Document:

<PAGE>

Exhibit 10.5

                               SECURITY AGREEMENT

      THIS SECURITY AGREEMENT ("SECURITY AGREEMENT") is executed as of this 17th
day of May, 2005, by and between THE PEOPLES PUBLISHING GROUP, INC. (the
"GRANTOR"), a corporation organized and registered under the laws of the State
of Delaware with an address at 299 Market Street, Saddle Brook, New Jersey, and
MANUFACTURERS AND TRADERS TRUST COMPANY (the "BANK"), a New York banking
corporation having its chief executive office at One M&T Plaza, Buffalo, New
York. This Security Agreement is incorporated into and made part of certain
other financing documents and security agreements executed by and between the
Grantor and the Bank or by and between the Borrower (as defined in the Credit
Agreement dated the date hereof) and the Bank (all such documents including this
Security Agreement being collectively referred to as "LOAN DOCUMENTS"). All
capitalized terms not otherwise defined in this Security Agreement shall have
the same meanings ascribed to such terms in the other Loan Documents.

      The Grantor has United States and foreign common law trademarks and
registered trademarks listed on Schedule "A" attached hereto and made part
hereof (the "TRADEMARKS") and United States and foreign copyrights and
registered copyrights listed on Schedule "B" attached hereto and made part
hereof (the "COPYRIGHTS").

      The Bank desires to acquire a lien and security interest on the
Trademarks, and the Copyrights, together with all the goodwill of the Grantor
associated therewith and represented thereby, as security for all of the
Obligations (as defined in the Credit Agreement) to the Bank, and the Bank
desires to have its security interest in such Trademarks and Copyrights
confirmed by a document identifying same and in such form that it may be
recorded in the United States Patent and Trademark Office and the United States
Copyright Office, respectively.

      NOW, THEREFORE, with the foregoing background deemed incorporated by
reference and made part hereof, the parties hereto, intending to be legally
bound hereby, covenant and agree as follows:

      1. GRANT OF SECURITY INTEREST. In consideration of and pursuant to the
terms of the Loan Documents, and for other good, valuable and sufficient
consideration, the receipt and sufficiency of which is hereby acknowledged, and
to secure payment and performance of the Obligations, the Grantor grants a first
lien and first security interest to the Bank in all its present and future
right, title and interest in and to the Trademarks and Copyrights, together with
all the goodwill and other intangible and tangible assets of the Grantor
associated with and represented by the Trademarks and Copyrights, and the right
(but not the obligation) to sue for past, present and future infringements, and
the proceeds thereof, including, without limitation, license royalties and
proceeds of infringement suits.

      2. REPRESENTATIONS AND WARRANTIES. The Grantor represents, warrants and
covenants that: (a) the Trademarks and Copyrights are subsisting and have not
been abandoned, suspended, voluntarily terminated or canceled by the Grantor,
have not been adjudged invalid or unenforceable, and to the best of the
Grantor's knowledge, there is no reason why the Trademarks and Copyrights should
be adjudged invalid or unenforceable; (b) each of the Trademarks and Copyrights
is valid and enforceable; (c) the Grantor is the sole and exclusive owner of the
entire and unencumbered right, title and interest in and to each of the
Trademarks and Copyrights, and each of the Trademarks and Copyrights is free and
clear of any liens, charges and encumbrances, including, without limitation,
pledges, assignments, licenses and covenants by the Grantor not to sue third
persons; (d) the Grantor has the unqualified right to enter into this Security
Agreement and perform its terms; (e) the Grantor does not own any other
trademarks or copyrights other than those listed on Schedules A and B; and (f)
the Grantor has used, and will continue to use for the duration of this Security
Agreement, proper notice, as required by 15 U.S.C. ss.ss. 1051-1129 or similar
statutes in foreign jurisdictions in connection with its use of the Trademarks
and 17 U.S.C. ss.ss. 101-1332 or similar statues in foreign jurisdictions in
connection with its use of the Copyrights; and (f) the Grantor will not (and
will not permit any licensee thereof to) do any act or knowingly omit to do any
act whereby any of the Trademarks or Copyrights may become invalidated,
abandoned, unenforceable, avoided, avoidable or otherwise diminished in value,
and shall notify the Bank immediately if it knows of any reason or has any
reason to know of any grounds under which any of the foregoing may occur.

<PAGE>

      3. COVENANTS. The Grantor further covenants to the Bank that until all of
the Obligations have been satisfied in full: (a) the Grantor shall maintain the
Trademarks and Copyrights in full force and effect; (b) the Grantor will not
enter into any agreements that are inconsistent with the Grantor's obligations
under this Security Agreement or which restrict or impair the Bank's rights
hereunder; (c) the Grantor will take commercially reasonable care of the
Trademarks and Copyrights and continue to use them as currently used in the
present conduct of its business; (d) the Grantor will pay all costs necessary to
obtain, preserve, and enforce the security interest granted herein; (e) the
Grantor will sign any papers furnished by Bank that are necessary to obtain and
maintain the security interest granted herein; (f) the Grantor will use its best
efforts to prevent or halt any infringement of the Trademarks and Copyrights;
(g) upon reasonable request of the Bank, the Grantor shall make application on
registrable but unregistered Trademarks and Copyrights belonging to the Grantor;
and (h) if the Grantor acquires additional Trademarks and Copyrights, the
provisions of this Security Agreement shall automatically apply thereto and the
Grantor shall give the Bank prompt written notice thereof along with amended
Schedules A and B; provided, however, that notwithstanding anything to the
contrary contained in this Agreement, the Grantor shall have the right to enter
into agreements in the ordinary course of business with respect to the
Trademarks and Copyrights.

