Exhibit 10.4

EXECUTION VERSION

SECURITY AND PLEDGE AGREEMENT

This SECURITY AND PLEDGE AGREEMENT (this “Agreement”) is dated as of May 22,
2012 and entered into by and among SCHOOL SPECIALTY, INC., a Wisconsin
corporation (“School Specialty” or the “Administrative Borrower”), each of
CLASSROOMDIRECT.COM, LLC, a Delaware limited liability company, DELTA EDUCATION,
LLC, a Delaware limited liability company, SPORTIME, LLC, a Delaware limited
liability company, CHILDCRAFT EDUCATION CORP., a New York corporation,
BIRD-IN-HAND WOODWORKS, INC., a New Jersey corporation, CALIFONE INTERNATIONAL,
INC., a Delaware corporation, and PREMIER AGENDAS, INC., a Washington
corporation (collectively, the “Subsidiary Borrowers” and, together with the
Administrative Borrower, the “Borrowers”), SELECT AGENDAS, CORP., a Nova Scotia
unlimited liability company (“Select Agendas”), as a Guarantor, FREY SCIENTIFIC,
INC. and SAX ARTS & CRAFTS, INC., each a Delaware corporation, each as a
Guarantor, each Subsidiary of the Administrative Borrower (other than the
Borrowers) that becomes a Guarantor under the Credit Agreement (as defined
below) (the Guarantors and the Borrowers each individually referred to herein as
a “Grantor” and collectively as “Grantors”), and BAYSIDE FINANCE, LLC, a
Delaware limited liability company (“Bayside”), as agent for the Lenders and the
other Secured Parties (in such capacity, “Agent”) under the Credit Agreement
(defined below) and the other Loan Documents (as defined therein).

PRELIMINARY STATEMENTS

A.

WHEREAS, Agent, Lenders and the Grantors have entered into that certain Credit
Agreement, dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the “Credit Agreement”);

B.

WHEREAS, it is a condition precedent to effectiveness of the Credit Agreement
and each of the transactions contemplated thereby that Grantors shall have
entered into this Agreement and granted the security interests and undertaken
the obligations contemplated by this Agreement; and

C.

WHEREAS, Grantors desire that Agent and Lenders consummate the financing
transactions contemplated by the Credit Agreement on the terms and conditions
contained therein as Grantors will derive substantial direct and indirect
economic benefits from the making of the loans and other financial
accommodations provided to Borrowers by Agent and Lenders pursuant to the Credit
Agreement and the documents executed in connection therewith.

D.

WHEREAS, the Agent and the Revolving Credit  Agent have entered into an
Intercreditor Agreement (as defined in the Credit Agreement), and the provisions
of this Agreement are subject to the provisions of the Intercreditor Agreement
as provided in Section 31 hereof.

NOW, THEREFORE, in consideration of the agreements set forth herein and in order
to induce Lenders to undertake the Term Commitment under the Credit Agreement
and to make and maintain loans and other financial accommodations under the
Credit Agreement, each Grantor hereby agrees with Agent as follows:

SECTION 1.

Grant of Security.

Each Grantor hereby pledges, mortgages, hypothecates and (except in the case of
ULC Shares) assigns to Agent, and hereby grants to Agent, for the benefit of
Secured Parties, a security interest in all of such Grantor’s right, title and
interest in and to all of the property of such Grantor, in each case whether now
or hereafter existing, whether tangible or intangible, whether now owned or
hereafter acquired, wherever the same may be located and whether or not subject
to the Uniform Commercial Code as it exists on the date of this Agreement, or as
it may hereafter be amended in, the State of New York (the “UCC”), including all
of the following (the “Collateral”):

(a)

all Accounts;

(b)

all Chattel Paper;

(c)

all Money, Securities Accounts and all Deposit Accounts, together with all
amounts on deposit from time to time in such Deposit Accounts;

(d)

all Documents;

(e)

all Farm Products;

(f)

all General Intangibles, and all Intellectual Property, Payment Intangibles and
Software;

(g)

all Goods, including Inventory, Equipment and Fixtures;

(h)

all Instruments;

(i)

all Investment Property;

(j)

all Letter-of-Credit Rights and other Supporting Obligations;

(k)

all Records;

(l)

all Assigned Contracts;

(m)

all Commercial Tort Claims, including those set forth on Schedule 1 annexed
hereto;  and

 (n)

all Proceeds and Accessions with respect to any of the foregoing Collateral,
including all insurance proceeds on or in respect of any of the foregoing
Collateral.

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Each term set forth above shall have the meaning set forth in the UCC (to the
extent such term is defined in the UCC or elsewhere herein), it being the
intention of Grantors that the description of the Collateral set forth above be
construed to include the broadest possible range of assets.

Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and no Grantor shall be deemed to have granted a security
interest in any of such Grantor’s rights or interests in or under: (i) voting
Equity Interests of any CFC, solely to the extent (y) such Equity Interests
represent an excess over 65% of the outstanding voting Equity Interests of such
CFC, and (z) pledging or hypothecating more than 65% of the total outstanding
Equity Interests of such CFC would result in adverse tax consequences or the
costs to the Grantors of providing such pledge are unreasonably excessive (as
determined by the Agent in consultation with the Administrative Borrower) in
relation to the benefits to Agent and the other Secured Parties of the security
afforded thereby (which pledge, if reasonably requested by Agent, shall be
governed by the laws of the jurisdiction of such Subsidiary); (ii) any United
States intent-to-use trademark applications to the extent that, and solely
during the period in which, the grant of a security interest therein would
impair the validity or enforceability of such intent-to-use trademark
applications under applicable federal law, provided that upon submission and
acceptance by the applicable IP Filing Office of an amendment to allege use
pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such
intent-to-use trademark application shall be considered Collateral;  and (iii)
any license, contract, permit, Instrument, security or franchise to which such
Grantor is a party as of the date hereof or any of its rights or interests
thereunder to the extent, but only to the extent, that such a grant would, under
the terms of such license, contract, permit, Instrument, security or franchise,
result in a breach of the terms of, or constitute a default under, such license,
contract, permit, Instrument, security or franchise (other than to the extent
that any such term would be rendered ineffective pursuant to the UCC or any
other applicable law (including the Bankruptcy Code) or principles of equity);
provided, that, immediately upon the ineffectiveness, lapse or termination of
any such provision the Collateral shall, without any further action by any party
hereto, include, and such Grantor shall be deemed to have granted a security
interest in, all such rights and interests as if such provision had never been
in effect; and provided, further, that the foregoing exclusion shall in no way
be construed to limit, impair or otherwise affect any of Agent’s or any other
Secured Party’s continuing security interests in and liens upon any rights or
interests of any Grantor in or to monies due or to become due under or in
connection with any described such license, contract, permit, Instrument,
security or franchise, or any proceeds from the sale, license, lease or other
dispositions of any such license, contract, permit, Instrument, security or
franchise.  In the event that any asset of a Grantor is excluded from the
Collateral by virtue of clause (iii) of the foregoing sentence (other than to
the extent that any such term would be rendered ineffective pursuant to the UCC
or any other applicable law (including the Bankruptcy Code) or principles of
equity), such Grantor agrees to use its reasonable best efforts to obtain all
requisite consents to enable such Grantor to provide a security interest in such
asset pursuant hereto as promptly as practicable.  The security interests
granted hereunder shall not extend to (i) any consumer goods (as defined in the
PPSA) of Select Agendas; or (ii) the last day of any real property lease, or any
agreement to lease to which Select Agendas is now or becomes a party as lessee,
provided that any such last day shall be held in trust by Select Agendas for the
Agent and, on the exercise by the Agent of its rights and remedies hereunder,
shall be assigned by Select Agendas as directed by the Agent.  Notwithstanding
the foregoing, Agent shall have a security interest in, and a pledge and

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collateral assignment of (but not a present assignment of) any Canadian
trademarks or ULC Shares forming part of the Collateral.

SECTION 2.

Security for Obligations.

This Agreement secures, and the Collateral is collateral security for, the
prompt payment and performance in full when due, whether at stated maturity, by
required prepayment, acceleration or demand in accordance with the Credit
Agreement, or otherwise, of all obligations of each Grantor to each Secured
Party, including the Obligations (as defined in the Credit Agreement), however
created, arising or evidenced, and whether or not evidenced by a Loan Document
(including, without limitation, interest and other amounts that, but for the
filing of a petition in bankruptcy with respect to any Grantor, would accrue on
such obligations, whether or not a claim is allowed against such Grantor for
such amounts in the related bankruptcy proceeding), together with all extensions
or renewals thereof, whether for principal, interest, fees, premiums, expenses,
reimbursement obligations, indemnities, or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, now existing or
hereafter arising or acquired, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Agent or any
other Secured Party as a preference, fraudulent transfer or otherwise, and all
obligations of every nature of Grantors now or hereafter existing under this
Agreement (collectively, the “Secured Obligations”).  Each Grantor confirms that
value has been given by the Secured Parties or any of them to such Grantor, that
such Grantor has rights in its Collateral existing at the date of this Agreement
and that such Grantor and the Agent have not agreed to postpone the time for
attachment of the Security Interest in any of the Collateral of such Grantor.

SECTION 3.

Grantors Remain Liable.

Anything contained herein to the contrary notwithstanding, (a) each Grantor
shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Agent of any of its rights hereunder shall not
release any Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, (c) Agent shall not have any
obligation or liability under any contracts, licenses, and agreements included
in the Collateral by reason of this Agreement, nor shall Agent be obligated to
perform any of the obligations or duties of any Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder and
(d) neither Agent nor any other Secured Party shall have any custodial or
ministerial duties to perform with respect to the Collateral pledged except as
expressly set forth herein; and by way of explanation and not by way of
limitation, neither Agent nor any other Secured Party shall incur liability for
any of the following: (i) defects in title to or ownership of Collateral, (ii)
loss or depreciation of, or any decline in the value of, Collateral, or (iii)
failure to present any paper for payment or protest, to protest or give notice
of nonpayment or any other notice with respect to any paper or Collateral.  

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SECTION 4.

Representations and Warranties.

