<PAGE>

                 SEVERANCE, CONFIDENTIALITY AND NONCOMPETE AGREEMENT

                                        -oOo-

       This Severance, Confidentiality and Noncompete Agreement is entered
into as of February 19, 1999, between DAMARK INTERNATIONAL, INC., a Minnesota
corporation (including its subsidiaries, the "Company"), located in
Minneapolis, Minnesota, and Stephen P. Letak, an individual residing at 17025
41st Place North, Plymouth, Minnesota  55446 ("Executive").

                                      RECITALS:


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

       B.     The Board of Directors of the Company believes that it is
imperative to provide the Executive with certain assurances regarding severance
benefits in certain circumstances.

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

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

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

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

              (b)    "Base Salary" means the base salary payable to the
Executive, as determined by the Company from time to time.

              (c)    "Cause" means termination of the Executive in the event
that the Executive: (i) has repeatedly failed to perform material duties
specified for the position to which the Executive has been elected, which
failure is willful and deliberate; (ii) has engaged in an act or acts of
dishonesty which is or are intended to result in substantial personal enrichment
for the Executive; (iii) has knowingly engaged in conduct which is materially
injurious to the Company; (iv) is convicted of, or pleads NOLO CONTENDERE to (A)
any felony (other than any felony arising out of negligence), or (B) any crime
or offense involving dishonesty with respect to the Company; (v) has failed to
comply with the covenants contained in paragraph 6, 8, or 9 of this Agreement as
determined in accordance with paragraph 19 hereof; or (vi) knowingly provides
materially misleading information concerning the Company to the Board of
Directors of the Company, any



<PAGE>

governmental body or regulatory agency or any lender or other financing
source or proposed financing source of the Company.

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

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

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

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

       2.     TERMINATION OF EMPLOYMENT.

              (a)    TERMINATION FOR CAUSE BY THE COMPANY.  By following the
procedure set forth in paragraph 2(c), the Company shall have the right to
terminate the employment of the Executive for Cause.  If the employment of the
Executive is terminated by the Company for Cause, the Executive's rights to
compensation and benefits shall be determined under the Company's benefit plans
and policies applicable to executives of the Company then in effect.  The
Executive shall have no right to severance benefits under this paragraph 2, but
shall continue to be obligated under paragraphs 6, 8 and 9 hereof.  The
Executive shall have the right to continue health and life insurance under COBRA
laws in effect on the Termination Date.

              (b)    TERMINATION WITHOUT CAUSE; VOLUNTARY RESIGNATION.  If the
Company terminates the Executive without Cause, or if the Executive voluntarily
resigns, the Executive shall be entitled to the severance benefits described in
paragraph 2(d), provided that the Executive has executed and delivered the
general release described in paragraph 11 hereof, and provided further that if
the Executive shall voluntarily resign, the Company shall have the following
options: (i)


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<PAGE>

waive the applicability of paragraph 9(a), in which event the Executive shall
not be entitled to the severance benefits described in paragraph 2(d), or
(ii) modify the term of the covenants set forth in paragraph 9(a) to a period
of one year, in which event the Executive shall be entitled to 50% of the
severance benefits described in clauses (i), (iii) and (v) of paragraph (d)
(except as otherwise required by COBRA laws).  To exercise an option under
this clause, the Company shall given written notice specifying the option
selection to the Executive within 30 days following the Executive's
resignation. Notwithstanding such election by the Company, the Executive's
obligations under paragraphs 7, 8 and 9(b) hereof shall continue..

              (c)    NOTICE AND RIGHT TO CURE.  If the Company proposes to
terminate the employment of the Executive for Cause under paragraph 2(a), the
Company shall give written notice to the Executive specifying the reasons for
such proposed termination with particularity and, in the case of a termination
for Cause under clauses (i), (ii), (iii) and (vi) of the definition thereof, the
Executive shall have a reasonable opportunity to correct any curable situation
to the reasonable satisfaction of the Company, which period shall be no less
than 30 days from the Executive's receipt of the notice of proposed termination
nor longer than the period specified in such notice.  Termination for Cause
shall be effective as specified in paragraph 17 or, in the case of termination
for Cause under clauses (i), (ii), (iii) and (vi) of the definition thereof,
following the period of the opportunity to correct if no correction has been
made.

