10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2010

or

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

For the transition period from ____________ to _________________.

Commission file number 0-16611

GSI COMMERCE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization) 04-2958132
(I.R.S. employer identification no.)

935 FIRST AVENUE, KING OF PRUSSIA, PA	19406
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (610) 491-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

There were 62,113,936 shares of the registrant’s Common Stock outstanding as of the close of business on May 3, 2010.

GSI COMMERCE, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 3, 2010

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of January 2, 2010 and April 3, 2010		3
Condensed Consolidated Statements of Operations for the three-month periods ended April 4, 2009 and April 3, 2010		4
Condensed Consolidated Statements of Cash Flows for the three-month periods ended April 4, 2009 and April 3, 2010		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		26
Item 1A. Risk Factors		26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3. Defaults Upon Senior Securities		27
Item 4. (Reserved)		27
Item 5. Other Information		27
Item 6. Exhibits		28
SIGNATURES		29
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

The Company’s fiscal year ends on the Saturday nearest the last day of December. The Company’s fiscal year ends are as follows:

References To	Refer to the Years Ended/Ending
Fiscal 2009	January 2, 2010
Fiscal 2010	January 1, 2011
Fiscal 2011	December 31, 2011
Fiscal 2012	December 29, 2012
Fiscal 2013	December 28, 2013
Fiscal 2014	January 3, 2015

2

PART I

ITEM 1: FINANCIAL STATEMENTS

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(unaudited)

	January 2,			April 3,
	2010			2010
ASSETS
Current assets:
Cash and cash equivalents	$	228,430		$	132,403
Accounts receivable, net of allowance of $4,648 and $3,641		70,582			53,879
Inventory		55,678			58,299
Deferred tax assets		12,347			14,436
Prepaid expenses and other current assets		13,187			13,678
Total current assets		380,224			272,695
Property and equipment, net		163,329			165,518
Goodwill		373,003			372,611
Intangible assets, net of accumulated amortization of $29,172 and $33,201		132,875			128,723
Long-term deferred tax assets		—			7,371
Other assets, net of accumulated amortization of $17,264 and $17,875		12,417			12,949
Total assets	$	1,061,848		$	959,867
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	126,914		$	71,094
Accrued expenses		150,173			95,858
Deferred revenue		20,645			21,553
Convertible notes		55,443			56,675
Current portion of long-term debt		5,260			5,246
Total current liabilities		358,435			250,426
Convertible notes		116,948			118,525
Long-term debt		28,142			26,632
Deferred acquisition payments		63,763			65,960
Deferred tax liabilities		8,534			—
Deferred revenue and other long-term liabilities		9,686			9,596
Total liabilities		585,508			471,139
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding as of January 2, 2010 and April 3, 2010		—			—
Common stock, $0.01 par value, 90,000,000 shares authorized; 60,033,393 and 61,480,819 shares issued as of January 2, 2010 and April 3, 2010 respectively; 60,033,190 and 61,480,616 shares outstanding as of January 2, 2010 and April 3, 2010, respectively		600			615
Additional paid in capital		642,852			664,053
Accumulated other comprehensive loss		(1,498	)		(2,201	)
Accumulated deficit		(165,614	)		(173,739	)
Total stockholders’ equity		476,340			488,728
Total liabilities and stockholders’ equity	$	1,061,848		$	959,867

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

3

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended
	April 4,			April 3,
	2009			2010
Revenues:
Net revenues from product sales	$	106,191		$	159,275
Service fee revenues		90,284			113,317
Net revenues		196,475			272,592
Costs and expenses:
Cost of revenues from product sales		79,355			117,474
Marketing		10,861			10,807
Account management and operations, inclusive of $2,256 and $2,446 of stock-based compensation		57,741			77,694
Product development, inclusive of $1,451 and $1,869 of stock-based compensation		28,374			34,317
General and administrative, inclusive of $3,247 and $2,616 of stock-based compensation		19,277			24,397
Depreciation and amortization		15,401			18,761
Changes in fair value of deferred acquisition payments		—			2,074
Total costs and expenses		211,009			285,524
Loss from operations		(14,534	)		(12,932	)
Other (income) expense:
Interest expense		4,796			5,208
Interest income		(151	)		(234	)
Other (income) expense		229			474
Total other expense		4,874			5,448
Loss before income taxes		(19,408	)		(18,380	)
Benefit for income taxes		(7,298	)		(10,255	)
Net loss	$	(12,110	)	$	(8,125	)
Basic and diluted loss per share	$	(0.25	)	$	(0.13	)
Weighted average shares outstanding — basic and diluted		47,926			60,446

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

4

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Three Months Ended
	April 4,			April 3,
	2009			2010
Cash Flows from Operating Activities:
Net loss	$	(12,110	)	$	(8,125	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		12,962			14,646
Amortization		2,439			4,115
Amortization of discount on convertible notes		2,546			2,809
Changes in fair value of deferred acquisition payments		—			2,074
Stock-based compensation		6,954			6,931
Foreign currency transaction losses		238			475
Deferred income taxes		(7,250	)		(11,191	)
Changes in operating assets and liabilities:
Accounts receivable, net		16,802			16,420
Inventory		3,483			(2,621	)
Prepaid expenses and other current assets		(549	)		(561	)
Other assets, net		1,965			149
Accounts payable and accrued expenses		(97,854	)		(110,530	)
Deferred revenue		(2,236	)		238
Net cash used in operating activities		(72,610	)		(85,171	)
Cash Flows from Investing Activities:
Payments for acquisitions of businesses, net of cash acquired		(750	)		—
Cash paid for property and equipment, including internal use software		(7,411	)		(15,868	)
Net cash used in investing activities		(8,161	)		(15,868	)
Cash Flows from Financing Activities:
Debt issuance costs paid		(38	)		(856	)
Repayments of capital lease obligations		(1,195	)		(1,473	)
Repayments of mortgage note		(47	)		(50	)
Excess tax benefit in connection with exercise of stock options and awards		—			978
Proceeds from exercise of common stock options		72			6,933
Net cash provided by (used in) financing activities		(1,208	)		5,532
Effect of exchange rate changes on cash and cash equivalents		(231	)		(520	)
Net decrease in cash and cash equivalents		(82,210	)		(96,027	)
Cash and cash equivalents, beginning of period		130,315			228,430
Cash and cash equivalents, end of period	$	48,105		$	132,403
Supplemental Cash Flow Information
Cash paid during the period for interest	$	703		$	866
Cash paid during the period for income taxes		1,458			602
Noncash Investing and Financing Activities:
Accrual for purchases of property and equipment		3,581			3,633

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

5

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

NOTE 1—BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of GSI Commerce, Inc. and Subsidiaries (“the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.

The accompanying financial information is unaudited; however, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the financial position, results of operations and cash flows for the periods reported have been included. The results of operations for the periods reported are not necessarily indicative of those that may be expected for a full year.

The financial statements presented include the accounts of the Company and all wholly-owned subsidiaries. All inter-company balances and transactions among consolidated entities have been eliminated.

This quarterly report should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements presented in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2010, filed with the Securities and Exchange Commission (“SEC”) on March 5, 2010.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.

Accrued Expenses: Accrued expenses include $36,524 of amounts payable to the Company’s clients as of April 3, 2010. No other item included in accrued expenses was greater than 5% of total current liabilities as of April 3, 2010

Accrued expenses include $62,705 of amounts payable to the Company’s clients and accrued payroll of $25,617 as of January 2, 2010. No other item included in accrued expenses was greater than 5% of total current liabilities as of January 2, 2010.

Client Revenue Share: Client revenue share charges are payments made to the Company’s clients in exchange for the use of their brand names, logos, the promotion of its clients’ URLs, Web stores and toll-free telephone numbers in clients’ marketing and communications materials, the implementation of programs to provide incentives to consumers to shop through the e-commerce businesses that the Company operates for its clients and other programs and services provided to the consumers of the e-commerce businesses that the Company operates for its clients, net of amounts reimbursed to the Company by its clients. Client revenue share is calculated as either a percentage of product sales or a guaranteed annual amount. Client revenue share charges were $6,178 for the three-month period ended April 3, 2010 and $7,274 for the three-month period ended April 4, 2009 and, are included in marketing expenses in the Condensed Consolidated Statements of Operations.

Fulfillment Costs: The Company defines fulfillment costs as personnel, occupancy and other costs associated with its fulfillment centers, personnel and other costs associated with its logistical support and vendor operations departments and third-party warehouse and fulfillment services costs. Fulfillment costs were $25,085 for the three-month period ended April 3, 2010 and $20,348 for the three-month period ended April 4, 2009, and are included in account management and operations expenses in the Condensed Consolidated Statements of Operations.

6

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Recent Accounting Pronouncements:

The following is a summary of recent accounting standards issued by the Financial Accounting Standards Board (“FASB”):

Subject	Date Issued	Summary	Effect of Adoption	Effective Date for The Company
Multiple Element Arrangements	October 2009	Removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. Replaces references to “fair value” with “selling price” to distinguish from the fair value measurements required under accounting standards for “Fair Value Measurements.” Provides a hierarchy that entities must use to estimate the selling price, eliminates the use of the residual method for allocation, and expands the ongoing disclosure requirements.	No material impact.	January 2, 2011, with early adoption permitted. The Company chose to prospectively adopt this standard on January 3, 2010

NOTE 3— FAIR VALUE OF FINANCIAL AND NONFINANCIAL INSTRUMENTS

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis are as follows (in thousands):

	Fair Value Measurements on January 2, 2010
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents:(1)
Money market mutual funds	$	13,606	$	—	$	—
Liabilities
Deferred acquisition payments(2)	$	—	$	—	$	60,963

	Fair Value Measurements on April 3, 2010
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents:(1)
Money market mutual funds	$	13,606	$	—	$	—
Liabilities
Deferred acquisition payments(2)	$	—	$	—	$	63,037

(1)

Cash and cash equivalents totaled $132,403 as of April 3, 2010, and were comprised of $13,606 of money market mutual funds and $118,797 of bank deposits. Cash and cash equivalents totaled $228,430 as of January 2, 2010, and were comprised of $13,606 of money market mutual funds and $214,824 of bank deposits.

