Document:

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Exhibit 10.5

                        GUARANTY AND SURETYSHIP AGREEMENT

     THIS GUARANTY AND SURETYSHIP AGREEMENT is made this 15th day of FEBRUARY,
2007, by PEOPLES EDUCATION, INC. (collectively "Guarantor") in favor of
SOVEREIGN BANK ("Lender"), to secure Obligations of PEOPLES EDUCATIONAL
HOLDINGS, INC. ("Borrower").

     Lender has agreed to make loans to Borrower in the amounts of
$10,000,000.00 and $10,000,000.00, respectively (together the "Loans" and each a
"Loan") which Loans are evidenced by Borrower's promissory notes (the "Notes")
of even date herewith. The Notes are secured by, inter alia, collateral
described in a Security Agreement (the "Security Agreement") of even date
herewith from Borrower and Guarantor to Lender. Borrower has also executed a
Loan Agreement (the "Loan Agreement") in connection with the Loans. The Loan
Agreement, the Notes, the Security Agreement and other agreements, instruments
and documents relating to the Loans are sometimes collectively referred to
herein as the "Loan Documents".

     As an inducement to Lender to accept the Notes and to make the Loans to
Borrower, Guarantor has agreed to execute and deliver this Guaranty.

     NOW THEREFORE, in consideration of the making of the Loans by Lender to
Borrower, and intending to be legally bound, Guarantor hereby agrees as follows:

     1. In order to secure payment of the Notes by Borrower, and the payment and
performance of all other Obligations (as defined hereafter) of Borrower under
the Loan Documents, Guarantor hereby irrevocably and unconditionally guarantees
to Lender, and becomes surety to Lender for, the due and punctual payment and
performance of all the

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Obligations of Borrower, now existing or hereafter at any time or times incurred
under the Loan Documents, or under any renewals, extensions or modifications
thereof such Obligations hereinafter are referred to individually as
"Obligation" and collectively as "Obligations."

     2. If any Obligation is not paid or performed by Borrower punctually when
due, including, without limitation, any Obligation due by acceleration,
Guarantor will immediately pay or perform such Obligation. Guarantor will pay to
Lender all costs and expenses including, without limitation, reasonable
attorneys' fees, which may be incurred by Lender in the collection or
enforcement of the Obligations or of Guarantor's Obligations under this
Guaranty. Guarantor waives any right to reimbursement from Borrower for any
funds paid to Lender by Guarantor.

     3. Guarantor hereby waives notice of acceptance of this Guaranty and any
notice of default by Borrower with respect to the Obligations, and consents and
agrees that Lender may at any time, and from time to time, in its sole
discretion (a) extend or change the time of payment, and/or the manner, place or
terms of payment, and/or the time, manner, place or terms of performance of all
or any part of the Obligations, (b) settle or compromise with Borrower or others
liable thereunder all or any part of the Obligations, and (c) take or refrain
from taking such action as Lender may, in its sole discretion, deem to be in its
best interest with respect to the Obligations, all in such manner and upon such
terms as Lender may deem fit and without notice to or further assent from
Guarantor, who hereby agrees to be and remain bound upon this Guaranty for the
balance of the Obligations, notwithstanding any such extension, change,
settlement, compromise, surrender, release, renewal, extension or other action.

     4. Guarantor agrees that no promises, representations, agreements,
conditions or covenants have been made relating to this Guaranty other than
those contained herein, and that no modification of the terms hereof shall be
binding on Lender unless in writing signed by

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Lender.

     5. Guarantor further agrees to provide Lender promptly with such
information pertaining to Guarantor's financial condition as may reasonably be
requested in writing by Lender from time to time.

     6. Guarantor hereby forever waives and releases all nonmaterial errors in
said proceedings, waives stay of execution, the right of inquisition and
extension of time for payment, agrees to the condemnation of any property levied
upon by virtue of any such execution, and waives all exemptions from levy and
sale of any property that now or hereafter may be exempted by law.

