Document:

Exhibit 10.1

FORBEARANCE AGREEMENT

This FORBEARANCE AGREEMENT (this "Agreement"), is entered into as of January 4, 2013, by and among the lenders identified on the signature pages hereof (each of such lenders, together with its successors and permitted assigns, is referred to hereinafter as a "Lender", as that term is hereinafter further defined), WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, "Agent"), GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as syndication agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, "Syndication Agent"), WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, in their respective capacities as co-collateral agents for the Lenders (in such capacities, together with their successors and assigns in such capacities, "Co-Collateral Agents"), SCHOOL SPECIALTY, INC., a Wisconsin corporation ("Parent"), CLASSROOMDIRECT.COM, LLC, a Delaware limited liability company ("ClassroomDirect"), SPORTIME, LLC, a Delaware limited liability company ("Sportime"), DELTA EDUCATION, LLC, a Delaware limited liability company ("Delta Education"), PREMIER AGENDAS, INC., a Washington corporation ("Premier Agendas"), CHILDCRAFT EDUCATION CORP., a New York corporation ("Childcraft"), BIRD-IN-HAND WOODWORKS, INC., a New Jersey corporation ("Bird-In-Hand"), and CALIFONE INTERNATIONAL, INC., a Delaware corporation ("Califone"; Parent, ClassroomDirect, Sportime, Delta Education, Premier Agendas, Childcraft, Bird-In-Hand and Califone are collectively "Borrowers" and each a "Borrower"), FREY SCIENTIFIC, INC., a Delaware corporation ("Frey"), SAX ARTS & CRAFTS, INC, a Delaware corporation ("Sax"), and SELECT AGENDAS, CORP. a Nova Scotia unlimited liability company ("Select Agendas"; Frey, Sax, and Select Agendas are collectively "Guarantors").

R E C I T A L S:

WHEREAS, Agent and Borrowers have entered into certain financing arrangements pursuant to a certain Credit Agreement, dated as of May 22, 2012, by and among Agent, the other Agents, Borrowers, and the Lenders from time to time party thereto (as amended hereby, and as the same may have heretofore been or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the "Credit Agreement");

WHEREAS, as of the date hereof, Borrowers are in default under the Credit Agreement as more particularly described below;

WHEREAS, the circumstances described herein constitute Events of Default under the Credit Agreement and the Loan Documents;

WHEREAS, Borrowers have requested that Agent and Lenders forbear from exercising their rights as a result of such Events of Default, which are continuing, and that Lenders provide further Revolving Loans and other financial accommodations to Borrowers notwithstanding such Events of Default; and

WHEREAS, Agent and Lenders are willing to agree to forbear from exercising certain of their rights and remedies and provide certain further Revolving Loans and other financial accommodations to Borrowers solely for the period and on the terms and conditions specified herein.

NOW, THEREFORE, in consideration of the foregoing, and the respective agreements, warranties and covenants contained herein, the parties hereto agree as follows:

SECTION 1.

DEFINITIONS

1.1.

Interpretation.  All capitalized terms used herein (including the recitals hereto) shall have the respective meanings ascribed thereto in the Credit Agreement unless otherwise defined herein.

1.2.

Additional Definitions.  As used herein, the following terms shall have the respective meanings given to them below, and the Credit Agreement is hereby amended to include, in addition and not in limitation, each of the following definitions:

(a)

"Existing Defaults" shall mean the Events of Defaults more particularly identified on Exhibit A hereto.

(b)

"Forbearance Period" means the period commencing on the date hereof and ending on the date which is the earliest of (i) February 1, 2013; (ii) the occurrence or existence of any Events of Default, other than the Existing Defaults; or (iii) the occurrence of any Termination Event.

(c)

"Termination Event" means the initiation of any action by any Borrower, Guarantor or any Releasing Party (as defined herein) to invalidate or limit the enforceability of any of the acknowledgments set forth in Section 2.1, the release set forth in Section 8.7 or the covenant not to sue set forth in Section 8.8 or the failure to comply with Section 5.1.

SECTION 2.

ACKNOWLEDGMENTS

2.1.

Acknowledgment of Obligations.  Each Borrower hereby acknowledges, confirms and agrees that as of the close of business on December 31, 2012, (a) Borrowers are indebted to Lenders in respect of Revolving Loans in the principal amount of $40,191,272.56, (b)  Borrowers are indebted to Lenders in respect of Letters of Credit in the principal amount of $972,000, and (c) Borrowers are indebted to Bank Product Providers in respect of Bank Product Obligations in the principal amount of $0.00.   Each Borrower hereby acknowledges, confirms and agrees that all such Obligations, together with interest accrued and accruing thereon, and all fees, costs, expenses and other charges now or hereafter payable by any Borrower to Agent or Lenders pursuant to the terms of the Credit Agreement and other Loan Documents, are unconditionally owing by Borrowers, without offset, defense or counterclaim of any kind, nature or description whatsoever.

2.2.

Acknowledgement of Guaranty.  Each Guarantor hereby acknowledges, confirms and agrees that: (a) the Guarantors have, jointly and severally, unconditionally and irrevocably guaranteed as primary obligors, and not merely as a surety, the full and prompt payment when due, whether upon maturity, acceleration, or otherwise, of all of the "Guarantied Obligations" as defined in the Guaranty and Security Agreement; and (b) all such Guarantied Obligations, together with all fees, costs, expenses, charges, and other amounts of any type now or hereafter due under or pursuant to the Guaranty and Security Agreement are unconditionally owing by Guarantors, without offset, defense or counterclaim of any kind, nature or description whatsoever.

2.3.

Acknowledgment of Security Interests.  Each Borrower and each Guarantor hereby acknowledges, confirms and agrees that Agent has and shall continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Collateral heretofore granted to Agent, for the benefit of each member of the Lender Group and each of the Bank Product Providers, pursuant to the 

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Guaranty and Security Agreement and the Loan Documents or otherwise granted to or held by Agent, for the benefit of each member of the Lender Group and each of the Bank Product Providers.

