**Exhibit 10.2**

 

**EXECUTION COPY**

** **

** **

GUARANTEE AND COLLATERALAGREEMENT

 

made by 

 

DOCTOR ACQUISITION CO.,

 

RDA HOLDING CO.,

 

THE READER’S DIGESTASSOCIATION, INC.

 

and

 

THE GUARANTORS IDENTIFIEDHEREIN

 

in favor of

 

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

 

Dated as of March 2, 2007

 

 

----

 

TABLE OF CONTENTS

 
| ** **      | ** **                                                         | **Page** |
|-----------------|--------------------------------------------------------------------|----------|
|            |                                                               |     |
| Section 1. | DEFINED TERMS                                                      | 1        |
| 1.1.            | Definitions                                                        | 1        |
| 1.2.            | Other Definitional Provisions                                      | 5        |
|            |                                                               |     |
| Section 2. | GUARANTEE                                                          | 5        |
| 2.1.            | Guarantee                                                          | 5        |
| 2.2.            | Right of Contribution                                              | 6        |
| 2.3.            | No Subrogation                                                     | 6        |
| 2.4.            | Amendments, etc., with respect to the Borrower Obligations         | 7        |
| 2.5.            | Guarantee Absolute and Unconditional                               | 7        |
| 2.6.            | Reinstatement                                                      | 8        |
| 2.7.            | Payments                                                           | 8        |
|            |                                                               |     |
| Section 3. | GRANT OF SECURITY INTEREST                                         | 8        |
|            |                                                               |     |
| Section 4. | REPRESENTATIONS AND WARRANTIES                                     | 10       |
| 4.1.            | Title; No Other Liens                                              | 10       |
| 4.2.            | Perfected First Priority Liens                                     | 11       |
| 4.3.            | Jurisdiction of Organization                                       | 11       |
| 4.4.            | Inventory and Equipment                                            | 11       |
| 4.5.            | Farm Products                                                      | 11       |
| 4.6.            | Investment Property                                                | 11       |
| 4.7.            | Receivables                                                        | 12       |
| 4.8.            | Intellectual Property                                              | 12       |
| 4.9.            | Commercial Tort Claims                                             | 12       |
|            |                                                               |     |
| Section 5. | COVENANTS                                                          | 12       |
| 5.1.            | Delivery of Instruments, Certificated Securities and Chattel Paper | 13       |
| 5.2.            | Maintenance of Insurance                                           | 13       |
| 5.3.            | Maintenance of Perfected Security Interest; Further Documentation  | 13       |
| 5.4.            | Changes in Locations, Name, etc.                                   | 14       |
| 5.5.            | Notices                                                            | 14       |
| 5.6.            | Investment Property                                                | 14       |
| 5.7.            | Receivables                                                        | 16       |
| 5.8.            | Intellectual Property                                              | 16       |
| 5.9.            | Commercial Tort Claims                                             | 18       |
|            |                                                               |     |
| Section 6. | REMEDIAL PROVISIONS                                                | 18       |
| 6.1.            | Certain Matters Relating to Receivables                            | 18       |
| 6.2.            | Communications with Obligors; Grantors Remain Liable               | 19       |
| 6.3.            | Pledged Equity                                                     | 20       |
| 6.4.            | Proceeds to be Turned Over to Administrative Agent                 | 21       |

 

i

----

 
| ** **      | ** **                                                                                        | **Page** |
|-----------------|---------------------------------------------------------------------------------------------------|----------|
|            |                                                                                              |     |
| 6.5.            | Application of Proceeds                                                                           | 21       |
| 6.6.            | Code and Other Remedies                                                                           | 21       |
| 6.7.            | Registration Rights                                                                               | 22       |
| 6.8.            | Deficiency                                                                                        | 23       |
|            |                                                                                              |     |
| Section 7. | THE ADMINISTRATIVE AGENT                                                                          | 23       |
| 7.1.            | Administrative Agent’s Appointment as Attorney-in-Fact, etc.                                 | 23       |
| 7.2.            | Duty of Administrative Agent                                                                      | 25       |
| 7.3.            | Execution of Financing Statements                                                                 | 25       |
| 7.4.            | Authority of Administrative Agent                                                                 | 26       |
|            |                                                                                              |     |
| Section 8. | MISCELLANEOUS                                                                                     | 26       |
| 8.1.            | Amendments in Writing                                                                             | 26       |
| 8.2.            | Notices                                                                                           | 26       |
| 8.3.            | No Waiver by Course of Conduct; Cumulative Remedies                                               | 26       |
| 8.4.            | Enforcement Expenses; Indemnification                                                             | 26       |
| 8.5.            | Successors and Assigns                                                                            | 27       |
| 8.6.            | Setoff                                                                                            | 27       |
| 8.7.            | Counterparts                                                                                      | 27       |
| 8.8.            | Severability                                                                                      | 28       |
| 8.9.            | Section Headings                                                                             | 28       |
| 8.10.           | Integration                                                                                       | 28       |
| **8.11.**       | **GOVERNING LAW**                                                                                 | 28       |
| 8.12.           | Submission To Jurisdiction; Waivers                                                               | 28       |
| 8.13.           | Acknowledgments                                                                                   | 29       |
| 8.14.           | Additional Guarantors and Grantors                                                                | 29       |
| 8.15.           | Releases                                                                                          | 29       |
| **8.16.**       | **WAIVER OF JURY TRIAL**                                                                          | 30       |
| 8.17.           | Effectiveness of the Merger; Assignment and Delegation to and  Assumption by Reader’s Digest | 30       |
| 8.18.           | German Borrower Security                                                                          | 30       |
| 8.19.           | Parallel Obligations                                                                              | 31       |

 

SCHEDULES

 
| Schedule 1 | Notice Addresses                  |   |
|------------|-----------------------------------|--------|
| Schedule 2 | Investment Property               |   |
| Schedule 3 | Perfection Matters                |   |
| Schedule 4 | Jurisdictions of Organization     |   |
| Schedule 5 | Inventory and Equipment Locations |   |
| Schedule 6 | Intellectual Property             |   |
| Schedule 7 | Commercial Tort Claims            |   |

 

ANNEX

 
| Annex 1 | Form of Security Agreement Supplement |   |
|---------|--------------------------------------------|--------|
| Annex 2 | Form of Perfection Certificate        |   |

 

ii

----

 

GUARANTEE AND COLLATERAL AGREEMENT, dated asof March 2, 2007, made by each of the signatories hereto (other than theGerman Borrower, and together with any other entity that may become a partyhereto as provided herein, the “Grantors”), in favor of JPMORGAN CHASEBANK, N.A., as Administrative Agent (in such capacity, the “AdministrativeAgent”) for the lending and other financial institutions (the “Lenders”)from time to time parties to the Credit Agreement, dated as of the date hereof(as amended, supplemented or otherwise modified from time to time, the “CreditAgreement”), among DOCTOR ACQUISITION CO., a Delaware corporation (to bemerged with and into Reader’s Digest (as defined below), the “Company”),RDA HOLDING CO., a Delaware corporation (“Holdings”), THE READER’SDIGEST ASSOCIATION, INC., a Delaware corporation (“Reader’s Digest”),the Overseas Borrowers from time to time party thereto (together with theCompany, the “Borrowers”), the Lenders and the Administrative Agent.

 

W I T N E S S E T H:

 

WHEREAS, Holdings, the Borrowers, the Lendersand the Administrative Agent have entered into the Credit Agreement, pursuantto which the Lenders have severally agreed to make extensions of credit to theBorrowers upon the terms and subject to the conditions set forth therein;

 

WHEREAS, each Borrower is a member of anaffiliated group of companies that, following the consummation of theAcquisitions, will include each other Grantor;

 

WHEREAS, the proceeds of the extensions ofcredit under the Credit Agreement will be used in part to enable the Borrowersto make valuable transfers to one or more of the other Grantors in connectionwith the operation of their respective businesses;

 

WHEREAS, the Borrowers and the other Grantorsare engaged in related businesses, and each Grantor will derive substantialdirect and indirect benefit from the making of the extensions of credit underthe Credit Agreement; and

 

WHEREAS, it is a condition precedent to theobligation of the Lenders to make their respective extensions of credit to theBorrowers under the Credit Agreement that the Grantors shall have executed anddelivered this Agreement to the Administrative Agent for the ratable benefit ofthe Secured Parties;

 

NOW, THEREFORE, in consideration of thepremises and the agreements hereinafter set forth, and in order to induce theAdministrative Agent and the Lenders to enter into the Credit Agreement and inorder to induce the Lenders to make their respective extensions of credit tothe Borrowers thereunder, each Grantor hereby agrees with the AdministrativeAgent, for the ratable benefit of the Secured Parties, as follows:

 

# SECTION 1.   DEFINEDTERMS

#  

## 1.1.                              Definitions.  (a)  Unless otherwise defined herein,terms defined in the Credit Agreement and used herein shall have the meaningsgiven to them in the Credit Agreement, and the following terms are used hereinas defined in the New York UCC: Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims,Documents,

 

----

 

## Equipment, FarmProducts, General Intangibles, Instruments, Inventory, Letter of Credit Rightsand Supporting Obligations.

##  

### (b)         The following terms shall have the following meanings:

###  

“Agreement”:  this Guarantee and Collateral Agreement, asthe same may be amended, supplemented or otherwise modified from time to time.

 

“Applicable GovernmentalAuthority”:  as defined in Section 5.7(c).

 

“Borrower Obligations”:  the “Obligations” as defined in the Credit Agreement.

 

“Collateral”:  as defined in Section 3.

 

“Collateral Account”:  any collateral account established by theAdministrative Agent as provided in Section 6.1 or 6.4.

 

“Copyrights”:  (i) all copyrights arising under thelaws of the United States, any other country or any political subdivisionthereof, whether registered or unregistered and whether published orunpublished (including, without limitation, those listed in Schedule 6),all registrations and recordings thereof, and all applications in connectiontherewith, including, without limitation, all registrations, recordings andapplications in the United States Copyright Office, and (ii) the right toobtain all renewals thereof.

 

“Copyright Licenses”:  any written agreement naming any Grantor as licensoror licensee, granting any right under any Copyright, including, withoutlimitation, the grant of rights to manufacture, distribute, exploit and sellmaterials derived from any Copyright.

 

“Deposit Account”:  as defined in the Uniform Commercial Code ofany applicable jurisdiction and, in any event, including, without limitation,any demand, time savings, passbook or like account maintained with a depositaryinstitution.

 

“Excluded Property”: asdefined in Section 3.

 

“Foreign Subsidiary”:  any direct or indirect Restricted Subsidiaryof the Company which (i) is not a Domestic Subsidiary or (ii) is setforth on Schedule 1.01E to the Credit Agreement.

 

“Foreign Subsidiary VotingStock”:  the voting Equity Interestsof any Foreign Subsidiary and of any Domestic Subsidiary substantially all ofwhose assets consist of voting Equity Interests of one or more ForeignSubsidiaries.

 

“Guarantor Obligations”:  with respect to any Guarantor, allobligations and liabilities of such Guarantor which may arise under or inconnection with this Agreement (including, without limitation, Section 2)or any other Loan Document or any Secured Hedge Agreement to which suchGuarantor is a party, in each case whether on account of guarantee obligations,reimbursement obligations, fees, indemnities, costs, expenses or

 

2

----

 

otherwise (including, withoutlimitation, all Attorney Costs that are required to be paid by such Guarantorpursuant to the terms of this Agreement or any other Loan Document).

 

“Guarantors”:  the collective reference to each Grantorother than the Company; provided that the term “Guarantors” shallinclude the Company in the case of the Overseas Obligations.

 

“Intellectual Property”:  the collective reference to all rights,priorities and privileges relating to intellectual property, whether arisingunder United States, multinational or foreign laws or otherwise, including,without limitation, the Copyrights, the Copyright Licenses, the Patents, thePatent Licenses, the Trademarks and the Trademark Licenses, and all rights tosue at law or in equity for any infringement or other impairment thereof,including the right to receive all proceeds and damages therefrom.

 

“Intercompany Note”:  any promissory note evidencing loans made byany Grantor to Holdings or any of its Subsidiaries.

 

“Investment Property”:  the collective reference to (i) all “investmentproperty” as such term is defined in Section 9-102(a)(49) of the New YorkUCC (other than any Foreign Subsidiary Voting Stock and any Equity Interests ofUnrestricted Subsidiaries excluded from the definition of “Pledged Equity”) and(ii) whether or not constituting “investment property” as so defined, allPledged Debt and all Pledged Equity.

 

“Issuers”:  the collective reference to each issuer ofany Investment Property.

 

“LTIBR”:  any interest-bearing receivables, includingdeposits or other funds, with a maturity that qualifies as long-term pursuantto section 8 no. 1 German Trade Tax Act (*Gewerbesteuergesetz*)to be applied *mutatis**mutandis*in accordance with marginal notes 20 and 37 of the decree to § 8a of the GermanCorporate Income Tax Act (*Körperschaftsteuergesetz*)dated July 15, 2004.

 

“New York UCC”:  the Uniform Commercial Code as from time totime in effect in the State of New York.

 

“Obligations”:  (i) in the case of each Borrower, itsBorrower Obligations, and (ii) in the case of each Guarantor, itsGuarantor Obligations.

 

“Patents”:  (i) all letters patent of the UnitedStates, any other country or any political subdivision thereof, all reissuesand extensions thereof and all goodwill associated therewith, including,without limitation, any of the foregoing referred to in Schedule 6,(ii) all applications for letters patent of the United States or any othercountry and all divisions, continuations and continuations-in-part thereof,including, without limitation, any of the foregoing referred to in Schedule 6,and (iii) all rights to obtain any reissues or extensions of theforegoing.

 

“Patent License”:  all agreements, whether written or oral,providing for the grant by or to any Grantor of any right to manufacture, useor sell any invention covered in

 

3

----

 

whole or in part by a Patent,including, without limitation, any of the foregoing referred to in Schedule 6.

 

“Perfection Certificate”: means a certificate substantially in theform of Annex 2, completed and supplemented with the schedules and attachmentscontemplated thereby, and duly executed by the associate general counsel or thechief legal officer of Reader’s Digest.

 

“Pledged Debt”:  all promissory notes listed on Schedule 2,all Intercompany Notes at any time issued to any Grantor and all otherpromissory notes issued to or held by any Grantor (other than promissory notesissued in connection with extensions of trade credit by any Grantor in theordinary course of business).

 

“Pledged Equity”:  the Equity Interests listed on Schedule 2,together with any other shares, stock certificates, options or rights of anynature whatsoever in respect of the Equity Interests of any Person that may beissued or granted to, or held by, any Grantor while this Agreement is ineffect; provided that in no event shall (i) more than 65% of theissued and outstanding Foreign Subsidiary Voting Stock of any ForeignSubsidiary or of any Domestic Subsidiary substantially all of whose assetsconsist of voting Equity Interests of one or more Foreign Subsidiaries, (ii) EquityInterests of any Unrestricted Subsidiary, (iii) the Company PreferredStock or (iv) Equity Interests of any Restricted Subsidiary pledged tosecure Indebtedness permitted under Section 7.03(g) of the CreditAgreement constitute Pledged Equity or be required to be pledged hereunder.

 

“Proceeds”:  all “proceeds” as such term is defined in Section 9-102(a)(64)of the New York UCC and, in any event, shall include, without limitation, alldividends or other income from the Investment Property, collections thereon ordistributions or payments with respect thereto.

 

“Receivable”:  any right to payment for goods sold or leasedor for services rendered, whether or not such right is evidenced by anInstrument or Chattel Paper and whether or not it has been earned byperformance (including, without limitation, any Account).

 

“Secured Parties”:  the collective reference to the Administrative Agent, the other Agents,the L/C Issuers, the Lenders, the Hedge Banks, any Affiliate of aLender, the SupplementalAdministrative Agent and each co-agent or sub-agent appointed by the AdministrativeAgent from time to time pursuant to Section 9.01(c) of the CreditAgreement, to which Borrower Obligations or Guarantor Obligations, asapplicable, are owed.

 

“Securities Act”:  the Securities Act of 1933, as amended.

 

“Specified Assets” means(a) LTIBR and (b) following any amendment or replacement of § 8a ofthe German Corporate Income Tax Act (*Körperschaftsteuergesetz*),any other property or assets owned by any Loan Party or any other provider ofsecurity, direct or indirect access to which property or assets (whetherthrough inclusion in the Collateral or otherwise) would result in adverse tax

 

4

----

 

consequences to Holdings andits Subsidiaries as a consequence of any such amendment or replacement,provided that the aggregate fair market value of the property and assetsincluded in the definition of Specified Assets pursuant to this clause (b) shallnot exceed an amount equal to 10% of the consolidated total assets of theGerman Borrower and its Subsidiaries.

 

“Subsidiary Guarantor”:  any Subsidiary of the Company that is orbecomes a party to this Agreement.

 

“Trademarks”:  (i) all trademarks, trade names,corporate names, company names, business names, fictitious business names,trade styles, service marks, logos and other source or business identifiers,and all goodwill associated therewith, now existing or hereafter adopted oracquired, all registrations and recordings thereof, and all applications inconnection therewith, whether in the United States Patent and Trademark Officeor in any similar office or agency of the United States, any State thereof orany other country or any political subdivision thereof, or otherwise, and allcommon-law rights related thereto, including, without limitation, any of theforegoing referred to in Schedule 6, and (ii) the right toobtain all renewals thereof.

 

“Trademark License”:  any agreement, whether written or oral,providing for the grant by or to any Grantor of any right to use any Trademark.

 

## 1.2.                              Other Definitional Provisions.  (a)  The words “hereof,” “herein, “ “hereto”and “hereunder” and words of similar import when used in this Agreement shallrefer to this Agreement as a whole and not to any particular provision of thisAgreement, and Section and Schedule references are to this Agreementunless otherwise specified.

##  

### (b)         The meanings given to terms defined herein shall be equallyapplicable to both the singular and plural forms of such terms.

###  

### (c)          Where the context requires, terms relating to the Collateralor any part thereof, when used in relation to a Grantor, shall refer to suchGrantor’s Collateral or the relevant part thereof.

###  

# SECTION 2.   GUARANTEE

#  

## 2.1.                              Guarantee.  (a)  Each of the Guarantors hereby,jointly and severally, unconditionally and irrevocably, guarantees to theAdministrative Agent, for the ratable benefit of the Secured Parties and theirrespective successors and permitted indorsees, transferees and assigns, theprompt and complete payment and performance by the Borrowers when due (whetherat the stated maturity, by acceleration or otherwise) of the BorrowerObligations.

##  

### (b)         Anything herein or in any other Loan Document to thecontrary notwithstanding, the maximum liability of each Guarantor hereunder andunder the other Loan Documents shall in no event exceed the amount which can beguaranteed by such Guarantor under applicable federal and state laws relatingto the insolvency of debtors (after giving effect to the right of contributionestablished in Section 2.2).

 

5

----

 

### (c)          Each Guarantor agrees that the Borrower Obligations may atany time and from time to time exceed the amount of the liability of suchGuarantor hereunder without impairing the guarantee contained in this Section 2or affecting the rights and remedies of the Administrative Agent or any Lenderhereunder.

###  

### (d)         The guarantee contained in this Section 2 shall remainin full force and effect until all the Obligations (other than contingentindemnification and contingent expense reimbursement obligations, anyObligations in respect of Secured Hedge Agreements and Cash ManagementObligations) shall have been satisfied by payment in full, no Letter of Creditshall be outstanding and the Commitments shall be terminated, notwithstandingthat from time to time during the term of the Credit Agreement the Borrowersmay be free from any Borrower Obligations.

###  

### (e)          Except as provided in Section 8.15, no payment made byany Borrower, any of the Guarantors, any other guarantor or any other Person orreceived or collected by the Administrative Agent or any Lender from anyBorrower, any of the Guarantors, any other guarantor or any other Person byvirtue of any action or proceeding or any setoff, appropriation or applicationat any time or from time to time in reduction of or in payment of the BorrowerObligations shall be deemed to modify, reduce, release or otherwise affect theliability of any Guarantor hereunder which shall, notwithstanding any suchpayment (other than any payment made by such Guarantor in respect of theBorrower Obligations or any payment received or collected from such Guarantorin respect of the Borrower Obligations), remain liable for the BorrowerObligations up to the maximum liability of such Guarantor hereunder until theBorrower Obligations are paid in full, no Letter of Credit is outstanding andthe Commitments are terminated.

###  

## 2.2.                              Right of Contribution.  Each Subsidiary Guarantor hereby agrees thatto the extent that a Subsidiary Guarantor shall have paid more than itsproportionate share of any payment made hereunder, such Subsidiary Guarantorshall be entitled to seek and receive contribution from and against any otherSubsidiary Guarantor hereunder which has not paid its proportionate share ofsuch payment.  Each Subsidiary Guarantor’sright of contribution shall be subject to the terms and conditions of Section 2.3.  The provisions of this Section 2.2 shallin no respect limit the obligations and liabilities of any Subsidiary Guarantorto the Administrative Agent and the Lenders, and each Subsidiary Guarantorshall remain liable to the Administrative Agent and the Lenders for the fullamount guaranteed by such Subsidiary Guarantor hereunder.

##  

## 2.3.                              No Subrogation.  Notwithstanding any payment made by anyGuarantor hereunder or any setoff or application of funds of any Guarantor bythe Administrative Agent or any Lender, no Guarantor shall be entitled to besubrogated to any of the rights of the Administrative Agent or any Lenderagainst any Borrower or any other Guarantor or any collateral security,guarantee or right of offset held by the Administrative Agent or any Lender forthe payment of the Borrower Obligations, nor shall any Guarantor seek anycontribution or reimbursement from any Borrower or any other Guarantor inrespect of payments made by such Guarantor hereunder, until all amounts owingto the Administrative Agent and the Lenders by the Borrowers on account of theBorrower Obligations are paid in full, no Letter of Credit is outstanding andthe Commitments are terminated.  If anyamount shall be paid to any Guarantor on account of such subrogation rights atany time when all of the Borrower Obligations shall not

 

6

----

 

## have been paid infull, such amount shall be held by such Guarantor in trust for theAdministrative Agent and the Lenders, segregated from other funds of suchGuarantor, and shall, forthwith upon receipt by such Guarantor, be turned overto the Administrative Agent in the exact form received by such Guarantor (dulyindorsed by such Guarantor to the Administrative Agent, if required), to beapplied against the Borrower Obligations, whether matured or unmatured, in suchorder as the Administrative Agent may determine.  For the avoidance of doubt, nothing in theforegoing shall operate as a waiver of any subrogation rights.

##  

## 2.4.                              Amendments, etc., with respectto the Borrower Obligations.  To the fullest extent permitted by applicablelaw, each Guarantor shall remain obligated hereunder notwithstanding that,without any reservation of rights against any Guarantor and without notice toor further assent by any Guarantor, any demand for payment of any of theBorrower Obligations made by the Administrative Agent or any Lender may berescinded by the Administrative Agent or such Lender and any of the BorrowerObligations continued, and the Borrower Obligations, or the liability of anyother Person upon them or for any part thereof, or any collateral security orguarantee therefor or right of offset with respect thereto, may, from time totime, in whole or in part, be renewed, extended, amended, modified,accelerated, compromised, waived, surrendered or released by the AdministrativeAgent or any Lender, and the Credit Agreement and the other Loan Documents andany other documents executed and delivered in connection therewith may beamended, modified, supplemented or terminated, in whole or in part, as theAdministrative Agent (or the Required Lenders or all Lenders, as the case maybe) may reasonably deem advisable from time to time, and any collateralsecurity, guarantee or right of offset at any time held by the AdministrativeAgent or any Lender for the payment of the Borrower Obligations may be sold,exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have anyobligation to protect, secure, perfect or insure any Lien at any time held byit as security for the Borrower Obligations or for the guarantee contained inthis Section 2 or any property subject thereto.

##  

## 2.5.                              Guarantee Absolute andUnconditional.  To the fullest extent permitted by applicablelaw, each Guarantor waives any and all notice of the creation, renewal,extension or accrual of any of the Borrower Obligations and notice of or proofof reliance by the Administrative Agent or any Lender upon the guaranteecontained in this Section 2 or acceptance of the guarantee contained inthis Section 2; the Borrower Obligations, and any of them, shallconclusively be deemed to have been created, contracted or incurred, orrenewed, extended, amended or waived, in reliance upon the guarantee containedin this Section 2; and all dealings between any Borrower and any of theGuarantors, on the one hand, and the Administrative Agent and the Lenders, onthe other hand, likewise shall be conclusively presumed to have been had orconsummated in reliance upon the guarantee contained in this Section 2.  To the fullest extent permitted by applicablelaw, each Guarantor waives diligence, presentment, protest, demand for paymentand notice of default or nonpayment to or upon any Borrower or any of theGuarantors with respect to the Borrower Obligations.  Each Guarantor understands and agrees thatthe guarantee contained in this Section 2, to the fullest extent permittedby applicable law, shall be construed as a continuing, absolute andunconditional guarantee of payment without regard to (a) the validity orenforceability of the Credit Agreement or any other Loan Document, any of theBorrower Obligations or any other collateral security therefor or guarantee orright of offset with respect thereto at any time or from time to time held bythe Administrative Agent or any Lender, (b) any defense, setoff orcounterclaim (other than a defense of payment or performance)

 

7

----

 

## which may at anytime be available to or be asserted by any Borrower or any other Person againstthe Administrative Agent or any Lender or (c) any other circumstancewhatsoever (with or without notice to or knowledge of any Borrower or suchGuarantor) which constitutes, or might be construed to constitute, an equitableor legal discharge of any Borrower for the Borrower Obligations, or of suchGuarantor under the guarantee contained in this Section 2, in bankruptcyor in any other instance.  When makingany demand hereunder or otherwise pursuing its rights and remedies hereunderagainst any Guarantor, the Administrative Agent or any Lender may, but shall beunder no obligation to, make a similar demand on or otherwise pursue suchrights and remedies as it may have against any Borrower, any other Guarantor orany other Person or against any collateral security or guarantee for theBorrower Obligations or any right of offset with respect thereto, and anyfailure by the Administrative Agent or any Lender to make any such demand, topursue such other rights or remedies or to collect any payments from anyBorrower, any other Guarantor or any other Person or to realize upon any suchcollateral security or guarantee or to exercise any such right of offset, orany release of any Borrower, any other Guarantor or any other Person or anysuch collateral security, guarantee or right of offset, shall not relieve anyGuarantor of any obligation or liability hereunder, and shall not impair oraffect the rights and remedies, whether express, implied or available as amatter of law, of the Administrative Agent or any Lender against anyGuarantor.  For the purposes hereof “demand”shall include the commencement and continuance of any legal proceedings.

##  

## 2.6.                              Reinstatement.  The guarantee contained in this Section 2shall continue to be effective, or be reinstated, as the case may be, if at anytime payment, or any part thereof, of any of the Borrower Obligations isrescinded or must otherwise be restored or returned by the Administrative Agentor any Lender upon the insolvency, bankruptcy, dissolution, liquidation orreorganization of any Borrower or any Guarantor, or upon or as a result of theappointment of a receiver, intervenor or conservator of, or trustee or similarofficer for, any Borrower or any Guarantor or any substantial part of itsproperty, or otherwise, all as though such payments had not been made.

##  

## 2.7.                              Payments.  Each Guarantor hereby guarantees thatpayments hereunder will be paid to the Administrative Agent without setoff orcounterclaim in Dollars at the Administrative Agent’s Office.

##  

# SECTION 3.   GRANT OFSECURITY INTEREST

#  

Each Grantor hereby assigns and transfers tothe Administrative Agent, and hereby grants to the Administrative Agent, forthe ratable benefit of the Secured Parties, a security interest in, all of thefollowing property now owned or at any time hereafter acquired by such Grantoror in which such Grantor now has or at any time in the future may acquire any right,title or interest other than Excluded Property (collectively, the “Collateral”),as collateral security for the prompt and complete payment and performance whendue (whether at the stated maturity, by acceleration or otherwise) of suchGrantor’s Obligations:

 

#### (a)          all Accounts;

####  

#### (b)         all Chattel Paper;

 

8

----

 

#### (c)          all Deposit Accounts;

####  

#### (d)         all Documents;

####  

#### (e)          all Equipment;

####  

#### (f)            all Fixtures;

####  

#### (g)         all General Intangibles;

####  

#### (h)         all Instruments;

####  

#### (i)             all Intellectual Property;

####  

#### (j)             all Inventory;

####  

#### (k)          all Investment Property;

####  

#### (l)             all Letter of Credit Rights;

####  

#### (m)       all Commercial Tort Claims with respect to thematters described on Schedule 7;

####  

#### (n)         all other personal property not otherwisedescribed above;

####  

#### (o)         all books and records pertaining to theCollateral; and

####  

#### (p)         to the extent not otherwise included, allProceeds, Supporting Obligations and products of any and all of the foregoingand all collateral security and guarantees given by any Person with respect toany of the foregoing;

####  

provided, however, that notwithstandingany of the other provisions set forth in this Section 3, the termCollateral and the terms set forth in this Section defining the componentsof Collateral shall not include, and this Agreement shall not constitute agrant of a security interest in, any of the following (the “ExcludedProperty”): (i) any property to the extent that such grant of asecurity interest is prohibited by any applicable Law of a GovernmentalAuthority, requires a consent not obtained of any Governmental Authoritypursuant to such Law or is prohibited by, or constitutes a breach or defaultunder or results in the termination of or gives rise to a right on the part ofthe parties thereto other than Holdings, the Company and the Company’sSubsidiaries to terminate (or materially modify) or requires any consent notobtained under any contract, license, agreement, instrument or other documentevidencing or giving rise to such property or, in the case of any InvestmentProperty, Pledged Equity or Pledged Debt, any applicable shareholder or similaragreement, except to the extent that such Law or the term in such contract,license, agreement, instrument or other document or shareholder or similaragreement providing for such prohibition, breach, default or right oftermination or modification or requiring such consent is ineffective underapplicable law, (ii) any property owned by any Grantor on the date hereofor hereafter acquired that is subject to a Lien securing a purchase money,project financing or capital or finance lease obligation permitted to beincurred pursuant to the Credit Agreement if

 

9

----

 

the contract or other agreement in which such Lien is granted (or thedocumentation providing for such purchase money, project financing or capitalor finance lease obligation) prohibits the creation of any other Lien on suchproperty, (iii) any trucks, trailers, tractors, service vehicles,automobiles, rolling stock or other registered mobile equipment or equipmentcovered by certificates of title or ownership of any Grantor, (iv) DepositAccounts exclusively used for payroll, payroll taxes and other employee wageand benefit payments or any other Deposit Account with an average annualbalance of less than $5,000,000 and (v) the Equity Interests of DirectHoldings IP L.L.C., a Delaware limited liability company, and any joint venturein respect of which Holdings or any of its Subsidiaries holds an EquityInterest if (and only so long as), in any case, the grant of any such securityinterest is prohibited by, or constitutes a breach or default under or resultsin the termination of or gives rise to a right on the part of the partiesthereto other than Holdings, the Company and the Company’s Subsidiaries toterminate (or materially modify) or requires any consent not obtained under anycontract, license, agreement, instrument or other document evidencing or givingrise to such property or any applicable shareholder, joint venture or similaragreement; provided, however, that Excluded Property shall notinclude any Proceeds, substitutions or replacements of any Excluded Propertyreferred to above and such Proceeds shall not constitute “Excluded Property”(unless such Proceeds, substitutions or replacements would constitute ExcludedProperty referred to above).  If an Eventof Default shall have occurred and be continuing, each Grantor shall, ifrequested to do so by the Administrative Agent, use commercially reasonableefforts to obtain any required consent that is reasonably obtainable withrespect to Collateral which the Administrative Agent reasonably determines tobe material.

 

# SECTION 4.   REPRESENTATIONSAND WARRANTIES

#  

To induce the Administrative Agent and theLenders to enter into the Credit Agreement and to induce the Lenders to maketheir respective extensions of credit to the Borrowers thereunder, each Grantorhereby represents and warrants to the Administrative Agent and each Lenderthat:

 

## 4.1.                              Title; No Other Liens.  Except for the security interest granted tothe Administrative Agent for the ratable benefit of the Secured Partiespursuant to this Agreement and the other Liens permitted to exist on theCollateral by the Credit Agreement, such Grantor owns each item of the Collateralfree and clear of any and all Liens.  Noeffective financing statement or other public notice with respect to all or anypart of the Collateral is on file or of record in any public office, exceptsuch as have been filed in favor of the Administrative Agent, for the ratablebenefit of the Secured Parties, pursuant to this Agreement or as are permittedby the Credit Agreement or as to which documentation to terminate the sameshall have been delivered to the Administrative Agent.  For the avoidance of doubt, it is understoodand agreed that any Grantor may, as part of its business, grant licenses tothird parties to use Intellectual Property owned or developed by aGrantor.  For purposes of this Agreementand the other Loan Documents, such licensing activity shall not constitute a “Lien”on such Intellectual Property.  Each ofthe Administrative Agent and each Lender understands that any such licenses maybe exclusive to the applicable licensees, and such exclusivity provisions maylimit the ability of the Administrative Agent to utilize, sell, lease ortransfer the related Intellectual Property or otherwise realize value from suchIntellectual Property pursuant hereto.

 

10

----

 

## 4.2.                              Perfected First Priority Liens.  The Perfection Certificate has been dulyprepared, completed and executed and the information set forth therein,including the exact legal name of each Grantor, is correct and complete in allmaterial aspects as of the Closing Date. The security interests granted pursuant to this Agreement (i) uponcompletion of the filings and other actions specified on Schedule 3(which, in the case of all filings and other documents referred to on saidSchedule, have been delivered to the Administrative Agent in completed and,where required, duly executed form) (x) will constitute valid perfectedsecurity interests in all of the Collateral (other than Intellectual Property)in favor of the Administrative Agent, for the ratable benefit of the SecuredParties, as collateral security for such Grantor’s Obligations, enforceable inaccordance with the terms hereof against all creditors of such Grantor and anyPersons purporting to purchase any Collateral from such Grantor, to the extenta security interest therein may be perfected by filing, recording orregistration in the United States pursuant to the New York UCC, and (y) willconstitute valid perfected security interests in all of the Collateralconsisting of Intellectual Property in favor of the Administrative Agent, forthe ratable benefit of the Secured Parties, as collateral security for suchGrantor’s Obligations, enforceable in accordance with the terms hereof againstall creditors of such Grantor and any Persons purporting to purchase anyCollateral from such Grantor, to the extent a security interest therein may beperfected by filings to be made in the United States Patent and TrademarkOffice and the United States Copyright Office, and (ii) are prior to allother Liens on the Collateral in existence on the date hereof except for Lienspermitted by the Credit Agreement which have priority over the Liens on theCollateral by operation of law (including the priority rules under the NewYork UCC) or which, in the case of Collateral consisting of Pledged Equity andPledged Debt, are nonconsensual Liens permitted pursuant to Section 7.01of the Credit Agreement to be prior to the security interests granted pursuantto this Agreement or which, in the case of Collateral other than Pledged Equityand Pledged Debt, are permitted pursuant to Section 7.01 of the CreditAgreement to be prior to the security interests granted pursuant to thisAgreement.

##  

## 4.3.                              Jurisdiction of Organization.  On the date hereof, such Grantor’sjurisdiction of organization and identification number from the jurisdiction oforganization (if any) are specified on Schedule 4.  Such Grantor has furnished to theAdministrative Agent a certified charter, certificate of incorporation or otherorganization document and long-form good standing certificate as of a datewhich is recent to the date hereof.

##  

## 4.4.                              Inventory and Equipment.  On the date hereof, the Inventory and theEquipment of each Grantor are kept at the locations listed on Schedule 5.  The provisions of this Section 4.4 shallnot apply to Equipment or Inventory in transit, that has been sold (includingsales on consignment or approval in the ordinary course of business), that isout for repair, that is at other locations for purposes of onsite maintenanceor repair or to Equipment and Inventory at locations with less than $5,000,000in aggregate value.

##  

## 4.5.                              Farm Products.  None of the Collateral constitutes, or is theProceeds of, Farm Products.

##  

## 4.6.                              Investment Property.  (a)  On the date hereof, the shares ofPledged Equity pledged by such Grantor hereunder constitute all the issued andoutstanding shares of all classes of the Equity Interests of each RestrictedSubsidiary owned by such Grantor or, in the case of Restricted Subsidiariesthat are Foreign Subsidiaries or Domestic Subsidiaries substantially all of

 

11

----

 

## whose assets consistof voting Equity Interests of one or more Foreign Subsidiaries, the shares ofsuch Issuers pledged by such Grantor constitute 65% of the outstanding ForeignSubsidiary Voting Stock of each such Issuer (or, if such Grantor owns less than65% of the outstanding Foreign Subsidiary Voting Stock of any such Issuer,constitute all the Foreign Subsidiary Voting Stock of such Issuer owned by suchGrantor) in each case to the extent required by clause (d) of theCollateral and Guarantee Requirement.

##  

### (b)         All the shares of the Pledged Equity as to which the Companyor a Restricted Subsidiary of the Company is the Issuer have been duly andvalidly issued and are fully paid and nonassessable.