              (d)    SEVERANCE BENEFITS UPON TERMINATION WITHOUT CAUSE.

                     (i)    BASE SALARY.  The Company shall pay the Executive
the Executive's Base Salary for a period of 24 months from the Termination Date
in accordance with the Company's normal salary payment practices.

                     (ii)   ANNUAL BONUS.  If the Executive's Termination Date
is on or after July 1 in any year, the Company shall pay the Executive the
Executive's Annual Bonus, pro rated for the portion of the year of termination
from January to the Termination Date, and such amount shall be paid at the time
the Annual Bonus for that year is paid to other executives of the Company.

                     (iii)  DISABILITY, LIFE INSURANCE AND MEDICAL/DENTAL
COVERAGE; NO UNPAID VACATION OR SICK LEAVE.  The Company, shall continue the
disability, life insurance and medical/dental coverage provided to the Executive
immediately prior to the Termination Date, subject to then existing Executive
contribution requirements.  Such coverage shall be provided through the earlier
to occur of the second anniversary of the Termination Date or the date on which
the Executive obtains comparable coverage provided by a new employer.  If and to
the extent additional benefits are available, the Executive has the right to
continue health and life insurance benefits under COBRA laws in effect on the
Termination Date.  The Executive acknowledges that the number of months of
health and life insurance benefits available under this Agreement exceed by six
months the number of required months under current law.  The Executive shall not
be deemed to have and shall not be paid for any unpaid vacation or sick leave.

                     (iv)   STOCK INCENTIVES.  The Executive's rights and the
Company's obligations with respect to Stock Incentives shall be as described in
the applicable Company plan and the applicable separate agreements with the
Executive, provided that in no event shall the


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<PAGE>

payment of severance benefits hereunder be deemed to be an extension of
Executive's employment for purposes of the vesting provisions of such plans
and agreements.

                     (v)    OUTPLACEMENT SERVICES.  The Company shall pay the
reasonable fees and expenses of up to 10% of the Executive's Base Salary for the
Executive's use of a qualified outplacement service, provided that the use of
such outplacement counseling is initiated within 90 days of the Termination
Date.

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

                     (vii)  REIMBURSEMENT OF BUSINESS EXPENSES.  The Company
will reimburse the Executive for all business expenses incurred prior to the
Termination Date at the time and in the manner consistent with Company policy.

       3.     BENEFITS IN LIEU OF SEVERANCE PAY POLICY.  The severance benefits
provided for in paragraph 2 hereof are in lieu of any benefits that would
otherwise be provided to the Executive under any Company severance pay policy,
and the Executive shall not be entitled to any benefits under any Company
severance pay policy, provided that any agreement between the Executive and the
Company with respect to severance pay in the event of a change in the control of
the Company (as defined in any such agreement) shall supersede this Agreement if
there has been a change in control as to which such agreement applies and so
long as such agreement applies.

       4.     NO FUNDING OF SEVERANCE.  Nothing contained in this Agreement or
otherwise shall require the Company to segregate, earmark or otherwise set aside
any funds or other assets to provide for any payments required to be made under
paragraph 2 hereof, and the rights of the Executive to any benefits hereunder
shall be solely those of a general, unsecured creditor of the Company.

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

       6.     COVENANT TO PROTECT CONFIDENTIAL INFORMATION.  The Executive
acknowledges that in connection with the Executive's employment by the Company,
the Executive will be brought into contact with Confidential Information, and
the Executive agrees that:


                                       4
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              (a)    The Executive will not disclose to any Person or entity any
Confidential Information, either during or after the term of his employment,
except to designated employees of the Company (only as such employees need such
information and are designated by the Company as needing such information), and
attorneys, accountants or other representatives of the Company as may be
necessary or appropriate in the ordinary course of performing the Executive's
duties as an executive of the Company, or otherwise with the Company's express
prior written consent.