2.4.

Binding Effect of Documents.  Each Borrower and each Guarantor hereby acknowledges, confirms and agrees that: (a) each of the Credit Agreement, Guaranty and Security Agreement, and the other Loan Documents to which it is a party has been duly executed and delivered by such Borrower or Guarantor, and each is and shall remain in full force and effect as of the date hereof except as modified pursuant hereto, (b) the agreements and obligations of such Borrower or Guarantor contained in such documents and in this Agreement constitute the legal, valid and binding obligations of such Borrower or Guarantor, enforceable against it in accordance with their respective terms, and such Borrower or Guarantor has no valid defense to the enforcement of such obligations, and (c) except as set forth herein with respect to the Existing Defaults during the Forbearance Period, Agent, the rest of the Lender Group, and Bank Product Providers are and shall be entitled to the rights, remedies and benefits provided for under the Credit Agreement and the Loan Documents and applicable law.

SECTION 3.

FORBEARANCE IN RESPECT OF EXISTING DEFAULTS

3.1.

Acknowledgment of Default.  Each Borrower and each Guarantor hereby acknowledges and agrees that the Existing Defaults have occurred and are continuing, constitute Events of Default and entitles Agent, the Lender Group, and Bank Product Providers to exercise their respective rights and remedies under the Credit Agreement, the Loan Documents, applicable law or otherwise.  Each Borrower and Guarantor represents and warrants that as of the date hereof, no Event of Default exists other than the Existing Defaults.  Each Borrower and Guarantor hereby acknowledges and agrees that Agent has the exercisable right to declare the Obligations and Guarantied Obligations to be immediately due and payable under the terms of the Credit Agreement, Guaranty and Security Agreement, and the other Loan Documents.  Each Borrower acknowledges that Lenders are no longer obligated to make any advances of Revolving Loans.

3.2.

Forbearance.

(a)

In reliance upon the representations, warranties and covenants of Borrowers and Guarantors contained in this Agreement, and subject to the terms and conditions of this Agreement and any documents or instruments executed in connection herewith, Agent and Lenders agree to forbear during the Forbearance Period from exercising their rights and remedies under the Credit Agreement, Guaranty and Security Agreement, and the other Loan Documents or applicable law in respect of or arising out of the Existing Defaults and agree to continue to provide further Revolving Loans and other financial accommodations to Borrowers solely for the period and on the terms and conditions specified herein .

(b)

Upon the expiration or termination of the Forbearance Period, the agreement of Agent and Lenders to forbear shall automatically and without further action terminate and be of no force and effect, it being expressly agreed that the effect of such termination will be to permit Agent and Lenders to exercise immediately all rights and remedies under the Credit Agreement, Guaranty and Security Agreement, and the Loan Documents and applicable law, including, but not limited to, (i) ceasing to make any further Revolving Loans or issuing any further Letters of Credit and (ii) accelerating all of the Obligations under the Credit Agreement and the Loan Documents; in each case without any further notice to any Borrower or Guarantor, passage of time or forbearance of any kind.

3.3.

Forbearance Fee.  In consideration of the agreement to forbear and other agreements of Agent and the Lender Group contained herein, Borrowers shall pay to Agent, for the ratable benefit of Lenders, a forbearance fee in the amount of $100,000, which fee shall be fully earned, due, and 

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payable upon execution of this Agreement.  In no event shall such forbearance fee be refundable by Agent or any Lender.

3.4.

No Waivers; Reservation of Rights.

(a)

Agent and Lenders have not waived, are not by this Agreement waiving, and have no intention of waiving, any Events of Default which may be continuing on the date hereof or any Events of Default which may occur after the date hereof (whether the same or similar to the Existing Defaults or otherwise), and Agent and Lenders have not agreed to forbear with respect to any of their rights or remedies concerning any Events of Default (other than, during the Forbearance Period, the Existing Default to the extent expressly set forth herein) occurring at any time.

(b)

Subject to Section 3.2 above (solely with respect to the Existing Defaults), Agent and Lenders reserve the right, in their discretion, to exercise any or all of their rights and remedies under the Credit Agreement, Guaranty and Security Agreement, and the Loan Documents as a result of any other Events of Default occurring at any time.  Agent and Lenders have not waived any of such rights or remedies, and nothing in this Agreement, and no delay on their part in exercising any such rights or remedies, shall be construed as a waiver of any such rights or remedies.

3.5.

Additional Events of Default.  The parties hereto acknowledge, confirm and agree that any material misrepresentation by any Borrower or Guarantor, or any failure of any Borrower or Guarantor to comply with the covenants, conditions and agreements contained in this Agreement, the Credit Agreement, the Guaranty and Security Agreement, and the Loan Documents or in any other agreement, document or instrument at any time executed and/or delivered by any Borrower or Guarantor with, to or in favor of Agent or any Lenders, shall constitute an Event of Default under the Credit Agreement and the Loan Documents.  In the event any Person, other than Agent or Lenders, shall at any time exercise for any reason (including, without limitation, by reason of any Existing Defaults, any other present or future Event of Default, or otherwise) any of its rights or remedies against any Borrower, any Guarantor, or any obligor providing credit support for any Borrower's or Guarantor's obligations to such other Person, or against any Borrower's, any Guarantor's, or such obligor's properties or assets, and such exercise of such rights and remedies has a material adverse effect on any Borrower or Guarantor or the Collateral, such event shall constitute an Event of Default hereunder and an Event of Default under the Credit Agreement.

SECTION 4.

AMENDMENTS

4.1.

Minimum Liquidity Test.  Effective as of the execution of this Agreement:

(a)

The definition of "Minimum Liquidity Test" in Schedule 1.1 of the Credit Agreement shall be hereby amended and restated as follows:

"Minimum Liquidity Test" means, with respect to the Borrowers and their Subsidiaries at the close of business on each  Business Day, that (x) the sum of (i) Availability at such time plus (ii) the lesser of Qualified Cash at such time and $2,000,000 exceeds (y) $3,000,000.