     7. Should an event described in sections 8(a)(vi) or section 8(a)(vii) of
the Loan Agreement occur, then Lender is entitled to pre-confirmation and
post-confirmation interest, at the Default Rate (as defined in the Notes), on
the Loan arrearages and other charges. Said interest on the Loan arrearages and
other charges will be considered an element of an allowed secured claim provided
for by any bankruptcy plan.

     8. This Guaranty shall bind Guarantor and Guarantor's successors and
assigns, and the benefits hereof shall inure to Lender, its successors and
assigns.

     9. This Guaranty shall terminate and be of no further force or effect upon
the payment and performance in full of all of the Obligations of Borrower under
the Loan Documents, provided that this Guaranty shall continue to be effective
or be reinstated, as the case may be, if at any time payment of any of the
Obligations is rescinded or must otherwise be returned by Lender upon the
bankruptcy, reorganization or similar proceeding of relief of Borrower under
state or federal law, all as though such payment had been made.

     10. [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

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     11. This Guaranty is an instrument of suretyship and not merely a guaranty.
Should Borrower at any time be in default under any Obligation beyond any
applicable notice and cure period, if any, Lender may proceed directly and
immediately under this Guaranty against Guarantor, both jointly and severally,
to the full extent of the amount or performance with respect to such Obligation,
without first being required to proceed against Borrower or any other person or
entity, or against any other security for Borrower's Obligations to Lender. The
guaranty and surety contained in this Guaranty is absolute and unconditional,
primary, direct and immediate and shall be valid and binding upon Guarantor
regardless of any invalidity, defect or unenforceability of or in the Loan
Documents, any action or inaction by Lender, or any other circumstance which
might otherwise constitute a defense available to, or a discharge or release of
Borrower or Guarantor, by operation of law.

     12. Lender shall have a right to set-off, a lien on and a security interest
in all property of Guarantor now or at any time in its possession in any
capacity whatsoever, including, but not limited, as security for all Obligations
and liabilities of Borrower under the Loan Documents and as security for all
Obligations and liabilities of Guarantor hereunder.

     13. Guarantor, for itself and all those claiming under or through it,
agrees to protect, indemnify, defend and hold harmless Lender, its directors,
officers and employees, from and against any and all liability, expense, or
damage of any kind or nature and from any suits, claims or demands, including
reasonable legal fees and expenses, arising out of any of the Loan Documents or
in connection herewith except on account of the gross negligence or willful
misconduct of the Lender. This Obligation specifically shall survive the
repayment of the Loans.

     14. If any provision of this Guaranty is found by a court of competent
jurisdiction to be prohibited or unenforceable, such provision shall be
ineffective only to the extent of such

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prohibition or unenforceability, and such prohibition or unenforceability shall
not invalidate the balance of such provision nor the other provisions hereof,
all of which shall be construed in favor of Lender in order to effect the
provisions of this Guaranty.

     15. This Guaranty shall be governed by the laws of the Commonwealth of
Pennsylvania.

     16. This Guaranty may be executed in counterparts, each of which will be an
original and all of which will constitute a single agreement.

     17. GUARANTOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS RELATED TO ANY OF THE
LOAN DOCUMENTS. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY
GUARANTOR AND GUARANTOR ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING
ON BEHALF THEREOF HAS OR HAVE MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. GUARANTOR
FURTHER ACKNOWLEDGES THAT GUARANTOR HAS BEEN REPRESENTED (OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED BY GUARANTOR'S OWN
FREE WILL, AND THAT GUARANTOR HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER
WITH COUNSEL. GUARANTOR AGREES THAT THE OBLIGATIONS EVIDENCED BY THIS AGREEMENT
ARE EXEMPTED TRANSACTIONS UNDER THE TRUTH-IN-LENDING ACT, 15 U.S.C. SECTION
1601, ET SEQ. GUARANTOR FURTHER ACKNOWLEDGES THAT GUARANTOR HAS READ AND