      4. EXCLUSIVE USE OF TRADEMARKS AND COPYRIGHTS. So long as this Security
Agreement is in effect and so long as the Grantor has not received notice from
the Bank that an Event of Default has occurred under the Loan Documents, the
Grantor shall continue to have the exclusive right to use the Trademarks and
Copyrights including licenses thereof, and the Bank shall have no right to use
the Trademarks or Copyrights or issue any exclusive or non-exclusive license
with respect thereto, or assign, pledge or otherwise transfer title in the
Trademarks and Copyrights to anyone else.

      5. NEGATIVE PLEDGE. The Grantor agrees not to sell, assign (by operation
of law or otherwise) or further encumber its rights and interest in the
Trademarks and Copyrights without prior written consent of the Bank. The Grantor
shall defend the Trademarks and Copyrights against and shall take other action
as is necessary to remove any lien, security interest, claim, right or other
encumbrance of any nature whatsoever in or to the Trademarks and Copyrights, and
will defend the right, title and interest of the Bank in and to any of the
Grantor's rights under the Trademarks and Copyrights against the claims or
demands of all persons whatsoever.

      6. PLEDGE OF ADDITIONAL TRADEMARKS AND COPYRIGHTS. In the event the
Grantor, either itself or through any agent, employee, licensee or designee:

      (a) uses a new common law trademark or authors a new an unregistered
      copyright;

      (b) files or records an application for the registration of any trademark
      with the United States Patent and Trademark Office or any similar office
      or agency of the United States, any State thereof, or any other country or
      any political subdivision thereof, or files or records an application for
      the registration of any copyright with the United States Copyright Office
      or any similar office or agency of the United States, any State thereof,
      or any other country or any political subdivision thereof; or

      (c) files or records any assignment of any Trademark which the Grantor may
      acquire, own or license from a third party, with the United States Patent
      and Trademark Office or any similar office or agency of the United States,
      any State thereof or any other country or any political subdivision
      thereof, or files or records any assignment of any Copyright which the
      Grantor may acquire, own or license from a third party, with the United
      States Copyright Office or any similar office or agency of the United
      States, any State thereof or any other country or any political
      subdivision thereof;

the Grantor shall promptly, but in no event more than fifteen (15) days
subsequent to such use, authorship, or filing as the case may be, notify the
Bank thereof, and upon request of the Bank shall promptly, but in no event more
than twenty (20) days subsequent to such notice, execute and deliver any and all
assignments, agreements,

<PAGE>

instruments, documents and papers as the Bank may reasonably request to evidence
the Bank's interest in such trademark or copyright and the goodwill of the
Grantor associated thereto or represented thereby. The Grantor hereby grants the
Bank a power of attorney, irrevocable until the Obligations are fully paid and
satisfied, to modify this Security Agreement by amending Schedules A and/or B,
as applicable, to include any future Trademarks or Copyrights, or Licenses,
including, without limitation, registrations or applications for Trademarks or
Copyrights appurtenant thereto, covered by this Security Agreement.

      7. REMEDIES UPON DEFAULT. (a) Anything herein contained to the contrary
notwithstanding, if and while the Grantor shall be in default hereunder or an
Event of Default exists under the Loan Documents, the Grantor hereby covenants
and agrees that the Bank, as the holder of the security interest herein, may
take such action permitted under the Loan Documents or permitted by law, in its
exclusive discretion, to use the Trademarks and Copyrights covered hereby.

            (b) For such purposes, and in the event of the Grantor's default
hereunder or an Event of Default under the Loan Documents and while such default
or Event of Default exists, the Grantor hereby authorizes and empowers the Bank
to make, constitute and appoint any officer or agent of the Bank as the Bank may
select, in its exclusive discretion, as the Grantor's true and lawful
attorney-in-fact, with the power to endorse the Grantor's name on all
applications, documents, papers and instruments necessary for the Bank to use
the Trademarks and Copyrights or to grant or issue any exclusive or
non-exclusive license under the Trademarks and Copyrights to anyone else, or
necessary for the Bank to assign, pledge, convey or otherwise transfer title in
or dispose of the Trademarks and Copyrights to anyone else. The Grantor hereby
ratifies all that such attorney shall lawfully do or cause to be done by virtue
hereof, except for the gross negligence or willful misconduct of such attorney.
This power of attorney shall be irrevocable for the life of this Security
Agreement and the Loan Documents, and until all the Obligations are satisfied in
full.