(b)

Section 7(f) of the Credit Agreement shall be hereby deemed amended and restated as follows:

Minimum Liquidity Test.  Not permit the Minimum Liquidity Test to be unsatisfied at any time.

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4.2.

Split Lien Credit Agreement Amendments.  Agent consents to the amendments of the Split Lien Credit Agreement as set forth in the Split Lien Forbearance Agreement (as in effect on the date hereof).

4.3.

Purchase Card Agreement.  The parties hereto acknowledge and agree that the M&I Visa Commercial Cardholder Agreement, dated December 31, 2010 (together with all amendments, modifications, supplements, and other documents related thereto, "Purchase Card Agreement") between Parent and BMO Harris Bank N.A. (together with its predecessors, successors, and assigns, "BMO") constitute a Loan Document and that all Obligations arising under the Purchase Card Agreement as of the date hereof have been paid in full to BMO.

SECTION 5.

COVENANTS

5.1.

Chief Restructuring Officer. The Borrowers and Guarantors shall engage and duly appoint a chief restructuring officer acceptable to Agent, on terms and conditions (including, without limitation, as to scope of duties and authority) acceptable to Agent (the "CRO"), on or before January 7, 2013.  Following the engagement of the CRO and during the Forbearance Period, Borrowers and Guarantors shall continue to retain and engage a CRO.  Borrowers (i) agree to fully cooperate with the CRO, (ii) authorize CRO to provide to Agent and Lenders such information and reports from time to time with respect to Borrowers, Guarantors and their financial condition, strategic alternatives, business, assets, liabilities and prospects, as Agent may reasonably request from time to time (including, without limitation, prompt updates regarding the EPS sales process, and buyers contacted, confidentiality agreements signed, buyers in the data room, and offers received in connection therewith, and copies of any term sheets or other written indications of interest with respect thereto), and (iii) authorize CRO to communicate directly with Agent and any professionals retained by Agent, at such times as Agent and or any such professional may reasonably request from time to time.  All fees and expenses of the CRO shall be solely the responsibility of Borrowers and Guarantors and in no event shall Agent or the Lender Group have any liability or responsibility for the payment of any such fees or expenses, and Agent and the Lender Group shall have no obligation or liability to Borrowers, Guarantors or any other person by reason of any acts or omissions of the CRO. 

5.2.

On January 7, 2013, and on the first Business Day of each calendar week commencing thereafter, Borrowers shall deliver to Agent a consolidated cash flow forecast for Borrowers and their Subsidiaries for the ensuing 13-week period (including, without limitation, projected collections, disbursements, and receipts), along with comparison of actual to budgeted activity for prior reported weeks and explanations of all material performance variations.

SECTION 6.

REPRESENTATIONS AND WARRANTIES

Each Borrower hereby represents, warrants and covenants as follows:

6.1.

Representations in the Credit Agreement and the Loan Documents.  Each of the representations and warranties made by or on behalf of each Borrower to Agent or any Lender or otherwise in the Credit Agreement or any of the Loan Documents was true and correct when made, and is, except for the Existing Defaults, true and correct on and as of the date of this Agreement with the same full force and effect as if each of such represent­ations and warranties had been made by each Borrower on the date hereof and in this Agreement.

6.2.

Binding Effect of Documents.  This Agreement has been duly authorized, executed and delivered to Agent and Lenders by each Borrower, is enforceable in accordance with its terms and is in full force and effect.

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6.3.

No Conflict.  The execution, delivery and performance of this Agreement by each Borrower will not violate any requirement of law or contractual obligation of any Borrower and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues.

SECTION 7.

CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT

The effectiveness of this Agreement shall be subject to the receipt by Agent of each of the following, in form and substance satisfactory to Agent:

(a)

A copy of this Agreement, duly authorized, executed and delivered by each member of the Lender Group, each Borrower and each Guarantor;

(b)

Agent's receipt of the forbearance fee, from or on behalf of Borrowers, as described in Section 3.3 of this Agreement;

(c)

Agent shall have received a fully executed forbearance agreement in respect of the Split Lien Credit Agreement, in form and substance acceptable to Agent ("Split Lien Forbearance Agreement"); and

(d)

No Default of Event of Default (other than the Existing Defaults) shall exist or continue.

SECTION 8.

MISCELLANEOUS

8.1.

Continuing Effect of Credit Agreement.  Except as modified pursuant hereto, no other changes or modifications to the Credit Agreement and the Loan Documents are intended or implied by this Agreement and in all other respects the Credit Agreement and the Loan Documents hereby are ratified, restated and confirmed by all parties hereto as of the effective date hereof.  To the extent of conflict between the terms of this Agreement, the Credit Agreement and the Loan Documents, the terms of this Agreement shall govern and control.  The Credit Agreement and this Agreement shall be read and construed as one agreement.

8.2.

Costs and Expenses.  Borrowers absolutely and unconditionally agree to pay to the Agents, jointly and severally, on demand by the Agents at any time, whether or not all or any of the transactions contemplated by this Agreement are consummated:  all reasonable fees and disbursements of counsel to the Agent, that are incurred in good faith (regardless of whether the Agents or such other Person is the prevailing party) in connection with (i) the preparation, negotiation, execution, delivery or enforcement of this Agreement, the Credit Agreement, and any other Loan Document, and the Guaranty and Security Agreement, and/or (ii) any investigation, litigation, or proceeding related to this Agreement, the Credit Agreement, or any other Loan Document or the use of the proceeds of the credit provided under the Credit Agreement, or any act, omission, event or circumstance in any manner related thereto.

8.3.

Intercreditor Agreement. In no event shall this Agreement be deemed an amendment or modification to or the taking of any enforcement action under the Split Lien Intercreditor Agreement.