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UNDERSTANDS THE MEANING OF THIS WAIVER PROVISION. GUARANTOR HEREBY CONSENTS TO
THE JURISDICTION OF ANY FEDERAL OR STATE COURT AS LENDER MAY SELECT, FOR ANY
PROCEEDING IN CONNECTION HEREWITH. GUARANTOR AND HEREBY WAIVES OBJECTIONS AS TO
VENUE AND CONVENIENCE OF FORUM IF VENUE IS IN PHILADELPHIA COUNTY, PENNSYLVANIA
OR THE COUNTY OF BERGEN, NEW JERSEY OR IN ANY FEDERAL DISTRICT COURT IN
PENNSYLVANIA, NEW JESEY OR DELAWARE. THE FOREGOING SHALL BE DEEMED INDEPENDENT
COVENANTS.

     IN WITNESS WHEREOF, this Agreement has been executed the day and year first
above written.

                                        PEOPLES EDUCATION, INC.

                                        BY: /S/ BRIAN T. BECKWITH
-------------------------------------       ------------------------------------
                                            BRIAN T. BECKWITH
                                            PRESIDENT AND CHIEF EXECUTIVE
                                            OFFICER

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Exhibit 10.6

                            PLEDGE OF STOCK AGREEMENT

     THIS PLEDGE AGREEMENT ("Agreement") dated FEBRUARY 15, 2007 made by PEOPLES
EDUCATIONAL HOLDINGS, INC. (the "Pledgor"), SOVEREIGN BANK, a corporation
authorized to do business in Pennsylvania and New Jersey with an office at 1500
MARKET STREET, PHILADELPHIA, PA 19102 ("Bank").

                                   WITNESSETH:

     WHEREAS, the Bank has made a Loan (the "Loan") in the amount of TWENTY
MILLION AND 00/100 DOLLARS ($20,000,000.00) which is evidenced by the Pledgor's
promissory notes dated this date in the principal amount of $10,000,000.00 and
$10,000,000.00, respectively (each Note individually referred to the "Note" and
collectively referred to as the "Notes"), providing for the payment of
principal, together with interest thereon at the rates set forth therein, in
such installments, at such times, and according to such further terms as set
forth in the Notes. The Pledgor has also executed, inter alia, a Security
Agreement ("Security Agreement") and a Loan Agreement ("Loan Agreement") in
connection with the Loan. Additionally, PEOPLES EDUCATION, INC. ("Guarantor")
has executed a guaranty and suretyship agreement ("Guaranty"). The Loan
Agreement, Note, Security Agreement, Guaranty, this Agreement and other
agreements, instruments and documents relating to the Loan are sometimes
collectively referred to herein as the "Loan Documents"; and

     WHEREAS, the Pledgor is the legal and beneficial owner of the shares of
capital stock described in Schedule I hereto and issued by the issuers named
therein (the "Pledged Shares"); and

     WHEREAS, it is a condition precedent to the making of the Loan by the Bank
under the Loan Documents that the Pledgor will have made the pledge contemplated
by this agreement;

     NOW, THEREFORE, in consideration of the premises and to induce the Bank to
make the Loan under the Loan Documents, and intending to be legally bound, the
Pledgor hereby covenants and agrees as follows:

     SECTION 1. Pledge. The Pledgor pledges to the Bank, and grants to the Bank
a first priority security interest in the following (the "Pledged Collateral"):

          (a) All of the Pledged Shares;

          (b) All additional shares of stock of any issuer of the Pledged Shares
     from time to time acquired by the Pledgor in any manner;

          (c) All shares acquired by the Pledgor of any person who, after the
     date of this Pledge Agreement, becomes, as a result of any occurrence, a
     subsidiary of the Pledgor in any

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     manner;

          (d) The certificates representing the shares referred to in clauses
     (a), (b) and (c) above; and

          (e) Subject to Section 6, all dividends, cash, instruments and other
     property or proceeds, from time to time received, receivable or otherwise
     distributed or distributable with respect to or in exchange for any or all
     of the shares referred to in clauses (a), (b) and (c) above.