(2)

Deferred acquisition payments represent the fair value of estimated acquisition payments that are contingent upon Retail Convergence, Inc. (“Rue La La”) achieving specified minimum earnings thresholds over one or more years. The Company utilized a discounted cash flow model that incorporated several different assumptions of future performance and a discount rate of 13.6% to determine fair value. The Company accreted $3,025 of its deferred acquisition payments from the acquisition date of Rue La La through April 3, 2010, and $951 through January 2, 2010, and the corresponding charge was recorded to changes in fair value of deferred acquisition payments on the Condensed Consolidated Statements of Operations.

7

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3):

	Three Months Ended
	April 3, 2010
Balance, beginning of period	$	60,963
Changes in fair value of deferred acquisition payments included in the Company’s Condensed Consolidated Statements of Operations		2,074
Balance, end of period	$	63,037

NOTE 4—PROPERTY AND EQUIPMENT

The major classes of property and equipment, at cost, as of January 2, 2010 and April 3, 2010 are as follows:

	January 2,			April 3,
	2010			2010
Computer hardware and software	$	231,954		$	247,019
Building and building improvements		44,822			44,886
Furniture, warehouse and office equipment, and other		45,722			46,478
Land		7,889			7,889
Leasehold improvements		8,847			8,863
Capitalized leases		29,132			29,132
		368,366			384,267
Less: Accumulated depreciation		(205,037	)		(218,749	)
Property and equipment, net	$	163,329		$	165,518

The Company’s net book value in capital leases, which consist of warehouse equipment and computer hardware, was $17,186 as of April 3, 2010 and $18,500 as of January 2, 2010. Amortization of capital leases is included within depreciation and amortization expense on the Condensed Consolidated Statements of Operations. Interest expense recorded on capital leases was $321 for the three-month period ended April 3, 2010 and $396 for the three-month period ended April 4, 2009.

8

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

NOTE 5—GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill for each of the Company’s reportable segments:

	E-Commerce			Marketing		Consumer
	Services			Services		Engagement		Consolidated
January 2, 2010	$	83,090		$	117,025	$	172,888	$	373,003
Foreign currency translation		(392	)		—		—		(392	)
April 3, 2010	$	82,698		$	117,025	$	172,888	$	372,611

The Company’s intangible assets are as follows:

							Weighted-
	January 2,			April 3,			Average
	2010			2010			Life
							(in years)
Gross carrying value of intangible assets subject to amortization:
Customer contracts	$	41,190		$	41,190			2.4
Member relationships		22,200			22,200			2.6
Supplier relationships		11,186			11,186			3.4
Non-compete agreements		4,079			4,079			3.0
Purchased technology		4,805			4,805			4.0
Trade names		840			840			1.5
Foreign currency translation		(482	)		(605	)
		83,818			83,695			2.7
Accumulated amortization:
Customer contracts		(22,907	)		(24,544	)
Member relationships		(489	)		(2,029	)
Supplier relationships		—			(236	)
Non-compete agreements		(2,888	)		(3,227	)
Purchased technology		(2,428	)		(2,735	)
Trade names		(532	)		(578	)
Foreign currency translation		72			148
		(29,172	)		(33,201	)
Net carrying value:
Customer contracts		18,283			16,646
Member relationships		21,711			20,171
Supplier relationships		11,186			10,950
Non-compete agreements		1,191			852
Purchased technology		2,377			2,070
Trade names		308			262
Foreign currency translation		(410	)		(457	)
Total intangible assets subject to amortization, net		54,646			50,494
Indefinite life intangible assets:
Trade names		78,229			78,229
Total intangible assets	$	132,875		$	128,723

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GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Amortization expense of intangible assets was $4,105 for the three-month period ended April 3, 2010 and $2,448 for the three-month period ended April 4, 2009. Estimated future amortization expense related to intangible assets as of April 3, 2010, is as follows:

Fiscal 2010	$	11,989
Fiscal 2011		14,260
Fiscal 2012		10,105
Fiscal 2013		7,715
Fiscal 2014		6,425
	$	50,494

NOTE 6—ACQUISITIONS

On November 17, 2009, the Company completed the acquisition of 100% of the outstanding common stock of Rue La La pursuant to the terms of an Agreement and Plan of Merger dated October 27, 2009.

Unaudited Pro Forma Financial Information

The financial information in the table below summarizes the combined results of operations of the Company and Rue La La on a pro forma basis, as though the companies had been combined as of the beginning of each of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had actually taken place at the beginning of each of the periods presented and is not intended to be a projection of future results or trends.

	Three Months Ended
	April 4,			April 3,
	2009			2010
Net revenues	$	224,658		$	272,592
Net loss	$	(17,537	)	$	(8,125	)

10

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

NOTE 7—LONG-TERM DEBT AND CREDIT FACILITY

The following table summarizes the Company’s long-term debt as of:

	January 2,			April 3,
	2010			2010
Convertible notes	$	172,391		$	175,200
Notes payable (1)		12,479			12,428
Capital lease obligations		20,923			19,450
Line of credit		—			—
Total debt		205,793			207,078
Less: Current portion of convertible notes		(55,443	)		(56,675	)
Less: Current portion of notes payable		(195	)		(199	)
Less: Current portion of capital lease obligations		(5,065	)		(5,047	)
Total long-term debt	$	145,090		$	145,157

(1) The estimated fair market value of the notes payable approximated their carrying value as of April 3, 2010 and January 2, 2010.

3% Convertible Notes due 2025

In 2005, the Company completed a public offering of $57,500 aggregate principal amount of 3% subordinated convertible notes due June 1, 2025. The notes bear interest at 3%, payable semi-annually on June 1 and December 1.

Holders may convert the notes into shares of the Company’s common stock (or cash or a combination of the Company’s common stock and cash, if the Company so elects) at a conversion rate of 56.1545 shares per $1,000 principal amount of notes (representing a conversion price of approximately $17.81 per share). Based on the Company’s closing stock price of $27.88 on April 3, 2010, the if-converted value of the notes exceeds the aggregate principal amount of the notes by $32,515.

In April 2010, the Company called the notes for redemption on June 7, 2010. Any notes not converted to common stock prior to the close of business on June 4, 2010, will be redeemed for cash at 100% of the principal amount of the notes.

The following table provides additional information about the Company’s 3% convertible notes:

	As of		As of
	January 2, 2010		April 3, 2010
Carrying amount of the equity component	$	18,187	$	18,187
Principal amount of the liability component	$	57,500	$	57,500
Unamortized discount of liability component	$	2,057	$	825
Net carrying amount of liability component	$	55,443	$	56,675
Remaining amortization period of discount			2 months
Effective interest rate on liability component				12.00	%

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GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The following table provides the components of interest expense for the Company’s 3% convertible notes:

	Three Months Ended
	April 4,		April 3,
	2009		2010
Amortization of the discount on the liability component	$	1,096	$	1,232
Contract interest coupon		431		431
Amortization of the liability component of the issue costs		97		104
Interest expense	$	1,624	$	1,767

The estimated fair market value of the 3% subordinated convertible notes was $89,916 as of April 3, 2010 and $82,584 as of January 2, 2010 based on quoted market prices.

2.5% Convertible Notes due 2027

In 2007, the Company completed a private placement of $150,000 of aggregate principal amount of 2.5% subordinated convertible notes due June 1, 2027, raising net proceeds of approximately $145,000, after deducting initial purchaser’s discount and issuance costs. The notes bear interest at 2.5%, payable semi-annually on June 1 and December 1.

Holders may convert the notes into shares of the Company’s common stock (or cash or a combination of the Company’s common stock and cash, if the Company so elects) at a conversion rate of 33.3333 shares per $1,000 principal amount of notes (representing a conversion price of approximately $30.00 per share) beginning on March 1, 2014. Holders can require the Company to repurchase the notes for 100% of principal amount of the notes on June 1, 2014. At any time on or after June 8, 2014, the Company may redeem any of the notes for cash at a redemption price of 100% of their principal amount, plus accrued and unpaid interest, if any, up to but excluding, the redemption date. Based on the Company’s closing stock price of $27.88 on April 3, 2010, the if-converted value of the notes does not exceed the aggregate principal amount of the notes.

The following table provides additional information about the Company’s 2.5% convertible notes:

	As of		As of
	January 2, 2010		April 3, 2010
Carrying amount of the equity component	$	26,783	$	26,783
Principal amount of the liability component	$	150,000	$	150,000
Unamortized discount of liability component	$	33,052	$	31,475
Net carrying amount of liability component	$	116,948	$	118,525
Remaining amortization period of discount			50 months
Effective interest rate on liability component				8.60	%

The following table provides the components of interest expense for the Company’s 2.5% convertible notes:

	Three Months Ended
	April 4,		April 3,
	2009		2010
Amortization of the discount on the liability component	$	1,450	$	1,577
Contract interest coupon		938		938
Amortization of the liability component of the issue costs		112		119
Interest expense	$	2,500	$	2,634

The estimated fair market value of the 2.5% subordinated convertible notes was $165,375 as of April 3, 2010 and $157,125 as of January 2, 2010 based on quoted market prices.

12

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Credit Facility

In March 2010, the Company amended and expanded its existing secured revolving credit facility. By exercising the accordion feature in its existing credit facility, the Company expanded the credit facility by $60,000 to $150,000. The credit facility is available for letters of credit, working capital, and general corporate purposes, including possible acquisitions. The $150,000 secured revolving credit facility provides for the issuance of up to $30,000 of letters of credit, which is included in the $150,000 available under the secured revolving credit facility. The secured revolving credit facility is collateralized by substantially all of the Company’s assets. The Company may elect to have amounts outstanding under the credit facilities bear interest at either a LIBOR rate plus an applicable margin of 2.0% to 3.25%, the prime rate plus an applicable margin of 2.0% to 3.25%, Daily LIBOR plus 1.0% plus an applicable margin of 2.0% to 3.25%, or at the Federal Funds Open Rate plus 0.5% plus an applicable margin of 2.0% to 3.25%. The applicable margin is determined by the leverage ratio of funded debt to EBITDA, as defined in the credit facility. The Company had no outstanding borrowings and $7,236 of outstanding letters of credit under the secured revolving credit facility as of April 3, 2010.