8.4.

Further Assurances.  At Borrowers' expense, the parties hereto shall execute and deliver such additional documents and take such further action as may be necessary or desirable to effectuate the provisions and purposes of this Agreement.

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8.5.

Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

8.6.

Survival of Representations, Warranties and Covenants.  All representations, warranties, covenants and releases of each Borrower made in this Agreement or any other document furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the Forbearance Period, and no investigation by Agent or any Lender, or any closing, shall affect the representations and warranties or the right of Agent and Lenders to rely upon them.

8.7.

Release.

(a)

In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Borrower and each Guarantor, on behalf of itself and its successors and assigns, and its present and former members, shareholders (solely in respect of derivative claims), affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents, legal representatives and other representatives (each Borrower, each Guarantor and all such other Persons being hereinafter referred to collectively as the "Releasing Parties" and individually as a "Releasing Party"), hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges each of the Agent, each Lender, each Bank Product Provider, and each other member of the Lender Group, and each of their respective successors and assigns, and their respective present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents, legal representatives and other representatives, in their capacities as such (Agent, Lenders and all such other Persons being hereinafter referred to collectively as the "Releasees" and individually as a "Releasee"), of and from all demands, actions, causes of action, suits, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a "Claim" and collectively, "Claims") of every kind and nature, known or unknown, suspected or unsuspected, at law or in equity, which any Releasing Party or any of its successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the date of this Agreement, for or on account of, or in relation to, or in any way in connection with this Agreement, the Credit Agreement, any of the Loan Documents or any of the transactions hereunder or thereunder, provided, however, that no Releasee shall be released from any act or omission that constitutes gross negligence, fraud or willful misconduct.

(b)

Each Borrower and each Guarantor understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense to any Claim and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

(c)

Each Borrower and each Guarantor agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

8.8.

Covenant Not to Sue.  Each of the Releasing Parties hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by any Releasing Party pursuant to Section 8.6 above.  If any Releasing Party violates the foregoing covenant, each Borrower, for itself and its successors and assigns, and its present and former members, shareholders (solely in respect of derivative claims), affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents, legal representatives and other 

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representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all reasonable attorneys' fees and costs incurred by any Releasee as a result of such violation.

8.9.

Severability.  Any provision of this Agreement held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement.

8.10.

Reviewed by Attorneys.  Each Borrower represents and warrants to Agent and Lenders that it (a) understands fully the terms of this Agreement and the consequences of the execution and delivery of this Agreement, (b) has been afforded an opportunity to discuss this Agreement with, and have this Agreement reviewed by, such attorneys and other persons as such Borrower may wish, and (c) has entered into this Agreement and executed and delivered all documents in connection herewith of its own free will and accord and without threat, duress or other coercion of any kind by any Person.  The parties hereto acknowledge and agree that neither this Agreement nor the other documents executed pursuant hereto shall be construed more favorably in favor of one than the other based upon which party drafted the same, it being acknowledged that all parties hereto contributed substantially to the negotiation and preparation of this Agreement and the other documents executed pursuant hereto or in connection herewith.

8.11.

Disgorgement.  If any Agent or any Lender is, for any reason, compelled by a court or other tribunal of competent jurisdiction to surrender or disgorge any payment, interest or other consideration described hereunder to any person because the same is determined to be void or voidable as a preference, fraudulent conveyance, impermissible set-off or for any other reason, such indebtedness or part thereof intended to be satisfied by virtue of such payment, interest or other consideration shall be revived and continue as if such payment, interest or other consideration had not been received by Agent or such Lender, and the Borrowers shall be liable to, and shall indemnify, defend and hold Agent or such Lender harmless for, the amount of such payment or interest surrendered or disgorged.  The provisions of this Section 8.11 shall survive execution and delivery of this Agreement and the documents, agreements and instruments to be executed or delivered herewith.

8.12.

Relationship.  Each Borrower agrees that the relationship between each Agent and such Borrower and between each Lender and Borrower is that of creditor and debtor and not that of partners or joint venturers.  This Agreement does not constitute a partnership agreement, or any other association between any Agent and any Borrower or between any Lender and any Borrower.  Each Borrower acknowledges that Agent and each Lender has acted at all times only as a creditor to such Borrower within the normal and usual scope of the activities normally undertaken by a creditor and in no event has any Agent or any Lender attempted to exercise any control over such Borrower or its business or affairs.  Each Borrower further acknowledges that Agent and each Lender has not taken or failed to take any action under or in connection with its respective rights under the Credit Agreement and the Loan Documents that in any way or to any extent has interfered with or adversely affects such Borrower's ownership of Collateral.

8.13.

Governing Law: Consent to Jurisdiction and Venue. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE CREDIT AGREEMENT AND ANY OF THE LOAN DOCUMENTS, THIS AGREEMENT, THE CREDIT AGREEMENT AND THE LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.  EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY BORROWER, ON THE ONE HAND, AND ANY AGENT OR ANY LENDER, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR THE CREDIT AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR 

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THE CREDIT AGREEMENT OR ANY OF THE LOAN DOCUMENTS; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT.  EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER'S  ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER THE SAME HAS BEEN POSTED.

8.14.

Mutual Waiver of Jury Trial.  THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN AGENT OR ANY LENDER AND ANY BORROWER ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

8.15.

Counterparts.  This Agreement may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission or electronic transmission (in pdf format) will be effective as delivery of a manually executed counterpart hereof.

[signatures on following page]

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IN WITNESS WHEREOF, this Agreement is executed and delivered as of the day and year first above written.