###  

### (c)          To the best of such Grantor’s knowledge, each of the PledgedDebt constitutes the legal, valid and binding obligation of the obligor withrespect thereto, enforceable in accordance with its terms, subject to theeffects of bankruptcy, insolvency, fraudulent conveyance, reorganization,moratorium and other similar laws relating to or affecting creditors’ rightsgenerally, general equitable principles (whether considered in a proceeding inequity or at law) and an implied covenant of good faith and fair dealing.

###  

### (d)         Such Grantor is the beneficial owner of, and has good andmarketable title to, the Investment Property pledged by it hereunder, free ofany and all Liens or options in favor of any other Person, except the securityinterest created by this Agreement or nonconsensual Liens permitted pursuant toSection 7.01 of the Credit Agreement.

###  

## 4.7.                              Receivables.  (a)  No amount payable to such Grantorunder or in connection with any Receivable of an amount greater than $5,000,000is evidenced by any Instrument or Chattel Paper which has not been delivered tothe Administrative Agent.

##  

### (b)         As of the Effective Date, theaggregate amount of Receivables required to be included in Collateral owed byGovernmental Authorities to the Grantors does not exceed $5,000,000.

###  

## 4.8.                              Intellectual Property.  Schedule 6 lists all IntellectualProperty (other than Copyright Licenses and Trademark Licenses) that isregistered in the United States or for which application for registration inthe United States has been filed and that is material to the operation of thebusiness of the Company and its Subsidiaries taken as a whole owned by suchGrantor in its own name on the date hereof.

##  

## 4.9.                              Commercial Tort Claims.  On the date hereof, except to the extentlisted in Section 3 above, no Grantor has knowledge of rights in anyCommercial Tort Claim as to which it reasonably expects to recover more than$5,000,000.

##  

# SECTION 5.   COVENANTS

#  

Each Grantor covenants and agrees with theAdministrative Agent and the Lenders that, from and after the date of thisAgreement until the Obligations (other than contingent indemnification andcontingent expense reimbursement obligations, any Obligations

 

12

----

 

in respect of Secured Hedge Agreements andCash Management Obligations) shall have been paid in full, no Letter of Creditshall be outstanding and the Commitments shall have terminated:

 

## 5.1.                              Delivery of Instruments,Certificated Securities and Chattel Paper.  (a)  If (i) anyamount in excess of $5,000,000 owed by any Subsidiary of the Company to anyGrantor or (ii) any other amount in excess of $5,000,000 payable under orin connection with any of the Collateral shall be or become evidenced by anyInstrument, Certificated Security or Chattel Paper, such Instrument,Certificated Security or Chattel Paper shall be delivered as soon as reasonablypracticable to the Administrative Agent, duly indorsed in a manner reasonablysatisfactory to the Administrative Agent, to be held as Collateral pursuant tothis Agreement.

##  

### (b)         Any Guarantee required to be subordinated pursuant to Section 7.03(c)(C) ofthe Credit Agreement and any Indebtedness required to be subordinated pursuantto Section 7.03(d) of the Credit Agreement shall, in each case, befully subordinated to the payment in full of the Obligations.

###  

## 5.2.                              Maintenance of Insurance.  (a)  Such Grantor will maintain theinsurance required by Section 6.07 of the Credit Agreement.

##  

### (b)         All such insurance shall (i) provide that nocancellation, material reduction in amount or material change in coveragethereof shall be effective until at least 30 days or, in the case of insuranceexisting as of the date hereof, at least 10 days after receipt by theAdministrative Agent of written notice thereof and (ii) name theAdministrative Agent as insured party or loss payee.

###  

## 5.3.                              Maintenance of PerfectedSecurity Interest; Further Documentation.  (a)  SuchGrantor shall take all actions reasonably requested by the Administrative Agentto maintain the security interest created by this Agreement as a securityinterest having at least the perfection and priority described in Section 4.2and shall take all commercially reasonable actions to defend such securityinterest against the claims and demands of all Persons whomsoever, subject ineach case to, in the case of Collateral consisting of Pledged Equity andPledged Debt, nonconsensual Liens permitted by Section 7.01 of the CreditAgreement and, in the case of Collateral other than Pledged Equity and PledgedDebt, Liens permitted by the Credit Agreement and to the rights of such Grantorunder the Loan Documents to dispose of the Collateral.

##  

### (b)         Such Grantor will furnish to the Administrative Agent fromtime to time statements and schedules further identifying and describing theassets and property of such Grantor and such other reports in connectiontherewith as the Administrative Agent may reasonably request, all in reasonabledetail.  Each year, at the time ofdelivery of annual financial statements with respect to the preceding fiscalyear pursuant to Section 6.01(a) of the Credit Agreement, the Companyshall deliver to the Administrative Agent a certificate executed by theassociate general counsel or the chief legal officer of the Company settingforth the information required pursuant to the Perfection Certificate orconfirming that there has been no change in such information since the date ofsuch certificate or the date of the most recent certificate delivered pursuantto this Section 5.3(b).

 

13

----

 

### (c)          At any time and from time to time, upon the written requestof the Administrative Agent, and at the sole expense of such Grantor, suchGrantor will promptly and duly execute and deliver, and have recorded, suchfurther instruments and documents and take such further actions as theAdministrative Agent may reasonably request for the purpose of obtaining orpreserving the full benefits of this Agreement and of the rights and powers hereingranted, including, without limitation, (i) filing any financing orcontinuation statements under the Uniform Commercial Code (or other similarlaws) in effect in any jurisdiction with respect to the security interestscreated hereby and (ii) in the case of Investment Property not issued bythe Company or its Subsidiaries, Deposit Accounts, Letter of Credit Rights andany other relevant Collateral, using commercially reasonable efforts to take,at any time after the occurrence and during the continuation of an Event ofDefault, any actions necessary to enable the Administrative Agent to obtain “control”(within the meaning of the applicable Uniform Commercial Code) with respectthereto.

###  

## 5.4.                              Changes in Locations, Name, etc. Such Grantor will not, except upon 10 days’ prior written notice to theAdministrative Agent (or such shorter notice as shall be reasonablysatisfactory to the Administrative Agent) and delivery to the AdministrativeAgent of all additional executed financing statements and other documentsreasonably requested by the Administrative Agent to maintain the validity,perfection and priority of the security interests provided for herein, (i) changeits jurisdiction of organization from that referred to in Section 4.3 or (ii) changeits name.

##  

## 5.5.                              Notices.  Such Grantor will advise the AdministrativeAgent promptly, in reasonable detail, of:

##  

#### (a)          any Lien (other than security interestscreated hereby or Liens permitted under the Credit Agreement) on any of theCollateral which would adversely affect the ability of the Administrative Agentto exercise any of its remedies hereunder; and

####  

#### (b)         the occurrence of any other event which couldreasonably be expected to have a material adverse effect on the aggregate valueof the Collateral or on the security interests created hereby.

####  

## 5.6.                              Investment Property.  (a)  If such Grantor shall becomeentitled to receive or shall receive any certificate (including, withoutlimitation, any certificate representing a dividend or a distribution inconnection with any reclassification, increase or reduction of capital or anycertificate issued in connection with any reorganization), option or rights inrespect of the Equity Interests of any Restricted Subsidiary, which EquityInterests are required to have been pledged pursuant to clause (d) of theCollateral and Guarantee Requirement, whether in addition to, in substitutionof, as a conversion of, or in exchange for, any shares of the Pledged Equity,or otherwise in respect thereof, such Grantor shall accept the same as theagent of the Administrative Agent and the Lenders, hold the same in trust forthe Administrative Agent and the Lenders and deliver the same forthwith to theAdministrative Agent in the exact form received, duly indorsed by such Grantorto the Administrative Agent, if required, together with an undated stock powercovering such certificate duly executed in blank by such Grantor, to be held bythe Administrative Agent, subject to the terms hereof, as additional collateralsecurity for the Obligations (provided that stock certificates representing thePledged Equity of any Foreign

 

14

----

 

## ImmaterialSubsidiary need not be delivered to the Administrative Agent for so long assuch Foreign Immaterial Subsidiary remains a Foreign ImmaterialSubsidiary).  If an Event of Defaultshall have occurred and be continuing, and any distribution of capital to aGrantor (other than cash) required to be included in Collateral shall be madeon or in respect of the Investment Property or any property (other than cash)required to be included in Collateral shall be distributed to a Grantor upon orwith respect to the Investment Property pursuant to the recapitalization orreclassification of the capital of any Issuer or pursuant to the reorganizationthereof, such Grantor shall, unless such distribution of capital or property isotherwise subject to a perfected security interest in favor of theAdministrative Agent, use commercially reasonable efforts to cause it to be subjectto a perfected security interest in favor of the Administrative Agent to theextent and in the manner required pursuant to Section 5.3 hereof.  If any such property so distributed inrespect of the Investment Property shall be received by such Grantor, suchGrantor shall, until such property is delivered to the Administrative Agent,hold such property in trust for the Administrative Agent and the Lenders asadditional collateral security for the Obligations.

##  

### (b)         Without the prior written consent of the AdministrativeAgent, such consent not to be unreasonably withheld, such Grantor will not (i) sell,assign, transfer, exchange, or otherwise dispose of, or grant any option withrespect to, the Investment Property or Proceeds thereof (except pursuant to atransaction expressly permitted by the Credit Agreement), (ii) create,incur or permit to exist any Lien or option in favor of, or any claim of anyPerson with respect to, any of the Investment Property or Proceeds thereof, orany interest therein, except for the security interests created by thisAgreement or permitted under Section 7.01 of the Credit Agreement or (iii) exceptas permitted by the Credit Agreement, enter, subsequent to the date upon whichsuch Investment Property becomes Collateral hereunder, into any agreement(other than the Credit Agreement) or undertaking restricting the right orability of such Grantor or the Administrative Agent to sell, assign or transferany of the Investment Property required to be included in Collateral or Proceedsthereof.

###  

### (c)          In the case of each Grantor which is an Issuer, such Issueragrees that (i) it will be bound by the terms of this Agreement relatingto the Investment Property required to be included in Collateral issued by itand will comply with such terms insofar as such terms are applicable to it, (ii) itwill notify the Administrative Agent promptly in writing of the occurrence ofany of the events described in Section 5.6(a) with respect to suchInvestment Property issued by it and (iii) the terms of Sections 6.3(c) and6.7 shall apply to it, mutatis mutandis, with respect to all actionsthat may be required of it pursuant to Section 6.3(c) and 6.7 withrespect to such Investment Property issued by it.

###  

### (d)         No Grantor shall permit any security interest incertificated Pledged Equity of any Issuer that is not a Subsidiary to beperfected by possession in favor of a Person other than the AdministrativeAgent.

###  

### (e)          The Company shall not permit any security interest incertificated Pledged Equity of 1302791 Alberta ULC (or any ULC parent entitythereof that is a Foreign Subsidiary the Equity Interests of which are directlyowned by the Company or a U.S. Guarantor) to be perfected by possession infavor of a Person other than the Administrative Agent (and shall so

 

15

----

 

### perfect bypossession in favor of the Administrative Agent on behalf of the SecuredParties upon the reasonable request of the Administrative Agent).

###  

## 5.7.                              Receivables.  (a)  Other than in the ordinary courseof business, such Grantor will not (i) grant any extension of the time ofpayment of any Receivable required to be included in Collateral, (ii) compromiseor settle any Receivable required to be included in Collateral for less thanthe full amount thereof, (iii) release, wholly or partially, any Personliable for the payment of any Receivable required to be included in Collateral,(iv) allow any credit or discount whatsoever on any Receivable required tobe included in Collateral or (v) amend, supplement or modify anyReceivable required to be included in Collateral in any manner that couldadversely affect the value thereof.

##  

### (b)         Such Grantor will deliver to the Administrative Agent a copyof each material demand, notice or document received by it that questions orcalls into doubt the validity or enforceability of more than 20% of theaggregate amount of the then-outstanding Receivables.

###  

### (c)          If such Grantor shall enter into any contract or othertransaction with an Applicable Governmental Authority (as defined below) whichwill result in an Applicable Governmental Authority becoming an obligor on anyReceivable required to be included in Collateral of an amount greater than$5,000,000, such Grantor shall (i) promptly thereafter notify the AdministrativeAgent thereof, (ii) provide to the Administrative Agent all such documentsand instruments, and take all such actions, as shall be reasonably requested bythe Administrative Agent to enable the Administrative Agent to comply with therequirements of the Federal Assignment of Claims Act or any other applicableLaw to perfect its security interest in such Receivables and obtain thebenefits of such Act or Law with respect thereto and (iii) otherwisecomply with its obligations under Section 5.3(c) with respectthereto.  As used in this paragraph, theterm “Applicable Governmental Authority” shall mean any GovernmentalAuthority the  Law applicable to whichprovide that, for a creditor of a Person to which such Governmental Authorityhas an obligation to pay money, whether pursuant to a Receivable, a GeneralIntangible or otherwise, to perfect such creditor’s Lien on such obligationand/or to obtain the full benefits of such Lien and such Law, certain notice,filing, recording or other similar actions other than the filing of a financingstatement under the Uniform Commercial Code must be given, executed, filed,recorded, delivered or completed, including, without limitation, any FederalGovernmental Authority to which the Federal Assignment of Claims Act of 1940 isapplicable.

###  

## 5.8.                              Intellectual Property.  (a)  Such Grantor (either itself orthrough licensees) will (i) continue to use each Trademark that ismaterial to the operation of the business of the Company and its Subsidiariestaken as a whole on each and every trademark class of goods applicable to itscurrent line as reflected in its current catalogs, brochures and price lists inorder to maintain such Trademark in full force free from any claim ofabandonment for non-use, (ii) maintain as in the past the quality ofproducts and services offered under such Trademark, (iii) use suchTrademark with the appropriate notice of registration and all other notices andlegends required by applicable Law, (iv) not adopt or use any mark whichis confusingly similar or a colorable imitation of such Trademark unless theAdministrative Agent, for the ratable benefit of the Secured Parties, shallobtain a perfected security interest in such mark pursuant to this Agreementand (v) not (and not permit any licensee or sublicensee thereof to) do anyact or

 

16

----

 

## knowingly omit to doany act whereby such Trademark may become invalidated or impaired in anymaterial respect.

##  

### (b)         Such Grantor (either itself or through licensees) will notdo any act, or omit to do any act, whereby any Patent that is material to theoperation of the business of the Company and its Subsidiaries taken as a wholemay become forfeited, abandoned or dedicated to the public.

###  

### (c)          Such Grantor (either itself or through licensees) (i) willemploy each Copyright that is material to the operation of the business of theCompany and its Subsidiaries taken as a whole and (ii) will not (and willnot permit any licensee or sublicensee thereof to) do any act or knowingly omitto do any act whereby any portion of the Copyrights that is material to theoperation of the business of the Company and its Subsidiaries taken as a wholemay become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees) do any actwhereby any portion of the Copyrights that is material to the operation of thebusiness of the Company and its Subsidiaries taken as a whole may fall into thepublic domain.

###  

### (d)         Such Grantor (either itself or through licensees) will notdo any act that knowingly uses any Intellectual Property that is material tothe operation of the business of the Company and its Subsidiaries taken as awhole to infringe the intellectual property rights of any other Person.

###  

### (e)          Such Grantor will notify the Administrative Agentimmediately if it knows, or has reason to know, that any application orregistration relating to any Intellectual Property that is material to theoperation of the business of the Company and its Subsidiaries taken as a wholemay become forfeited, abandoned or dedicated to the public, or of any adversedetermination or development (including, without limitation, the institutionof, or any such determination or development in, any proceeding in the UnitedStates Patent and Trademark Office, the United States Copyright Office or anycourt or tribunal in any country) regarding such Grantor’s ownership of, or thevalidity of, any such Intellectual Property or such Grantor’s right to registerthe same or to own and maintain the same.

###  

### (f)            In the event such Grantor,either by itself or through any agent, employee, licensee or designee, shall inany fiscal year file an application for the registration of any IntellectualProperty that is material to the operation of the Company and its Subsidiariestaken as a whole with the United States Patent and Trademark Office, the UnitedStates Copyright Office or any similar office or agency in any other country orany political subdivision thereof, such Grantor shall report such filing to theAdministrative Agent at the time of delivery of annual financial statementswith respect to such fiscal year pursuant to Section 6.01(a) of theCredit Agreement.  Upon reasonablerequest of the Administrative Agent, such Grantor shall execute and deliver,and have recorded, any and all agreements, instruments, documents, and papersas the Administrative Agent may reasonably request to evidence theAdministrative Agent’s and the Lenders’ security interest in any suchCopyright, Patent or Trademark and the goodwill and general intangibles of suchGrantor relating thereto or represented thereby.

###  

### (g)         Such Grantor will take all reasonable and necessary steps,including, without limitation, in any proceeding before the United StatesPatent and Trademark Office, the United

 

17

----

 

### States CopyrightOffice or any similar office or agency in any other country or any politicalsubdivision thereof, to maintain and pursue each application (and to obtain therelevant registration) and to maintain each registration of the IntellectualProperty that is material to the operation of the business of the Company andits Subsidiaries taken as a whole, including, without limitation, filing ofapplications for renewal, affidavits of use and affidavits of incontestability.

###  

### (h)         In the event that any Intellectual Property that is materialto the operation of the business of the Company and its Subsidiaries taken as awhole is infringed, misappropriated or diluted by a third party, such Grantorshall (i) take such actions as such Grantor shall reasonably deemappropriate under the circumstances to protect such Intellectual Property and (ii) ifsuch Intellectual Property is of material economic value, promptly notify theAdministrative Agent after it learns thereof and sue for infringement,misappropriation or dilution, to seek injunctive relief where appropriate andto recover any and all damages for such infringement, misappropriation ordilution.

###  

### (i)             Notwithstanding anything to thecontrary in this Agreement, subject to the provisions of the Credit Agreement,nothing shall prevent any Grantor in the ordinary course of business fromabandoning, ceasing to use or otherwise impairing or disposing of anyIntellectual Property if such Grantor reasonably believes that doing so is inits business interests.  For theavoidance of doubt, nothing in this Section 5.8 shall prohibit a sale,transfer or disposition of any Intellectual Property made in accordance withSections 7.04 or 7.05 of the Credit Agreement.

###  

### (j)             No Grantor shall, and theGrantors in the aggregate shall not, make filings in the United StatesCopyright Office or the United States Trademark Office to perfect any securityinterest in all or substantially all of the Copyright Licenses held by theGrantors in the aggregate or all or substantially all of the Trademark Licensesheld by the Grantors in the aggregate (other than to perfect the securityinterest in such Copyright Licenses and Trademark Licenses securing theObligations).

###  

### (k)          Upon and during the continuance of an Event of Default, eachGrantor shall use all commercially reasonable efforts to obtain all requisiteconsents or approvals under each Copyright License, Patent License andTrademark License reasonably requested by the Administrative Agent to effectthe assignment of all such Grantor’s right, title and interest thereunder tothe Administrative Agent or its designee.

###  

## 5.9.                              Commercial Tort Claims.  If such Grantor shall obtain an interest inany Commercial Tort Claim as to which it determines that it reasonably expectsto recover more than $5,000,000, such Grantor shall within 30 days of makingsuch determination (or such other period reasonably satisfactory to theAdministrative Agent) sign and deliver documentation reasonably acceptable tothe Administrative Agent granting a security interest under the terms andprovisions of this Agreement in and to such Commercial Tort Claim.

##  

# SECTION 6.   REMEDIALPROVISIONS

#  

## 6.1.                              Certain Matters Relating toReceivables.  (a)  The Administrative Agent shall havethe right annually (or, if an Event of Default has occurred and is continuing,at any

 

18

----

 

## time) to make testverifications of the Receivables required to be included in Collateral in anymanner and through any medium that it reasonably considers advisable, and eachGrantor shall furnish all such assistance and information as the AdministrativeAgent may require in connection with such test verifications.  Annually (or, if an Event of Default hasoccurred and is continuing, at any time), upon the Administrative Agent’sreasonable request and at the expense of the relevant Grantor, such Grantorshall use commercially reasonable efforts to cause independent publicaccountants or others satisfactory to the Administrative Agent to furnish tothe Administrative Agent reports showing reconciliations, aging and testverifications of, and trial balances for, such Receivables.

##  

### (b)         The Administrative Agent hereby authorizes each Grantor to collectsuch Grantor’s Receivables required to be included in Collateral and theAdministrative Agent may curtail or terminate said authority at any time afterthe occurrence and during the continuance of an Event of Default.  If required by the Administrative Agent atany time after the occurrence and during the continuance of an Event ofDefault, any payments of such Receivables, when collected by any Grantor, (i) shallbe forthwith (and, in any event, within two Business Days) deposited by suchGrantor in the exact form received, duly indorsed by such Grantor to theAdministrative Agent if required, in a Collateral Account maintained under thesole dominion and control of the Administrative Agent, subject to withdrawal bythe Administrative Agent for the account of the Lenders only as provided in Section 6.5,and (ii) until so turned over, shall be held by such Grantor in trust forthe Administrative Agent and the Lenders, segregated from other funds of suchGrantor.  Each such deposit of Proceedsof Receivables required to be included in Collateral shall be accompanied by areport identifying in reasonable detail the nature and source of the paymentsincluded in the deposit.

###  

### (c)          If an Event of Default has occurred and is continuing, atthe Administrative Agent’s request, each Grantor shall deliver to theAdministrative Agent all original and other documents evidencing, and relatingto, the agreements and transactions which gave rise to the Receivables requiredto be included in Collateral, including, without limitation, all originalorders, invoices and shipping receipts.

###  

## 6.2.                              Communications with Obligors;Grantors Remain Liable.  (a)  The Administrative Agent in its ownname or in the name of others may at any time when an Event of Default hasoccurred and is continuing, communicate with obligors under the Receivablesrequired to be included in Collateral to verify with them to the AdministrativeAgent’s satisfaction the existence, amount and terms of any such Receivables.

##  

### (b)         Upon the request of the Administrative Agent at any timeafter the occurrence and during the continuance of an Event of Default, eachGrantor shall notify obligors on the Receivables required to be included inCollateral that such Receivables have been assigned to the Administrative Agentfor the ratable benefit of the Secured Parties and that payments in respectthereof shall be made directly to the Administrative Agent.

###  

### (c)          Anything herein to the contrary notwithstanding, eachGrantor shall remain liable under each of the Receivables required to beincluded in Collateral to observe and perform all the conditions andobligations to be observed and performed by it thereunder, all in accordancewith the terms of any agreement giving rise thereto.  Neither the Administrative

 

19

----

 

### Agent nor any Lendershall have any obligation or liability under any such Receivable (or anyagreement giving rise thereto) by reason of or arising out of this Agreement orthe receipt by the Administrative Agent or any Lender of any payment relatingthereto, nor shall the Administrative Agent or any Lender be obligated in anymanner to perform any of the obligations of any Grantor under or pursuant toany such Receivable (or any agreement giving rise thereto), to make anypayment, to make any inquiry as to the nature or the sufficiency of any paymentreceived by it or as to the sufficiency of any performance by any partythereunder, to present or file any claim, to take any action to enforce anyperformance or to collect the payment of any amounts which may have beenassigned to it or to which it may be entitled at any time or times.

###  

## 6.3.                              Pledged Equity.  (a)  Unless an Event of Default shallhave occurred and be continuing and the Administrative Agent shall have givennotice to the relevant Grantor of the Administrative Agent’s intent to exerciseits corresponding rights pursuant to Section 6.3(b), each Grantor shall bepermitted to receive all dividends (other than dividends payable in EquityInterests) paid in respect of the Pledged Equity and all payments made inrespect of the Pledged Debt, in each case to the extent permitted in the CreditAgreement, and to exercise all voting and corporate or other organizationalrights with respect to the Investment Property; provided, however,that such Grantor will not be entitled to exercise any such right if the resultthereof could materially and adversely affect the rights inuring to a holder ofthe Investment Property or the rights and remedies of the Administrative Agentor the Lenders under any Loan Document or the ability of the AdministrativeAgent or the Lenders to exercise the same.

##  

### (b)         If an Event of Default shall occur and be continuing and theAdministrative Agent shall give notice of its intent to exercise such rights tothe relevant Grantor or Grantors, (i) the Administrative Agent shall havethe right to receive any and all cash dividends, payments (including sums paidupon the liquidation or dissolution of any Issuer or in connection with anydistribution of capital) or other Proceeds paid in respect of the InvestmentProperty and make application thereof to the Obligations in accordance with theprovisions of the Credit Agreement and (ii) any or all of the InvestmentProperty shall be registered in the name of the Administrative Agent or itsnominee, and the Administrative Agent or its nominee may thereafter exercise (x) allvoting, corporate and other rights pertaining to such Investment Property atany meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) anyand all rights of conversion, exchange and subscription and any other rights,privileges or options pertaining to such Investment Property as if it were theabsolute owner thereof (including, without limitation, the right to exchange atits discretion any and all of the Investment Property upon the merger,consolidation, reorganization, recapitalization or other fundamental change inthe corporate or other organizational structure of any Issuer, or upon theexercise by any Grantor or the Administrative Agent of any right, privilege oroption pertaining to such Investment Property, and in connection therewith, theright to deposit and deliver any and all of the Investment Property with anycommittee, depositary, transfer agent, registrar or other designated agencyupon such terms and conditions as the Administrative Agent may determine), allwithout liability except to account for property actually received by it, butthe Administrative Agent shall have no duty to any Grantor to exercise any suchright, privilege or option and shall not be responsible for any failure to doso or delay in so doing.  If any sums ofmoney paid or distributed in respect of Investment Property, which theAdministrative Agent shall be entitled to receive pursuant to clause (i) above,shall be received by a Grantor, such Grantor shall, until such

 

20

----

 

### money is paid to theAdministrative Agent, hold such money in trust for the Administrative Agent andthe Lenders as additional collateral for the Obligations.

###  

### (c)          Each Grantor hereby authorizes and instructs each Issuer ofany Investment Property pledged by such Grantor hereunder to (i) complywith any instruction received by it from the Administrative Agent in writingthat (x) states that an Event of Default has occurred and is continuingand (y) is otherwise in accordance with the terms of this Agreement,without any other or further instructions from such Grantor, and each Grantoragrees that each Issuer shall be fully protected in so complying, and (ii) unlessotherwise expressly permitted hereby, pay any dividends or other payments withrespect to the Investment Property directly to the Administrative Agent.

###  

## 6.4.                              Proceeds to be Turned Over toAdministrative Agent.  If an Event of Default occurs and iscontinuing and the Administrative Agent so requests, all Proceeds received byany Grantor consisting of cash, checks and other near-cash items shall be heldby such Grantor in trust for the Administrative Agent and the Lenders,segregated from other funds of such Grantor, and shall, forthwith upon receiptby such Grantor, be turned over to the Administrative Agent in the exact formreceived by such Grantor (duly indorsed by such Grantor to the AdministrativeAgent, if required).  All Proceedsreceived by the Administrative Agent hereunder shall be held by theAdministrative Agent in a Collateral Account maintained under its sole dominionand control.  All Proceeds while held bythe Administrative Agent in a Collateral Account (or by such Grantor in trustfor the Administrative Agent and the Lenders) shall continue to be held ascollateral security for all the Obligations and shall not constitute paymentthereof until applied as provided in Section 6.5.

##  

## 6.5.                              Application of Proceeds.  At such intervals as may be agreed upon bythe Company and the Administrative Agent, or, if an Event of Default hasoccurred and is continuing, at any time at the Administrative Agent’s election,the Administrative Agent shall apply all or any part of Proceeds required to beincluded in Collateral, whether or not held in any Collateral Account, and anyproceeds of the guarantee set forth in Section 2, in payment of theObligations in accordance with Section 8.04 of the Credit Agreement, andany part of such funds which the Administrative Agent elects not so to applyand deems not required as collateral security for the Obligations shall be paidover from time to time by the Administrative Agent to the Company or towhosoever may be lawfully entitled to receive the same.  Any balance of such Proceeds remaining afterthe Obligations shall have been paid in full, no Letters of Credit shall beoutstanding and the Commitments shall have terminated shall be paid over to theCompany or to whomsoever may be lawfully entitled to receive the same.

##  

## 6.6.                              Code and Other Remedies.  If an Event of Default occurs and iscontinuing, the Administrative Agent, on behalf of the Lenders, may exercise,in addition to all other rights and remedies granted to them in this Agreementand in any other instrument or agreement securing, evidencing or relating tothe Obligations, all rights and remedies of a secured party under the New YorkUCC or any other applicable law.  Withoutlimiting the generality of the foregoing, if an Event of Default occurs and iscontinuing, the Administrative Agent, without demand of performance or otherdemand, presentment, protest, advertisement or notice of any kind (except anynotice required by law referred to below) to or upon any Grantor or any otherPerson (all and each of which demands, defenses, advertisements and notices are

 

21

----

 

## hereby waived), mayin such circumstances forthwith collect, receive, appropriate and realize uponthe Collateral, or any part thereof, and/or may forthwith sell, lease, assign,give option or options to purchase, or otherwise dispose of and deliver theCollateral or any part thereof (or contract to do any of the foregoing), in oneor more parcels at public or private sale or sales, at any exchange, broker’sboard or office of the Administrative Agent or any Lender or elsewhere uponsuch terms and conditions as it may deem advisable and at such prices as it maydeem best, for cash or on credit or for future delivery without assumption ofany credit risk.  The AdministrativeAgent or any Lender shall have the right upon any such public sale or sales,and, to the extent permitted by law, upon any such private sale or sales, topurchase the whole or any part of the Collateral so sold, free of any right orequity of redemption in any Grantor, which right or equity is hereby waived andreleased.  Each Grantor further agrees,at the Administrative Agent’s request following and during the continuance ofan Event of Default, to assemble the Collateral and make it available to theAdministrative Agent at places which the Administrative Agent shall reasonablyselect, whether at such Grantor’s premises or elsewhere.  The Administrative Agent shall apply the netproceeds of any action taken by it pursuant to this Section 6.6, afterdeducting all reasonable out-of-pocket costs and expenses of every kindincurred in connection therewith or incidental to the care or safekeeping ofany of the Collateral or in any way relating to the Collateral or the rights ofthe Administrative Agent and the Lenders hereunder, including, withoutlimitation, reasonable attorneys’ fees and disbursements, to the payment inwhole or in part of the Obligations, in such order as the Administrative Agent mayelect, and only after such application and after the payment by theAdministrative Agent of any other amount required by any provision of law,including, without limitation, Section 9-615(a)(3) of the New YorkUCC, need the Administrative Agent account for the surplus, if any, to anyGrantor.  To the extent permitted byapplicable law, each Grantor waives all claims, damages and demands it mayacquire against the Administrative Agent or any Lender arising out of theexercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateralshall be required by law, such notice shall be deemed reasonable and proper ifgiven at least 10 days before such sale or other disposition.

##  

## 6.7.                              Registration Rights.  (a)  If the Administrative Agent shalldetermine to exercise its rights to sell all or any of the Pledged Equitypursuant to Section 6.6, and if, in the opinion of the AdministrativeAgent, it is necessary or advisable to have the Pledged Equity, or that portionthereof to be sold, registered under the provisions of the Securities Act, therelevant Grantor will cause the Issuer thereof to (i) execute and deliver,and cause the directors and officers of such Issuer to execute and deliver, allsuch instruments and documents, and do or cause to be done all such other actsas may be, in the opinion of the Administrative Agent, necessary or advisableto register the Pledged Equity, or that portion thereof to be sold, under theprovisions of the Securities Act, (ii) use its best efforts to cause theregistration statement relating thereto to become effective and to remaineffective for a period of one year from the date of the first public offeringof the Pledged Equity, or that portion thereof to be sold, and (iii) makeall amendments thereto and/or to the related prospectus which, in the opinionof the Administrative Agent, are necessary or advisable, all in conformity withthe requirements of the Securities Act and the rules and regulations ofthe Securities and Exchange Commission applicable thereto.  Each Grantor agrees to cause such Issuer tocomply with the provisions of the securities or “Blue Sky” laws of any and alljurisdictions which the Administrative Agent shall designate and to makeavailable to its security holders, as soon as practicable, an earningsstatement (which need not be audited) which will satisfy the provisions of Section 11(a) ofthe Securities Act.

 

22

----

 

### (b)         Each Grantor recognizes that the Administrative Agent may beunable to effect a public sale of any or all the Pledged Equity, by reason ofcertain prohibitions contained in the Securities Act and applicable statesecurities laws or otherwise, and may be compelled to resort to one or moreprivate sales thereof to a restricted group of purchasers which will be obligedto agree, among other things, to acquire such securities for their own accountfor investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges and agrees that anysuch private sale may result in prices and other terms less favorable than ifsuch sale were a public sale and, notwithstanding such circumstances, agreesthat any such private sale shall be deemed to have been made in a commerciallyreasonable manner.  The AdministrativeAgent shall be under no obligation to delay a sale of any of the Pledged Equityfor the period of time necessary to permit the Issuer thereof to register suchsecurities for public sale under the Securities Act, or under applicable statesecurities laws, even if such Issuer would agree to do so.

###  

### (c)          Each Grantor agrees to use its best efforts to do or causeto be done all such other acts as may be necessary to make such sale or salesof all or any portion of the Pledged Equity pursuant to this Section 6.7valid and binding and in compliance with any and all other applicable Law.  Each Grantor further agrees that a breach ofany of the covenants contained in this Section 6.7 will cause irreparableinjury to the Administrative Agent and the Lenders, that the AdministrativeAgent and the Lenders have no adequate remedy at law in respect of such breachand, as a consequence, that each and every covenant contained in this Section 6.7shall be specifically enforceable against such Grantor, and such Grantor herebywaives, to the fullest extent permitted by applicable law, and agrees not toassert any defenses against an action for specific performance of suchcovenants except for a defense that no Event of Default has occurred and iscontinuing under the Credit Agreement.

###  

## 6.8.                              Deficiency.  Each Grantor shall remain liable for anydeficiency if the proceeds of any sale or other disposition of the Collateralare insufficient to pay its Obligations and the reasonable fees anddisbursements of any attorneys employed by the Administrative Agent or anyLender to collect such deficiency.

##  

# SECTION 7.   THEADMINISTRATIVE AGENT

#  

## 7.1.                              Administrative Agent’sAppointment as Attorney-in-Fact, etc.  (a)  EachGrantor hereby irrevocably constitutes and appoints the Administrative Agentand any officer or agent thereof, with full power of substitution, as its trueand lawful attorney-in-fact with full irrevocable power and authority in theplace and stead of such Grantor and in the name of such Grantor or in its ownname, for the purpose of carrying out the terms of this Agreement, to take anyand all appropriate action and to execute any and all documents and instrumentswhich may be necessary or desirable to accomplish the purposes of thisAgreement, and, without limiting the generality of the foregoing, each Grantorhereby gives the Administrative Agent the power and right, on behalf of suchGrantor, without notice to or assent by such Grantor, to do any or all of thefollowing:

##  

##### (i)                                     in the name ofsuch Grantor or its own name, or otherwise, take possession of and indorse andcollect any checks, drafts, notes, acceptances or other instruments for thepayment of moneys due under any Receivable required to be included

 

23

----

 

##### in Collateral hereunder or with respect to any other Collateral andfile any claim or take any other action or proceeding in any court of law orequity or otherwise deemed appropriate by the Administrative Agent for thepurpose of collecting any and all such moneys due under any such Receivable orwith respect to any other Collateral whenever payable;

#####  

##### (ii)                                  in the case of anyIntellectual Property required to be included in Collateral hereunder, executeand deliver, and have recorded, any and all agreements, instruments, documentsand papers as the Administrative Agent may request to evidence theAdministrative Agent’s and the Lenders’ security interest in such IntellectualProperty and the goodwill and general intangibles of such Grantor relatingthereto or represented thereby;

#####  

##### (iii)                               pay or discharge taxesand Liens levied or placed on or threatened against the Collateral, effect anyrepairs or any insurance called for by the terms of this Agreement and pay allor any part of the premiums therefor and the costs thereof;

#####  

##### (iv)                              execute, in connectionwith any sale provided for in Section 6.6 or 6.7, any indorsements,assignments or other instruments of conveyance or transfer with respect to theCollateral; and

#####  

##### (v)                                 (1) direct anyparty liable for any payment under any of the Collateral to make payment of anyand all moneys due or to become due thereunder directly to the AdministrativeAgent or as the Administrative Agent shall direct; (2) ask or demand for,collect, and receive payment of and receipt for, any and all moneys, claims andother amounts due or to become due at any time in respect of or arising out ofany Collateral; (3) sign and indorse any invoices, freight or expressbills, bills of lading, storage or warehouse receipts, drafts against debtors,assignments, verifications, notices and other documents in connection with anyof the Collateral; (4) commence and prosecute any suits, actions orproceedings at law or in equity in any court of competent jurisdiction tocollect the Collateral or any portion thereof and to enforce any other right inrespect of any Collateral; (5) defend any suit, action or proceedingbrought against such Grantor with respect to any Collateral; (6) settle,compromise or adjust any such suit, action or proceeding and, in connectiontherewith, give such discharges or releases as the Administrative Agent mayreasonably deem appropriate; (7) subject to any licenses (and the rightsgranted therein) existing at the time of such assignment, assign any Copyright,Patent or Trademark (along with the goodwill of the business to which any suchCopyright, Patent or Trademark pertains), throughout the world for such term orterms, on such conditions, and in such manner, as the Administrative Agentshall in its sole discretion determine; and (8) generally, sell, transfer,pledge and make any agreement with respect to or otherwise deal with any of theCollateral as fully and completely as though the Administrative Agent were theabsolute owner thereof for all purposes, and do, at the Administrative Agent’soption and such Grantor’s expense, at any time, or from time to time, all actsand things which the Administrative Agent deems necessary to protect, preserveor realize upon the Collateral and the Administrative Agent’s and the Lenders’security interests therein and to effect the intent of this Agreement, all asfully and effectively as such Grantor might do.

