Document:

FORBEARANCE AGREEMENT

FORBEARANCE AGREEMENT

AND AMENDMENT

 

THIS FORBEARANCE AGREEMENT AND AMENDMENT (this "Agreement") is entered into as of February 14, 2008 among QUADRA QRS, LLC, a Maryland limited liability company (together with its successors and permitted assigns, "QRS"), QUADRA REALTY TRUST, INC., a Maryland corporation (together with its successors and permitted assigns, the "Trust", and collectively with QRS, "Quadra"), and WACHOVIA BANK, NATIONAL ASSOCIATION (together with its successors and assigns, "Wachovia").  Unless otherwise expressly provided herein, all capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Repurchase Agreement referred to below.  

RECITALS

A.Quadra and Wachovia have entered into that certain Master Repurchase Agreement dated as of March 29, 2007 (as amended and modified from time to time, the "Repurchase Agreement").

B.Quadra and Wachovia have entered into that certain ISDA Master Agreement and related Schedule, each dated as of May 7, 2007, and all other documents executed in connection therewith (as amended and modified from time to time, including pursuant to the First Amendment (defined below), the "Master Agreement" and, together with the Credit Support Annex (defined below), the "Swap Documents").

C.An Event of Default (as defined in the Repurchase Agreement) exists under Section 10.1 (v) of the Repurchase Agreement arising from the occurrence of a Change of Control and Section 10.1 (p) of the Repurchase Agreement arising from the occurrence of Events of Default (as defined in the Master Agreement) under the Master Agreement (the "Existing Repurchase Event of Default").

D.An Event of Default (as defined in the Master Agreement) exists under Sections 5(a)(iii)(1) and 5(a)(vi) of the Master Agreement arising from the occurrence of an Events of Default (as defined in the Repurchase Agreement) under the Repurchase Agreement (the "Existing Swap Event of Default", and, together with the Existing Repurchase Event of Default, the "Existing Events of Default").

E.Quadra has requested that Wachovia (i) forbear from exercising its rights and remedies under the Repurchase Documents and Master Agreement, respectively, arising in connection with the Existing Events of Default and (ii) modify the Repurchase Agreement and Master Agreement as set forth herein..

F.Wachovia has agreed to do so, but only pursuant to the terms and conditions set forth herein.

G.QRS enters this Agreement in its capacities as a Seller under the Repurchase Documents and a Party B under the Master Agreement, the Trust enters into this Agreement as a Seller, Guarantor and Pledgor under the Repurchase Documents and a Party B under the Master Agreement, and Wachovia enters this Agreement as a Purchaser under the Repurchase Documents and Party A under the Master Agreement.  The Guarantor and Pledgor under the Repurchase Documents join in this Agreement to evidence their acknowledgement and agreement to the terms hereof.  The Quadra entities in all of their capacities under the Repurchase Documents and Master Agreement are collectively referred to herein as the "Quadra Entities".

AGREEMENT

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

1.Estoppel, Acknowledgement and Reaffirmation.  Each of the Quadra Entities hereby acknowledges and agrees that (i) as of January 28, 2008, the Existing Repurchase Event of Default is an Event of Default (as defined in the Repurchase Agreement) under the Repurchase Agreement, the Existing Repurchase Event of Default currently exists and the Existing Repurchase Event of Default has not been waived by Wachovia,  (ii) as of January 28,  2008, the Existing Swap Event of Default is an Event of Default (as defined in the Master Agreement) under the Master Agreement, the Existing Swap Event of Default currently exists and the Existing Swap Event of Default has not been waived by Wachovia, (iii) as of the date hereof, the total outstanding principal balance of the Obligations under the Repurchase Documents is not less than $365,614,458.00, which amount constitutes a valid and subsisting obligation of Quadra and Guarantor to Wachovia that is not subject to any credits, offsets, defenses, claims, counterclaims or adjustments of any kind and (iv) as of the date hereof, the total notional amount of obligations covered by the Master Agreement is not less than $54,140,000, which amount constitutes a valid and subsisting obligation of Quadra to Wachovia that is not subject to any credits, offsets, defenses, claims, counterclaims or adjustments of any kind.  Each of the Quadra Entities hereby acknowledges its obligations under the Repurchase Documents and Master Agreement.