		
	BORROWERS:

	SCHOOL SPECIALTY, INC., a Wisconsin corporation

By:  /s/ Michael P. Lavelle                                              

Name:                                                Michael P. Lavelle

Title:                        President & Chief Executive Officer

		
	 
	CLASSROOMDIRECT.COM, LLC, a Delaware limited 

liability company

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

		
	 
	SPORTIME, LLC, a Delaware limited liability company

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

		
	 
	DELTA EDUCATION, LLC, a Delaware limited liability

 company

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

		
	 
	PREMIER AGENDAS, INC., a Washington corporation

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                          Executive Vice President

Signature Page to Forbearance Agreement

		
	 
	CHILDCRAFT EDUCATION CORP., a New York 

corporation

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

		
	 
	BIRD-IN-HAND WOODWORKS, INC., a New Jersey 

corporation

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

		
	 
	CALIFONE INTERNATIONAL, INC., a Delaware 

corporation

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

Signature Page to Forbearance Agreement

		
	GUARANTORS:

	FREY SCIENTIFIC, INC. a Delaware corporation

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

SAX ARTS & CRAFTS, INC., a Delaware corporation

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

SELECT AGENDAS, CORP., a Nova Scotia unlimited 

liability company

By:  /s/ Michael P. Lavelle                                              

Name:                                                 Michael P. Lavelle

Title:                                                                   President

Signature Page to Forbearance Agreement

		
	 
	WELLS FARGO CAPITAL FINANCE, LLC, as Agent, 

as Co-Collateral Agent, as Co-Lead Arranger, as Joint 

Book Runner and as a Lender

By:  /s/ Laura Nickas                                                       

Name:  Laura Nickas                                                       

Its Authorized Signatory

Signature Page to Forbearance Agreement

		
	 
	GENERAL ELECTRIC CAPITAL CORPORATION, 

as a Co-Collateral Agent and as Syndication Agent 

By:  /s/ Ken Sorensen                                                       

Name:  Ken Sorensen                                                       

Its Authorized Signatory

		
	 
	GE CAPITAL BANK, f/k/a GE CAPITAL 

FINANCIAL INC., as a Lender 

By:  /s/ Heather-Leigh Glade                                           

Name:  Heather-Leigh Glade                                           

Its Authorized Signatory

Signature Page to Forbearance Agreement

		
	 
	BANK OF MONTREAL, as a Lender 

By:  /s/ Stephanie J. Slavkin                                              

Name:  Stephanie J. Slavkin                                              

Its Authorized Signatory

		
	 
	 

Signature Page to Forbearance Agreement

		
	 
	CIT FINANCE LLC,, as a Lender 

By:  /s/ Neal T. Legan                                                     

Name:  Neal T. Legan                                                      

Its Authorized Signatory

		
	 
	 

		
	 
	 

Signature Page to Forbearance Agreement

EXHIBIT A

to

FORBEARANCE AGREEMENT

Existing Default

Any Default or Event of Default occurring under the Credit Agreement as a result of the Minimum Liquidity Test under Section 7(f) of the Credit Agreement being unsatisfied as at the last day of the fiscal month of December 2012 (i.e., December 29, 2012).

 

Any Default or Events of Default occurring under the Credit Agreement as a result of any Defaults or Events of Default under the Split Lien Credit Agreement with respect to which, and so long as, Split Lien Agent has agreed to forbear from exercising its rights and remedies on account thereof pursuant to the Split Lien Forbearance Agreement.

 

Any Default or Event of Default occurring under the Credit Agreement as a result of a Material Adverse Effect occurring within the meaning of the Credit Agreement due to the Defaults or Events of Default described above, the circumstances causing such Defaults or Events of Default.Execution Version 

Exhibit 10.2

FORBEARANCE AGREEMENT

This FORBEARANCE AGREEMENT TO CREDIT AGREEMENT (this “Forbearance Agreement”), dated as of January 4, 2013, is entered into by and among School Specialty, Inc. (the “Administrative Borrower”), Classroomdirect.com, LLC, Delta Education, LLC, Sportime, LLC, Childcraft Education Corp., Bird-in-Hand Woodworks, Inc., Califone International, Inc. and Premier Agendas, Inc. (collectively, the “Subsidiary Borrowers” and, together with the Administrative Borrower, the “Borrowers”), the guarantors party hereto, the Lenders party hereto (the “Participant Lenders”), and Bayside Finance, LLC, as administrative agent for itself and all other Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”), and its separate capacity as collateral agent for itself and all other Lenders (in such capacity, together with its successors and assigns, the “Collateral Agent” and, collectively with the Administrative Agent, the “Agent”) and is made in reference to that certain Credit Agreement, dated as of May 22, 2012 (as amended or modified from time to time, the “Credit Agreement”) by and among the Borrowers, the guarantors party thereto from time to time, the Lenders party thereto from time to time and the Agent. 

RECITALS:

WHEREAS, the Events of Default listed in Annex A hereto have occurred and are continuing as of the date hereof (collectively, the “Specified Defaults”); 

WHEREAS, on or about January 4, 2013, the Administrative Agent, by notice to the Administrative Borrower, declared all of the unpaid principal amount of the Term Loans, all interest accrued and unpaid thereon, and all other Obligations (including the Early Payment Fee) to be forthwith immediately due and payable or otherwise accelerated (the “Acceleration”); and

WHEREAS, upon the Administrative Borrower’s request, the Participant Lenders constituting the Required Lenders under the Credit Agreement have agreed, and the Administrative Agent, at the direction of the such Participant Lenders, has agreed, in each case subject to the terms and conditions set forth herein, to forbear from exercising certain of their default-related rights and remedies against the Collateral or other property owned by the Borrowers and other Obligors (including, without limitation, via set-off or recoupment) with respect to the Specified Defaults (the “Forbearance”). 

NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants and agreements set forth in this Forbearance Agreement, and intending to be legally bound, the parties hereto agree as follows:

			
	 
	 
	 

103849184 

ARTICLE I

DEFINITIONS

1.1

Defined Terms.

(a)

Capitalized terms that are defined in this Forbearance Agreement shall have the meanings ascribed to such terms in this Forbearance Agreement. All other capitalized terms shall have the respective meanings ascribed thereto in the Credit Agreement.

