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MEMBERSHIP INTEREST AND ASSET PURCHASE AGREEMENT

LLC Membership Agreement

MEMBERSHIP INTEREST AND ASSET PURCHASE AGREEMENT | Document Parties: VARSITY GROUP INC | CAMPUS OUTFITTERS, LLC | CAMPUS TEXTBOOKS, LLC You are currently viewing:
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VARSITY GROUP INC | CAMPUS OUTFITTERS, LLC | CAMPUS TEXTBOOKS, LLC

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Title: MEMBERSHIP INTEREST AND ASSET PURCHASE AGREEMENT
Governing Law: New York     Date: 6/1/2005
Industry: Retail (Catalog and Mail Order)     Sector: Services

MEMBERSHIP INTEREST AND ASSET PURCHASE AGREEMENT, Parties: varsity group inc , campus outfitters  llc , campus textbooks  llc
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MEMBERSHIP INTEREST AND ASSET PURCHASE AGREEMENT

                                   

Among

VARSITY GROUP INC.,

CAMPUS OUTFITTERS, LLC,

CAMPUS TEXTBOOKS, LLC

and

THE SELLERS listed on the signature page hereof

Dated as of May 26, 2005

_______________________________________________

 

                                                                                                                                                           

                                                                                                                                                           

 

TABLE OF CONTENTS

Page

1.          DEFINITIONS                                                                                               1

1.1        Definitions                                                                                                       1

1.2        Interpretation                                                                                      10

2.          PURCHASE AND SALE; CLOSING.                                                          11

2.1        Purchase and Sale of Campus Outfitters Assets                                          11

2.2        Purchase and Sale of Textbooks Membership Interests                             12

2.3        Purchase Price                                                                                                13

2.4        Closing Date                                                                                                   16

2.5        Deliveries                                                                                                        16

2.6        Allocation                                                                                                        17

2.7        Expense Reimbursement                                                                               17

3.          ASSUMPTION OF LIABILITIES.                                                               17

3.1        Assumed Campus Outfitters Liabilities                                                         17

3.2        Excluded Liabilities                                                                                        17

4.          SELLERS' REPRESENTATIONS AND WARRANTIES                         18

4.1        Organization and Validity                                                                               18

4.2        Governmental Consents                                                                                 20

4.3        Financial Statements, etc.                                                                              20

4.4        Change in Condition Since December 31, 2004                                            20

4.5        Litigation                                                                                                         22

4.6        Licenses; Compliance With Legal Requirements and Regulations             23

4.7        Title to and Condition of Assets; Sufficiency of Assets                                23

4.8        Taxes                                                                                                               23

4.9        Certain Contracts                                                                                           24

4.10      Intellectual Property                                                                                       26

4.11      Environmental Matters                                                                                  26

4.12      Employees                                                                                                       27

4.13      Warranties                                                                                                      27

4.14      Personal and Real Property                                                                           27

4.15      Employee Benefits                                                                                          28

4.16      Purchase Entirely for Own Account                                                   29

4.17      Disclosure of Information                                                                               29

4.18      Restricted Securities                                                                                      29

4.19      Legends                                                                                                           29

4.20      Removal of Legend Upon Transfer                                                               30

4.21      Receipt of Quarterly Statement                                                                     30

4.22      Brokers                                                                                                           30

5.          REPRESENTATIONS AND WARRANTIES WITH RESPECT TO PURCHASER                                                                                                                                           30

5.1        Corporate Matters                                                                                         30

5.2        Financial Condition                                                                                         31

5.3        Litigation                                                                                                         31

5.4        Brokers                                                                                                           31

5.5        SEC Reports and Financial Statements                                                        31

6.          CONDITIONS TO CLOSING                                                                      32

6.1        Conditions Precedent to Obligations of Purchaser                           32

6.2        Conditions Precedent to Obligations of Sellers                                             33

7.          CERTAIN COVENANTS                                                                              34

7.1        Liability for Transfer Taxes                                                                           34

7.2        Access to Information                                                                                     34

7.3        Operation of the Acquired Business Prior to Closing                                   35

7.4        Consents                                                                                                          37

7.5        No Solicitation                                                                                                 37

7.6        Books and Records                                                                                        38

7.7        Covenant Not to Compete; Non-Solicitation                                                 38

7.8        Non-Solicitation                                                                                              39

7.9        Employees                                                                                                       39

8.          MUTUAL COVENANTS                                                                              41

8.1        Further Assurances                                                                                        41

8.2        Further Actions Regarding Purchased Assets                                              41

8.3        Access to Information and Personnel                                                            41

8.4        Taxes                                                                                                               42

8.5        Collection of Accounts Receivable and Payment to Sellers                         43

8.6        Assignment of Fidelity Note                                                                           43

9.          TERMINATION                                                                                            43

9.1        Termination                                                                                                     43

9.2        Effect of Termination                                                                          44

9.3        Closing Deadline                                                                                             44

10.        SURVIVAL; INDEMNIFICATION                                                             44

10.1      Survival                                                                                                           44

10.2      Indemnification by Purchaser                                                                         44

10.3      Indemnification by the Sellers                                                                        45

10.4      Indemnification Process                                                                                 45

10.5      Limitation on Indemnification                                                                        48

10.6      Tax Treatment                                                                                                48

11.        GENERAL PROVISIONS                                                                            48

11.1      Governing Law; Jurisdiction                                                              48

11.2      Notices                                                                                                            49

11.3      Exhibits                                                                                                            50

11.4      Entire Agreement, Binding Effect                                                                  50

11.5      Headings                                                                                                         50

11.6      Expenses; Expense Reimbursement                                                             50

11.7      Amendment                                                                                                     50

11.8      Waiver                                                                                                             50

11.9      Time of the Essence                                                                                       51

11.10    Assignment                                                                                                      51

11.11    Specific Performance                                                                          51

11.12    No Third Party Beneficiary                                                                            51

11.13    Severability                                                                                                     51

11.14    Counterparts; Signatures                                                                               51

11.15    Schedules                                                                                                        51

 

MEMBERSHIP INTEREST AND ASSET PURCHASE AGREEMENT

THIS MEMBERSHIP INTEREST AND ASSET PURCHASE AGREEMENT (this " Agreement ") is dated as of May 26, 2005, among Varsity Group Inc., a Delaware corporate (the " Purchaser "), Campus Outfitters, LLC, a Maryland limited liability company (" Campus Outfitters "), Campus Textbooks, LLC, a Maryland limited liability company (" Campus Textbooks ") and the individuals listed on the signature pages hereto.

RECITALS

WHEREAS, certain of the individuals listed on the signature pages hereto (the " Campus Textbooks Sellers ") together own beneficially and of record all of the limited liability company membership interests of Campus Textbooks (the " Campus Textbooks Membership Interests ");

WHEREAS, certain of the individuals listed on the signature pages hereto (the " Campus Outfitters Sellers ", and, together with the Campus Textbooks Sellers, the " Sellers ") together hold own all of the limited liability company membership interests of Campus Outfitters;

WHEREAS, Campus Outfitters owns all of the Campus Outfitters Assets;

WHEREAS, the Sellers wish to sell to Purchaser, and Purchaser wishes to purchase from the Sellers the Campus Textbooks Membership Interests upon the terms and subject to the conditions set forth herein; and

WHEREAS, the Sellers wish to cause Campus Outfitters sell to Purchaser, and Purchaser wishes to purchase from Campus Outfitters the Campus Outfitters Assets, and in connection therewith Purchaser is willing to assume the Assumed Campus Outfitters Liabilities, all upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

    1. DEFINITIONS

.