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

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

       7.     TERMINATION OF OBLIGATION OF CONFIDENTIALITY.  The confidentiality
obligations imposed by Section 6 of this Agreement shall cease to apply to
Confidential Information after the EARLIEST of the date on which the Executive
provides the Company with written evidence clearly establishing that the
Confidential Information which has been treated by the Company as Confidential
Information:  (i) was known to Executive before it was obtained from the
Company; (ii) was publicly available on the date of first receipt from the
Company; (iv) has become generally known in the Company's industry through no
fault of the Executive; (v) has been disclosed to Executive free of any
obligation of confidentiality by a third party who has the right to disclose the
same and who did not derive the information from the Company; or (vi) was
independently developed by the Executive without the use of the Confidential
Information.

       8.     WORK PRODUCT.  The Executive acknowledges that Work Product
belongs solely to the Company.

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

              (b)    Pursuant to the provisions of Minn. Stat. Section 181.78,
the Company hereby notifies the Executive that this Section 8 does not apply to
an invention for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed entirely on the
Executive's own time, and (i) which does not relate (A) directly to the business
of the Company, or (B) to the Company's actual or demonstrably anticipated
research or


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development, or (ii) which does not result from any work performed by the
Executive for the Company.

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

              (a)    The Executive acknowledges that the Company currently
conduct throughout the United States (the "Territory") the business of direct
marketing of merchandise and membership services, including without limitation
customer segmentation and modeling (the "Subject Business").  Accordingly, in
consideration of the covenants of the Company pursuant to this Agreement, from
the date hereof until the second anniversary of the Termination Date (the
"Noncompete Period"), the Executive shall not, directly or indirectly, enter
into, engage in, assist, give or lend funds to or otherwise finance, be employed
by or consult with, or have a financial or other interest in, any business which
engages in the Subject Business and markets programs, products or services
similar to those of the Company as of the Termination Date, whether for or by
himself or as an independent contractor, agent, stockholder, partner or joint
venturer for any other person, provided that the aggregate ownership by the
Executive of no more than two percent of the outstanding equity securities of
any Person, which securities are traded on a national or foreign securities
exchange, quoted on the Nasdaq Stock Market or other automated quotation system
shall not be deemed to be giving or lending funds to, otherwise financing or
having a financial interest in a competitor.  In the event that any Person in
which the executive has any financial or other interest directly or indirectly
enters into the Subject Business in the Territory during the Noncompete Period,
the Executive shall divest all of his interest (other than any amount permitted
under this paragraph) in such Person within 30 days after such Person enters
into the Subject Business in the Territory.

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



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

       10.    REMEDIES.     In the event of the violation or threatened
violation by the Executive of any of the covenants contained in this
Agreement, in addition to any other remedy available in law or in equity, the
Company shall have (i) the right and remedy of specific enforcement,
including injunctive relief, it being acknowledged and agreed that any such
violation or threatened violation will cause irreparable injury to the
Company and that monetary damages will not provide an adequate remedy, (ii)
the right and remedy to terminate any payments or benefits required to be
made or provided to the Executive hereunder upon violation by the Executive
of any provisions of paragraphs 6, 8 or 9 hereof, but without limiting the
Executive's obligations under paragraphs 6, 8 or 9 hereof, provided that all
such payments shall be promptly paid over to the Executive if a court of
competent jurisdiction determines that the Executive did not violate such
provisions, (iii)  the right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments, or other benefits, other than those payable under this Agreement,
derived or received by the Executive or the entity in competition with the
Company as the result of any transactions constituting a breach of any part
of paragraphs 6, 8 and 9 of this Agreement, and Executive agrees to account
for and pay over to the Company such amounts promptly upon final
determination by a court of competent jurisdiction, (iv) the right to any and
all damages available as a matter of law, and (v) if the Company is the
prevailing party, costs and expenses incurred by the Company in pursuing its
rights under this Agreement, including reasonable attorneys' fees and other
litigation expenses.