2.Forbearance.  Subject to the terms and conditions set forth herein, Wachovia hereby agrees that, during the Forbearance Period (as defined below), Wachovia shall forbear from exercising any and all rights or remedies available to Wachovia under the Repurchase Documents and the Master Agreement as a result of the Existing Events of Default (including, without limitation, the collection of default interest under the Repurchase Documents and Master Agreement), but only to the extent that such rights or remedies arise exclusively as a result of the existence or continuation of the Existing Events of Default; provided, however; (i) that Wachovia shall be free to exercise any or all of Wachovia's rights and remedies (including, without limitation, the collection of default interest under the Repurchase Documents and Swap Documents from and after the occurrence of a Forbearance Termination Event) under the Repurchase Documents, Master Agreement or Applicable Law arising on account of the Existing Events of Default (or any other event of default) at any time upon or after the occurrence of a Forbearance Termination Event (as defined below), (ii) in connection with the Repurchase Documents, Wachovia shall have no obligation to purchase or finance any new Asset or make any advance of Purchase Price or other amounts with respect to any existing Purchased Assets or new Assets unless consented to in writing by Wachovia, which consent may be granted or refused by Wachovia in its sole and absolute discretion, (iii) in connection with the Master Agreement, Wachovia shall have no obligation to enter into a Transaction (as defined in the Master Agreement) unless consented to in writing by Wachovia, which consent may be granted or refused by Wachovia in its sole and absolute discretion, and (iv) no amounts under clause NINTH of Section 2.8 of the Repurchase Agreement shall be transferred to the Operating Account or the Quadra Entities, but, instead, all such amounts shall be applied to the outstanding Obligations under the Repurchase Documents and the obligations and liabilities under the Swap Documents.  Wachovia agrees to waive any default interest that accrued prior to the date of this Agreement under the Repurchase Documents and the Master Agreement as a result of the Existing Events of Default.  Notwithstanding Wachovia's agreement to forbear on account of the Existing Events of Default subject to the terms and conditions set forth herein, the Existing Events of Default shall continue to exist during the Forbearance Period for all purposes under the Repurchase Agreement and Master Agreement, including any limitations on actions of the Quadra Entities that may be triggered upon the existence of an Event of Default (as defined in the Repurchase Agreement) or Event of Default (as defined under the Master Agreement).  The Quadra Entities acknowledge and agree that this Agreement does not constitute a waiver of the Existing Events of Default, a waiver of any other Event of Default (as defined in the Repurchase Agreement) or Event of Default (as defined in the Master Agreement) (whether now or in the future) or a waiver or forbearance (except as expressly set forth herein) of any other term, provision, duty, obligation, covenant, liability, right, remedy, power or remedy of any party to the Repurchase Documents and Master Agreement, and the forbearance evidenced hereby shall not be a waiver of Wachovia's rights to refuse to enter into any future forbearance agreements.  For the avoidance of doubt, this Agreement shall not limit, restrict or impair in any way any of Wachovia's rights under the Repurchase Documents and/or Swap Documents which are unrelated to rights and remedies upon an Event of Default under either the Repurchase Documents or the Swap Documents, including, without limitation, Wachovia's rights to mark to market and rights to make margin calls.  The Quadra Entities acknowledge and agree that they may not sell, finance or otherwise transfer any Purchased Asset without Wachovia's prior written consent thereto in its sole and absolute discretion and Wachovia shall not release its Lien on any Purchased Asset until all Obligations under the Repurchase Documents and all  obligations and liabilities then due and payable under the Swap Documents are paid in full.  

3.Forbearance Termination Events.  Nothing set forth herein or contemplated hereby is intended to constitute an agreement by Wachovia to forbear from exercising any of the rights or remedies available to Wachovia under the Repurchase Documents, Master Agreement or Applicable Law (all of which rights and remedies are hereby expressly reserved by Wachovia) upon or after the occurrence of a Forbearance Termination Event.  As used herein, a "Forbearance Termination Event" shall mean the occurrence of any of the following: (a) any breach of or default under any term or provision of this Agreement by any Quadra Entity, (b) any Default (as defined in the Repurchase Agreement), any Event of Default (as defined in the Repurchase Agreement) under any of the Repurchase Documents other than the Existing Repurchase Event of Default, any Termination Event (as defined in the Master Agreement) or any Event of Default (as defined in the Master Agreement) under the Swap Documents other than the Existing Swap Event of Default, (c) any breach of a representation, warranty or covenant contained in this Agreement by any Quadra Entity, (d) the earlier of (i) sixty (60) calendar days from the date of this Agreement and (ii) the date on which any of the Quadra Entities enters into a contract or arrangement with a Person (other than the Hypo Entities, as defined below) for, or that, upon consummation, would result in (A) a merger, consolidation, amalgamation or similar event of any Quadra Entity or (B) any Change of Control or (e) the Quadra Entities fail to pay all Obligations due under the Repurchase Documents and all obligations and liabilities due under the Swap Documents in full within one (1) Business Day of the occurrence of any of the following: (i) the Plan of Merger (defined below) is not consummated for any reason, (ii) the Agreement and Plan of Merger, dated as of January 28, 2008, executed in connection with the Plan of Merger is terminated, cancelled, rescinded or is unenforceable for any reason or (iii) the tender offer described in the Offer to Purchase for Cash dated February 13, 2008 initiated in connection with the Plan of Merger fails, is unsuccessful or is otherwise not consummated for any reason.  The period from the date hereof to (but excluding) the date that a Forbearance Termination Event occurs shall be referred to as the "Forbearance Period".

4.Forbearance Fee/Collateral/Payment.  In consideration of Wachovia's willingness to enter into this Agreement, Quadra hereby agrees (a) at the time of Quadra's execution of this Agreement, to pay a forbearance fee of $600,000 (the "Forbearance Fee") to Wachovia, (b) on or before the date of this Agreement, to post cash collateral with Wachovia under the Swap Documents in the amount of $4,180,222.51 to be held and applied under the terms of the Swap Documents (the "Swap Collateral"), and (c) to pay all Obligations under the Repurchase Documents and all obligations and liabilities due and payable under the Swap Documents in full on or before the expiration of the Forbearance Period.  The Forbearance Fee shall be fully earned and non-refundable as of the date hereof, and the Forbearance Fee and Swap Collateral shall be due and payable to Wachovia as a condition to the effectiveness of this Agreement.  

5.Amendment to Repurchase Agreement.  

(a)The following new definition is added to Section 1.1 of the Repurchase Agreement:

""Swap Documents":  That certain ISDA Master Agreement and related Schedule, each dated as of May 7, 2007, between the Purchaser and the Seller, that certain Credit Support Annex, dated as of February 14, 2008, between the Purchaser and the Seller and all other documents executed in connection with the foregoing, as such agreements are amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time."