(b)

This Forbearance Agreement constitutes a “Loan Document” as defined in the Credit Agreement.

ARTICLE II

CONFIRMATION OF OBLIGATIONS AND SPECIFIED DEFAULTS

Each Borrower and each other Obligor acknowledges and confirms that (a) as of January 4, 2013, the aggregate principal amount of the Term Loans was $67,000,000.00, the amount of accrued and unpaid interest in respect of the Term Loans was $1,605,208.33 and the amount of the Early Payment Fee was $25,054,001.06, which amounts constitute valid and subsisting obligations of the Borrowers to the Lenders that are not subject to any credits, offsets, defenses, claims, counterclaims or adjustments of any kind, (b) each of the Specified Defaults constitutes an Event of Default that has occurred and is continuing as of the date hereof and (c) upon the occurrence of the Acceleration, the Term Loans, all accrued interest and all other Obligations (including the Early Payment Fee) have become and are forthwith due and payable, without presentment, demand, protest or further notice of any kind.  The foregoing amounts do not include any fees, expenses or other amounts that are chargeable or otherwise reimbursable under the Credit Agreement or the other Loan Documents.  Each of the Borrowers and the other Obligors hereby (i) acknowledges its obligations under the Loan Documents, (ii) reaffirms that each of the Liens created and granted pursuant to the Loan Documents is valid, subsisting, perfected and of the priority required pursuant to the Loan Documents and (iii) acknowledges that this Forbearance Agreement shall in no manner impair or otherwise adversely affect such Liens. 

ARTICLE III

FORBEARANCE 

3.1

Forbearance; Forbearance Default Rights and Remedies.

(a)

Effective as of the Forbearance Effective Date (as defined below), each of the Participant Lenders and the Administrative Agent agrees that until the expiration of the “Forbearance Period” (as defined below), it will temporarily forbear (subject to the terms of this Forbearance Agreement) from exercising its default-related rights and remedies against the Borrowers and the other Obligors with respect to the Collateral or other property owned by the Borrowers and the other Obligors (including, without limitation, via set-off or recoupment) under the Credit Agreement, the other Loan Documents and/or applicable law solely to the extent the availability of such remedies arises exclusively from the Specified Defaults; provided, however, (i) each of the Borrowers and the other Obligors shall comply, except to 

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the extent such compliance is expressly excused by the terms of this Forbearance Agreement, with all explicit restrictions or prohibitions triggered by the existence and/or continuance of any Default or Event of Default under the Credit Agreement, this Forbearance Agreement or any of the other Loan Documents, and (ii) the Administrative Agent and the Lenders shall have no obligation to provide any Term Loans or other financial accommodations, provided, further, the agreement of the Administrative Agent and the Participant Lenders set forth in this Section 3.1 shall not apply to nor preclude any remedy available to the Administrative Agent and the Lenders, in connection with any proceeding commenced under any bankruptcy or insolvency law, including without limitation, to any relief in respect of adequate protection or relief from any stay imposed under such law.  Each of the Borrowers and the other Obligors hereby agrees and acknowledges that if any Default or Event of Default other than the Specified Defaults occurs during the Forbearance Period, or if a Termination Event (as defined below) occurs, the Administrative Agent and the Lenders have reserved the right to, and may, exercise at any time and from time to time any and all rights and remedies under the Loan Documents and applicable law in connection therewith or with the Specified Defaults.

(b)

As used herein, the term “Forbearance Period” shall mean the period beginning on the Forbearance Effective Date (as defined below) and ending upon the occurrence of a Termination Event.  As used herein, “Termination Event” shall mean the earlier to occur of (i) February 1, 2013 and (ii) the occurrence of any Forbearance Default.  As used herein, the term “Forbearance Default” shall mean:  (i) the occurrence of any Default or Event of Default (other than the Specified Defaults) under and as defined in the Credit Agreement or any other Loan Document; (ii) the failure of any of the Borrowers or the other Obligors to timely comply with any term, condition, covenant or agreement set forth in this Forbearance Agreement, (iii) the failure of the Borrowers and the other Obligors to retain a chief restructuring officer that is reasonably acceptable to the Administrative Agent (the “CRO”) on or before January 7, 2013, or (iv) the material breach of any representation or warranty made by any of the Borrowers or the other Obligors in this Forbearance Agreement. 

(c)

Upon the occurrence of a Termination Event, the agreement of each Participant Lender and the Administrative Agent hereunder to forbear from exercising its default-related rights and remedies in respect of the Specified Defaults shall immediately terminate without the requirement of any further demand, presentment, protest, or notice of any kind, all of which each of the Borrowers and the other Obligors hereby waive.  Each of the Borrowers and the other Obligors agrees that the Administrative Agent and the Lenders may at any time after the occurrence of a Termination Event proceed to exercise any or all of its rights and remedies under the Credit Agreement, any other Loan Document, and/or applicable law, all of which rights and remedies are fully reserved by the Lenders and the Administrative Agent, including, without limitation, its rights and remedies on account of the Specified Defaults and any other Defaults or Events of Default that may then exist.  Without limiting the generality of the foregoing, upon the occurrence of a Termination Event, the Administrative Agent may upon such notice or demand as is specified by the Credit Agreement, any other Loan Documents, or applicable law, (i) collect and/or commence any legal or other action to collect any or all of the Obligations from any of the Borrowers and the other Obligors, (ii) foreclose or otherwise realize on any or all of the Collateral, and/or appropriate, setoff or apply to the payment of any or all of the Obligations, any or all of the Collateral or proceeds thereof, and (iii) take any other enforcement action or otherwise exercise any or all rights and remedies provided for by or under 

103849184 

the Credit Agreement, any other Loan Documents and/or applicable law, all of which rights and remedies are fully reserved by the Administrative Agent and the Lenders.