 

24

----

 

Anything in this Section 7.1(a) tothe contrary notwithstanding, the Administrative Agent agrees that it will notexercise any rights under the power of attorney provided for in this Section 7.1(a) unlessan Event of Default shall have occurred and be continuing.

 

### (b)         If any Grantor fails to perform or comply with any of its agreementscontained herein, the Administrative Agent, at its option, but without anyobligation so to do, may perform or comply, or otherwise cause performance orcompliance, with such agreement.

###  

### (c)          The reasonable out-of-pocket expenses of the AdministrativeAgent incurred in connection with actions undertaken as provided in this Section 7.1,together with interest thereon at a rate per annum equal to the highest rateper annum at which interest would then be payable on any category of past dueBase Rate Loans under the Credit Agreement, from the date of payment by theAdministrative Agent to the date reimbursed by the relevant Grantor, shall bepayable by such Grantor to the Administrative Agent on demand.

###  

### (d)         Each Grantor hereby ratifies all that said attorneys shalllawfully do or cause to be done by virtue hereof.  All powers, authorizations and agenciescontained in this Agreement are coupled with an interest and are irrevocableuntil this Agreement is terminated and the security interests created herebyare released.

###  

## 7.2.                              Duty of Administrative Agent.  The Administrative Agent’s sole duty withrespect to the custody, safekeeping and physical preservation of the Collateralin its possession, under Section 9-207 of the New York UCC or otherwise,shall be to deal with it in the same manner as the Administrative Agent dealswith similar property for its own account. Neither the Administrative Agent, any Lender nor any of their respectiveofficers, directors, employees or agents shall be liable for failure to demand,collect or realize upon any of the Collateral or for any delay in doing so orshall be under any obligation to sell or otherwise dispose of any Collateralupon the request of any Grantor or any other Person or to take any other actionwhatsoever with regard to the Collateral or any part thereof.  The powers conferred on the AdministrativeAgent and the Lenders hereunder are solely to protect the Administrative Agent’sand the Lenders’ interests in the Collateral and shall not impose any duty uponthe Administrative Agent or any Lender to exercise any such powers.  The Administrative Agent and the Lendersshall be accountable only for amounts that they actually receive as a result ofthe exercise of such powers, and neither they nor any of their officers,directors, employees or agents shall be responsible to any Grantor for any actor failure to act hereunder, except for their own gross negligence or willfulmisconduct.

##  

## 7.3.                              Execution of FinancingStatements.  Pursuant to any applicable law, each Grantorauthorizes the Administrative Agent to file or record financing statements andother filing or recording documents or instruments with respect to theCollateral without the signature of such Grantor in such form and in suchoffices as the Administrative Agent determines appropriate to perfect thesecurity interests of the Administrative Agent under this Agreement.  Each Grantor authorizes the AdministrativeAgent to use the collateral description “all personal property” or “all assets”in any such financing statements.  EachGrantor hereby ratifies and authorizes the filing by the Administrative Agentof any financing statement with respect to the Collateral made prior to thedate hereof; provided that, at the reasonable request of any Grantor,

 

25

----

 

## the AdministrativeAgent shall amend any such statement (and any other financing statement filedby the Administrative Agent in connection with this Agreement) to exclude anyproperty that is released from, or otherwise not included in, theCollateral.  The Administrative Agentagrees promptly to furnish copies of all such filings to the Company.

##  

## 7.4.                              Authority of AdministrativeAgent.  Each Grantor acknowledges that the rights andresponsibilities of the Administrative Agent under this Agreement with respectto any action taken by the Administrative Agent or the exercise or non-exerciseby the Administrative Agent of any option, voting right, request, judgment orother right or remedy provided for herein or resulting or arising out of thisAgreement shall, as between the Administrative Agent and the Lenders, begoverned by the Credit Agreement and by such other agreements with respectthereto as may exist from time to time among them, but, as between the AdministrativeAgent and the Grantors, the Administrative Agent shall be conclusively presumedto be acting as agent for the Lenders with full and valid authority so to actor refrain from acting, and no Grantor shall be under any obligation, orentitlement, to make any inquiry respecting such authority.

##  

# SECTION 8.   MISCELLANEOUS

#  

## 8.1.                              Amendments in Writing.  None of the terms or provisions of thisAgreement may be waived, amended, supplemented or otherwise modified except inaccordance with Section 10.01 of the Credit Agreement.

##  

## 8.2.                              Notices.  All notices, requests and demands to or uponthe Administrative Agent or any Grantor hereunder shall be effected in themanner provided for in Section 10.02 of the Credit Agreement; providedthat any such notice, request or demand to or upon any Guarantor shall beaddressed to such Guarantor at its notice address set forth on Schedule 1.

##  

## 8.3.                              No Waiver by Course of Conduct;Cumulative Remedies.  Neither the Administrative Agent nor anyLender shall by any act (except by a written instrument pursuant to Section 8.1),delay, indulgence, omission or otherwise be deemed to have waived any right orremedy hereunder or to have acquiesced in any Default or Event of Default.  No failure to exercise, nor any delay inexercising, on the part of the Administrative Agent or any Lender, any right,power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right,power or privilege hereunder shall preclude any other or further exercise thereofor the exercise of any other right, power or privilege.  A waiver by the Administrative Agent or anyLender of any right or remedy hereunder on any one occasion shall not beconstrued as a bar to any right or remedy which the Administrative Agent or suchLender would otherwise have on any future occasion.  The rights and remedies herein provided arecumulative, may be exercised singly or concurrently and are not exclusive ofany other rights or remedies provided by law.

##  

## 8.4.                              Enforcement Expenses; Indemnification.  (a)  Each Guarantor agrees to pay orreimburse each Lender and the Administrative Agent for all its reasonableout-of-pocket costs and expenses incurred in collecting against such Guarantorunder the guarantee contained in Section 2 or otherwise enforcing orpreserving any rights under this Agreement and the other Loan Documents towhich such Guarantor is a party, including, without limitation, the reasonablefees and disbursements of counsel to the Administrative Agent.

 

26

----

 

### (b)         Each Guarantor agrees to pay, and to save the AdministrativeAgent and the Lenders harmless from, any and all liabilities with respect to,or resulting from any delay in paying, any and all stamp, excise, sales orother taxes which may be payable or determined to be payable with respect toany of the Collateral or in connection with any of the transactionscontemplated by this Agreement.

###  

### (c)          Each Guarantor agrees to pay, and to save the AdministrativeAgent and the Lenders harmless from, any and all liabilities, obligations,losses, damages, penalties, claims, demands, actions, judgments and suits andrelated reasonable out-of-pocket expenses (including Attorney Costs) of anykind or nature whatsoever with respect to the execution, delivery, enforcement,performance and administration of this Agreement to the extent the Companywould be required to do so pursuant to Section 10.05 of the CreditAgreement.

###  

### (d)         The agreements in this Section 8.4 shall surviverepayment of the Obligations and all other amounts payable under the CreditAgreement and the other Loan Documents.

###  

## 8.5.                              Successors and Assigns.  This Agreement shall be binding upon thepermitted successors and assigns of each Grantor and shall inure to the benefitof the Administrative Agent and the Lenders and their permitted successors andassigns; provided that no Grantor may, except pursuant to a merger orconsolidation permitted by the Credit Agreement, assign, transfer or delegateany of its rights or obligations under this Agreement without the prior writtenconsent of the Administrative Agent.

##  

## 8.6.                              Setoff.  In addition to any rights and remedies of theLenders provided by Law, upon the occurrence and during the continuance of anyEvent of Default, each Lender and its Affiliates is authorized at any time andfrom time to time, without prior notice to any Grantor, any such notice beingwaived by each Grantor to the fullest extent permitted by applicable Law, toset off and apply any and all deposits (general or special, time or demand,provisional or final) at any time held by, and other Indebtedness at any timeowing by, such Lender and its Affiliates to or for the credit or the account ofany Grantor against any and all Obligations owing to such Lender and its Affiliateshereunder or under any other Loan Document, now or hereafter existing,irrespective of whether or not such Agent or such Lender or Affiliate shallhave made demand under this Agreement or any other Loan Document and althoughsuch Obligations may be contingent or unmatured or denominated in a currencydifferent from that of the applicable deposit or Indebtedness;*provided* that, in the case of any suchdeposits or other Indebtedness for the credit or the account of any ForeignSubsidiary, such set off may only be against any Obligations of ForeignSubsidiaries.  Each Lender agreespromptly to notify such Grantor and the Administrative Agent after any such setoff and application made by such Lender; *provided*,that the failure to give such notice shall not affect the validity of suchsetoff and application.  The rights ofthe Administrative Agent and each Lender under this Section 8.6 are inaddition to other rights and remedies (including other rights of setoff) thatthe Administrative Agent and such Lender may have.

##  

## 8.7.                              Counterparts.  This Agreement may be executed in one or morecounterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.  Delivery by telecopier of an executedcounterpart of a signature

 

27

----

 

## page to thisAgreement shall be effective as delivery of an original executed counterpart ofthis Agreement.

##  

## 8.8.                              Severability.  If any provision of this Agreement is held tobe illegal, invalid or unenforceable, the legality, validity and enforceabilityof the remaining provisions of this Agreement shall not be affected or impairedthereby.  The invalidity of a provisionin a particular jurisdiction shall not invalidate or render unenforceable suchprovision in any other jurisdiction.

##  

## 8.9.                              Section Headings.  The Section headings used in thisAgreement are for convenience of reference only and are not to affect theconstruction hereof or be taken into consideration in the interpretationhereof.

##  

## 8.10.                        Integration.  This Agreement, together with the other LoanDocuments, comprises the complete and integrated agreement of the parties onthe subject matter hereof and thereof and supersedes all prior agreements,written or oral, on such subject matter.

##  

## **8.11.****                    ****GOVERNING LAW****.  THIS AGREEMENT SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.**

##  

## 8.12.                        Submission To Jurisdiction;Waivers.  (a)  Any legal action or proceedingarising under any Loan Document or in any way connected with or related orincidental to the dealings of the parties hereto or any of them with respect toany Loan Document, or the transactions related thereto, in each case whethernow existing or hereafter arising, may be brought in the courts of the State ofNew York sitting in New York City or of the United States for the SouthernDistrict of such State, and by execution and delivery of this Agreement, eachGrantor and the Administrative Agent consents, for itself and in respect of itsproperty, to the non-exclusive jurisdiction of those courts.  Each Grantor and the Administrative Agentirrevocably waives any objection, including any objection to the laying ofvenue or based on the grounds of forum non conveniens, which it may now orhereafter have to the bringing of any action or proceeding in such courts inrespect of any Loan Document or other document related thereto.

##  

(b)  EachGrantor hereby irrevocably and unconditionally:

 

##### (i)                                     agrees thatservice of process in any such action or proceeding may be effected by mailinga copy thereof by registered or certified mail (or any substantially similarform of mail), postage prepaid, to such Grantor at its address referred to in Section 8.2or at such other address of which the Administrative Agent shall have beennotified pursuant thereto;

#####  

##### (ii)                                  agrees that nothingherein shall affect the right to effect service of process in any other mannerpermitted by law or shall limit the right to sue in any other jurisdiction; and

 

28

----

 

##### (iii)                               waives, to the maximumextent not prohibited by law, any right it may have to claim or recover in anylegal action or proceeding referred to in this Section any special,exemplary, punitive or consequential damages.

#####  

## 8.13.                        Acknowledgments.  Each Grantor hereby acknowledges that:

##  

#### (a)          it has been advised by counsel in thenegotiation, execution and delivery of this Agreement and the other LoanDocuments to which it is a party;

####  

#### (b)         neither the Administrative Agent nor anyLender has any fiduciary relationship with or duty to any Grantor arising outof or in connection with this Agreement or any of the other Loan Documents, andthe relationship between the Grantors, on the one hand, and the AdministrativeAgent and the Lenders, on the other hand, in connection herewith or therewithis solely that of debtor and creditor; and

####  

#### (c)          no joint venture is created hereby or by theother Loan Documents or otherwise exists by virtue of the transactionscontemplated hereby among the Lenders or among the Grantors and the Lenders.

####  

## 8.14.                        Additional Guarantors andGrantors.  Each Subsidiary of the Company that isrequired to become a party to this Agreement pursuant to Section 6.10 ofthe Credit Agreement shall become a Guarantor and a Grantor for all purposes ofthis Agreement upon execution and delivery by such Subsidiary of a SecurityAgreement Supplement in the form of Annex 1 hereto.

##  

## 8.15.                        Releases.  (a)  At such time as the Loans and theother Obligations (other than contingent indemnification and contingent expensereimbursement obligations, Obligations in respect of Secured Hedge Agreementsand Cash Management Obligations) shall have been paid in full, the Commitmentshave been terminated and no Letters of Credit shall be outstanding, theCollateral shall be released from the Liens created hereby, and this Agreementand all obligations (other than those expressly stated to survive suchtermination) of the Administrative Agent and each Grantor hereunder shallterminate, all without delivery of any instrument or performance of any act byany party, and all rights to the Collateral shall revert to the Grantors.  At the request and sole expense of anyGrantor following any such termination, the Administrative Agent shall deliverto such Grantor any Collateral held by the Administrative Agent hereunder andexecute and deliver to such Grantor such documents as such Grantor shallreasonably request to evidence such termination.

##  

### (b)         If any of the Collateral shall be sold, transferred orotherwise disposed of by any Grantor in a transaction permitted by the CreditAgreement, then (i) the Liens created hereby on such Collateral shallautomatically be released and (ii) the Administrative Agent, at therequest and sole expense of such Grantor, shall execute and deliver to suchGrantor all releases or other documents reasonably necessary or desirable forthe release of the Liens created hereby on such Collateral.  If any of the Collateral shall becomeSpecified Assets described in clause (b) of the definition thereof (takinginto account the proviso thereto), then (A) the Liens created hereby onsuch Collateral shall automatically be released and (ii) theAdministrative Agent, at the request and sole expense of the Company, shallexecute and deliver to the Company or the

 

29

----

 

### relevant Grantor allreleases or other documents reasonably necessary or desirable for the releaseof the Liens created hereby on such Collateral. In addition, at the request and at the sole expense of the Company, theAdministrative Agent agrees to (x) provide to each Grantor a power ofattorney to execute any document reasonably required to permit any salepermitted by the Credit Agreement of any asset, the perfection of which isgoverned by a certificate-of-title statute, free of the Liens created by theSecurity Documents and (y) with respect to any jurisdiction in whichreleases executed pursuant to such power of attorney are insufficient torelease such Liens, (1) execute in blank any document reasonably requiredto permit any sale permitted by the Credit Agreement of any asset, theperfection of which is governed by a certificate-of-title statute, free of theLiens created by the Security Documents and (2) authorize such Grantor tofill in the relevant information to release such Lien.  At the request and sole expense of theCompany, a Subsidiary Guarantor shall be released from its obligationshereunder in the event that all the Equity Interests of such SubsidiaryGuarantor shall be sold, transferred or otherwise disposed of in a transaction permittedby the Credit Agreement; provided that the Company shall have deliveredto the Administrative Agent, at least five Business Days prior to the date ofthe proposed release, a written request for release identifying the relevantSubsidiary Guarantor and the terms of the sale or other disposition inreasonable detail, including the price thereof and any expenses in connectiontherewith, together with a certification by the Company stating that suchtransaction is in compliance with the Credit Agreement and the other LoanDocuments.

###  

## **8.16.****                    ****WAIVER OF JURYTRIAL****.  EACH GRANTOR HEREBYEXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION ORCAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH ORRELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITHRESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASEWHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT ORTORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCHCLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIALWITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINALCOUNTERPART OR A COPY OF THIS SECTION 10.17 WITH ANY COURT AS WRITTENEVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHTTO TRIAL BY JURY.**

##  

## 8.17.                        Effectiveness of the Merger;Assignment and Delegation to and Assumption by Reader’s Digest.  Reader’s Digest and its Subsidiaries shallhave no rights or obligations hereunder until the consummation of the Mergerand any representations and warranties of Reader’s Digest or any of itsSubsidiaries hereunder shall not become effective until such time.  Upon consummation of the Merger, Reader’sDigest shall succeed to all the rights and obligations of Doctor AcquisitionCo. under this Agreement and all rights, obligations, representations andwarranties of Reader’s Digest and its Subsidiaries shall become effective as ofthe date hereof, without any further action by any Person.

##  

## 8.18.                        German Borrower Security.  Notwithstanding any provision to the contraryin any Loan Document or any Secured Hedge Agreement, any guarantees, securityinterests or other security provided under or in connection with this Agreementor any other

 

30

----

 

## Loan Document or anySecured Hedge Agreement (“Security”) shall at all times exclude director indirect access to Specified Assets other than Specified Assets of theGerman Borrower (in particular, no security in rem (*dingliche Sicherheit*) in Specified Assets other thanSpecified Assets of the German Borrower shall be created (or, in the event suchexclusion is not possible under applicable law, no such security in rem shallbe enforceable), and no disposal restriction (*Verfügungsbeschränkung*)and no submission to immediate foreclosure (*Unterwerfungunter die sofortige Zwangsvollstreckung*) regarding Specified Assetsother than Specified Assets of the German Borrower shall apply with respect toany contractual claim (*schuldrechtlicherAnspruch*) in favor of any Secured Party).  The restriction set forth in this Section 8.18shall be applicable if and only to the extent that (and only for so long as) (a) suchSecurity secures Obligations of the German Borrower and (b) direct orindirect access to such Specified Assets would result in adverse taxconsequences to Holdings and its Subsidiaries as a consequence of § 8a of theGerman Corporate Income Tax Act (*Körperschaftsteuergesetz*)as amended from time to time or of any future rules replacing § 8a of theGerman Corporate Income Tax Act (*Körperschaftsteuergesetz*).

##  

## 8.19.                        Parallel Obligations

##  

## (a) Solely for purposes of the validity and enforcement of any security interestgranted to the Secured Parties in any Equity Interests or other assets governedby German law, eachof the parties hereto agrees (and each Secured Party by its execution of theCredit Agreement or its Assignment and Assumption agrees), and each of the LoanParties acknowledges by way of an abstract acknowledgement of debt (*abstraktes Schuldanerkenntnis* as effectiveunder German law) (the “Acknowledgement”), that the Obligations of suchLoan Party (and each of their respective permitted successors and assigns) (the“Original Obligations”) shall also be owing in full to theAdministrative Agent (and its permitted successors and assigns), and thataccordingly the Administrative Agent will have its own independent right todemand performance by the respective Loan Party of the Obligations of such LoanParty (such Obligations owed to the Administrative Agent, the “ParallelObligations”).  Any payment by anyLoan Party of its Parallel Obligations shall to the same extent reduce and be agood discharge of the corresponding Original Obligations of such Loan Partyowing to the relevant Secured Parties, and payment by any Loan Party of itsOriginal Obligations to the relevant Secured Parties shall to the same extentreduce and be a good discharge of the Parallel Obligations owing by it to the AdministrativeAgent.  The Administrative Agentundertakes to each Loan Party that in the case of any discharge of any suchobligation owing to one of the Administrative Agent or a Secured Party, itwill, to the same extent, not make a claim against such Loan Party under theAcknowledgement at any time, provided that any such claims can be made againstsuch Loan Party if such discharge is made by virtue of any set off,counterclaim or similar defense invoked by such Loan Party vis-a-vis theAdministrative Agent other than with respect to claims arising under the LoanDocuments.

 

(b)  Without limiting or affecting the Administrative Agent’srights against the Loan Parties (whether under this Section 8.19 or underany other provision of the Loan Documents), the Administrative Agent agreeswith each other Secured Party that it will not exercise its rights under theAcknowledgement with respect to Obligations owed to such Secured Party exceptwith the consent of such Secured Party, which consent is hereby deemed given byits execution of the Credit Agreement or its Assignment and Assumption.  Nothing in the

 

31

----

 

previoussentence shall in any way limit the Administrative Agent’s right to act in theprotection or preservation of rights under or to enforce any CollateralDocument (or to do any act reasonably incidental to the foregoing).

 

32

----

 

IN WITNESS WHEREOF, each of the undersignedhas caused this Guarantee and Collateral Agreement to be duly executed anddelivered as of the date first above written.

 

 
|   | By:    | /s/ Christopher Minnetian |
|--------|--------|---------------------------|
|   |   | Name:                     | Christopher Minnetian |
|   |   | Title:                    | President, Treasurer and Secretary of each  of the loan parties listed on Exhibit A |

 

[Signature Page to Guarantee & CollateralAgreement]

 

----

 
|   | By:    | /s/ Clifford H.R. DuPree |
|--------|--------|--------------------------|
|   |   | Name:                    | Clifford H.R. DuPree |
|   |   | Title:                   | Secretary of each of Loan Parties listed on  Exhibit B |

 

*[SIGNATURE PAGE TO GUARANTEE AND COLLATERALAGREEMENT]*

 

----

 
|   | By:    | /s/ Karen E. Andrews |
|--------|--------|----------------------|
|   |   | Name:                | Karen E. Andrews |
|   |   | Title:               | Secretary of each of the Loan Parties  listed on Exhibit C |

 

*[SIGNATURE PAGE TO GUARANTEE AND COLLATERALAGREEMENT]*

 

----

 
|   | Solely for purposes of Sections 8.18 and  8.19: |
|--------|-------------------------------------------------|
|   | RD GERMAN HOLDINGS GmbH                         |
|   |                                            |
|   |                                            |
|   | By:                                             | /s/ Werner Neunzig |
|   |                                            | Name: | Werner Neunzig |
|   |                                            | Title: | Managing Director |

 

*[SIGNATURE PAGE TO GUARANTEE AND COLLATERALAGREEMENT]*

 

----

 
|   | By:    | /s/ Randolph H. Elkins |
|--------|--------|------------------------|
|   |   | Name:                  | Randolph H. Elkins |
|   |   | Title:                 | Secretary of each of the Loan Parties  listed on Exhibit D |

 

*[SIGNATURE PAGE TO GUARANTEE AND COLLATERALAGREEMENT]*

 

----

 
|   | JPMORGAN CHASE BANK, N.A., as  Administrative Agent |
|--------|-----------------------------------------------------|
|   |                                                |
|   |                                                |
|   | By:                                                 | /s/ Gary L. Spevack |
|   |                                                | Name: | Gary L. Spevack |
|   |                                                | Title: | Vice President |

 

*[SIGNATURE PAGE TO GUARANTEE AND COLLATERALAGREEMENT]*

 

----

 

Exhibit A

 

RDA Holding Co.

DoctorAcquisition Co.

 

----

 

Exhibit B

 

TheReader’s Digest Association, Inc.

Allrecipes.com, Inc.

ArdeeMusic Publishing, Inc.

BooksAre Fun, Ltd.

ChristmasAngel Productions, Inc.

PegasusAsia Investments, Inc.

PegasusFinance Corp.

PegasusInvestment, Inc.

PegasusSales, Inc.

PleasantvilleMusic Publishing, Inc.

QSP, Inc.

FamilyReading Program Corp.

QSPDistribution Services, LLC

QSPProducts and Programs, LLC

QSPSales, LLC

QSP Services, LLC

QSP Ventures, LLC

Fundraising.com, Inc.

ReimanMedia Group, Inc.

Tasteof Home Productions, Inc.

Tasteof Home Media Group, Inc.

WorldWide Country Tours, Inc.

VideOvation, Inc.

R.D. Manufacturing Corporation

RDPublications, Inc.

HomeService Publications, Inc.

RDLarge Edition, Inc.

RDTrade Shows, Inc.

RDWalking, Inc.

RetirementLiving Publishing Company, Inc.

TravelPublications, Inc.

RDMember Services, Inc.

Reader’sDigest Children’s Publishing, Ine.

Reader’sDigest Consumer Services, Inc.

RDMagazine Value Partners, Inc.

Reader’sDigest Entertainment, Inc.

Reader’sDigest Financial Services, Inc.

Tasteof Home Entertaining, Inc.

Reader’sDigest Latinoamerica S.A.

WAPLA,LLC

Reader’sDigest Sales and Services, Inc.

Reader’sDigest Sub Nine, Inc.

Reader’sDigest Young Families, Inc.

 

----

 

SMDDMS, Inc.

TheReader’s Digest Association (Russia) Incorporated

W.A.Publications, LLC

 

----

 

Exhibit C

 

WRCMedia Inc.

CompassLearning, Inc.

WeeklyReader Corporation

LifetimeLearning Systems, Inc.

WorldAlmanac Education Group, Inc.

Funk &Wagnalls Yearbook Corp.

GarethStevens, Inc.

 

----

 

Exhibit D

 

DirectHoldings U.S. Corp.

DirectHoldings Americas inc.

DirectHoldings Custom Publishing Inc.

DirectHoldings Education Inc.

AlexInc.

DirectHoldings Customer Service, Inc.

DirectHoldings Libraries Inc.

 

----

 

ACKNOWLEDGMENT AND CONSENT***

 

The undersigned hereby acknowledges receipt of acopy of the Guarantee and Collateral Agreement dated as of March 2, 2007(the “Agreement”), made by the Grantors parties thereto for the benefitof JPMORGAN CHASE BANK, N.A., as Administrative Agent.  The undersigned agrees for the benefit of theAdministrative Agent and the Lenders as follows:

 

###### **1.     Theundersigned will be bound by the terms of the Agreement and will comply withsuch terms insofar as such terms are applicable to the undersigned.**

###### ** **

###### **2.     Theundersigned will notify the Administrative Agent promptly in writing of theoccurrence of any of the events described in Section 5.6(a) of theAgreement.**

###### ** **

###### **3.     Theterms of Sections 6.3(c) and 6.7 of the Agreement shall apply to it, mutatis mutandis,with respect to all actions that may be required of it pursuant toSection 6.3(c) or 6.7 of the Agreement.**

###### ** **

|   | [NAME OF ISSUER]     |
|--------|----------------------|
|   |                 |
|   |                 |
|   | By                   |   |
|   |   Name:    |
|   |   Title:   |
|   |                 |
|   | Address for Notices: |
|   |                 |
|   |                 |
|   |                 |
|   | Fax:                 |

 

----

***         Thisconsent is necessary only with respect to any Issuer which is not also aGrantor.  This consent may be modified oreliminated with respect to any Issuer that is not controlled by a Grantor.

 

----

 

Annex 1 to

Guaranteeand Collateral Agreement

 

ASSUMPTION AGREEMENT, dated as of                                 ,20    , made by                                                   ,a                            corporation (the “Additional Grantor”), in favor of JPMORGAN CHASE BANK,N.A., as administrative agent (in such capacity, the “Administrative Agent”),for the lending and other financial institutions (the “Lenders”) partiesto the Credit Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribedto them in such Credit Agreement.

 

W I T N E S S E T H :

 

WHEREAS, RDA HOLDING CO., a Delaware corporation (“Holdings”),THE READER’S DIGEST ASSOCIATION, INC., a Delaware corporation (the “Company”),the Overseas Borrowers, the Lenders and the Administrative Agent have enteredinto a Credit Agreement, dated as of March 2, 2007 (as amended,supplemented or otherwise modified from time to time, the “Credit Agreement”);

 

WHEREAS, in connection with the Credit Agreement,Holdings, the Company and certain of the Company’s Subsidiaries (other than theAdditional Grantor) have entered into the Guarantee and Collateral Agreement,dated as of March 2, 2007 (as amended, supplemented or otherwise modifiedfrom time to time, the “Guarantee and Collateral Agreement”) in favor ofthe Administrative Agent for the benefit of the Lenders;

 

WHEREAS, the Credit Agreement requires theAdditional Grantor to become a party to the Guarantee and Collateral Agreement;and

 

WHEREAS, the Additional Grantor has agreed toexecute and deliver this Assumption Agreement in order to become a party to theGuarantee and Collateral Agreement;

 

NOW, THEREFORE, IT IS AGREED:

 

###### **1.             Guarantee and CollateralAgreement.  By executing anddelivering this Assumption Agreement, the Additional Grantor, as provided inSection 8.14 of the Guarantee and Collateral Agreement, hereby becomes aparty to the Guarantee and Collateral Agreement as a Guarantor and a Grantorthereunder with the same force and effect as if originally named therein as aGuarantor and a Grantor and, without limiting the generality of the foregoing,hereby expressly assumes all obligations and liabilities of a Guarantor and aGrantor thereunder.  The information setforth in Annex 1-A hereto is hereby added to the information set forth inthe Schedules to the Guarantee and Collateral Agreement.  The Additional Grantor hereby represents andwarrants that each of the representations and warranties contained inSection 4 of the Guarantee and Collateral Agreement is true and correct onand as the date hereof (after giving effect to this Assumption Agreement) as ifmade on and as of such date.**

 

----

 

###### **2.     GOVERNING LAW.  THIS ASSUMPTION AGREEMENT SHALL BE GOVERNEDBY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.**

 

IN WITNESS WHEREOF, the undersigned has caused thisAssumption Agreement to be duly executed and delivered as of the date firstabove written.

 
|   | [ADDITIONAL GRANTOR] |
|--------|----------------------|
|   |                 |
|   |                 |
|   | By:                  |   |
|   |                 | Name: |
|   |                 | Title: |

 

----

 

 

[Schedules to 

Guarantee and CollateralAgreement]

 

**Schedule 1**

**Notice Addresses**

 
| **Company Name**                                 | ** ** | **Legal  Address**                                           |
|--------------------------------------------------|------------|--------------------------------------------------------------|
| ** **                                       | ** ** | ** **                                                   |
| RDA  Holding Co.                                 |       | One  Rockefeller Plaza, 32nd Floor   New York, NY 10020      |
|                                             |       |                                                         |
| Doctor  Acqusition Co.                           |       | One  Rockefeller Plaza, 32nd Floor   New York, NY 10020      |
|                                             |       |                                                         |
| The  Reader’s Digest Association, Inc. |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| Allrecipes.com, Inc.                        |       | 3317  3rd Ave. S, Suite D   Seattle, WA 98134           |
|                                             |       |                                                         |
| Ardee  Music Publishing, Inc.               |       | 260  Madison Avenue   New York, New York 10016               |
|                                             |       |                                                         |
| Books  Are Fun, Ltd.                             |       | 1680  Highway 1 North   Fairfield, Iowa 52556                |
|                                             |       |                                                         |
| Christmas  Angel Productions, Inc.          |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| Family  Reading Program Corp.                    |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| Home  Service Publications, Inc.            |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| Pegasus  Asia Investments, Inc.             |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| Pegasus  Finance Corp.                           |       | 802  North West Street   Wilmington, DE 19801                |
|                                             |       |                                                         |
| Pegasus  Investment, Inc.                   |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| Pegasus  Sales, Inc.                        |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| Pleasantville  Music Publishing, Inc.       |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| QSP, Inc.                                   |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| QSP  Distribution Services, LLC                  |       | 2175  East Park Drive, Suite A   Conyers, GA 30013-5743 |
|                                             |       |                                                         |
| QSP  Products and Programs, LLC                  |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| QSP  Sales, LLC                                  |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| QSP  Services, LLC                               |       | Reader’s  Digest Road   Pleasantville, NY 10570         |
|                                             |       |                                                         |
| QSP  Ventures, LLC                               |       | Reader’s  Digest Road   Pleasantville, NY 10570         |

 

----

 
| RD  Large Edition, Inc.                                |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|-------------------------------------------------------------|--------|------------------------------------------------------|
|                                                        |   |                                                 |
| RD  Magazine Value Partners, Inc.                      |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| R. D. Manufacturing Corporation                             |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| RD  Member Services, Inc.                              |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| RD Publications, Inc.                                  |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| RD  Trade Shows, Inc.                                  |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| RD  Walking, Inc.                                      |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Reader’s  Digest Children’s Publishing, Inc. |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Reader’s Digest Consumer Services, Inc.           |   | 200  Cahaba Park Circle   Birmingham, AL. 35242      |
|                                                        |   |                                                 |
| Reader’s Digest Entertainment, Inc.               |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Reader’s Digest Financial Services, Inc.          |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Taste of Home Entertaining, Inc.                       |   | 20300  Watertower Blvd   Brookfield, WI 53045        |
|                                                        |   |                                                 |
| Reader’s Digest  Latinoamerica S.A.                    |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Reader’s Digest Sales and Services, Inc.          |   | 261  Madison Avenue   New York, NY 10016             |
|                                                        |   |                                                 |
| Fundraising.com, Inc.                                  |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Reader’s  Digest Sub Nine, Inc.                   |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Reader’s  Digest Young Families, Inc.             |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Taste  of Home Media Group, Inc.                       |   | 5400  South 60th Street   Greendale, Wisconsin 53129 |
|                                                        |   |                                                 |
| Reiman  Media Group, Inc.                              |   | 5400  South 60th Street   Greendale, Wisconsin 53129 |
|                                                        |   |                                                 |
| Retirement  Living Publishing Company, Inc.            |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| SMDDMS, Inc.                                           |   | Reader’s  Digest Road   Pleasantville, NY 10570 |
|                                                        |   |                                                 |
| Taste  of Home Productions, Inc.                       |   | 5400  South 60th Street   Greendale, Wisconsin 53129 |
|                                                        |   |                                                 |
| The  Reader’s Digest Association (Russia) Incorporated |   | Reader’s  Digest Road   Pleasantville, NY 10570 |

 

2

----

 
| Travel  Publications, Inc.              |   | Reader’s  Digest Road   Pleasantville, NY 10570                  |
|----------------------------------------------|--------|-----------------------------------------------------------------------|
|                                         |   |                                                                  |
| VideOvation, Inc.                       |   | Reader’s  Digest Road   Pleasantville, NY 10570                  |
|                                         |   |                                                                  |
| W.A.  Publications, LLC                      |   | Reader’s  Digest Road   Pleasantville, NY 10570                  |
|                                         |   |                                                                  |
| WAPLA,  LLC                                  |   | Reader’s  Digest Road   Pleasantville, NY 10570                  |
|                                         |   |                                                                  |
| World  Wide Country Tours, Inc.         |   | 5400  South 60th Street   Greendale, Wisconsin 53129                  |
|                                         |   |                                                                  |
| Alex  Inc.                                   |   | 8280  Willow Oaks Corporate Drive, Suite 800   Fairfax, VA 22031 |
|                                         |   |                                                                  |
| Direct  Holdings Americas Inc.               |   | 8280  Willow Oaks Corporate Drive, Suite 800   Fairfax, VA 22031 |
|                                         |   |                                                                  |
| Direct  Holdings Custom Publishing Inc.      |   | 8280  Willow Oaks Corporate Drive, Suite 800   Fairfax, VA 22031 |
|                                         |   |                                                                  |
| Direct  Holdings Customer Service, Inc. |   | 8280  Willow Oaks Corporate Drive, Suite 800   Fairfax, VA 22031 |
|                                         |   |                                                                  |
| Direct  Holdings Education Inc.              |   | 8280  Willow Oaks Corporate Drive, Suite 800   Fairfax, VA 22031 |
|                                         |   |                                                                  |
| Direct  Holdings Libraries Inc.              |   | 8280  Willow Oaks Corporate Drive, Suite 800   Fairfax, VA 22031 |
|                                         |   |                                                                  |
| Direct  Holdings U.S. Corp.                  |   | 8280  Willow Oaks Corporate Drive, Suite 800   Fairfax, VA 22031 |
|                                         |   |                                                                  |
| WRC  Media Inc.                              |   | 512  Seventh Avenue   New York, NY 10018                              |
|                                         |   |                                                                  |
| CompassLearning, Inc.                   |   | 203  Colorado Street   Austin, TX 78701                               |
|                                         |   |                                                                  |
| Weekly  Reader Corporation                   |   | 200  First Stamford Place P.O. Box 120023   Stamford, CT 06912   |
|                                         |   |                                                                  |
| Lifetime  Learning Systems, Inc.        |   | 200  First Stamford Place P.O. Box 120023   Stamford, CT 06912   |
|                                         |   |                                                                  |
| World  Almanac Education Group, Inc.    |   | 512  Seventh Avenue   New York, NY 10018                              |
|                                         |   |                                                                  |
| Funk &  Wagnalls Yearbook Corp.     |   | 512  Seventh Avenue   New York, NY 10018                              |
|                                         |   |                                                                  |
| Gareth  Stevens, Inc.                   |   | 330  West Olive Street, Suite 100   Milwaukee, WI 53212          |

 

3

----

 

**Schedule 2**

**Investment Property**

 

PledgedDebt:

 
| **Lender**                                      | ** ** | **Borrower**                                                | ** ** | **Amount** | ** **  |
|-------------------------------------------------|------------|-------------------------------------------------------------|------------|------------|-------------|
| The Reader’s Digest Association, Inc. |       | Pegasus Sales, Inc.                                    |       | $          | 5,000,000   |   |
| The Reader’s Digest Association, Inc. |       | Reader’s Digest Children’s  Publishing, Inc. |       | $          | 3,740,000   |   |
| The Reader’s Digest Association, Inc. |       | Reader’s Digest  Sales & Services, Inc.  |       | $          | 3,000,000   |   |
| The Reader’s Digest Association, Inc. |       | Books Are Fun, Ltd.                                         |       | $          | 330,000,000 |   |

 

PledgedEquity:(1)

 

**Domestic**

 
| **Loan Party**                                  | ** ** | **Subsidiary**                                   | ** ** | **Subsidiary  Jurisdiction  of  Organization** | ** ** | **Ownership Interest** | ** ** | **Percent  Ownership** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| RDA Holding Co.                                 |       | The Reader’s Digest  Association, Inc. |       | Delaware                                       |       | 1,000 shares common    |       | 100                    | %          |
| The Reader’s Digest Association, Inc. |       | Allrecipes.com, Inc.                        |       | Washington                                     |       | 10 shares common       |       | 100                    | %          |
| The Reader’s Digest Association, Inc. |       | Ardee Music  Publishing, Inc.               |       | Delaware                                       |       | 100 shares common      |       | 100                    | %          |
| The Reader’s Digest Association, Inc. |       | Books Are Fun, Ltd.                              |       | Iowa                                           |       | 100 shares common      |       | 100                    | %          |
| The Reader’s Digest Association, Inc. |       | Christmas Angel  Productions, Inc.          |       | Delaware                                       |       | 10 shares common       |       | 100                    | %          |

 

----

(1) Reflectsfinal structure on the Closing Date, following the consummation of theAcquisitions and the contribution by RDA Holding Co. to The Reader’s DigestAssociation, Inc. of the Equity Interests of each of Direct Holdings U.S.Corp. and WRC Media Inc.