(b)Clause EIGHTH of Subsection 2.8 of the Repurchase Agreement is hereby amended and restated in its entirety as follows:  

"EIGHTH, pari passu and pro-rata (based on the amounts owed to such Persons under this clause EIGHTH), to the payment of Breakage Costs, Indemnified Amounts, Increased Costs, Additional Amounts, the Obligations and all other amounts then due and owing to the Purchaser, any Affected Party or any other Person pursuant to the Repurchase Documents and the Swap Documents; and"

(c)Subsection 5.1(bb)(iv) of the Repurchase Agreement is hereby amended and restated in its entirety as follows:  

"(iv)Fixed Charge Coverage Ratio.  The Non-SPE Seller shall not permit, for any Test Period, its Fixed Charge Coverage Ratio to be less than 1.5x."

6.Indemnity and Amendment.  

(a)Repurchase Agreement.  For the avoidance of doubt, the Quadra Entities acknowledge and agree that the indemnity contained in Section 11.1(a) of the Repurchase Agreement shall include the Existing Events of Default, the Change of Control that caused the Existing Events of Default, the transactions or events or proposed transactions or events (or any similar transactions or events) contemplated by that certain Agreement and Plan of Merger, dated as of January 28, 2008, by and among Quadra Realty Trust, Inc., a Maryland corporation, Hypo Real Estate Capital Corporation ("Hypo"), a Delaware corporation, and HRECC Sub Inc. ("HRECC" and together with Hypo, the "Hypo Entities"), a Maryland corporation (the "Plan of Merger"), any and all claims of shareholders or other Persons based on, triggered by, arising out of, relating to or resulting from or as a consequence of the Plan of Merger or Change of Control related thereto and all other events, acts, responses, consequences, damages, liabilities, losses, costs, expenses, attorney fees, claims, demands, litigation, suits or proceedings based on, triggered by, arising out of, relating to, resulting from or as a consequence of the Plan of Merger or the Change of Control related thereto.  

(b)Master Agreement.  The Quadra Entities agree that the Master Agreement is amended to require the Quadra Entities to indemnify Wachovia and each of its respective successors, assigns and officers, directors, shareholders, owners, members, affiliates, employees and agents thereof for the same items and to the same extent the Quadra Entities indemnify the Indemnified Parties under Section 11.1 of the Repurchase Agreement.

7.Conditions Precedent to Effectiveness.  This Agreement shall become effective as of the date hereof when, and only when, each of the following conditions shall have been satisfied (it being understood that the satisfaction of one or more of the following conditions may occur concurrently with the effectiveness of this Agreement) or waived, as determined by Wachovia in its sole discretion:

(a)Executed Agreements.  Wachovia shall have received counterparts of this Agreement, the Credit Support Annex in the form of Exhibit A attached hereto ("Credit Support Annex") and a First Amendment to Master Agreement in the form of Exhibit B attached hereto ("First Amendment") duly executed by the Quadra Entities and Wachovia.

(b)Forbearance Fee/Collateral.  Wachovia shall have received from Quadra the Forbearance Fee and the Swap Collateral.

(c)Expenses.  Quadra shall have reimbursed Wachovia for all reasonable fees and out-of-pocket expenses of Moore & Van Allen PLLC, counsel to Wachovia, invoiced on or prior to the date hereof.

8.Representations, Warranties and Covenants.  Each of the Quadra Entities hereby represents, warrants and covenants to Wachovia as follows:

(a)No Default Under Other Agreements.  Neither the Plan of Merger, the occurrence of the Existing Events of Default, the underlying Change of Control that caused the Existing Events of Default nor this Agreement constitutes, causes or creates a default or event of default under any other credit facility, loan agreement or other agreement evidencing Indebtedness of Quadra (including, without limitation, the Key Bank Facility) unless the applicable counterparties to such other agreement have entered into a corresponding forbearance agreement prior to the date of this Agreement which is in form and substance reasonably acceptable to Wachovia.

(b) No Default; Representations and Warranties.  Upon giving effect to this Agreement (i) no Default (as defined in the Repurchase Agreement), Event of Default (as defined in the Repurchase Agreement) (other than the Existing Repurchase Event of Default), Termination Event (as defined in the Master Agreement), or Event of Default (as defined in Master Agreement) (other than the Existing Swap Event of Default) exists, (ii) all of the representations and warranties set forth in the Repurchase Documents and Swap Documents are true and correct in all material respects as of the date hereof (except for those that expressly state that they are made as of an earlier date, in which case they shall be true and correct as of such earlier date), (iii) the Quadra Entities are in compliance with all of the terms, provisions, covenants, conditions and agreements contained in the Repurchase Documents and Swap Documents and (iv) during the Forbearance Period, the Quadra Entities shall not incur any new Indebtedness or Guarantee Obligations or obtain draws or advances under, increase the outstanding amount under or otherwise incur any Indebtedness under any credit facility, loan agreement or other agreement evidencing Indebtedness (including without limitation, the Key Bank Facility) without Wachovia's prior written consent, which consent may be refused in its sole and absolute discretion. 

9.Release.  In consideration of Wachovia's willingness to enter into this Agreement, each of the Quadra Entities hereby releases Wachovia and its officers, employees, representatives, Affiliates, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act in connection with the Repurchase Documents or Swap Documents on or prior to the date hereof.