            (c) The Grantor expressly acknowledges that this Security Agreement
shall be recorded with the Patent and Trademark Office and the United States
Copyright Office in Washington, D.C. and other appropriate offices in foreign
jurisdictions. Contemporaneously herewith, the Grantor shall also execute and
deliver to the Bank such documents as the Bank shall reasonably request to
permanently assign all rights in the Trademarks and Copyrights to the Bank,
which documents shall be held by the Bank, until the occurrence of an Event of
Default hereunder or under the Loan Documents. After such occurrence, the Bank
may, at its sole option, record such documents with the United States Patent and
Trademark Office and the United States Copyright Office.

      8. WRITTEN CONSENT. This Security Agreement shall be subject to the terms,
provisions, and conditions set forth in the Security Agreement and may not be
modified without the written consent of the party against whom enforcement is
being sought.

      9. INCONSISTENT WITH SECURITY AGREEMENT. All rights and remedies herein
granted to the Bank shall be in addition to any rights and remedies granted to
the Bank under the Loan Documents. In the event of an inconsistency between this
Security Agreement and the Credit Agreement, the language of this Security
Agreement shall control.

      10. TERMINATION OF AGREEMENT. Upon payment and performance of all
Obligations under the Loan Documents, the Bank shall execute and deliver to the
Grantor all documents necessary to re-vest all rights in and to the Trademarks
and Copyrights in the Grantor and/or terminate any interest of the Bank therein.

      11. PROSECUTION OF TRADEMARK APPLICATIONS. Subject to the terms of the
Loan Documents, the Grantor shall have the duty to prosecute diligently any
trademark application with respect to the Trademarks pending as of the date of
this Security Agreement or thereafter.

      12. RIGHT TO SUE. The Grantor shall have the right to bring suit in its
own name to enforce the Trademarks or Copyrights, in which event the Bank may,
if the Grantor deems it necessary or after an Event of Default under the Loan
Documents, be joined as a nominal party to such suit if the Bank shall have been
satisfied that it is not thereby incurring any risk of liability because of such
joinder. The Grantor shall promptly, upon demand, reimburse and indemnify the
Bank for all damages, reasonable costs and reasonable expenses, including
attorneys' fees, incurred by the Bank in the fulfillment of the provisions of
this paragraph.

<PAGE>

      13. RESPONSIBILITY AND LIABILITY. The Grantor assumes all responsibility
and liability arising from the use of the Trademarks and Copyrights, and hereby
indemnifies and holds the Bank and each director, officer, employee, affiliate
and agent thereof, harmless from and against any claim, suit, loss, damage or
expense (including attorneys' fees and expenses) arising out of any alleged
defect in any product or service manufactured, promoted or sold by the Grantor
in connection with any of the Trademarks or Copyrights or otherwise arising out
of the Grantor's operation of its business from the use of the Trademarks or
Copyrights. In any suit, proceeding or action brought by the Bank under any
License for a Trademark or Copyright for any sum owing thereunder, or to enforce
any provisions of such License, the Grantor will indemnify and keep the Bank
harmless from and against all expense, loss or damage suffered by reason of any
defense, set off, recoupment, claim, counterclaim, reduction or liability
whatsoever of the obligee thereunder or arising out of a breach of the Grantor
of any obligation thereunder or arising out of any agreement, indebtedness or
liability at any time owing to or in favor of such obligee or its successors
from the Grantor, and all such Obligations of the Grantor shall be and remain
enforceable against and only against the Grantor and shall not be enforceable
against the Bank.

      14. BANK'S RIGHTS. (a) The Bank may, in its sole discretion, pay any
amount or do any act required of the Grantor hereunder or requested by the Bank
to preserve, defend, protect, maintain, record or enforce the Grantor's
obligations contained herein, the Obligations of the Grantor to the Bank, the
Trademarks and Copyrights, or the right, title and interest granted the Bank
herein, and which the Grantor fails to do or pay, and any such payment shall be
deemed an advance by the Bank to the Grantor and shall be payable on demand
together with interest thereon at the default rate specified in the Loan
Documents.

            (b) Upon the occurrence of an Event of Default under the Loan
Documents, the Bank may, without any obligation to do so, complete any
obligation of the Grantor hereunder, in the Grantor's name or in the Bank's
name, but at the Grantor's expense, and the Grantor hereby agrees to reimburse
the Bank in full for all reasonable expenses, including reasonable attorney's
fees, incurred by the Bank in protecting, defending and maintaining the
Trademarks and Copyrights.