NOTE 8—COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is involved in various litigation incidental to its business, including alleged contractual claims, claims relating to infringement of intellectual property rights of third parties, claims relating to the manner in which goods are sold through its integrated platform and claims relating to the Company’s collection of sales taxes in certain states. The Company collects sales taxes for goods owned and sold by it and shipped into certain states. As a result, the Company is subject from time to time to claims from other states alleging that the Company failed to collect and remit sales taxes for sales and shipments of products to customers in states.

Based on the merits of the cases and/or the amounts claimed, the Company does not believe that any claims are likely to have a material adverse effect on its business, financial position or results of operations. The Company may, however incur substantial expenses and devote substantial time to defend these claims whether or not such claims are meritorious. In addition, litigation is inherently unpredictable. In the event of a determination adverse to the Company, the Company may incur substantial monetary liability and may be required to implement expensive changes in its business practices, enter into costly royalty or licensing agreements, or begin to collect sales taxes in states in which it previously did not. An adverse determination could have a material adverse effect on the Company’s business, financial position or results of operations. Expenditures for legal costs are expensed as incurred.

13

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Operating and Capital Commitments

The following summarizes the Company’s principal operating and capital commitments as of April 3, 2010:

	Payments due by fiscal year
	2010		2011		2012		2013		2014		Thereafter		Total
Operating lease obligations(1)	$	15,539	$	18,738	$	18,476	$	14,375	$	10,876	$	17,662	$	95,666
Purchase obligations and marketing commitments(1)		51,757		13,403		13,403		4,876		3,570		45,000		132,009
Client revenue share payments(1)		13,638		21,400		14,658		4,368		4,491		24,269		82,824
Debt interest(1)		5,632		4,509		4,497		4,481		2,278		8,784		30,181
Debt obligations		57,645		209		563		237		150,253		11,022		219,929
Capital lease obligations, including interest(2)		4,558		6,119		5,815		3,671		1,789		—		21,952
Deferred acquisition payments(3)		1,250		1,050		750		1,000		—		—		4,050
Total	$	150,019	$	65,428	$	58,162	$	33,008	$	173,257	$	106,737	$	586,611

(1)	Not required to be recorded in the Condensed Consolidated Balance Sheet as of April 3, 2010 in accordance with accounting principles generally accepted in the United States of America.
(2)	Capital lease obligations, excluding interest, are recorded in the Condensed Consolidated Balance Sheets.
(3)	The Company will be obligated to pay up to an additional $170,000 over a three year period beginning with fiscal 2010 contingent on Rue La La’s achievement of certain financial targets, of which the Company has the ability to pay up to $44,100 with shares of the Company’s common stock.

Approximately $2,161 of unrecognized tax benefits have been recorded as liabilities as of April 3, 2010, and the Company is uncertain as to if or when such amounts may be settled; as a result, these obligations are not included in the table above. Changes to these tax contingencies that are reasonably possible in the next 12 months are not expected to be material.

NOTE 9—STOCK AWARDS

The Company currently maintains the 2005 Equity Incentive Plan (“the Plan”) which provides for the grant of equity to certain employees, directors and other persons. As of April 3, 2010, 446 shares of common stock were available for future grants under the Plan. The equity awards granted under the Plan generally vest at various times over periods ranging up to five years and have terms of up to ten years after the date of grant, unless the optionee’s service to the Company is interrupted or terminated.

14

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Stock Options and Warrants

The following table summarizes the stock option and warrant activity for the three-month period ended April 3, 2010:

						Weighted
				Weighted		Average
	Number of			Average		Remaining		Aggregate
	Shares			Exercise		Contractual		Intrinsic
	(in thousands)			Price		Life (in years)		Value
Outstanding at January 2, 2010		3,252		$	9.88
Granted		—		$	—
Exercised		(677	)	$	10.25
Forfeited/Cancelled		(1	)	$	14.21
Outstanding at April 3, 2010		2,574		$	9.78		2.68	$	46,598
Vested and expected to vest at April 3, 2010		2,574		$	9.78		2.68	$	46,598
Exercisable at April 3, 2010		2,574		$	9.78		2.68	$	46,598

The Company recognized no stock-based compensation expense for stock options for the three-month periods ended April 3, 2010 and April 4, 2009, as all options were fully vested.

Restricted Stock Units and Awards

The following table summarizes the restricted stock unit and restricted stock award activity for the three-month period ended April 3, 2010:

				Weighted
	Number of			Average
	Shares			Grant Date
	(in thousands)			Fair Value
Nonvested shares at January 2, 2010		4,294		$	16.64
Granted		1,081		$	27.48
Vested		(1,089	)	$	15.22
Forfeited/Cancelled		(21	)	$	12.20
Nonvested shares at April 3, 2010		4,265		$	19.77

The Company recognized $6,678 and $6,700 of stock-based compensation expense for restricted stock for the three-month periods ended April 3, 2010 and April 4, 2009 respectively.

NOTE 10—INCOME TAXES

At the end of each interim period, the Company estimates its annual effective tax rate and applies that rate to its ordinary year-to-date earnings. FASB’s accounting standards of “Accounting for Income Taxes in Interim Periods,” provides that if in a separate jurisdiction, the Company anticipates an ordinary loss for the year in which a tax benefit cannot be recognized in accordance with the FASB’s standards of “Accounting for Income Taxes,” then the Company excludes the ordinary loss in that jurisdiction and the related tax benefit from the computation of its estimated annual effective tax rate. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the interim period in which the change occurs, however, the related benefit or expense is excluded from the annual effective tax rate. The tax expense or benefit related to significant, unusual, or extraordinary items are individually computed and recognized as a discrete item in the interim period in which the item occurs.

15

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. The Company has a historical seasonal pattern of reporting a net loss before income taxes in the first three quarters of its fiscal year offset by income before income taxes in its fiscal fourth quarter. The Company recognizes a tax benefit and increases its deferred tax assets in its interim periods as realization of the tax benefit at the end of the fiscal year is more likely than not.

The Company’s tax provision for the three months ended April 3, 2010 was determined using an estimate of its annual effective tax rate which is 65.3% for fiscal 2010 plus any discrete items that affect taxes that occur during the quarter. The effective tax rate is higher than the 35% federal statutory tax rate primarily due to non-deductible permanent items. Estimated annual losses from international operations yield no tax benefit and were removed from the calculation of the estimated annual effective tax rate. The Company does not provide for U.S. taxes on its undistributed earnings of foreign subsidiaries, if any, since it intends to invest such undistributed earnings indefinitely outside of the U.S.

The Company’s reported effective tax rate for the three months ended April 3, 2010 was 55.8%. The annual effective tax rate of 65.3% was different from the actual tax rate of 55.8% primarily due to losses in foreign operations that generate no tax benefit and therefore are not included in the pre-tax book income calculation for the annual effective tax rate partially offset by the benefit from certain discrete items.

The reported effective tax rate for the three months ended April 4, 2009 was 37.6%. The annual effective tax rate of 37.9% was different from the actual tax rate of 37.6% primarily due to the benefit from certain discrete state items partially offset by losses in foreign operations that generate no tax benefit and therefore they are not included in the pre-tax book income calculation for the annual effective tax rate.

The total amount of liabilities, interest and penalties related to uncertain tax positions and recognized in the Condensed Consolidated Balance Sheets were $2,161 as of April 3, 2010, and $2,052 as of January 2, 2010. The Company recorded an increase in liabilities, including interest and penalties for uncertain tax positions that were recorded as income tax expense of $109 for the three month period ended April 3, 2010 and an income tax expense of $85 for the three month period ended April 4, 2009.

NOTE 11—LOSS PER SHARE

Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the fiscal year.

The following is a summary of the securities outstanding during the respective periods that have been excluded from the calculations because the effect on net loss per share would have been anti-dilutive for the three-month periods ended:

	April 4,		April 3,
	2009		2010
Stock units and awards		4,752		4,265
Stock options and warrants		4,138		2,574
Convertible notes		8,229		8,229
		17,119		15,068

16

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

NOTE 12 — COMPREHENSIVE LOSS

Comprehensive loss is computed as net loss plus certain other items that are recorded directly to shareholders’ equity in accordance with standards of accounting for “Reporting Comprehensive Income.” Comprehensive loss is calculated as follows:

	Three Months Ended
	April 4,			April 3,
	2009			2010
Net loss	$	(12,110	)	$	(8,125	)
Other comprehensive loss:
Cumulative translation adjustment		(62	)		(703	)
Comprehensive loss	$	(12,172	)	$	(8,828	)

NOTE 13—SEGMENT INFORMATION

The Company operates three reportable segments: e-commerce services, marketing services and consumer engagement. For e-commerce services, the Company delivers customized solutions to its clients through an integrated platform which is comprised of three components: technology, fulfillment and customer care. For marketing services, the Company offers a comprehensive digital and traditional agency and e-mail marketing services that include brand development and strategic account planning, user experience and creative design, marketing, traditional advertising, media buying, video, marketing content and promotional development, e-mail marketing and distribution, Web store usability, and product photography and content development. For consumer engagement, the Company offers an online platform on which retailers and brands can sell excess inventory through private sales as well as in the off-price marketplace.

The Company manages its segments and makes financial decisions and allocates resources based on an internal management reporting process that provides segment revenue and segment operating income before depreciation, amortization, changes in fair value of deferred acquisition payments and stock-based compensation expense. The Company believes that segment operating income before depreciation, amortization, changes in fair value of deferred acquisition payments and stock-based compensation expense is an appropriate measure of evaluating the operational performance of the Company’s segments. The Company also uses these metrics for planning, forecasting and analyzing future periods. However, this measure should be considered in addition to, not as a substitute for, or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.

The Company manages its working capital on a consolidated basis and does not allocate long-lived assets to segments. Pursuant to accounting standards for “Disclosures about Segments of an Enterprise and Related Information,” total segment assets have not been disclosed.