 

4

----

 
| The Reader’s Digest Association, Inc. |   | Pegasus Asia Investments  Inc.                                                                               |   | Delaware |   | 10 shares common    |   | 100 | % |
|-------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------|--------|----------|--------|---------------------|--------|-----|---|
| The Reader’s Digest Association, Inc. |   | Pegasus Finance Corp.                                                                                        |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Pegasus Investment, Inc.                                                                                |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Pegasus Sales, Inc.                                                                                     |   | Delaware |   | 1,000 shares common |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Pleasantville Music  Publishing, Inc.                                                                   |   | Delaware |   | 100 shares common   |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | QSP, Inc.                                                                                               |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | R. D. Manufacturing  Corporation                                                                             |   | Delaware |   | 1,000 shares common |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | RD Publications, Inc.  (f/k/a Travel Publications, Inc.)                                           |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s Digest Children’s  Publishing, Inc. (f/k/a Reader’s Digest Sub Five, Inc.) |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s Digest Consumer  Services, Inc.                                                           |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s Digest  Entertainment, Inc.                                                               |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s Digest Financial  Services, Inc.                                                          |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s  Digest Latinoamerica S.A.                                                                     |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s Digest Sales and  Services, Inc.                                                          |   | Delaware |   | 1,000 shares common |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s Digest Sub  Nine, Inc.                                                                    |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Reader’s Digest Young  Families, Inc.                                                              |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | SMDDMS, Inc.                                                                                            |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | Taste of Home  Entertaining, Inc. (f/k/a Reader’s Digest Home Parties)                             |   | Delaware |   | 10 shares common    |   | 100 | % |
| The Reader’s Digest Association, Inc. |   | The Reader’s Digest  Association (Russia) Incorporated (f/k/a Reader’s Digest Sub Four, Inc.) |   | Delaware |   | 10 shares common    |   | 100 | % |

 

5

----

 
| The Reader’s Digest Association, Inc.                   |   | W.A. Publications, LLC                                                             |   | Delaware |   | 100%                                    |   | 100 | % |
|-------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|----------|--------|-----------------------------------------|--------|-----|---|
| QSP, Inc.                                                    |   | Family Reading Program  Corp.                                                      |   | Delaware |   | 10 shares common                        |   | 100 | % |
| QSP, Inc.                                                    |   | Fundraising.com, Inc.  (f/k/a Reader’s Digest Sub Eight, Inc.)      |   | Delaware |   | 10 shares common                        |   | 100 | % |
| QSP, Inc.                                                    |   | QSP Distribution Services,  LLC                                                    |   | Delaware |   | 10 units limited liability  interests   |   | 100 | % |
| QSP, Inc.                                                    |   | QSP Products and Programs,  LLC                                                    |   | Delaware |   | 10 units limited liability  interests   |   | 100 | % |
| QSP, Inc.                                                    |   | QSP Sales, LLC                                                                     |   | Delaware |   | 10 units limited liability  interests   |   | 100 | % |
| QSP, Inc.                                                    |   | QSP Services, LLC                                                                  |   | Delaware |   | 10 units limited liability  interests   |   | 100 | % |
| QSP, Inc.                                                    |   | QSP Ventures, LLC                                                                  |   | Delaware |   | 10 units limited liability  interests   |   | 100 | % |
| QSP, Inc.                                                    |   | Reiman Media  Group, Inc. (f/k/a Reader’s Digest Media Group, Inc.) |   | Delaware |   | 10 shares common                        |   | 100 | % |
| QSP, Inc.                                                    |   | VideOvation, Inc.  (f/k/a Reader’s Digest Sub Three, Inc.)          |   | Delaware |   | 10 shares common                        |   | 100 | % |
| RD Publications, Inc. (f/k/a Travel Publications, Inc.) |   | Home Service  Publications, Inc.                                              |   | Delaware |   | 10 shares common                        |   | 100 | % |
| RD Publications, Inc.                                        |   | RD Large  Edition, Inc.                                                       |   | Delaware |   | 10 shares common                        |   | 100 | % |
| RD Publications, Inc.                                        |   | RD Trade Shows, Inc.                                                          |   | Delaware |   | 10 shares common                        |   | 100 | % |
| RD Publications, Inc.                                        |   | RD Walking, Inc.                                                              |   | Delaware |   | 10 shares common                        |   | 100 | % |
| RD Publications, Inc.                                        |   | Retirement Living  Publishing Company, Inc.                                   |   | Delaware |   | 10 shares common                        |   | 100 | % |
| RD Publications, Inc.                                        |   | Travel  Publications, Inc. (f/k/a RD Publications, Inc.)                 |   | Delaware |   | 10 shares common                        |   | 100 | % |
| Reader’s Digest Consumer Services, Inc.                 |   | RD Magazine Value  Partners, Inc.                                             |   | Delaware |   | 10 shares common                        |   | 100 | % |
| Reader’s Digest  Latinoamerica, S.A.                         |   | WAPLA, LLC                                                                         |   | Delaware |   | 100 unites limited  liability interests |   | 100 | % |

 

6

----

 
| Reiman Media Group, Inc. (f/k/a Reader’s Digest Media  Group, Inc.) |   | Taste of Home Media  Group, Inc. (f/k/a Reader’s Digest RAP, Inc.)    |   | Delaware |   | 10 shares common        |   | 100  | % |
|------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|----------|--------|-------------------------|--------|------|---|
| Reiman Media Group, Inc. (f/k/a Reader’s Digest Media  Group, Inc.) |   | Taste of Home Productions, Inc.  (f/k/a Reader’s Digest HV, Inc.)     |   | Delaware |   | 10 shares common        |   | 100  | % |
| Reiman Media Group, Inc. (f/k/a Reader’s Digest Media  Group, Inc.) |   | World Wide Country  Tours, Inc. (f/k/a Reader’s Digest WWCT, Inc.)    |   | Delaware |   | 10 shares common        |   | 100  | % |
| Travel Publications, Inc.                                                     |   | RD Member  Services, Inc.                                                       |   | Delaware |   | 10 shares common        |   | 100  | % |
| The Reader’s Digest Association, Inc.                                    |   | Direct Holdings U.S. Corp.                                                           |   | Delaware |   | 200,000 shares common   |   | 100  | % |
| Direct Holdings U.S. Corp.                                                         |   | Direct Holdings Americas  Inc. (f/k/a Time-Life Books Inc.)                          |   | Delaware |   | 1,000 shares common     |   | 100  | % |
| Direct Holdings Americas Inc. (f/k/a Time Life Inc.)                               |   | Direct Holdings Custom  Publishing Inc. (f/k/a Time Life Custom Publishing Inc.)     |   | Delaware |   | 100 shares common       |   | 100  | % |
| Direct Holdings Americas Inc. (f/k/a Time Life Inc.)                               |   | Direct Holdings Education  Inc. (f/k/a Time Life Education Inc.)                     |   | Delaware |   | 100 shares common       |   | 100  | % |
| Direct Holdings Americas Inc. (f/k/a Time Life Inc.)                               |   | Alex Inc.                                                                            |   | Delaware |   | 100 shares common       |   | 100  | % |
| Direct Holdings Americas Inc. (f/k/a Time-Life Books Inc.)                         |   | Direct Holdings Customer  Service, Inc. (f/k/a Time-Life Customer Service Inc.) |   | Delaware |   | 100 shares common       |   | 100  | % |
| Direct Holdings Americas Inc. (f/k/a Time Life Inc.)                               |   | Direct Holdings Libraries  Inc. (f/k/a Time-Life Libraries, Inc.)               |   | New York |   | 10,000 shares common    |   | 100  | % |
| The Reader’s Digest Association, Inc.                                    |   | WRC Media Inc.                                                                       |   | Delaware |   | 1,000 shares common     |   | 100  | % |
| WRC Media Inc.                                                                     |   | CompassLearning, Inc.                                                           |   | Delaware |   | 10,000 shares common    |   | 100  | % |
| WRC Media Inc.                                                                     |   | Weekly Reader Corporation                                                            |   | Delaware |   | 2,685,670 shares common |   | 94.9 | % |
| Weekly Reader Corporation                                                          |   | Lifetime Learning  Systems, Inc.                                                |   | Delaware |   | 1,000 shares common     |   | 100  | % |
| Weekly Reader Corporation                                                          |   | World Almanac Education  Group, Inc.                                            |   | Delaware |   | 1,000 shares common     |   | 100  | % |

 

7

----

 
| World Almanac Education Group, Inc. |   | Funk &  Wagnalls Yearbook Corp. |   | Delaware  |   | 1,000 shares  common     |   | 100 | % |
|-------------------------------------|--------|-------------------------------------|--------|-----------|--------|--------------------------|--------|-----|---|
| World Almanac Education Group, Inc. |   | Gareth  Stevens, Inc.               |   | Wisconsin |   | 2,314,305  shares common |   | 100 | % |

 

**Foreign**

 
| **Loan  Party**                                                                                                          | ** ** | **No. of  Shares**                                                      | ** ** | **Subsidiary  / Equity Investment**                | ** ** | **Country  of Incorporation** | ** ** | **Percent  Ownership** | ** ** | **Equity  Interest  Required to  be Pledged** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------|------------|------------------------|------------|-----------------------------------------------|------------|
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |       | 1  872,237  469,665                                                          |       | The Reader’s Digest  Association Pty. Limited |       | Australia                     |       | 100                    | %          | 65                                            | %          |
|                                                                                                                     |       |                                                                         |       |                                               |       |                          |       |                   |       |                                          |       |
| Doctor Acquisition Co.                                                                                                   |       | 1,000                                                                        |       | 1302791 Alberta ULC                                |       | Canada                        |       | 100                    | %          | 0                                             | %(2)       |
|                                                                                                                     |       |                                                                         |       |                                               |       |                          |       |                   |       |                                          |       |
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.                        |       | 72,000  38,000                                                               |       | Oy Valitut Palat - Reader’s  Digest Ab        |       | Finland                       |       | 100                    | %          | 65                                            | %          |
|                                                                                                                     |       |                                                                         |       |                                               |       |                          |       |                   |       |                                          |       |
| The Reader’s Digest Association, Inc.                                                                          |       | 1                                                                            |       | RD German Holdings GmbH                            |       | Germany                       |       | 100                    | %          | 65  100                                       | %(3)  %(4) |
|                                                                                                                     |       |                                                                         |       |                                               |       |                          |       |                   |       |                                          |       |
| The Reader’s Digest Association, Inc.                                                                          |       | 80,000 DM 20,000  DM 1,900,000  DM 1,000,000  DM 9,000,000  DM 8,000,000  DM |       | Verlag Das Beste GmbH                              |       | Germany                       |       | 100                    | %          | 10                                            | %(5)       |

 

----

 (2) Not required to be delivered.

 

 (3) With respect to the Obligations.

 

 (4) With respect to the Obligations ofthe German Borrower.

 

 (5) 90% to be transferred to the RDGerman Holdings GmbH.

 

8

----

 
| **Loan Party**                                                                                                                                                             | ** ** | **No. of  Shares**  | ** ** | **Subsidiary / Equity Investment**                                        | ** ** | **Country  of Incorporation** | ** ** | **Percent  Ownership** | ** ** | **Equity  Interest  Required to  be Pledged** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------------------------------------------------------|------------|-------------------------------|------------|------------------------|------------|-----------------------------------------------|------------|
| W.A.  Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |       | 5  4533  12              |       | Reader’s  Digest Association Far East Limited                        |       | Hong Kong                     |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC  W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                          |       | 1  9  65  25             |       | Reader’s  Digest Asia, Ltd.                                          |       | Hong Kong                     |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC  W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                          |       | 1  9  65  24             |       | Reader’s  Digest (East Asia) Limited                                 |       | Hong Kong                     |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                  |       | 1  6,500  3,499          |       | R.D.  Properties, Ltd.                                                    |       | Hong Kong                     |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| Reader’s  Digest Association Far East Limited  The Reader’s Digest Association, Inc.                                                                        |       | 1  99                    |       | Reader’s  Digest Book and Home Entertainment (India) Private Limited |       | India                         |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| The Reader’s  Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                                          |       | 130  70                  |       | The Reader’s  Digest Ltd.                                            |       | Japan                         |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                  |       | 1  17,913,286  9,645,615 |       | Caribe Condor S.A. de C.V.                                                |       | Mexico                        |       | 100                    | %          | 65                                            | %          |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC                                                                                                                                                    |       | 1                        |       | Reader’s Digest Mexico S.A. de C.V.                                  |       | Mexico                        |       | 1                      | %          | 65                                            | %(6)       |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC                                                                                                                                                    |       | 1                        |       | Corporativo Reader’s Digest Mexico S. de R.L. de C.V.                |       | Mexico                        |       | 1                      | %          | 65                                            | %**        |
|                                                                                                                                                                       |       |                     |       |                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC                                                                                                                                                    |       | 1                        |       | Grupo Editorial Reader’s Digest S. de R.L. de C.V.                   |       | Mexico                        |       | 1                      | %          | 65                                            | %**        |

 

----

 (6) Certificated, but notto be delivered given that W.A. Publications, LLC only owns one share.

 

9

----

 
| **Loan Party**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **No. of  Shares**                         | ** ** | **Subsidiary / Equity Investment**                                                                                        | ** ** | **Country  of Incorporation** | ** ** | **Percent  Ownership** | ** ** | **Equity  Interest  Required to  be Pledged** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|------------------------|------------|-----------------------------------------------|------------|
| W.A.  Publications, LLC  W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                              |       | 100  100  1,300  495                            |       | Reader’s  Digest (Philippines) Inc.                                                                                  |       | Philippines                   |       | 100                    | %(7)       | 65                                            | %**        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                            |       |                                                                                                                      |       |                          |       |                   |       |                                          |       |
| Selecções do Reader’s Digest (Portugal), SAThe Reader’s Digest  Association, Inc.  The Reader’s Digest  Association, Inc.

The Reader’s Digest Association, Inc.The Reader’s Digest  Association, Inc.  The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |       | 20  5  5  5  5  5  5  50  4,900  1,100  443,900 |       | Selecções do Reader’s Digest (Portugal) S.A.                                                               |       | Portugal                      |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                            |       |                                                                                                                      |       |                          |       |                   |       |                                          |       |
| Selecções do Reader’s Digest (Portugal), SAThe  Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       | €1,796€199                            |       | Euroselecções - Publicações E Artigos Promocionais, Lda.                                              |       | Portugal                      |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                            |       |                                                                                                                      |       |                          |       |                   |       |                                          |       |
| W.A.  Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 2  4,550  2,448                                 |       | Reader’s Digest Selecciones S.A.                                                                                     |       | Spain                         |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                            |       |                                                                                                                      |       |                          |       |                   |       |                                          |       |
| The Reader’s  Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 15,750  29,250                                  |       | Reader’s  Digest Aktiebolag                                                                                          |       | Sweden                        |       | 100                    | %          | 65                                            | %**        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                            |       |                                                                                                                      |       |                          |       |                   |       |                                          |       |
| The Reader’s  Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | 497                                             |       | Das Beste  aus Reader’s Digest AG/ Sélection du Reader’s Digest SA/ Selezione dal  Reader’s Digest SA |       | Switzerland                   |       | 100                    | %(8)       | 65                                            | %          |

 

----

 (7) Five shares held byeach of the five directors.

 

 (8) 3 shares held byindividuals.

 

10

----

 
| **Loan Party**                                                                                                                                     |   | **No. of  Shares**                      |   | **Subsidiary  / Equity Investment**                      |   | **Country  of Incorporation** |   | **Percent  Ownership** |   | **Equity  Interest  Required to  be Pledged** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------------------------|--------|-------------------------------|--------|------------------------|--------|-----------------------------------------------|--------|
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |   | 9,993  571,996  298,004                 |   | Reader’s Digest  (Thailand) Limited                 |   | Thailand                      |   | 100                    | %(9)   | 65                                            | %**    |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.                                                  |   | 201,500,000  108,500,000                |   | The Reader’s Digest  Association Limited            |   | United Kingdom                |   | 100                    | %      | 65                                            | %      |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.                                                  |   | 1,089,573  586,692                      |   | Reader’s Digest  Children’s Publishing Limited |   | United Kingdom                |   | 100                    | %      | 65                                            | %**    |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |   | 1  34  65                               |   | Reader’s Digest Europe  Limited                     |   | United Kingdom                |   | 100                    | %      | 65                                            | %**    |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| Reader’s Digest Latinoamerica, S.A.WAPLA, LLC                                                                                                 |   | 11,880 interests  120 interests         |   | Reader’s Digest  Argentina, SRL                     |   | Argentina                     |   | 100                    | %      | 65                                            | %*     |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc.                                                                                                   |   | 500,000                                 |   | Verlag Das Beste GmbH                                    |   | Austria                       |   | 100                    | %      | 65                                            | %*     |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.                                                                            |   | 1  253,845                              |   | Reader’s Digest World Services,  S.A.               |   | Belgium                       |   | 100                    | %      | 65                                            | %*     |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.                                                                            |   | 164,200  656,800                        |   | Reader’s Digest N.V. -  S.A.                        |   | Belgium                       |   | 100                    | %      | 65                                            | %*     |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.                                                                            |   | 10%  90%                                |   | Reader’s Digest Brasil,  Ltda.                      |   | Brazil                        |   | 100                    | %      | 65                                            | %*     |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc.                                                                                                   |   | 193,846,000,000  CZK (no shares issued) |   | Reader’s Digest Vyber  s.r.o.                       |   | Czech Republic                |   | 100                    | %      | 65                                            | %*     |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc.                                                                                                   |   | 61,992                                  |   | Sélection du Reader’s  Digest S.A.             |   | France                        |   | 100                    | %(10)  | 65                                            | %*     |
|                                                                                                                                               |   |                                    |   |                                                     |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc.                                                                                                   |   | 25,000                                  |   | Reader’s Digest  Deutschland Holding GmbH           |   | Germany                       |   | 100                    | %      | 65                                            | %*     |

 

----

 (9) 7 shares held by individuals.

 

 (10) 8 shares held by individuals.

 

11

----

 
| **Loan Party**                                   |   | **No. of  Shares**                  |   | **Subsidiary  / Equity Investment**                                                 |   | **Country  of Incorporation** |   | **Percent  Ownership** |   | **Equity  Interest  Required to  be Pledged** |   |
|--------------------------------------------------|--------|-------------------------------------|--------|-------------------------------------------------------------------------------------|--------|-------------------------------|--------|------------------------|--------|-----------------------------------------------|--------|
| The Reader’s Digest  Association, Inc. |   | 599                                 |   | Reader’s Digest Hellas  Publications Company with Limited Liability            |   | Greece                        |   | 100                    | %(11)  | 65                                            | %*     |
|                                             |   |                                |   |                                                                                |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc. |   | 600,000,000 HUF  (no shares issued) |   | Reader’s Digest Kiadó  Korlátolt Felelosségu Társaság |   | Hungary                       |   | 100                    | %      | 65                                            | %*     |
|                                             |   |                                |   |                                                                                |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc. |   | €10,000                        |   | Libri e più, S.r.l.                                                            |   | Italy                         |   | 100                    | %      | 65                                            | %*     |
|                                             |   |                                |   |                                                                                |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc. |   | 182                                 |   | The Reader’s Digest  European Shared Services B.V.                             |   | Netherlands                   |   | 100                    | %      | 65                                            | %*     |
|                                             |   |                                |   |                                                                                |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc. |   | 100%                                |   | Uitgeversmaatschappij  The Reader’s Digest N.V.                                |   | Netherlands                   |   | 100                    | %      | 65                                            | %*     |
|                                             |   |                                |   |                                                                                |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc. |   | 16,162                              |   | Reader’s Digest  Przeglad Sp Z.o.o.                                            |   | Poland                        |   | 100                    | %      | 65                                            | %*     |
|                                             |   |                                |   |                                                                                |   |                          |   |                   |   |                                          |   |
| The Reader’s Digest  Association, Inc. |   | 4,500 YTL                           |   | Reader’s Digest Secilmis  Yayincilik Dagitim Pazarlama Ticaret Limited Sirketi |   | Turkey                        |   | 90                     | %(12)  | 65                                            | %*     |
|                                             |   |                                |   |                                                                                |   |                          |   |                   |   |                                          |   |
| Direct Holdings U.S.  Corp.                      |   | 404 shares  common                  |   | Direct Holdings  International B.V.                                                 |   | Netherlands                   |   | 100                    | %      | 65                                            | %*     |

 

----

*Uncertificated.** Certificated, but not required to be delivered given status as a ForeignImmaterial Subsidiary.

 

(11)1 share held by an individual.

 

(12)10% owned by an individual.

 

12

----

 

**Schedule 3**

**Perfection Matters**

 

Uniform Commercial Code Filings

 

Delaware Secretary of StateIowa Secretary of StateNew York Secretary of StateWashington Secretary of StateWisconsin Secretary of State

 

Patent, Trademark and Copyright Filings

 

Intellectual property short form filings.

 

Actions with respect to Pledged Stock

 

Stock delivered at closing of:

 

The Reader’s Digest Association, Inc.Allrecipes.com, Inc.Ardee Music Publishing, Inc.Books Are Fun, Ltd.Christmas Angel Productions, Inc. Family Reading Program Corp.Home Service Publications, Inc.Pegasus Asia Investments, Inc.Pegasus Finance Corp.Pegasus Investment, Inc.Pegasus Sales, Inc.Pleasantville Music Publishing, Inc.QSP, Inc.QSP Distribution Services, LLCQSP Products and Programs, LLCQSP Sales, LLCQSP Services, LLCQSP Ventures, LLCRD Large Edition, Inc.RD Magazine Value Partners, Inc.R. D. Manufacturing CorporationRD Member Services, Inc.RD Publications, Inc.RD Trade Shows, Inc.RD Walking, Inc.Reader’s Digest Children’s Publishing, Inc.

 

13

----

 

Reader’s Digest Consumer Services, Inc.Reader’s Digest Entertainment, Inc.Reader’s Digest Financial Services, Inc.Taste of Home Entertaining, Inc.Reader’s Digest Latinoamerica S.A.Reader’s Digest Sales and Services, Inc.Fundraising.com, Inc.Reader’s Digest Sub Nine, Inc,Reader’s Digest Young Families, Inc.Taste of Home Media Group, Inc.Reiman Media Group, Inc.Retirement Living Publishing Company, Inc.SMDDMS, Inc.Taste of Home Productions, Inc.The Reader’s Digest Association (Russia) IncorporatedTravel Publications, Inc.VideOvation, Inc.W.A. Publications, LLCWAPLA, LLCWorld Wide Country Tours, Inc.

 

Direct Holdings U.S. Corp.Direct Holdings Americas Inc.Direct Holdings Custom Publishing Inc.Direct Holdings Education Inc.Alex Inc.Direct Holdings Customer Service, Inc.Direct Holdings Libraries Inc.

 

WRC Media Inc.CompassLearning, Inc.Weekly Reader CorporationLifetime Learning Systems, Inc.World Almanac Education Group, Inc.Funk & Wagnalls Yearbook Corp.Gareth Stevens, Inc.

 

14

----

 

Other Actions

 

Notes delivered at closing of:

 

Pegasus Sales, Inc.Reader’s Digest Children’s Publishing, Inc.Reader’s Digest Sales & Services, Inc.Books Are Fun, Ltd.

 

15

----

 

**Schedule 4**

**Jurisdictions of Organization**

 
| **Company  Name**                                          | ** ** | **Jurisdiction** |
|------------------------------------------------------------|------------|------------------|
| The Reader’s Digest Association, Inc.            |       | Delaware         |
| Allrecipes.com, Inc.                                  |       | Washington       |
| Ardee Music Publishing, Inc.                          |       | Delaware         |
| Books Are Fun, Ltd.                                        |       | Iowa             |
| Christmas Angel Productions, Inc.                     |       | Delaware         |
| Family Reading Program Corp.                               |       | Delaware         |
| Home Service Publications, Inc.                       |       | Delaware         |
| Pegasus Asia Investments, Inc.                        |       | Delaware         |
| Pegasus Finance Corp.                                      |       | Delaware         |
| Pegasus Investment, Inc.                              |       | Delaware         |
| Pegasus Sales, Inc.                                   |       | Delaware         |
| Pleasantville Music Publishing, Inc.                  |       | Delaware         |
| QSP, Inc.                                             |       | Delaware         |
| QSP Distribution Services, LLC                             |       | Delaware         |
| QSP Products and Programs, LLC                             |       | Delaware         |
| QSP Sales, LLC                                             |       | Delaware         |
| QSP Services, LLC                                          |       | Delaware         |
| QSP Ventures, LLC                                          |       | Delaware         |
| RD Large Edition, Inc.                                |       | Delaware         |
| RD Magazine Value Partners, Inc.                      |       | Delaware         |
| R. D. Manufacturing  Corporation                           |       | Delaware         |
| RD Member Services, Inc.                              |       | Delaware         |
| RD Publications, Inc.                                 |       | Delaware         |
| RD Trade Shows, Inc.                                  |       | Delaware         |
| RD Walking, Inc.                                      |       | Delaware         |
| Reader’s Digest Children’s Publishing, Inc. |       | Delaware         |
| Reader’s Digest Consumer  Services, Inc.         |       | Delaware         |
| Reader’s Digest  Entertainment, Inc.             |       | Delaware         |
| Reader’s Digest Financial  Services, Inc.        |       | Delaware         |
| Taste of Home Entertaining, Inc.                      |       | Delaware         |
| Reader’s  Digest Latinoamerica S.A.                   |       | Delaware         |
| Reader’s Digest Sales and  Services, Inc.        |       | Delaware         |
| Fundraising.com, Inc.                                 |       | Delaware         |
| Reader’s Digest Sub Nine, Inc.                   |       | Delaware         |
| Reader’s Digest Young Families, Inc.             |       | Delaware         |
| Taste of Home Media Group, Inc.                       |       | Delaware         |
| Reiman Media Group, Inc.                              |       | Delaware         |
| Retirement Living Publishing Company, Inc.            |       | Delaware         |
| SMDDMS, Inc.                                          |       | Delaware         |
| Taste of Home Productions, Inc.                       |       | Delaware         |

 

16

----

 
| The Reader’s Digest Association (Russia) Incorporated |   | Delaware  |
|------------------------------------------------------------|--------|-----------|
| Travel Publications, Inc.                             |   | Delaware  |
| VideOvation, Inc.                                     |   | Delaware  |
| W.A. Publications, LLC                                     |   | Delaware  |
| WAPLA, LLC                                                 |   | Delaware  |
| World Wide Country Tours, Inc.                        |   | Delaware  |
|                                                       |   |      |
| Alex Inc.                                                  |   | Delaware  |
| Direct Holdings Americas Inc.                              |   | Delaware  |
| Direct Holdings Custom Publishing Inc.                     |   | Delaware  |
| Direct Holdings Customer Service, Inc.                |   | Delaware  |
| Direct Holdings Education Inc.                             |   | Delaware  |
| Direct Holdings Libraries Inc.                             |   | New York  |
| Direct Holdings U.S. Corp.                                 |   | Delaware  |
|                                                       |   |      |
| WRC Media Inc.                                             |   | Delaware  |
| CompassLearning, Inc.                                 |   | Delaware  |
| Weekly Reader Corporation                                  |   | Delaware  |
| Lifetime Learning Systems, Inc.                       |   | Delaware  |
| World Almanac Education Group, Inc.                   |   | Delaware  |
| Funk & Wagnalls Yearbook Corp.                    |   | Delaware  |
| Gareth Stevens, Inc.                                  |   | Wisconsin |

 

17

----

 

**Schedule 5**

**Inventory and Equipment Locations**

 
| **Loan Party**                             | ** ** | **Inventory and Equipment Location**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The Reader’s Digest Association, Inc. |       | The Reader’s Digest Association, Inc.

Reader’s Digest Road

Pleasantville, NY 10570                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Books Are Fun, Ltd.                             |       | Books Are Fun, Ltd.

1680 Highway  1

Fairfield, IA 52556

 

Books Are Fund, Ltd.

1801 West Stone

Fairfield, IA 52556

 

Dallas Transfer

2424 N. Westmoreland Road

Dallas, TX 75212

 

Innotrac

6655 Sugar Loaf Parkway

Duluth, GA 30097

 

Innotrac

4910 Langley Lane, Suite 101

Reno, NV 89502

 

Innotrac — Chicago

1180 W. Remington Blvd.

Romeoville, IL 60446

 

JV West

1575 Linda Way, Door #2

Sparks, NV 89431

 

Overflow Warehouse

1450 Beacon Street

Baltimore, MD 21230 |
|                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| QSP, Inc.                                  |       | QSP, Inc.

Reader’s Digest Rd.

Pleasantville, NY 10570

 

Exact Packaging

100 Deerfield Road

Pontiac, IL 61764                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

18

----

 
|                                                       |   | Alert Terminal Warehouse

1200 Breedlove

Memphis, TN 38107                                                                                                                                                                                                                                                                                                                         |
|------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                |
| QSP Distribution Services, LLC                             |   | EDS

3600 Army Post Road

Des Moines, IA 50321                                                                                                                                                                                                                                                                                                                                      |
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                |
| R. D. Manufacturing  Corporation                           |   | Anet

Riverpoint Enterprise ZC

Louisville, KY 40258

 

Putnam

1 Grosset Drive

Kirkwood, NY 13795

 

R. R. Donnelley

216 Greenfield Road

Lancaster, PA 17601                                                                                                                                                                                                        |
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                |
| Reader’s Digest Children’s Publishing, Inc. |   | Simon & Schuster

100 Front Street

Riverside, NJ 08075                                                                                                                                                                                                                                                                                                                    |
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                |
| Taste of Home Entertaining, Inc.                      |   | Custom Marketing Services, Inc.

41 N. Industrial Blvd.

Calera, AL 35040                                                                                                                                                                                                                                                                                                      |
|                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                |
| Reiman Media Group, Inc.                              |   | Reiman Media Group, Inc.

5400 South 60th Street

Greendale, WI 53129

 

Reiman Country Store

5400 S. 60th Street

Greendale, WI 53129

 

Lindner Country Store

6055 S. 6th Street

Milwaukee, WI 53221

 

Quad Graphics

1900 W. Sumner Street

Hartford, WI 53027

 

Warren Book Marketing

1515 Grandview Parkway

Sturtevant, WI 53177 |

 

19

----

 
| Direct Holdings Americas Inc.            |   | 2600 International Parkway

Virginia Beach, VA 23452*

 

1400 East Lackawanna Avenue

Olyphant, PA 18447*

 

948 Merifan Lake Drive

Aurora, IL 60507*                                                                                                                                                                                                                          |
|------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| WRC Media Inc.                           |   | 512 Seventh Avenue

New York, NY 10018                                                                                                                                                                                                                                                                                                                                                      |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| CompassLearning, Inc.               |   | 7878 N. 16th Street, Suite 100

Phoenix, AZ 85020

 

203 Colorado Street  Austin, TX 78701                                                                                                                                                                                                                                                                                       |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| Weekly Reader Corporation                |   | 200 First Stamford Place

Stamford, CT 06912

 

1000 Taylors Lane, Unit #8

Cinnaminson, NJ 08011                                                                                                                                                                                                                                                                                     |
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                                        |
| World Almanac Education Group, Inc. |   | 23221 Morgan Court, Bldg. 3  Strongsville, OH 44149

 

State Rd. 92 West

Crawfordsville, IN 47853*

 

649 Alden St.

Fall River, MA 02722*

 

Rte. 9-J, 1897 River Rd.

Rensselaer, NY 12144*

 

16365 James Madison Highway

Gordonsville, VA 22942*

 

1133 County Street

Taunton, MA 02780*

 

23221 Morgan Court, Bldg. 3

Strongsville, OH 44149 |

 

----

* indicates bailee or warehouseman location

 

20

----

 

**Schedule 6**

**Intellectual Property**

 

Copyrights/Applications:

 

See attached Copyrights Schedule.

 

Trademarks/Applications:

 

See attached Trademarks Schedule.

 

Patents/Patent Licenses/Applications:

 

See attached Patents Schedule.

 

21

----

 

**Schedule 7**

**Commercial Tort Claims**

 

None.

 

22

----

 

Annex 1 to

Guarantee and Collateral Agreement

 

ASSUMPTIONAGREEMENT, dated asof            , 20     , madeby                       ,a                       corporation(the “Additional Grantor”), in favor of JPMORGAN CHASE BANK, N.A., asadministrative agent (in such capacity, the “Administrative Agent”), forthe lending and other financial institutions (the “Lenders”) parties tothe Credit Agreement referred to below. All capitalized terms not definedherein shall have the meaning ascribed to them in such Credit Agreement.

 

W I T N E S S E T H:

 

WHEREAS,RDA HOLDING CO., a Delaware corporation (“Holdings”), THE READER’SDIGEST ASSOCIATION, INC., a Delaware corporation (the “Company”), theOverseas Borrowers, the Lenders and the Administrative Agent have entered intoa Credit Agreement, dated as of March 2, 2007 (as amended, supplemented orotherwise modified from time to time, the “Credit Agreement”);

 

WHEREAS,in connection with the Credit Agreement, Holdings, the Company and certain ofthe Company’s Subsidiaries (other than the Additional Grantor) have enteredinto the Guarantee and Collateral Agreement, dated as of March 2, 2007 (asamended, supplemented or otherwise modified from time to time, the “Guaranteeand Collateral Agreement”) in favor of the Administrative Agent for thebenefit of the Lenders;

 

WHEREAS,the Credit Agreement requires the Additional Grantor to become a party to theGuarantee and Collateral Agreement; and

 

WHEREAS,the Additional Grantor has agreed to execute and deliver this AssumptionAgreement in order to become a party to the Guarantee and Collateral Agreement;

 

NOW,THEREFORE, IT IS AGREED:

 

1.             Guarantee and CollateralAgreement. By executing and delivering this Assumption Agreement, theAdditional Grantor, as provided in Section 8.14 of the Guarantee and CollateralAgreement, hereby becomes a party to the Guarantee and Collateral Agreement asa Guarantor and a Grantor thereunder with the same force and effect as iforiginally named therein as a Guarantor and a Grantor and, without limiting thegenerality of the foregoing, hereby expressly assumes all obligations andliabilities of a Guarantor and a Grantor thereunder. The information set forthin Annex 1-A hereto is hereby added to the information set forth in theSchedules to the Guarantee and Collateral Agreement. The Additional Grantorhereby represents and warrants that each of the representations and warrantiescontained in Section 4 of the Guarantee and Collateral Agreement is true andcorrect on and as the date hereof (after giving effect to this AssumptionAgreement) as if made on and as**of such date.

 

----

 

**2.****GOVERNINGLAW**. **THISASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,THE LAW OF THE STATE OF NEW YORK.**

 

INWITNESS WHEREOF, the undersigned has caused this Assumption Agreement to beduly executed and delivered as of the date first above written.

 
|   | [ADDITIONAL  GRANTOR] |
|--------|-----------------------|
|   |                  |
|   |                  |
|   | By:                   |   |
|   |                  | Name: |
|   |                  | Title: |

 

----

** **

**EXECUTIONCOPY**

 

 

GUARANTEE ANDCOLLATERAL AGREEMENT

 

made by

 

DOCTOR ACQUISITIONCO.,

 

RDA HOLDING CO.,

 

THE READER’SDIGEST ASSOCIATION, INC.