Each Grantor represents and warrants to the Agent, for the benefit of Secured
Parties, as follows:

(a)

Ownership of Collateral.  Except as expressly permitted by the Credit Agreement,
(i) such Grantor owns its interests in the Collateral free and clear of any Lien
and (ii) except as set forth on Schedule 16 hereto, no effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office, including any IP Filing
Office.  Each Grantor has full power and authority to grant to Agent for the
benefit of the Secured Parties the security interest in all Collateral pursuant
to this Agreement and to execute, deliver and perform its obligations in
accordance with the terms hereof, without the consent or approval of any other
Person.

(b)

Perfection.  The security interests in the Collateral granted to Agent for the
benefit of Secured Parties hereunder constitute valid security interests in the
Collateral, securing the payment of the Secured Obligations.  Upon (i) the
filing of UCC financing statements naming each Grantor as “debtor”, naming Agent
as “Secured Party” and describing the Collateral in the filing offices with
respect to such Grantor set forth on Schedule 2 annexed hereto, (ii) in the case
of the Securities Collateral consisting of certificated Securities or evidenced
by Instruments, in addition to filing of such UCC financing statements, delivery
of the certificates representing such certificated Securities and delivery of
such Instruments to Agent, in each case duly endorsed or accompanied by duly
executed instruments of assignment or transfer in blank, (iii) in the case of
the Intellectual Property Collateral constituting Copyrights and Copyright
Rights, in addition to the filing of such UCC financing statements, the
recordation of a Grant with the United States Copyright Office, (iv) in the case
of Equipment that is covered by a certificate of title, the filing with the
registrar of motor vehicles or other appropriate authority in the applicable
jurisdiction of an application requesting the notation of the security interest
created hereunder on such certificate of title, and (v) in the case of any
Deposit Account and any Investment Property constituting a Security Entitlement,
Securities Account, Commodity Contract or Commodity Account, the execution and
delivery to Agent of an agreement providing for control by Agent thereof or the
filing of a PPSA financing statement in Canada, the security interests in the
Collateral granted by each Grantor to Agent for the benefit of Secured Parties
will constitute perfected security interests therein prior to all other Liens
(except for Permitted Senior Liens), and all filings and other actions necessary
or desirable to perfect and protect such security interests will have been duly
made or taken.  Upon the recordation of a Grant with respect to the Intellectual
Property Collateral with the applicable IP Filing Office, no subsequent
purchaser or mortgagee for value may obtain claim in or title to any
Intellectual Property Collateral having priority or seniority over the security
interests in such Intellectual Property Collateral granted by each Grantor to
Agent for the benefit of Secured Parties pursuant hereto.

(c)

Office Locations; Type and Jurisdiction of Organization; Locations of Equipment
and Inventory.  Each Grantor’s name as it appears in official filings in the
jurisdiction of its organization, type of organization (i.e. corporation,
limited liability company, etc.), jurisdiction of organization, principal place
of business, chief executive office, office where such Grantor keeps its Records
regarding the Accounts, Intellectual Property and originals of Chattel Paper,
and organization number, if any, provided by the applicable Government

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Authority of the jurisdiction of organization are set forth on Schedule 3
annexed hereto.  All of the Equipment and Inventory is located at the places set
forth on Schedule 4 annexed hereto, except for Inventory which, in the ordinary
course of business, is in transit either (i) from a supplier to a Grantor,
(ii) between the locations set forth on Schedule 4 annexed hereto, or (iii) to
customers of a Grantor.  Schedule 4A sets forth each state in which each Grantor
maintains any assets, operates any portion of its business or is authorized to
do business.  

(d)

Names.  No Grantor (or predecessor by merger or otherwise of such Grantor) has,
within the five-year period preceding the date hereof, or, in the case of an
Additional Grantor, the date of the applicable Supplement, had a different name
from the name of such Grantor listed on the signature pages hereof or of the
applicable Supplement, except the names set forth on Schedule 5 annexed hereto
(as amended by Agent pursuant to any such Supplement).

(e)

Delivery of Certain Collateral.  All certificates or Instruments (excluding
checks) evidencing, comprising or representing the Collateral have been
delivered to Agent duly endorsed or accompanied by duly executed instruments of
transfer or assignment in blank.

(f)

Securities Collateral.  All of the Pledged Subsidiary Equity set forth on
Schedule 6 annexed hereto has been duly authorized and validly issued and is, in
the case of stock, fully paid and non-assessable (subject to the general
assessability of shares of a ULC); and in the case of all other Pledged
Subsidiary Equity, subject to no assessments, capital calls or additional
payment requirements of any nature, all of the Pledged Subsidiary Debt set forth
on Schedule 7 annexed hereto has been duly authorized and is the legally valid
and binding obligation of the issuers thereof and is not in default; there are
no outstanding warrants, options or other rights to purchase, or other
agreements outstanding with respect to, or property that is now or hereafter
convertible into, or that requires the issuance or sale of, any Pledged
Subsidiary Equity; Schedule 6 annexed hereto sets forth all of the Pledged
Subsidiary Equity (identified as such) and all other Pledged Equity (identified
as such) owned by each Grantor, and the percentage ownership in each issuer
thereof; and Schedule 7 annexed hereto sets forth all of the Pledged Debt owned
by such Grantor.

(g)

Intellectual Property Collateral.  A true and complete list of all Trademark
Registrations and applications for any Trademark that are owned or licensed by
such Grantor, in whole or in part, is set forth on Schedule 8 annexed hereto; a
true and complete list of all Patents owned or licensed by such Grantor, in
whole or in part, is set forth on Schedule 9 annexed hereto; a true and complete
list of all Copyright Registrations and applications for Copyright Registrations
held (whether pursuant to a license or otherwise) by such Grantor, in whole or
in part, is set forth on Schedule 10 annexed hereto; and such Grantor is not
aware of any pending or, to its knowledge, threatened claim by any third party
that any of the Intellectual Property Collateral owned, held or used by such
Grantor is invalid or unenforceable or violates or infringes on any rights of
other Persons.

(h)

Deposit Accounts, Securities Accounts, Commodity Accounts.  Schedule 11 annexed
hereto lists all Deposit Accounts, Securities Accounts and Commodity Accounts
(separately identified as such) owned by each Grantor, and in each case,
indicates the institution or intermediary at which the account is held and the
account name and number.

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(i)

Chattel Paper.  Such Grantor has no interest in any Chattel Paper, except as set
forth in Schedule 12 annexed hereto.

(j)

Letter-of-Credit Rights.  Such Grantor has no interest in any Letter-of-Credit
Rights, except as set forth on Schedule 13 annexed hereto.

(k)

Documents.  No negotiable Documents are outstanding with respect to any of the
Inventory or other Collateral, except as set forth on Schedule 14 annexed
hereto.

(m)

Assigned Agreements.  Each Assigned Agreement is in full force and effect and is
enforceable against the parties thereto in accordance with its terms.

(n)

Collateral Condition and Lawful Use.  The Collateral is in good repair and
condition in all material respects and each Grantor shall use reasonable care to
prevent any of the Collateral from being damaged or depreciating, normal wear
and tear excepted.

(o)

Chattel Paper, Accounts, General Intangibles.  Collateral consisting of Chattel
Paper, Accounts or General Intangibles is (i) with respect to Chattel Paper and
General Intangibles, to the best of its knowledge, genuine and enforceable in
accordance with its terms, (ii) to the best of its knowledge, not subject to any
defense, set-off, claim, or counterclaim of a material nature against a Grantor
except as to which a Grantor has notified Agent in writing, and (iii) to the
best of its knowledge, not subject to any other circumstances that would impair
the validity, enforceability, value or amount of such Collateral except as to
which a Grantor has notified Agent in writing.  With respect to its Accounts,
except as is specifically disclosed in writing to the Agent, such Accounts (i)
represent bona fide sales of Inventory or rendering of services to Account
debtors in the ordinary course of such Grantor’s business and are not evidenced
by a judgment, Instrument or Chattel Paper, (ii) are and will be the legal,
valid and binding obligation of the Account debtors in respect thereof,
representing unsatisfied obligations of such Account debtor and (iii) to the
best of such Grantor’s knowledge after due inquiry, are and will be enforceable
in accordance with their terms.

In addition to the representations and warranties set forth in the Credit
Agreement, the representations and warranties as to the information set forth in
Schedules referred to herein are made as to each Grantor (other than Additional
Grantors) as of the date hereof and as to each Additional Grantor as of the date
of the applicable Supplement, except that, in the case of a Pledge Supplement,
IP Supplement or notice delivered pursuant to Section 5(d) hereof, such
representations and warranties are made as of the date of such supplement or
notice.

SECTION 5.

Further Assurances.

(a)

Generally.  Each Grantor agrees that from time to time, at the expense of
Grantors, such Grantor will promptly execute and deliver all further instruments
and documents, and take any and all further action, that may be necessary or
desirable, or that Agent may reasonably request, in order to perfect and protect
any security interest or other Lien granted or purported to be granted hereby or
to enable Agent to exercise and enforce its rights and remedies hereunder or
under applicable law with respect to any Collateral.  Without limiting the
generality of the foregoing, each Grantor will:  (i) notify Agent in writing of
receipt by such Grantor of any interest in Chattel Paper and at the request of
Agent, mark conspicuously each item of Chattel