17

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The following tables present summarized information by segment:

	Three Months Ended April 4, 2009
	E-Commerce		Marketing		Consumer		Intersegment
	Services		Services		Engagement		Eliminations			Consolidated
Net revenues	$	178,510	$	25,122	$	—	$	(7,157	)	$	196,475
Costs and expenses before depreciation, amortization, changes in fair value of deferred acquisition payments and stock-based compensation expense		174,841		20,970		—		(7,157	)		188,654
Operating income before depreciation, amortization, changes in fair value of deferred acquisition payments and stock-based compensation expense		3,669		4,152		—		—			7,821
Depreciation and amortization											15,401
Changes in fair value of deferred acquisition payments											—
Stock-based compensation expense											6,954
Loss from operations											(14,534	)
Interest expense											4,796
Interest income											(151	)
Other expense, net											229
Loss before income taxes										$	(19,408	)

	Three Months Ended April 3, 2010
	E-Commerce		Marketing		Consumer			Intersegment
	Services		Services		Engagement			Eliminations			Consolidated
Net revenues	$	201,372	$	38,371	$	44,454		$	(11,605	)	$	272,592
Costs and expenses before depreciation, amortization, changes in fair value of deferred acquisition payments and stock-based compensation expense		193,383		28,804		47,176			(11,605	)		257,758
Operating income (loss) before depreciation, amortization, changes in fair value of deferred acquisition payments and stock-based compensation expense		7,989		9,567		(2,722	)		—			14,834
Depreciation and amortization												18,761
Changes in fair value of deferred acquisition payments												2,074
Stock-based compensation expense												6,931
Loss from operations												(12,932	)
Interest expense												5,208
Interest income												(234	)
Other expense, net												474
Loss before income taxes											$	(18,380	)

The Company’s operations are substantially within the United States.

NOTE 14—SUBSEQUENT EVENTS

On April 30, 2010, e-Dialog Inc. (“e-Dialog”), a wholly owned subsidiary of the Company, acquired all of the issued and outstanding capital stock of MBS Insight, Inc. (“MBS”), a wholly owned subsidiary of World Marketing, Inc. for $22,500 in cash. The purchase price is subject to increase or decrease, to the extent that the working capital of MBS is more or less than the agreed working capital target of $1,500. MBS is a database marketing solutions provider that offers a unique mix of knowledge-based marketing services and solutions that help marketers innovate, advance, and automate their marketing efforts for greater return on their investment. The Company believes the acquisition of MBS strengthens e-Dialog’s position of providing marketers with an operational, multichannel view of the customer in order to understand customer behavior and preferences in real time.

Due to the timing of the acquisition, the Company has not commenced the process of assigning a fair value to the various tangible and intangible assets acquired, including goodwill, and therefore has not provided fair value information relating to MBS’s assets acquired and liabilities assumed as of the acquisition date.

18

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

All statements made in this Annual Report on Form 10-Q, other than statements of historical fact, are forward-looking statements, as defined under federal securities law. The words “look forward to,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “could,” “guidance,” “potential,” “opportunity,” “continue,” “project,” “forecast,” “confident,” “prospects,” “schedule,” “designed,” “future” “discussions,” “if” and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about our business. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Factors which may affect our business, financial condition and operating results include the effects of changes in the economy, consumer spending, the financial markets and the industries in which we and our clients operate, changes affecting the Internet e-commerce and marketing service, our ability to develop and maintain relationships with clients and suppliers and the timing of our establishment, extension or termination of our relationships with clients, our ability to timely and successfully develop, maintain and protect our technology, confidential and proprietary information, and product and service offerings, our ability to execute operationally to attract and retain qualified personnel, to successfully integrate our recent acquisitions, and the performance of acquired businesses. More information about potential factors that could affect us are described in Part I, Item 1A in our Form 10-K for the fiscal year ended January 2, 2010, filed with the SEC on March 5, 2010, and in Part II, Item 1A of this Quarterly Report. We expressly disclaim any intent or obligation to update these forward-looking statements.

Executive Overview

First Quarter of Fiscal 2010 Financial Results and Significant Events:

• Net revenues increased by $76.1 million, or 39%, compared to the first quarter of fiscal 2009. Net revenues from product sales increased by $53.1 million and service fee revenues increased $23.0 million. Net revenues for our consumer engagement segment were $44.4 million from Retail Convergence, Inc. (“Rue La La”), which we acquired in November 2009, our e-commerce services segment increased $22.9 million, and our marketing services segment increased $13.3 million.

• Net loss was $8.1 million in the first quarter of fiscal 2010, including a benefit for income taxes of $10.3 million, compared to a net loss of $12.1 million in the first quarter of fiscal 2009, including a tax benefit of $7.3 million. Loss from operations improved to $12.9 million in the first quarter of fiscal 2010 compared to a loss of $14.5 million in the first quarter of fiscal 2009.

• In March 2010, we amended and expanded our existing secured revolving credit facility by $60 million to $150 million. The credit facility is available for letters of credit, working capital and general corporate purposes, including possible acquisitions.

2010 Outlook:

• We continue to expect an increase in net revenue in fiscal 2010, with the majority of the increase to be generated by our consumer engagement segment. We also expect increased revenues in fiscal 2010 from e-commerce services and marketing services. We expect our income from operations in fiscal 2010 to increase. We expect our capital expenditures to increase in fiscal 2010, and that they will be similar to our capital expenditures in fiscal 2008 as we increase investments in our infrastructure and technology and as we integrate Rue La La. We believe we will have a net loss in fiscal 2010.

Results of Operations

Three-month period ended April 3, 2010 and April 4, 2009 (amounts in tables in millions):

Net Revenues

We derive our net revenues from product sales and service fees.

19

Net Revenues from Product Sales. Net revenues from product sales are derived from the sale of products owned by us through our clients’ e-commerce Web stores as well as through the Web stores in our consumer engagement segment. Net revenues from product sales include outbound shipping charges for all of our Web stores for which we provide fulfillment services. Net revenues from product sales are net of allowances for returns and discounts and exclude sales tax. We recognize revenue from product sales and shipping when title and risk of ownership passes to the consumer either upon shipment of products to customers or upon receipt of products by customers dependent upon the terms and conditions of the Web store. Our revenue recognition accounting estimates contain uncertainties because they require management to make assumptions and to apply judgment to estimate future sales returns.

Service Fee Revenues. Service fee revenues primarily include revenues from the provision of e-commerce services and marketing services. E-commerce service fee revenues are generated from a client’s use of one or more of our e-commerce platform components, which include technology, fulfillment and customer care, as well as from professional services and gift card breakage. Marketing services service fee revenues are generated from online marketing, advertising, email and design services. E-commerce service fee revenues can be fixed or variable and are based on the activity performed, the value of merchandise sold, or the gross profit from a transaction.

											First Qtr Fiscal 2010
											vs.
											First Qtr Fiscal 2009
	First Qtr Fiscal 2009					First Qtr Fiscal 2010					Increase/(Decrease)			% Change
Net Revenues by Type:
Net revenues from product sales	$	106.2		54	%	$	159.3		58	%	$	53.1			50	%
Service fee revenues		90.3		46	%		113.3		42	%		23.0			25	%
Total net revenues	$	196.5		100	%	$	272.6		100	%	$	76.1			39	%
Net Revenues by Segment:
E-Commerce services	$	178.5		91	%	$	201.4		74	%	$	22.9			13	%
Marketing services		25.1		13	%		38.4		14	%		13.3			53	%
Consumer engagement		—		0	%		44.4		16	%		44.4			100	%
Intersegment eliminations		(7.1	)	(4	%)		(11.6	)	(4	%)		(4.5	)		63	%
Total net revenues	$	196.5		100	%	$	272.6		100	%	$	76.1			39	%

Net Revenues by Type

Net Revenues from Product Sales. Net revenues from product sales increased by $53.1 million in the first quarter of fiscal 2010 primarily due to $44.0 million of revenues from Rue La La which we acquired in November 2009. Shipping revenue for all clients for which we provide fulfillment services increased by $10.4 million, of which $3.9 million was from Rue La La.

Service Fee Revenues. Service fee revenues increased by $23.0 million in the first quarter of fiscal 2010 due to an increase in revenues from our e-commerce services segment and the growth of our marketing services segment. Of the $23.0 million increase, $13.7 million was from our e-commerce services segment primarily due to increases in revenue from clients that operated for the entirety of both periods, $13.3 million was from our marketing services segment which includes $4.5 million of intersegment service fee revenue that is eliminated during corporate consolidation, and $0.5 million was from our consumer engagement segment.

For the remainder of fiscal 2010, we expect total net revenues to increase due to the addition of Rue La La as well as from the continued growth of our e-commerce services and marketing services segments.

Net Revenues by Segment

E-Commerce Services Segment Revenues. Net revenues from e-commerce services increased by $22.9 million in the first quarter of fiscal 2010 due to a $13.8 million increase in service fee revenues and a $9.1 million increase in net revenues from product sales.

Of the $22.9 million increase in net revenues from our e-commerce services segment, $21.0 million was from clients that operated for the entirety of both periods and $1.9 million from clients that began generating revenue for us after the first quarter of fiscal 2009.

20

Marketing Services Segment Revenues. Net revenues increased by $13.3 million, or 53%, primarily due to growth in TrueAction’s user experience and creative design and online marketing services, as well as the growth of e-Dialog’s e-mail marketing services business.

Consumer Engagement Segment Revenues. Net revenues were $44.4 million and were all attributable to Rue La La which we acquired in November 2009.

Costs and Expenses

Cost of Revenues from Product Sales. Costs of revenues from product sales consist primarily of direct costs associated with (i) products we own that we sell through our clients’ Web stores, (ii) products we own that we sell through the Web stores in our consumer engagement segment, and (iii) shipping expenses for all Web stores for which we provide fulfillment services in our e-commerce segment and all shipping expenses from the Web stores in our consumer engagement segment. Costs of revenues from product sales were attributable to our e-commerce services and consumer engagement segments.

Marketing. Marketing expenses consist primarily of net client revenue share charges, promotional free shipping and subsidized shipping and handling costs, catalog costs, and net advertising and promotional expenses. Marketing expenses support our net revenues from product sales.

Account Management and Operations. Account management and operations expenses consist primarily of costs to operate our fulfillment centers and customer care centers, credit card fees, and payroll related to our buying, business management, operations and sales and marketing functions.

Product Development. Product development expenses consist primarily of expenses associated with planning, maintaining and operating our e-commerce and e-mail technology platforms and related systems, and payroll and related expenses for engineering, production, creative and management information systems.

General and Administrative. General and administrative expenses consist primarily of payroll and related expenses for executive, finance, human resources, legal, sales and administrative personnel, as well as bad debt expense and occupancy costs for our headquarters and other offices.