10.Ratification of Repurchase Agreement and Swap Documents.  Except as expressly modified in this Agreement, all of the terms, provisions and conditions of the Repurchase Agreement, the other Repurchase Documents and the Master Agreement shall remain unchanged and in full force and effect.  Except as herein specifically agreed, the Repurchase Agreement and Master Agreement are hereby ratified and confirmed and shall remain in full force and effect according to its terms.  Except as expressly set forth in this Agreement, the execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of Wachovia under the Repurchase Agreement, the other Repurchase Documents or the Swap Documents, nor constitute a waiver of any provision of the Repurchase Agreement, the other Repurchase Documents or the Swap Documents.  This Agreement shall not constitute a course of dealing with Wachovia at variance with the Repurchase Agreement, the other Repurchase Documents or the Swap Documents such as to require further notice by Wachovia to require strict compliance with the terms of the Repurchase Agreement, the other Repurchase Documents or the Swap Documents in the future, except as expressly set forth herein.  Each of the Quadra Entities acknowledges and expressly agrees that Wachovia reserves the right to, and does in fact, require strict compliance with all terms and provisions of the Repurchase Agreement, the other Repurchase Documents and the Swap Documents.  The Quadra Entities have no knowledge of any challenge to Wachovia's claims arising under the Repurchase Documents or the Swap Documents or to the effectiveness of the Repurchase Documents or the Swap Documents.

11.Authority/Enforceability.  Each of the Quadra Entities represents and warrants to Wachovia as follows:

(a)It is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of organization and each jurisdiction where it conducts business.

(b)The execution, delivery and performance by it of this Agreement is within its corporate, company or partnership powers, has been duly authorized and does not contravene (1) its Authority Documents or its applicable resolutions, (2) any Applicable Law or (3) any Contractual Obligation, Indebtedness or Guarantee Obligation.

(c)No consent, license, permit, approval or authorization of, or registration, filing or declaration with, any Governmental Authority or other Person is required in connection with the  execution, delivery, performance, validity or enforceability by or against it of this Agreement.

(d)This Agreement has been duly executed and delivered by it.

(e)This Agreement, each of the Repurchase Documents and the Swap Documents, constitute its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity. 

(f)Each of the Repurchase Documents and the Swap Documents is in full force and effect and no Quadra Entity has any defense, offset, counterclaim, abatement, right of rescission or other claims, legal or equitable, available to it or any other Person with respect to this Agreement,  the Repurchase Agreement, the Repurchase Documents, the Swap Documents or any other instrument, document and/or agreement described herein or therein, as modified and amended hereby, or with respect to the obligation of Quadra, the Guarantor and the Pledgor to repay the Obligations and other amounts due under the Repurchase Documents and the obligations and liabilities due under the Master Agreement.

12.Expenses.  Upon demand therefore, Quadra agrees to pay all reasonable costs and expenses in connection with the preparation, execution and delivery of this Agreement, including without limitation the reasonable fees and expenses of Moore & Van Allen PLLC, counsel to Wachovia.

13.Counterparts/Telecopy.  This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument.  Delivery of executed counterparts by telecopy or electronic mail shall be effective as an original.

14.GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF NEW YORK.  EACH OF THE PARTIES HERETO AGREES TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY.  EACH OF THE PARTIES HERETO WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

15.Entirety.  This Agreement, the other Repurchase Documents and the Swap Documents embody the entire agreement between the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof.  This Agreement, the other Repurchase Documents and the Swap Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties.  There are no oral agreements between the parties.

16.Acknowledgment of Guarantor.  The Guarantor acknowledges and consents to all of the terms and conditions of this Agreement and agrees that this Agreement and any documents executed in connection herewith do not operate to reduce or discharge the Guarantor's obligations under the Repurchase Agreement or the other Repurchase Documents.  

17.Affirmation of Liens.  Each of Quadra and the Pledgor affirms the Liens created and granted by it in the Repurchase Documents and the Swap Documents and agrees that this Agreement shall in no manner adversely affect or impair such Liens.

18.Severability of Provisions.  Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

19.Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of each of the parties and their respective successors and assigns.

20.Repurchase Document and Swap Document.  This Agreement is a Repurchase Document and a Swap Document for all purposes.

21.Headings.  The descriptive headings of the various sections of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

22.Amendments.  No amendment, waiver or other modification of any provision of this Agreement shall be effective without the written agreement of Wachovia and the Quadra Entities.

23.Interpretation.  The interpretive provisions of Sections 1.2 through 1.4 of the Repurchase Agreement are incorporated herein mutatis mutandis.

 

[Signature pages to follow]

IN WITNESS WHEREOF, the parties hereto have caused this Forbearance Agreement to be duly executed as of the date first above written.

QUADRA QRS, LLC,
a Maryland limited liability company, as a Seller under the Repurchase Documents and a Party B under the Master Agreement

By:Quadra Realty Trust, Inc., 

a Maryland corporation, its sole member

By:/s/

Name:Steven M. Sherwyn

Title:CFO and Treasurer

By:/s/

Name:Christoph Donner

Title:Assistant Vice President

QUADRA REALTY TRUST, INC.,
a Maryland corporation, as a Seller, the Guarantor 

and the Pledgor under the Repurchase Documents and a Party B under the Master Agreement

By:/s/

Name:Steven M. Sherwyn

Title:CFO and Treasurer

By:/s/

Name:Christoph Donner

Title:Assistant Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION,
as the Purchaser under the Repurchase Documents and Party A under the Master Agreement

By:/s/

Name:Angela E. Dugick

Title:Director

EXHIBIT A

Credit Support Annex

[Attached]

EXHIBIT B

First Amendment to Master Agreement

[Attached]DC3718.pdf -- Converted by SEC Publisher 4.2, created by BCL Technologies Inc., for SEC Filing

EMPLOYMENT AGREEMENT

	
BETWEEN

VARSITY GROUP INC.