      15. PROTECTION OF THE TRADEMARKS AND COPYRIGHTS. The Grantor agrees that
if it learns of any use by any person or any term or design likely to cause
confusion with any Trademark, or of any use by any person or any work similar to
any Copyright, or of any claim of any lien, security interest, claim, right or
other encumbrance of any nature whatsoever in or to the Trademarks and
Copyrights, the Grantor shall promptly notify the Bank of such use, lien,
security interest, claim, right or other encumbrance and, if requested by the
Bank, shall join with the Bank, at the Grantor's expense, in such action as the
Bank, in its reasonable discretion, may deem advisable for the protection of the
Bank's interest in and to the Trademarks and Copyrights, it being understood
that the foregoing shall not preclude the Grantor from bringing an action
against a person for the protection of the Grantor's interest in and to such
Trademarks and Copyrights.

      16. GOVERNING LAW. THIS SECURITY AGREEMENT WILL BE INTERPRETED AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE
LAWS OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING
ITS CONFLICT OF LAWS RULES, EXCEPT THAT THE FEDERAL LAWS OF THE UNITED STATES OF
AMERICA SHALL GOVERN TO THE EXTENT APPLICABLE.

      17. COUNTERPARTS. This Security Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument. Delivery of an
executed counterpart of a signature page to this Agreement by facsimile
transmission shall be effective as delivery of a manually executed counterpart.
Any party so executing this Agreement by facsimile transmission shall promptly
deliver a manually executed counterpart, provided that any failure to do so
shall not affect the validity of the counterpart executed by facsimile
transmission.

<PAGE>

WITNESS the due execution hereof as a document under seal, as of the date first
written above.

THE PEOPLES PUBLISHING GROUP, INC.

/s/ Michael L. DeMarco
----------------------
Print Name:  Michael L. DeMarco
Title:  Chief Financial Officer

MANUFACTURERS AND TRADERS TRUST COMPANY

/s/ Ira A. Brown
----------------
Print Name:  Ira A. Brown
Title:  Vice President

<PAGE>

      SCHEDULE A TO SECURITY AGREEMENT - TRADEMARKS

<TABLE>
<CAPTION>
                 APPLICATION OR                    REGISTRATION OR
TRADEMARK       REGISTRATION NO.    COUNTRY          FILING DATE
---------       ----------------    -------        ---------------
<S>             <C>                 <C>            <C>
</TABLE>

<PAGE>

                              TRADEMARK ASSIGNMENT

      WHEREAS, THE PEOPLES PUBLISHING GROUP, INC. (the "GRANTOR") is the owner
of the entire right, title and interest in and to the United States trademarks,
trade names and registrations listed on Schedule A attached hereto and made a
part hereof (collectively, the "TRADEMARKS"), which are registered in the United
States Patent and Trademark Office or which are subject of pending applications
in the United States Patent and Trademark Office; and

      WHEREAS, MANUFACTURERS AND TRADERS TRUST COMPANY, having a place of
business at One M&T Plaza, Buffalo, New York, identified as the "BANK" under
that certain Security Agreement to Security Agreement - Trademarks (the
"SECURITY AGREEMENT") of even date herewith (the "GRANTEE") is desirous of
acquiring said Trademarks;

      WHEREAS, the Grantee has a security interest in the assets of the Grantor
adequate to carry on the business of the Grantor; and

      WHEREAS, the Security Agreement provides that this Assignment shall become
effective upon the occurrence of an Event of Default as defined in the Security
Agreement dated as of May 17, 2005 by and between the Grantor and the Grantee.

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the Grantor, for itself and its successors and assigns does hereby
collaterally transfer, assign and set over unto Grantee, its successors,
transferees and assigns, all of its present and future right, title and interest
in and to the Trademarks, the goodwill of the business associated with such
Trademarks and all proceeds thereof and all rights and proceeds associated
therewith.

      IN WITNESS WHEREOF, the undersigned has caused this Trademark Assignment
to be executed by its duly authorized officer on this 17th day of May, 2005.

WITNESS / ATTEST:                  THE PEOPLES PUBLISHING GROUP, INC.

                                   /s/ Michael DeMarco
                                   -------------------
                                                                         (SEAL)
Print Name:__________________      Print Name:  Michael L. DeMarco

Title:_______________________      Title:  Chief Financial Officer
Include title only if an
officer of entity signing to
the right)

<PAGE>

         SCHEDULE B TO SECURITY AGREEMENT - COPYRIGHTS

<TABLE>
<CAPTION>
                  APPLICATION OR                         REGISTRATION OR
COPYRIGHT         REGISTRATION NO.       COUNTRY           FILING DATE
---------         ----------------       -------         ---------------
<S>               <C>                    <C>             <C>
</TABLE>

<PAGE>

                              COPYRIGHT ASSIGNMENT

      WHEREAS, THE PEOPLES PUBLISHING GROUP, INC. (the "GRANTOR") is the owner
of the entire right, title and interest in and to the United States copyrights
and registrations listed on Schedule B attached hereto and made a part hereof
(collectively, the "COPYRIGHTS"), which are registered in the United States
Copyright Office or which are subject of pending applications in the United
States Copyright Office; and

      WHEREAS, MANUFACTURERS AND TRADERS TRUST COMPANY, having a place of
business at One M&T Plaza, Buffalo, New York, identified as the "BANK" under
that certain Security Agreement to Security Agreement - Copyrights (the
"SECURITY AGREEMENT") of even date herewith (the "GRANTEE") is desirous of
acquiring said Copyrights;

      WHEREAS, the Grantee has a security interest in the assets of the Grantor
adequate to carry on the business of the Grantor; and

      WHEREAS, the Security Agreement provides that this Assignment shall become
effective upon the occurrence of an Event of Default as defined in the Security
Agreement dated as of May 17, 2005 by and between the Grantor and the Grantee.