Depreciation and Amortization. Depreciation and amortization expenses relate primarily to the depreciation or amortization of the capitalized costs for our purchased and internally-developed technology, including a portion of the cost related to the employees that developed such technology, hardware and software; furniture and equipment at our corporate headquarters, fulfillment centers and customer care centers; the office buildings and other facilities owned by us; and acquisition-related intangible assets.

Changes in Fair Value of Deferred Acquisition Payments. Changes in fair value of deferred acquisition payments expenses consist of the change in the fair value of future estimated acquisition payments.

	First Quarter					First Quarter					First Quarter of Fiscal 2010
	of Fiscal 2009					of Fiscal 2010					vs.
			% of					% of			First Quarter of Fiscal 2009
			Net					Net			Increase /
	$		Revenues			$		Revenues			(Decrease)			% Change
Cost of revenues from product sales	$	79.4		41	%	$	117.5		43	%	$	38.1			48	%
Marketing		10.9		6	%		10.8		4	%		(0.1	)		(1	%)
Account management and operations		57.7		29	%		77.7		28	%		20.0			35	%
Product development		28.3		14	%		34.3		13	%		6.0			21	%
General and administrative		19.3		9	%		24.4		9	%		5.1			26	%
Depreciation and amortization		15.4		8	%		18.7		7	%		3.3			21	%
Changes in fair value of deferred acquisition payments		—		0	%		2.1		1	%		2.1			100	%
Total costs and expenses	$	211.0		107	%	$	285.5		105	%	$	74.5			35	%

21

Cost of Revenues from Product Sales:

	First Qtr			First Qtr
	Fiscal 2009			Fiscal 2010
Cost of revenues from product sales	$	79.4		$	117.5
As a percentage of net revenues from product sales		75	%		74	%

Cost of revenues from product sales increased by $38.1 million in the first quarter of fiscal 2010. The majority of the increase was from Rue La La, and we also had increases from shipping costs. As a percentage of net revenues, cost of revenues from product sales increased from 41% to 43% primarily due to Rue La La. Service fee revenues have no associated cost of revenue. Rue La La’s cost of revenues from product sales as a percentage of net revenues was higher than in our e-commerce business because a substantial majority of Rue La La’s revenues are net revenue from product sales. However, 42% of the total e-commerce net revenues are service fee revenues.

The decrease in cost of revenues from product sales as a percentage of net revenues from product sales from 75% to 74% is due to a decrease in shipping revenue as a percentage of net revenue from product sales from 25% in the first quarter of fiscal 2009 to 23% in the first quarter of fiscal 2010. Our cost of generating shipping revenue is higher than our cost of generating revenues from other product sales.

Marketing:

	First Qtr			First Qtr
	Fiscal 2009			Fiscal 2010
Marketing	$	10.9		$	10.8
As a percentage of net revenues from product sales		10	%		7	%

Marketing expense decreased by $0.1 million in the first quarter of fiscal 2010. As a percentage of net revenues, marketing expenses decreased from 6% to 4%. The decrease in marketing expenses was due to lower client revenue share expenses. The decrease in marketing expenses as a percentage of net revenues was primarily due to both the decreased client revenue share expenses compared to last year, and the addition of Rue La La which does not have significant marketing expenses.

As a percentage of net revenues from product sales, marketing expenses decreased from 10% to 7% primarily due to the lower client revenue share expenses and the addition of Rue La La which does not incur significant marketing expenses. We expect marketing expenses to increase in absolute dollars during fiscal 2010 compared to fiscal 2009. We continue to expect a decrease in marketing expenses as a percentage of net revenues, as the percentage of Rue La La’s marketing expenses to net revenues is lower than with our e-commerce services segment.

Account Management and Operations. Account management and operations expenses increased by $20.0 million in the first quarter of fiscal 2010. As a percentage of net revenues, account management and operations expenses decreased from 29% to 28%. The increase in absolute dollars was primarily due to our acquisitions of Rue La La, Silverlign and Pepperjam in fiscal 2009, an increase in credit card fees due to increased e-commerce transactions on our platform, and increases in personnel and related costs. We expect account management and operations expenses to increase in absolute dollars in fiscal 2010 due to the acquisition of Rue La La and growth in our e-commerce services and marketing services segments.

Product Development. Product development expenses increased by $6.0 million in the first quarter of fiscal 2010. As a percentage of net revenues, product development expenses decreased from 14% to 13%. The increase in absolute dollars was primarily due to our investment to expand our technology platform as well as from the addition of Rue La La. We saw a decrease in product development expenses as a percentage of net revenues because Rue La La’s product development expenses are lower as a percentage of net revenues than our other businesses. We expect product development expenses to increase in absolute dollars in fiscal 2010 due to the acquisition of Rue La La and the expansion of our technology platform.

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General and Administrative. General and administrative expenses increased by $5.1 million in the first quarter of fiscal 2010. As a percentage of net revenues, general and administrative expenses remained constant at 9%. The increase in absolute dollars was primarily due to the addition of Rue La La as well as legal fees related to litigation and mergers and acquisition costs. We expect general and administrative expenses to increase in absolute dollars in fiscal 2010 compared to fiscal 2009 primarily due to the addition of Rue La La.

Depreciation and Amortization. Depreciation and amortization expenses increased by $3.3 million in the first quarter of fiscal 2010. As a percentage of net revenues, depreciation and amortization expenses decreased from 8% to 7%. Amortization expenses increased by $1.6 million due to the intangible asset amortization related to the Rue La La acquisition. Depreciation expenses increased by $1.7 million due to the depreciation of Rue La La’s fixed assets and from prior and current year fixed asset additions. We expect our capital expenditures for fiscal 2010 to increase, and we expect depreciation expenses to increase due to the continued depreciation of Rue La La’s fixed assets and as we continue to depreciate capital expenditures made in the current and prior years. We expect amortization expenses to continue to increase in fiscal 2010 compared to fiscal 2009 due to the amortization of intangible assets of Rue La La.

Changes in Fair Value of Deferred Acquisition Payments. Changes in fair value of deferred acquisition payments expenses increased from $0 to $2.1 million in the first quarter of fiscal 2010 due to the acquisition of Rue La La. Assuming the value of the Rue La La earnout does not change, we expect changes in fair value of deferred acquisition payments to continue to increase in fiscal 2010 as we accrete our deferred acquisition payments liability up to the estimated payment amount. Any change in our assumptions about the value of future earnout payments may result in a significant change to our change in fair value of deferred acquisition payments.

Other (Income) Expense

	First Quarter						First Quarter						First Quarter of Fiscal 2010
	of Fiscal 2009						of Fiscal 2010						vs.
				% of						% of			First Quarter of Fiscal 2009
				Net						Net			Increase /
	$			Revenues			$			Revenues			(Decrease)			% Change
Interest expense	$	4.8			1	%	$	5.2			2	%	$	0.4			8	%
Interest income		(0.1	)		0	%		(0.3	)		0	%		(0.2	)		200	%
Other (income) expense		0.2			0	%		0.5			0	%		0.3			150	%
Total other expenses	$	4.9			1	%	$	5.4			2	%	$	0.5			10	%

Total other expenses increased by $0.5 million in the first quarter of fiscal 2010. Interest expense increased by $0.4 million due to the amortization of the debt discount on our convertible notes in accordance with the FASB’s accounting standard for “Convertible Debt Instruments that May Be Settled in Cash Upon Conversion, (Including Partial Cash Settlement).” The $0.2 million increase in interest income was due to larger average cash balances held during the first quarter of fiscal 2010 than during first quarter of fiscal 2009. The $0.3 million increase in other (income) expense was due to increase in foreign currency exchange losses on transactions denominated in currencies other than the functional currency.

Income Taxes

We recorded a benefit of $10.3 million in the first three months of fiscal 2010. Our tax provision for interim periods was determined using an estimate of our annual effective tax rate which is 65.3% for fiscal 2010 plus any discrete items that effect taxes that occur during the quarter. The effective tax rate is higher than the 35% federal statutory tax rate primarily due to non-deductible permanent book to tax differences. Estimated annual losses from international operations yield no tax benefit and were removed from the calculation of the estimated annual effective tax rate. We do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries, if any, since we intend to invest such undistributed earnings indefinitely outside of the U.S.

As of January 2, 2010, we had available federal net operating loss carryforwards of approximately $507.3 million which expire in the years 2010 through 2029. As of January 2, 2010, we had available state net operating loss carryforwards of approximately $268.6 million which expire in the years 2010 through 2029 and foreign net operating loss carryforwards of approximately $18.7 million that either begin expiring in 2023 or have no expiration date. A portion of these net operating loss carryforwards are offset by a valuation allowance. Management monitors all available positive and negative evidence related to our ability to utilize our deferred tax assets. Should management determine that it is more likely than not that these deferred tax assets will be utilized, we will release a portion of the remaining valuation allowance. Should management determine that it is more likely than not that these deferred tax assets will not be utilized, we will increase the valuation allowance.

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We have federal net operating losses of approximately $308.6 million (out of a total of $507.3 million) that will expire as a result of the Internal Revenue Code Section 382 limitation regardless of the amount of future taxable income, and thus has a full valuation allowance recorded against this deferred tax asset.

Seasonality

We have experienced and expect to continue to experience seasonal fluctuations in our revenues from e-commerce services. These seasonal patterns will cause quarterly fluctuations in our operating results. We also expect to experience seasonal fluctuations from consumer engagement, but to a lesser degree than with our e-commerce services. We experience less seasonality in our revenues from marketing services. The fourth fiscal quarter has accounted for and is expected to continue to account for a disproportionate percentage of our total annual revenues. We believe that results of operations for any quarterly period may not be indicative of the results for any other quarter or for the full year.

Liquidity and Capital Resources

	As of
	January 2,			April 3,
	2010			2010
	(in millions)
Cash and cash equivalents	$	228.4		$	132.4
Percentage of total assets		21	%		14	%

We have called all of our $57.5 million 3% convertible notes for redemption on June 7, 2010. We expect substantially all of the notes to be converted into common stock. Any notes not converted into common stock prior to the close of business on June 4, 2010 will be redeemed for cash at 100% of the principal value of the notes.

Sources of Cash

Our principal sources of liquidity in the first three months of fiscal 2010 were our cash and cash equivalents balances. As of April 3, 2010, we had cash and cash equivalents totaling $132.4 million, compared to $228.4 million of cash and cash equivalents as of January 2, 2010. Our cash equivalents are comprised of money market mutual funds.