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Paper and each of its records pertaining to the Collateral, with a legend, in
form and substance satisfactory to Agent, indicating that such Collateral is
subject to the security interest granted hereby, (ii) deliver to Agent all
promissory notes and other Instruments (other than, unless requested by the
Agent as provided below, promissory notes and other Instruments individually in
a principal amount less than $10,000 and in an aggregate principal amount not in
excess of $250,000 from time to time), and, at the request of Agent, all other
promissory notes and instruments and original counterparts of Chattel Paper,
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to Agent, (iii) (A) execute
(if necessary) and file such financing statements and other filings or
continuation statements, or amendments thereto, (B) subject to the terms and
conditions set forth in the Credit Agreement, execute and deliver, and cause to
be executed and delivered, agreements establishing that Agent has control of
Deposit Accounts (other than Excluded Accounts) to the extent necessary or
desirable for perfection, and Investment Property of such Grantor, (C) deliver
such documents, instruments, notices, records and consents, and take such other
actions, necessary to establish that Agent has control over electronic Chattel
Paper (other than electronic Chattel Paper the aggregate value or face amount of
which does not at any one time exceed $250,000) and Letter-of-Credit Rights (to
the extent the Grantors (or any of them) are or become beneficiary of letters of
credit, other than letters of credit having a face amount or value of no more
than $250,000 in the aggregate) of such Grantor, (D) promptly notify Agent (and
in any event within five (5) Business Days) of any Account or Chattel Paper
arising out of a contract or contracts with the United States of America, Canada
or any department, agency, or instrumentality thereof (other than Accounts and
Chattel Paper (x) the aggregate value of which does not at any one time exceed
$500,000 or (y) which are based upon purchase orders which are fully satisfied
within sixty (60) days of acceptance of the same by any Grantor) and, subject to
Section 31, promptly (and in any event within five (5) Business Days) after
request by Agent, execute any instruments or take any steps reasonably required
by Agent in order that all moneys due or to become due under such contract or
contracts shall be assigned to Agent, for the benefit of the Secured Parties,
and shall provide written notice thereof under the Federal Assignment of Claims
Act of 1940 or other applicable law, and (E) deliver such other instruments or
notices, in each case, as may be necessary or desirable, or as Agent may
reasonably request, in order to perfect and preserve the security interests or
other Liens granted or purported to be granted hereby, (iv) furnish to Agent
from time to time statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as Agent
may reasonably request, all in reasonable detail, (v) subject to the limitations
set forth in the Credit Agreement, at any reasonable time upon request by Agent,
exhibit the Collateral to and allow inspection, examination and audit of the
Collateral by Agent, or persons designated by Agent, (vi) at Agent’s request and
upon reasonable prior notice, appear in and defend any action or proceeding that
may affect such Grantor’s title to or Agent’s security interest in or other
Liens on all or any part of the Collateral, and (vii) use commercially
reasonable efforts to obtain any necessary consents of third parties to the
creation and perfection of a security interest or other Lien in favor of Agent
with respect to any Collateral.  Each Grantor hereby authorizes Agent to file
one or more financing statements or similar documents or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral (including any financing statement indicating that it covers “all
assets”, “all present and after-acquired personal property” or “all personal
property” of such Grantor) without the signature of any Grantor. Each Grantor

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hereby waives, to the greatest extent permitted under applicable law, notice or
receipt of copies of any such statements or amendments or any verification
statements in respect thereof.

(b)

Securities Collateral.  Without limiting the generality of the foregoing Section
5(a), each Grantor agrees that (i) all certificates or Instruments representing
or evidencing the Securities Collateral shall be delivered to and held by or on
behalf of Agent pursuant hereto and shall be in suitable form for transfer by
delivery or, as applicable, shall be accompanied by such Grantor’s endorsement,
where necessary, or duly executed instruments of transfer or assignments in
blank, all in form and substance reasonably satisfactory to Agent and (ii) it
will, upon obtaining any additional Equity Interests or Debt, promptly (and in
any event within three (3) Business Days for any such Equity Interests and
within five (5) days for any such Debt) deliver to Agent a Pledge Supplement,
duly executed by such Grantor, in respect of such additional Pledged Equity or
Pledged Debt; provided, that the failure of any Grantor to execute a Pledge
Supplement with respect to any additional Pledged Equity or Pledged Debt shall
not impair the security interest of Agent therein or otherwise adversely affect
the rights and remedies of Agent hereunder with respect thereto.  Upon each such
acquisition, the representations and warranties contained in Section 4(f) hereof
shall be deemed to have been made by such Grantor as to such Pledged Equity or
Pledged Debt, whether or not such Pledge Supplement is delivered.

(c)

Intellectual Property Collateral.  Within thirty (30) days after the end of each
calendar month, each Grantor shall notify Agent in writing of any rights to
Intellectual Property Collateral acquired or created (and any additions of new
tradenames or changes to existing tradenames) by such Grantor after the date
hereof during such month and shall execute and deliver to Agent an IP
Supplement, and a Grant for recordation in the applicable IP Filing Office with
respect to each Trademark Registration, Patent or Copyright Registration (or
application with respect thereto) filed during such month; provided, the failure
of any Grantor to execute and deliver an IP Supplement or such Grant for
recordation with respect to any additional Intellectual Property Collateral
shall not impair the security interest of Agent therein or otherwise adversely
affect the rights and remedies of Agent hereunder with respect thereto.  Upon
delivery to Agent of an IP Supplement, Schedules 8, 9 and 10 annexed hereto and
Schedule A to each Grant, as applicable, shall be deemed modified to include a
reference to any right, title or interest in any existing Intellectual Property
Collateral or any such Intellectual Property Collateral set forth on Schedule A
to such IP Supplement (and the representations and warranties contained in
Section 4(g) hereof shall be deemed to have been made by such Grantor as of the
end of such calendar month with respect to which such IP Supplement is
delivered).  

(d)

Commercial Tort Claims.  Grantors have no Commercial Tort Claims as of the date
hereof, except as set forth on Schedule 1 annexed hereto.  In the event that a
Grantor shall at any time after the date hereof have any Commercial Tort Claims
(other than Commercial Tort Claims the amount of which does not exceed $250,000
in the aggregate), such Grantor shall promptly (but in any event within five (5)
Business Days) notify Agent thereof in writing, which notice shall (i) set forth
in reasonable detail the basis for and nature of such Commercial Tort Claim,
(ii) constitute an amendment to this Agreement by which such Commercial Tort
Claim shall constitute part of the Collateral and (iii) constitute authorization
to file any additional financing statements describing such Commercial Tort
Claim to give Agent a perfected security interest in such Commercial Tort Claim.

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SECTION 6.

Certain Covenants of Grantors.

Each Grantor shall:

(a)

not use any Collateral, or permit any Collateral to be used, unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;

(b)

give Agent at least 30 days’ prior written notice of (i) any change in such
Grantor’s legal name (including adopting a French or combined form of name),
identity or corporate structure and (ii) any reincorporation, reorganization or
other action that results in a change of the jurisdiction of organization of
such Grantor;

(c)

if Agent gives value to enable such Grantor to acquire rights in or the use of
any Collateral, use such value for such purposes;

(d)

keep correct and accurate Records of Collateral at the locations described in
Schedule 3 annexed hereto;

(e)

subject to the limitations set forth in the Credit Agreement, permit
representatives of Agent at any time during normal business hours to inspect and
make abstracts from such Records, and each Grantor agrees to render to Agent, at
such Grantor’s cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto;

(f)

not permit any item of Collateral to become a fixture to real estate or an
accession to other personal collateral property unless such real estate or other
property is also Collateral hereunder or under another Security Document; and

(g)

at Agent’s request, provide Agent with schedules describing all accounts,
including customer’s addresses, created or acquired by a Grantor and at Agent’s
request shall execute and deliver written assignments of contracts and other
documents evidencing such accounts to Agent.  Together with each schedule,
Grantors shall, if requested by Agent, furnish Agent with copies of each
Grantor’s sales, journals, invoices, customer purchase orders or the equivalent,
and original shipping or delivery receipts for all good sold, and each Grantor
warrants the genuineness thereof.

SECTION 7.

Special Covenants With Respect to Equipment and Inventory.

Each Grantor shall:

(a)

if any Inventory is in possession or control of any of such Grantor’s agents or
processors, upon the occurrence and during the continuation of an Event of
Default at the request of Agent, instruct such agent or processor to hold all
such Inventory for the account of Agent and subject to the instructions of
Agent;

(b)

if any Inventory is, or becomes, subject to consignment, bill and hold, sale or
return, sale on approval, or other conditional terms of sale, promptly file UCC
financing statements listing the Grantor owning such Inventory as the “Secured
Party” and the consignee

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of such Inventory as the “Debtor” and properly identifying the Inventory subject
to such consignment; provided that the foregoing obligation shall not apply to
consignment or similar transactions if the Inventory related thereto is less
than $10,000 in value in the aggregate;  

(c)

subject to Article V of the Credit Agreement, cause each mortgagee of real
property owned by a Grantor and each landlord of real property leased by a
Grantor to execute and deliver instruments satisfactory in form and substance to
Agent by which such mortgagee or landlord subordinates its rights, if any, in
the Collateral and cause to be delivered by each such landlord collateral access
agreements in form and substance satisfactory to Agent relating to all
Collateral located from time to time on all such leased premises;

(d)

promptly upon the issuance and delivery to such Grantor of any negotiable
Document (other than checks that are promptly deposited into a deposit account
subject to a perfected Lien in favor of the Agent securing the Secured
Obligations) evidencing a payment obligation in excess of $10,000 or, with
respect to any other negotiable Document, promptly upon Agent’s request, deliver
such Document to Agent; and

(e)

with respect to Equipment owned at any time by such Grantor that is covered by a
certificate of title (other than such Equipment having an aggregate value, for
all Grantors, of no more than $200,000), promptly file with the registrar of
motor vehicles or other appropriate authority in the applicable jurisdiction an
application requesting the notation of the security interest created hereunder
on such certificate of title.

SECTION 8.

Special Covenants with respect to Accounts and Assigned Agreements.

(a)

Each Grantor shall, for not less than three years from the date on which each
Account of such Grantor arose, maintain (i) complete Records of such Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all documentation relating thereto.

(b)

Except as otherwise provided in this subsection (b), each Grantor shall continue
to collect, at its own expense, all amounts due or to become due to such Grantor
under the Accounts in accordance with the customary payment terms with respect
to such Accounts.  In connection with such collections, each Grantor may take
(and, upon the occurrence and during the continuance of an Event of Default at
Agent’s direction, shall take) such action as such Grantor or, following an
Event of Default, Agent may deem necessary or advisable to enforce collection of
amounts due or to become due under the Accounts in accordance with the customary
payment terms with respect to such Accounts; provided, however, that Agent shall
have the right at any time, upon the occurrence and during the continuation of
an Event of Default, to (i) notify the account debtors or obligors under any
Accounts of the assignment of such Accounts to Agent and to direct such account
debtors or obligors to make payment of all amounts due or to become due to such
Grantor thereunder directly to Agent, (ii) notify each Person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lockbox or other arrangement directly to Agent, (iii) enforce
collection of any such Accounts at the expense of Grantors, and (iv) adjust,
settle or compromise the amount or payment thereof, in the same

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manner and to the same extent as such Grantor might have done.  All amounts and
proceeds (including checks and Instruments) received by each Grantor in respect
of amounts due to such Grantor in respect of the Accounts or any portion thereof
(but in the case of cash, only to the extent received after the occurrence and
during the continuance of an Event of Default) shall be received in trust for
the benefit of Agent hereunder, shall be segregated from other funds of such
Grantor and shall be forthwith paid over or delivered to Agent in the same form
as so received (with any necessary endorsement) and, to the extent applicable,
in accordance with any applicable terms of the Credit Agreement.  Grantors shall
not at any time after the occurrence and during the continuance of an Event of
Default, without the written consent of Agent, adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any account debtor
or obligor thereof, or allow any credit or discount thereon.