	
AND

	
JIM CRAIG

	
EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made by and between VARSITY GROUP INC., a Delaware corporation (the
“Company”), and Jim Craig (the “Executive”), effective as of the Purchase Date. Capitalized terms used but not
defined in this Agreement shall have the meaning ascribed to them in that certain Agreement and Plan of Merger dated February 22, 2008 (“Merger Agreement”) among the Company, VGI
Holdings Corp., a Delaware corporation (“Parent”), and VGI Acquisition Corp., a Delaware corporation and a wholly-owned direct subsidiary of Parent (“Merger Sub”).

	
WITNESSETH THAT:

     WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by the Company, in accordance with the terms and conditions of this Agreement.

     NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the Company and the Executive hereby agree as follows:

1. Period of Employment.  The term “Period of Employment” means the period which commences on the Purchase Date and, unless
earlier terminated pursuant to Section 5, ends three (3) months after the Purchase Date. This Agreement is only effective upon occurrence of the Purchase Date under the Merger Agreement and has no force or effect unless the Purchase Date
occurs.

2. Position. During the Period of Employment, the Executive shall be employed to perform executive responsibilities and such duties as the Executive shall reasonably be directed to perform by the
board of directors of the Company.  During the Period of Employment, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially all of the Executive’s business time and
attention to the business and affairs of the Company.

3. Compensation and Other Payments. During the Period of Employment, the Company shall pay the Executive a base salary equal to $20,833.33 per month (the “Base
Salary”). The Base Salary shall be paid in accordance with the Company’s payroll policy. 

	
4.      		
Covenants.	
	 
	 	
4.1 Non-Competition. In consideration of the Executive’s agreement to enter into	
	 

this Agreement, and as a condition thereto, the Executive covenants and agrees that during the Executive’s employment with the Company or any of its affiliates (collectively referred to herein as the “Affiliated Companies”) and for one (1) year immediately following the termination of the Executive’s employment, (the “Noncompete and Non-Solicitation
Period”), the Executive shall not, directly or indirectly, in any manner engage in the Business (as defined below) or in any activity that directly or indirectly competes with the Business or own any interest in,
manage, control, participate in (whether as an owner, operator, manager, consultant, officer, director, employee, investor, agent, representative or otherwise), provided that ownership of up to one percent (1%) of the outstanding capital stock of
any entity that has securities registered pursuant to Section 13 or 15 of the Securities Exchange Act shall not be prohibited by this Section 4.1, or

consult with or render services for any person or entity that is engaged in the Business or in any activity that competes directly or indirectly with the Business, in each case, anywhere

	
(i)      		
throughout the world, but if such area is determined by judicial action to be too broad, then	
	 
	
(ii)      		
within North America, but if such area is determined by judicial action to be too broad, then	
	 
	
(iii)      		
within the continental United States, but if such area is determined by judicial action to be	
	 

too broad, then (iv) within any state in which any of the Affiliated Companies are engaged in Business. For purposes of this Agreement, “Business” means the
business of the Company (as conducted on or prior to the date hereof), including, without limitation, providing outsourcing solutions to provide textbooks, uniforms, educational products and school supplies to K-12 (or equivalent) schools, colleges,
other educational entities, students and students’ parents.

     4.2 Non-Solicit. During the Noncompete and Non-Solicitation Period, the Executive shall not directly or indirectly through another entity (whether as an owner,
operator, manager, consultant, officer, director, employee, investor, agent, representative or otherwise) (a) induce or attempt to induce any employee of the Affiliated Companies to leave the employ of the Affiliated Companies, or in any way
interfere with the relationship between the Affiliated Companies and any such employee, (b) hire any person who was an employee of the Affiliated Companies within twelve (12) months of the termination of their employment with the Affiliated
Companies, (c) call upon, solicit, or attempt to sell products or services similar to those offered by the Affiliated Companies to any of the Affiliated Companies’ customers, (d) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee, lessor or other business relation of the Affiliated Companies (or any prospective customer, supplier, licensee, licensor, franchisee, lessor or other business relation with which the Affiliated Companies has entertained
discussions regarding a prospective business relationship) to cease or refrain from doing business with the Affiliated Companies, or in any way interfere with the relationship (or prospective relationship) between any such customer, supplier,
licensee, licensor, franchisee or other business relation and the Affiliated Companies (including, without limitation, making any negative statements or communications about the Affiliated Companies) or (e) (i) acquire or attempt to acquire an
interest in any business or (ii) enter into any agreement, relationship or other arrangement with any other party to create, establish, use or operate any entity, business, partnership, joint venture or similar body, relating to any business of the
Affiliated Companies or with which the Affiliated Companies has entertained discussions or has requested and received information relating to the acquisition of such business by the Affiliated Companies as of the last day of the Period of
Employment.  The preceding sentence does not, however, prohibit the Executive from soliciting any employee of the Affiliated Companies or any person who was an employee of the Affiliated Companies within twelve (12) months of the termination of
their employment with the Affiliated Companies for employment by placement of general advertisements for employees in newspapers or other media of general circulation and the hiring therefrom.