      1. Definitions

. For purposes of this Agreement, the following definitions shall apply:

2004 Financials

. shall have the meaning specified in Section 4.3(a)(i) of this Agreement.

2005 Financials

. shall have the meaning specified in Section 4.3(a)(ii) of this Agreement.

5112 Berwyn

. shall have the meaning specified in Section 2.5(a)(iii) of this Agreement.

Acquired Business

. shall mean the Acquired Campus Outfitters Business and the Acquired Campus Textbooks Business.

Acquired Campus Outfitters Assets

. shall have the meaning specified in Section 2.1 of this Agreement.

Acquired Campus Outfitters Assets Purchase Price Allocation

. shall have the meaning specified in Section 2.6 of this Agreement, and shall be as set forth on Schedule 2.6 to this Agreement.

Acquired Campus Outfitters Business

. shall mean the business of marketing, distributing, servicing and selling school uniforms and related accessories, products and equipment operated by Campus Outfitters , and involving the Acquired Campus Outfitters Assets, prior to the Closing Date.

Acquired Campus Textbooks Business

. shall mean the business of marketing and distributing, Textbooks or other educational accessories and equipment operated by Campus Textbooks prior to the Closing Date.

Acquisition Proposal

. shall have the meaning specified in Section 7.5 of this Agreement.

Action

. shall mean any claim, action, cause of action, litigation or suit (in contract, tort or otherwise), inquiry, proceeding, notice of noncompliance, demand letter, audit or investigation by or before any Governmental Authority, arbitrator or similar Person.

Affiliate

. shall mean, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person.

Agreement

. shall mean this Membership Interest and Asset Purchase Agreement.

Allocation

. shall have the meaning specified in Section 2.6 of this Agreement.

Assignee

. shall have the meaning specified in Section 11.10 of this Agreement.

Assumed Campus Outfitters Liabilities

. shall have the meaning specified in Section 3.1 of the Agreement.

Benefit Arrangement

. shall have the meaning specified in Section 4.15(a) of this Agreement.

Berwyn Road Lease

. shall have the meaning specified in Section 2.5(a)(iii) of this Agreement.

Berwyn Road Property

. shall have the meaning specified in Section 2.1(b)(iii) of this Agreement.

Books and Records

. shall mean books, records, documents, lists, manuals, plans, files, data and other materials (in any form or medium) relating to the Acquired Business and the Purchased Assets, including, without limitation, advertising materials, drawings, catalogues, price lists, correspondence, mailing lists, lists of customers, distribution lists, price lists, photographs, production data, sales and promotional materials and records, purchasing materials, records and databases, personnel records, quality control records and procedures, blueprints, research and development files and media materials and plates, copies of accounting records, all original property Tax Returns relating to the Purchased Assets; copies of all other Tax Returns of each of Campus Textbooks and Campus Outfitters filed since each of their organization, and copies of current litigation files.

Business

. shall mean the businesses of Campus Textbooks and, with respect to the Acquired Campus Outfitters Assets, Campus Outfitters as such business is currently conducted and as proposed to be conducted.

Business Day

. means any day, other than (i) a Saturday or Sunday, or (ii) any other day on which commercial banking institutions are permitted or required to be closed in the State of New York.

Campus Audit

. shall have the meaning specified in Section 7.2 to this Agreement.

Campus Outfitters

. shall have the meaning specified in the Preamble to this Agreement.

Campus Outfitters Retained Assets

. shall have the meaning specified in Section 2.1(b) to this Agreement.

Campus Outfitters Sellers

. shall have the meaning specified in the Recitals to this Agreement.

Campus Textbooks

. shall have the meaning specified in the Preamble to this Agreement.

Campus Textbooks Membership Interests

. shall have the meaning specified in the Recitals to this Agreement.

Campus Textbooks Membership Interests Allocation

. shall have the meaning specified in Section 2.6 of this Agreement, and shall be as set forth on Schedule 2.6 to this Agreement.

Campus Textbooks Sellers

. shall have the meaning specified in the Recitals to this Agreement.

Cash Payment

. shall have the meaning specified in Section 2.3(a)(i) of this Agreement.

Change of Control

. shall mean, with respect to Purchaser the occurrence of a merger, consolidation, share exchange, recapitalization, business combination, tender offer or exchange offer or other similar transaction involving a majority of the outstanding shares of Varsity Common Stock or a sale of all or substantially all of the assets of Purchaser to a third party.

Change of Control Date

. shall have the meaning specified in Section 2.3(c)(iii) of this Agreement.

Change of Control Price

. shall have the meaning specified in Section 2.3(c)(iii) of this Agreement.

Claim

. shall have the meaning specified in Section 10.4(a) of this Agreement.

Claim Notice

. shall have the meaning specified in Section 10.4(a) of this Agreement.

Closing

. shall mean the closing of the transactions contemplated by this Agreement.

Closing Date

. shall mean the date specified in Section 2.4 of this Agreement.

Closing Deadline

. shall mean the date specified in Section 9.3 of this Agreement.

Code

. shall mean the Internal Revenue Code of 1986, as amended.

Companies

. shall mean, together, Campus Textbooks and Campus Outfitters.

Competing Business

. shall have the meaning set forth in Section 7.7(b) of this Agreement.

Confidentiality Agreement

. shall mean that certain Confidentiality Agreement, dated as of April 29, 2005, and entered into by and among Varsity Group Inc., Campus Textbooks and Campus Outfitters.

Consent

. shall mean any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including but not limited to any Governmental Authority.

Contract

. shall mean, with respect to any Person, any and all contracts or agreements, whether oral or written, including, but not limited to, customer contracts, development or developer agreements, work-for-hire agreements, franchise agreements, covenants not to compete, commitments, alliance agreements, purchase and sales orders, arrangements, employment agreements, subcontracting agreements, consulting agreements, leases, licenses, indentures, notes, bonds, deeds (or other evidence of indebtedness) and other agreements or contracts to which or by which such Person is legally bound.

Damages

. shall have the meaning specified in Sec tion 10.2 of this Agreement.

Debt

. shall mean all obligations of a Person (i) for borrowed money including capitalized leases, (ii) evidenced by notes, bonds, debentures, letters of credit or similar instruments, (iii) under conditional sale, title retention or similar agreements or arrangements with respect to the deferred purchase price of property, and (iv) in the nature of guarantees of obligations of the type described in clauses (i), (ii) and (iii) above of any other Person.

Direct Claim

. shall have the meaning specified in Section 10.4(a) of this Agreement.

Disclosure Schedule

. shall have the meaning set forth in Section 4 of this Agreement.

Employee Incentive Program

. shall have the meaning set forth in Section 7.9(b) of this Agreement.

Employee Plan

. shall have the meaning set forth in Section 4.15(a ) of this Agreement.

Employees

. shall mean the employees of Campus Textbooks and Campus Outfitters.

Environmental Claims

. shall mean all accusations, allegations, notices of violation, liens, claims, demands, suits, or causes of action for any damage, including, without limitation, personal injury or property damage, arising out of or related to Environmental Liabilities or Materials of Environmental Concern or pursuant to applicable Environmental Laws.

Environmental Laws

. shall mean all federal, state, local or foreign laws, regulations, ordinances or codes, without limitation, relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including, without limitation, Legal Requirements relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern.