     SECTION 2. Security for Obligations. This Agreement secures and the Pledged
Collateral is security for the indefeasible payment in full when due, whether at
the stated maturity, by acceleration or otherwise, of due under the Loan
Documents and the performance of the obligations set forth therein and all of
the Obligations (as defined in the Guaranty)] and all obligations of the Pledgor
now or hereafter existing under this Agreement (the "Secured Obligations").

     SECTION 3. Delivery of Pledged Collateral. All certificates or instruments
representing or evidencing the Pledged Collateral must be delivered to and held
by the Bank and must be in suitable form for transfer by delivery, or must be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Bank in its judgment. The Bank will
have the right, at any time in its discretion and without notice to the Pledgor,
to transfer to or to register in its name or any of its nominees any or all of
the Pledged Collateral, subject only to the revocable rights specified in
Section 6(a) of this Agreement and to applicable law. In addition, the Bank will
have the right at any time to exchange certificates or instruments representing
or evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations.

     SECTION 4. Representations and Warranties. The Pledgor represents and
warrants as follows:

          (a) The Pledged Shares (i) have been duly authorized and validly
     issued; (ii) are fully paid and non-assessable and (iii) constitute 100% of
     the issued and outstanding shares of stock or equity interests owned by the
     Pledgor. There are no existing options, warrants, calls or commitments of
     any character whatsoever relating to any of the Pledged Shares;

          (b) The Pledgor is the legal and beneficial owner of the Pledged
     Collateral free and clear of any lien;

          (c) The Pledgor has full power, authority, legal right to pledge,
     assign, transfer, deliver, deposit and set over the Pledged Collateral
     pledged to the Bank as provided herein;

          (d) This Agreement has been duly executed and delivered by the Pledgor
     and constitutes a legal, valid and binding obligation of the Pledgor,
     enforceable against the

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     Pledgor in accordance with its terms, subject, as to enforcement, to
     applicable bankruptcy, insolvency, or other similar laws affecting
     creditors' rights and remedies generally or by the application of general
     principles of equity;

          (e) The pledge of the Pledged Shares under this Agreement creates a
     valid and perfected first priority security interest in the Pledged
     Collateral, securing the payment of the Secured Obligations;

          (f) No consent, authorization, approval, or other action by, and no
     notice to or filing with, any governmental authority or regulatory body is
     required either (i) for the pledge by the Pledgor of the Pledged Collateral
     under this Agreement or for the execution, delivery or performance of this
     Agreement by the Pledgor or (ii) for the exercise by the Bank of the voting
     or other rights provided for in this Agreement or the remedies with respect
     to the Pledged Collateral under this Agreement, except as may be required
     in connection with the disposition of the Pledged Collateral by laws
     affecting the offering and sale of securities generally; and

          (g) The representations and warranties set forth in this Section 4
     will survive the execution and delivery of this Agreement.

SECTION 5. Further Assurances; Supplements.

          (a) The Pledgor agrees that at any time and from time to time, at the
     expense of the Pledgor, the Pledgor will promptly execute and deliver all
     further instruments and documents, and take all further action, that may be
     necessary or desirable, or that the Bank may request, to perfect and
     protect any security interest granted or purported to be granted hereby or
     to enable the Bank to exercise and enforce its rights and remedies
     hereunder with respect to any Pledged Collateral;

          (b) The Pledgor will defend the title to the Pledged Collateral and
     the liens of the Bank thereon against the claim of any person and will
     maintain and preserve the liens so long as the Loan is outstanding; and

          (c) The Pledgor agrees that it will, upon obtaining any additional
     shares of the Pledged Shares, promptly (and in any event within three
     Business Days) deliver to the Bank a Pledge Amendment, duly executed by the
     Pledgor, in substantially the form of Schedule II hereto (a "Pledge
     Amendment"), regarding the additional shares that are required to be
     pledged under Section 7(b) of this Agreement. The Pledgor authorizes the
     Bank to attach each Pledge Amendment to this Pledge Agreement and agrees
     that all shares listed on any Pledge Amendment delivered to the Bank will
     for all purposes hereunder constitute Pledged Collateral.