 

and

 

THE GUARANTORSIDENTIFIED HEREIN

 

in favor of

 

JPMORGAN CHASEBANK, N.A.,as Administrative Agent

 

Dated as of March 2,2007

 

 

----

 

TABLE OF CONTENTS

 
| ** **      | ** **                                                          | **Page** |
|-----------------|---------------------------------------------------------------------|----------|
| Section 1. | DEFINED TERMS                                                       | 1        |
| 1.1.            | Definitions                                                         | 1        |
| 1.2.            | Other Definitional  Provisions                                      | 5        |
|            |                                                                |     |
| Section 2. | GUARANTEE                                                           | 5        |
| 2.1.            | Guarantee                                                           | 5        |
| 2.2.            | Right of Contribution                                               | 6        |
| 2.3.            | No Subrogation                                                      | 6        |
| 2.4.            | Amendments, etc., with  respect to the Borrower Obligations         | 7        |
| 2.5.            | Guarantee Absolute and  Unconditional                               | 7        |
| 2.6.            | Reinstatement                                                       | 8        |
| 2.7.            | Payments                                                            | 8        |
|            |                                                                |     |
| Section 3. | GRANT OF SECURITY  INTEREST                                         | 8        |
|            |                                                                |     |
| Section 4. | REPRESENTATIONS AND  WARRANTIES                                     | 10       |
| 4.1.            | Title; No Other Liens                                               | 10       |
| 4.2.            | Perfected First  Priority Liens                                     | 11       |
| 4.3.            | Jurisdiction of  Organization                                       | 11       |
| 4.4.            | Inventory and Equipment                                             | 11       |
| 4.5.            | Farm Products                                                       | 11       |
| 4.6.            | Investment Property                                                 | 11       |
| 4.7.            | Receivables                                                         | 12       |
| 4.8.            | Intellectual Property                                               | 12       |
| 4.9.            | Commercial Tort Claims                                              | 12       |
|            |                                                                |     |
| Section 5. | COVENANTS                                                           | 12       |
| 5.1.            | Delivery of  Instruments, Certificated Securities and Chattel Paper | 13       |
| 5.2.            | Maintenance of  Insurance                                           | 13       |
| 5.3.            | Maintenance of  Perfected Security Interest; Further Documentation  | 13       |
| 5.4.            | Changes in Locations,  Name, etc.                                   | 14       |
| 5.5.            | Notices                                                             | 14       |
| 5.6.            | Investment Property                                                 | 14       |
| 5.7.            | Receivables                                                         | 16       |
| 5.8.            | Intellectual Property                                               | 16       |
| 5.9.            | Commercial Tort Claims                                              | 18       |
|            |                                                                |     |
| Section 6. | REMEDIAL PROVISIONS                                                 | 18       |
| 6.1.            | Certain Matters  Relating to Receivables                            | 18       |
| 6.2.            | Communications with  Obligors; Grantors Remain Liable               | 19       |
| 6.3.            | Pledged Equity                                                      | 20       |
| 6.4.            | Proceeds to be Turned  Over to Administrative Agent                 | 21       |

 

i

----

 
| ** **      | ** **                                                                                        | **Page** |
|-----------------|---------------------------------------------------------------------------------------------------|----------|
| 6.5.            | Application of Proceeds                                                                           | 21       |
| 6.6.            | Code and Other Remedies                                                                           | 21       |
| 6.7.            | Registration Rights                                                                               | 22       |
| 6.8.            | Deficiency                                                                                        | 23       |
|            |                                                                                              |     |
| Section 7. | THE ADMINISTRATIVE  AGENT                                                                         | 23       |
| 7.1.            | Administrative Agent’s  Appointment as Attorney-in-Fact, etc.                                | 23       |
| 7.2.            | Duty of Administrative  Agent                                                                     | 25       |
| 7.3.            | Execution of Financing  Statements                                                                | 25       |
| 7.4.            | Authority of  Administrative Agent                                                                | 26       |
|            |                                                                                              |     |
| Section 8. | MISCELLANEOUS                                                                                     | 26       |
| 8.1.            | Amendments in Writing                                                                             | 26       |
| 8.2.            | Notices                                                                                           | 26       |
| 8.3.            | No Waiver by Course of  Conduct; Cumulative Remedies                                              | 26       |
| 8.4.            | Enforcement Expenses;  Indemnification                                                            | 26       |
| 8.5.            | Successors and Assigns                                                                            | 27       |
| 8.6.            | Setoff                                                                                            | 27       |
| 8.7.            | Counterparts                                                                                      | 27       |
| 8.8.            | Severability                                                                                      | 28       |
| 8.9.            | Section Headings                                                                                  | 28       |
| 8.10.           | Integration                                                                                       | 28       |
| **8.11.**       | **GOVERNING  LAW**                                                                                | 28       |
| 8.12.           | Submission To  Jurisdiction; Waivers                                                              | 28       |
| 8.13.           | Acknowledgments                                                                                   | 29       |
| 8.14.           | Additional Guarantors  and Grantors                                                               | 29       |
| 8.15.           | Releases                                                                                          | 29       |
| **8.16.**       | **WAIVER  OF JURY TRIAL**                                                                         | 30       |
| 8.17.           | Effectiveness of the  Merger; Assignment and Delegation to and Assumption by Reader’s Digest | 30       |
| 8.18.           | German Borrower  Security                                                                         | 30       |
| 8.19.           | Parallel Obligations                                                                              | 31       |
|            |                                                                                              |     |
| SCHEDULES       |                                                                                              |
| Schedule 1      | Notice Addresses                                                                                  |     |
| Schedule 2      | Investment Property                                                                               |     |
| Schedule 3      | Perfection Matters                                                                                |     |
| Schedule 4      | Jurisdictions of  Organization                                                                    |     |
| Schedule 5      | Inventory and Equipment  Locations                                                                |     |
| Schedule 6      | Intellectual Property                                                                             |     |
| Schedule 7      | Commercial Tort Claims                                                                            |     |
|            |                                                                                              |     |
| ANNEX           |                                                                                              |     |
| Annex 1         | Form of Security  Agreement Supplement                                                            |     |
| Annex 2         | Form of Perfection  Certificate                                                                   |     |
|                 |                                                                                                   |          |  |

 

ii

----

 

GUARANTEE AND COLLATERALAGREEMENT, dated as of March 2, 2007, made by each of the signatories hereto(other than the German Borrower, and together with any other entity that maybecome a party hereto as provided herein, the “Grantors”), in favor of JPMORGANCHASE BANK, NA., as Administrative Agent (in such capacity, the “AdministrativeAgent”) for the lending and other financial institutions (the “Lenders”)from time to time parties to the Credit Agreement, dated as of the date hereof(as amended, supplemented or otherwise modified from time to time, the “CreditAgreement”), among DOCTOR ACQUISITION CO., a Delaware corporation (to bemerged with and into Reader’s Digest (as defined below), the “Company”),RDA HOLDING CO., a Delaware corporation (“Holdings”), THE READER’SDIGEST ASSOCIATION, INC., a Delaware corporation (“Reader’s Digest”),the Overseas Borrowers from time to time party thereto (together with theCompany, the “Borrowers”), the Lenders and the Administrative Agent.

 

W I T N E S S E T H:

 

WHEREAS, Holdings, theBorrowers, the Lenders and the Administrative Agent have entered into theCredit Agreement, pursuant to which the Lenders have severally agreed to makeextensions of credit to the Borrowers upon the terms and subject to the conditionsset forth therein;

 

WHEREAS, each Borrower isa member of an affiliated group of companies that, following the consummationof the Acquisitions, will include each other Grantor;

 

WHEREAS, the proceeds ofthe extensions of credit under the Credit Agreement will be used in part toenable the Borrowers to make valuable transfers to one or more of the otherGrantors in connection with the operation of their respective businesses;

 

WHEREAS, the Borrowersand the other Grantors are engaged in related businesses, and each Grantor willderive substantial direct and indirect benefit from the making of theextensions of credit under the Credit Agreement; and

 

WHEREAS, it is acondition precedent to the obligation of the Lenders to make their respectiveextensions of credit to the Borrowers under the Credit Agreement that theGrantors shall have executed and delivered this Agreement to the AdministrativeAgent for the ratable benefit of the Secured Parties;

 

NOW, THEREFORE, inconsideration of the premises and the agreements hereinafter set forth, and inorder to induce the Administrative Agent and the Lenders to enter into theCredit Agreement and in order to induce the Lenders to make their respectiveextensions of credit to the Borrowers thereunder, each Grantor hereby agreeswith the Administrative Agent, for the ratable benefit of the Secured Parties,as follows:

 

SECTION 1.DEFINED TERMS

 

1.1.   Definitions.(a) Unless otherwise defined herein, terms defined in the Credit Agreement andused herein shall have the meanings given to them in the Credit Agreement, andthe following terms are used herein as defined in the New York UCC: Accounts,Certificated Security, Chattel Paper, Commercial Tort Claims, Documents,

 

----

 

Equipment, Farm Products,General Intangibles, Instruments, Inventory, Letter of Credit Rights andSupporting Obligations.

 

(b) The following termsshall have the following meanings:

 

“Agreement”:this Guarantee and Collateral Agreement, as the same may be amended,supplemented or otherwise modified from time to time.

 

“ApplicableGovernmental Authority”: as defined in Section 5.7 (c).

 

“BorrowerObligations”: the “Obligations” as defined in the Credit Agreement.

 

“Collateral”:as defined in Section 3.

 

“CollateralAccount”: any collateral account established by the Administrative Agent asprovided in Section 6.1 or 6.4.

 

“Copyrights”:(i) all copyrights arising under the laws of the United States, any othercountry or any political subdivision thereof, whether registered orunregistered and whether published or unpublished (including, withoutlimitation, those listed in Schedule 6), all registrations andrecordings thereof, and all applications in connection therewith, including,without limitation, all registrations, recordings and applications in the UnitedStates Copyright Office, and (ii) the right to obtain all renewals thereof.

 

“CopyrightLicenses”: any written agreement naming any Grantor as licensor orlicensee, granting any right under any Copyright, including, withoutlimitation, the grant of rights to manufacture, distribute, exploit and sellmaterials derived from any Copyright.

 

“DepositAccount”: as defined in the Uniform Commercial Code of any applicablejurisdiction and, in any event, including, without limitation, any demand, timesavings, passbook or like account maintained with a depositary institution.

 

“ExcludedProperty”: as defined in Section 3.

 

“ForeignSubsidiary”: any direct or indirect Restricted Subsidiary of the Companywhich (i) is not a Domestic Subsidiary or (ii) is set forth on Schedule 1.01 Eto the Credit Agreement.

 

“ForeignSubsidiary Voting Stock”: the voting Equity Interests of any ForeignSubsidiary and of any Domestic Subsidiary substantially all of whose assetsconsist of voting Equity Interests of one or more Foreign Subsidiaries.

 

“GuarantorObligations”: with respect to any Guarantor, all obligations andliabilities of such Guarantor which may arise under or in connection with thisAgreement (including, without limitation, Section 2) or any other Loan Documentor any Secured Hedge Agreement to which such Guarantor is a party, in each casewhether on account of guarantee obligations, reimbursement obligations, fees,indemnities, costs, expenses or

 

2

----

 

otherwise (including,without limitation, all Attorney Costs that are required to be paid by suchGuarantor pursuant to the terms of this Agreement or any other Loan Document).

 

“Guarantors”:the collective reference to each Grantor other than the Company; providedthat the term “Guarantors” shall include the Company in the case of theOverseas Obligations.

 

“IntellectualProperty”: the collective reference to all rights, priorities andprivileges relating to intellectual property, whether arising under UnitedStates, multinational or foreign laws or otherwise, including, withoutlimitation, the Copyrights, the Copyright Licenses, the Patents, the PatentLicenses, the Trademarks and the Trademark Licenses, and all rights to sue atlaw or in equity for any infringement or other impairment thereof, includingthe right to receive all proceeds and damages therefrom.

 

“IntercompanyNote”: any promissory note evidencing loans made by any Grantor to Holdingsor any of its Subsidiaries.

 

“InvestmentProperty”: the collective reference to (i) all “investment property” assuch term is defined in Section 9-102 (a)(49) of the New York UCC (other thanany Foreign Subsidiary Voting Stock and any Equity Interests of UnrestrictedSubsidiaries excluded from the definition of “Pledged Equity”) and (ii) whetheror not constituting “investment property” as so defined, all Pledged Debt andall Pledged Equity.

 

“Issuers”:the collective reference to each issuer of any Investment Property.

 

“LTIBR”:any interest-bearing receivables, including deposits or other funds, with amaturity that qualifies as long-term pursuant to section 8 no. 1 German TradeTax Act (*Gewerbesteuergesetz)*tobe applied *mutatis mutandis*inaccordance with marginal notes 20 and 37 of the decree to § 8a of the GermanCorporate Income Tax Act (*Körperschaftsteuergesetz)*dated July 15, 2004.

 

“New York UCC”:the Uniform Commercial Code as from time to time in effect in the State of NewYork.

 

“Obligations”:(i) in the case of each Borrower, its Borrower Obligations, and (ii) in thecase of each Guarantor, its Guarantor Obligations.

 

“Patents”: (i)all letters patent of the United States, any other country or any politicalsubdivision thereof, all reissues and extensions thereof and all goodwillassociated therewith, including, without limitation, any of the foregoingreferred to in Schedule 6, (ii) all applications for letters patent ofthe United States or any other country and all divisions, continuations andcontinuations-in-part thereof, including, without limitation, any of theforegoing referred to in Schedule 6, and (iii) all rights to obtain anyreissues or extensions of the foregoing.

 

“Patent License”:all agreements, whether written or oral, providing for the grant by or to anyGrantor of any right to manufacture, use or sell any invention covered in

 

3

----

 

whole or in part by a Patent, including,without limitation, any of the foregoing referred to in Schedule 6.

 

“PerfectionCertificate” means a certificate substantially in the form of Annex 2,completed and supplemented with the schedules and attachments contemplatedthereby, and duly executed by the associate general counsel or the chief legalofficer of Reader’s Digest.

 

“Pledged Debt”:all promissory notes listed on Schedule 2, all Intercompany Notes at anytime issued to any Grantor and all other promissory notes issued to or held byany Grantor (other than promissory notes issued in connection with extensionsof trade credit by any Grantor in the ordinary course of business).

 

“Pledged Equity”:the Equity Interests listed on Schedule 2, together with any othershares, stock certificates, options or rights of any nature whatsoever inrespect of the Equity Interests of any Person that may be issued or granted to,or held by, any Grantor while this Agreement is in effect; provided thatin no event shall (i) more than 65% of the issued and outstanding ForeignSubsidiary Voting Stock of any Foreign Subsidiary or of any Domestic Subsidiarysubstantially all of whose assets consist of voting Equity Interests of one ormore Foreign Subsidiaries, (ii) Equity Interests of any UnrestrictedSubsidiary, (iii) the Company Preferred Stock or (iv) Equity Interests of anyRestricted Subsidiary pledged to secure Indebtedness permitted under Section 7.03(g)of the Credit Agreement constitute Pledged Equity or be required to be pledgedhereunder.

 

“Proceeds”:all “proceeds” as such term is defined in Section 9-102(a)(64) of the New YorkUCC and, in any event, shall include, without limitation, all dividends orother income from the Investment Property, collections thereon or distributionsor payments with respect thereto.

 

“Receivable”:any right to payment for goods sold or leased or for services rendered, whetheror not such right is evidenced by an Instrument or Chattel Paper and whether ornot it has been earned by performance (including, without limitation, anyAccount).

 

“SecuredParties”: the collective reference to the Administrative Agent, the otherAgents, the L/C Issuers, the Lenders, the Hedge Banks, any Affiliate of aLender, the Supplemental Administrative Agent and each co-agent or sub-agentappointed by the Administrative Agent from time to time pursuant to Section 9.01(c)of the Credit Agreement, to which Borrower Obligations or GuarantorObligations, as applicable, are owed.

 

“Securities Act”:the Securities Act of 1933, as amended.

 

“SpecifiedAssets” means (a) LTIBR and (b) following any amendment or replacement of §8a of the German Corporate Income Tax Act *(Körperschaftsteuergesetz),*any other property or assets owned by any Loan Party or any otherprovider of security, direct or indirect access to which property or assets(whether through inclusion in the Collateral or otherwise) would result inadverse tax

 

4

----

 

consequences to Holdingsand its Subsidiaries as a consequence of any such amendment or replacement,provided that the aggregate fair market value of the property and assetsincluded in the definition of Specified Assets pursuant to this clause (b) shallnot exceed an amount equal to 10% of the consolidated total assets of theGerman Borrower and its Subsidiaries.

 

“SubsidiaryGuarantor”: any Subsidiary of the Company that is or becomes a party tothis Agreement.

 

“Trademarks”:(i) all trademarks, trade names, corporate names, company names, businessnames, fictitious business names, trade styles, service marks, logos and othersource or business identifiers, and all goodwill associated therewith, nowexisting or hereafter adopted or acquired, all registrations and recordingsthereof, and all applications in connection therewith, whether in the UnitedStates Patent and Trademark Office or in any similar office or agency of theUnited States, any State thereof or any other country or any politicalsubdivision thereof, or otherwise, and all common-law rights related thereto,including, without limitation, any of the foregoing referred to in Schedule6, and (ii) the right to obtain all renewals thereof.

 

“TrademarkLicense”: any agreement, whether written or oral, providing for the grantby or to any Grantor of any right to use any Trademark.

 

1.2.          Other Definitional Provisions. (a)The words “hereof,” “herein,” “hereto” and “hereunder” and words of similarimport when used in this Agreement shall refer to this Agreement as a whole andnot to any particular provision of this Agreement, and Section and Schedulereferences are to this Agreement unless otherwise specified.

 

(b) The meaningsgiven to terms defined herein shall be equally applicable to both the singularand plural forms of such terms.

 

(c) Where thecontext requires, terms relating to the Collateral or any part thereof, whenused in relation to a Grantor, shall refer to such Grantor’s Collateral or therelevant part thereof.

 

SECTION 2.GUARANTEE

 

2.1.          Guarantee. (a) Each of theGuarantors hereby, jointly and severally, unconditionally and irrevocably,guarantees to the Administrative Agent, for the ratable benefit of the SecuredParties and their respective successors and permitted indorsees, transfereesand assigns, the prompt and complete payment and performance by the Borrowerswhen due (whether at the stated maturity, by acceleration or otherwise) of theBorrower Obligations.

 

(b) Anything hereinor in any other Loan Document to the contrary notwithstanding, the maximumliability of each Guarantor hereunder and under the other Loan Documents shallin no event exceed the amount which can be guaranteed by such Guarantor underapplicable federal and state laws relating to the insolvency of debtors (aftergiving effect to the right of contribution established in Section 2.2).

 

5

----

 

(c) Each Guarantor agrees that the Borrower Obligations may at anytime and from time to time exceed the amount of the liability of such Guarantorhereunder without impairing the guarantee contained in this Section 2 oraffecting the rights and remedies of the Administrative Agent or any Lenderhereunder.

 

(d) Theguarantee contained in this Section 2 shall remain in full force andeffect until all the Obligations (other than contingent indemnification andcontingent expense reimbursement obligations, any Obligations in respect ofSecured Hedge Agreements and Cash Management Obligations) shall have beensatisfied by payment in full, no Letter of Credit shall be outstanding and theCommitments shall be terminated, notwithstanding that from time to time duringthe term of the Credit Agreement the Borrowers may be free from any BorrowerObligations.

 

(e) Except asprovided in Section 8.15, no payment made by any Borrower, any of theGuarantors, any other guarantor or any other Person or received or collected bythe Administrative Agent or any Lender from any Borrower, any of theGuarantors, any other guarantor or any other Person by virtue of any action orproceeding or any setoff, appropriation or application at any time or from timeto time in reduction of or in payment of the Borrower Obligations shall bedeemed to modify, reduce, release or otherwise affect the liability of anyGuarantor hereunder which shall, notwithstanding any such payment (other thanany payment made by such Guarantor in respect of the Borrower Obligations orany payment received or collected from such Guarantor in respect of theBorrower Obligations), remain liable for the Borrower Obligations up to themaximum liability of such Guarantor hereunder until the Borrower Obligationsare paid in full, no Letter of Credit is outstanding and the Commitments areterminated.

 

2.2.          Right of Contribution. EachSubsidiary Guarantor hereby agrees that to the extent that a SubsidiaryGuarantor shall have paid more than its proportionate share of any payment madehereunder, such Subsidiary Guarantor shall be entitled to seek and receivecontribution from and against any other Subsidiary Guarantor hereunder whichhas not paid its proportionate share of such payment. Each Subsidiary Guarantor’sright of contribution shall be subject to the terms and conditions of Section 2.3.The provisions of this Section 2.2 shall in no respect limit theobligations and liabilities of any Subsidiary Guarantor to the AdministrativeAgent and the Lenders, and each Subsidiary Guarantor shall remain liable to theAdministrative Agent and the Lenders for the full amount guaranteed by suchSubsidiary Guarantor hereunder.

 

2.3.            No Subrogation.Notwithstanding any payment made by any Guarantor hereunder or any setoff orapplication of funds of any Guarantor by the Administrative Agent or anyLender, no Guarantor shall be entitled to be subrogated to any of the rights ofthe Administrative Agent or any Lender against any Borrower or any otherGuarantor or any collateral security, guarantee or right of offset held by theAdministrative Agent or any Lender for the payment of the Borrower Obligations,nor shall any Guarantor seek any contribution or reimbursement from anyBorrower or any other Guarantor in respect of payments made by such Guarantorhereunder, until all amounts owing to the Administrative Agent and the Lendersby the Borrowers on account of the Borrower Obligations are paid in full, noLetter of Credit is outstanding and the Commitments are terminated. If anyamount shall be paid to any Guarantor on account of such subrogation rights atany time when all of the Borrower Obligations shall not

 

6

----

 

have been paid in full,such amount shall be held by such Guarantor in trust for the AdministrativeAgent and the Lenders, segregated from other funds of such Guarantor, andshall, forthwith upon receipt by such Guarantor, be turned over to theAdministrative Agent in the exact form received by such Guarantor (dulyindorsed by such Guarantor to the Administrative Agent, if required), to beapplied against the Borrower Obligations, whether matured or unmatured, in suchorder as the Administrative Agent may determine. For the avoidance of doubt,nothing in the foregoing shall operate as a waiver of any subrogation rights.

 

2.4.            Amendments, etc., with respect tothe Borrower Obligations. To the fullest extent permitted by applicablelaw, each Guarantor shall remain obligated hereunder notwithstanding that,without any reservation of rights against any Guarantor and without notice toor further assent by any Guarantor, any demand for payment of any of theBorrower Obligations made by the Administrative Agent or any Lender may berescinded by the Administrative Agent or such Lender and any of the BorrowerObligations continued, and the Borrower Obligations, or the liability of anyother Person upon them or for any part thereof, or any collateral security orguarantee therefor or right of offset with respect thereto, may, from time totime, in whole or in part, be renewed, extended, amended, modified,accelerated, compromised, waived, surrendered or released by the AdministrativeAgent or any Lender, and the Credit Agreement and the other Loan Documents andany other documents executed and delivered in connection therewith may beamended, modified, supplemented or terminated, in whole or in part, as theAdministrative Agent (or the Required Lenders or all Lenders, as the case maybe) may reasonably deem advisable from time to time, and any collateralsecurity, guarantee or right of offset at any time held by the AdministrativeAgent or any Lender for the payment of the Borrower Obligations may be sold,exchanged, waived, surrendered or released. Neither the Administrative Agentnor any Lender shall have any obligation to protect, secure, perfect or insureany Lien at any time held by it as security for the Borrower Obligations or forthe guarantee contained in this Section 2 or any property subject thereto.

 

2.5.          Guarantee Absolute and Unconditional.To the fullest extent permitted by applicable law, each Guarantor waives anyand all notice of the creation, renewal, extension or accrual of any of theBorrower Obligations and notice of or proof of reliance by the AdministrativeAgent or any Lender upon the guarantee contained in this Section 2 oracceptance of the guarantee contained in this Section 2; the BorrowerObligations, and any of them, shall conclusively be deemed to have beencreated, contracted or incurred, or renewed, extended, amended or waived, inreliance upon the guarantee contained in this Section 2; and all dealingsbetween any Borrower and any of the Guarantors, on the one hand, and theAdministrative Agent and the Lenders, on the other hand, likewise shall beconclusively presumed to have been had or consummated in reliance upon theguarantee contained in this Section 2. To the fullest extent permitted byapplicable law, each Guarantor waives diligence, presentment, protest, demandfor payment and notice of default or nonpayment to or upon any Borrower or anyof the Guarantors with respect to the Borrower Obligations. Each Guarantorunderstands and agrees that the guarantee contained in this Section 2, tothe fullest extent permitted by applicable law, shall be construed as a continuing,absolute and unconditional guarantee of payment without regard to (a) thevalidity or enforceability of the Credit Agreement or any other Loan Document,any of the Borrower Obligations or any other collateral security therefor orguarantee or right of offset with respect thereto at any time or from time totime held by the Administrative Agent or any Lender, (b) any defense,setoff or counterclaim (other than a defense of payment or performance)

 

7

----

 

which may at any time beavailable to or be asserted by any Borrower or any**other Personagainst the Administrative Agent or any Lender or (c) any othercircumstance whatsoever (with or without notice to or knowledge of any Borroweror such Guarantor) which constitutes, or might be construed to constitute, anequitable or legal discharge of any Borrower for the Borrower Obligations, orof such Guarantor under the guarantee contained in this Section 2, inbankruptcy or in any other instance. When making any demand hereunder orotherwise pursuing its rights and remedies hereunder against any Guarantor, theAdministrative Agent or any Lender may, but shall be under no obligation to,make a similar demand on or otherwise pursue such rights and remedies *as*it may have against any Borrower, anyother Guarantor or any other Person or against any collateral security orguarantee for the Borrower Obligations or any right of offset with respectthereto, and any failure by the Administrative Agent or any Lender to make any suchdemand, to pursue such other rights or remedies or to collect any payments fromany Borrower, any other Guarantor or any other Person or to realize upon anysuch collateral security or guarantee or to exercise any**such right ofoffset, or any release of any Borrower, any other Guarantor or any other Personor any such collateral security, guarantee or right of offset, shall notrelieve any Guarantor of any obligation or liability hereunder, and shall notimpair or affect the rights and remedies, whether express, implied or availableas a matter of law, of the Administrative Agent or any Lender against anyGuarantor. For the purposes hereof “demand” shall include the commencement andcontinuance of any legal proceedings.

 

2.6.          Reinstatement. The guaranteecontained in this Section 2 shall continue to be effective, or bereinstated, as the case may be, if at any time payment, or any part thereof, ofany of the Borrower Obligations is rescinded or must otherwise be restored orreturned by the Administrative Agent or any Lender upon the insolvency,bankruptcy, dissolution, liquidation or reorganization of any Borrower or anyGuarantor, or upon or as a result of the appointment of a receiver, intervenoror conservator of, or trustee or similar officer for, any Borrower or anyGuarantor or any substantial part of its property, or otherwise, all as thoughsuch payments had not been made.

 

2.7.          Payments. Each Guarantor herebyguarantees that payments hereunder will be paid to the Administrative Agentwithout setoff or counterclaim in Dollars at the Administrative Agent’s Office.

 

SECTION 3.GRANT OF SECURITY INTEREST

 

Each Grantor herebyassigns and transfers to the Administrative Agent, and hereby grants to theAdministrative Agent, for the ratable benefit of the Secured Parties, asecurity interest in, all of the following property now owned or at any timehereafter acquired by such Grantor or in which such Grantor now has or at anytime in the future may acquire any right, title or interest other than ExcludedProperty (collectively, the “Collateral”), as collateral security forthe prompt and complete payment and performance when due (whether at the statedmaturity, by acceleration or otherwise) of such Grantor’s Obligations:

 

(a)  allAccounts;

 

(b)  allChattel Paper;

 

8

----

 

(c)     all Deposit Accounts;

 

(d)     all Documents;

 

(e)     all Equipment;

 

(f)      all Fixtures;

 

(g)     all General Intangibles;

 

(h)     all Instruments;

 

(i)      all Intellectual Property;

 

(j)      all Inventory;

 

(k)     all Investment Property; 

 

(1)     all Letter of Credit Rights;

 

(m)    all Commercial Tort Claims with respect tothe matters described on Schedule 7;

 

(n)     all other personal property not otherwisedescribed above;

 

(o)     all books and records pertaining to theCollateral; and

 

(p)     to the extent nototherwise included, all Proceeds, Supporting Obligations and products of anyand all of the foregoing and all collateral security and guarantees given byany Person with respect to any of the foregoing;

 

provided, however, that notwithstandingany of the other provisions set forth in this Section 3, the termCollateral and the terms set forth in this Section defining the componentsof Collateral shall not include, and this Agreement shall not constitute agrant of a security interest in, any of the following (the “ExcludedProperty”): (i) any property to the extent that such grant of asecurity interest is prohibited by any applicable Law of a GovernmentalAuthority, requires a consent not obtained of any Governmental Authoritypursuant to such Law or is prohibited by, or constitutes a breach or defaultunder or results in the termination of or gives rise to a right on the part ofthe parties thereto other than Holdings, the Company and the Company’sSubsidiaries to terminate (or materially modify) or requires any consent notobtained under any contract, license, agreement, instrument or other documentevidencing or giving rise to such property or, in the case of any InvestmentProperty, Pledged Equity or Pledged Debt, any applicable shareholder or similaragreement, except to the extent that such Law or the term in such contract,license, agreement, instrument or other document or shareholder or similaragreement providing for such prohibition, breach, default or right of terminationor modification or requiring such consent is ineffective under applicable law, (ii) anyproperty owned by any Grantor on the date hereof or hereafter acquired that issubject to a Lien securing a purchase money, project financing or capital orfinance lease obligation permitted to be incurred pursuant to the CreditAgreement if

 

9

----

 

the contract or otheragreement in which such Lien is granted (or the documentation providing forsuch purchase money, project financing or capital or finance lease obligation)prohibits the creation of any other Lien on such property, (iii) anytrucks, trailers, tractors, service vehicles, automobiles, rolling stock orother registered mobile equipment or equipment covered by certificates of titleor ownership of any Grantor, (iv) Deposit Accounts exclusively used forpayroll, payroll taxes and other employee wage and benefit payments or anyother Deposit Account with an average annual balance of less than $5,000,000and (v) the Equity Interests of Direct Holdings IP L.L.C., a Delawarelimited liability company, and any joint venture in respect of which Holdingsor any of its Subsidiaries holds an Equity Interest if (and only so long as),in any case, the grant of any such security interest is prohibited by, orconstitutes a breach or default under or results in the termination of or givesrise to a right on the part of the parties thereto other than Holdings, theCompany and the Company’s Subsidiaries to terminate (or materially modify) orrequires any consent not obtained under any contract, license, agreement,instrument or other document evidencing or giving rise to such property or anyapplicable shareholder, joint venture or similar agreement; provided, however,that Excluded Property shall not include any Proceeds, substitutions orreplacements of any Excluded Property referred to above and such Proceeds shallnot constitute “Excluded Property” (unless such Proceeds, substitutions orreplacements would constitute Excluded Property referred to above). If an Eventof Default shall have occurred and be continuing, each Grantor shall, ifrequested to do so by the Administrative Agent, use commercially reasonableefforts to obtain any required consent that is reasonably obtainable withrespect to Collateral which the Administrative Agent reasonably determines tobe material.

 

SECTION 4.REPRESENTATIONS AND WARRANTIES

 

To induce theAdministrative Agent and the Lenders to enter into the Credit Agreement and toinduce the Lenders to make their respective extensions of credit to theBorrowers thereunder, each Grantor hereby represents and warrants to theAdministrative Agent and each Lender that:

 

4.1.          Title: No Other Liens. Exceptfor the security interest granted to the Administrative Agent for the ratablebenefit of the Secured Parties pursuant to this Agreement and the other Lienspermitted to exist on the Collateral by the Credit Agreement, such Grantor ownseach item of the Collateral free and clear of any and all Liens. No effectivefinancing statement or other public notice with respect to all or any part ofthe Collateral is on file or of record in any public office, except such ashave been filed in favor of the Administrative Agent, for the ratable benefitof the Secured Parties, pursuant to this Agreement or as are permitted by theCredit Agreement or as to which documentation to terminate the same shall havebeen delivered to the Administrative Agent. For the avoidance of doubt, it isunderstood and agreed that any Grantor may, as part of its business, grantlicenses to third parties to use Intellectual Property owned or developed by aGrantor. For purposes of this Agreement and the other Loan Documents, suchlicensing activity shall not constitute a “Lien” on such Intellectual Property.Each of the Administrative Agent and each Lender understands that any suchlicenses may be exclusive to the applicable licensees, and such exclusivityprovisions may limit the ability of the Administrative Agent to utilize, sell,lease or transfer the related Intellectual Property or otherwise realize valuefrom such Intellectual Property pursuant hereto.

 

10

----

 

4.2.          Perfected First Priority Liens.The Perfection Certificate has been duly prepared, completed and executed andthe information set forth therein, including the exact legal name of eachGrantor, is correct and complete in all material aspects as of the ClosingDate. The security interests granted pursuant to this Agreement (i) uponcompletion of the filings and other actions specified on Schedule 3(which, in the case of all filings and other documents referred to on saidSchedule, have been delivered to the Administrative Agent in completed and,where required, duly executed form) (x) will constitute valid perfectedsecurity interests in all of the Collateral (other than Intellectual Property)in favor of the Administrative Agent, for the ratable benefit of the SecuredParties, as collateral security for such Grantor’s Obligations, enforceable inaccordance with the terms hereof against all creditors of such Grantor and anyPersons purporting to purchase any Collateral from such Grantor, to the extenta security interest therein may be perfected by filing, recording orregistration in the United States pursuant to the New York UCC, and (y) willconstitute valid perfected security interests in all of the Collateralconsisting of Intellectual Property in favor of the Administrative Agent, forthe ratable benefit of the Secured Parties, as collateral security for suchGrantor’s Obligations, enforceable in accordance with the terms hereof againstall creditors of such Grantor and any Persons purporting to purchase anyCollateral from such Grantor, to the extent a security interest therein may beperfected by filings to be made in the United States Patent and TrademarkOffice and the United States Copyright Office, and (ii) are prior to allother Liens on the Collateral in existence on the date hereof except for Lienspermitted by the Credit Agreement which have priority over the Liens on theCollateral by operation of law (including the priority rules under the NewYork UCC) or which, in the case of Collateral consisting of Pledged Equity andPledged Debt, are nonconsensual Liens permitted pursuant to Section 7.01of the Credit Agreement to be prior to the security interests granted pursuantto this Agreement or which, in the case of Collateral other than Pledged Equityand Pledged Debt, are permitted pursuant to Section 7.01 of the CreditAgreement to be prior to the security interests granted pursuant to thisAgreement.

 

4.3.          Jurisdiction of Organization.On the date hereof, such Grantor’s jurisdiction of organization andidentification number from the jurisdiction of organization (if any) are specifiedon Schedule 4. Such Grantor has furnished to the Administrative Agent acertified charter, certificate of incorporation or other organization documentand long-form good standing certificate as of a date which is recent to thedate hereof.

 

4.4.          Inventory and Equipment. On thedate hereof, the Inventory and the Equipment of each Grantor are kept at thelocations listed on Schedule 5. The provisions of this Section 4.4shall not apply to Equipment or Inventory in transit, that has been sold(including sales on consignment or approval in the ordinary course ofbusiness), that is out for repair, that is at other locations for purposes ofonsite maintenance or repair or to Equipment and Inventory at locations withless than $5,000,000 in aggregate value.

 

4.5.          Farm Products. None of theCollateral constitutes, or is the Proceeds of, Farm Products.

 

4.6.          Investment Property. (a) Onthe date hereof, the shares of Pledged Equity pledged by such Grantor hereunderconstitute all the issued and outstanding shares of all classes of the EquityInterests of each Restricted Subsidiary owned by such Grantor or, in the caseof Restricted Subsidiaries that are Foreign Subsidiaries or DomesticSubsidiaries substantially all of

 

11

----

 

whose assets consist ofvoting Equity Interests of one or more Foreign Subsidiaries, the shares of suchIssuers pledged by such Grantor constitute 65% of the outstanding ForeignSubsidiary Voting Stock of each such Issuer (or, if such Grantor owns less than65% of the outstanding Foreign Subsidiary Voting Stock of any such Issuer,constitute all the Foreign Subsidiary Voting Stock of such Issuer owned by suchGrantor) in each case to the extent required by clause (d) of theCollateral and Guarantee Requirement.

 

(b) All theshares of the Pledged Equity as to which the Company or a Restricted Subsidiaryof the Company is the Issuer have been duly and validly issued and are fullypaid and nonassessable.

 

(c) To thebest of such Grantor’s knowledge, each of the Pledged Debt constitutes thelegal, valid and binding obligation of the obligor with respect thereto,enforceable in accordance with its terms, subject to the effects of bankruptcy,insolvency, fraudulent conveyance, reorganization, moratorium and other similarlaws relating to or affecting creditors’ rights generally, general equitableprinciples (whether considered in a proceeding in equity or at law) and animplied covenant of good faith and fair dealing.

 

(d) SuchGrantor is the beneficial owner of, and has good and marketable title to, theInvestment Property pledged by it hereunder, free of any and all Liens oroptions in favor of any other Person, except the security interest created bythis Agreement or nonconsensual Liens permitted pursuant to Section 7.01of the Credit Agreement.

 

4.7.          Receivables. (a) No amountpayable to such Grantor under or in connection with any Receivable of an amountgreater than $5,000,000 is evidenced by any Instrument or Chattel Paper whichhas not been delivered to the Administrative Agent.