(c)

Each Grantor shall at its expense:

(i)

if consistent with sound business practices, perform and observe all terms and
provisions of the Assigned Agreements to be performed or observed by it,
maintain the Assigned Agreements in full force and effect, enforce the Assigned
Agreements in accordance with their terms, and take all such action to such end
as may be from time to time reasonably requested by Agent; and

(ii)

upon request of Agent, (A) furnish to Agent, promptly upon receipt thereof,
copies of all notices, requests and other documents received by such Grantor
under or pursuant to the Assigned Agreements and from time to time such
information and reports regarding the Assigned Agreements as Agent may
reasonably request and (B) make to the parties to such Assigned Agreements such
demands and requests for information and reports or for action as such Grantor
is entitled to make under the Assigned Agreements.

(d)

Upon the occurrence and during the continuance of an Event of Default, no
Grantor shall (i) cancel or terminate any of the Assigned Agreements or consent
to or accept any cancellation or termination thereof; (ii) amend or otherwise
modify the Assigned Agreements or give any consent, waiver or approval
thereunder; (iii) waive any default under or breach of the Assigned Agreements;
(iv) consent to or permit or accept any prepayment of amounts to become due
under or in connection with the Assigned Agreements, except as expressly
provided therein; or (v) take any other action in connection with the Assigned
Agreements that could reasonably be expected to materially impair the value of
the interest or rights of such Grantor thereunder or that could reasonably be
expected to materially impair the interest or rights of Agent.

SECTION 9.

Special Covenants With Respect to the Securities Collateral: IRREVOCABLE PROXY.

(a)

Form of Securities Collateral.  Agent shall have the right at any time to
exchange certificates or instruments representing or evidencing Securities
Collateral for certificates or instruments of smaller or larger denominations.
 As of the Closing Date, each limited liability company agreement governing the
Pledged Equity shall expressly provide that such Pledged Equity is a security
governed by Article 8 of the UCC (and, in the case of any

12

Grantor that is organized under the laws of Canada or a province or territory
thereof, such Grantor represents and warrants that all interests in partnerships
or limited liability companies are a “security” for the purposes of the STA (if
applicable)).

(b)

Covenants.  Each Grantor shall, subject to the terms of the Credit Agreement,
(i) not permit any issuer of Pledged Subsidiary Equity to merge or consolidate
unless all the outstanding Equity Interests of the surviving or resulting Person
are, upon such merger or consolidation, pledged and become Collateral hereunder
and no cash, securities or other property is distributed in respect of the
outstanding Equity Interests of any other constituent corporation; (ii) cause
each issuer of Pledged Subsidiary Equity not to issue Equity Interests in
addition to or in substitution for the Pledged Subsidiary Equity issued by such
issuer, except to such Grantor; (iii) promptly upon its acquisition (directly or
indirectly) of any Equity Interests, including additional Equity Interests in
each issuer of Pledged Equity, comply with Section 5(b); (iv) promptly upon
issuance of any and all Instruments or other evidences of additional Debt from
time to time owed to such Grantor by any obligor on the Pledged Debt, comply
with Section 5; (v) promptly deliver to Agent all written notices received by it
with respect to the Securities Collateral; (vi) at its expense (A) perform and
comply in all material respects with all terms and provisions of any agreement
related to the Securities Collateral required to be performed or complied with
by it, (B) maintain all such agreements in full force and effect and (C) enforce
all such agreements in accordance with their terms; and (vii) promptly execute
and deliver to Agent an agreement providing for control (within the meaning
under the UCC) by Agent of all Security Entitlements, Securities Accounts,
Commodity Contracts and Commodity Accounts of such Grantor.

(c)

Voting and Distributions.  So long as no Event of Default shall have occurred
and be continuing (or, in the case of pledged ULC Shares, until the ULC Shares
are no longer registered in the name of the applicable Grantor) and except as
otherwise specified in the Credit Agreement, (i) each Grantor shall be entitled
to exercise any and all voting and other consensual rights pertaining to the
Securities Collateral or any part thereof for any purpose not prohibited by the
terms of this Agreement or the Credit Agreement; provided, no Grantor shall
exercise any such right, or refrain from exercising any such right, if such
exercise, or refrain from exercising, any such right would have a material
adverse effect on the value of the Securities Collateral or any part thereof; or
on the rights and remedies of Agent or the Lenders under the Loan Documents or
in respect of the Collateral, and (ii) each Grantor shall be entitled to receive
and retain any and all dividends, other distributions, principal and interest
paid in respect of the Securities Collateral.

Upon the occurrence and during the continuation of an Event of Default, (x) upon
written notice from Agent to any Grantor, all rights of such Grantor to exercise
the voting and other consensual rights which it would otherwise be entitled to
exercise pursuant hereto shall cease, and all such rights shall thereupon become
vested in Agent who shall thereupon have the sole right to exercise such voting
and other consensual rights; (y) all rights, if any, of such Grantor to receive
the dividends, other distributions, principal and interest payments which it
would otherwise be authorized to receive and retain pursuant hereto shall cease,
and all such rights shall thereupon become vested in Agent who shall thereupon
have the sole right to receive and hold as Collateral such dividends, other
distributions, principal and interest payments; and (z) all dividends,
principal, interest payments and other distributions which are received by such

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Grantor contrary to the provisions of clause (y) above shall be received in
trust for the benefit of Agent, shall be segregated from other funds of such
Grantor and shall forthwith be paid over to Agent as Collateral in the same form
as so received (with any necessary endorsements); provided, however, that solely
in the case of ULC Shares, the applicable Grantor shall have the right to vote
such shares and to retain for its own account any dividends or other
distributions on such shares (other than to the extent same consists of
certificated Pledged Equity which shall be delivered to Agent to be held in
accordance with the terms hereof) until such shares are effectively transferred
in to the name of a person other than such Grantor).

In order to permit Agent to exercise the voting and other consensual rights
which it may be entitled to exercise pursuant hereto and to receive all
dividends and other distributions which it may be entitled to receive hereunder,
(I) each Grantor shall promptly execute and deliver (or cause to be executed and
delivered) to Agent all such proxies, dividend payment orders and other
instruments as Agent may from time to time reasonably request, which proxies,
dividend payment orders and instruments shall be effective, automatically and
without the necessity of any action (including any transfer of any Pledged
Equity on the record books of the issuer thereof) by any other Person (including
the issuer of the Pledged Equity or any officer or Agent thereof), upon the
occurrence of an Event of Default, and (II) without limiting the effect of
clause (I) above, EACH GRANTOR HEREBY GRANTS TO AGENT AN IRREVOCABLE PROXY AND
IRREVOCABLE POWER OF ATTORNEY (WHICH POWER OF ATTORNEY IS COUPLED WITH AN
INTEREST) to vote the Pledged Equity and to exercise all other rights, powers,
privileges and remedies to which a holder of the Pledged Equity would be
entitled (including giving or withholding written consents of holders of Equity
Interests, calling special meetings of holders of Equity Interests and voting at
such meetings), which proxy and power of attorney shall be effective,
automatically and without the necessity of any action (including any transfer of
any Pledged Equity on the record books of the issuer thereof) by any other
Person (including the issuer of the Pledged Equity or any officer or Agent
thereof), upon the occurrence of an Event of Default (except with respect to the
ULC Shares) and which proxy and power of attorney shall only terminate upon the
waiver of such Event of Default as evidenced by a writing executed by Agent and
any other Person required by the terms of the Loan Documents, or on the
Termination Date.

(d)

Each Grantor acknowledges that certain of the Collateral of such Grantor may now
or in the future consist of ULC Shares, and that it is the intention of Agent
and each Grantor that neither Agent nor any Secured Party should under any
circumstances prior to realization thereon be held to be a "member" or a
“shareholder”, as applicable, of a ULC for the purposes of any ULC Laws.
 Therefore, notwithstanding any provisions to the contrary contained in this
Agreement, the Credit Agreement or any other Loan Document, where a Grantor is
the registered and beneficial owner of ULC Shares which are Collateral of such
Grantor, such Grantor will remain the sole registered and beneficial owner of
such ULC Shares until such time as such ULC Shares are effectively transferred
into the name of the Agent, any other Secured Party, or any other Person on the
books and records of the applicable ULC.  Accordingly, each Grantor shall be
entitled to receive and retain for its own account any dividend on or other
distribution, if any, in respect of such ULC Shares (except for any dividend or
distribution comprised of any certificates representing the Pledged Interests of
such Grantor, which shall be delivered to Agent to hold hereunder) and shall
have the right to vote such ULC Shares and to control the direction, management
and policies of the applicable ULC to the same extent as such

14

Grantor would if such ULC Shares were not pledged to Agent pursuant hereto.
 Nothing in this Agreement, the Credit Agreement or any other Loan Document is
intended to, and nothing in this Agreement, the Credit Agreement or any other
Loan Document shall, constitute Agent, any Secured Party, or any other Person
other than the applicable Grantor, a member or shareholder of a ULC for the
purposes of any ULC Laws (whether listed or unlisted, registered or beneficial),
until such time as notice is given to such Grantor and further steps are taken
pursuant hereto or thereto so as to register the Agent, any Secured Party, or
such other Person, as specified in such notice, as the holder of the ULC Shares.
 To the extent any provision hereof or the Credit Agreement or any other Loan
Document would have the effect of constituting Agent or any Secured Party, as
applicable, a member or shareholder of any ULC prior to such time, such
provision shall be severed herefrom or therefrom and shall be ineffective with
respect to ULC Shares which are Collateral of any Grantor without otherwise
invalidating or rendering unenforceable this Agreement or invalidating or
rendering unenforceable such provision insofar as it relates to Collateral of
any Grantor which is not ULC Shares.  Except upon the exercise of rights of
Agent to sell, transfer or otherwise dispose of ULC Shares in accordance with
this Agreement, the Credit Agreement or the other Loan Documents, each Grantor
shall not cause or permit, or enable a Grantor that is a ULC to cause or permit,
Agent or any Secured Party to: (a) be registered as a shareholder or member of
such Pledged Company; (b) have any notation entered in their favour in the share
register of such Grantor; (c) be held out as shareholders or members of such
Grantor; (d) receive, directly or indirectly, any dividends, property or other
distributions from such Grantor by reason of Agent holding the Security
Interests over the ULC Shares; or (e) act as a shareholder or member of such
Grantor, or exercise any rights of a shareholder or member including the right
to attend a meeting of shareholders or members of such Grantor or to vote its
ULC Shares.