(d)

Nothing in this Forbearance Agreement shall be construed as a waiver of or acquiescence to the Specified Defaults and the Specified Defaults and the Acceleration shall continue in existence notwithstanding the agreement of the Participant Lenders and the Administrative Agent, as set forth herein, to forbear in the exercise of other default-related rights and remedies against the Borrowers and other Obligors on the terms and for the periods set forth herein.  Any agreement by the Required Lenders and the Administrative Agent to extend the Forbearance Period or enter into any other forbearance or similar arrangement must be set forth in writing and signed by a duly authorized signatory of the Administrative Agent (as instructed by the Required Lenders) and the Required Lenders.  The Borrowers and the other Obligors each hereby acknowledges that the Participant Lenders and the Administrative Agent have made no assurances whatsoever concerning any possibility of any extension of the Forbearance Period, any other forbearance or similar arrangement or any other limitations on the exercise of their rights, remedies and privileges under or otherwise in connection with the Credit Agreement, the other Loan Documents, and/or applicable law.

(e)

The Borrowers and the other Obligors each hereby acknowledges and agrees that any forbearance, waiver, consent or other financial accommodation which the Participant Lenders or the Administrative Agent may make on or after the date hereof has been made by the Participant Lenders or the Administrative Agent in reliance upon, and is consideration for, among other things, the general releases and reaffirmation of indemnities contained in Article VIII hereof and the other covenants, agreements, representations and warranties of the Borrowers and the other Obligors hereunder.

(f)

For the avoidance of doubt, the Borrowers and the other Obligors shall comply with all terms, conditions, covenants and restrictions in the Credit Agreement and the other Loan Documents that apply at any time that a Default or Event of Default has occurred and is continuing.

ARTICLE IV

ADDITIONAL COVENANTS 

4.1

Additional Covenants.

(a)

The Administrative Borrower will deliver, or cause to be delivered, to the Administrative Agent, and the Administrative Agent will deliver, or caused to be delivered, to each Lender each of the following, which shall be in form and detail reasonably acceptable to the Required Lenders: (x) substantially concurrent with any delivery of any notices, demands, statements, certificates, reports, valuations, Borrowing Base Certificates or other communications or documents (the “Revolver Documents”) to the Revolving Agent or the Revolving Credit Lenders, copies of the Revolver Documents; and (y) no later than the first Business Day of each calendar week commencing after the Forbearance Effective Date, a rolling cash forecast for the Administrative Borrower and its Subsidiaries for the ensuing 13-week period.

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(b)

The Administrative Borrower and the other Obligors shall not permit, at any time, the sum of (i) the Availability at such time plus (ii) the lesser of Unrestricted Cash of the Obligors at such time and $2,000,000 to be less than $3,000,000.

(c)

The Borrower shall cause the CRO and its financial advisors to (i) keep the Administrative Agent, the Lenders and their advisors apprised of its strategic alternatives and financial condition, including (x) with conference calls at least twice a month and (y) prompt updates regarding any Permitted Divestiture including information regarding buyers contacted, confidentiality agreements signed, buyers in the data room and offers received, and copies of any term sheets or other written indications of interest with respect thereto, and (ii) promptly respond to any information requests.

ARTICLE V

CONSENT

5.1

CONSENT.  The Administrative Agent and the Participating Lenders hereby consent to the amendment to the Revolving Credit Agreement contemplated in the ABL Forbearance Agreement.

ARTICLE VI

CONDITIONS TO EFFECTIVENESS

6.1

Effectiveness.  This Forbearance Agreement shall become effective as of the first date (the “Forbearance Effective Date”) on which each of the following conditions is satisfied and evidence of its satisfaction has been delivered to counsel to the Administrative Agent:

(a)

The Administrative Agent shall have received a duly executed signature page of the Forbearance Agreement from (i) each of the Participant Lenders constituting the Required Lenders and (ii) each of the Borrowers and the other Obligors; 

(b)

The Administrative Agent shall have received a forbearance agreement, dated as of the date hereof, in respect of the Revolving Credit Loans in form and substance acceptable to the Participant Lenders (the “ABL Forbearance Agreement”), duly executed by the Revolving Agent, the Revolving Credit Lenders identified on the signature pages thereof, School Specialty, Inc., as parent, Classroomdirect.com, LLC, Sportime, LLC, Delta Education, LLC, Premier Agendas, Inc., Childcraft Education Corp., Bird-in-Hand Woodworks, Inc., Califone International, Inc., as borrowers, and the guarantors party thereto; 

(c)

Each Participating Lender shall receive a fee equal to 0.15% of the aggregate principal amount of the outstanding Term Loans of such Lender on the date hereof;

(d)

The Administrative Borrower shall have paid (the accrued and unpaid reasonable and documented fees and out-of-pocket expenses of the Agent and the Participant Lenders, including all Agent Expenses and any agreed advance payment retainers for, Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”), legal advisor to the Participant Lenders;

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(e)

The Administrative Agent shall have received copies of any term sheets or other written indications of interest with respect to certain Permitted Divestiture previously disclosed to the Lenders; and 

(f)

The representations and warranties set forth in Article VII below shall be true and correct.  

ARTICLE VII

REPRESENTATIONS, WARRANTIES AND COVENANTS

7.1

Representations, Warranties and Covenants.  To induce the Administrative Agent and the Participant Lenders to enter into this Forbearance Agreement, each of the Borrowers and the other Obligors hereby represents, warrants and covenants as follows: 

(a)

Except for the Specified Defaults or as otherwise expressly provided herein, after giving effect to the Forbearance Agreement, each of the Borrowers and the other Obligors is in compliance with all of the terms and provisions set forth in the Credit Agreement and the other Loan Documents on its part to be observed or performed, and no Default or Event of Default has occurred and is continuing. 

(b)

Except with respect to the Specified Defaults, each of the representations and warranties in Article IV of the Credit Agreement shall be true and correct in all material respects on and as of the date hereof, except to the extent any such representation and warranty expressly relates to an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date.  