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the Grantor, for itself and its successors and assigns does hereby
collaterally transfer, assign and set over unto Grantee, its successors,
transferees and assigns, all of its present and future right, title and interest
in and to the Copyrights and all rights and proceeds associated therewith.

      IN WITNESS WHEREOF, the undersigned has caused this Copyright Assignment
to be executed by its duly authorized officer on this 17th day of May, 2005.

WITNESS / ATTEST:                  THE PEOPLES PUBLISHING GROUP, INC.

                                   /s/ Michael L. DeMarco
                                   ----------------------
                                                                        (SEAL)
Print Name:__________________      Print Name:  Michael L. DeMarco

Title:_______________________     Title:  Chief Financial Officer
(Include title only if an
officer of entity signing to
the right)<PAGE>

Exhibit 10.6

                               CONTINUING GUARANTY
                             (BUSINESS ORGANIZATION)

            GUARANTOR: PEOPLES EDUCATIONAL HOLDINGS, INC.

            299 Market Street, Saddle Brook, New Jersey  07663
            Address of Chief Executive Office

            a  corporation organized under the laws of the State of Delaware

            BORROWER:  THE PEOPLES PUBLISHING GROUP, INC.

            Having its chief executive office at 299 Market Street, Saddle
            Brook, New Jersey 07663

            BANK: MANUFACTURERS AND TRADERS TRUST COMPANY, One M&T Plaza,
                  Buffalo, New York 14240 Attention: Office of General Counsel.

      1. GUARANTY.

            (a) Guarantor, intending to be legally bound, hereby unconditionally
guarantees the full and prompt payment and performance of any and all of
Borrower's Obligations (as defined below) to the Bank when due, whether at
stated maturity, by acceleration or otherwise. As used in this Guaranty, the
term "Obligations" shall mean any and all obligations, indebtedness and other
liabilities of Borrower to the Bank now or hereafter existing, of every kind and
nature and all accrued and unpaid interest thereon and all Expenses (as defined
below) including without limitation, whether such obligations, indebtedness and
other liabilities (i) are direct, contingent, liquidated, unliquidated, secured,
unsecured, matured or unmatured; (ii) are pursuant to a guaranty or surety in
favor of the Bank; (iii) were originally contracted with the Bank or with
another party (including obligations under a guaranty or surety originally in
favor of such other party); (iv) are contracted by Borrower alone or jointly
with one or more other parties; (v) are or are not evidenced by a writing; (vi)
are renewed, replaced, modified or extended; and (vii) are periodically
extinguished and subsequently re-incurred or reduced and thereafter increased.
Guarantor will pay or perform its obligations under this Guaranty upon demand.
This Guaranty is and is intended to be a continuing guaranty of payment (not
collection) of the Obligations (irrespective of the aggregate amount thereof and
whether or not the Obligations from time to time exceeds the amount of this
Guaranty, if limited), independent of, in addition and without modification to,
and does not impair or in any way affect, any other guaranty, indorsement, or
other agreement in connection with the Obligations, or in connection with any
other indebtedness or liability to the Bank or collateral held by the Bank
therefor or with respect thereto, whether or not furnished by Guarantor.
Guarantor understands that the Bank can bring an action under this Guaranty
without being required to exhaust other remedies or demand payment first from
other parties.

            (b) Guarantor acknowledges the receipt of valuable consideration for
this Guaranty and acknowledges that the Bank is relying on this Guaranty in
making a financial accommodation to Borrower, whether a commitment to lend,
extension, modification or replacement of, or forbearance with respect to, any
Obligation, cancellation of another guaranty, purchase of Borrower's assets, or
other valuable consideration.

      2. CONTINUING, ABSOLUTE, UNCONDITIONAL. This Guaranty is irrevocable,
absolute, continuing, unconditional and general without any limitation. This
Guaranty is unlimited in amount.