 

(b) As of theEffective Date, the aggregate amount of Receivables required to be included inCollateral owed by Governmental Authorities to the Grantors does not exceed$5,000,000.

 

4.8.          Intellectual Property. Schedule6 lists all Intellectual Property (other than Copyright Licenses andTrademark Licenses) that is registered in the United States or for whichapplication for registration in the United States has been filed and that ismaterial to the operation of the business of the Company and its Subsidiariestaken as a whole owned by such Grantor in its own name on the date hereof.

 

4.9.          Commercial Tort Claims. On thedate hereof, except to the extent listed in Section 3 above, no Grantorhas knowledge of rights in any Commercial Tort Claim as to which it reasonablyexpects to recover more than $5,000,000.

 

SECTION 5.COVENANTS

 

Each Grantor covenantsand agrees with the Administrative Agent and the Lenders that, from and afterthe date of this Agreement until the Obligations (other than contingentindemnification and contingent expense reimbursement obligations, anyObligations

 

12

----

 

in respect of SecuredHedge Agreements and Cash Management Obligations) shall have been paid in full,no Letter of Credit shall be outstanding and the Commitments shall haveterminated:

 

5.1.          Delivery of Instruments,Certificated Securities and Chattel Paper. (a) If (i) any amountin excess of $5,000,000 owed by any Subsidiary of the Company to any Grantor or(ii) any other amount in excess of $5,000,000 payable under or inconnection with any of the Collateral shall be or become evidenced by anyInstrument, Certificated Security or Chattel Paper, such Instrument,Certificated Security or Chattel Paper shall be delivered as soon as reasonablypracticable to the Administrative Agent, duly indorsed in a manner reasonablysatisfactory to the Administrative Agent, to be held as Collateral pursuant tothis Agreement.

 

(b) Any Guaranteerequired to be subordinated pursuant to Section 7.03(c)(C) of theCredit Agreement and any Indebtedness required to be subordinated pursuant to Section 7.03(d) ofthe Credit Agreement shall, in each case, be fully subordinated to the paymentin full of the Obligations.

 

5.2.          Maintenance of Insurance. (a) SuchGrantor will maintain the insurance required by Section 6.07 of the CreditAgreement.

 

(b) All suchinsurance shall (i) provide that no cancellation, material reduction inamount or material change in coverage thereof shall be effective until at least30 days or, in the case of insurance existing as of the date hereof, at least10 days after receipt by the Administrative Agent of written notice thereof and(ii) name the Administrative Agent as insured party or loss payee.

 

5.3.          Maintenance of Perfected SecurityInterest: Further Documentation. (a) Such Grantor shall take allactions reasonably requested by the Administrative Agent to maintain thesecurity interest created by this Agreement as a security interest having atleast the perfection and priority described in Section 4.2 and shall takeall commercially reasonable actions to defend such security interest againstthe claims and demands of all Persons whomsoever, subject in each case to, inthe case of Collateral consisting of Pledged Equity and Pledged Debt,nonconsensual Liens permitted by Section 7.01 of the Credit Agreement and,in the case of Collateral other than Pledged Equity and Pledged Debt, Lienspermitted by the Credit Agreement and to the rights of such Grantor under theLoan Documents to dispose of the Collateral.

 

(b) Such Grantorwill furnish to the Administrative Agent from time to time statements andschedules further identifying and describing the assets and property of suchGrantor and such other reports in connection therewith as the AdministrativeAgent may reasonably request, all in reasonable detail. Each year, at the timeof delivery of annual financial statements with respect to the preceding fiscalyear pursuant to Section 6.01(a) of the Credit Agreement, the Companyshall deliver to the Administrative Agent a certificate executed by theassociate general counsel or the chief legal officer of the Company settingforth the information required pursuant to the Perfection Certificate orconfirming that there has been no change in such information since the date ofsuch certificate or the date of the most recent certificate delivered pursuantto this Section 5.3(b).

 

13

----

 

(c) Atany time and from time to time, upon the written request of the AdministrativeAgent, and at the sole expense of such Grantor, such Grantor will promptly andduly execute and deliver, and have recorded, such further instruments anddocuments and take such further actions as the Administrative Agent mayreasonably request for the purpose of obtaining or preserving the full benefitsof this Agreement and of the rights and powers herein granted, including,without limitation, (i) filing any financing or continuation statementsunder the Uniform Commercial Code (or other similar laws) in effect in anyjurisdiction with respect to the security interests created hereby and (ii) inthe case of Investment Property not issued by the Company or its Subsidiaries,Deposit Accounts, Letter of Credit Rights and any other relevant Collateral,using commercially reasonable efforts to take, at any time after the occurrenceand during the continuation of an Event of Default, any actions necessary toenable the Administrative Agent to obtain “control” (within the meaning of theapplicable Uniform Commercial Code) with respect thereto.

 

5.4.          Changesin Locations, Name, etc. Such Grantor will not, except upon 10 days’ priorwritten notice to the Administrative Agent (or such shorter notice as shall bereasonably satisfactory to the Administrative Agent) and delivery to theAdministrative Agent of all additional executed financing statements and otherdocuments reasonably requested by the Administrative Agent to maintain thevalidity, perfection and priority of the security interests provided forherein, (i) change its jurisdiction of organization from that referred toin Section 4.3 or (ii) change its name.

 

5.5.          Notices.Such Grantor will advise the Administrative Agent promptly, in reasonabledetail, of:

 

(a) any Lien (other than security interestscreated hereby or Liens permitted under the Credit Agreement) on any of theCollateral which would adversely affect the ability of the Administrative Agentto exercise any of its remedies hereunder; and

 

(b) the occurrence of any other event which couldreasonably be expected to have a material adverse effect on the aggregate valueof the Collateral or on the security interests created hereby.

 

5.6.          InvestmentProperty. (a) If such Grantor shall become entitled to receive orshall receive any certificate (including, without limitation, any certificaterepresenting a dividend or a distribution in connection with anyreclassification, increase or reduction of capital or any certificate issued inconnection with any reorganization), option or rights in respect of the EquityInterests of any Restricted Subsidiary, which Equity Interests are required tohave been pledged pursuant to clause (d) of the Collateral and GuaranteeRequirement, whether in addition to, in substitution of, as a conversion of, orin exchange for, any shares of the Pledged Equity, or otherwise in respectthereof, such Grantor shall accept the same as the agent of the AdministrativeAgent and the Lenders, hold the same in trust for the Administrative Agent andthe Lenders and deliver the same forthwith to the Administrative Agent in theexact form received, duly indorsed by such Grantor to the Administrative Agent,if required, together with an undated stock power covering such certificateduly executed in blank by such Grantor, to be held by the Administrative Agent,subject to the terms hereof, as additional collateral security for theObligations (provided that stock certificates representing the Pledged Equityof any Foreign

 

14

----

 

Immaterial Subsidiary need not be delivered to theAdministrative Agent for so long as such Foreign Immaterial Subsidiary remainsa Foreign Immaterial Subsidiary). If an Event of Default shall have occurredand be continuing, and any distribution of capital to a Grantor (other thancash) required to be included in Collateral shall be made on or in respect ofthe Investment Property or any property (other than cash) required to beincluded in Collateral shall be distributed to a Grantor upon or with respectto the Investment Property pursuant to the recapitalization or reclassificationof the capital of any Issuer or pursuant to the reorganization thereof, suchGrantor shall, unless such distribution of capital or property is otherwisesubject to a perfected security interest in favor of the Administrative Agent,use commercially reasonable efforts to cause it to be subject to a perfectedsecurity interest in favor of the Administrative Agent to the extent and in themanner required pursuant to Section 5.3 hereof. If any such property sodistributed in respect of the Investment Property shall be received by suchGrantor, such Grantor shall, until such property is delivered to theAdministrative Agent, hold such property in trust for the Administrative Agentand the Lenders as additional collateral security for the Obligations.

 

(b) Without theprior written consent of the Administrative Agent, such consent not to beunreasonably withheld, such Grantor will not (i) sell, assign, transfer,exchange, or otherwise dispose of, or grant any option with respect to, theInvestment Property or Proceeds thereof (except pursuant to a transactionexpressly permitted by the Credit Agreement), (ii) create, incur or permitto exist any Lien or option in favor of, or any claim of any Person withrespect to, any of the Investment Property or Proceeds thereof, or any interesttherein, except for the security interests created by this Agreement orpermitted under Section 7.01 of the Credit Agreement or (iii) exceptas permitted by the Credit Agreement, enter, subsequent to the date upon whichsuch Investment Property becomes Collateral hereunder, into any agreement(other than the Credit Agreement) or undertaking restricting the right orability of such Grantor or the Administrative Agent to sell, assign or transferany of the Investment Property required to be included in Collateral orProceeds thereof.

 

(c) In the case ofeach Grantor which is an Issuer, such Issuer agrees that (i) it will bebound by the terms of this Agreement relating to the Investment Propertyrequired to be included in Collateral issued by it and will comply with suchterms insofar as such terms are applicable to it, (ii) it will notify theAdministrative Agent promptly in writing of the occurrence of any of the eventsdescribed in Section 5.6(a) with respect to such Investment Propertyissued by it and (iii) the terms of Sections 6.3(c) and 6.7 shallapply to it, mutatismutandis, with respect to all actions thatmay be required of it pursuant to Section 6.3(c) and 6.7 with respectto such Investment Property issued by it.

 

(d) No Grantor shallpermit any security interest in certificated Pledged Equity of any Issuer thatis not a Subsidiary to be perfected by possession in favor of a Person otherthan the Administrative Agent.

 

(e) The Companyshall not permit any security interest in certificated Pledged Equity of1302791 Alberta ULC (or any ULC parent entity thereof that is a ForeignSubsidiary the Equity Interests of which are directly owned by the Company or aU. S. Guarantor) to be perfected by possession in favor of a Person other thanthe Administrative Agent (and shall so

 

15

----

 

perfect by possession in favor of the AdministrativeAgent on behalf of the Secured Parties upon the reasonable request of theAdministrative Agent).

 

5.7.          Receivables.(a) Other than in the ordinary course of business, such Grantor will not (i) grantany extension of the time of payment of any Receivable required to be includedin Collateral, (ii) compromise or settle any Receivable required to beincluded in Collateral for less than the full amount thereof, (iii) release,wholly or partially, any Person liable for the payment of any Receivablerequired to be included in Collateral, (iv) allow any credit or discountwhatsoever on any Receivable required to be included in Collateral or (v) amend,supplement or modify any Receivable required to be included in Collateral in anymanner that could adversely affect the value thereof.

 

(b) Such Grantorwill deliver to the Administrative Agent a copy of each material demand, noticeor document received by it that questions or calls into doubt the validity orenforceability of more than 20% of the aggregate amount of the then-outstandingReceivables.

 

(c) If such Grantorshall enter into any contract or other transaction with an ApplicableGovernmental Authority (as defined below) which will result in an ApplicableGovernmental Authority becoming an obligor on any Receivable required to beincluded in Collateral of an amount greater than $5,000,000, such Grantor shall(i) promptly thereafter notify the Administrative Agent thereof, (ii) provideto the Administrative Agent all such documents and instruments, and take allsuch actions, as shall be reasonably requested by the Administrative Agent toenable the Administrative Agent to comply with the requirements of the FederalAssignment of Claims Act or any other applicable Law to perfect its securityinterest in such Receivables and obtain the benefits of such Act or Law withrespect thereto and (iii) otherwise comply with its obligations under Section 5.3(c) withrespect thereto. As used in this paragraph, the term “Applicable GovernmentalAuthority” shall mean any Governmental Authority the Law applicable towhich provide that, for a creditor of a Person to which such GovernmentalAuthority has an obligation to pay money, whether pursuant to a Receivable, aGeneral Intangible or otherwise, to perfect such creditor’s Lien on suchobligation and/or to obtain the full benefits of such Lien and such Law,certain notice, filing, recording or other similar actions other than thefiling of a financing statement under the Uniform Commercial Code must begiven, executed, filed, recorded, delivered or completed, including, withoutlimitation, any Federal Governmental Authority to which the Federal Assignmentof Claims Act of 1940 is applicable.

 

5.8.          IntellectualProperty. (a) Such Grantor (either itself or through licensees) will (i) continueto use each Trademark that is material to the operation of the business of theCompany and its Subsidiaries taken as a whole on each and every trademark classof goods applicable to its current line as reflected in its current catalogs,brochures and price lists in order to maintain such Trademark in full forcefree from any claim of abandonment for non-use, (ii) maintain as in thepast the quality of products and services offered under such Trademark, (iii) usesuch Trademark with the appropriate notice of registration and all othernotices and legends required by applicable Law, (iv) not adopt or use anymark which is confusingly similar or a colorable imitation of such Trademarkunless the Administrative Agent, for the ratable benefit of the SecuredParties, shall obtain a perfected security interest in such mark pursuant tothis Agreement and (v) not (and not permit any licensee or sublicenseethereof to) do any act or

 

16

----

 

knowingly omit to do any act whereby such Trademarkmay become invalidated or impaired in any material respect.

 

(b) Such Grantor(either itself or through licensees) will not do any act, or omit to do anyact, whereby any Patent that is material to the operation of the business ofthe Company and its Subsidiaries taken as a whole may become forfeited,abandoned or dedicated to the public.

 

(c) Such Grantor(either itself or through licensees) (i) will employ each Copyright thatis material to the operation of the business of the Company and itsSubsidiaries taken as a whole and (ii) will not (and will not permit anylicensee or sublicensee thereof to) do any act or knowingly omit to do any actwhereby any portion of the Copyrights that is material to the operation of thebusiness of the Company and its Subsidiaries taken as a whole may becomeinvalidated or otherwise impaired. Such Grantor will not (either itself orthrough licensees) do any act whereby any portion of the Copyrights that is materialto the operation of the business of the Company and its Subsidiaries taken as awhole may fall into the public domain.

 

(d) Such Grantor(either itself or through licensees) will not do any act that knowingly usesany Intellectual Property that is material to the operation of the business ofthe Company and its Subsidiaries taken as a whole to infringe the intellectualproperty rights of any other Person.

 

(e) Such Grantorwill notify the Administrative Agent immediately if it knows, or has reason to know,that any application or registration relating to any Intellectual Property thatis material to the operation of the business of the Company and itsSubsidiaries taken as a whole may become forfeited, abandoned or dedicated tothe public, or of any adverse determination or development (including, withoutlimitation, the institution of, or any such determination or development in,any proceeding in the United States Patent and Trademark Office, the UnitedStates Copyright Office or any court or tribunal in any country) regarding suchGrantor’s ownership of, or the validity of, any such Intellectual Property orsuch Grantor’s right to register the same or to own and maintain the same.

 

(f) In the eventsuch Grantor, either by itself or through any agent, employee, licensee ordesignee, shall in any fiscal year file an application for the registration ofany Intellectual Property that is material to the operation of the Company andits Subsidiaries taken as a whole with the United States Patent and TrademarkOffice, the United States Copyright Office or any similar office or agency inany other country or any political subdivision thereof, such Grantor shallreport such filing to the Administrative Agent at the time of delivery ofannual financial statements with respect to such fiscal year pursuant to Section 6.01(a) ofthe Credit Agreement. Upon reasonable request of the Administrative Agent, suchGrantor shall execute and deliver, and have recorded, any and all agreements,instruments, documents, and papers as the Administrative Agent may reasonablyrequest to evidence the Administrative Agent’s and the Lenders’ securityinterest in any such Copyright, Patent or Trademark and the goodwill andgeneral intangibles of such Grantor relating thereto or represented thereby.

 

(g) Such Grantorwill take all reasonable and necessary steps, including, without limitation, inany proceeding before the United States Patent and Trademark Office, the United

 

17

----

 

States Copyright Office or any similar office oragency in any other country or any**political subdivision thereof, tomaintain and pursue each application (and to obtain the relevant registration)and to maintain each registration of the Intellectual Property that is materialto the operation of the business of the Company and its Subsidiaries taken as awhole, including, without limitation, filing of applications for renewal,affidavits of use and affidavits of incontestability.

 

(h) In the eventthat any Intellectual Property that is material to the operation of thebusiness of the Company and its Subsidiaries taken as a whole is infringed,misappropriated or diluted by a third party, such Grantor shall (i) takesuch actions as such Grantor shall reasonably deem appropriate under thecircumstances to protect such Intellectual Property and (ii) if suchIntellectual Property is of material economic value, promptly notify theAdministrative Agent after it learns thereof and sue for infringement,misappropriation or dilution, to seek injunctive relief where appropriate andto recover any and all damages for such infringement, misappropriation ordilution.

 

(i) Notwithstandinganything to the contrary in this Agreement, subject to the provisions of theCredit Agreement, nothing shall prevent any Grantor in the ordinary course ofbusiness from abandoning, ceasing to use or otherwise impairing or disposing ofany Intellectual Property if such Grantor reasonably believes that doing so isin its business interests. For the avoidance of doubt, nothing in this Section 5.8shall prohibit a sale, transfer or disposition of any Intellectual Propertymade in accordance with Sections 7.04 or 7.05 of the Credit Agreement.

 

(j) No Grantorshall, and the Grantors in the aggregate shall not, make filings in the UnitedStates Copyright Office or the United States Trademark Office to perfect anysecurity interest in all or substantially all of the Copyright Licenses held bythe Grantors in the aggregate or all or substantially all of the TrademarkLicenses held by the Grantors in the aggregate (other than to perfect thesecurity interest in such Copyright Licenses and Trademark Licenses securingthe Obligations).

 

(k) Upon and duringthe continuance of an Event of Default, each Grantor shall use all commerciallyreasonable efforts to obtain all requisite consents or approvals under eachCopyright License, Patent License and Trademark License reasonably requested bythe Administrative Agent to effect the assignment of all such Grantor’s right,title and interest thereunder to the Administrative Agent or its designee.

 

5.9.          CommercialTort Claims. If such Grantor shall obtain an interest in any CommercialTort Claim as to which it determines that it reasonably expects to recover morethan $5,000,000, such Grantor shall within 30 days of making such determination(or such other period reasonably satisfactory to the Administrative Agent) signand deliver documentation reasonably acceptable to the Administrative Agentgranting a security interest under the terms and provisions of this Agreementin and to such Commercial Tort Claim.

 

SECTION 6. REMEDIALPROVISIONS

 

6.1.          CertainMatters Relating to Receivables. (a) The Administrative Agent shallhave the right annually (or, if an Event of Default has occurred and iscontinuing, at any

 

18

----

 

time) to make test verifications of the Receivablesrequired to be included in Collateral in any manner and through any medium thatit reasonably considers advisable, and each Grantor shall furnish all suchassistance and information as the Administrative Agent may require inconnection with such test verifications. Annually (or, if an Event of Defaulthas occurred and is continuing, at any time), upon the Administrative Agent’sreasonable request and at the expense of the relevant Grantor, such Grantorshall use commercially reasonable efforts to cause independent publicaccountants or others satisfactory to the Administrative Agent to furnish tothe Administrative Agent reports showing reconciliations, aging and testverifications of, and trial balances for, such Receivables.

 

(b) TheAdministrative Agent hereby authorizes each Grantor to collect such Grantor’sReceivables required to be included in Collateral and the Administrative Agentmay curtail or terminate said authority at any time after the occurrence andduring the continuance of an Event of Default. If required by theAdministrative Agent at any time after the occurrence and during thecontinuance of an Event of Default, any payments of such Receivables, whencollected by any Grantor, (i) shall be forthwith (and, in any event,within two Business Days) deposited by such Grantor in the exact form received,duly indorsed by such Grantor to the Administrative Agent if required, in aCollateral Account maintained under the sole dominion and control of theAdministrative Agent, subject to withdrawal by the Administrative Agent for theaccount of the Lenders only as provided in Section 6.5, and (ii) untilso turned over, shall be held by such Grantor in trust for the AdministrativeAgent and the Lenders, segregated from other funds of such Grantor. Each suchdeposit of Proceeds of Receivables required to be included in Collateral shallbe accompanied by a report identifying in reasonable detail the nature andsource of the payments included in the deposit.

 

(c) If an Event ofDefault has occurred and is continuing, at the Administrative Agent’s request,each Grantor shall deliver to the Administrative Agent all original and otherdocuments evidencing, and relating to, the agreements and transactions whichgave rise to the Receivables required to be included in Collateral, including,without limitation, all original orders, invoices and shipping receipts.

 

6.2.          Communicationswith Obligors; Grantors Remain Liable. (a) The Administrative Agent inits own name or in the name of others may at any time when an Event of Defaulthas occurred and is continuing, communicate with obligors under the Receivablesrequired to be included in Collateral to verify with them to the AdministrativeAgent’s satisfaction the existence, amount and terms of any such Receivables.

 

(b) Upon the requestof the Administrative Agent at any time after the occurrence and during thecontinuance of an Event of Default, each Grantor shall notify obligors on theReceivables required to be included in Collateral that such Receivables havebeen assigned to the Administrative Agent for the ratable benefit of theSecured Parties and that payments in respect thereof shall be made directly tothe Administrative Agent.

 

(c) Anything hereinto the contrary notwithstanding, each Grantor shall remain liable under each ofthe Receivables required to be included in Collateral to observe and performall the conditions and obligations to be observed and performed by itthereunder, all in accordance with the terms of any agreement giving risethereto. Neither the Administrative

 

19

----

 

Agent nor any Lender shall have any obligation or liabilityunder any such Receivable (or any agreement giving rise thereto) by reason ofor arising out of this Agreement or the receipt by the Administrative Agent orany Lender of any payment relating thereto, nor shall the Administrative Agentor any Lender be obligated in any manner to perform any of the obligations ofany Grantor under or pursuant to any such Receivable (or any agreement givingrise thereto), to make any payment, to make any inquiry as**to the natureor the sufficiency of any payment received by it or as to the sufficiency ofany performance by any party thereunder, to present or file any claim, to takeany action to enforce any performance or to collect the payment of any amountswhich may have been assigned to it or to which it may be entitled at any timeor times.

 

6.3.          PledgedEquity. (a) Unless an Event of Default shall have occurred and becontinuing and the Administrative Agent shall have given notice to the relevantGrantor of the Administrative Agent’s intent to exercise its correspondingrights pursuant to Section 6.3(b), each Grantor shall be permitted toreceive all dividends (other than dividends payable in Equity Interests) paidin respect of the Pledged Equity and all payments made in respect of thePledged Debt, in each case to the extent permitted in the Credit Agreement, andto exercise all voting and corporate or other organizational rights withrespect to the Investment Property; provided, however, that suchGrantor will not be entitled to exercise any such right if the result thereofcould materially and adversely affect the rights inuring to a holder of theInvestment Property or the rights and remedies of the Administrative Agent orthe Lenders under any Loan Document or the ability of the Administrative Agentor the Lenders to exercise the same.

 

(b) If an Event of Default shall occur and becontinuing and the Administrative Agent shall give notice of its intent toexercise such rights to the relevant Grantor or Grantors, (i) theAdministrative Agent shall have the right to receive any and all cashdividends, payments (including sums paid upon the liquidation or dissolution ofany Issuer or in connection with any distribution of capital) or other Proceedspaid in respect of the Investment Property and make application thereof to theObligations in accordance with the provisions of the Credit Agreement and (ii) anyor all of the Investment Property shall be registered in the name of theAdministrative Agent or its nominee, and the Administrative Agent or itsnominee may thereafter exercise (x) all voting, corporate and other rightspertaining to such Investment Property at any meeting of shareholders of therelevant Issuer or Issuers or otherwise and (y) any and all rights ofconversion, exchange and subscription and any other rights, privileges oroptions pertaining to such Investment Property as if it were the absolute ownerthereof (including, without limitation, the right to exchange at its discretionany and all of the Investment Property upon the merger, consolidation, reorganization,recapitalization or other fundamental change in the corporate or otherorganizational structure of any Issuer, or upon the exercise by any Grantor orthe Administrative Agent of any right, privilege or option pertaining to suchInvestment Property, and in connection therewith, the right to deposit anddeliver any and all of the Investment Property with any committee, depositary,transfer agent, registrar or other designated agency upon such terms andconditions as the Administrative Agent may determine), all without liabilityexcept to account for property actually received by it, but the AdministrativeAgent shall have no duty to any Grantor to exercise any such right, privilegeor option and shall not be responsible for any failure to do so or delay in sodoing. If any sums of money paid or distributed in respect of InvestmentProperty, which the Administrative Agent shall be entitled to receive pursuantto clause (i) above, shall be received by a Grantor, such Grantor shall,until such

 

20

----

 

money is paid to the Administrative Agent, hold suchmoney in trust for the Administrative Agent and the Lenders as additionalcollateral for the Obligations.

 

(c) Each Grantor hereby authorizes and instructseach Issuer of any Investment Property pledged by such Grantor hereunder to (i) complywith any instruction received by it from the Administrative Agent in writingthat (x) states that an Event of Default has occurred and is continuingand (y) is otherwise in accordance with the terms of this Agreement,without any other or further instructions from such Grantor, and each Grantoragrees that each Issuer shall be fully protected in so complying, and (ii) unlessotherwise expressly permitted hereby, pay any dividends or other payments withrespect to the Investment Property directly to the Administrative Agent.

 

6.4.          Proceedsto be Turned Over to Administrative Agent. If an Event of Default occursand is continuing and the Administrative Agent so requests, all Proceedsreceived by any**Grantor consisting of cash, checksand other near-cash items shall be held by such Grantor in trust for theAdministrative Agent and the Lenders, segregated from other funds of suchGrantor, and shall, forthwith upon receipt by such Grantor, be turned over tothe Administrative Agent in the exact form received by such Grantor (dulyindorsed by such Grantor to the Administrative Agent, if required). AllProceeds received by the Administrative Agent hereunder shall be held by the AdministrativeAgent in a Collateral Account maintained under its sole dominion and control.All Proceeds while held by the Administrative Agent in a Collateral Account (orby such Grantor in trust for the Administrative Agent and the Lenders) shallcontinue to be held as collateral security for all the Obligations and shallnot constitute payment thereof until applied as provided in Section 6.5.

 

6.5.          Applicationof Proceeds. At such intervals as may be agreed upon by the Company and theAdministrative Agent, or, if an Event of Default has occurred and iscontinuing, at any time at the Administrative Agent’s election, theAdministrative Agent shall apply all or any part of Proceeds required to beincluded in Collateral, whether or not held in any Collateral Account, and anyproceeds of the guarantee set forth in Section 2, in payment of theObligations in accordance with Section 8.04 of the Credit Agreement, andany part of such funds which the Administrative Agent elects not so to applyand deems not required as collateral security for the Obligations shall be paidover from time to time by the Administrative Agent to the Company or towhosoever may be lawfully entitled to receive the same. Any balance of suchProceeds remaining after the Obligations shall have been paid in full, noLetters of Credit shall be outstanding and the Commitments shall haveterminated shall be paid over to the Company or to whomsoever may be lawfullyentitled to receive the same.

 

6.6.          Codeand Other Remedies. If an Event of Default occurs and is continuing, theAdministrative Agent, on behalf of the Lenders, may exercise, in addition toall other rights and remedies granted to them in this Agreement and in anyother instrument or agreement securing, evidencing or relating to the Obligations,all rights and remedies of a secured party under the New York UCC or any otherapplicable law. Without limiting the generality of the foregoing, if an Eventof Default occurs and is continuing, the Administrative Agent, without demandof performance or other demand, presentment, protest, advertisement or noticeof any kind (except any notice required by law referred to below) to or uponany Grantor or any other Person (all and each of which demands, defenses,advertisements and notices are

 

21

----

 

hereby waived), may in such circumstances forthwithcollect, receive, appropriate and realize upon the Collateral, or any partthereof, and/or may forthwith sell, lease, assign, give option or options topurchase, or otherwise dispose of and deliver the Collateral or any partthereof (or contract to do any of the foregoing), in one or more parcels atpublic or private sale or sales, at any exchange, broker’s board or office ofthe Administrative Agent or any Lender or elsewhere upon such terms andconditions as it may deem advisable and at such prices as it may deem best, forcash or on credit or for future delivery without assumption of any credit risk.The Administrative Agent or any Lender shall have the right upon any suchpublic sale or sales, and, to the extent permitted by law, upon any suchprivate sale or sales, to purchase the whole or any part of the Collateral sosold, free of any right or equity of redemption in any Grantor, which right orequity is hereby waived and released. Each Grantor further agrees, at theAdministrative Agent’s request following and during the continuance of an Eventof Default, to assemble the Collateral and make it available to theAdministrative Agent at places which the Administrative Agent shall reasonablyselect, whether at such Grantor’s premises or elsewhere. The AdministrativeAgent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6,after deducting all reasonable out-of-pocket costs and expenses of every kindincurred in connection therewith or incidental to the care or safekeeping ofany of the Collateral or in any way relating to the Collateral or the rights ofthe Administrative Agent and the Lenders hereunder, including, without limitation,reasonable attorneys’ fees and disbursements, to the payment in whole or inpart of the Obligations, in such order as the Administrative Agent may elect,and only after such application and after the payment by the AdministrativeAgent of any other amount required by any provision of law, including, withoutlimitation, Section 9-615(a)(3) of the New York UCC, need theAdministrative Agent account for the surplus, if any, to any Grantor. To theextent permitted by applicable law, each Grantor waives all claims, damages anddemands it may acquire against the Administrative Agent or any Lender arisingout of the exercise by them of any rights hereunder. If any notice of aproposed sale or other disposition of Collateral shall be required by law, suchnotice shall be deemed reasonable and proper if given at least 10 days beforesuch sale or other disposition.

 

6.7.          RegistrationRights. (a) If the Administrative Agent shall determine to exerciseits rights to sell all or any of the Pledged Equity pursuant to Section 6.6,and if, in the opinion of the Administrative Agent, it is necessary oradvisable to have the Pledged Equity, or that portion thereof to be sold,registered under the provisions of the Securities Act, the relevant Grantorwill cause the Issuer thereof to (i) execute and deliver, and cause thedirectors and officers of such Issuer to execute and deliver, all suchinstruments and documents, and do or cause to be done all such other acts asmay be, in the opinion of the Administrative Agent, necessary or advisable toregister the Pledged Equity, or that portion thereof to be sold, under theprovisions of the Securities Act, (ii) use its best efforts to cause theregistration statement relating thereto to become effective and to remaineffective for a period of one year from the date of the first public offeringof the Pledged Equity, or that portion thereof to be sold, and (iii) makeall amendments thereto and/or to the related prospectus which, in the opinionof the Administrative Agent, are necessary or advisable, all in conformity withthe requirements of the Securities Act and the rules and regulations ofthe Securities and Exchange Commission applicable thereto. Each Grantor agreesto cause such Issuer to comply with the provisions of the securities or “BlueSky” laws of any and all jurisdictions which the Administrative Agent shalldesignate and to make available to its security holders, as soon aspracticable, an earnings statement (which need not be audited) which willsatisfy the provisions of Section 11(a) of the Securities Act.

 

22

----

 

(b) Each Grantorrecognizes that the Administrative Agent may be unable to effect a public saleof any or all the Pledged Equity, by reason of certain prohibitions containedin the Securities Act and applicable state securities laws or otherwise, andmay be compelled to resort to one or more private sales thereof to a restrictedgroup of purchasers which will be obliged to agree, among other things, toacquire such securities for their own account for investment and not with aview to the distribution or resale thereof. Each Grantor acknowledges andagrees that any such private sale may result in prices and other terms lessfavorable than if such sale were a public sale and, notwithstanding suchcircumstances, agrees that any such private sale shall be deemed to have beenmade in a commercially reasonable manner. The Administrative Agent shall beunder no obligation to delay a sale of any of the Pledged Equity for the periodof time necessary to permit the Issuer thereof to register such securities forpublic sale under the Securities Act, or under applicable state securitieslaws, even if such Issuer would agree to do so.

 

(c) Each Grantor agrees to use its best efforts to do or cause tobe done all such other acts as may be necessary to make such sale or sales ofall or any portion of the Pledged Equity pursuant to this Section 6.7valid and binding and in compliance with any and all other applicable Law. EachGrantor further agrees that a breach of any of the covenants contained in this Section 6.7will cause irreparable injury to the Administrative Agent and the Lenders, thatthe Administrative Agent and the Lenders have no adequate remedy at law inrespect of such breach and, as a consequence, that each and every covenantcontained in this Section 6.7 shall be specifically enforceable againstsuch Grantor, and such Grantor hereby waives, to the fullest extent permittedby applicable law, and agrees not to assert any defenses against an action forspecific performance of such covenants except for a defense that no Event ofDefault has occurred and is continuing under the Credit Agreement.

 

6.8.          Deficiency. Each Grantorshall remain liable for any deficiency if the proceeds of any sale or otherdisposition of the Collateral are insufficient to pay its Obligations and thereasonable fees and disbursements of any attorneys employed by theAdministrative Agent or any Lender to collect such deficiency.

 

SECTION 7. THE ADMINISTRATIVE AGENT

 

7.1.          Administrative Agent’sAppointment as Attorney-in-Fact, etc. (a) Each Grantorhereby irrevocably constitutes and appoints the Administrative Agent and anyofficer or agent thereof, with full power of substitution, as its true andlawful attorney-in-fact with full irrevocable power and authority in the placeand stead of such Grantor and in the name of such Grantor or in its own name,for the purpose of carrying out the terms of this Agreement, to take any andall appropriate action and to execute any and all documents and instrumentswhich may be necessary or desirable to accomplish the purposes of thisAgreement, and, without limiting the generality of the foregoing, each Grantorhereby gives the Administrative Agent the power and right, on behalf of suchGrantor, without notice to or assent by such Grantor, to do any or all of thefollowing:

 

(i)            in the name ofsuch Grantor or its own name, or otherwise, take possession of and indorse andcollect any checks, drafts, notes, acceptances or other instruments for thepayment of moneys due under any Receivable required to be included

 

23

----

 

inCollateral hereunder or with respect to any other Collateral and file any claimor take any other action or proceeding in any court of law or equity orotherwise deemed appropriate by the Administrative Agent for the purpose ofcollecting any and all such moneys due under any such Receivable or withrespect to any other Collateral whenever payable;

 

(ii)          in the case ofany Intellectual Property required to be included in Collateral hereunder, executeand deliver, and have recorded, any and all agreements, instruments, documentsand papers as the Administrative Agent may request to evidence theAdministrative Agent’s and the Lenders’ security interest in such IntellectualProperty and the goodwill and general intangibles of such Grantor relatingthereto or represented thereby;

 

(iii)         pay ordischarge taxes and Liens levied or placed on or threatened against theCollateral, effect any repairs or any insurance called for by the terms of thisAgreement and pay all or any part of the premiums therefor and the coststhereof;

 

(iv)         execute, inconnection with any sale provided for in Section 6.6 or 6.7, anyindorsements, assignments or other instruments of conveyance or transfer withrespect to the Collateral; and

 

(v)          (1) directany party liable for any payment under any of the Collateral to make payment ofany and all moneys due or to become due thereunder directly to theAdministrative Agent or as the Administrative Agent shall direct; (2) askor demand for, collect, and receive payment of and receipt for, any and allmoneys, claims and other amounts due or to become due at any time in respect ofor arising out of any Collateral; (3) sign and indorse any invoices,freight or express bills, bills of lading, storage or warehouse receipts,drafts against debtors, assignments, verifications, notices and other documentsin connection with any of the Collateral; (4) commence and prosecute anysuits, actions or proceedings at law or in equity in any court of competentjurisdiction to collect the Collateral or any portion thereof and to enforceany other right in respect of any Collateral; (5) defend any suit, actionor proceeding brought against such Grantor with respect to any Collateral; (6) settle,compromise or adjust any such suit, action or proceeding and, in connectiontherewith, give such discharges or releases as the Administrative Agent mayreasonably deem appropriate; (7) subject to any licenses (and the rightsgranted therein) existing at the time of such assignment, assign any Copyright,Patent or Trademark (along with the goodwill of the business to which any suchCopyright, Patent or Trademark pertains), throughout the world for such term orterms, on such conditions, and in such manner, as the Administrative Agentshall in its sole discretion determine; and (8) generally, sell, transfer,pledge and make any agreement with respect to or otherwise deal with any of theCollateral as fully and completely as though the Administrative Agent were theabsolute owner thereof for all purposes, and do, at the Administrative Agent’soption and such Grantor’s expense, at any time, or from time to time, all actsand things which the Administrative Agent deems necessary to protect, preserveor realize upon the Collateral and the Administrative Agent’s and the Lenders’security interests therein and to effect the intent of this Agreement, all asfully and effectively as such Grantor might do.

 

24

----

 

Anythingin this Section 7.1(a) to the contrary notwithstanding, theAdministrative Agent agrees that it will not exercise any rights under thepower of attorney provided for in this Section 7.1(a) unless an Eventof Default shall have occurred and be continuing.

 

(b)   If any Grantor fails toperform or comply with any of its agreements contained herein, theAdministrative Agent, at its option, but without any obligation so to do, mayperform or comply, or otherwise cause performance or compliance, with suchagreement.

 

(c)   The reasonable out-of-pocketexpenses of the Administrative Agent incurred in connection with actionsundertaken as provided in this Section 7.1, together with interest thereonat a rate per annum equal to the highest rate per annum at which interest wouldthen be payable on any category of past due Base Rate Loans under the CreditAgreement, from the date of payment by the Administrative Agent to the datereimbursed by the relevant Grantor, shall be payable by such Grantor to theAdministrative Agent on demand.

