COMPENSATION AGREEMENT

EXECUTION VERSION

AGREEMENT

THIS AGREEMENT (the "Agreement") made as of the 26th day of May 2005 by and between VARSITY GROUP INC., a Delaware corporation (the "Company"), and ADAM HANIN (the "Executive").

The Executive has been offered a position by the Company as its Executive Vice President for Sales & Development.

The Board of Directors of the Company desires to set forth the nature and amount of compensation and other benefits to be provided to the Executive and any of the rights of the Executive in the event of his termination of employment with the Company. The Executive is willing to commit himself to serve the Company, on the terms and conditions herein provided.

In order to effect the foregoing, the Company and the Executive wish to enter into this Agreement under the terms and conditions set forth below. Accordingly, in consideration of the promises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein.

2. Term. The term of Executive's employment under Section 1 will commence on the date (the "Commencement Date") of the closing of the sale of substantially all of the assets of Campus Outfitters, LLC ("Campus Outfitters") and all of the equity interests in Campus Textbook LLC ("Campus Textbook") by the members of each of Campus Outfitters and Campus Textbook to the Company pursuant to that certain Membership Interest and Asset Purchase Agreement dated as of May 26, 2005, among the Company, Campus Outfitters, Campus Textbook, and the individuals listed on the signature page thereto. The term of Executive's employment will terminate upon the termination of Executive's employment with the Company for any reason whatsoever. Except as otherwise provided in this Agreement, no such termination shall affect any of the Company's other obligations under this Agreement arising at or after such termination of employment.

3. Position and Duties. The Executive shall serve as Executive Vice President for Sales & Development of the Company, reporting to the President and Chief Executive Officer of the Company, and shall have such responsibilities and authority as may normally be exercised by a person in such a position at a company.

4. Place of Performance. The Executive shall be based at the current or future headquarters of the Company, provided that any future headquarters is not more than twenty-five (25) miles from the location of the Company's headquarters on the date hereof.

5. Compensation and Related Matters.

(a) Base Salary. Commencing on the Commencement Date, the Company shall pay to the Executive a salary at a rate of not less than One Hundred Ninety Thousand Dollars ($190,000) per annum in equal installments as nearly as practicable on the normal payroll periods for employees of the Company generally. Such amount may be increased from time to time and, if so increased, shall not thereafter be decreased during the term of this Agreement (such amount, as it may be increased, the "Base Salary").

(b) Bonus.

(i) The Executive shall be eligible to receive an annual bonus (the "Annual Bonus") in accordance with performance goals determined, subject to the following provisions of this subsection (b), by the Chief Executive Officer in good faith after consultation with Executive. Any Annual Bonus shall be paid in cash at the time upon which annual bonuses are paid to each of the Company's other executive employees that has earned an annual bonus.

(ii) The parties hereby agree that the target amount of the Annual Bonus for 2005 will be $40,000, which amount shall be payable if the net revenues of Campus Outfitters and Campus Textbook (as determined in accordance with generally accepted accounting principles and on the same basis as net revenues are reported on the Company's financial statements filed with the Securities and Exchange Commission, and including without limitation net revenues from both uniform and textbook accounts) recognized for the period in 2005 before the Commencement Date together with such net revenues attributable to the business of Campus Outfitters and Campus Textbook and recognized for the period in 2005 after the Commencement Date (the "Target Sales Amount") shall total at least $7,000,000.

(iii) The Annual Bonus paid to the Executive in 2006 shall be paid in a manner consistent with the bonuses paid to the Company's other executive employees in 2006.

(c) Expenses. During the term of the Executive's employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including all expenses of mobile phone, travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company.

(d) Benefits. During the term of the Executive's employment hereunder, the Company shall maintain in full force and effect, and the Executive shall be entitled to participate in, all of its employee benefit plans and arrangements in effect on the date hereof, or plans or arrangements providing the Executive with at least equivalent benefits thereunder. The Company shall not make any changes in such plans and arrangements which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all officers of the Company and does not result in a proportionately greater reduction in the rights of or benefits to the Executive as compared with any other officers of the Company. The Executive shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its officers and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of any amounts payable to the Executive pursuant to this Section 5. The Executive shall be entitled to the same number of days of paid vacation per year to which the Company's other executive employees are entitled.

(e) Salary Guarantee. Regardless of the length of the Executive's employment by the Company, the Company agrees to pay the Executive at least $380,000 as salary, so long as the Executive's employment is not terminated for Cause and the Executive does not resign without Good Reason. Such guaranteed salary payments are in addition to, and not in lieu of, any payments to which the Executive may become entitled in accordance with Section 7.

(f) Stock Option Grant. The Company shall grant to Executive, as of the Commencement Date, stock options with respect to 400,000 shares of common stock, par value $0.0001 per share, of the Company (the "Common Stock") at an exercise price per share equal to the fair market value of a share of Common Stock as of the Commencement Date (the "Options"). The Options shall be subject to vesting, on a monthly basis, o