Environmental Liabilities

. shall mean any losses, damages, costs, expenses, liabilities, obligations and claims of any kind arising out of, based on, resulting from or relating to: (a) acts, omissions occurrences and circumstances forming the basis for any violation or alleged violation of Environmental Laws; (b) the presence, release, spill, emission, leaking, injection, deposit, disposal, dispersal, leaching or migration into the ambient air, surface water, ground water, land surface of subsurface strata of any Materials of Environmental Concern; or (c) the presence of any Materials of Environmental Concern at any property currently, or previously, owned or leased by any of the Companies which pose a threat to human health or the environment.

Environmental Permits

. shall have the meaning specified in Section 4.11(a) of this Agreement.

Equity Securities

. of any Person shall mean (i) shares of capital stock, partnership or limited liability company interests or other equity securities of or interests in such Person, (ii) subscriptions, calls, warrants, options or commitments of any kind or character relating to, or entitling any Person to purchase or otherwise acquire, any such shares of capital stock, partnership or limited liability company interests or other equity securities of or interests in such Person, (iii) securities convertible into or exercisable or exchangeable for shares of capital stock, partnership or limited liability company interests or other equity securities of or interests in such Person, and (iv) stock options, equity equivalents, interests in the ownership or earnings of, or stock appreciation, phantom stock or other similar rights of, or with respect to, such Person.

ERISA

. shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations issued thereunder.

ERISA Affiliate

. shall have the meaning specified in Section 4.15(a) of this Agreement.

Excluded Campus Outfitters Liabilities

. shall have the meaning specified in Section 3.2 of this Agreement.

Exchange Act

. shall mean the Securities Exchange Act of 1934, as amended, and the related rules and regulations promulgated thereunder by the SEC.

Expense Reimbursement

. shall have the meaning specified in Section 2.7 of this Agreement.

Fidelity Notes Payoff Amount

. shall have the meaning specified in Section 2.3(d) of this Agreement.

Financial Statements

. shall have the meaning specified in Section 4.3(a)(i) of this Agreement.

GAAP

. shall mean United States generally accepted accounting principles as in effect from time to time.

Governing Documents

. shall have the meaning specified in Section 4.1(a) of this Agreement.

Governmental Authority

. shall mean any federal, state or local or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal or judicial body.

Indemnified Party

. shall have the meaning specified in Section 10.4 of this Agreement.

Indemnifying Party

. shall have the meaning specified in Section 10.4 of this Agreement.

Intellectual Property

. shall mean any and all patents, registered and unregistered copyrights, registered and unregistered trademarks and service marks, trade names, all applications or registrations for any of the foregoing, and trade names, brand marks, brand names, trade dress, logos, Internet domain names and trade secrets.

Intellectual Property Rights

. shall mean rights in and to the following: (i) registered and unregistered copyrights and derivative works thereof; (ii) pending and issued patents (including all provisionals, reissues, reexaminations, divisionals, continuations and continuations in-part); (iii) registered and unregistered trademarks (including pending applications); (iv) mask works, trade secrets; (v) design; (vi) moral and author rights; and (vii) all other Intellectual Property of any kind or nature.

Inventory

. shall mean all inventories of textbooks or uniforms or related equipment for sale in opened or unopened containers.

IRS

. shall mean the United States Internal Revenue Service.

Knowledge of Purchaser

. (and terms of similar import) shall mean the actual knowledge of Eric Kuhn and Jack Benson after reasonable inquiry.

Knowledge of Seller s

. (and terms of similar import) shall mean the actual knowledge of Adam Hanin, Elliott Hanin and Adam Isaacson after reasonable inquiry.

Lease Consent Holdback

. shall have the meaning specified in Section 2.3(e) of this Agreement.

Leases

. shall mean the Personalty Leases and the Real Property Leases.

Legal Requirement

. shall mean any federal, state, foreign or local statute, ordinance, code, rule or regulation, guidance, or any Governmental Order, or any license, franchise, consent, approval, permit or similar right granted under any of the foregoing.

Lien

. means any claim, lien, pledge, option, right of first refusal, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use, restrictive covenant or other encumbrance (including an option to purchase, right of first refusal or first offer), whether voluntarily incurred or arising by operation of law, and includes, without limitation, any agreement to give any of the foregoing in the future, and any contingent or conditional sale agreement or other title retention agreement or lease in the nature thereof.

Material Adverse Change

or " Material Adverse Effect " or similar phrase shall mean, with respect to any Person, any event or circumstance that has or would reasonably be expected to have a material adverse effect on the business, prospects, results of operations, assets, liabilities, or condition (financial or otherwise) of such Person.

Materials of Environmental Concern

. shall mean any substance or material that is on the Closing Date prohibited, regulated or defined as hazardous by any Governmental Authority under any Environmental Law including, without limitation, chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum, petroleum derivatives or other hydrocarbons, petroleum products, asbestos, PCBs, VOCs, SVOCs, dangerous substances, designated substances, controlled products or subject waste, all as defined in or pursuant to any Environmental Law.

New Employment Agreements

. shall have the meaning specified in Section 6.1(g) of this Agreement.

Non-Compete Period

. shall have the meaning specified in Section 7.7(a) of this Agreement.

Non-Compete Persons

. shall have the meaning specified in Section 7.7(a) of this Agreement.

Non-Transferable Retail Lease

. shall have the meaning specified in Section 2.3(e) of this Agreement.

Ordinary Course of Business

. shall mean the ordinary course of the business, consistent with past practices, of Campus Textbooks and Campus Outfitters, as the case may be.

Participate; Participating

. shall have the meaning specified in Section 7.7(b) of this Agreement.

Pension Plan

. shall have the meaning specified in Section 4.15(a) of this Agreement.

Per Share Purchase Price

. shall have the meaning specified in Section 2.3(a)(ii) of this Agreement.

Permitted Liens

. means (i) mechanic's, materialmen's and similar Liens with respect to any amounts not yet due and payable or which are being contested in good faith through appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (ii) Liens for Taxes not yet due and payable, (iii) Liens securing rental payments under capital lease agreements, (iv) Liens securing lease payments under leases or licenses for Leased Real Property, (v) Liens arising in favor of the United States government as a result of progress payment clauses contained in any Contract, and (vi) in the case of Real Property, (A) any matters, restrictions, covenants, conditions, limitations, rights, rights of way, encumbrances, encroachments, agreements and other matters of fact or record, (B) such state of fact or exceptions that an accurate survey or inspection of the Real Property would show, (C) present or future laws applicable to the Real Property, including the use or improvement thereof, and (D) matters affecting Real Property created by or with the written consent of Purchaser.

Person

. shall mean a natural person, corporation, trust, partnership, limited liability company, governmental entity, agency or branch or department thereof, or any other legal entity.

Personalty Leases

. shall have the meaning specified in Section 4.14(a).

Plans

. shall have the meaning specified in Section 4.15(a) .

Post-Closing Tax Period

. means any taxable year or period that begins after the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing Date.

Pre-Closing Tax Period

. means any taxable year or period that ends on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending on the Closing Date.

Property Taxes

. shall have the meaning set forth in Section 8.4(c) of this Agreement.

Purchased Assets

. shall mean the Acquired Campus Outfitters Assets and all of the limited liability company membership interests of Campus Textbooks.

Purchaser

. shall have the meaning set forth in the Preamble to this Agreement.

Purchaser Indemnified Parties

. shall have the meaning specified in Section 10.3 of thi s Agreement.

Purchaser SEC Filings

. shall have the meaning specified in Section 5.5 of this Agreement.

Real Property Leases

. shall have the meaning specified in Section 4.14(c) .

Recipient Shares

. shall have the meaning specified in Section 2.3(c)(i) .