 

(d)   Each Grantor hereby ratifiesall that said attorneys shall lawfully do or cause to be done by virtue hereof.All powers, authorizations and agencies contained in this Agreement are coupledwith an interest and are irrevocable until this Agreement is terminated and thesecurity interests created hereby are released.

 

7.2.          Duty of Administrative Agent. TheAdministrative Agent’s sole duty with respect to the custody, safekeeping andphysical preservation of the Collateral in its possession, under Section 9-207of the New York UCC or otherwise, shall be to deal with it in the same manneras the Administrative Agent deals with similar property for its own account.Neither the Administrative Agent, any Lender nor any of their respectiveofficers, directors, employees or agents shall be liable for failure to demand,collect or realize upon any of the Collateral or for any delay in doing so orshall be under any obligation to sell or otherwise dispose of any Collateralupon the request of any Grantor or any other Person or to take any other actionwhatsoever with regard to the Collateral or any part thereof. The powersconferred on the Administrative Agent and the Lenders hereunder are solely toprotect the Administrative Agent’s and the Lenders’ interests in the Collateraland shall not impose any duty upon the Administrative Agent or any Lender toexercise any such powers. The Administrative Agent and the Lenders shall beaccountable only for amounts that they actually receive as a result of theexercise of such powers, and neither they nor any of their officers, directors,employees or agents shall be responsible to any Grantor for any act or failureto act hereunder, except for their own gross negligence or willful misconduct.

 

7.3.          Execution of Financing Statements. Pursuant toany applicable law, each Grantor authorizes the Administrative Agent to file orrecord financing statements and other filing or recording documents orinstruments with respect to the Collateral without the signature of suchGrantor in such form and in such offices as the Administrative Agent determinesappropriate to perfect the security interests of the Administrative Agent underthis Agreement. Each Grantor authorizes the Administrative Agent to use thecollateral description “all personal property” or “all assets” in any suchfinancing statements. Each Grantor hereby ratifies and authorizes the filing bythe Administrative Agent of any financing statement with respect to theCollateral made prior to the date hereof; provided that, at thereasonable request of any Grantor,

 

25

----

 

theAdministrative Agent shall amend any such statement (and any other financingstatement filed by the Administrative Agent in connection with this Agreement)to exclude any property that is releasedfrom, or otherwise not included in, the Collateral. The Administrative Agentagrees promptly to furnish copies of all such filings to the Company.

 

7.4.          Authority of AdministrativeAgent. Each Grantor acknowledges that the rights and responsibilities of theAdministrative Agent under this Agreement with respect to any action taken bythe Administrative Agent or the exercise or non-exercise by the AdministrativeAgent of any option, voting right, request, judgment or other right or remedyprovided for herein or resulting or arising out of this Agreement shall, asbetween the Administrative Agent and the Lenders, be governed by the CreditAgreement and by such other agreements with respect thereto as may exist fromtime to time among them, but, as between the Administrative Agent and theGrantors, the Administrative Agent shall be conclusively presumed to be actingas agent for the Lenders with full and valid authority so to act or refrainfrom acting, and no Grantor shall be under any obligation, or entitlement, tomake any inquiry respecting such authority.

 

SECTION 8. MISCELLANEOUS

 

8.1.          Amendments in Writing. None of theterms or provisions of this Agreement may be waived, amended, supplemented orotherwise modified except in accordance with Section 10.01 of the CreditAgreement.

 

8.2.          Notices. All notices,requests and demands to or upon the Administrative Agent or any Grantorhereunder shall be effected in the manner provided for in Section 10.02 ofthe Credit Agreement; provided that any such notice, request or demandto or upon any Guarantor shall be addressed to such Guarantor at its noticeaddress set forth on Schedule 1.

 

8.3.          No Waiver by Course ofConduct; Cumulative Remedies. Neither the AdministrativeAgent nor any Lender shall by any act (except by a written instrument pursuantto Section 8.1), delay, indulgence, omission or otherwise be deemed tohave waived any right or remedy hereunder or to have acquiesced in any Defaultor Event of Default. No failure to exercise, nor any delay in exercising, onthe part of the Administrative Agent or any Lender, any right, power orprivilege hereunder shall operate as a waiver thereof. No single or partialexercise of any right, power or privilege hereunder shall preclude any other orfurther exercise thereof or the exercise of any other right, power orprivilege. A waiver by the Administrative Agent or any Lender of any right orremedy hereunder on any one occasion shall not be construed as a bar to anyright or remedy which the Administrative Agent or such Lender would otherwisehave on any future occasion. The rights and remedies herein provided arecumulative, may be exercised singly or concurrently and are not exclusive ofany other rights or remedies provided by law.

 

8.4.          Enforcement Expenses;Indemnification. (a) Each Guarantor agrees to pay or reimburseeach Lender and the Administrative Agent for all its reasonable out-of-pocketcosts and expenses incurred in collecting against such Guarantor under theguarantee contained in Section 2 or otherwise enforcing or preserving anyrights under this Agreement and the other Loan Documents to which suchGuarantor is a party, including, without limitation, the reasonable fees anddisbursements of counsel to the Administrative Agent.

 

26

----

 

(b)Each Guarantor agrees topay, and to save the Administrative Agent and the Lenders harmless from, anyand all liabilities with respect to, or resulting from any delay in paying, anyand all stamp, excise, sales or other taxes which may be payable or determinedto be payable with respect to any of the Collateral or in connection with anyof the transactions contemplated by this Agreement.

 

(c)  Each Guarantor agrees topay, and to save the Administrative Agent and the Lenders harmless from, anyand all liabilities, obligations, losses, damages, penalties, claims, demands,actions, judgments and suits and related reasonable out-of-pocket expenses(including Attorney Costs) of any kind or nature whatsoever with respect to theexecution, delivery, enforcement, performance and administration of thisAgreement to the extent the Company would be required to do so pursuant to Section 10.05of the Credit Agreement.

 

(d)The agreements in this Section 8.4shall survive repayment of the Obligations and all other amounts payable underthe Credit Agreement and the other Loan Documents.

 

8.5.          Successors and Assigns. ThisAgreement shall be binding upon the permitted successors and assigns of eachGrantor and shall inure to the benefit of the Administrative Agent and theLenders and their permitted successors and assigns; provided that no Grantor may,except pursuant to a merger or consolidation permitted by the Credit Agreement,assign, transfer or delegate any of its rights or obligations under thisAgreement without the prior written consent of the Administrative Agent.

 

8.6.          Setoff. In additionto any rights and remedies of the Lenders provided by Law, upon the occurrenceand during the continuance of any Event of Default, each Lender and itsAffiliates is authorized at any time and from time to time, without priornotice to any Grantor, any such notice being waived by each Grantor to thefullest extent permitted by applicable Law, to set off and apply any and all deposits(general or special, time or demand, provisional or final) at any time held by,and other Indebtedness at any time owing by, such Lender and its Affiliates toor for the credit or the account of any Grantor against any and all Obligationsowing to such Lender and its Affiliates hereunder or under any other LoanDocument, now or hereafter existing, irrespective of whether or not such Agentor such Lender or Affiliate shall have made demand under this Agreement or anyother Loan Document and although such Obligations may be contingent orunmatured or denominated in a currency different from that of the applicabledeposit or Indebtedness; *provided*that,in the case of any such deposits or other Indebtedness for the credit or theaccount of any Foreign Subsidiary, such set off may only be against anyObligations of Foreign Subsidiaries. Each Lender agrees promptly to notify suchGrantor and the Administrative Agent after any such set off and applicationmade by such Lender; *provided,*thatthe failure to give such notice shall not affect the validity of such setoffand application. The rights of the Administrative Agent and each Lender underthis Section 8.6 are in addition to other rights and remedies (including other rights of setoff) that the AdministrativeAgent and such Lender may have.

 

8.7.          Counterparts. ThisAgreement may be executed in one or more counterparts, each of which shall bedeemed an original, but all of which together shall constitute one and the sameinstrument. Delivery by telecopier of an executed counterpart of a signature

 

27

----

 

page tothis Agreement shall be effective as delivery of an original executedcounterpart of this Agreement.

 

8.8.          Severability. If anyprovision of this Agreement is held to be illegal, invalid or unenforceable,the legality, validity and enforceability of the remaining provisions of thisAgreement shall not be affected or impaired thereby. The invalidity of aprovision in a particular jurisdiction shall not invalidate or renderunenforceable such provision in any other jurisdiction.

 

8.9.          Section Headings. The Section headingsused in this Agreement are for convenience of reference only and are not toaffect the construction hereof or be taken into consideration in theinterpretation hereof.

 

8.10.        Integration. ThisAgreement, together with the other Loan Documents, comprises the complete andintegrated agreement of the parties on the subject matter hereof and thereofand supersedes all prior agreements, written or oral, on such subject matter.

 

**8.11.****      ****GOVERNINGLAW****. THIS AGREEMENT SHALL BE GOVERNEDBY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.**

 

8.12.        Submission To Jurisdiction;Waivers. (a) Any legal action or proceeding arising under any LoanDocument or in any way connected with or related or incidental to the dealingsof the parties hereto or any of them with respect to any Loan Document, or thetransactions related thereto, in each case whether now existing or hereafterarising, may be brought in the courts of the State of New York sitting in NewYork City or of the United States for the Southern District of such State, andby execution and delivery of this Agreement, each Grantor and theAdministrative Agent consents, for itself and in respect of its property, tothe non-exclusive jurisdiction of those courts. Each Grantor and theAdministrative Agent irrevocably waives any objection, including any objectionto the laying of venue or based on the grounds of forum non conveniens, which itmay now or hereafter have to the bringing of any action or proceeding in suchcourts in respect of any Loan Document or other document related thereto.

 

(b) EachGrantor hereby irrevocably and unconditionally:

 

(i)            agrees that service ofprocess in any such action or proceeding may be effected by mailing a copythereof by registered or certified mail (or any substantially similar form ofmail), postage prepaid, to such Grantor at its address referred to in Section 8.2or at such other address of which the Administrative Agent shall have beennotified pursuant thereto;

 

(ii)           agrees that nothing hereinshall affect the right to effect service of process in any other mannerpermitted by law or shall limit the right to sue in any other jurisdiction; and

 

28

----

 

(iii)          waives, to themaximum extent not prohibited by law, any right it may have to claim or recoverin any legal action or proceeding referred to in this Section any special,exemplary, punitive or consequential damages.

 

8.13.        Acknowledgments. Each Grantorhereby acknowledges that:

 

(a)   it has been advised bycounsel in the negotiation, execution and delivery of this Agreement and theother Loan Documents to which it is a party;

 

(b)   neither the Administrative Agentnor any Lender has any fiduciary relationship with or duty to any Grantorarising out of or in connection with this Agreement or any of the other LoanDocuments, and the relationship between the Grantors, on the one hand, and theAdministrative Agent and the Lenders, on the other hand, in connection herewithor therewith is solely that of debtor and creditor; and

 

(c)   no joint venture is createdhereby or by the other Loan Documents or otherwise exists by virtue of thetransactions contemplated hereby among the Lenders or among the Grantors andthe Lenders.

 

8.14.        Additional Guarantors andGrantors. Each Subsidiary of the Company that is required tobecome a party to this Agreement pursuant to Section 6.10 of the CreditAgreement shall become a Guarantor and a Grantor for all purposes of thisAgreement upon execution and delivery by such Subsidiary of a SecurityAgreement Supplement in the form of Annex 1 hereto.

 

8.15.        Releases. (a) Atsuch time as the Loans and the other Obligations (other than contingentindemnification and contingent expense reimbursement obligations, Obligationsin respect of Secured Hedge Agreements and Cash Management Obligations) shallhave been paid in full, the Commitments have been terminated and no Letters ofCredit shall be outstanding, the Collateral shall be released from the Lienscreated hereby, and this Agreement and all obligations (other than thoseexpressly stated to survive such termination) of the Administrative Agent andeach Grantor hereunder shall terminate, all without delivery of any instrumentor performance of any act by any party, and all rights to the Collateral shallrevert to the Grantors. At the request and sole expense of any Grantorfollowing any such termination, the Administrative Agent shall deliver to suchGrantor any Collateral held by the Administrative Agent hereunder and executeand deliver to such Grantor such documents as such Grantor shall reasonablyrequest to evidence such termination.

 

(b) Ifany of the Collateral shall be sold, transferred or otherwise disposed of byany Grantor in a transaction permitted by the Credit Agreement, then (i) theLiens created hereby on such Collateral shall automatically be released and (ii) theAdministrative Agent, at the request and sole expense of such Grantor, shallexecute and deliver to such Grantor all releases or other documents reasonablynecessary or desirable for the release of the Liens created hereby on suchCollateral. If any of the Collateral shall become Specified Assets described inclause (b) of the definition thereof (taking into account the provisothereto), then (A) the Liens created hereby on such Collateral shallautomatically be released and (ii) the Administrative Agent, at therequest and sole expense of the Company, shall execute and deliver to theCompany or the

 

29

----

 

relevantGrantor all releases or other documents reasonably necessary or desirable forthe release of the Liens created hereby on such Collateral. In addition, at therequest and at the sole expense of the Company, the Administrative Agent agreesto (x) provide to each Grantor a power of attorney to execute any documentreasonably required to permit any sale permitted by the Credit Agreement of anyasset, the perfection of which is governed by a certificate-of-title statute,free of the Liens created by the Security Documents and (y) with respectto any jurisdiction in which releases executed pursuant to such power ofattorney are insufficient to release such Liens, (1) execute in blank anydocument reasonably required to permit any sale permitted by the CreditAgreement of any asset, the perfection of which is governed by acertificate-of-title statute, free of the Liens created by the SecurityDocuments and (2) authorize such Grantor to fill in the relevantinformation to release such Lien. At the request and sole expense of theCompany, a Subsidiary Guarantor shall be released from its obligationshereunder in the event that all the Equity Interests of such Subsidiary Guarantorshall be sold, transferred or otherwise disposed of in a transaction permittedby the Credit Agreement; provided that the Company shall have deliveredto the Administrative Agent, at least five Business Days prior to the date ofthe proposed release, a written request for release identifying the relevantSubsidiary Guarantor and the terms of the sale or other disposition inreasonable detail, including the price thereof and any expenses in connectiontherewith, together with a certification by the Company stating that suchtransaction is in compliance with the Credit Agreement and the other LoanDocuments.

 

**8.16.****      ****WAIVER OFJURY TRIAL****.****EACHGRANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAYCONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETOOR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATEDTHERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHERFOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES ANDCONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BEDECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILEAN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 10.17 WITH ANYCOURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THEWAIVER OF THEIR RIGHT TO TRIAL BY JURY.**

 

8.17.        Effectiveness of the Merger;Assignment and Delegation to and Assumption by Reader’s Digest. Reader’sDigest and its Subsidiaries shall have no rights or obligations hereunder untilthe consummation of the Merger and any representations and warranties of Reader’sDigest or any of its Subsidiaries hereunder shall not become effective untilsuch time. Upon consummation of the Merger, Reader’s Digest shall succeed toall the rights and obligations of Doctor Acquisition Co. under this Agreementand all rights, obligations, representations and warranties of Reader’s Digestand its Subsidiaries shall become effective as of the date hereof, without anyfurther action by any Person.

 

8.18.        German Borrower Security.Notwithstanding any provision to the contrary in any Loan Document or anySecured Hedge Agreement, any guarantees, security interests or other securityprovided under or in connection with this Agreement or any other

 

30

----

 

LoanDocument or any Secured Hedge Agreement (“Security”) shall at all timesexclude direct or indirect access to Specified Assets other than SpecifiedAssets of the German Borrower (in particular, no security in rem (*dinglicheSicherheit*)**inSpecified Assets other than Specified Assets of the German Borrower shall becreated (or, in the event such exclusion is not possible under applicable law,no such security in rem shall be enforceable), and no disposal restriction (*Verfügungsbeschränkung*)**and no submission to immediateforeclosure (*Unterwerfung unter die sofortige Zwangsvollstreckung*)**regarding Specified Assets otherthan Specified Assets of the German Borrower shall apply with respect to anycontractual claim (*schuldrechtlicher Anspruch*)**in favor of any Secured Party).The restriction set forth in this Section 8.18 shall be applicable if andonly to the extent that (and only for so long as) (a) such Securitysecures Obligations of the German Borrower and (b) direct or indirectaccess to such Specified Assets would result in adverse tax consequences toHoldings and its Subsidiaries as a consequence of § 8a of the German CorporateIncome Tax Act *(Körperschaftsteuergesetz)*asamended from time to time or of any future rules replacing § 8a of theGerman Corporate Income Tax Act *(Körperschaftsteuergesetz).*

 

8.19.        Parallel Obligations.

 

(a) Solelyfor purposes of the validity and enforcement of any security interest grantedto the Secured Parties in any Equity Interests or other assets governed byGerman law, each of the parties hereto agrees (and each Secured Party by itsexecution of the Credit Agreement or its Assignment and Assumption agrees), andeach of the Loan Parties acknowledges by way of an abstract acknowledgement ofdebt (*abstraktesSchuldanerkenntnis*as effective under German law) (the “Acknowledgement”),that the Obligations of such Loan Party (and each of their respective permittedsuccessors and assigns) (the “Original Obligations”) shall also be owingin full to the Administrative Agent (and its permitted successors and assigns),and that accordingly the Administrative Agent will have its own independentright to demand performance by the respective Loan Party of the Obligations ofsuch Loan Party (such Obligations owed to theAdministrative Agent, the “Parallel Obligations”). Any paymentby any Loan Party of its Parallel Obligations shall to the same extent reduceand be a good discharge of the corresponding Original Obligations of such LoanParty owing to the relevant Secured Parties, and payment by any Loan Party ofits Original Obligations to the relevant Secured Parties shall to the sameextent reduce and be a good discharge of the Parallel Obligations owing by itto the Administrative Agent. The Administrative Agent undertakes to each LoanParty that in the case of any discharge of any such obligation owing to one ofthe Administrative Agent or a Secured Party, it will, to the same extent, notmake a claim against such Loan Party under the Acknowledgement at any time,provided that any such claims can be made against such Loan Party if suchdischarge is made by virtue of any set off, counterclaim or similar defenseinvoked by such Loan Party vis-a-vis the Administrative Agent other than withrespect to claims arising under the Loan Documents.

 

(b) Withoutlimiting or affecting the Administrative Agent’s rights against the LoanParties (whether under this Section 8.19 or under any other provision ofthe Loan Documents), the Administrative Agent agrees with each other SecuredParty that it will not exercise its rights under the Acknowledgement withrespect to Obligations owed to such Secured Party except with the consent ofsuch Secured Party, which consent is hereby deemed given by its execution ofthe Credit Agreement or its Assignment and Assumption. Nothing in the

 

31

----

 

previoussentence shall in any way limit the Administrative Agent’s right to act in theprotection or preservation of rights under or to enforce any CollateralDocument (or to do any act reasonably incidental to the foregoing).

 

32

----

 
|   | JPMORGAN CHASE BANK, N.A.,  as |
|--------|--------------------------------|
|   | Administrative Agent           |
|   |                           |
|   |                           |
|   | By:                            | /s/  GARY L. SPEVACK |
|   |                           | Name: GARY L. SPEVACK |
|   |                           | Title: VICE PRESIDENT |

 

*[SIGNATUREPAGE TO GUARANTEE AND COLLATERAL AGREEMENT]*

 

----

 
|   | By     | /s/  Christopher Minnetian |
|--------|--------|----------------------------|
|   |   | Name:                      | Christopher  Minnetian |
|   |   | Title:                     | President,  Treasurer and |
|   |   |                       | Secretary  of each of the Loan |
|   |   |                       | Parties  listed on Exhibit A |

 

*[SIGNATUREPAGE TO GUARANTEE AND COLLATERAL AGREEMENT]*

 

----

 
|   | By     | /s/  Clifford H.R. DuPree |
|--------|--------|---------------------------|
|   |   | Name:                     | Clifford H.R. DuPree |
|   |   | Title:                    | Secretary of each of the Loan |
|   |   |                      | Parties listed on Exhibit B |

 

*[SIGNATUREPAGE TO GUARANTEE AND COLLATERAL AGREEMENT]*

 

----

 
|   | By     | /s/  Karen E. Andrews |
|--------|--------|-----------------------|
|   |   | Name:                 | Karen  E. Andrews |
|   |   | Title:                | Secretary  of each of the Loan |
|   |   |                  | Parties  listed on Exhibit C |

 

*[[SIGNATUREPAGE TO GUARANTEE AND COLLATERAL AGREEMENT]*

 

----

 
|   | By     | /s/  Randolph H. Elkins |
|--------|--------|-------------------------|
|   |   | Name:                   | Randolph  H. Elkins |
|   |   | Title:                  | Secretary  of each of the Loan |
|   |   |                    | Parties  listed on Exhibit D |

 

*[SIGNATUREPAGE TO GUARANTEE AND COLLATERAL AGREEMENT]*

 

----

 
|   | Solely for purposes of Sections 8.18 and 8.19: |
|--------|------------------------------------------------|
|   | RD GERMAN HOLDINGS GmbH                        |
|   |                                           |
|   |                                           |
|   | By:                                            | /s/ Werner  Neunzig |
|   |                                           | Name: Werner Neunzig |
|   |                                           | Title: Managing Director |

 

*[SIGNATURE PAGE TO GUARANTEE AND COLLATERAL AGREEMENT]*

 

----

 

Exhibit A

 

RDAHolding Co.Doctor Acquisition Co.

 

----

 

Exhibit B

 

TheReader’s Digest Association, Inc.

Allrecipes.com, Inc.

ArdeeMusic Publishing, Inc.

BooksAre Fun, Ltd.

ChristmasAngel Productions, Inc.

PegasusAsia Investments, Inc.

PegasusFinance Corp.

PegasusInvestment, Inc.

PegasusSales, Inc.

PleasantvilleMusic Publishing, Inc.

QSP, Inc.

FamilyReading Program Corp.

QSPDistribution Services, LLC

QSPProducts and Programs, LLC

QSPSales, LLC

QSPServices, LLC

QSPVentures, LLC

Fundraising.com, Inc.

ReimanMedia Group, Inc.

Tasteof Home Productions, Inc.

Tasteof Home Media Group, Inc.

WorldWide Country Tours, Inc.

VideOvation, Inc.

R.D. Manufacturing Corporation

RDPublications, Inc.

HomeService Publications, Inc.

RDLarge Edition, Inc.

RDTrade Shows, Inc.

RDWalking, Inc.

RetirementLiving Publishing Company, Inc.

TravelPublications, Inc.

RDMember Services, Inc.

Reader’sDigest Children’s Publishing, Inc.

Reader’sDigest Consumer Services, Inc.

RDMagazine Value Partners, Inc.

Reader’sDigest Entertainment, Inc.

Reader’sDigest Financial Services, Inc.

Tasteof Home Entertaining, Inc.

Reader’sDigest Latinoamerica S.A.

WAPLA,LLC

Reader’sDigest Sales and Services, Inc.

Reader’sDigest Sub Nine, Inc.

Reader’sDigest Young Families, Inc.

SMDDMS, Inc.

TheReader’s Digest Association (Russia) Incorporated

W.A.Publications, LLC

 

----

 

Exhibit C

 

WRCMedia Inc.

CompassLearning, Inc.

WeeklyReader Corporation

LifetimeLearning Systems, Inc.

WorldAlmanac Education Group, Inc.

Funk &Wagnalls Yearbook Corp.

GarethStevens, Inc.

 

----

 

Exhibit D

 

DirectHoldings U.S. Corp.

DirectHoldings Americas Inc.

DirectHoldings Custom Publishing Inc.

DirectHoldings Education Inc.

AlexInc.

DirectHoldings Customer Service, Inc.

DirectHoldings Libraries Inc.

 

----

 

ACKNOWLEDGMENT AND CONSENT***

 

Theundersigned hereby acknowledges receipt of a copy of the Guarantee andCollateral Agreement dated as of March 2, 2007 (the “Agreement”),made by the Grantors parties thereto for the benefit of JPMORGAN CHASE BANK,N.A., as Administrative Agent. The undersigned agrees for the benefit of theAdministrative Agent and the Lenders as follows:

 

1.       The undersigned will bebound by the terms of the Agreement and will comply with such terms insofar assuch terms are applicable to the undersigned.

 

2.       The undersigned will notifythe Administrative Agent promptly in writing of the occurrence of any of theevents described in Section 5.6(a) of the Agreement.

 

3.       The terms of Sections 6.3(c) and6.7 of the Agreement shall apply to it, mutatismutandis, withrespect to all actions that may be required of it pursuant to Section 6.3(c) or6.7 of the Agreement.

 
|   | [NAME  OF ISSUER]     |
|--------|-----------------------|
|   |                  |
|   |                  |
|   | By               |   |
|   |                  | Name: |
|   |                  | Title: |
|   |                  |
|   | Address  for Notices: |
|   |                  |
|   |                  |
|   |                  |
|   |                  |
|   | Fax:                  |

 

 

----

| *** | This  consent is necessary only with respect to any Issuer which is not also a  Grantor. This consent may be modified or eliminated with respect to any  Issuer that is not controlled by a Grantor. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

----

 

Annex 1 to

Guarantee and Collateral Agreement

 

ASSUMPTIONAGREEMENT, dated as of                  ,20    , made by                                , a            corporation (the “AdditionalGrantor”), in favor of JPMORGAN CHASE BANK, N.A., as administrative agent(in such capacity, the “Administrative Agent”), for the lending andother financial institutions (the “Lenders”) parties to the CreditAgreement referred to below. All capitalized terms not defined herein shallhave the meaning ascribed to them in such Credit Agreement.

 

WITNESSETH:

 

WHEREAS,RDA HOLDING CO., a Delaware corporation (“Holdings”), THE READER’SDIGEST ASSOCIATION, INC., a Delaware corporation (the “Company”), theOverseas Borrowers, the Lenders and the Administrative Agent have entered intoa Credit Agreement, dated as of March 2, 2007 (as amended, supplemented orotherwise modified from time to time, the “Credit Agreement”);

 

WHEREAS,in connection with the Credit Agreement, Holdings, the Company and certain ofthe Company’s Subsidiaries (other than the Additional Grantor) have enteredinto the Guarantee and Collateral Agreement, dated as of March 2, 2007 (asamended, supplemented or otherwise modified from time to time, the “Guaranteeand Collateral Agreement”) in favor of the Administrative Agent for thebenefit of the Lenders;

 

WHEREAS,the Credit Agreement requires the Additional Grantor to become a party to theGuarantee and Collateral Agreement; and

 

WHEREAS,the Additional Grantor has agreed to execute and deliver this AssumptionAgreement in order to become a party to the Guarantee and Collateral Agreement;

 

NOW,THEREFORE, IT IS AGREED:

 

1.             Guarantee and CollateralAgreement. By executing and delivering this AssumptionAgreement, the Additional Grantor, as provided in Section 8.14 of theGuarantee and Collateral Agreement, hereby becomes a party to the Guarantee andCollateral Agreement as a Guarantor and a Grantor thereunder with the sameforce and effect as if originally named therein as a Guarantor and a Grantorand, without limiting the generality of the foregoing, hereby expressly assumesall obligations and liabilities of a Guarantor and a Grantor thereunder. Theinformation set forth in Annex 1-A hereto is hereby added to the informationset forth in the Schedules to the Guarantee and Collateral Agreement. TheAdditional Grantor hereby represents and warrants that each of therepresentations and warranties contained in Section 4 of the Guarantee andCollateral Agreement is true and correct on and as the date hereof (aftergiving effect to this Assumption Agreement) as if made on and as of such date.

 

----

 

**2.****            ****GOVERNING LAW****.****THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED INACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.**

 

INWITNESS WHEREOF, the undersigned has caused this Assumption Agreement to beduly executed and delivered as of the date first above written.

 
|   | [ADDITIONAL  GRANTOR] |
|--------|-----------------------|
|   |                  |
|   |                  |   |
|   | By:         |   |
|   |                  | Name: |
|   |                  | Title: |

 

----

 

Annex 1-A to

Assumption Agreement

 

Supplement to Schedule 1

 

Supplement to Schedule 2

 

Supplement to Schedule 3

 

Supplement to Schedule 4

 

Supplement to Schedule 5

 

Supplement to Schedule 6

 

Supplement to Schedule 7

 

----

 

[Schedules to

Guarantee and Collateral Agreement]

 

**Schedule 1 Notice Addresses**

 
| **Company Name**                                 | ** ** | **Legal****Address**                                        |
|--------------------------------------------------|------------|-------------------------------------------------------------|
| RDA  Holding Co.                                 |       | One  Rockefeller Plaza, 32nd Floor  New York, NY 10020      |
| Doctor  Acquisition Co.                          |       | One  Rockefeller Plaza, 32nd Floor  New York, NY 10020      |
| The  Reader’s Digest Association, Inc. |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| Allrecipes.com, Inc.                        |       | 3317  3rd Ave. S, Suite D  Seattle, WA 98134           |
| Ardee  Music Publishing, Inc.               |       | 260  Madison Avenue  New York, New York 10016               |
| Books  Are Fun, Ltd.                             |       | 1680  Highway 1 North  Fairfield, Iowa 52556                |
| Christmas  Angel Productions, Inc.          |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| Family  Reading Program Corp.                    |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| Home  Service Publications, Inc.            |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| Pegasus  Asia Investments, Inc.             |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| Pegasus  Finance Corp.                           |       | 802  North West Street  Wilmington, DE 19801                |
| Pegasus  Investment, Inc.                   |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| Pegasus  Sales, Inc.                        |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| Pleasantville  Music Publishing, Inc.       |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| QSP, Inc.                                   |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| QSP  Distribution Services, LLC                  |       | 2175  East Park Drive, Suite A  Conyers, GA 30013-5743 |
| QSP  Products and Programs, LLC                  |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| QSP  Sales, LLC                                  |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| QSP  Services, LLC                               |       | Reader’s  Digest Road  Pleasantville, NY 10570         |
| QSP  Ventures, LLC                               |       | Reader’s  Digest Road  Pleasantville, NY 10570         |

 

----

 
| RD  Large Edition, Inc.                                |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
|-------------------------------------------------------------|--------|-----------------------------------------------------|
| RD  Magazine Value Partners, Inc.                      |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| R.  D. Manufacturing Corporation                            |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| RDMember Services, Inc.                                |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| RD  Publications, Inc.                                 |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| RD  Trade Shows, Inc.                                  |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| RD  Walking, Inc.                                      |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Reader’s  Digest Children’s Publishing, Inc. |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Reader’s  Digest Consumer Services, Inc.          |   | 200  Cahaba Park Circle  Birmingham, AL. 35242      |
| Reader’s  Digest Entertainment, Inc.              |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Reader’s  Digest Financial Services, Inc.         |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Taste  of Home Entertaining, Inc.                      |   | 20300  Watertower Blvd  Brookfield, WI 53045        |
| Reader’s  Digest Latinoamerica S.A.                    |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Reader’s  Digest Sales and Services, Inc.         |   | 261  Madison Avenue  New York, NY 10016             |
| Fundraising.com, Inc.                                  |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Reader’s  Digest Sub Nine, Inc.                   |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Reader’s  Digest Young Families, Inc.             |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Taste  of Home Media Group, Inc.                       |   | 5400  South 60th Street  Greendale, Wisconsin 53129 |
| Reiman  Media Group, Inc.                              |   | 5400  South 60th Street  Greendale, Wisconsin 53129 |
| Retirement  Living Publishing Company, Inc.            |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| SMDDMS, Inc.                                           |   | Reader’s  Digest Road  Pleasantville, NY 10570 |
| Taste  of Home Productions, Inc.                       |   | 5400  South 60th Street  Greendale, Wisconsin 53129 |
| The  Reader’s Digest Association (Russia) Incorporated |   | Reader’s  Digest Road  Pleasantville, NY 10570 |

 

2

----

 
| Travel  Publications, Inc.              |   | Reader’s  Digest Road  Pleasantville, NY 10570                  |
|----------------------------------------------|--------|----------------------------------------------------------------------|
| VideOvation, Inc.                       |   | Reader’s  Digest Road  Pleasantville, NY 10570                  |
| W.A.  Publications, LLC                      |   | Reader’s  Digest Road  Pleasantville, NY 10570                  |
| WAPLA,  LLC                                  |   | Reader’s  Digest Road  Pleasantville, NY 10570                  |
| World  Wide Country Tours, Inc.         |   | 5400  South 60th Street  Greendale, Wisconsin 53129                  |
|                                         |   |                                                                 |
| Alex  Inc.                                   |   | 8280  Willow Oaks Corporate Drive, Suite 800  Fairfax, VA 22031 |
| Direct  Holdings Americas Inc.               |   | 8280  Willow Oaks Corporate Drive, Suite 800  Fairfax, VA 22031 |
| Direct  Holdings Custom Publishing Inc.      |   | 8280  Willow Oaks Corporate Drive, Suite 800  Fairfax, VA 22031 |
| Direct  Holdings Customer Service, Inc. |   | 8280  Willow Oaks Corporate Drive, Suite 800  Fairfax, VA 22031 |
| Direct  Holdings Education Inc.              |   | 8280  Willow Oaks Corporate Drive, Suite 800  Fairfax, VA 22031 |
| Direct  Holdings Libraries Inc.              |   | 8280  Willow Oaks Corporate Drive, Suite 800  Fairfax, VA 22031 |
| Direct  Holdings U.S. Corp.                  |   | 8280  Willow Oaks Corporate Drive, Suite 800  Fairfax, VA 22031 |
|                                         |   |                                                                 |
| WRC  Media Inc.                              |   | 512  Seventh Avenue  New York, NY 10018                              |
| CompassLearning, Inc.                   |   | 203  Colorado Street  Austin, TX 78701                               |
| Weekly  Reader Corporation                   |   | 200  First Stamford Place  P.O. Box 120023  Stamford, CT 06912  |
| Lifetime  Learning Systems, Inc.        |   | 200  First Stamford Place  P.O. Box 120023  Stamford, CT 06912  |
| World  Almanac Education Group, Inc.    |   | 512  Seventh Avenue  New York, NY 10018                              |
| Funk &**Wagnalls Yearbook Corp.     |   | 512  Seventh Avenue  New York, NY 10018                              |
| Gareth  Stevens, Inc.                   |   | 330  West Olive Street, Suite 100  Milwaukee, WI 53212          |

 

3

----

 

**Schedule 2 Investment Property**

 

PledgedDebt:

 
| **Lender**                                      | ** ** | **Borrower**                                                | ** ** | **Amount** | ** **  |
|-------------------------------------------------|------------|-------------------------------------------------------------|------------|------------|-------------|
| The Reader’s Digest Association, Inc. |       | Pegasus Sales, Inc.                                    |       | $          | 5,000,000   |   |
| The Reader’s Digest Association, Inc. |       | Reader’s Digest Children’s  Publishing, Inc. |       | $          | 3,740,000   |   |
| The Reader’s Digest Association, Inc. |       | Reader’s Digest  Sales & Services, Inc.  |       | $          | 3,000,000   |   |
| The Reader’s Digest Association, Inc. |       | Books Are Fun, Ltd.                                         |       | $          | 330,000,000 |   |

 

PledgedEquity:(1)

 

**Domestic**

 
| **Loan Party**                                   | ** ** | **Subsidiary**                                   | ** ** | **Subsidiary********Jurisdiction********of  Organization** | ** ** | **Ownership Interest** | ** ** | **Percent********Ownership** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------|------------|------------------------------|------------|
| RDA  Holding Co.                                 |       | The  Reader’s Digest Association, Inc. |       | Delaware                                                   |       | 1,000  shares common   |       | 100                          | %          |
| The  Reader’s Digest Association, Inc. |       | Allrecipes.com, Inc.                        |       | Washington                                                 |       | 10  shares common      |       | 100                          | %          |
| The  Reader’s Digest Association, Inc. |       | Ardee  Music Publishing, Inc.               |       | Delaware                                                   |       | 100  shares common     |       | 100                          | %          |
| The  Reader’s Digest Association, Inc. |       | Books  Are Fun, Ltd.                             |       | Iowa                                                       |       | 100  shares common     |       | 100                          | %          |
| The  Reader’s Digest Association, Inc. |       | Christmas  Angel Productions, Inc.               |       | Delaware                                                   |       | 10  shares common      |       | 100                          | %          |

 

----

(1) Reflects final structure onthe Closing Date, following the consummation of the Acquisitions and thecontribution by RDA Holding Co. to The Reader’s Digest Association, Inc.of the Equity Interests of each of Direct Holdings U.S. Corp. and WRC MediaInc.