SECTION 6. Voting Rights; Dividends; Etc.

          (a) As long as no Event of Default ("Event of Default"[as defined in
     the Loan

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     Agreement]) will have occurred.

                    (i) The Pledgor will be entitled to exercise any and all
               voting and other consensual rights pertaining to the Pledged
               Collateral or any part thereof for any purpose not inconsistent
               with the terms of the Loan Documents; provided, however, that the
               Pledgor may not exercise or refrain from exercising any such
               right if the action would have a material adverse effect on the
               value of the Pledged Collateral or any part thereof; and

                    (ii) The Pledgor will be entitled to receive and retain any
               and all dividends paid regarding the Pledged Collateral, other
               than any and all dividends paid or payable other than in cash
               with respect to, and instruments and other property received,
               receivable or otherwise distributed with respect to, or in
               exchange for, any Pledged Collateral, dividends and other
               distributions paid or payable in cash with respect to any Pledged
               Collateral in connection with a partial or total liquidation or
               dissolution prohibited by any other Loan Document or in
               connection with a reduction of capital, capital surplus or
               paid-in-surplus, and cash paid, payable or otherwise distributed
               in redemption of, or in exchange for, any Pledged Collateral, all
               of which must be forthwith delivered to the Bank to hold as
               Pledged Collateral and, if received by the Pledgor, must be
               received in trust for the benefit of the Bank, segregated from
               the other property or funds of the Pledgor, and forthwith
               delivered to the Bank as Pledged Collateral in the same form as
               received (with any necessary endorsement).

          (b) The Bank must execute and deliver (or cause to be executed and
     delivered) to the Pledgor all proxies and other instruments that the
     Pledgor may reasonably request for the purpose of enabling the Pledgor to
     exercise the voting and other rights that it is entitled to exercise under
     Section 6(a) (i) above and to receive the dividends that it is authorized
     to receive and retain under Section 6(a) (ii) above;

          (c) Upon the occurrence and during the continuance of an Event of
     Default:

                    (i) All rights of the Pledgor to exercise the voting and
               other consensual rights that it would otherwise be entitled to
               exercise under Section 6(a) (i) above will cease immediately, and
               all these rights will thereupon become vested in the Bank, which
               will thereupon have the sole right to exercise these rights.

                    (ii) All rights of the Pledgor to receive the dividends that
               it would otherwise be authorized to receive and retain under
               Section 6(a)(ii) above will cease immediately, and all these
               rights will thereupon become vested in the Bank, which will
               thereupon have the sole right to receive and hold as Pledged
               Collateral the dividends.

                    (iii) All dividends that are received by the Pledgor
               contrary to the provisions of paragraph (ii) of this Section 6(c)
               will be received in trust for the benefit of the Bank, segregated
               from other funds of the Pledgor and forthwith

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               paid over to the Bank as Pledged Collateral in the same form as
               received (with any necessary endorsement).

          (d) In order to permit the Bank to exercise the voting and other
     rights that it may be entitled to exercise under Section 6(c)(i) above, and
     to receive all dividends and distributions that it may be entitled to
     receive under Section 6(c)(ii) above, the Pledgor will, if necessary, upon
     written notice of the Bank, from time to time execute and deliver to the
     Bank appropriate proxies, dividend payment orders and other instruments as
     the Bank may reasonably request.