We also generated $5.5 million of cash from financing activities primarily from the proceeds from exercise of common stock options in the first three months of fiscal 2010, compared to using $1.2 million of cash from financing activities in the first three months of fiscal 2009.

We have experienced and expect to continue to experience seasonal fluctuations in our cash flows. We generate the substantial majority of cash from our operating activities in our fourth fiscal quarter. In our first fiscal quarter, we typically use cash generated from operating activities in the fourth quarter of the prior fiscal year to satisfy accounts payable and accrued expenses incurred in the fourth fiscal quarter of our prior fiscal year. During our second and third fiscal quarters, we generally fund our operating expenses and capital expenditures from either cash generated from operating activities, cash and cash equivalents, or financing activities.

As of April 3, 2010 and January 2, 2010, we had no outstanding borrowings under our secured revolving bank credit facility. The credit facility contains financial and restrictive covenants that limit our ability to engage in activities that may be in our long term best interests. We do not believe the financial covenants will limit our ability to utilize the entire borrowing availability in fiscal 2010, if necessary.

Uses of Cash

We used $85.2 million and $72.6 million of cash to fund operating activities in the first three months of fiscal 2010 and fiscal 2009, respectively.

Our capital expenditures totaled $15.9 million and $7.4 million in the first three months of fiscal 2010 and fiscal 2009, respectively. Our capital expenditures have generally comprised purchases of computer hardware and software, internally developed software, and furniture and fixtures. We continue to expect an increase in capital expenditures in fiscal 2010.

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Outlook

We expect to generate positive cash flow from operations in fiscal 2010, the majority of which will be generated in our fourth fiscal quarter. We have called all of our $57.5 million 3% convertible notes for redemption on June 7, 2010, and we expect substantially all of the notes to be converted into common stock. Any notes not converted into common stock prior to the close of business on June 4, 2010 will be redeemed for cash at 100% of the principal value of the notes. We believe that our cash flow from operating activities, cash and cash equivalents balances, and borrowing availability under our secured revolving credit facility will be sufficient to meet our anticipated operating cash needs for at least the next 12 months, which includes any deferred acquisition payments. However, any projections of future cash needs and cash flows are subject to substantial uncertainty.

We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, or repurchase, refinance, or otherwise restructure our long-term debt for strategic reasons or to further strengthen our financial position. Our secured revolving bank credit facility contains negative covenants including prohibitions on our ability to incur additional indebtedness. The sale of additional equity or convertible debt securities would likely be dilutive to our stockholders. We expect to issue up to 3.2 million shares of our common stock in connection with our redemption of 3% convertible notes on June 7, 2010. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, and technologies, which might affect our liquidity requirements or cause us to issue additional equity or debt securities. There can be no assurance that additional lines-of-credit or financing instruments will be available in amounts or on terms acceptable to us, if at all.

Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates under different conditions. For a full description of our critical accounting policies, see Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2009 Annual Report on Form 10-K for the fiscal year ended January 2, 2010, filed with the SEC on March 5, 2010.

Recent Accounting Pronouncements

See Item 1 of Part I, “Financial Statements — Note 2, Summary of Significant Accounting Policies” for recent accounting pronouncements that could have an effect on us.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no significant changes in market risks for the fiscal quarter ended April 3, 2010. See the information set forth in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2010 filed with the Securities and Exchange Commissions (“SEC”) on March 5, 2010.

ITEM 4: CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and our chief financial officer, conducted an evaluation, as of April 3, 2010, of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e).

Based on this evaluation, our chief executive officer and our chief financial officer have concluded that, as of April 3, 2010, our disclosure controls and procedures, as defined in Rule 13a-15(e), were effective at the reasonable assurance level, to ensure that (i) information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. We monitor and evaluate on an ongoing basis our internal control over financial reporting in order to improve its overall effectiveness. In the course of these evaluations, we modify and refine our internal processes and controls as conditions warrant. As required by Rule 13a-15(d), our management, including our chief executive officer and our chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter ended April 3, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fiscal quarter ended April 3, 2010.

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PART II — OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS.

See Item 1 of Part I, “Financial Statements — Note 7, Commitments and Contingencies.”

ITEM 1A: RISK FACTORS.

Our Annual Report on Form 10-K for the fiscal year ended January 2, 2010, filed with the Securities and Exchange Commission on March 5, 2010, includes a detailed discussion of our risk factors. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in our Form 10-K for the fiscal year ended December 29 2007.

Our substantial leverage and significant debt service obligations could adversely affect our financial condition and our ability to fulfill our obligations and operate our business.

We currently have and expect to continue to have a significant amount of indebtedness. As of April 3, 2010, including our outstanding convertible notes, borrowings under our secured revolving bank credit facility and capital leases, we had approximately $207.1 million of indebtedness outstanding with an aggregate principal amount of $239.4 million and we had $150 million of borrowing capacity under the revolving portion of our secured revolving bank credit facility. We may also incur additional indebtedness in the future. On June 1, 2010, holders of our 3% convertible notes due 2025, referred to as the “3% convertible notes,” are permitted to require us to repurchase the 3% convertible notes for 100% of the principal amount outstanding ($57.5 million as of April 3, 2010) plus accrued and unpaid interest. However, we expect that substantially all of the 3% convertible notes will be converted by their holders into common stock, and we expect to have sufficient liquidity from our cash from operating activities, our cash and cash equivalents and/or our secured revolving bank credit facility to fund required repurchases, if any. In the event of a default under the notes or the secured revolving bank credit facility, our indebtedness could become immediately due and payable and could adversely affect our financial condition.

Our indebtedness could have significant negative consequences on us, including:

• our debt level increases our vulnerability to general adverse economic and industry conditions;

• we may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions or other purposes;

• we may need to use a substantial portion of our cash flow from operations to pay interest and principal on our debt, which would reduce the amount of money available to finance our operations and other business activities;

• our debt level could limit our flexibility in planning for, or reacting to, changes in our business and in our industry in general; and

• our substantial amount of debt and the amount we must pay to service our debt obligations could place us at a competitive disadvantage compared to our competitors that have less debt.

The terms of our secured revolving bank credit facility impose financial and operating restrictions on us.

We have a secured revolving bank credit facility with a borrowing capacity of $150 million. Our secured revolving bank credit facility contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. These covenants limit or restrict, among other things, our ability to:

• incur additional indebtedness or pre-pay existing indebtedness;

• pay dividends or make other distributions in respect of our equity securities;

• sell assets, including the capital stock of us and our subsidiaries;

• enter into certain transactions with our affiliates;

• transfer any capital stock of any subsidiary or permit any subsidiary to issue capital stock;

• create liens;

• make certain loans or investments; and

• effect a consolidation or merger or transfer of all or substantially all of our assets.

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These limitations and restrictions may adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our best interests. In addition, our ability to borrow under the secured revolving bank credit facility is subject to compliance with covenants. If we breach any of the covenants in our secured revolving bank credit facility, we may be in default under our secured revolving bank credit facility. If we default, the lenders under our secured revolving bank credit facility could declare all borrowings owed to them, including accrued interest and other fees, to be immediately due and payable.

Our ability to use net operating loss carryforwards to reduce future tax payments may be limited.

As of January 2, 2010, we had approximately $507.3 million of U.S. Federal net operating loss carryforwards, referred to as “NOLs,” potentially available to reduce taxable income in future years. Of this amount, approximately $308.6 million will expire as a result of the Section 382 Limitation (described below in more detail) regardless of the amount of future taxable income and thus has a full valuation allowance recorded against this deferred tax asset.

Utilization of the NOLs may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended, referred to as the “Code.” These ownership changes may limit the amount of NOLs that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. The issuance of securities in connection with our acquisition of Retail Convergence, Inc. and the disposition of our stock by certain selling stockholders may have resulted in an ownership change, or could result in an ownership change in the future upon subsequent dispositions of our stock. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs. The limitation imposed by Section 382 for any post-change year would be determined by multiplying the value of our stock immediately before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years, and the limitation may under certain circumstances be increased by built-in gains which may be present with respect to assets held by us at the time of the ownership change that are recognized in the five-year period after the ownership change. Our use of NOLs arising after the date of an ownership change would not be affected.

In addition, the ability to use NOLs will be dependent on our ability to generate taxable income. The NOLs may expire before we generate sufficient taxable income. There were no NOLs that expired in the fiscal years ended December 29, 2007 and January 3, 2009. The maximum NOLs that could expire if not utilized for the year ended January 2, 2010 is approximately $2.0 million.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Pursuant to the terms of a Consulting Agreement dated April 22, 2009 between Arimor, LLC (“Arimor”) and GSI Commerce Solutions, Inc., the Company agreed to issue to Arimor shares of the Company’s common stock as a fee for consulting services provided by Arimor. In the fiscal quarter ended April 3, 2010, the Company issued an aggregate of 12,174 shares of common stock to Arimor (“Arimor Shares”) pursuant to such agreement.

The issuance of the Arimor Shares were completed in accordance with Section 4(2) of the Securities Act of 1933, as amended, in offerings without any public offering or distribution. The Arimor Shares are restricted securities and include appropriate restrictive legends.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4: [Reserved]

None

ITEM 5: OTHER INFORMATION.

None

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ITEM 6: EXHIBITS.

10.1	Credit Agreement, dated as of March 24, 2010, by and among GSI Commerce Solutions, Inc., the Guarantors named therein, the Lenders named therein, PNC Bank, National Association, as administrative agent, and PNC Capital Markets LLC and Bank of America, N.A., as joint lead arrangers and joint bookrunners (filed with GSI Commerce, Inc.’s Current Report on Form 8-K filed on March 26, 2009 and incorporated herein by reference)
10.2	Form of Executive Performance Restricted Stock Unit Award Grant Notice Under the GSI Commerce, Inc. 2005 Equity Incentive Plan (filed with GSI Commerce, Inc.’s Current Report on Form 8-K filed on April 6, 2010 and incorporated herein by reference)
10.3	Form of Change in Control Agreement
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 5, 2010

GSI COMMERCE, INC.
By:	/s/ MICHAEL G. RUBIN
	Michael G. Rubin
	Chairman, President and Chief Executive Officer
By:	/s/ MICHAEL R. CONN
	Michael R. Conn
	Executive Vice President, Finance and Chief Financial Officer (principal financial officer & principal accounting officer)

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EX-10.3

Exhibit 10.3

CHANGE IN CONTROL AGREEMENT

This Change in Control Agreement (the “Agreement”) is entered into effective as of  _____, 20_____  (the “Effective Date”), by and between GSI Commerce, Inc. (the “Company”) and                      (the “Employee”). The Company and the Employee are hereinafter collectively referred to as the “Parties,” and individually referred to as a “Party.”