 

4

----

 
| The  Reader’s Digest Association, Inc. |   | Pegasus  Asia Investments Inc.                                                                                |   | Delaware |   | 10  shares common    |   | 100 | % |
|--------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------------------|--------|-----|---|
| The  Reader’s Digest Association, Inc. |   | Pegasus  Finance Corp.                                                                                        |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Pegasus  Investment, Inc.                                                                                |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Pegasus  Sales, Inc.                                                                                     |   | Delaware |   | 1,000  shares common |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Pleasantville  Music Publishing, Inc.                                                                    |   | Delaware |   | 100  shares common   |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | QSP, Inc.                                                                                                |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | R.  D. Manufacturing Corporation                                                                              |   | Delaware |   | 1,000  shares common |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | RD  Publications, Inc. (f/k/a Travel Publications, Inc.)                                            |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Children’s Publishing, Inc. (f/k/a Reader’s Digest Sub  Five, Inc.) |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Consumer Services, Inc.                                                            |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Entertainment, Inc.                                                                |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Financial Services, Inc.                                                           |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Latinoamerica S.A.                                                                      |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Sales and Services, Inc.                                                           |   | Delaware |   | 1,000  shares common |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Sub Nine, Inc.                                                                     |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Reader’s  Digest Young Families, Inc.                                                               |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | SMDDMS, Inc.                                                                                             |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | Taste  of Home Entertaining, Inc. (f/k/a Reader’s Digest Home Parties)                              |   | Delaware |   | 10  shares common    |   | 100 | % |
| The  Reader’s Digest Association, Inc. |   | The  Reader’s Digest Association (Russia) Incorporated (f/k/a                                            |   | Delaware |   | 10  shares common    |   | 100 | % |

 

5

----

 
|                                                               |   | Reader’s  Digest Sub Four, Inc.)                                         |   |     |   |                                  |   |   |   |
|--------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|----------|--------|---------------------------------------|--------|--------|--------|
| The  Reader’s Digest Association, Inc.                   |   | W.A.  Publications, LLC                                                            |   | Delaware |   | 100%                                  |   | 100    | %      |
| QSP, Inc.                                                     |   | Family  Reading Program Corp.                                                      |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| QSP, Inc.                                                     |   | Fundraising.com, Inc.  (f/k/a Reader’s Digest Sub Eight, Inc.)      |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| QSP, Inc.                                                     |   | QSP  Distribution Services, LLC                                                    |   | Delaware |   | 10  units limited liability interests |   | 100    | %      |
| QSP, Inc.                                                     |   | QSP  Products and Programs, LLC                                                    |   | Delaware |   | 10  units limited liability interests |   | 100    | %      |
| QSP, Inc.                                                     |   | QSP  Sales, LLC                                                                    |   | Delaware |   | 10  units limited liability interests |   | 100    | %      |
| QSP, Inc.                                                     |   | QSP  Services, LLC                                                                 |   | Delaware |   | 10  units limited liability interests |   | 100    | %      |
| QSP, Inc.                                                     |   | QSP  Ventures, LLC                                                                 |   | Delaware |   | 10  units limited liability interests |   | 100    | %      |
| QSP, Inc.                                                     |   | Reiman  Media Group, Inc. (f/k/a Reader’s Digest Media Group, Inc.) |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| QSP, Inc.                                                     |   | VideOvation, Inc.(f/k/a  Reader’s Digest Sub Three, Inc.)           |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| RD  Publications, Inc. (f/k/a Travel Publications, Inc.) |   | Home  Service Publications, Inc.                                              |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| RD  Publications, Inc.                                        |   | RD  Large Edition, Inc.                                                       |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| RD  Publications, Inc.                                        |   | RD  Trade Shows, Inc.                                                         |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| RD  Publications, Inc.                                        |   | RD  Walking, Inc.                                                             |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| RD  Publications, Inc.                                        |   | Retirement  Living Publishing Company, Inc.                                   |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| RD  Publications, Inc.                                        |   | Travel  Publications, Inc. (f/k/a RD Publications, Inc.)                 |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| Reader’s  Digest Consumer Services, Inc.                 |   | RD  Magazine Value Partners, Inc.                                             |   | Delaware |   | 10  shares common                     |   | 100    | %      |
| Reader’s  Digest Latinoamerica, S.A.                          |   | WAPLA,  LLC                                                                        |   | Delaware |   | 100  unites limited                   |   | 100    | %      |

 

6

----

 
|                                                                               |   |                                                                                 |   |      |   | liability  interests     |   |   |   |
|------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|-----------|--------|--------------------------|--------|--------|--------|
| Reiman  Media Group, Inc. (f/k/a Reader’s Digest Media Group, Inc.) |   | Taste  of Home Media Group, Inc. (f/k/a Reader’s Digest RAP, Inc.)    |   | Delaware  |   | 10  shares common        |   | 100    | %      |
| Reiman  Media Group, Inc. (f/k/a Reader’s Digest Media Group, Inc.) |   | Taste  of Home Productions, Inc. (f/k/a Reader’s Digest HV, Inc.)     |   | Delaware  |   | 10  shares common        |   | 100    | %      |
| Reiman  Media Group, Inc. (f/k/a Reader’s Digest Media Group, Inc.) |   | World  Wide Country Tours, Inc. (f/k/a Reader’s Digest WWCT, Inc.)    |   | Delaware  |   | 10  shares common        |   | 100    | %      |
| Travel  Publications, Inc.                                                    |   | RD  Member Services, Inc.                                                       |   | Delaware  |   | 10  shares common        |   | 100    | %      |
|                                                                               |   |                                                                                 |   |      |   |                     |   |   |   |
| The  Reader’s Digest Association, Inc.                                   |   | Direct  Holdings U.S. Corp.                                                          |   | Delaware  |   | 200,000  shares common   |   | 100    | %      |
| Direct  Holdings U.S. Corp.                                                        |   | Direct  Holdings Americas Inc. (f/k/a Time-Life Books Inc.)                          |   | Delaware  |   | 1,000  shares common     |   | 100    | %      |
| Direct  Holdings Americas Inc. (f/k/a Time Life Inc.)                              |   | Direct  Holdings Custom Publishing Inc. (f/k/a Time Life Custom Publishing Inc.)     |   | Delaware  |   | 100  shares common       |   | 100    | %      |
| Direct  Holdings Americas Inc. (f/k/a Time Life Inc.)                              |   | Direct  Holdings Education Inc. (f/Ida Time Life Education Inc.)                     |   | Delaware  |   | 100  shares common       |   | 100    | %      |
| Direct  Holdings Americas Inc. (f/k/a Time Life Inc.)                              |   | Alex  Inc.                                                                           |   | Delaware  |   | 100  shares common       |   | 100    | %      |
| Direct  Holdings Americas Inc. (f/k/a Time-Life Books Inc.)                        |   | Direct  Holdings Customer Service, Inc. (f/k/a Time-Life Customer Service Inc.) |   | Delaware  |   | 100  shares common       |   | 100    | %      |
| Direct  Holdings Americas Inc. (f/k/a Time Life Inc.)                              |   | Direct  Holdings Libraries Inc. (f/k/a Time-Life Libraries, Inc.)               |   | New  York |   | 10,000  shares common    |   | 100    | %      |
|                                                                               |   |                                                                                 |   |      |   |                     |   |   |   |
| The  Reader’s Digest Association, Inc.                                   |   | WRC  Media Inc.                                                                      |   | Delaware  |   | 1,000  shares common     |   | 100    | %      |
| WRC  Media Inc.                                                                    |   | CompassLearning, Inc.                                                           |   | Delaware  |   | 10,000  shares common    |   | 100    | %      |
| WRC  Media Inc.                                                                    |   | Weekly  Reader Corporation                                                           |   | Delaware  |   | 2,685,670  shares common |   | 94.9   | %      |
| Weekly  Reader Corporation                                                         |   | Lifetime  Learning Systems, Inc.                                                |   | Delaware  |   | 1,000  shares common     |   | 100    | %      |
| Weekly  Reader Corporation                                                         |   | World  Almanac Education Group, Inc.                                            |   | Delaware  |   | 1,000  shares common     |   | 100    | %      |

 

7

----

 
| World  Almanac Education Group, Inc. |   | Funk &  Wagnalls Yearbook Corp. |   | Delaware  |   | 1,000  shares common     |   | 100 | % |
|--------------------------------------|--------|------------------------------------------|--------|-----------|--------|--------------------------|--------|-----|---|
| World  Almanac Education Group, Inc. |   | Gareth  Stevens, Inc.               |   | Wisconsin |   | 2,314,305  shares common |   | 100 | % |

 

**Foreign**

 
| ** **                                                                                                               | ** ** | ** **                                                                   | ** ** | ** **                                         | ** ** | ** **                | ** ** | ** **    | ** ** | **Equity  Interest** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------|------------|---------------|------------|----------------------|------------|
| ** **                                                                                                               | ** ** | **No. of**                                                              | ** ** | ** **                                         | ** ** | **Country**               | ** ** | **Percent**   | ** ** | **Required to** | ** ** |
| **Loan Party**                                                                                                      | ** ** | **Shares**                                                                   | ** ** | **Subsidiary / Equity Investment**  | ** ** | **of Incorporation** | ** ** | **Ownership** | ** ** | **be Pledged**  | ** ** |
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |       | 1  872,237  469,665                                                          |       | The Reader’s Digest  Association Pty. Limited |       | Australia                 |       | 100           | %          | 65                   | %          |
| Doctor Acquisition Co.                                                                                                   |       | 1,000                                                                        |       | 1302791 Alberta ULC                                |       | Canada                    |       | 100           | %          | 0                    | %(2)       |
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.                        |       | 72,000  38,000                                                               |       | Oy Valitut Palat -  Reader’s Digest Ab        |       | Finland                   |       | 100           | %          | 65                   | %          |
| The Reader’s Digest  Association, Inc.                                                                         | ** ** | 1                                                                            |       | RD German Holdings GmbH                            |       | Germany                   |       | 100           | %          | 65  100              | %(3)  %(4) |
| The Reader’s Digest  Association, Inc.                                                                         |       | 80,000 DM  20,000 DM  1,900,000 DM  1,000,000 DM  9,000,000 DM  8,000,000 DM |       | Verlag Das Beste GmbH                              |       | Germany                   |       | 100           | %          | 10                   | %(5)       |

 

----

(2) Not required to be delivered.

 

(3) With respect to theObligations.

 

(4) With respect to theObligations of the German Borrower.

 

(5)* *90% to betransferred to the RD German Holdings GmbH.

 

8

----

 
| **Loan Party**                                                                                                                                                       | ** ** | **No. of  Shares** | ** ** | **Subsidiary / Equity Investment**                         | ** ** | **Country  of Incorporation** | ** ** | **Percent  Ownership** | ** ** | **Equity********Interest  Required to  be Pledged** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------------------------------------------------|------------|------------------------------------|------------|------------------------|------------|---------------------------------------------------------------|------------|
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |       | 5  45  33  12           |       | Reader’s Digest  Association Far East Limited                        |       | Hong Kong                          |       | 100                    | %          | 65                                                            | %**        |
| W.A. Publications, LLC  W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                          |       | 1  9  65  25            |       | Reader’s Digest Asia,  Ltd.                                          |       | Hong Kong                          |       | 100                    | %          | 65                                                            | %**        |
| W.A. Publications, LLC  W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                          |       | 1  9  65  24            |       | Reader’s Digest (East  Asia) Limited                                 |       | Hong Kong                          |       | 100                    | %          | 65                                                            | %**        |
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                  |       | 1  6,500  3,499         |       | R.D. Properties, Ltd.                                                     |       | Hong Kong                          |       | 100                    | %          | 65                                                            | %**        |
| Reader’s Digest  Association Far East Limited  The Reader’s Digest Association, Inc.                                                                       |       | 1  99                   |       | Reader’s Digest Book and  Home Entertainment (India) Private Limited |       | India                              |       | 100                    | %          | 65                                                            | %**        |
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.                                                                         |       | 130  70                 |       | The Reader’s Digest Ltd.                                             |       | Japan                              |       | 100                    | %          | 65                                                            | %**        |
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                  |       | 117,913,286  9,645,615  |       | Caribe Condor S.A. de  C.V.                                               |       | Mexico                             |       | 100                    | %          | 65                                                            | %          |
| W.A. Publications, LLC                                                                                                                                                    |       | 1                       |       | Reader’s Digest Mexico  S.A. de C.V.                                 |       | Mexico                             |       | 1                      | %          | 65                                                            | %(6)       |
| W.A. Publications, LLC                                                                                                                                                    |       | 1                       |       | Corporativo Reader’s  Digest Mexico S. de R.L. de C.V.               |       | Mexico                             |       | 1                      | %          | 65                                                            | %**        |
| W.A. Publications, LLC                                                                                                                                                    |       | 1                       |       | Grupo Editorial Reader’s  Digest S. de R.L. de C.V.                  |       | Mexico                             |       | 1                      | %          | 65                                                            | %**        |

 

----

(6) Certificated,but not to be delivered given that W.A. Publications, LLC only owns one share.

 

9

----

 
| **Loan Party**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **No. of  Shares**                         | ** ** | **Subsidiary / Equity Investment**                                                                          | ** ** | **Country  of Incorporation** | ** ** | **Percent  Ownership** | ** ** | **Equity********Interest  Required to  be Pledged** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|------------------------|------------|---------------------------------------------------------------|------------|
| W.A. Publications, LLC  W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                             |       | 100  100  1,300  495                            |       | Reader’s Digest  (Philippines) Inc.                                                                                   |       | Philippines                        |       | 100                    | %(7)       | 65                                                            | %**        |
| Selecções do Reader’s  Digest (Portugal), SA  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc. |       | 20  5  5  5  5  5  5  50  4,900  1,100  443,900 |       | Selecções do Reader’s  Digest (Portugal) S.A.                                                               |       | Portugal                           |       | 100                    | %          | 65                                                            | %**        |
| Selecções do Reader’s  Digest (Portugal), SA  The Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                            |       | €1,796  €199                          |       | Euroselecções - Publicações  E Artigos Promocionais, Lda.                                              |       | Portugal                           |       | 100                    | %          | 65                                                            | %**        |
| W.A. Publications, LLC  The Reader’s Digest Association, Inc.  The Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                     |       | 2  4,550  2,448                                 |       | Reader’s Digest  Selecciones S.A.                                                                                     |       | Spain                              |       | 100                    | %          | 65                                                            | %**        |
| The Reader’s Digest  Association, Inc.  The Reader’s Digest Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                            |       | 15,750  29,250                                  |       | Reader’s Digest  Aktiebolag                                                                                           |       | Sweden                             |       | 100                    | %          | 65                                                            | %**        |
| The Reader’s Digest  Association, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 497                                             |       | Das Beste aus Reader’s  Digest AG/  Sélection du Reader’s Digest SA/  Selezione dal Reader’s Digest SA |       | Switzerland                        |       | 100                    | %(8)       | 65                                                            | %          |

 

----

(7) Five shares heldby each of the five directors.

 

(8) 3 shares held byindividuals.

 

10

----

 
| **Loan Party**                         | ** ** | **No. of  Shares** | ** ** | **Subsidiary / Equity Investment** | ** ** | **Country  of Incorporation** | ** ** | **Percent  Ownership** | ** ** | **Equity  Interest  Required to  be Pledged** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|---------------------------------------------------|------------|------------------------------------|------------|------------------------|------------|---------------------------------------------------------|------------|
| The Reader’s Digest  Association, Inc. |       | 9,993                   |       | Reader’s Digest  (Thailand) Limited          |       | Thailand                           |       | 100                    | %(9)       | 65                                                      | %**        |
| The Reader’s Digest  Association, Inc. |       | 571,996                 |       |                                              |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 298,004                 |       |                                              |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 201,500,000             |       | The Reader’s Digest  Association Limited     |       | United Kingdom                     |       | 100                    | %          | 65                                                      | %          |
| The Reader’s Digest  Association, Inc. |       | 108,500,000             |       |                                              |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 1,089,573               |       | Reader’s Digest  Children’s Publishing  |       | United Kingdom                     |       | 100                    | %          | 65                                                      | %**        |
| The Reader’s Digest  Association, Inc. |       | 586,692                 |       | Limited                                           |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 1                       |       | Reader’s Digest Europe  Limited              |       | United Kingdom                     |       | 100                    | %          | 65                                                      | %**        |
| The Reader’s Digest  Association, Inc. |       | 34                      |       |                                              |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 65                      |       |                                              |       |                               |       |                   |       |                                                    |       |
| Reader’s Digest  Latinoamerica, S.A.   |       | 11,880 interests        |       | Reader’s Digest  Argentina, SRL              |       | Argentina                          |       | 100                    | %          | 65                                                      | %*         |
| WAPLA, LLC                                  |       | 120 interests           |       |                                              |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 500,000                 |       | Verlag Das Beste GmbH                             |       | Austria                            |       | 100                    | %          | 65                                                      | %*         |
| W.A. Publications, LLC                      |       | 1                       |       | Reader’s Digest World  Services, S.A.        |       | Belgium                            |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 253,845                 |       |                                              |       |                               |       |                   |       |                                                    |       |
| W.A. Publications, LLC                      |       | 164,200                 |       | Reader’s Digest N.V. -  S.A.                 |       | Belgium                            |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 656,800                 |       |                                              |       |                               |       |                   |       |                                                    |       |
| W.A. Publications, LLC                      |       | 10%                     |       | Reader’s Digest Brasil,  Ltda.               |       | Brazil                             |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 90%                     |       |                                              |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 193,846,000,000         |       | Reader’s Digest Vyber  s.r.o.                |       | Czech Republic                     |       | 100                    | %          | 65                                                      | %*         |
|                                        |       | CZK (no shares issued)  |       |                                              |       |                               |       |                   |       |                                                    |       |
| The Reader’s Digest  Association, Inc. |       | 61,992                  |       | Sélection du Reader’s Digest  S.A.      |       | France                             |       | 100                    | %(10)      | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 25,000                  |       | Reader’s Digest  Deutschland Holding GmbH    |       | Germany                            |       | 100                    | %          | 65                                                      | %*         |

 

----

(9) 7 shares held byindividuals.

 

(10) 8 shares held byindividuals.

 

11

----

 
| **Loan Party**                              | ** ** | **No. of  Shares**             | ** ** | **Subsidiary / Equity Investment**                                   | ** ** | **Country  of Incorporation** | ** ** | **Percent  Ownership** | ** ** | **Equity  Interest  Required to  be Pledged** | ** ** |
|--------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------------------|------------|------------------------------------|------------|------------------------|------------|---------------------------------------------------------|------------|
| The Reader’s Digest  Association, Inc. |       | 599                                 |       | Reader’s Digest Hellas  Publications Company with Limited Liability            |       | Greece                             |       | 100                    | %(11)      | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 600,000,000 HUF  (no shares issued) |       | Reader’s Digest Kiadó  Korlátolt Felelosségu Társaság |       | Hungary                            |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | €10,000                        |       | Libri e piu, S.r.I.                                                                 |       | Italy                              |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 182                                 |       | The Reader’s Digest  European Shared Services B.V.                             |       | Netherlands                        |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 100                                 | %     | Uitgeversmaatschappij  The Reader’s Digest N.V.                                |       | Netherlands                        |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 16,162                              |       | Reader’s Digest Przeglad  Sp Z.o.o.                                            |       | Poland                             |       | 100                    | %          | 65                                                      | %*         |
| The Reader’s Digest  Association, Inc. |       | 4,500 YTL                           |       | Reader’s Digest Secilmis  Yayincilik Dagitim Pazarlama Ticaret Limited Sirketi |       | Turkey                             |       | 90                     | %(12)      | 65                                                      | %*         |
|                                             |       |                                |       |                                                                                |       |                               |       |                   |       |                                                    |       |
| Direct Holdings U.S.  Corp.                      |       | 404 shares common                   |       | Direct Holdings  International B.V.                                                 |       | Netherlands                        |       | 100                    | %          | 65                                                      | %*         |

 

----

*Uncertificated.

**Certificated, but not required to be delivered given status as a ForeignImmaterial Subsidiary.

 

(11) 1 share held byan individual.

 

(12) 10% ownedby an individual.

 

12

----

 

**Schedule 3 Perfection Matters**

 

Uniform Commercial Code Filings

 

DelawareSecretary of State Iowa Secretary of State

NewYork Secretary of State Washington Secretary of State Wisconsin Secretary of State

 

Patent, Trademark and Copyright Filings

 

Intellectualproperty short form filings.

 

Actions with respect to Pledged Stock

 

Stockdelivered at closing of:

TheReader’s Digest Association, Inc.

Allrecipes.com, Inc.

ArdeeMusic Publishing, Inc.

BooksAre Fun, Ltd.

ChristmasAngel Productions, Inc.

FamilyReading Program Corp.

HomeService Publications, Inc.

PegasusAsia Investments, Inc.

PegasusFinance Corp.

PegasusInvestment, Inc.

PegasusSales, Inc.

PleasantvilleMusic Publishing, Inc.

QSP, Inc.

QSPDistribution Services, LLC

QSPProducts and Programs, LLC

QSPSales, LLC

QSPServices, LLC

QSPVentures, LLC

RDLarge Edition, Inc.

RDMagazine Value Partners, Inc.

R.D. Manufacturing Corporation

RDMember Services, Inc.

RDPublications, Inc.

RDTrade Shows, Inc.

RDWalking, Inc.

Reader’sDigest Children’s Publishing, Inc.

 

13

----

 

Reader’sDigest Consumer Services, Inc.

Reader’sDigest Entertainment, Inc.

Reader’sDigest Financial Services, Inc.

Tasteof Home Entertaining, Inc.

Reader’sDigest Latinoamerica S.A.

Reader’sDigest Sales and Services, Inc.

Fundraising.com, Inc.

Reader’sDigest Sub Nine, Inc,

Reader’sDigest Young Families, Inc.

Tasteof Home Media Group, Inc.

ReimanMedia Group, Inc.

RetirementLiving Publishing Company, Inc.

SMDDMS, Inc.

Tasteof Home Productions, Inc.

TheReader’s Digest Association (Russia) Incorporated

TravelPublications, Inc.

VideOvation, Inc.

W.A.Publications, LLC

WAPLA,LLC

WorldWide Country Tours, Inc.

 

DirectHoldings U.S. Corp.

DirectHoldings Americas Inc.

DirectHoldings Custom Publishing Inc.

DirectHoldings Education Inc.

AlexInc.

DirectHoldings Customer Service, Inc.

DirectHoldings Libraries Inc.

 

WRCMedia Inc.

CompassLearning, Inc.

WeeklyReader Corporation

LifetimeLearning Systems, Inc.

WorldAlmanac Education Group, Inc.

Funk &Wagnalls Yearbook Corp.

GarethStevens, Inc.

 

14

----

 

Other Actions

 

Notesdelivered at closing of:

PegasusSales, Inc.

Reader’sDigest Children’s Publishing, Inc.

Reader’sDigest Sales & Services, Inc.

BooksAre Fun, Ltd.

 

15

----

 

**Schedule 4 Jurisdictions of Organization**

 
| **Company Name**                                            | ** ** | **Jurisdiction** |
|-------------------------------------------------------------|------------|------------------|
| The  Reader’s Digest Association, Inc.            |       | Delaware         |
| Allrecipes.com, Inc.                                   |       | Washington       |
| Ardee  Music Publishing, Inc.                          |       | Delaware         |
| Books  Are Fun, Ltd.                                        |       | Iowa             |
| Christmas  Angel Productions, Inc.                     |       | Delaware         |
| Family  Reading Program Corp.                               |       | Delaware         |
| Home  Service Publications, Inc.                       |       | Delaware         |
| Pegasus  Asia Investments, Inc.                        |       | Delaware         |
| Pegasus  Finance Corp.                                      |       | Delaware         |
| Pegasus  Investment, Inc.                              |       | Delaware         |
| Pegasus  Sales, Inc.                                   |       | Delaware         |
| Pleasantville  Music Publishing, Inc.                  |       | Delaware         |
| QSP, Inc.                                              |       | Delaware         |
| QSP  Distribution Services, LLC                             |       | Delaware         |
| QSP  Products and Programs, LLC                             |       | Delaware         |
| QSP  Sales, LLC                                             |       | Delaware         |
| QSP  Services, LLC                                          |       | Delaware         |
| QSP  Ventures, LLC                                          |       | Delaware         |
| RD  Large Edition, Inc.                                |       | Delaware         |
| RD  Magazine Value Partners, Inc.                      |       | Delaware         |
| R.  D. Manufacturing Corporation                            |       | Delaware         |
| RD  Member Services, Inc.                              |       | Delaware         |
| RD  Publications, Inc.                                 |       | Delaware         |
| RD  Trade Shows, Inc.                                  |       | Delaware         |
| RD  Walking, Inc.                                      |       | Delaware         |
| Reader’s  Digest Children’s Publishing, Inc. |       | Delaware         |
| Reader’s  Digest Consumer Services, Inc.          |       | Delaware         |
| Reader’s  Digest Entertainment, Inc.              |       | Delaware         |
| Reader’s  Digest Financial Services, Inc.         |       | Delaware         |
| Taste  of Home Entertaining, Inc.                      |       | Delaware         |
| Reader’s  Digest Latinoamerica S.A.                    |       | Delaware         |
| Reader’s  Digest Sales and Services, Inc.         |       | Delaware         |
| Fundraising.com, Inc.                                  |       | Delaware         |
| Reader’s  Digest Sub Nine, Inc.                   |       | Delaware         |
| Reader’s  Digest Young Families, Inc.             |       | Delaware         |
| Taste  of Home Media Group, Inc.                       |       | Delaware         |
| Reiman  Media Group, Inc.                              |       | Delaware         |
| Retirement  Living Publishing Company, Inc.            |       | Delaware         |
| SMDDMS, Inc.                                           |       | Delaware         |
| Taste  of Home Productions, Inc.                       |       | Delaware         |

 

16

----

 
| The  Reader’s Digest Association (Russia) Incorporated |   | Delaware  |
|-------------------------------------------------------------|--------|-----------|
| Travel  Publications, Inc.                             |   | Delaware  |
| VideOvation, Inc.                                      |   | Delaware  |
| W.A.  Publications, LLC                                     |   | Delaware  |
| WAPLA,  LLC                                                 |   | Delaware  |
| World  Wide Country Tours, Inc.                        |   | Delaware  |
|                                                        |   |      |
| Alex  Inc.                                                  |   | Delaware  |
| Direct  Holdings Americas Inc.                              |   | Delaware  |
| Direct  Holdings Custom Publishing Inc.                     |   | Delaware  |
| Direct  Holdings Customer Service, Inc.                |   | Delaware  |
| Direct  Holdings Education Inc.                             |   | Delaware  |
| Direct  Holdings Libraries Inc.                             |   | New York  |
| Direct  Holdings U.S. Corp.                                 |   | Delaware  |
|                                                        |   |      |
| WRC  Media Inc.                                             |   | Delaware  |
| CompassLearning, Inc.                                  |   | Delaware  |
| Weekly  Reader Corporation                                  |   | Delaware  |
| Lifetime  Learning Systems, Inc.                       |   | Delaware  |
| World  Almanac Education Group, Inc.                   |   | Delaware  |
| Funk &  Wagnalls Yearbook Corp.                    |   | Delaware  |
| Gareth  Stevens, Inc.                                  |   | Wisconsin |

 

17

----

 

**Schedule 5Inventory and Equipment Locations**

 
| **Loan Party**                                   | ** ** | **Inventory and Equipment Location**                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The  Reader’s Digest Association, Inc. |       | The Reader’s Digest Association, Inc.  Reader’s Digest Road  Pleasantville, NY 10570                                                                                                                                                                                                                                                                                                                                                                                           |
|                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Books  Are Fun, Ltd.                             |       | Books Are Fun, Ltd.  1680 Highway 1  Fairfield, IA 52556

Books Are Fund, Ltd.   1801 West Stone   Fairfield, IA 52556

Dallas Transfer  2424 N. Westmoreland Road  Dallas, TX 75212

Innotrac  6655 Sugar Loaf Parkway  Duluth, GA 30097

Innotrac  4910 Langley Lane, Suite 101  Reno, NV 89502  Innotrac — Chicago1180 W. Remington Blvd.  Romeoville, IL 60446

JV West  1575 Linda Way, Door #2  Sparks, NV 89431

Overflow Warehouse  1450 Beacon Street  Baltimore, MD 21230 |
|                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| QSP, Inc.                                   |       | QSP, Inc.  Reader’s Digest Rd.  Pleasantville, NY 10570

Exact Packaging  100 Deerfield Road                                                                                                                                                                                                                                                                                                                                                                                        |

 

18

----

 
|                                                        |   | Pontiac, IL 61764

Alert Terminal Warehouse  1200 Breedlove  Memphis, TN 38107                                                                                                                                                                                                                                                                      |
|-------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        |   |                                                                                                                                                                                                                                                                                                                                                |
| QSP  Distribution Services, LLC                             |   | EDS  3600 Army Post Road  Des Moines, IA 50321                                                                                                                                                                                                                                                                                                      |
|                                                        |   |                                                                                                                                                                                                                                                                                                                                                |
| R.  D. Manufacturing Corporation                            |   | Anet  Riverpoint Enterprise ZC  Louisville, KY 40258

Putnam  1 Grosset Drive  Kirkwood, NY 13795

R. R. Donnelley  216 Greenfield Road  Lancaster, PA 17601                                                                                                                                                                                        |
|                                                        |   |                                                                                                                                                                                                                                                                                                                                                |
| Reader’s  Digest Children’s Publishing, Inc. |   | Simon & Schuster  100 Front Street  Riverside, NJ 08075                                                                                                                                                                                                                                                                                    |
|                                                        |   |                                                                                                                                                                                                                                                                                                                                                |
| Taste  of Home Entertaining, Inc.                      |   | Custom Marketing Services, Inc.  41 N. Industrial Blvd.  Calera, AL 35040                                                                                                                                                                                                                                                                      |
|                                                        |   |                                                                                                                                                                                                                                                                                                                                                |
| Reiman  Media Group, Inc.                              |   | Reiman Media Group, Inc.  5400 South 60th Street  Greendale, WI 53129

Reiman Country Store  5400 S. 60th Street  Greendale, WI 53129

Lindner Country Store  6055 S. 6th Street  Milwaukee, WI 53221

Quad Graphics  1900 W. Sumner Street  Hartford, WI 53027

Warren Book Marketing  1515 Grandview Parkway  Sturtevant, WI 53177 |

 

19

----

 
| Direct  Holdings Americas Inc.            |   | 2600  International Parkway  Virginia Beach, VA 23452*

1400  East Lackawanna Avenue  Olyphant, PA 18447*

948  Merifan Lake Drive   Aurora, IL 60507*                                                                                                                                                                                                   |
|-------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      |   |                                                                                                                                                                                                                                                                                                                                                     |
| WRC  Media Inc.                           |   | 512  Seventh Avenue   New York, NY 10018                                                                                                                                                                                                                                                                                                                 |
|                                      |   |                                                                                                                                                                                                                                                                                                                                                     |
| CompassLearning, Inc.                |   | 7878  N. 16th Street, Suite 100   Phoenix, AZ 85020

203  Colorado Street   Austin, TX 78701                                                                                                                                                                                                                                                        |
|                                      |   |                                                                                                                                                                                                                                                                                                                                                     |
| Weekly  Reader Corporation                |   | 200  First Stamford Place   Stamford, CT 06912

1000  Taylors Lane, Unit #8   Cinnaminson, NJ 08011                                                                                                                                                                                                                                                      |
|                                      |   |                                                                                                                                                                                                                                                                                                                                                     |
| World  Almanac Education Group, Inc. |   | 23221  Morgan Court, Bldg. 3   Strongsville, OH 44149

State  Rd. 92 West   Crawfordsville, IN 47853*

649  Alden St.  Fall River, MA 02722*

Rte.  9-J, 1897 River Rd.   Rensselaer, NY 12144*

16365  James Madison Highway   Gordonsville, VA 22942*

1133  County Street   Taunton, MA 02780*

23221  Morgan Court, Bldg. 3   Strongsville, OH 44149 |

 

----

*indicates bailee or warehouseman location

 

20

----

 

**Schedule 6 Intellectual Proper**t**y**

 

Copyrights/Applications:

 

Seeattached Copyrights Schedule.

 

Trademarks/Applications:

 

Seeattached Trademarks Schedule.

 

Patents/PatentLicenses/Applications:

 

Seeattached Patents Schedule.

 

21

----

 

**Schedule 7Commercial Tort Claims**

 

None.

 

22

----

 

**Schedule 8**

**PERFECTION CERTIFICATE**

 

Referenceis made to the Credit Agreement dated as of March 2, 2007 (as amended, andrestated, supplemented or otherwise modified from time to time, the “CreditAgreement”), among Doctor Acquisition Co., a Delaware corporation(to be merged with and into Reader’s Digest (as herein defined), the “Company”), RDA HoldingCo., a Delaware corporation (“Holdings”), The Reader’sDigest Association, Inc. (“Reader’s Digest”), the OverseasBorrowers from time to time party thereto (together with the Company, the “Borrowers”) the lendersfrom time to time party thereto (the “Lenders”), JPMorgan ChaseBank, N.A., as Administrative Agent, Citicorp North America, Inc. andMerrill Lynch, Pierce Fenner & Smith Incorporated, as Co-SyndicationAgents, and The Royal Bank of Scotland plc, as Documentation Agent. Capitalizedterms used but not defined herein have the meanings assigned in the CreditAgreement or the Guarantee and Security Agreement referred to therein, asapplicable.

 

Theundersigned associate general counsel or chief legal officer of Reader’s Digesthereby certifies, on behalf of the Reader’s Digest, and not in his or herpersonal capacity, to the Administrative Agent and each other Secured Party asfollows:

 

1.                Names. (a) The exactlegal name of each Grantor, as such name appears in its respective certificateof incorporation, certificate of formation or equivalent document, is set forthin Schedule 1(a). Each Grantor is the type of entity disclosed next to its namein Schedule 1(a). Also set forth in Schedule 1(a) is the organizationalidentification number, if any, of each Grantor that is a registeredorganization and the jurisdiction of formation or incorporation of eachGrantor.

 

(b)              Setforth below on Schedule 1(b) is each other corporate name each Grantor hashad in the past year, together with the date of the relevant change.

 

(c)               Exceptas set forth in Schedule 1(c) hereto, no Grantor has changed its identityor corporate structure in any way within the past year. Changes in identity orcorporate structure would include mergers, consolidations and acquisitions, aswell as any change in the form, nature or jurisdiction of corporateorganization. If any such change has occurred, include in Schedule 1 theinformation required by Section 1 of this certificate as to each acquireeor constituent party to a merger or consolidation.

 

2.                File SearchReports. File search reports have been obtained from the Uniform CommercialCode filing offices where each Grantor is incorporated or formed.

 

3.                UCC Filings. Financingstatements on Form UCC-1 in substantially the form of Schedule 3 heretohave been prepared for filing in the Uniform Commercial Code filing office ineach jurisdiction of formation or incorporation of each Grantor.

 

4.                IntellectualProperty. Attached hereto as Schedule 4(A) inproper form for filing with the United States Patent and Trademark Office is aschedule setting forth each Patent, Patent License and Trademark owned by anyGrantor (in each case, that is registered in the United States or for whichapplication for registration in the United States has been filed), includingthe name of the registered owner and the registration number of each suchPatent, Patent License and Trademark. Attached hereto as Schedule 4(B) inproper form for filing with the United States Copyright Office is a schedulesetting forth

 

----

 

eachCopyright owned by any Grantor (in each case, that is registered in the UnitedStates or for which application for registration in the United States has beenfiled), including the name of the registered owner and the registration numberof such Copyright.

 

5.                Schedule ofFilings. Attached hereto as Schedule 5 is a schedule setting forth, withrespect to the filings described in Section 3 above, each filing and thefiling office in which such filing is to be made.

 

6.                Stock Ownershipand other Equity Interests. Attached hereto asSchedule 6 is a true and correct list of all the Equity Interests of or ownedby any Loan Party and the record and beneficial owners of such EquityInterests. Also set forth on Schedule 6 is each equity investment of Company,Holdings and the other Loan Parties that represent 50% or less of the equity ofthe entity in which such investment was made. Each such entry on Schedule 6includes (a) an indication of whether such Equity Interests or equityinvestments are currently certificated or uncertificated and (b) withrespect to Equity Interests of Foreign Subsidiaries added to Schedule 6 afterthe Closing Date, the percentage of the Company’s consolidated total assets andconsolidated revenues represented by such Equity Interests.

 

7.                DebtInstruments. Attached hereto as Schedule 7 is a true andcorrect list of all promissory notes and other evidence of indebtedness held byHoldings, the Company and each Subsidiary that are required to be pledged underthe Collateral and Guarantee Requirement, including all intercompany notesbetween Loan Parties.

 

8.                MortgageFilings. Attached hereto as Schedule 8 is a schedule setting forth, withrespect to each Mortgaged Property, (a) the exact name of the Person thatowns such property as such name appears in its certificate of incorporation,certificate of formation or equivalent document, (b) if different from thename identified pursuant to clause (a), the exact name of the current recordowner of such property reflected in the records of the filing office for suchproperty identified pursuant to the following clause and (c) the filingoffice in which a Mortgage with respect to such property must be filed orrecorded in order for the Administrative Agent to obtain a perfected securityinterest therein.

 

9.                Commercial TortClaims. Attached hereto as Schedule 9 is a true and correct list ofcommercial tort claims in excess of $5,000,000 held by any Grantor, including abrief description thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

----

 

INWITNESS WHEREOF, the undersigned has duly executed this certificate on this 2nd day of March 2007.

 

 
|   | THE  READER’S DIGEST ASSOCIATION, INC. |
|--------|---------------------------------------------|

 

 

*[SIGNATURE PAGE TO PERFECTION CERTIFICATE]*

 

----