       11.    RELEASE.  Prior to the payment of any benefits hereunder, the
Company will submit to the Executive for execution a document constituting a
general release of the Company, its officers, directors, employees, agents
and others (the "Released Parties") from any and all claims, complaints,
charges, actions, causes of action, demands, rights, damages, obligations,
expenses, attorneys' fees and liabilities of whatever kind or nature, in law,
equity or otherwise, whether then known or unknown, which the Executive,
individually or as a member of a class, then has against the Released
Parties, arising out of or in any way connected with the Executive's
employment relationship with the Company or any successor. The general
release will specifically cover any and all claims under state and federal
law in effect on the date of the general release, without limitation to the
matters generally described herein.  Upon receipt of the form of general
release, the Executive agrees to discuss the content and effect of the
general release with counsel selected by the Executive.  If, upon the advice
of counsel, the Executive declines execution of the general release, the
Executive shall not be entitled to the severance benefits described in
paragraph 2(d) hereof, but the Executive's obligations under paragraphs 6, 8
and 9(b) hereof shall be in full force and effect. Contemporaneously with the
delivery of the general release by the Executive, the Company shall deliver a
general release to the Executive (other than an Executive who has been
terminated for Cause) releasing the Executive from any and all claims,
complaints, charges, actions, causes of action, demands, rights, damages,
obligations, expenses, attorneys' fees and liabilities of whatever


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kind or nature, in law, equity or otherwise, whether known or unknown, which
the Company has against the Executive, arising out of or connected with the
Executive's employment relationship with the Company, provided that the
release shall not apply to any claim arising with respect to the Executives
obligations pursuant to paragraphs 6, 8 or 9 hereof.

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

       13.    APPLICABLE LAW; JURISDICTION.  This Agreement shall be construed,
interpreted and enforced according to the statutes, rules of law and court
decisions of the State of Minnesota without regard to conflict of law
provisions.  The Executive hereby submits to the jurisdiction of, and waives any
venue objections against, the State of Minnesota and the federal courts of the
United States located in such state in respect of all actions arising out of or
in connection with the interpretation or enforcement of paragraphs 6, 8 or 9 of
this Agreement, and the Executive consents to the personal jurisdiction of such
courts for such purposes.

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

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

       16.    TERM OF AGREEMENT; SURVIVAL.  The rights and obligations of the
parties pursuant to this Agreement shall survive the Termination Date to the
extent that any performance is required hereunder after the expiration or
termination of such term.  Without limiting the generality of the foregoing, the
obligations of the Executive under paragraphs 6 and 8 shall continue forever and
the obligations of the Executive under paragraph 9 shall continue for the period
specified therein.

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


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<PAGE>

Financial Officer, or to such other address as the party to be notified may
specify by written notice to the other party.

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

       19.    ARBITRATION.  In the event of a dispute between the Company and
the Executive regarding the Executive's failure to comply with the covenants
contained in paragraphs 6, 8 or 9 of this Agreement for purposes of determining
a basis for a termination for Cause pursuant to clause (v) of the definition
thereof, it is the intention of the parties that the dispute shall be resolved
as expeditiously as possible, consistent with fairness to both sides.
Accordingly, any such matter shall be resolved by binding private arbitration
before three arbitrators.  Either party may request arbitration by written
notice to the other party.  Within 30 days of receipt of such notice by the
opposing party, each party shall appoint a disinterested arbitrator and the two
arbitrators selected thereby shall appoint a third neutral arbitrator.  In the
event the two arbitrators cannot agree upon the third arbitrator within 10 days
after their appointment, then the neutral arbitrator shall be appointed by the
Chief Judge of Hennepin County (Minnesota) District Court.  Any arbitration
proceeding conducted hereunder shall be in the City of Minneapolis and shall
follow the procedures set forth in the Rules of Commercial Arbitration of the
American Arbitration Association, and both sides shall cooperate in as
expeditious a resolution of the proceeding as is reasonable under the
circumstances. The arbitrators shall apply the law of the State of Minnesota.
The arbitration panel shall have the power to enter any relief it deems fair and
just on any claim, including interim and final equitable relief, along with any
procedural order that is reasonable under the circumstances.  Any award rendered
by any arbitration panel, or a majority thereof, may be filed and a judgment
obtained in any court having jurisdiction over the parties unless the relief
granted in the award is delivered within 10 days of the award.

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


                                          DAMARK INTERNATIONAL, INC.



                                          By:    /s/ Mark A. Cohn
                                             ---------------------------------
                                          Its:   Chairman/CEO
                                              --------------------------------

                                          EXECUTIVE



                                                 /s/ Stephen P. Letak
                                          ------------------------------------
                                          Name:  Stephen P. Letak


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