Representative

. means any officer, director, member, shareholder, partner, principal, attorney, agent, employee, banker, accountant, consultant or other representative.

Retail Leases

. shall have the meaning specified in Section 2.3(e) of this Agreement.

SEC

. means the Securities and Exchange Commission.

Securities Act

. shall mean the Securities Act of 1933, as amended, and the related rules and regulations promulgated thereunder by the SEC.

Seller s

. shall have the meaning set forth in the Recitals to this Agreement.

Seller Indemnified Parties

. shall have the meaning specified in Section 10.2 of this Agreement.

Seller Indemnifying Parties

. shall have the meaning specified in Section 10.3 of this Agreement.

Stock Payment

. shall have the meaning specified in Section 2.3(a)(ii) of this Agreement.

Straddle Period

. means any taxable year or tax period that includes (but does not end on) the Closing Date.

Taxes

. shall mean with respect to any Person, all taxes of any kind, levies or other like assessments, customs, duties, imposts or charges, including without limitation, income, gross receipts, ad valorem, value-added, excise, real or personal property, asset, sales, use, license, payroll, transaction, capital, net worth, franchise (if not based on income), estimated taxes, withholding, employment, social security, workers' compensation, utility, severance, production, unemployment compensation, occupation, premium, windfall profits, transfer and gains taxes or other governmental taxes imposed or payable to the United States, or any state, county, local or foreign government or subdivision or agency thereof, and in each instance such term shall include any interest, penalties or additions to tax attributable to any such Tax, whether disputed or not, for which such Person may be liable (including any such Tax related to any other Person for which such Person is liable pursuant to Treasury Regulation 1.1502-6 or any analogous state or local Tax provision, or as a successor, transferee, by contract or otherwise).

Tax Returns

. shall mean all returns, declarations, reports, claims for refund and information returns and statements of any Person required to be filed or sent by or with respect to, or in respect of, any Taxes, including any schedule or attachment thereto and any amendment thereof.

Third Party

. shall have the meaning specified in Section 7.5 of this Agreement.

Third Party Claim

. shall have the meaning specified in Section 10.4(a) of this Agreement.

Total Purchase Price

. shall have the meaning specified in Section 2.3(a) of this Agreement.

Transfer Taxes

. shall have the meaning specified in Section 7.1 of this Agreement.

Transferred Employee

. shall have the meaning specified in Section 7.9 of this Agreement.

Two Year Anniversary

. shall have the meaning specified in 2.3(c)(ii) of this Agreement.

Two Year Anniversary Trading Price

. shall have the meaning specified in 2.3(c)(ii) of this Agreement.

Varsity Common Stock

. shall have the meaning specified in Section 2.3(a)(ii) of this Agreement.

Varsity Stock Recipient

. shall have the meaning specified in Section 2.3(b) of this Agreement.

Welfare Plan

. shall have the meaning specified in Section 4.15(a) of this Agreement.

      1. Interpretation

. In this Agreement, unless the contrary intention appears:

        1. a reference to a Section, Schedule or Exhibit is a reference to a Section of, or Schedule or Exhibit to, this Agreement and references to this Agreement include any recital in, or Exhibit or Schedule to, this Agreement;
        2. any agreement referred to herein shall mean such agreement as amended, supplemented and modified as of the Closing Date to the extent permitted by the applicable provisions thereof, and shall include all exhibits, schedules, and other documents or agreements attached thereto;
        3. the singular includes the plural and vice versa; and
        4. whenever the words "include," "includes" or "including" are used in this Agreement, they are deemed to be followed by the words "without limitation."
        5. Each of Purchaser and Sellers and their respective counsel have reviewed and revised (or requested revisions of) this Agreement and have participated in the preparation of this Agreement, and therefore any usual rules of construction requiring that ambiguities are to be resolved against a particular party shall not be applicable in the construction and interpretation of this Agreement and any schedules and exhibits hereto.
    1. PURCHASE AND sale; CLOSING .
      1. Purchase and Sale of Campus Outfitters Assets

.

        1. Purchased Campus Outfitters Assets . Subject to and upon the terms and conditions set forth in this Agreement, and except as provided in Section 2.1(b) hereof, the Campus Outfitters Sellers shall, at the Closing, in accordance with all applicable Legal Requirements, cause Campus Outfitters to sell, transfer, assign, convey and deliver to Purchaser free and clear of all Liens (other than Permitted Liens) and Purchaser shall accept and acquire from the Campus Outfitters Sellers, all right, title and interest of Campus Outfitters in the properties, assets, and rights of every nature, kind and description, tangible and intangible (including goodwill), whether real, personal or mixed, whether accrued, contingent or otherwise and whether now existing or hereinafter acquired related to or used or held for use in connection with the Acquired Campus Outfitters Business, including, without limitation, all following categories of assets (collectively, the " Acquired Campus Outfitters Assets "):
          1. all tangible personal property used or held for use, or leased in connection with the Acquired Campus Outfitters Business including, but not limited to, fixed assets, machinery, equipment, tools, tooling, parts, furniture, fixtures, furnishings, office equipment, computers, servers, leasehold improvements and vehicles and similar property (including, but not limited to, any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person), including, without limitation, all tangible personal property set forth on Schedule 2.1(a)(i) hereto (it being understood that Schedule 2.1(a)(i) is an accurate representation of such tangible personal property as of December 31, 2004):
          2. all rights under the Contracts which are set forth on Schedule 2.1(a)(ii) , including, without limitation, any right to receive payment for products sold or services rendered, and to receive goods and services, pursuant to such Contracts and to assert claims and take other rightful actions with respect of breaches, defaults and other violations of such Contracts;
          3. all credits, prepaid expenses, deferred charges, advance payments security deposits and prepaid items relating to, or held for use for, the Acquired Campus Outfitters Business;
          4. all licenses, permits, approvals and qualifications relating to the Acquired Campus Outfitters Business;
          5. the "Campus Outfitters" name and any derivation thereof; all other Intellectual Property, and all rights thereunder or in respect thereof, related to or used or held for use in connection with the Acquired Campus Outfitters Business, including, but not limited to, (i) all Intellectual Property related to the uniforms sold by Campus Outfitters listed on Schedule 2.1(a)(vi)-1 hereto, (ii) all of the registered and unregistered trademarks listed on Schedule 2.1(a)(vi)-2, and (ii) rights to sue for and remedies against past, present and future infringements of any such Intellectual Property, and rights of priority and protection of interests therein under any Legal Requirement and all tangible embodiments thereof;
          6. all permits; telephone, telex and telephone facsimile numbers and other directory listings; and any claims, action, lawsuit, judgment or causes of action against third parties relating to the Campus Outfitters Assets;
          7. all Books and Records; and
          8. all Inventory with respect to the Campus Outfitters Assets.
        2. Campus Outfitters Retained Assets . The Campus Outfitters Sellers and Campus Outfitters shall retain and shall not transfer, assign, sell and deliver to Purchaser pursuant to Section 2.1(a) hereof, and Purchaser shall not purchase and assume from the Campus Outfitters Sellers or from Campus Outfitters, the following assets of the Campus Outfitters Sellers or Campus Outfitters, as the case may be, (collectively, the " Campus Outfitters Retained Assets "):
          1. the membership interests in Campus Outfitters;
          2. Campus Outfitters limited liability company minute books;
          3. the ownership interest in the building located at 5112 Berwyn Road, College Park, Maryland 20740 (the " Berwyn Road Property ");
          4. all cash on hand as of the Closing; and
          5. accounts, notes, and other receivables.
        3. Change of Business Name . No later than two (2) Business Days after the Closing, Sellers shall cause Campus Outfitters to change its name to an unrelated name which does not use or invoke any relationship to the Acquired Business or any trademarks or trade names conveyed hereunder.
      1. Purchase and Sale of Textbooks Membership Interests

. Subject to and upon the terms and conditions set forth in this Agreement, the Campus Textbooks Sellers shall at the Closing, in accordance with all applicable Legal Requirements, sell, transfer, assign, convey and deliver to Purchaser the Campus Textbooks Membership Interests free and clear of all Liens.