SECTION 7. Transfers and Other Liens; Additional Shares.

          (a) The Pledgor agrees that it will not (i) sell, assign or transfer
     or otherwise dispose of, or grant any option or warrant with respect to,
     any of the Pledged Collateral, or (ii) create or permit to exist any lien,
     security interest, or other charge or encumbrance upon or with respect to
     any of the Pledged Collateral, except for the lien in favor of the Bank
     under this Agreement;

          (b) The Pledgor agrees that it will (i) cause the issuer of the
     Pledged Shares not to issue any stock or other securities in addition to or
     in substitution for the Pledged Shares except to the Pledgor and, (ii)
     pledge hereunder, immediately upon its acquisition (directly or indirectly)
     thereof, any and all shares of stock or other securities of any Person who,
     after the date of this Agreement, becomes, as the result of any occurrence,
     a Subsidiary of the Pledgor, if applicable.

     SECTION 8. Bank Appointed Attorney-in-Fact. The Pledgor appoints the Bank
the Pledgor's attorney-in-fact, with full authority in the place and stead of
the Pledgor and in the name of the Pledgor or otherwise, from time to time in
the Bank's discretion to take any action and to execute any instrument that the
Bank may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, endorse and collect all
instruments made payable to the Pledgor representing any dividend, interest
payment or other distribution regarding the Pledged Collateral or any part
thereof and to give full discharge for the same. The Bank agrees that, except
upon the occurrence of an Event of Default, it will forebear from exercising the
power of attorney or any rights granted to the Bank under this Section 8.

     SECTION 9. Bank May Perform. If the Pledgor fails to perform any agreement
contained herein, the Bank may itself perform, or cause performance of, the
agreement, and the expenses of the Bank incurred in connection therewith will be
payable by the Pledgor under Section 12 of this Agreement.

     SECTION 10. Reasonable Care. The Bank will be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to the treatment the Bank accords its own property; the Bank will not have any
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any

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Pledged Collateral, whether or not the Bank has or is deemed to have knowledge
of these matters, or (ii) taking any necessary steps to preserve rights against
any parties with respect to any Pledged Collateral.

     SECTION 11. Remedies Upon Default. If any Event of Default will have
occurred and be continuing:

          (a) The Bank may exercise with respect to the Pledged Collateral, in
     addition to other rights and remedies provided for herein or otherwise
     available to it, all the rights and remedies of a secured party in default
     under the Uniform Commercial Code (the "Code") in effect in the
     Commonwealth of Pennsylvania at that time; the Bank may also, without
     notice except as specified below, sell the Pledged Collateral or any part
     thereof in one or more parcels at public or private sale, at any exchange,
     broker's board or at any of the Bank's offices or elsewhere, for cash, on
     credit or for future delivery, and upon such other terms as the Bank may
     deem commercially reasonable. The Pledgor agrees that, to the extent notice
     of sale will be required by law, at least 10 days' notice to the Pledgor of
     the time and place of any public sale or the time after which any private
     sale is to be made will constitute reasonable notification. The Bank will
     not be obligated to make any sale of Pledged Collateral regardless of
     notice of sale having been given. The Bank may adjourn any public or
     private sale from time to time by announcement at the time and place fixed
     therefor, and the sale may, without further notice, be made at the time and
     place to which it was adjourned. The Pledgor waives any claims against the
     Bank arising because the price at which any Pledged Collateral may have
     been sold at such a private sale was less than the price that might have
     been obtained at a public sale, even if the Bank accepts the first offer
     received and does not offer the Pledged Collateral to more than one
     offeree;