SECTION 10.

Special Covenants With Respect to the Intellectual Property Collateral.

(a)

Each Grantor shall:

(i)

not permit the inclusion in any contract to which it hereafter becomes a party
of any provision that could or might in any way impair or prevent the creation
of a security interest in, or the assignment of, such Grantor’s rights and
interests in any property included within the definitions of any Intellectual
Property Collateral acquired under such contracts;

(ii)

take any and all reasonable steps to protect the secrecy of all trade secrets
relating to the products and services sold or delivered under or in connection
with the Intellectual Property Collateral, including, without limitation, where
appropriate entering into confidentiality agreements with employees and labeling
and restricting access to secret information and documents;

(iii)

use proper statutory notice in connection with its use of any of the
Intellectual Property Collateral and products and services covered by the
Intellectual Property Collateral (in the case of Intellectual Property
Collateral that is acquired after the Closing Date, within a commercially
reasonable period, but in any event within no more than 45 days after such
Intellectual Property Collateral is acquired); and

15

(iv)

use a commercially appropriate standard of quality (which may be consistent with
such Grantor’s past practices) in the manufacture, sale and delivery of products
and services sold or delivered under or in connection with the Trademarks.

(b)

Except as otherwise provided in this Section 10, each Grantor shall continue to
collect, at its own expense, all amounts due or to become due to such Grantor in
respect of the Intellectual Property Collateral or any portion thereof in
accordance with customary applicable payment terms.  In connection with such
collections, each Grantor may take (and, after the occurrence and during the
continuance of any Event of Default at Agent’s reasonable direction, shall take)
such action as such Grantor or Agent may deem reasonably necessary or advisable
to enforce collection of such amounts in accordance with customary applicable
payment terms; provided, Agent shall have the right at any time, upon the
occurrence and during the continuation of an Event of Default, to notify the
obligors with respect to any such amounts of the existence of the security
interest created hereby and to direct such obligors to make payment of all such
amounts directly to Agent, and, upon such notification and at the expense of
such Grantor, to enforce collection of any such amounts and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done.  All amounts and proceeds (including
checks and Instruments) received by each Grantor in respect of amounts due to
such Grantor in respect of the Intellectual Property Collateral or any portion
thereof (but in the case of cash, only to the extent received after the
occurrence and during the continuance of an Event of Default) shall be received
in trust for the benefit of Agent hereunder, shall be segregated from other
funds of such Grantor and shall be forthwith paid over or delivered to Agent in
the same form as so received (with any necessary endorsement), in accordance,
where applicable, with the terms of the Credit Agreement.  Grantors shall not at
any time after the occurrence and during the continuance of an Event of Default,
without the written consent of Agent, adjust, settle or compromise the amount or
payment of any such amount or release wholly or partly any obligor with respect
thereto or allow any credit or discount thereon.

(c)

Each Grantor shall diligently, through counsel reasonably acceptable to Agent,
prosecute, file and/or make, unless and until such Grantor, in its commercially
reasonable judgment, decides otherwise, (i) any application for registration
relating to any of the Intellectual Property Collateral owned, held or used by
such Grantor and set forth on Schedules 8, 9 or 10 annexed hereto, as
applicable, that is pending as of the date of this Agreement, (ii) any Copyright
Registration on any existing or future unregistered but copyrightable works
(except for works of nominal commercial value or with respect to which such
Grantor has determined in the exercise of its commercially reasonable judgment
that it shall not seek registration), (iii) any application on any future
patentable but unpatented innovation or invention comprising Intellectual
Property Collateral (except for inventions of nominal commercial value with
respect to which such Grantor has determined in the exercise of its commercially
reasonable judgment that it shall not seek a patent), and (iv) any Trademark
opposition and cancellation proceedings, renew Trademark Registrations and
Copyright Registrations and do any and all acts which are necessary or desirable
to preserve and maintain all rights in all Intellectual Property Collateral
(except for Intellectual Property of nominal commercial value with respect to
which such Grantor has determined in the exercise of its commercially reasonable
judgment that it shall not maintain such proceeding or seek such protection).
 Any expenses incurred in connection therewith shall be borne solely by
Grantors.  Subject to the foregoing, each Grantor shall give

16

Agent prior written notice of any abandonment of any Intellectual Property
Collateral (except for Intellectual Property of nominal commercial value with
respect to which such Grantor has determined in the exercise of its commercially
reasonable judgment that it shall not maintain such proceeding or seek such
protection).

(d)

Except as provided herein, each Grantor shall have the right to commence and
prosecute in its own name, as real party in interest, for its own benefit and at
its own expense, such suits, proceedings or other actions for infringement,
unfair competition, dilution, misappropriation or other damage, or reexamination
or reissue proceedings as are necessary to protect the Intellectual Property
Collateral.  Each Grantor shall promptly, following its becoming aware thereof,
notify Agent of the institution of, or of any adverse determination in, any
proceeding (whether in an IP Filing Office or any federal, state, provincial,
local or foreign court) or regarding such Grantor’s ownership, right to use, or
interest in any Intellectual Property Collateral.  Each Grantor shall provide to
Agent any information with respect thereto reasonably requested by Agent.

(e)

In addition to, and not by way of limitation of, the granting of a security
interest in the Collateral pursuant hereto, each Grantor, effective upon the
occurrence and during the continuance of an Event of Default, hereby assigns,
transfers and conveys to Agent the nonexclusive right and license to use all
Trademarks, Copyrights, Patents or technical processes (including, without
limitation, the Intellectual Property Collateral) owned or used by such Grantor
that relate to the Collateral, together with any goodwill associated therewith,
all to the extent necessary to enable Agent to realize on the Collateral in
accordance with this Agreement and to enable any transferee or assignee of the
Collateral to enjoy the benefits of the Collateral.  This right shall inure to
the benefit of all successors, assigns and transferees of Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise.  Such right and license shall be granted free of charge, without
requirement that any monetary payment whatsoever be made to such Grantor.

SECTION 11.    Collateral Account

[Reserved]

SECTION 12.

Agent Appointed Attorney-in-Fact.

Each Grantor hereby irrevocably appoints Agent as such Grantor’s
attorney-in-fact, which appointment is coupled with an interest, with full
authority in the place and stead of such Grantor and in the name of such
Grantor, Agent or otherwise, from time to time in Agent’s discretion (subject
however to compliance with applicable law) to take any action and to execute any
instrument that Agent may deem necessary or advisable to accomplish the purposes
of this Agreement, including, without limitation:

(a)

to obtain and adjust insurance required to be maintained by such Grantor or paid
to Agent pursuant to the Credit Agreement;

17

(b)

to ask for, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral;

(c)

to receive, endorse and collect any drafts or other Instruments, Documents,
Chattel Paper and other documents in connection with clauses (a) and (b) above;

(d)

to file any claims or take any action or institute any proceedings that Agent
may deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce or protect the rights of Agent with respect to any of the
Collateral;

(e)

to pay or discharge taxes or Liens (other than taxes not required to be
discharged pursuant to the Credit Agreement and Liens permitted under this
Agreement or the Credit Agreement) levied or placed upon or threatened against
the Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Agent in its sole discretion, any such
payments made by Agent to become obligations of such Grantor to Agent, due and
payable immediately without demand;

(f)

to sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and

(g)

generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
Agent were the absolute owner thereof for all purposes, and to do, at Agent’s
option and Grantors’ expense, at any time or from time to time, all acts and
things that Agent deems necessary to protect, preserve or realize upon the
Collateral and Agent’s security interest therein in order to effect the intent
of this Agreement, all as fully and effectively as such Grantor might do.

Without limiting the generality of any other provision of this Agreement, Agent
agrees that, except for the powers granted pursuant to clause (e) above, it will
not exercise any power or authority granted pursuant to this Section 12 unless
an Event of Default has occurred and is continuing.

SECTION 13.

Agent May Perform.

If any Grantor fails to perform any agreement contained herein, Agent may itself
perform, or cause performance of, such agreement, and the expenses of Agent
incurred in connection therewith shall be payable by Grantors under Section
18(b).

SECTION 14.

Standard of Care.

The powers conferred on Agent hereunder are solely to protect its interest in
the Collateral and shall not impose any duty upon it to exercise any such
powers.  Except for the exercise of reasonable care in the custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Agent shall have no duty as to any Collateral or as to the taking
of any necessary steps to preserve rights against prior parties or any other
rights pertaining to any Collateral.  Agent shall be deemed to have exercised
reasonable care in the

18

custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which Agent accords its own
property.

SECTION 15.

Remedies.