      1. Purchase Price

.

        1. Total Closing Purchase Payment . On the terms and subject to the conditions set forth in this Agreement, the aggregate amount of the purchase price to be paid to Sellers at Closing (the " Total Purchase Price ") for the Campus Textbooks Membership Interests and the Campus Outfitters Assets shall be equal to:
          1. Three Million Fifteen Thousand Eight Hundred Ninety-Eight Dollars ($3,015,898), minus the Fidelity Notes Payoff Amount and subject to adjustment pursuant to Section 2.3 and Section 2.7 hereto, which shall be paid in cash by Purchaser to Sellers in immediately available funds by wire transfer in accordance with the wire instructions attached hereto as Exhibit 2.3(a)(i) (the " Cash Payment ");
          2. One Hundred Twenty-Three Thousand Nine Hundred Sixty-Seven (123,967) shares (the " Stock Payment ") of the common stock of Varsity, par value $0.0001 per share (the " Varsity Common Stock "), which number is equal to the quotient obtained by dividing (x) $750,000 by (y) $6.05 (the " Per Share Purchase Price "). The Per Share Purchase Price is the average daily closing price of the Varsity Common Stock on the Nasdaq National Market for the thirty trading days prior to the date hereof, subject to the terms and adjustments as set forth in Section 2.3(c) hereof; and
          3. the assumption of the Assumed Campus Outfitters Liabilities as provided in Section 3.1 .
        2. Purchase Price Allocation . The Stock Payment and the Cash Payment will be allocated among the Sellers, Campus Outfitters and Campus Textbooks as set forth on Schedule 2.3(b) hereto. The Stock Payment will only be made to those Sellers (such person a " Varsity Stock Recipient ") that are "accredited investors" within the definition set forth in Rule 501(a) under the Securities Act.
        3. Stock Payment Adjustment and Terms .
          1. Lock-Up . During the period of one year from the Closing Date, each of the Varsity Stock Recipients (i) will not, directly or indirectly, issue, offer, sell, agree to issue, offer or sell, solicit offers to purchase, grant any call option, warrant or other right to purchase, purchase any put option or other right to sell, pledge (other than a general, fully recourse pledge of a broad pool of assets of such Varsity Stock Recipient, which include some or all of the Recipient Shares), borrow or otherwise dispose of any of the shares of Varsity Stock received by such Varsity Stock Recipients as part of the Stock Payment (the " Recipient Shares "), or make any announcement of any of the foregoing, and (ii) will not otherwise enter into any swap, derivative or other transaction or arrangement that transfers to another, in whole or in part, any economic consequence of ownership of the Recipient Shares, whether or not such transaction is settled by delivery of Varsity Common Stock, other securities, cash or other consideration.
          2. Two Year Anniversary Adjustment . To the extent a Varsity Stock Recipient does not sell, pledge, hedge or in any other way encumber or transfer for value its Recipient Shares during the two years following the Closing Date, then, on the two (2) year anniversary of the Closing Date (the " Two Year Anniversary "), if the average daily closing price of the Varsity Common Stock for the thirty trading days prior to the Two Year Anniversary (the " Two Year Anniversary Trading Price ") is not equal to or greater than the Per Share Purchase Price, then on such Two Year Anniversary, Purchaser will pay or issue to such Varsity Stock Recipient, at Purchaser's discretion, either cash or a number of shares of Varsity Common Stock , in an amount per Recipient Share equal to the difference between (x) the Per Share Purchase Price and (y) the Two Year Anniversary Trading Price with respect to each Recipient Share that such Varsity Stock Recipient has not sold, pledged (other than a general fully recourse pledge of a broad pool of assets or such Varsity Stock Recipient, which include some or all the Recipient Shares), hedged or in any other way transferred for value during such two-year period. The form of the consideration paid to such Varsity Stock Recipient shall be at the election of Purchaser at the time of payment, provided , however , that Purchaser shall only issue shares of Varsity Common Stock to a Varsity Stock Recipient if on the delivery date thereof the Purchaser is current in its public information requirements as specified in Rule 144(c)(1) under the Securities Act.
          3. Adjustment upon Change of Control of Purchaser . If, prior to the Two Year Anniversary, the Purchaser undergoes a Change of Control (the date of closing of such Change of Control the " Change of Control Date ") pursuant to which the shares of Varsity Common Stock are converted into or exchanged for cash, other consideration, or the right to receive cash or other consideration with a fair market value of less than the Per Share Purchase Price (such price the " Change of Control Price ") then Purchaser shall issue or pay to the Varsity Stock Recipients to the extent such Varsity Stock Recipients have not sold, pledged (other than a general fully recourse pledge of a broad pool of assets of such Varsity Stock Recipient, which include some or all of such Varsity Stock Recipient's Recipient Shares), hedged or in any other way transferred for value all of such Recipient Shares prior to the Change of Control Date, at the Purchaser's discretion, an amount of cash or a number of shares of Varsity Common Stock in an amount per each such remaining untransferred Recipient Share equal to the difference between (x) the Per Share Purchase Price with respect to each such Varsity Stock Recipient's remaining untransferred Recipient Shares and (y) the Change of Control Price. Purchaser shall have the right to issue shares of Varsity Common Stock only to the extent Purchaser has entered into binding agreements or arrangements or otherwise provided to cause such additional shares of Varsity Common Stock to participate in the Change of Control on the same basis as shares of Varsity Common Stock outstanding prior to the issuance of additional shares of Varsity Common Stock to the Varsity Stock Recipients. If the consideration in the Change of Control transaction includes other than cash, the non-cash consideration will be valued as follows: (a) in the case of stock, the average daily closing price for the thirty trading days ending two trading days prior to the Change of Control Date, provided that such shares are registered and freely tradeable (disregarding any impact of Rule 145 of the Securities Act) or (b) in all other instances, as valued by the Board of Directors of Purchaser in good faith.
          4. The parties agree and acknowledge that the additional shares of Varsity Common Stock issuable pursuant to this Section, if any, are intended to constitute the contingent payment of the Total Purchase Price for purposes of Rule 144(d)(3)(iii) under the Securities Act.
          5. Tax Treatment . The parties hereto agree to treat all payments made pursuant to this Section 2.3 as an adjustment to the Total Purchase Price for Tax purposes, unless otherwise required by applicable law.
          6. All shares of Varsity Common Stock issued pursuant to Section 2.3(a) or Section 2.3(c) hereto, and all determinations of the Per Share Purchase Price, Two Year Anniversary Price and the per share value of the Varsity Common Stock, shall be equitably adjusted to account for stock splits, reclassifications, recombinations, reverse stock splits, stock dividends or other similar transactions with respect to the Varsity Common Stock occurring after the date hereof.
        4. Payoff of Fidelity Notes . Purchaser shall pay to Fidelity & Trust Bank by wire transfer of immediately available funds at Closing the payoff amount of the total outstanding balance as of the Closing Date (the " Fidelity Notes Payoff Amount ") on each of the notes between Campus Textbooks or Campus Outfitters and Fidelity & Trust Bank, listed in Paragraph 11 of Schedule 2.1(a)(ii) , with the exception of that certain $25,000 note payable by Campus Outfitters to Fidelity & Trust Bank, dated as of July 6, 2004, so long as funds thereunder remain undisbursed. As of the date hereof, Sellers confirm that the Fidelity Notes Payoff Amount is One Million Four Hundred Forty-Eight Thousand Dollars ($1,448,000) .
        5. Lease Consent Holdback . Purchaser shall hold back from the Cash Payment the amount of $100,000 (the " Lease Consent Holdback ") until each of the leases of retail property listed on Annex C to Schedule 2.1(a)(ii) (the " Retail Leases ") has been (a) transferred in accordance with its terms pursuant to a properly signed consent by the owner or manager of such property, as required, or, (b) if a lease is non-transferable or a landlord refuses to consent to the transfer of a lease (each of the foregoing a " Non-Transferable Retail Lease "), until a lease for a retail location within a reasonable proximity to the location of the original leased property is obtained by Sellers, Campus Outfitters or Campus Textbooks and entered into by Purchaser. The Lease Consent Holdback amount shall be applied to cover any and all reasonable expenses incurred by Sellers, Campus Outfitters, Campus Textbooks or Purchaser in order to properly transfer the Retail Leases or, in the case of a Non-Transferable Retail Lease, to pay for the termination of the Non-Transferable Retail Lease and to enter into a new lease on substantially the same terms as the Non-Transferable Retail Lease . In the event that Sellers, Campus Outfitters and Campus Textbooks are unable to secure a new lease with substantially the same terms as a Non-Transferable Retail Lease, then the Lease Consent Holdback amount shall be applied to cover the difference between the payments due under the new lease and such payments due under the Non-Transferable Retail Lease. Sellers, Campus Textbooks, Campus Outfitters and Purchaser shall consult with one another prior to securing a Consent or a new lease, as applicable. Within 5 Business Days following the date on which the last Retail Lease has been properly transferred (or, in the case of Non-Transferable Leases, the date on which a new retail lease has been entered into by Purchaser) Purchaser shall pay to Sellers the amount of the Lease Consent Holdback that is remaining after payment of the expenses set forth in this Section 2.3(e) , provided , however , if after six (6) months from the date hereof, or the earliest date thereafter, there is no active dispute with respect to any Non-Transferable Lease, then Purchaser shall refund the remaining portion of the Lease Consent Holdback to the Sellers. If the reasonable expenses incurred by Sellers, Campus Outfitters, Campus Textbooks or Purchaser in order to properly transfer the Retail Leases or, in the case of a Non-Transferable Retail Lease, to pay for the termination of the Non-Transferable Retail Lease and to enter into a new lease on substantially the same terms as the Non-Transferable Retail Lease exceed the amount of the Lease Consent Holdback, Purchaser shall be entitled to indemnification for such excess amount pursuant to Section 10.3(e) hereto.
        6. Transfers Conditioned Upon Approval . Nothing in this Agreement nor the consummation of the transactions contemplated hereby shall be construed as an attempt or agreement to assign any Acquired Campus Outfitters Asset or Campus Textbooks Membership Interest, which by its terms or by law is nonassignable without a Consent or is cancelable by a third party in the event of an assignment unless and until such Consents shall be given.
      1. Closing Date