      3. GUARANTOR'S WAIVERS & AUTHORIZATIONS.

            (a) Guarantor's obligations shall not be released, impaired or
affected in any way including by any of the following, all of which Guarantor
hereby waives (i) any bankruptcy, reorganization or insolvency under any law of
Borrower or that of any other party, or by any action of a trustee in any such
proceeding; (ii) any new agreements or obligations of Borrower or any other
party with the Bank; (iii) any adjustment, compromise or release of any
Obligations of Borrower, by the Bank or any other party; the existence or
nonexistence or order of any filings, exchanges, releases, impairment or sale
of, or failure to perfect or continue the perfection of a security interest in
any collateral for the Obligations; (iv) any failure of Guarantor to receive
notice of any intended disposition of such collateral; (v) any fictitiousness,
incorrectness, invalidity or unenforceability, for any reason, of any instrument
or other agreement which may evidence any Obligation; (vi) any composition,
extension, stay or other statutory relief granted to Borrower including, without
limitation, the expiration of the period of any statute of limitations with
respect to any lawsuit or other legal proceeding against Borrower or any person
in any way related to the Obligations or a part thereof or any collateral
therefor; (vii) any change in form of organization, name, membership or
ownership of Borrower or Guarantor; (viii) any refusal or failure of the Bank or
any other person prior to the date hereof or hereafter to grant any additional
loan or other credit accommodation to Borrower or the Bank's or any other
party's receipt of notice of such refusal or failure; (ix) any setoff, defense
or counterclaim of Borrower with respect to the obligations or otherwise
arising, either directly or indirectly, in regard to the Obligations; or (x) any
other circumstance that might otherwise constitute a legal or equitable defense
to Guarantor's obligations under this Guaranty.

            (b) The Guarantor waives acceptance, assent and all rights of notice
or demand including without limitation (i) notice of acceptance of this
Guaranty, of Borrower's default or nonpayment of any Obligation, and of changes
in Borrower's financial condition; (ii) presentment, protest, notice of protest
and demand for payment; (iii) notice that any Obligations has been incurred or
of the reliance by the Bank upon this Guaranty; and (iv) any other notice,
demand or condition to which Guarantor might otherwise be entitled prior to the
Bank's reliance on or enforcement of this Guaranty. Guarantor further authorizes
the Bank, without notice, demand or additional reservation of rights against
Guarantor and without affecting Guarantor's obligations hereunder, from time to
time: (i) to renew, refinance, modify, subordinate, extend, increase,
accelerate, or otherwise change the time for payment of, the terms of or the
interest on the Obligations or any part thereof;(ii) to accept and hold
collateral from any party for the payment of any or all of the

                                       1
<PAGE>

Obligations, and to exchange, enforce or refrain from enforcing, or release any
or all of such collateral; (iii) to accept any indorsement or guaranty of any or
all of the Obligations or any negotiable instrument or other writing intended to
create an accord and satisfaction with respect to any or all of the Obligations;
(iv) to release, replace or modify the obligation of any indorser or guarantor,
or any party who has given any collateral for any of all of the Obligations, or
any other party in any way obligated to pay any or all of the Obligations, and
to enforce or refrain from enforcing, or compromise or modify, the terms of any
obligation of any such indorser, guarantor or party; (v) to dispose of any and
all collateral securing the Obligations in any manner as the Bank, in its sole
discretion, may deem appropriate, and to direct the order and the enforcement of
any and all indorsements and guaranties relating to the Obligations in the
Bank's sole discretion; and (vi) to determine the manner, amount and time of
application of payments and credits, if any, to be made on all or any part of
the Obligations including, without limitation, if this Guaranty is limited in
amount, to make any such application to Obligations, if any, in excess of the
amount of this Guaranty.

            (c) Notwithstanding any other provision in this Guaranty, Guarantor
irrevocably waives, without notice, any right he or she may have at law or in
equity (including without limitation any law subrogating Guarantor to the rights
of the Bank) to seek contribution, indemnification or any other form of
reimbursement from Borrower or any other obligor or guarantor of the Obligations
for any disbursement made under this Guaranty or otherwise.

      4. TERMINATION. This Guaranty shall remain in full force and effect as to
each Guarantor until actual receipt by the Bank officer responsible for
Borrower's relationship with the Bank of written notice of Guarantor's intent to
terminate (or Guarantor's death or incapacity) plus the lapse of a reasonable
time for the Bank to act on such notice (the "Receipt of Notice"); provided,
however, this Guaranty shall remain in full force and effect thereafter until
all Obligations outstanding, or contracted or committed for (whether or not
outstanding), before such Receipt of Notice by the Bank, and any extensions,
renewals or replacements thereof (whether made before or after such Receipt of
Notice), together with interest accruing thereon after such Receipt of Notice,
shall be finally and irrevocably paid in full. Discontinuance of this Guaranty
as to one Guarantor shall not operate as a discontinuance hereof as to any other
guarantor. Payment of all of the Obligations from time to time shall not operate
as a discontinuance of this Guaranty, unless a Receipt of Notice as provided
above has been received by the Bank. Guarantor agrees that, to the extent that
Borrower makes a payment or payments to the Bank on the Obligations, or the Bank
receives any proceeds of collateral to be applied to the Obligations, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or otherwise are required to be
repaid to Borrower, its estate, trustee, receiver or any other party, including,
without limitation, under any bankruptcy law, state or federal law, common law
or equitable cause, then to the extent of such repayment, the obligation or part
thereof which has been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred, notwithstanding any contrary action
which may have been taken by the Bank in reliance upon such payment or payments.
As of the date any payment or proceeds of collateral are returned, the statute
of limitations shall start anew with respect to any action or proceeding by the
Bank against Guarantor under this Guaranty. Likewise, any acknowledgment,
reaffirmation or payment, by Borrower or any third party, of any portion of the
Obligations, shall be deemed to be made as agent for the Guarantor, strictly for
the purposes of tolling the running of (and/or preventing the operation of) the
applicable statute of limitations with respect to any action or proceeding by
the Bank against Guarantor under this Guaranty.