     4.3 Nondisparagement.  The Executive will not, at any time on or after the date hereof, make any negative or disparaging statements or communications regarding the
Affiliated Companies, or any of their shareholders, directors, officers, employees, agents or affiliates.

	
4.4      		
General.	
	 
	 	
(a) The parties acknowledge and agree that the covenants set forth in this	
	 

Section 4 are reasonable with respect to period, geographical area and scope. Notwithstanding anything in this Section 4 to the contrary, if at any time, in any judicial

	
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proceeding, any of the restrictions stated in this Section 4 are found by a final order of a court of competent jurisdiction to be unreasonable or otherwise unenforceable under circumstances then existing, the Executive agrees
that the period, scope or geographical area, as the case may be, shall be reduced to the extent necessary to enable the court to enforce the restrictions to the extent such provisions are allowable under law, giving effect to the agreement and
intent of the parties that the restrictions contained herein shall be effective to the fullest extent permissible. In addition, the Executive acknowledges and agrees that money damages would not be an adequate remedy for any breach or threatened
breach of the provisions of this Section 4 and that, in such event, the Company and/or its respective successors or assigns shall, in addition to any other rights and remedies existing in their favor, be entitled to specific performance, injunctive
and/or other relief from any court of competent jurisdiction in order to enforce or prevent any violations of the provisions of this Section 4 (including the extension of the Noncompete and Non-Solicitation Period applicable to the Executive by a
period equal to the length of court proceedings necessary to stop such violation). The Executive hereby waives any and all defenses he may have on the ground of lack of jurisdiction or competence of the court to grant such specific performance,
injunctive and/or other relief contemplated by the preceding sentence.  Any injunction shall be available without the posting of any bond or other security. In the event of a breach or violation by the Executive of any of the provisions of this
Section 4, the Noncompete and Non-Solicitation Period will be tolled for the Executive until such alleged breach or violation is resolved; provided that if the Executive is found to have not violated the provisions of this Section 4, then the
Noncompete and Nonsolicitation Period will not be deemed to have been tolled.  The Executive agrees that the restrictions contained in this Section 4 are reasonable in all respects and are necessary to protect the goodwill of the businesses of the
Affiliated Companies.  The prevailing party in any arbitration, mediation, court action, or other adjudicative proceeding arising out of this Section 4 shall be reimbursed by the party who does not prevail for its reasonable attorneys and experts
fees and related expenses and for the costs of such proceeding.

     (b) The covenants set forth in this Section 4 shall survive termination of this Agreement and termination of the Period of Employment. The Parties acknowledge that the covenants set forth in Section 4
will apply during the Noncompete and Non-Solicitation Period as defined in Section 4.1 above.

     4.5 Intellectual Property Rights. The Executive acknowledges that all inventions, technology, processes, innovations, ideas, improvements, developments, methods,
designs, analyses, trademarks, service marks, and other indicia of origin, writings, audiovisual works, concepts, drawings, reports, all information and data processing systems, programs and software (including, without limitation, source code,
executable code, data, data-bases, and related material and documentation) and any and all licenses and copies thereof and rights thereto, and all similar, related, or derivative information or works (whether or not patentable or subject to
copyright), including but not limited to all patents, copyrights, copyright registrations, trademark registrations and software in and to any of the foregoing, along with the right to practice, employ, exploit, use, develop, reproduce, copy,
distribute copies, publish, license, or create works derivative of any of the foregoing, and the right to choose not to do or permit any of the aforementioned actions, which relate to any of the Affiliated Company’s actual or anticipated
business, research and development or existing or future products or services and which are

	
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conceived, developed or made by the Executive prior to or while employed by the Company (collectively, the “Work Product”) belong to the Company and any and all
intellectual property and moral rights related thereto are hereby conveyed, assigned and transferred to the Company. All other rights to any new Work Product and all rights to any existing Work Product, including but not limited to all of the
Executive’s rights to any copyrights or copyright registrations related thereto, are conveyed, assigned and transferred to the Company pursuant to this Agreement. The Executive shall promptly disclose and deliver such Work Product to the
Company and, at the Company’s expense, perform all actions reasonably requested by the Company (whether during or after the Period of Employment) to establish, confirm and protect such ownership (including, without limitation, the execution of
assignments, copyright registrations, consents, licenses, powers of attorney and other instruments). All Work Product made within six (6) months after expiration of the Period of Employment shall be presumed to have been conceived during the Period
of Employment, unless the Executive can prove conclusively that it was created after the Period of Employment.

	
5.      		
Termination of Employment.	
	 
	 	
5.1 By the Company. The Company may terminate the Executive’s employment for	
	 

any reason, with or without cause, immediately upon delivering written notice to the Executive.

     5.2 By the Executive. The Executive’s employment hereunder may be terminated by the Executive for any reason, by giving at least fourteen (14) days’ written
notice to the Company. In the event of the Executive’s death or “Disability” (as defined under any long term disability plan then in effect in which the Executive participates), the Period of Employment shall automatically
terminate.

6. Obligations of the Company Upon Termination.  If Executive’s employment hereunder is terminated for any reason (including with or without cause or as a result of Executive’s death or
Disability), then the Executive (or his/her legal beneficiary) will be entitled to receive the Base Salary and accrued but untaken vacation through the date of termination.