. The Closing of the transactions provided for herein shall take place at the offices of Latham & Watkins LLP, 555 11 th Street, NW, Suite 1000, Washington, DC, at 10:00 a.m. (local time) on the date two (2) Business Days after all conditions precedent to Closing set forth in Section 6.1 and Section 6.2 have been satisfied or waived (other than the conditions that, by their terms cannot be satisfied until Closing, but subject to the satisfaction of all such conditions at such time), or at such other time or place upon which the parties may agree (the day on which the Closing takes place being referred to herein as the " Closing Date ") , provided that all conditions to Closing set forth in Section 6.1 and Section 6.2 have been satisfied or waived, and provided further that, assuming that all other conditions to Closing set forth in Section 6.1 and Section 6.2 have been satisfied or waived (subject to Sellers' termination right pursuant to Section 9.1 ), the Closing shall occur on the next Business Day following the day on which Sellers provide Purchaser with a copy of the payoff letter or letters contemplated by Section 2.5(c) .

      1. Deliver ies

. At the Closing, subject to the satisfaction or waiver of each of the conditions specified in Section 6 below:

        1. Deliveries by Sellers .
          1. Campus Textbooks . At the Closing, the Campus Textbooks Sellers shall deliver to Purchaser the Campus Textbooks Membership Interests.
          2. Campus Outfitters . At the Closing, the Campus Outfitters Sellers shall cause Campus Outfitters to deliver to Purchaser the Acquired Campus Outfitters Assets.
          3. Berwyn Road Lease . At the Closing, the Sellers shall cause 5112 Berwyn LLC, a Maryland limited liability company (" 5112 Berwyn "), to execute and deliver to Purchaser the Lease Agreement for the Berwyn Road Property in the form attached to this Agreement as Exhibit A hereto (the " Berwyn Road Lease ").
        2. Deliveries by Purchaser . Purchaser shall pay the Total Purchase Price in accordance with Section 2.3 pay to Campus Outfitters the Campus Outfitters Assets Allocation and shall pay to Sellers the Campus Textbooks Membership Interests Allocation. Purchaser shall pay the Fidelity Notes Payoff Amount to Fidelity & Trust Bank, and shall execute and deliver the Berwyn Road Lease to Sellers for delivery to 5112 Berwyn.
        3. Other Deliveries . The Closing certificates and other documents and agreements required to be delivered pursuant to this Agreement with respect to the Closing will be exchanged, including but not limited to a payoff letter (or letters) in customary form from Fidelity & Trust Bank indicating the amounts required to be paid on the notes listed in Paragraph 11 of Schedule 2.1(a)(ii) (with the exception of that certain $25,000 note payable by Campus Outfitters to Fidelity & Trust Bank, dated as of July 6, 2004, so long as funds thereunder remain undisbursed) in order to cause such notes to be paid in full by the payment of the Fidelity Notes Payoff Amount at Closing, and all liens released.
      1. Allocation

. The Total Purchase Price (including any adjustments pursuant to Section 2.3 ) shall be allocated (as required pursuant to Section 1060 of the Code and the Regulations promulgated thereunder) among the Acquired Campus Outfitters Assets (the " Acquired Campus Outfitters Assets Purchase Price Allocation ") and the Campus Textbooks Membership Interests (the " Campus Textbooks Membership Interests Allocation ") and the Assumed Campus Outfitters Liabilities as set forth in Schedule 2.6 hereto (the " Allocation "), it being understood that the Allocation shall relate solely to allocation required for income tax purposes and shall not be controlling for any other purpose. Purchaser, Sellers and the Companies shall file all Tax Returns (including IRS Form 8594 and any supplemental filings) consistently with the Allocation and neither Purchaser, Sellers, nor the Companies shall take a position on any Tax Return inconsistent with the Allocation without the written consent of the other parties hereto, provided , however , that nothing contained herein shall prevent Purchaser, Sellers or the Companies from settling any proposed deficiency or adjustment by any taxing authority based upon or arising out of the Allocation, and neither Purchaser, Sellers or the Companies shall be required to litigate before any court, any proposed deficiency or adjustment by any taxing authority challenging such Allocation. Notwithstanding anything to the contrary in this Agreement, the provisions of this Section 2.6 shall survive the Closing without limitation .