      5. EXPENSES. Guarantor agrees to reimburse the Bank on demand for all the
Bank's expenses, damages and losses of any kind or nature, including without
limitation costs of collection and actual attorneys' fees and disbursements
whether for internal or external counsel incurred by the Bank in attempting to
enforce this Guaranty, collect any of the Obligations including any workout or
bankruptcy proceedings or other legal proceedings or appeal, realize on any
collateral, defense of any action under the prior paragraph or for any other
purpose related to the Obligations (collectively, "Expenses"). Expenses will
accrue interest at the highest default rate in any instrument evidencing the
Obligations until payment is actually received by the Bank.

      6. FINANCIAL AND OTHER INFORMATION. Guarantor shall promptly deliver to
the Bank copies of all annual reports, proxy statements and similar information
distributed to shareholders, partners or members and of all filings with the
Securities and Exchange Commission and the Pension Benefit Guaranty Corporation
and shall provide in form satisfactory to the Bank: (i) within sixty days after
the end of each of its first three fiscal quarters, consolidating and
consolidated statements of income and cash flows for the quarter, for the
corresponding quarter in the previous fiscal year and for the period from the
end of the previous fiscal year, with a consolidating and consolidated balance
sheet as of the quarter end; and (ii) within ninety days after the end of each
fiscal year, consolidating and consolidated statements of Guarantor's income and
cash flows and its consolidating and consolidated balance sheet as of the end of
such fiscal year, setting forth comparative figures for the preceding fiscal
year and to be audited by an independent certified public accountant acceptable
to the Bank; all such statements shall be certified by Guarantor's chief
financial officer or partner to be correct, not misleading and in accordance
with Guarantor's records and to present fairly the results of Guarantor's
operations and cash flows and if annual its financial position at year end in
conformity with generally accepted accounting principles. If no box is checked,
Guarantor shall deliver financial statements and information in the form and at
the times satisfactory to the Bank. Guarantor represents that its assets are not
subject to any liens, encumbrances or contingent liabilities except as fully
disclosed to the Bank in such statements. Guarantor authorizes the Bank from
time to time to obtain, verify and review all financial data deemed appropriate
by the Bank in connection with this Guaranty and the Obligations, including
without limitation credit reports from agencies. Guarantor understands this
Guaranty and has satisfied itself as to its meaning and consequences and
acknowledges that it has made its own arrangements for keeping informed of
changes or potential changes affecting the Borrower including the Borrower's
financial condition.

                                       2
<PAGE>

      7. SECURITY; RIGHT OF SETOFF. As further security for payment of the
Obligations, Expenses and any other obligations of Guarantor to the Bank,
Guarantor hereby grants to the Bank a security interest in all money, securities
and other property of Guarantor in the actual or constructive possession or
control of the Bank or its affiliates including without limitation all deposits
and other accounts owing at any time by the Bank or any of its affiliates in any
capacity to Guarantor in any capacity (collectively, "Property"). The Bank shall
have the right to set off Guarantor's Property against any of Guarantor's
obligations to the Bank. Such set-off shall be deemed to have been exercised
immediately at the time the Bank or such affiliate elect to do so. The Bank
shall also have all of the rights and remedies of a secured party under the
Uniform Commercial Code, as the same may be in effect in the State of New York,
as amended from time to time, in addition to those under this Guaranty and other
applicable law and agreements.

      8. NO TRANSFER OF ASSETS. Guarantor shall not transfer, reinvest or
otherwise dispose of its assets in a manner or to an extent that would or might
impair Guarantor's ability to perform its obligations under this Guaranty.

      9. NONWAIVER BY THE BANK; MISCELLANEOUS. This Guaranty is intended by
Guarantor to be the final, complete and exclusive expression of the agreement
between Guarantor and the Bank. This Guaranty may be assigned by the Bank, shall
inure to the benefit of the Bank and its successors and assigns, and shall be
binding upon Guarantor and his or her legal representative, successors and
assigns and any participation may be granted by the Bank herein in connection
with the assignment or granting of a participation by the Bank in the
Obligations or any part thereof. All rights and remedies of the Bank are
cumulative, and no such right or remedy shall be exclusive of any other right or
remedy. This Guaranty does not supersede any other guaranty or security granted
to the Bank by Guarantor or others (except as to Guarantor's Waiver of
Subrogation rights above). No single, partial or delayed exercise by the Bank of
any right or remedy shall preclude exercise by the Bank at any time at its sole
option of the same or any other right or remedy of the Bank without notice.
Guarantor expressly disclaims any reliance on any course of dealing or usage of
trade or oral representation of the Bank including, without limitation,
representations to make loans to Borrower or enter into any other agreement with
Borrower or Guarantor. No course of dealing or other conduct, no oral agreement
or representation made by the Bank or usage of trade shall operate as a waiver
of any right or remedy of the Bank. No waiver or amendment of any right or
remedy of the Bank or release by the Bank shall be effective unless made
specifically in writing by the Bank. Each provision of this Guaranty shall be
interpreted as consistent with existing law and shall be deemed amended to the
extent necessary to comply with any conflicting law. If any provision
nevertheless is held invalid, the other provisions shall remain in effect.
Guarantor agrees that in any legal proceeding, a copy of this Guaranty kept in
the Bank's course of business may be admitted into evidence as an original.
Captions are solely for convenience and not part of the substance of this
Guaranty.

