity and Incentive Plan10
.6(vi)#

Form of Restricted Stock Agreement (Executive Employees) under
    2008 Equity and Incentive Plan10
.6(vii)#

Form of Restricted Stock Agreement (Non-Employee Independent
    Directors) under 2008 Equity and Incentive Plan10
.7*

2011 Long-Term Incentive Plan of the Registrant10
.8(i)*

Form of Non-Qualified Stock Option Agreement (CEO) under 2011
    Long-Term Incentive Plan10
.8(ii)*

Form of Non-Qualified Stock Option Agreement (Non-CEO Employees)
    under 2011 Long-Term Incentive Plan10
.8(iii)*

Form of Restricted Stock Award Agreement (CEO) under 2011
    Long-Term Incentive Plan10
.8(iv)*

Form of Restricted Stock Award Agreement (Non-CEO Employees)
    under 2011 Long-Term Incentive Plan10
.8(v)*

Form of Restricted Stock Award Agreement (Directors) under 2011
    Long-Term Incentive Plan




---



##### 



ExhibitNumber

Description10
.9#

Credit Agreement dated as of August 20, 2010, by and among
    Fingerhut Receivables I, LLC, the Tranche A Lender
    Parties, Tranche B Lender Parties, Goldman Sachs Bank USA,
    as Administrative Agent, Collateral Agent, Joint Lead Arranger,
    Joint Bookrunner and Syndication Agent and Documentation Agent,
    and J.P. Morgan Securities Inc., as Joint Lead Arranger and
    Joint Bookrunner10
.10#

First Amendment and Waiver to Servicing Agreement dated as of
    April 21, 2011 by and among the Registrant, Fingerhut
    Receivables I, LLC and Goldman Sachs Bank USA10
.11#

Guaranty dated as of August 20, 2010, by and among the
    Registrant as Guarantor, Fingerhut Receivables I, LLC, the
    Lenders party thereto from time to time, Goldman Sachs Bank USA,
    as Administrative Agent, Collateral Agent, Joint Lead Arranger,
    Joint Bookrunner, Syndication Agent and Documentation Agent, and
    J.P. Morgan Securities Inc., as Joint Lead Arranger and
    Joint Bookrunner10
.12#

Letter agreement dated as of August 20, 2010, by and among
    the Registrant and Goldman Sachs Bank USA10
.13#

Servicing Agreement, dated August 20, 2010, between the
    Registrant, Fingerhut Receivables I, LLC and Goldman Sachs
    Bank USA10
.14#

Second Amended and Restated Credit Agreement, dated as of
    August 20, 2010 among the Registrant, the Lenders thereto,
    JP Morgan Chase Bank, N.A., as Administrative Agent, and
    J.P. Morgan Securities Inc., as Sole Bookrunner and Sole
    Lead Arranger10
.15#

Limited Waiver and Amendment No. 1 to Second Amended and
    Restated Credit Agreement, dated as of April 21, 2011, by
    and among the Registrant, the Lenders thereto, and JP Morgan
    Chase Bank, N.A., as Administrative Agent10
.16#

Second Amended and Restated Pledge and Security Agreement dated
    as of August 20, 2010 among the Registrant and JPMorgan
    Chase Bank, N.A.10
.17#

Securities Purchase Agreement dated as of March 23, 2006,
    as amended, between the Registrant, Prudential Capital Partners
    II, L.P., Prudential Capital Partners Management Fund II,
    L.P. and Prudential Capital Partners (Parallel Fund), II,
    L.P. related to $30,000,000 in 13% Senior Subordinated
    Secured Notes Due March 24, 2013 and Warrants10
.18#

Letter Agreement dated as of June 21, 2007, to the
    Securities Purchase Agreement dated as of March 23, 2006,
    as amended, between the Registrant, Prudential Capital Partners
    II, L.P., Prudential Capital Partners Management Fund II,
    L.P. and Prudential Capital Partners (Parallel Fund), II,
    L.P.10
.19#

Letter Agreement dated as of May 15, 2008, to the
    Securities Purchase Agreement dated as of March 23, 2006,
    as amended, between the Registrant, Prudential Capital Partners
    II, L.P., Prudential Capital Partners Management Fund II,
    L.P. and Prudential Capital Partners (Parallel Fund), II,
    L.P.10
.20#

Letter Agreement dated as of July 31, 2009, to the
    Securities Purchase Agreement dated as of March 23, 2006,
    as amended, between the Registrant, Prudential Capital Partners
    II, L.P., Prudential Capital Partners Management Fund II,
    L.P. and Prudential Capital Partners (Parallel Fund), II,
    L.P.10
.21#

Letter Agreement dated as of August 20, 2010, to the
    Securities Purchase Agreement dated as of March 23, 2006,
    as amended, between the Registrant, Prudential Capital Partners
    II, L.P., Prudential Capital Partners Management Fund II,
    L.P. and Prudential Capital Partners (Parallel Fund), II,
    L.P.10
.22#

Letter Agreement dated as of April 21, 2011, to the
    Securities Purchase Agreement dated as of March 23, 2006,
    as amended, between the Registrant, Prudential Capital Partners
    II, L.P., Prudential Capital Partners Management Fund II,
    L.P. and Prudential Capital Partners (Parallel Fund), II,
    L.P.10
.23#

Third Amended and Restated Pledge and Security Agreement dated
    as of August 20, 2010, between the Registrant and
    Prudential Capital Partners II, L.P.,




---



##### 



ExhibitNumber

Description10
.24#

Amended and Restated Program Agreement dated as of
    August 20, 2010, between MetaBank and the Registrant10
.25#

Amended and Restated Receivables Sale Agreement dated as of
    August 20, 2010, between MetaBank and the Registrant10
.26#

Back-up Originator Agreement for Gettington Credit Program dated
    as of August 20, 2010, between MetaBank and the Registrant10
.27#

Amended and Restated Revolving Loan Product Program Agreement
    dated as of August 20, 2010, between WebBank and the
    Registrant10
.28#

Amended and Restated Receivables Sale Agreement dated as of
    August 20, 2010, between WebBank and the Registrant10
.29#

Back-up Originator Revolving Loan Product Agreement dated as of
    January 19, 2011, between WebBank and the Registrant10
.30#

Back-up Originator Receivables Sale Agreement dated as of
    January 19, 2011 between WebBank and the Registrant10
.31#

Lease dated as of February 1, 2009, between Welsh Fingerhut
    MN, LLC and the Registrant, related to distribution facilities
    located at 6250 Ridgewood Rd, St. Cloud, MN10
.32#

Collective Bargaining Agreement dated as of April 1, 2011,
    between Bluestem Fulfillment, Inc. and Chicago and Midwest Joint
    Board, an affiliate of Workers United/SEIU21
.1#

Subsidiaries of the Registrant23
.1

Consent of Independent Registered Public Accounting Firm23
.2*

Consent of Faegre & Benson (included in
    Exhibit 5.1)24
.1#

Powers of Attorney99
.1#

Schedule ICondensed Parent Company Only Financial
    Statements     *
    
    To be filed by amendment.
    
    Confidential treatment has been
    requested with respect to certain portions of this exhibit.
    Omitted portions have been filed separately with the Securities
    and Exchange Commission.#
    
    Previously filed as an Exhibit to
    this Registration Statement.