(a)

Generally.  If any Event of Default shall have occurred and be continuing
(subject solely in the case of ULC Shares to Section 9(d)), Agent may exercise
in respect of the Collateral, in addition to all other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a Secured Party on default under the UCC (whether or not the UCC applies to the
affected Collateral), and also may (i) require each Grantor to, and each Grantor
hereby agrees that it will, at its expense and upon request of Agent forthwith,
assemble all or part of the Collateral as directed by Agent and make it
available to Agent at a place to be designated by Agent that is reasonably
convenient to both parties, (ii) enter onto the property where any Collateral is
located and take possession thereof with or without judicial process,
(iii) prior to the disposition of the Collateral, store, process, repair or
recondition the Collateral or otherwise prepare the Collateral for disposition
in any manner to the extent Agent deems appropriate, (iv) take possession of any
Grantor’s premises or place custodians in exclusive control thereof, remain on
such premises and use the same and any of such Grantor’s equipment for the
purpose of completing any work in process, taking any actions described in the
preceding clause (iii) and collecting any Secured Obligation, (v) without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of Agent’s offices or elsewhere,
for cash, on credit or for future delivery, at such time or times and at such
price or prices and upon such other terms as Agent may deem commercially
reasonable, (vi) exercise dominion and control over and refuse to permit further
withdrawals from any Deposit Account maintained with Agent or any Lender and
provide instructions directing the disposition of funds in Deposit Accounts not
maintained with Agent or any Lender, (vii) provide entitlement orders with
respect to security entitlements and other investment property constituting a
part of the Collateral and, without notice to any Grantor, transfer to or
register in the name of Agent or any of its nominees any or all of the
Securities Collateral and (viii) appoint by instrument in writing a receiver,
receiver-manager, manager or receiver and manager (each a “Receiver”) for the
Collateral of each Grantor and with such rights, powers and authority as may be
provided for in such instrument of appointment or any supplemental instrument.
 To the extent permitted by applicable law, any Receiver appointed by the Agent
shall (for the purposes relating to responsibility for the Receiver’s acts or
omissions) be considered to be the agent of such Grantor.  The Agent may from
time to time fix the Receiver’s remuneration and such Grantor shall pay the
amount of such remuneration to the Agent.  The Agent shall not be liable to any
Grantor or any other person in connection with appointing a Receiver or in
connection with the Receiver’s actions or omissions.  Agent or any Secured Party
may be the purchaser of any or all of the Collateral at any such sale and Agent,
as agent for and representative of Secured Parties (but not a Secured Party in
its individual capacity unless Requisite Lenders shall otherwise agree in
writing), shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase price for all or any portion of the Collateral sold at
any such public sale, to use and apply any of the Obligations as a credit on
account of the purchase price for any Collateral payable by Agent at such sale.
 Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of any Grantor, and each Grantor hereby
waives (to the extent permitted by applicable law) all rights of redemption,
valuation, extension, stay and/or appraisal which it now has or may at any time
in the future have under any rule of

19

law or statute now existing or hereafter enacted.  Each Grantor agrees that, to
the extent notice of sale shall be required by law, at least ten (10) days’
notice to such Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification.  Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given.  Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.  Each Grantor hereby waives any claims
against Agent arising by reason of the fact that the price at which any
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Agent accepts the first
offer received and does not offer such Collateral to more than one offeree.  If
the proceeds of any sale or other disposition of the Collateral are insufficient
to pay all the Obligations, Grantors shall be jointly and severally liable for
the deficiency and the fees of any attorneys employed by Agent to collect such
deficiency.  Each Grantor further agrees that a breach of any of the covenants
contained in this Section 15 will cause irreparable injury to Agent, that Agent
has no adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this Section shall be specifically
enforceable against such Grantor, and each Grantor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that no default has occurred giving rise to the
Obligations becoming due and payable prior to their stated maturities.  Each
Grantor agrees not to assert against Agent or any other Secured Party as a
defense (legal or equitable) as a set-off, as a counterclaim or otherwise, any
claims any Grantor may have against any seller or lessor that provided personal
property or services relating to any part of the Collateral or against any other
party liable to any Secured Party for all or any part of the Secured
Obligations.  Each Grantor waives all exemptions and homestead rights with
respect to the Collateral.  Each Grantor waives any and all rights to any bond
or security which might be required by applicable law prior to the exercise of
any Agent’s or other Secured Party’s remedies against Collateral.  All rights of
Agent and the other Secured Parties or otherwise arising from the security
interests hereunder, and all obligations of the Grantors hereunder or under the
other Loan Documents shall be absolute and unconditional, not discharged or
impaired irrespective of (and regardless of whether any Grantor receives any
notice of): (i) any lack of validity or enforceability of any other Loan
Document, (ii) any change in the time, manner or place of payment or
performance, or in any term, of all or any of the Secured Obligations or the
Loan Documents or any other amendment or waiver or consent to any departure from
any Loan Document, and any increase or decrease from time to time in the amount
of, and any payment and new incurrence from time to time of, the Secured
Obligations or (iii) any exchange, insufficiency, unenforceability, enforcement,
release, impairment, or non-perfection of any Collateral, or any release of or
modifications to or other insufficiency, unenforceability or enforcement of the
obligations of any obligor.

(b)

Securities Collateral.  

(i)

Each Grantor recognizes that, by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws, Agent may be compelled,
with respect to any sale of all or any part of the Securities Collateral
conducted without prior registration or qualification of such Securities
Collateral under the Securities Act and/or such state securities laws, to limit
purchasers to those who will agree, among other things, to acquire the
Securities Collateral for their own account, for investment and not with a view
to the

20

distribution or resale thereof.  Each Grantor acknowledges that any such private
placement may be at prices and on terms less favorable than those obtainable
through a sale without such restrictions (including an offering made pursuant to
a registration statement under the Securities Act) and, notwithstanding such
circumstances and the registration rights granted to Agent by such Grantor
pursuant hereto, each Grantor agrees that any such private placement shall not
be deemed, in and of itself, to be commercially unreasonable solely because it
is a private placement and that Agent shall have no obligation to delay the sale
of any Securities Collateral for the period of time necessary to permit the
issuer thereof to register it for a form of sale requiring registration under
the Securities Act or under applicable state securities laws, even if such
issuer would, or should, agree to so register it.  If Agent determines to
exercise its right to sell any or all of the Securities Collateral, upon written
request, each Grantor shall and shall cause each issuer of any Securities
Collateral to be sold hereunder from time to time to furnish to Agent all such
information as Agent may request in order to determine the amount of Securities
Collateral which may be sold by Agent in exempt transactions under the
Securities Act and the rules and regulations of the Securities and Exchange
Commission thereunder, as the same are from time to time in effect.

(ii)

If Agent shall determine to exercise its right to sell all or any of the
Securities Collateral pursuant to this Section, each Grantor agrees that, upon
request of Agent (which request may be made by Agent in its sole discretion) and
subject to applicable securities laws, such Grantor will, at its own expense (A)
execute and deliver, and cause or, to the extent such issuer is not a Subsidiary
of such Grantor, use its best efforts to cause, each issuer of the Securities
Collateral contemplated to be sold and the directors and officers thereof to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts and things, as may be necessary or, in the opinion of
Agent, advisable to register such Securities Collateral under the provisions of
the Securities Act and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto; (B) use its best efforts to qualify the
Securities Collateral under all applicable state securities or “Blue Sky” laws
and to obtain all necessary governmental approvals for the sale of the
Securities Collateral, as reasonably requested by Agent; (C) cause each such
issuer to make available to its security holders, as soon as practicable, an
earnings statement which will satisfy the provisions of Section 11(a) of the
Securities Act; (D) do or cause to be done all such other acts and things as may
be necessary to make such sale of the Securities Collateral or any part thereof
valid and binding and in compliance with applicable law; and (E) bear all costs
and expenses, including reasonable attorneys’ fees, of carrying out its
obligations under this Section.  Prior to a realization and re-registration
contemplated by Section 9(d), the foregoing provisions shall not apply to ULC
Shares.

(iii)

Without limiting the generality of the indemnification and expense reimbursement
provisions of the Credit Agreement, in the event of any registered offering
described herein, each Grantor agrees to indemnify and hold harmless Agent, and
each Secured Party and each of their respective directors, officers, employees
and agents from and against any loss, fee, cost, expense, damage, liability or
claim, joint or several, to which any such Persons

21

may become subject or for which any of them may be liable, under the Securities
Act or otherwise, insofar as such losses, fees, costs, expenses, damages,
liabilities or claims (or any litigation commenced or threatened in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus,
registration statement, prospectus or other such document published or filed in
connection with such registered offering, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse Agent and such other
Persons for any legal or other expenses reasonably incurred by Agent and such
other Persons in connection with any litigation, of any nature whatsoever,
commenced or threatened in respect thereof (including any and all fees, costs
and expenses whatsoever reasonably incurred by Agent and such other Persons and
counsel for Agent and other such Persons in investigating, preparing for,
defending against or providing evidence, producing documents or taking any other
action in respect of, any such commenced or threatened litigation or any claims
asserted).  This indemnity shall be in addition to any liability which any
Grantor may otherwise have and shall extend upon the same terms and conditions
to each Person, if any, that controls Agent or such Persons within the meaning
of the Securities Act.

(c)

Collateral Account.  [Reserved]  

SECTION 16.

Additional Remedies for Intellectual Property Collateral.

(a)

Anything contained herein to the contrary notwithstanding, upon the occurrence
and during the continuation of an Event of Default, (i) Agent shall have the
right (but not the obligation) to bring suit, in the name of any Grantor, Agent
or otherwise, to enforce any Intellectual Property Collateral, in which event
each Grantor shall, at the request of Agent, do any and all lawful acts and
execute any and all documents required by Agent in aid of such enforcement and
each Grantor shall promptly, upon demand, reimburse and indemnify Agent as
provided in the indemnification and expense reimbursement provisions of the
Credit Agreement and Section 18 hereof, as applicable, in connection with the
exercise of its rights under this Section 16, and, to the extent that Agent
shall elect not to bring suit to enforce any Intellectual Property Collateral as
provided in this Section, each Grantor agrees to use all reasonable measures,
whether by action, suit, proceeding or otherwise, to prevent the infringement of
any of the Intellectual Property Collateral by others, subject to the exercise
of commercially reasonable judgment in whether and how to maintain any action,
suit or proceeding against any Person so infringing reasonably necessary to
prevent such infringement; (ii) upon written demand from Agent, each Grantor
shall execute and deliver to Agent an assignment or assignments of the
Intellectual Property Collateral and such other documents as are necessary or
appropriate to carry out the intent and purposes of this Agreement; and each
Grantor agrees that such an assignment and/or recording shall be applied to
reduce the Secured Obligations outstanding only to the extent that Agent (or any
Secured Party) receives cash proceeds or other value in respect of the sale of,
or other realization upon, the Intellectual Property Collateral.