Recitals

WHEREAS, the Employee is presently an officer or key employee of the Company;

WHEREAS, the Board of Directors (the “Board”) of the Company has determined that it is in the best interests of the Company and its stockholders to ensure the Employee’s continued dedication and active participation in the business of the Company; and

WHEREAS, in order to induce the Employee to remain in the employ of the Company and in consideration of the Employee’s agreeing to remain in the employ of the Company, the parties desire to specify the benefits which shall be due the Employee in the event that his employment with the Company is terminated under specified circumstances.

Agreement

In consideration of the foregoing Recitals and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:

1. Definitions.

1.1 Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

1.1.1 Cause. “Cause” means the occurrence of the events described in the following subsections (a) and (b):

(a) a good faith determination by the Board or the Compensation Committee that the Employee (i) was grossly negligent or engaged in willful misconduct in the performance of his or her duties for the Company, (ii) was convicted of, or entered a plea of guilty to, a crime constituting a felony or any criminal offense constituting fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof, other than an automobile offense; or (iii) intentionally and materially violated any contract or agreement between the Employee and the Company, the Company’s Code of Business Conduct or any of the Company’s material policies; provided, however, that no act or failure to act by the Employee shall be deemed to constitute Cause under this clause (iii) if done, or omitted to be done, in good faith and with the reasonable belief that the action or omission was in the best interests of the Company; and

(b) (i) the Company has delivered written notice to the Employee of its intention to terminate his employment for Cause within ninety (90) days after the Company has actual knowledge of the facts and circumstances upon which it seeks to rely as a basis for its right to terminate for Cause, (ii) such notice sets forth in reasonable detail such facts and circumstances and (iii) the Employee has failed to correct any of the events listed in Section 1.1.1(a) above, if such events are reasonably capable of being corrected, within thirty (30) days following delivery of the Company’s written notice of its intention to terminate for Cause.

1.1.2 Change in Control. “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events: 

(a) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction, which is covered by Section 1.1.2(b). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company from the Company by an investor, any affiliate (as such term is defined in Rule 405 of the Securities Act) thereof or any other Exchange Act Person in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

(b) there is consummated a merger, consolidation or similar transaction involving, directly or indirectly, the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (i) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (ii) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;

(c) the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur;

2.

(d) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition;

(e) individuals who, on the Effective Date, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that if the appointment or election (or nomination for election) of any new director was approved or recommended by a majority vote of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered a member of the Incumbent Board.

The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

1.1.3 Code. “Code” means the Internal Revenue Code of 1986, as amended.

1.1.4 Disability. “Disability” means (a) the Employee has suffered a physical or mental sickness or injury that impairs the Employee’s ability to substantially perform the Employee’s full-time duties with the Company for a period of one hundred eighty (180) consecutive days and that qualifies the Employee for benefits under the Company’s group long-term disability plan, and (b) the Employee has not substantially returned to full time employment within thirty (30) days after the Company gives the Employee notice that he or she is being terminated by the Company due to the sickness or injury specified in clause (a) of this Section 1.1.4.

1.1.5 Entity. “Entity” means a corporation, partnership, limited liability company or other entity.

1.1.6 Equity Award. “Equity Award” means any stock option, restricted stock award, restricted stock unit or other equity incentive award of any type granted by the Company to the Employee, whether granted before, on or after the Effective Date, as the same may be adjusted or converted as a result of any recapitalization, stock dividend, spin-off or similar event.

1.1.7 Equity Plan. “Equity Plan” means any stock option plan, restricted stock plan or other equity incentive or equity compensation plan of the Company.

1.1.8 Exchange Act. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

3.

1.1.9 Exchange Act Person. “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include (i) the Company or any Affiliate, (ii) any employee benefit plan of the Company or any Affiliate or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities.

1.1.10 Good Reason. “Good Reason” means, with respect to the Employee, the occurrence of one or more of the following events or conditions, without the Employee’s express prior written consent (which may be withheld for any reason or no reason), provided that upon the first occurrence of any such event or condition, the Employee shall have given the Company written notice that he or she is resigning his or her employment with the Company due to the occurrence of such event or condition and the Company shall not have corrected the situation within ten (10) days after the Employee gives such notice:

(a) a material reduction in the Employee’s duties, positions, titles, offices, authority or responsibilities relative to the duties, positions, titles, offices, authority or responsibilities in effect immediately prior to the Change in Control; the assignment to the Employee of any duties or responsibilities that are substantially inconsistent with the Employee’s duties, positions, titles, offices, authority or responsibilities as in effect immediately before such assignment; or any removal of the Employee from or failure to reappoint or reelect the Employee to any of such positions, titles or offices; provided that any of the foregoing that result solely from the fact that the Company is no longer a publicly traded and listed company shall not by itself constitute Good Reason under this Section 1.1.10(i);

(b) a reduction in the Employee’s base salary as in effect immediately prior to the Change in Control;

(c) a reduction in the Employee’s bonus or other cash incentive compensation opportunity as in effect immediately prior to the Change in Control; a reduction or negative change in the Employee’s equity award or other long-term non-cash incentive opportunities (the value of which is measured as of the date of grant using a reasonable valuation methodology consistently applied); or a reduction or negative change in the Employee’s benefits other than base salary, bonus or other cash and non cash incentive compensation as in effect immediately prior to the Change in Control; provided, however, that Good Reason shall not exist under this Section 1.1.10(c) if after a Change in Control, the Company offers the Employee a range of cash and non-cash bonus and incentive opportunities and other benefits which, taken as a whole, are comparable to the cash and non-cash bonus and incentive opportunities and other benefits provided to the Employee immediately prior to the Change in Control;

(e) the failure of the Company to timely pay or provide to the Employee any portion of the Employee’s compensation or benefits then due to the Employee;

4.

(f) a relocation of the Employee’s principal place of employment that will result in an increase of more than thirty (30) miles in the Employee’s one-way commute as compared to the Employee’s one-way commute prior to the Change of Control;

(g) any material breach by the Company of this Agreement or any other material agreement between the Company and the Employee, including any employment agreement, indemnification agreement or agreement relating to any Equity Award; or

(h) the failure by the Company to obtain, before a Change in Control occurs, an agreement in writing from any successors and assigns to all or substantially all of the business or assets of the Company to assume and agree to perform this Agreement unless otherwise assumed by such successors and assigns by operation of law.

1.1.11 “Own,” “Owned,” “Owner,” “Ownership”. A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

1.1.12 Securities Act. “Securities Act” means the Securities Act of 1933, as amended.

1.1.13 Subsidiary. “Subsidiary” means, with respect to the Company (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company and (ii) any partnership in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).

2. Termination in Connection With a Change in Control.

2.1 Termination by the Company without Cause; Resignation by the Employee for Good Reason. If within ninety (90) days before or [___] days following a Change in Control, the Company terminates the Employee’s employment without Cause or the Employee resigns for Good Reason, then notwithstanding any contrary provision contained in any of the Employee’s outstanding Equity Awards or in any of the Company’s Equity Plans, all Equity Awards held by the Employee shall immediately become fully vested, all restrictions set forth in such Equity Awards related to the passage of time and/or continued employment shall immediately lapse, all option shares and other rights exercisable under such Equity Awards shall immediately become fully exercisable, and the Employee shall have continued exercisability of each Company stock option and stock appreciation right held by the Employee (if any) for the remaining term of each such Equity Award; provided, however, that for stock options and stock appreciation rights granted prior to the Effective Date, such period shall not exceed the latest date possible that would not cause such option or stock appreciation right to become subject to Section 409A of the Code.

5.

2.2 Release. The Employee shall not receive any of the benefits set forth under Section 2.1 hereof, unless and until, the Employee furnishes the Company with an effective waiver and release of claims (the “Release”) in the form attached hereto as Exhibit A.

2.3 Termination for Death, Disability or Cause. Nothing in this Agreement shall be interpreted to entitle the Employee to any of the rights provided for in Section 2.1 hereof upon the termination of the Employee’s employment due to death, Disability or Cause.

2.4 Parachute Payments.

2.4.1 Anything in this Agreement to the contrary notwithstanding, if any benefit the Employee would receive from the Company pursuant to this Agreement or otherwise (a “Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion of the Payment, up to and including the total Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Employee’s receipt, on an after-tax basis, of the greater amount of the Payment, notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, the amounts payable or benefits to be provided to the Employee shall be reduced such that the economic loss to the Employee as a result of the “parachute payment” elimination is minimized. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code and where two economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis but not below zero.

2.4.2 The Company shall appoint a nationally recognized independent accounting firm to make the determinations required hereunder, which accounting firm shall not then be serving as accountant or auditor for the individual, entity or group that effected the Change in Control. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

2.4.3 The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and the Employee within fifteen (15) calendar days after the date on which the Employee’s right to a Payment is triggered (if requested at that time by the Company or the Employee) or such other time as requested by the Company or the Employee. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and the Employee with an opinion reasonably acceptable to the Employee that no Excise Tax will be imposed with respect to such Payment. The Company shall be entitled to rely upon the accounting firm’s determinations, which shall be final and binding on all persons.

6.

2.5 Mitigation; Exclusivity of Benefits.

2.5.1 The Employee shall not be required to mitigate the amount of any benefits under this Agreement by seeking other employment or otherwise. The benefits to be provided pursuant to Section 2.1 hereof shall not be reduced by any compensation or benefits payable or provided to the Employee as a result of employment by another employer after the date of termination or otherwise.

2.5.2 The specific arrangements referred to in this Agreement are not intended to exclude any other benefits which may be available to the Employee upon a termination of employment with the Company pursuant to any other agreement between the Company and the Employee, including any employment or severance agreement.