          (b) The Pledgor recognizes that, by reason of certain requirements and
     prohibitions contained in the Securities Act and applicable state
     securities laws, the Bank may, with respect to any sale of all or any part
     of the Pledged Collateral, limit purchasers to those who will agree, among
     other things, to acquire the securities for their own account, for
     investment, and not with a view to their distribution or resale. The
     Pledgor acknowledges and agrees that any such sale may result in prices and
     other terms less favorable to the seller than if the sale were a public
     sale without such restrictions and, notwithstanding the circumstances,
     agrees that any such sale will be deemed to have been made in a
     commercially reasonable manner. The Bank will be under no obligation to
     delay the sale of any of the Pledged Shares for the period of time
     necessary to permit the Pledgor to register the securities for public sale
     under the Securities Act, or under applicable state securities laws, even
     if the Pledgor would agree to do so;

          (c) If the Bank determines to exercise its right to sell any or all of
     the Pledged Collateral, upon written request, the Pledgor will, from time
     to time, furnish to the Bank all information that the Bank may request in
     order to determine the number of shares and other instruments included in
     the Pledged Collateral that may be sold by the Bank as exempt transactions
     under the Securities Act and rules of the Securities and Exchange

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     Commission thereunder, as the same are from time to time in effect; and

          (d) Any cash held by the Bank as Pledged Collateral and all cash
     proceeds received by the Bank regarding any sale of, collection from, or
     other realization upon all or any part of the Pledged Collateral will be
     applied by the Bank:

                    (i) First, to the payment of the costs and expenses of the
               sale, including reasonable compensation to the Bank and its
               agents and counsel, and all expenses, liabilities and advances
               made or incurred by the Bank in connection therewith;

                    (ii) Next, to the Bank on account of the Secured Obligations
               in any order that the Bank elects; and

                    (iii) Finally, after indefeasible payment in full of all
               Secured Obligations, to the payment to the Pledgor, or its
               successors or assigns, or to anyone lawfully entitled to receive
               the same or as a court of competent jurisdiction may direct, of
               any surplus then remaining from the proceeds.

     SECTION 12. Expenses. The Pledgor will, upon demand, pay to the Bank the
amount of any and all expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that the Bank may incur in connection
with (a) the administration of this Agreement; (b) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Pledged Collateral; (c) the exercise or enforcement of any of the rights of the
Bank hereunder; or (d) the failure by the Pledgor to perform or observe any of
the provisions hereof.

     SECTION 13. Security Interest Absolute. All rights of the Bank and security
interests hereunder, and all obligations of the Pledgor hereunder, will be
absolute and unconditional irrespective of:

          (a) any lack of validity or enforceability of the Loan Documents, the
     Notes or any other Collateral Document or any other agreement or instrument
     relating thereto;

          (b) any change in the time, manner or place of payment of, or in any
     other term of, all or any of the Secured Obligations, or any other
     amendment or waiver of or any consent to any departure from the Loan
     Documents, the Notes or any other Collateral Document;

          (c) any exchange, release or non-perfection of any other collateral,
     or any release or amendment or waiver of or consent to departure from any
     guaranty, for all or any of the Secured Obligations; or

          (d) any other circumstance that might otherwise constitute a defense
     available to, or a discharge of, the Pledgor or a third party pledgor.

     SECTION 14. Indemnification. The Pledgor agrees to indemnify and hold the
Bank harmless from and against any taxes, liabilities, claims and damages,
including reasonable attorney's fees

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and disbursements, and other expenses incurred or arising by reason of the
taking or the failure to take action by the Bank, in good faith, with respect to
any transaction effected under this Agreement or in connection with the lien
provided for herein, including, without limitation, any taxes payable in
connection with the delivery or registration of any of the Pledged Collateral as
provided herein. The obligations of the Pledgor under this Section 14 will
survive the termination of this Agreement.

     SECTION 15. Waiver. No delay on the Bank's part in exercising any power of
sale, lien, option or other right hereunder, and no notice or demand that may be
given to or made on the Pledgor by the Bank with respect to any power of sale,
Lien, option or other right hereunder, will constitute a waiver thereof, or
limit or impair the Bank's right to take any action or to exercise any power of
sale, lien, option, or any other right hereunder, without notice or demand, or
prejudice the Bank's rights hereunder or the rights of the Bank under the Loan
Documents or any of the Collateral Documents against the Pledgor in any respect.