(b)

If (i) an Event of Default shall have occurred and, by reason of waiver,
modification, amendment or otherwise, shall no longer be continuing, (ii) no
other Event of Default shall have occurred and be continuing, (iii) an
assignment to Agent of any rights, title and interests in and to the
Intellectual Property Collateral shall have been previously made, and

22

(iv) the Secured Obligations shall not have become immediately due and payable,
then upon the written request of any Grantor, Agent shall promptly execute and
deliver to such Grantor such assignments as may be necessary to reassign to such
Grantor any such rights, title and interests as may have been assigned to Agent
as aforesaid, subject to any disposition thereof that may have been made by
Agent; provided, after giving effect to such reassignment, Agent’s security
interest granted pursuant hereto, as well as all other rights and remedies of
Agent granted hereunder, shall continue to be in full force and effect; and
provided further, the rights, title and interests so reassigned shall be free
and clear of all Liens other than Liens (if any) encumbering such rights, title
and interest at the time of their assignment to Agent and Permitted Liens.

SECTION 17.

Application of Proceeds.  

Upon the occurrence and during the continuation of an Event of Default, if so
determined by Agent, in its sole discretion, or upon any Application Event or
acceleration of the Obligations pursuant to Article VII of the Credit Agreement,
Agent shall apply the proceeds of any collection, sale, foreclosure or other
realization upon any Collateral (as determined by Agent in its sole discretion)
and the proceeds of any insurance policy in respect of any Collateral in the
order of application set forth in Article II of the Credit Agreement.

SECTION 18.

Indemnity and Expenses.

(a)

Grantors jointly and severally agree to indemnify Agent and each Secured Party
and their respective Affiliates, directors, officers, employees, counsel,
trustees, advisors, agents and attorneys-in-fact in accordance with Section 10.5
of the Credit Agreement.

(b)

Grantors jointly and severally agree to pay to Agent and each Secured Party upon
demand the amount of any and all costs and expenses in accordance with Section
10.4 and Section 10.5 of the Credit Agreement.

(c)

The obligations of Grantors in this Section 18 shall survive the termination of
this Agreement and the discharge of Grantors’ other obligations, including the
obligations under this Agreement, the Credit Agreement and the other Loan
Documents.

SECTION 19.

Continuing Security Interest; Transfer of Loans; Termination and Release.

(a)

This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the Termination Date, (ii) be
binding upon Grantors and their respective successors and assigns, and
(iii) inure, together with the rights and remedies of Agent hereunder, to the
benefit of Agent and its successors, transferees and assigns.

(b)

On the Termination Date, the security interest granted hereby shall terminate
and all rights to the Collateral not theretofore sold or otherwise disposed of
pursuant to the exercise of rights and remedies of the Agent hereunder or as
otherwise contemplated hereby shall revert to the applicable Grantors.  Upon any
such termination Agent will, at Grantors’ expense, execute and deliver to or at
the direction of Grantors such documents as Grantors shall reasonably request to
evidence such termination.  In addition, upon the proposed sale or other
disposition of any Collateral by Grantor in accordance with the Credit Agreement
for which such

23

Grantor desires a security interest release from Agent, such a release may be
obtained pursuant to the provisions of the Credit Agreement.

SECTION 20.

Bayside as Agent.

(a)

Bayside has been appointed to act as Agent hereunder by Lenders.  Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including, without limitation, the release or substitution of
Collateral), solely in accordance with this Agreement and the Credit Agreement.
 

(b)

Until the payment in full of all Obligations under the Loan Documents and the
termination of the Term Loan Commitments, Agent shall at all times be the same
Person that is Collateral Agent under the Credit Agreement.  Notice of
resignation by Collateral Agent pursuant to the Credit Agreement shall also
constitute notice of resignation as Agent under this Agreement; and appointment
of a successor Collateral Agent pursuant to the Credit Agreement shall also
constitute appointment of a successor Agent under this Agreement.  Upon the
acceptance of any appointment as Collateral Agent under the Credit Agreement by
a successor Collateral Agent, that successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent under this Agreement, and the retiring Agent under this Agreement
shall promptly (i) transfer to such successor Agent all sums, securities and
other items of Collateral held hereunder, together with all records and other
documents necessary or appropriate in connection with the performance of the
duties of the successor Agent under this Agreement, and (ii) execute (if
necessary) and deliver to such successor Agent such amendments to financing
statements, and take such other actions, as may be necessary or appropriate in
connection with the assignment to such successor Agent of the security interests
created hereunder, whereupon such retiring Agent shall be discharged from its
duties and obligations under this Agreement.  After any retiring Agent’s
resignation hereunder as Agent, the provisions of this Agreement shall inure to
its benefit as to any actions taken or omitted to be taken by it under this
Agreement while it was Agent hereunder.

SECTION 21.

Additional Grantors.

From time to time subsequent to the date hereof, additional Persons may become
Additional Grantors, by executing a Supplement.  Upon delivery of any such
Supplement to Agent, notice of which is hereby waived by Grantors, each such
Additional Grantor shall be a Grantor and shall be as fully a party hereto as if
such Additional Grantor were an original signatory hereto.  Each Grantor
expressly agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Grantor hereunder, nor by any
election of Agent not to cause any Person to become an Additional Grantor
hereunder.  This Agreement shall be fully effective as to any Grantor that is or
becomes a party hereto regardless of whether any other Person becomes or fails
to become or ceases to be a Grantor hereunder from time to time.

24

SECTION 22.

Amendments; Etc.

No amendment, modification, termination or waiver of any provision of this
Agreement, and no consent to any departure by any Grantor therefrom, shall in
any event be effective unless the same shall be in writing and signed by Agent
and, in the case of any such amendment or modification, by Grantors; provided
that notwithstanding the foregoing, this Agreement may be modified by the
execution of a Supplement by an Additional Grantor in accordance with Section 21
hereof without signature or any other act by any other Grantor and Grantors
hereby waive any requirement of notice of or consent to any such Supplement.
 Any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which it was given.

SECTION 23.

Notices.

Any notice or other communication herein required or permitted to be given shall
be given as provided in Section 10.3 of the Credit Agreement.

SECTION 24.

Failure or Indulgence Not Waiver; Remedies Cumulative.

No failure or delay on the part of Agent in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege.  All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.

SECTION 25.

Severability.

In case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

SECTION 26.

Headings.

Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

SECTION 27.

Governing Law; Rules of Construction

(a)

This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York, except to the extent the law of any other jurisdiction
applies as to the perfection or enforcement of the any security interest in any
Collateral (if and to the extent collateral security is granted with respect to
the Obligations).

(b)

Agent and each Grantor hereby irrevocably submits to the jurisdiction of any
state or federal court sitting in the State of New York in any action or
proceeding arising out

25

of or relating to this Agreement or any of the other Loan Documents, and Agent
and each Grantor hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such state or federal court.
 Agent and each Grantor hereby irrevocably waives, to the fullest extent they
may effectively do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding.  Each Grantor agrees that a final judgment in any
such action or proceeding may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.  Nothing in this Section 27(b)
shall affect the right of Agent to serve legal process in any other manner
permitted by law or affect the right of Agent to bring any action or proceeding
against any Grantor or the property of any Grantor (including the Collateral) in
the courts of other jurisdictions.

.

(c)

The rules of construction set forth in Section 1.1 of the Credit Agreement shall
be applicable to this Agreement mutatis mutandis.

SECTION 28.

Waiver of Jury Trial.

AGENT AND EACH GRANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY INSTRUMENT OR DOCUMENT DELIVERED THEREUNDER.

SECTION 29.

Counterparts; Execution.

This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.  Delivery of an
executed signature page by facsimile, PDF or other electronic format shall be as
effective as delivery of a manually executed original signature page, and each
party hereto delivering an executed signature page hereto in electronic format
agrees to deliver to each other party hereto, on request, a manually executed
signature page, but the failure to deliver such manually executed signature page
shall not affect the validity, effectiveness or enforceability of the signature
page delivered electronically, which shall be effective for all purposes.

SECTION 30.

Definitions.

(a)

Each capitalized term utilized in this Agreement that is not defined herein
shall (i) have the meaning given to such term in the Credit Agreement or (ii) if
such term is not defined in the Credit Agreement, shall have the meaning set
forth in Articles 1, 8 or 9 of the UCC.

(b)

In addition, the following terms used in this Agreement shall have the following
meanings:

“Additional Grantor” means a Person that becomes a party hereto after the date
hereof as an additional Grantor by executing a Supplement.

26

“Assigned Agreements” means, with respect to any Grantor, the agreements set
forth on Schedule 15 annexed hereto, as each such agreement may be amended,
restated, supplemented or otherwise modified from time to time, including,
without limitation, (a) all rights of such Grantor to receive moneys due or to
become due under or pursuant to the Assigned Agreements, (b) all rights of such
Grantor to receive proceeds of any Supporting Obligations with respect to the
Assigned Agreements, (c) all claims of such Grantor for damages arising out of
any breach of or default under the Assigned Agreements, and (d) all rights of
such Grantor to terminate, amend, supplement, modify or exercise rights or
options under the Assigned Agreements, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder.

“Collateral” has the meaning set forth in Section 1 hereof.

“CFC” means a controlled foreign corporation (as that term is defined in the IR
Code).

“Copyright Registrations” means all copyright registrations issued to any
Grantor and applications for copyright registration that have been or may
hereafter be issued or applied for thereon in the United States and any state
thereof and in foreign countries (including, without limitation, the
registrations set forth on Schedule 10 annexed hereto, as the same may be
amended pursuant hereto from time to time).

“Copyright Rights” means all common law and other rights in and to the
Copyrights in the United States and any state thereof and in foreign countries
including all copyright licenses (but with respect to such copyright licenses,
only to the extent permitted by such licensing arrangements), the right (but not
the obligation) to renew and extend Copyright Registrations and any such rights
and to register works protectable by copyright and the right (but not the
obligation) to sue in the name of any Grantor or in the name of Agent or any
other Secured Party for past, present and future infringements of the Copyrights
and any such rights.

“Copyrights” means all items under copyright in various published and
unpublished works of authorship including, without limitation, computer
programs, computer data bases, other computer software layouts, trade dress,
drawings, designs, writings, and formulas (including, without limitation, the
works set forth on Schedule 10 annexed hereto, as the same may be amended
pursuant hereto from time to time).

“Credit Agreement” has the meaning set forth in the Preliminary Statements of
this Agreement.

“Default” means any Default as defined in the Credit Agreement.

“Event of Default” means any Event of Default as defined in the Credit
Agreement.