      1. Expense Reimbursement

. On the date following the date hereof, Purchaser shall pay to Campus Outfitters a good faith deposit in the amount of $50,000 (the " Expense Reimbursement "). The Expense Reimbursement will be applied to pay for the reasonable expenses of Sellers, Campus Textbook and Campus Outfitters in accordance with Section 11.6 hereof, and will be non-refundable to Purchaser. Except for transaction expenses funded by the Expense Reimbursement, all transaction expenses incurred by Sellers or either of the Companies shall be borne solely by the Sellers.

    1. ASSUMPTION OF LIABILITIES .
      1. Assumed Campus Outfitters Liabilit ies

. At Closing, Purchaser hereby assumes and is responsible for, solely and exclusively, those liabilities of Campus Outfitters set forth on Schedule 3.1 (the " Assumed Campus Outfitters Liabilities "). The Assumed Campus Outfitters Liabilities shall not exceed the amount of One Million Eight Hundred Eighty Eight Thousand Three Hundred Dollars ($1,888,300), provided that invoices or bills received by Sellers following the Closing Date for amounts payable for goods provided or services rendered by Sellers or Campus Outfitters in the ordinary course of business prior to the Closing Date shall not be deemed Assumed Campus Outfitters Liabilities to the extent the amount due under such bills or invoices does not exceed $50,000 in the aggregate.

      1. Excluded Liabilities

. Except as provided in Section 3.1 or Section 7.9 of this Agreement, and regardless of any disclosure of Sellers, Purchaser does not and shall not assume, incur or otherwise become responsible for any liabilities, obligations and commitments of Campus Outfitters, other than the Assumed Campus Outfitters Liabilities, whether actual or contingent, matured or unmatured, liquidated or unliquidated, or known or unknown, whether arising out of the occurrences prior to, at or after the Closing Date, including, without limitation, all liabilities, obligations and commitments (i) (for Taxes of Campus Outfitters including, without limitation, any Taxes arising from the transactions described in this Agreement); (ii) related to product liability claims involving or relating to products marketed or sold by Campus Outfitters prior to Closing; (iii) with the exception of the Assumed Campus Outfitters Liabilities, for any of Campus Outfitters' indebtedness for borrowed money, including, without limitation, inter-company indebtedness; (iv) associated with or relating to any Campus Outfitters Retained Asset; (v) related to or resulting from any and all litigation, proceedings, claims (including indemnification claims) or suits arising out of, relating to or incident to, any action, omission, event or occurrence prior to Closing including all those set forth on Schedule 4.5 hereto; (vi) based on, resulting from or relating to (A) acts, omissions, occurrences and circumstances forming the basis for any violation or alleged violation of any Environmental Law related to Campus Outfitters or any of its Real Property or (B) the presence or Release into the Environment of any Materials of Environmental Concern related to or involving Campus Outfitters or its predecessors or any of its owned or leased Real Property; (vii) relating to claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e; the Civil Rights Act of 1866, 42 U.S.C. 1981; the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq .; the Americans With Disabilities Act, 42 U.S.C. 12101 et seq. ; or any other federal, state, local or foreign statute, executive order, or regulation regarding employment or the termination of employment, or the common law of any state or foreign country relating to torts, employment contracts, and employment terminations; (viii) for any action, claim, suit, demand or litigation for severance pay, bonus, salary, sick leave, holiday pay, vacation pay (including any accrued and unpaid vacation or holiday pay), salary, or any other fringe benefit or compensation that Purchaser has not expressly agreed to assume hereunder, by any employee, independent contractor or consultant or former employee, independent contractor or consultant of Campus Outfitters (other than such obligations accruing for the pay period that includes the Closing, which obligations shall be the responsibility of Purchaser); (ix) relating to any settlements or reduction of any of Campus Outfitters' accounts payable or similar liabilities owed to third parties; (x) resulting from (A) a breach or violation of the terms of any Contract assigned pursuant to Section 2.1(a)(ii) by Campus Outfitters on or prior to the Closing Date, or (B) nonpayment of any accrued expenses, fees or amounts due under such Contracts by Campus Outfitters, which amounts were due prior to the Closing; and (xi) relating to or resulting from any of the Contracts of Campus Outfitters which are Campus Outfitters Retained Assets (collectively, the " Excluded Campus Outfitters Liabilities ").

    1. SELLErs' REPRESENTATIONS AND WARRANTIES

. Each of the Sellers individually and Sellers, on behalf of Campus Textbooks, represents and warrants to the Purchaser as follows:

      1. Organization and Validity

.

        1. Organization and Qualification; Power . Except as set forth in Schedule 4.1(a) , each of Campus Outfitters and Campus Textbooks (i) is a limited liability company duly organized and validly existing under the laws of the state of Maryland (ii) is duly qualified and in good standing in all jurisdictions in which it is doing business as required by the laws of that particular jurisdiction; and (iii) has all necessary limited liability company power and authority to engage in the business in which it is presently engaged and to own, lease and operate its assets and to carry on its business as it is now being conducted. Sellers have delivered to Purchaser true, correct and complete copies of the articles of organization and operating agreement of each of Campus Outfitters and Campus Textbooks (collectively, the " Governing Documents "), and none of these Governing Documents have been modified, amended or rescinded and all are in full force and effect as of the date hereof.
        2. Authorization; Validity . Each of the Sellers, Campus Outfitters and Campus Textbooks has all requisite individual or limited liability company power and authority to enter into this Agreement and the other agreements, documents and instruments to be executed and delivered by the Sellers, Campus Outfitters and Campus Textbooks pursuant hereto and to carry out its or their obligations hereunder and thereunder. The execution and delivery by the Sellers, Campus Outfitters and Campus Textbooks of this Agreement and the other agreements, documents and instruments to be executed by Sellers, Campus Outfitters and Campus Textbooks pursuant hereto and the consummation by Campus Outfitters and Campus Textbooks of the transactions contemplated hereby and thereby have been duly authorized by all of the members of each of Campus Outfitters and Campus Textbooks. No further act or proceeding or member action on the part of any of the Sellers, Campus Outfitters or Campus Textbooks is necessary to authorize this Agreement or the other agreements, documents and instruments to be executed and delivered by Sellers, Campus Outfitters and Campus Textbooks pursuant hereto or the consummation of the transactions contemplated hereby and thereby. This Agreement and the related agreements, documents and instruments referred to herein to which any of Sellers, Campus Outfitters or Campus Textbooks is a party have been duly executed and delivered by such parties and constitute the valid and legally binding obligations of such parties, enforceable against each of them in accordance with their respective terms.
        3. No Conflict; Compliance; Binding Effect . Except as set forth on Schedule 4.1(c) hereto, the execution and delivery of this Agreement and the related agreements, documents and instruments referred to herein, the sale and transfer of the Acquired Campus Outfitters Assets and the Campus Textbooks Membership Interests, and the consummation of the transactions contemplated hereby do not, and will not, conflict with, contravene, result in a violation or breach of or default under (with or without the giving of notice or the lapse of time or both), give rise to a right or claim of termination, amendment, modification, vesting, acceleration or cancellation of any right or obligation or loss of any material benefit under, or result in the creation of any Lien upon any of the Acquired Campus Outfitters Assets and the Campus Textbooks Membership Interests under (i) any Legal Requirement, order, writ, injunction, judgment, arbitration award or decree or other restriction of any kind or character to which any of the Sellers, the Acquired Campus Outfitters Business or the Textbooks Membership Interests are subject or bound, (ii) Governing Documents of either of Campus Outfitters or Campus Textbooks or (iii) any Contract to which any of the Sellers are party.
        4. Ownership of Membership Interests

. The Campus Textbooks Sellers hold 100% of the limited liability company membership interests of Campus Textbooks. The Campus Outfitters Sellers hold 100% of the limited liability company membership interests of Campus Outfitters. The limited liability company membership interests set forth on Schedule 4.1(d) hereto constitute all of the issued and outstanding Equity Securities of each of Campus Textbooks and Campus Outfitters.