7. General Release. The Executive acknowledges and agrees that the Executive’s right to receive the compensation pursuant to Section 6 of this Agreement is contingent upon the Executive’s
compliance with the covenants set forth in Sections 4 and 8 of this Agreement and the Executive’s execution and acceptance of the terms and conditions of, and the effectiveness of, a general release in a form substantially similar to that
attached hereto as Exhibit A (the “Release”). If the Executive fails to comply with the covenants set forth in Sections 4 and 8, or if the Executive fails to execute the Release or
revokes the Release during the seven-day period following the Executive’s execution of the Release, then the Executive shall not be entitled to the compensation to which the Executive would otherwise be entitled under Section 6.

8. Confidential Information.  The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Affiliated
Companies and their businesses, which shall have been obtained by the Executive pursuant to the Executive’s employment by the Company or any of the Affiliated Companies (the “Confidential
Information”). The immediately prior sentence shall not apply to Confidential Information which has become public knowledge, unless such Confidential Information became public knowledge due to acts by the Executive
or the Executive’s representatives in violation of this Agreement.  After termination of the Executive’s employment with the Company, the

	
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Executive shall not, without the prior written consent of the Company, communicate or divulge any Confidential Information to anyone other than the Company and those designated by it. The Executive agrees not to disclose the terms
of this Agreement and any treatment the Executive may receive under this Agreement; provided, however, that the Executive may make such disclosure to the Executive’s spouse, legal counsel, accountant and/or financial planner on an as-needed
basis in order to manage the Executive’s personal affairs.  Upon termination of employment the Executive shall promptly return to the Company all Confidential Information and all property of the Company, including without limitation all
documents, paper files, computer or other media files, computer equipment, mobile telephones, company identification cards, building keys and credit cards.

9. Remedy for Violation of Section 4 or 8.  The Executive acknowledges that the Company has no adequate remedy at law and will be irreparably harmed if the Executive breaches or threatens to breach
the provisions of Section 4 or 8 of this Agreement, and, therefore, agrees that the Company shall be entitled to:  (i) injunctive relief to prevent any breach or threatened breach of either such section, (ii) specific performance of the terms of
each of such sections in addition to any other legal or equitable remedy the Company may have and (iii) enforcement of either such section in any court of competent jurisdiction. If, at the time of enforcement of a covenant contained in either such
section, a court shall hold that the duration, scope or area restrictions are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise the appropriate section to cover the maximum duration, scope and area permitted by law.  Any injunction shall be available without the posting of any bond or other
security.

10. Withholding.  All payments required to be made by the Company hereunder to the Executive shall be subject to withholding of such amounts relating to taxes as the Company may reasonably
determine. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provision for payment of taxes as required by law.

11. Arbitration.  Any dispute or controversy between the Company and the Executive arising out of or relating to this Agreement shall be settled by arbitration administered by the American
Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules then in effect and judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Any arbitration shall be held before a single arbitrator who shall be selected by the mutual agreement of the Company and the Executive, unless the parties are unable to agree to an arbitrator, in which case, the
arbitrator will be selected under the procedures of the AAA.  The arbitrator shall have the authority to award any actual or compensatory damages (excluding exemplary or punitive damages) that a court of competent jurisdiction could order or grant.
Notwithstanding the foregoing, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek injunctive or other equitable relief until the arbitration award
is rendered or the controversy is otherwise resolved. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision.
The arbitration proceeding shall be conducted in Chicago, Illinois or such other location to which the parties may agree.  The Company shall pay the costs of any arbitrator appointed hereunder but each side will be

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responsible for their own filing fees, attorney fees, witness fees, etc. associated with their claim or their defense to any claim.

	
12.      		
Successors.	
	 
	 	
12.1 This Agreement is personal to the Executive and without the prior written consent	
	 

of the Company shall not be assignable by the Executive.

     12.2 This Agreement and the rights thereunder shall inure to the benefit of and be enforceable by the Executive’s heirs and legal representatives.

     12.3 This Agreement and the rights thereunder shall inure to the benefit of and be binding upon the Company and its successors and assigns.

	
13.      		
Miscellaneous.	
	 
	 	
13.1 This Agreement shall be governed by and construed in accordance with the laws	
	 

of the State of Virginia, without reference to principles of conflicts of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or the respective successors and legal representatives.

     13.2 All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party, by overnight courier, or by registered
or certified mail, return receipt requested, postage prepaid, addressed as follows:

	 	
If to the Executive:

Jim Craig

c/o Varsity Group Inc.

2677 Prosperity Ave., Suite 250

Fairfax, Virginia 22031

Facsimile: (703) 205-6231

If to the Company:

Varsity Group Inc.

2677 Prosperity Ave., Suite 250

Fairfax, VA 22031

Facsimile: (703) 205-6230

Attention: President

or to such other address as any of the parties shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective upon the earlier of actual receipt by the addressee or the fifth day
following placement with the United States postal service or overnight courier.

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     13.3 The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this
Agreement.

     13.4 Any party’s failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision
hereof.

     13.5 This Agreement supersedes any prior employment agreement or understandings, written or verbal, between any of the Affiliated Companies and the Executive and
contains the entire understanding of each of the Affiliated Companies and the Executive with respect to the subject matter hereof provided that nothing in this Agreement will affect Executive’s right to receive the payment provided for in
Section 7(c) of the Employment Offer dated May 16, 2006 between Executive and the Company (as amended by the letters dated November 21, 2006 and July 26, 2007).