      10. JOINT AND SEVERAL. If there is more than one Guarantor, each Guarantor
jointly and severally guarantees the payment and performance in full of all
obligations under this Guaranty and the term "Guarantor" means each as well as
all of them. Guarantor also agrees that the Bank need not seek payment from any
source other than the undersigned Guarantor. This Guaranty is a primary
obligation. Guarantor's obligations hereunder are separate and independent of
Borrower's, and a separate action may be brought against Guarantor whether or
not action is brought or joined against or with Borrower or any other party.

      11. AUTHORIZATION. Guarantor certifies that it is an entity in the form
described above duly organized and in good standing under the laws of the State
of its organization and duly authorized to do business in each State material to
the conduct of its business. Guarantor has determined that the execution of this
Guaranty will be in its best interests, to its direct benefit, incidental to its
powers, and in furtherance of its duly acknowledged purposes and objectives.
Execution of this Guaranty by the persons signing below has been authorized by
all necessary corporate action, including directors' and shareholder consent or
(as appropriate) is authorized by its partnership agreement or governing
instrument. Guarantor's chief executive office is located at the above address.

      12. NOTICES. Any demand or notice hereunder or under any applicable law
pertaining hereto shall be in writing and duly given if delivered to Guarantor
(at its address on the Bank's records) or to the Bank (at the address on page
one and separately to the Bank officer responsible for Borrower's relationship
with the Bank). Such notice or demand shall be deemed sufficiently given for all
purposes when delivered (i) by personal delivery and shall be deemed effective
when delivered, or (ii) by mail or courier and shall be deemed effective three
(3) business days after deposit in an official depository maintained by the
United States Post Office for the collection of mail or one (1) business day
after delivery to a nationally recognized overnight courier service (e.g.,
Federal Express). Notice by e-mail is not valid notice under this or any other
agreement between Guarantor and the Bank.

      13. GOVERNING LAW AND JURISDICTION. This Guaranty has been delivered to
and accepted by the Bank and will be deemed to be made in the State of New York.
Unless provided otherwise under federal law, this Guaranty will be interpreted
in accordance with the laws of the State of New York excluding its conflict of
laws rules. GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION
OF ANY STATE OR FEDERAL COURT IN ANY JUDICIAL DISTRICT OR COUNTY IN THE STATE OF
NEW YORK WHERE THE BANK MAINTAINS A BRANCH AND CONSENTS THAT THE BANK MAY EFFECT
ANY SERVICE OF PROCESS IN THE MANNER AND AT GUARANTOR'S ADDRESS SET FORTH ABOVE
FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED IN THIS GUARANTY
WILL PREVENT THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT
OR EXERCISING ANY RIGHTS AGAINST GUARANTOR INDIVIDUALLY, AGAINST ANY SECURITY OR
AGAINST ANY PROPERTY OF GUARANTOR WITHIN ANY OTHER COUNTY, STATE OR OTHER
FOREIGN OR DOMESTIC JURISDICTION. Guarantor acknowledges and agrees that the
venue provided above is the most convenient forum for both the Bank and
Guarantor. Guarantor hereby waives any objection to venue and any objection
based on a more convenient forum in any action instituted under this Guaranty.

      14. WAIVER OF JURY TRIAL. GUARANTOR AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY GUARANTOR AND
THE BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN
CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS RELATED HERETO. GUARANTOR
REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER. GUARANTOR ACKNOWLEDGES THAT
THE BANK HAS BEEN INDUCED TO ENTER INTO THIS GUARANTY BY, AMONG OTHER THINGS,
THE PROVISIONS OF THIS SECTION.

                                       3
<PAGE>

ACKNOWLEDGMENT. Guarantor acknowledges that it has read and understands all the
provisions of this Guaranty, including the GOVERNING LAW, JURISDICTION and
WAIVER OF JURY TRIAL, and has been advised by counsel as necessary or
appropriate.

                                  GUARANTOR:

DATE: May 17 , 2005                  PEOPLES EDUCATIONAL HOLDINGS, INC.
Tin # 41- 1368898

                                  /s/ Michael L. DeMarco
                                  ----------------------

                                  Name: Michael L. DeMarco
                                  Title: Chief Financial Officer

                                      4

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