3. Withholding.

All payments required to be made by the Company under this Agreement to the Employee shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine should be withheld pursuant to any applicable law or regulation.

4. Nature of Employment and Obligations.

4.1 Nothing contained in this Agreement shall be deemed to create anything other than a terminable at will employment relationship between the Company and the Employee, and the Company may terminate the Employee’s employment at any time, subject to providing any benefits specified in this Agreement in accordance with the terms of this Agreement and subject to any other agreement between the Company and the Employee.

4.2 Nothing contained in this Agreement shall create or require the Company to create a trust of any kind to fund any benefits which may be payable under this Agreement, and to the extent that the Employee acquires a right to receive benefits from the Company under this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company.

5. Assignment and Binding Effect.

This Agreement shall be binding upon and inure to the benefit of the Employee and the Employee’s heirs, executors, personal representatives, assigns, administrators and legal representatives. Neither this Agreement nor any rights or obligations under this Agreement shall be assignable by the Employee. This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives. The Company shall use its best efforts to require any successors and assigns to all or substantially all of the business or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree in writing to be bound by this Agreement and to perform the Company’s obligations under this Agreement in the same manner and to the same extent that the Company would have been required to perform such obligations had no succession or assignment taken place; provided that no such assumption or agreement by such successors and assigns shall relieve the Company of any of its obligations under this Agreement.

7.

6. Choice of Law, Jurisdiction and Waiver of Jury Trial.

This Agreement is made and intended to be performed primarily within the state of Pennsylvania. This Agreement shall be construed and interpreted in accordance with the internal laws of the state of Pennsylvania (without giving effect to principles of conflicts of law). Each of the parties irrevocably consents to service of process by certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance herewith. Each of the parties irrevocably consents to the jurisdiction of the state courts in Montgomery County, Pennsylvania and the federal courts in the Eastern District of Pennsylvania in any and all actions between the parties arising hereunder. THE PARTIES IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY JURY AS TO ALL CLAIMS UNDER THIS AGREEMENT.

7. Legal Fees and Expenses.

The Company shall pay or reimburse the Employee on an after-tax basis for all costs and expenses (including court costs and reasonable legal fees and expenses that reflect common practice with respect to the matters involved) incurred by the Employee as a result of any claim, action or proceeding arising out of this Agreement or the contesting, disputing or enforcing of any provision, right or obligation under this Agreement, except where it is finally determined that the Employee’s position was substantially without merit and asserted in bad faith.

8. Integration.

Except as may otherwise be provided herein, this Agreement, including Exhibit A, contains the complete, final and exclusive agreement of the Parties relating to the terms and conditions contained herein, and supersedes all prior and contemporaneous oral and written agreements or arrangements between the Parties relating to the matters agreed to in this Agreement. Notwithstanding the foregoing, this Agreement shall not have any effect upon any other employment agreement, severance agreement, employee agreement, indemnification agreement, confidentiality agreement, Equity Awards, Equity Plan, bonus plans, benefit plans and other agreements or arrangements in effect between the Company and the Employee other than as expressly provided for in this Agreement. No provision of any future Equity Award, Equity Plan or other agreement between the Company and the Employee shall constitute a modification to any provision of this Agreement, even if such future provision is inconsistent with a provision of this Agreement, unless and only to the extent that such future provision specifically refers to this Agreement and includes a statement that the parties expressly intend to modify a provision of this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that are not expressly set forth in this Agreement.

8.

9. Amendment.

This Agreement cannot be amended or modified except by a written agreement signed by the Employee and a director who is duly authorized by the Board to sign on their behalf.

10. Waiver.

No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the waiver is claimed, and any waiver of any such term, covenant, condition or breach shall be narrowly construed to apply only to the specific circumstances in which it is given and shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach. No failure to exercise or delay in exercising any power, right, privilege or remedy under this Agreement, and no course of dealing between the Parties with respect to any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy under this Agreement.

11. Severability.

The finding by a court of competent jurisdiction or other authorized body of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal. The invalid or unenforceable term or provision shall be modified or replaced with a valid and enforceable term or provision which most accurately represents the Parties’ intention with respect to the invalid or unenforceable term or provision.

12. Interpretation and Construction.

The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement. The Employee has been encouraged to consult with the Employee’s own independent counsel and tax advisors with respect to the terms of this Agreement. The Parties acknowledge that each Party or its counsel has reviewed and revised, or had an opportunity to review and revise, this Agreement, and any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

9.

13. Section 409A.

This Agreement is intended to comply with the applicable requirements of Section 409A of the Code and the regulations thereunder, and shall be administered in accordance with Section 409A of the Code and the regulations thereunder to the extent Section 409A of the Code and the regulations thereunder apply to this Agreement. If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under Section 409A, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. To the extent that any provision of this Agreement would cause a conflict with the applicable requirements of Section 409A of the Code, such provision shall be deemed null and void. All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Employee’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. For purposes of Section 409A of the Code, all payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” within the meaning of such term under Section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement is to be treated as a right to a series of separate payments. In no event shall the Employee, directly or indirectly, designate the calendar year of payment. Benefits payable under this Agreement will be subject to the distribution requirements of Section 409A(a)(2)(A) of the Code, including, without limitation, the requirement of Section 409A(a)(2)(B)(i) of the Code that payment to the Employee be delayed until six (6) months after separation from service if the Employee is a “specified employee” within the meaning of the aforesaid Section of the Code at the time of such separation from service. If Employee dies during the postponement period prior to the payment of postponed amount, the amounts withheld on account of Section 409A of the Code shall be paid to the personal representative of Employee’s estate within sixty (60) days after the date of the Employee’s death.

14. Counterparts.

This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one original counterpart hereof.

10.

15. Notices.

All notices and all other communications provided for in this Agreement (including any notice of termination or resignation of employment) shall be in writing and shall be deemed to be duly given, delivered and received by the intended recipient as follows: (a) if personally delivered, on the business day after it is sent (as evidenced by the receipt of a reputable personal delivery service); (b) if mailed by certified or registered mail, postage prepaid, return receipt requested, four (4) business days after such mailing (as evidenced by the receipt for the certified or registered mail); (c) if sent by overnight delivery service, delivery charges prepaid, on the second business day after it is sent (as evidenced by the receipt of a reputable overnight delivery service); or (d) if sent by fax or e-mail, on the business day after it is sent, if confirmed within forty-eight (48) hours thereafter by a signed original sent in one of the manners set forth in clauses (a) through (c) above. Notices shall be addressed to the parties at their respective addresses last given by each party to the other, and all notices to the Company shall be directed to the attention of the Chairman of the Board with a copy to the Secretary. Each party shall keep the other informed of its current mailing address, street address (if different), fax number (if available) and e-mail address.

[Signature page follows]

11.

In Witness Whereof, the Parties have executed this Agreement as of the date first written above.

GSI Commerce, Inc.

  [Name]

[Title]

Employee

  [Name]

[Title]

[Signature page to Change in Control Agreement]

12.

EXHIBIT A

RELEASE AND WAIVER OF CLAIMS

In consideration of the benefits and mutual agreements set forth in the Change in Control Agreement dated [month]  _____, 20_____  (the “Agreement”), between GSI Commerce, Inc, (the “Company”) and                      (the “Employee”), to which this form is attached, the Employee, intending to be legally bound, agrees to the following release and waiver (“Release and Waiver”):

1. In exchange for the consideration provided to the Employee by the Agreement that the Employee is not otherwise entitled to receive and the other commitments of the Company in the Agreement, the Employee and his or her heirs, representatives, agents and attorneys hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct or omissions occurring prior to the Employee signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to the Employee’s employment with the Company or the termination of that employment; (2) all claims related to the Employee’s compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and the Pennsylvania Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, this general release specifically excludes any and all claims that the Employee may have in regard to (a) any ongoing severance or employment obligations of the Company or any of its subsidiaries to the Employee under the Agreement or any other written agreement or arrangement between the Company or any of its subsidiaries and the Employee, including any bonus plan, benefit plan and other agreement or arrangement, (b) any ongoing obligations of the Company or any of its subsidiaries to the Employee under any written stock option agreement, restricted stock award agreement, restricted stock unit award agreement or other equity award agreement evidencing an option or other equity award granted or awarded by the Company to the Employee, (c) any indemnification obligations of Employer to the Employee as a former director, officer and/or employee of the Company or any of its subsidiaries pursuant to the Company’s or any of its subsidiaries’ certificate of incorporation or bylaws or any indemnification or other written agreement, and (d) any rights the Employee may have under any directors and officers liability insurance policy of the Company.

1.

The Employee also acknowledges that he or she has read and understands Section 1542 of the Pennsylvania Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” The Employee hereby expressly waives and relinquishes all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims he or she may have against the Company.

The Employee acknowledges that, among other rights, he or she is waiving and releasing any rights he or she may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which he or she was already entitled as an employee of the Company. The Employee further acknowledges that he or she has been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) he or she should consult with an attorney prior to executing this Release and Waiver; (c) he or she has twenty-one (21) days in which to consider this Release and Waiver (although he or she may choose voluntarily to execute this Release and Waiver earlier); (d) he or she has seven (7) days following the execution of this Release and Waiver to revoke his or her consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the eighth day after he or she executes this Release and Waiver and the revocation period has expired (the “Effective Date”).

2. This Release and Waiver, including any referenced documents, constitute the complete, final and exclusive embodiment of the entire agreement between the Company and the Employee with regard to the subject matter hereof. The Employee is not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both the Employee and a duly authorized member of the Board of Directors of the Company.

Date: By:     Employee

2.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael G. Rubin, certify that:

1. I have reviewed this report on Form 10-Q of GSI Commerce, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 5, 2010

By:	/s/ Michael G. Rubin
	Michael G. Rubin
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael R. Conn, certify that:

1. I have reviewed this report on Form 10-Q of GSI Commerce, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 5, 2010

By:	/s/ Michael R. Conn
	Michael R. Conn
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of GSI Commerce, Inc. (the “Company”), does hereby certify with respect to the Quarterly Report on Form 10-Q for the period ended October 3, 2009 (the “Report”) that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ Michael G. Rubin
		Michael G. Rubin
		Chief Executive Officer
May 5, 2010	By:	/s/ Michael R. Conn
		Michael R. Conn
		Chief Financial Officer

May 5, 2010

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.