     13.6 This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

	
* *

	
* *

IN WITNESS HEREOF, the parties have executed this Agreement as of the dates written

	
below.

	
VARSITY GROUP INC.

	
By: 
		
 		
/s/ Eric Kuhn 
	
	
		
		

	
	
Its: 
		
 		
Chairman of the Board 
	
	
		
		

	
	
Dated: 
		
 		
February 22, 2008 
	

	
/s/ James Craig

Jim Craig

	
Dated: February 22, 2008

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Exhibit A

	
General Release of all Claims

     1. For valuable consideration, the adequacy of which is hereby acknowledged, the undersigned (“Executive”), for himself or herself,
the Executive’s spouse, heirs, administrators, children, representatives, executors, successors, assigns, and all other persons claiming through Executive, if any (collectively, “Releasers”), does hereby release, waive, and forever discharge Follett Corporation (the “Company”), its agents, subsidiaries, affiliates, related organizations, employees,
officers, directors, attorneys, successors, and assigns (collectively, the “Releasees”) from, and does fully waive any obligations of Releasees to Releasers for, any and all
liability, actions, charges, causes of action, demands, damages, or claims for relief, remuneration, sums of money, accounts or expenses (including attorneys’ fees and costs) of any kind whatsoever, whether known or unknown or contingent or
absolute, which heretofore has been or which hereafter may be suffered or sustained, directly or indirectly, by Releasers in consequence of, arising out of, or in any way relating to Executive’s employment with the Company or any of its
affiliates and the termination of Executive’s employment. The foregoing release and discharge, waiver and covenant not to sue includes, but is not limited to, all claims and any obligations or causes of action arising from such claims, under
common law including wrongful or retaliatory discharge, breach of contract and any action arising in tort including libel, slander, defamation or intentional infliction of emotional distress, and claims under any federal, state or local statute
including Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 and 1871 (42 U.S.C. 1981), the National Labor Relations Act, the Age Discrimination in Employment Act (ADEA), the Fair Labor Standards Act, the Employee Retirement
Income Security Act, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973, the Virginia Human Rights Act, the Illinois Human Rights Act, or the discrimination or employment laws of any state or municipality, and/or any claims
under any express or implied contract which Releasers may claim existed with Releasees. This also includes a release by Executive of any claims for breach of contract, wrongful discharge and all claims for alleged physical or personal injury,
emotional distress relating to or arising out of Executive’s employment with the Company or the termination of that employment; and any claims under the WARN Act or any similar law, which requires, among other things, that advance notice be
given of certain work force reductions. This release and waiver does not apply to any claims or rights that may arise after the date Executive signs this General Release.  The foregoing release does not cover:  (1) any right to indemnification now
existing under the Articles of Incorporation or By-laws of the Company regardless of when any claim is filed, (2) any right to sue or take other action to enforce the Employment Agreement between the Company and Executive, dated February ___, 2008
(the “Employment Agreement”), or (3) any right to sue or to take other action to enforce the Agreement and Plan of Merger between Varsity Group Inc., VGI Holdings Corp. and VGI
Acquisition Corp., dated February ___, 2008 (the “Merger Agreement”).

     2. Excluded from this release and waiver are any claims which cannot be waived by law, including but not limited to the right to participate in an investigation conducted by certain government
agencies.  Executive does, however, waive Executive’s right to any monetary recovery should any agency (such as the Equal Employment Opportunity Commission) pursue any claims on Executive’s behalf. Executive represents and warrants that
Executive has not filed any complaint, charge, or lawsuit against the Releasees with any government agency or any court.

	
- 8 -

     3. Executive agrees never to sue Releasees in any forum for any claim covered by the above waiver and release language, except that Executive may bring a claim under the ADEA to challenge this General
Release. If Executive violates this General Release by suing Releasees, other than under the ADEA or as otherwise set forth in Section 1 hereof, Executive shall be liable to the Company for its reasonable attorneys’ fees and other litigation
costs incurred in defending against such a suit. Nothing in this General Release is intended to reflect any party’s belief that Executive’s waiver of claims under ADEA is invalid or unenforceable, it being the interest of the parties that
such claims are waived.

	
4.      		
Executive acknowledges and recites that:	
	 
	 	
(a)      		
Executive has executed this General Release knowingly and voluntarily;	
	 
	 	
(b)      		
Executive has read and understands this General Release in its entirety;	
	 
	 	
(c)      		
Executive has been advised and directed orally and in writing (and this	
	 

subparagraph (c) constitutes such written direction) to seek legal counsel and any other advice the Executive wishes with respect to the terms of this General Release before executing it;

     (d) Executive’s execution of this General Release has not been forced by any employee or agent of the Company, and Executive has had an opportunity to negotiate about the terms of this General
Release; and

     (e) Executive has been offered 21 calendar days after receipt of this General Release to consider its terms before executing it.

     5. This General Release shall be governed by the internal laws (and not the choice of laws) of the State of Illinois, except for the application of pre-emptive Federal law.

     6. Executive shall have 7 days from the date hereof to revoke this General Release by providing written notice of the revocation to the Company’s General Counsel, as provided in Section 13.2 of
the Employment Agreement, in which event this General Release shall be unenforceable and null and void.

     PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

	
Jim Craig

	
 
		
 		
[Exhibit only. To be signed only at termination of 
	
	
Date: 
		
 		
employment in connection with severance benefits] 
	
	
		
		

	
	
 
	
	
 
		
 		
Executive 
	

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