     SECTION 16. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Pledgor from this Agreement,
will in any event be effective unless it is in writing and signed by the Bank,
and then the waiver or consent will be effective only in the specific instance
and for the specific purpose for which it is given.

     SECTION 17. Addresses for Notices. All notices required to be given to any
of the parties hereunder shall be in writing and shall be deemed to have been
sufficiently given for all purposes when presented personally to such party or
sent by certified or registered mail, return receipt requested, or overnight
courier to such party at its address set forth below:

     Pledgor:   PEOPLES EDUCATIONAL HOLDINGS, INC.
                299 MARKET STREET,
                SADDLE BROOK, NJ 07663

     Bank:      SOVEREIGN BANK
                1500 MARKET STREET
                PHILADELPHIA, PA 19102

     with a
     copy to:   LAW OFFICES OF MCGILL & LANOCE
                6064 RIDGE AVENUE
                PHILADELPHIA, PA 19128
                ATTENTION: FRANCIS E. MCGILL, III, ESQUIRE

Such notice shall be deemed to be given when received if delivered personally,
or two (2) days after the date mailed if sent by certified or registered mail,
return receipt requested or on the date of delivery (if delivered other than by
mail). Any notice of any change in such address shall also be given in the
manner set forth above. Whenever the giving of notice is required, the giving of
such notice may be waived in writing by the party entitled to receive such
notice.

                                        8

<PAGE>

     SECTION 18. Continuing Security Interest; Transfer of Notes. This Agreement
will create a continuing first priority security interest in the Pledged
Collateral, and will (a) remain in full force and effect until indefeasible
payment in full of the Note; (b) continue to be effective or be reinstated, as
the case may be, if at any time payment and performance of the Secured
Obligations, or any part thereof, is, under applicable law, rescinded or reduced
in amount, or must otherwise be restored or returned by the obligee of the
Secured Obligations, all as though the payment or performance had not been made;
(c) be binding on the Pledgor, its successors and assigns; and (d) inure to the
benefit of the Bank and its successors, transferees and assigns. Without
limiting the generality of clause (d), the Bank may assign or otherwise transfer
the Loan Documents held by it to any other person or entity, who will thereupon
become vested with all the benefits in respect thereof granted to the Bank
herein or otherwise, all as provided in the Loan Documents. Upon the
indefeasible payment in full of the Loan, the Pledgor will be entitled to the
return, upon its request and at its expense, of the portion of the Pledged
Collateral that has not been sold or otherwise applied under the terms hereof.

     SECTION 19. Severability. If for any reason any provision or provisions
hereof are determined to be invalid and contrary to any existing or future law,
the invalidity will not impair the operation of or effect those portions of this
Agreement that are valid.

     SECTION 20. Section Titles. The section titles contained in this Agreement
are and will be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.

     SECTION 21. Waiver of Jury Trial. The parties hereto agree to waive any
right they may have to a jury trial in connection with any action, suit or
proceeding arising out of or related in any way to this Agreement.

     SECTION 22. Governing Law; Terms. This Agreement will be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania. Unless otherwise defined herein or in the Loan Documents, terms
defined in Articles 8 and 9 of the Uniform Commercial Code in the Commonwealth
of Pennsylvania are similarly defined in this Agreement.

     IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered by its officer there unto duly authorized as of the date
first above written.

WITNESS:                                PEOPLES EDUCATIONAL HOLDINGS, INC.

                                        BY: /S/ BRIAN T. BECKWITH
-------------------------------------       ------------------------------------
                                            BRIAN T. BECKWITH
                                            PRESIDENT AND CHIEF EXECUTIVE
                                            OFFICER

                                        9

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