“Excluded Accounts” means Deposit Accounts (i) containing solely Excluded
Amounts or (ii) specially and exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for any Grantor’s or its
Subsidiaries’ employees.

“Excluded Amounts” means (i) an aggregate amount of not more than $100,000 at
any one time, credited to the Grantors and their Subsidiaries (other than those
Subsidiaries that are CFCs), (ii) an aggregate amount of not more than $100,000
(calculated at current exchange rates)

27

at any one time, credited to Subsidiaries of Grantors that are CFCs and (iii)
any Permitted LC Collateral.  

“General Intangibles” means General Intangibles (as that term is defined in the
UCC) and Intangibles (as that term is defined in the PPSA).  

“Grant” means a Grant of Trademark Security Interest, substantially in the form
of Exhibit I annexed hereto, and a Grant of Patent Security Interest,
substantially in the form of Exhibit II annexed hereto, and a Grant of Copyright
Security Interest, substantially in the form of Exhibit III annexed hereto.

“Intellectual Property Collateral” means, with respect to any Grantor all right,
title and interest (including rights acquired pursuant to a license or otherwise
but only to the extent permitted by agreements governing such license or other
use) in and to all:

(a)

Copyrights, Copyright Registrations and Copyright Rights, including, without
limitation, each of the Copyrights, rights, titles and interests in and to the
Copyrights, all derivative works and other works protectable by copyright, which
are presently, or in the future may be, owned, created (as a work for hire for
the benefit of such Grantor), authored (as a work for hire for the benefit of
such Grantor), or acquired by such Grantor, in whole or in part, and all
Copyright Rights with respect thereto and all Copyright Registrations therefor,
heretofore or hereafter granted or applied for, and all renewals and extensions
thereof, throughout the world;

(b)

Patents;

(c)

Trademarks, Trademark Registrations, the Trademark Rights and goodwill of such
Grantor’s business symbolized by the Trademarks and associated therewith;

(d)

all trade secrets, trade secret rights, know-how, customer lists, processes of
production, ideas, confidential business information, techniques, processes,
formulas, and all other proprietary information; and

(e)

all proceeds thereof (such as, by way of example and not by limitation, license
royalties and proceeds of infringement suits).

“IP Filing Office” means the United States Patent and Trademark Office, the
United States Copyright Office or any successor or substitute office in which
filings are necessary or, in the opinion of Agent, desirable in order to create
or perfect Liens on, or evidence the interest of Agent and Secured Parties in,
any Intellectual Property Collateral.

“IP Supplement” means an IP Supplement, substantially in the form of Exhibit V
annexed hereto.

“Patents” means all patents and patent applications and rights and interests in
patents and patent applications under any domestic or foreign law that are
presently, or in the future may be, owned or held by a Grantor and all patents
and patent applications and rights, title and interests in patents and patent
applications under any domestic or foreign law that are presently, or in the
future may be, owned by such Grantor in whole or in part (including, without
limitation,

28

the patents and patent applications set forth on Schedule 9 annexed hereto), all
rights (but not obligations) corresponding thereto to sue for past, present and
future infringements and all re-issues, divisions, continuations, renewals,
extensions and continuations-in-part thereof.

“Pledged Debt” means the Debt from time to time owed to a Grantor, including the
Debt set forth on Schedule 7 annexed hereto and issued by the obligors named
therein, the agreements, Instruments and certificates evidencing such Debt or
any guarantee, security or other credit support or Supporting Obligations
therefor, and all interest, fees, cash or other property received, receivable or
otherwise distributed in respect thereof or in exchange therefor.

“Pledged Equity” means all Equity Interests now or hereafter owned by a Grantor,
including all securities convertible into, and rights, warrants, options and
other rights to purchase or otherwise acquire, any of the foregoing, including
those owned on the date hereof and set forth on Schedule 6 annexed hereto, the
certificates or other instruments representing any of the foregoing and any
interest of such Grantor in the entries on the books of any securities
intermediary pertaining thereto and all distributions, dividends and other
property received, receivable or otherwise distributed in respect thereof or in
exchange therefor.

“Pledged Subsidiary Debt” means Pledged Debt owed to a Grantor by any obligor
that is, or becomes, a direct or indirect Subsidiary of such Grantor, of which
such Grantor is a direct or indirect Subsidiary or that controls, is controlled
by or under common control with such Grantor.

“Pledged Subsidiary Equity” means Pledged Equity in a Person that is, or
becomes, a direct Subsidiary of a Grantor.

“Pledge Supplement” means a Pledge Supplement, in substantially the form of
Exhibit IV annexed hereto, in respect of the additional Pledged Equity or
Pledged Debt pledged pursuant to this Agreement.

“PPSA” means the Personal Property Security Act (Nova Scotia) as such
legislation may be amended, renamed or replaced from time to time, and the
regulations thereunder as in effect from time to time.

“Secured Obligations” has the meaning set forth in Section 2 hereof.

“Secured Parties” means the Lenders, the Administrative Agent, the Collateral
Agent, each other Indemnitee and any other holder of any Obligation of any
Obligor.

“Securities Act” means the Security Act of 1933, as amended from time to time,
and any successor statute.

“Securities Collateral” means, with respect to any Grantor, the Pledged Equity,
the Pledged Debt and any other Equity Interests and other Investment Property in
which such Grantor has an interest.

29

“STA” means the Securities Transfer Act (Nova Scotia) as such legislation may be
amended, renamed or replaced from time to time, and the regulations thereunder
as in effect from time to time.

“Supplement” means a supplement to this Agreement entered into by a Subsidiary
of Company or another Person pursuant to Section 21 hereof and in the form
attached as Exhibit VI.

“Termination Date” means the date on which (a) the Loans have been indefeasibly
repaid in full, (b) all other Secured Obligations (other than Unasserted
Obligations) under this Agreement and the other Loan Documents have been
completely discharged and (c) the Term Loan Commitments shall have been
terminated.

“Trademark Registrations” means all registrations that have been or may
hereafter be issued or applied for thereon in the United States and any state
thereof and in foreign countries (including, without limitation, the
registrations and applications set forth on Schedule 8 annexed hereto).

“Trademark Rights” means all common law and other rights (but in no event any of
the obligations) in and to the Trademarks in the United States and any state
thereof and in foreign countries.

“Trademarks” means all trademarks, service marks, designs, logos, indicia,
tradenames, trade dress, corporate names, company names, business names,
fictitious business names, trade styles and/or other source and/or business
identifiers and applications pertaining thereto, owned by a Grantor, or
hereafter adopted and used, in its business (including, without limitation, the
trademarks specifically set forth on Schedule 8 annexed hereto).

“UCC” has the meaning set forth in Section 1 hereof.

“ULC” means a Pledged Company that is an unlimited company, unlimited liability
company or unlimited liability corporation under any ULC Laws.

“ULC Laws” means the Companies Act (Nova Scotia), the Business Corporations Act
(Alberta), the Business Corporations Act (British Columbia) and any other
present or future laws governing ULCs.

“ULC Shares” means shares, partnership interests or other Equity Interests in
the capital stock of a ULC.

SECTION 31. Intercreditor Agreement. The security interest granted pursuant to
this Agreement, and the exercise of remedies, priority of Liens, and application
of proceeds, in respect of the Revolving Credit Priority Collateral, are subject
to the provisions of the Intercreditor Agreement, and any provision of this
Agreement requiring delivery of Collateral, or proceeds of Collateral, that is
Revolving Credit Priority Collateral, to the Agent, or requiring the execution
and delivery of instruments or taking of other steps to assign moneys due or to
become due under contracts constituting Revolving Credit Priority Collateral to
Agent, for the benefit of the Secured Parties, in accordance with the Federal
Assignment of Claims Act of 1940 or

30

similar applicable law, shall, for so long as the Intercreditor Agreement is in
effect, be deemed to require delivery thereof to the Revolving Credit Agent
consistent with the Intercreditor Agreement.

SECTION 32.  Canadian Interpretation. Where the context so requires (i) all
terms defined in this Agreement by reference to the “UCC” or the “Uniform
Commercial Code” shall also have any extended, alternative or analogous meaning
given to such term in applicable Canadian personal property security and other
laws (including, without limitation, the PPSA, the STA, the Bills of Exchange
Act (Canada) and the Depository Bills and Notes Act (Canada)), in all cases for
the extension, preservation or betterment of the security and rights of Agent,
(ii) all references in this Agreement to “Article 8 of the Code” or “Article 8
of the Uniform Commercial Code” shall be deemed to refer also to applicable
Canadian securities transfer laws (including, without limitation, the STA),
(iii) all references in this Agreement to a financing statement, continuation
statement, amendment or termination statement shall be deemed to refer also to
the analogous documents used under applicable Canadian personal property
security laws, (iv) all references to federal or state securities law of the
United States shall be deemed to refer also to analogous federal and provincial
securities laws in Canada; (v) all references to the United States of America,
or to any subdivision, department or agency or instrumentality thereof shall be
deemed to refer also to Canada, or to any subdivision, department, agency or
instrumentality thereof; (vi) all reference in the Agreement to the United
States Copyright Office or the United States Patent and Trademark Office shall
be deemed to refer also to the Canadian Intellectual Property Office; and (vii)
all references to “Insolvency Proceeding” shall be deemed to refer also to any
insolvency proceeding occurring in Canada or under Canadian law.

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IN WITNESS WHEREOF, Grantors and Agent have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.

GRANTORS:

 

 

SCHOOL SPECIALTY, INC.

CLASSROOMDIRECT.COM, LLC

DELTA EDUCATION, LLC

SPORTIME, LLC

SELECT AGENDAS, CORP.

CHILDCRAFT EDUCATION CORP.

BIRD-IN-HAND WOODWORKS, INC.

CALIFONE INTERNATIONAL, INC.

PREMIER AGENDAS, INC.

FREY SCIENTIFIC, INC.

SAX ARTS & CRAFTS, INC.

 

 

 

 

 

By:  /s/ David N. Vander Ploeg

 

Name:  David N. Vander Ploeg

 

Title:  Treasurer

 

Signature Page to Security and Pledge Agreement

AGENT:

 

 

BAYSIDE FINANCE, LLC,

 

as Agent

 

 

 

By: /s/ John Bolduc

 

Name: John Bolduc

 

Title: Executive Managing Director

 

Signature Page to Security and Pledge Agreement