      1. Governmental Consents

. No Consent of any Governmental Authority is required for the execution, delivery or performance of this Agreement or any documents or agreements contemplated hereby by any of the Sellers or the consummation by each of Campus Textbooks and Campus Outfitters of the transactions contemplated by this Agreement.

      1. Financial Statements, etc .
        1. Financial Information . Purchaser has been furnished with each of the following:
          1. The compiled balance sheet of Campus Outfitters as of December 31, 2004 and the related statements of operations and members' deficiency and cash flows for the year ended December 31, 2004 (collectively, the " 2004 Financials " and, together with the 2005 Financials, the " Financial Statements ").
          2. Sellers will deliver within five (5) Business Days of the date hereof the compiled balance sheet of Campus Outfitters as of March 31, 2005 and the related statements of operations and members' deficiency and cash flows for the three (3) months then ended (collectively, the " 2005 Financials ").
        2. Character of Financial Information . The Financial Statements were prepared in accordance with GAAP consistently applied throughout the periods specified therein and present fairly, in all material respects, the financial position and results of operations of Campus Outfitters as of the dates and for the periods specified therein in accordance with GAAP, subject in the case of the 2005 Financials to the absence of footnotes and normal and recurring year-end adjustments which are not expected to be material in amount.
        3. Campus Textbooks Assets and Liabilities . Campus Textbooks has no assets or liabilities of any nature (whether absolute, accrued, contingent or otherwise and whether matured or unmatured) other than the school textbook contracts and the Debt indicated by disclosure 3(b) on Schedule 4.3(c) hereto.
        4. Campus Outfitters Liabilities . Campus Outfitters has no assets or liabilities of any nature (whether absolute, accrued, contingent or otherwise and whether matured or unmatured) that would be required to be reflected on a balance sheet or in the notes thereto prepared in conformity with GAAP, other than the (i) liabilities reflected or reserved against on the 2005 Financials or specifically referred to in the notes thereto, (ii) liabilities incurred since the date of the 2005 Financials in the ordinary course of business, (iii) liabilities set forth in Schedule 4.3(d) hereto; and (iv) the Assumed Campus Outfitters Liabilities.
        5. Inventory and Accounts Receivable . As of the date hereof, the Acquired Campus Outfitters Assets and the Acquired Campus Textbook Business include (i) Inventory with a value at cost arrived at under the estimated retail cost method by Campus Outfitters in good faith consistent with past practice in excess of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000).
      2. Change in Condition Since December 31, 2004

. Except for matters set forth in Schedule 4.4 , since December 31, 2004:

        1. Neither of Campus Outfitters or Campus Textbooks has:
          1. Entered into any Contract other than this Agreement relating to (A) the sale of any Equity Securities of Campus Outfitters or Campus Textbooks, (B) the purchase of assets constituting a business, or (C) any merger, consolidation, reorganization or other business combination;
          2. Settled or agreed to settle any Action;
          3. Incurred any Debt greater than $25,000 in the aggregate (including any capital lease) other than liability for payment of goods and services incurred in the Ordinary Course of Business ;
          4. Sold, leased, transferred or exchanged any property for less than the fair value thereof, other than the sale, lease, transfer or exchange of goods or services in the Ordinary Course of Business;
          5. Made cash or other distributions with respect to Equity Securities,;
          6. Postponed or failed to make any distributions due to members of Campus Textbooks or Campus Outfitters in the Ordinary Course of Business or pursuant to any of the governing documents of Campus Textbooks or Campus Outfitters;
          7. Outside the Ordinary Course of Business: (A) increased (or committed to increase) the compensation payable to or the benefits afforded any employee, or (B) increased (or committed to increase) the rate of benefits payable under, amended the terms of, or entered into any new, bonus, incentive, pension, insurance, severance, deferred compensation, retirement profit sharing or other employee benefit plan or compensation or commission arrangement covering any director, independent contractor, or employee of Campus Textbooks or Campus Outfitters, other than as required by any applicable Legal Requirement or Company Plan;
          8. Entered into any new or amended any (or committed to entering into or amending any) employment, severance, retention, or change in control protection agreement for any employee, director or independent contractor of Campus Textbooks or Campus Outfitters (other than customary offer letters for employment at will that do not provide severance benefits, change in control or severance agreement, consultation agreement or other compensation agreement or independent contractor agreements (other than in the Ordinary Course of Business that are terminable within ninety (90) days without liability to Campus Textbooks or Campus Outfitters);
          9. Made any loan to, or entered into any other transaction with any of its directors, officers and employees or entered into any collective bargaining agreement;
          10. Added to or modified in any material respect any of the Company Plans other than (i) contributions made in accordance with the normal practices of Campus Textbooks or Campus Outfitters, or (ii) the extension of coverage to other personnel who became eligible after December 31, 2004;
          11. Sold, assigned or transferred any assets having a value in excess of $25,000 other than in the Ordinary Course of Business;
          12. Cancelled, terminated or materially amended any Contract, Permit, Contract with respect to Intellectual Property or other instrument to which Campus Textbooks or Campus Outfitters is a party outside the Ordinary Course of Business;
          13. Made a capital expenditure or incurred a liability therefor, involving payments in excess of $25,000;
          14. Failed to operate its business in the Ordinary Course of Business in any material respect;
          15. Changed accounting methods or practices, other than such changes required by law or GAAP;
          16. Other than as required as a result of the review performed by its independent accountant of its 2004 Financials, revalued the respective assets or properties of Campus Textbooks or Campus Outfitters, including writing off notes or accounts receivable having a value in excess of $25,000;
          17. Experienced damage, destruction or loss with respect to any property or assets of Campus Textbooks or Campus Outfitters having a value in excess of $50,000 (whether or not covered by insurance);
          18. Executed, terminated or materially amended any lease for real or personal property involving annual payments in excess of $25,000; or
          19. Entered into any agreement, whether or not in writing, to do any of the foregoing.
        2. There has not been any Material Adverse Change.
      1. Litigation

. Except as set forth in Schedule 4.5 attached hereto, (a) there is no Action pending or, to the Knowledge of Sellers, threatened against either of Campus Textbooks or Campus Outfitters or relating to the Acquired Business or any of the Acquired Assets; (b) there is no Action pending or, to the Knowledge of Sellers, threatened which questions the legality, validity or propriety of the transactions contemplated by this Agreement; (c) there is no unfair labor practice charge against Campus Outfitters related to the Acquired Campus Outfitters Business pending or, to the Knowledge of Sellers, threatened before any Governmental Authority, (d) there is no unfair labor practice charge against Campus Textbooks pending or, to the Knowledge of Sellers, threatened before any Governmental Authority, and (d) no material dispute has arisen between any of either of Campus Textbooks and its top five customers or Campus Outfitters and its top five customers, including any claims for refunds or claims for indemnity.

      1. Licenses; Compliance With Legal Requirements and Regulations

.

        1. Governmental Licenses; Notices . Except as set forth in Schedule 4.6(a) attached hereto, each of Campus Textbooks and Campus Outfitters

 
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