(c)

The execution, delivery and performance by each of the Borrowers and the other Obligors of this Forbearance Agreement:

(i)

are within its corporate, limited liability company or similar powers, as applicable;

(ii)

have been duly authorized by all necessary corporate or limited liability company or similar, as applicable, action including the consent of the holders of its equity interests where required;

(iii)

do not and will not (A) contravene its certificate of incorporation, certificate of formation, by-laws or limited liability company agreement or other constituent documents, as applicable, (B) violate any applicable requirement of law or any order or decree of any governmental authority or arbitrator applicable to it, (C) except with respect to the 2011 Convertible Subordinated Debentures, conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration (where such conflict, breach, default, termination or acceleration could reasonably be expected to result in a Material Adverse Effect) of, any contractual obligation of any of the Borrowers and the other Obligors, or (D) result in the creation or imposition of any lien or encumbrance upon any of the property of any of the Borrowers and the other Obligors, except pursuant to the terms of any Loan Document; and

103849184 

(iv)

do not and will not require the consent of, authorization by, approval of, notice to, or filing or registration with, any governmental authority or any other Person, other than those which prior to the Forbearance Effective Date will have been obtained or made and copies of which prior to the Forbearance Effective Date will have been delivered to the Administrative Agent and each of which on the Forbearance Effective Date will be in full force and effect.

(d)

This Forbearance Agreement has been duly executed and delivered by the Borrowers and the other Obligors party hereto.  Each of this Forbearance Agreement, the Credit Agreement and the other Loan Documents constitutes a legal, valid and binding obligation of each of the Borrowers and the other Obligors party hereto, enforceable against each such Person in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, concepts of reasonableness,  general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

(e)

The Liens granted to the Agent, for the benefit of itself and the Lenders, to secure any of the Obligations under the Credit Agreement remain in full force and effect and continue to constitute first priority perfected liens therein, subject only to first priority Liens of the Revolving Agent in the Revolving Credit Priority Collateral and other Liens permitted pursuant to Section 6.1 of the Credit Agreement.

(f)

The Obligations (including the Early Payment Fee) constitute “Senior Debt” for purposes of the 2011 Convertible Subordinated Debenture Indenture.

7.2

Survival.  The representations and warranties in Section 7.1 shall survive the execution and delivery of this Forbearance Agreement and the Forbearance Effective Date.

ARTICLE VIII

GENERAL RELEASE; REAFFIRMATION OF INDEMNITY

(a)

In consideration of, among other things, the Administrative Agent’s and the Participant Lenders’ execution and delivery of this Forbearance Agreement, each of the Borrowers and the other Obligors, on behalf of itself and on behalf of its agents, representatives, officers, directors, advisors, employees, affiliates, Subsidiaries, successors, assigns, legal representatives and financial advisors (the “School Specialty Parties”), hereby jointly and severally releases, acquits and forever discharges (collectively, the “Releases”) the Agent and each Lender (collectively, the “Lender Parties”), and their respective subsidiaries, parents, affiliates, officers, directors, employees, agents, attorneys, financial advisors, successors and assigns, both present and former, in their capacities as such (collectively, the “Lenders’ Affiliates” and together with the Lender Parties, the “Releasees”) from any and all manner of actions, causes of action, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, asserted or unasserted, in contract, tort, law or equity which the Borrowers or any other School Specialty Party has or may have against any of the Lender Parties and/or the Lenders’ Affiliates by reason of any action, failure to act, matter or thing whatsoever arising from or based on facts occurring prior to the date of the Forbearance Agreement in respect of the Loan Documents, including but not limited to, any claim or defense 

103849184 

that relates to, in whole or in part, directly or indirectly, (i) the making or administration of the Term Loans, including, without limitation, any such claims and defenses based on mistake, duress, usury or misrepresentation, or any other claim based on so-called “lender liability theories”, (ii) any covenants, agreements, duties or obligations set forth in the Loan Documents or Forbearance Agreement, (iii) any actions or omissions of any of the Lender Parties and/or the Lenders’ Affiliates in connections with the initiation or continuing exercise of any right or remedy contained in the Loan Documents  or at law or in equity, (iv) lost profits, (v) loss of business opportunity, (vi) increased financing costs, (vii) increased legal or other administrative fees or (viii) damages to business reputation (collectively, the “Claims”); provided, however, that no Releasee shall be released from any act or omission that constitutes gross negligence, fraud or willful misconduct.  In entering into this Forbearance Agreement, each of the Borrowers and the other Obligors party hereto consulted with, and has been represented by, legal counsel and expressly disclaims any reliance on any representations, acts or omissions by any of the Releasees and each hereby agrees and acknowledges that the validity and effectiveness of the releases set forth herein do not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity hereof.  The provisions of this Article VIII shall survive the expiration of the Forbearance Period and the termination of this Forbearance Agreement, the Credit Agreement, the other Loan Documents and payment in full of the Obligations.

(b)

Without in any way limiting their reaffirmations and acknowledgements set forth in Article IX hereof, each of the Borrowers and the other Obligors hereby expressly acknowledges, agrees and reaffirms its reimbursement, indemnification and other obligations to and agreements set forth in Section 10.5 of the Credit Agreement.  Each of the Borrowers further acknowledges, agrees and reaffirms that all of such reimbursement, indemnification and other obligations and agreements set forth in Section 10.5 of the Credit Agreement shall survive the expiration of the Forbearance Period and the termination of this Forbearance Agreement, the Credit Agreement, the other Loan Documents and the payment in full of the Obligations.

(c)

Each of the Borrowers and the other Obligors, on behalf of itself and its successors, assigns, and other legal representatives, hereby unconditionally and irrevocably agrees that it will not sue any Releasee on the basis of any Claim released, remised and discharged by the Borrowers and the other Obligors pursuant to Section VIII(a).  If any of the Borrowers and the other Obligors or any of its successors, assigns or other legal representatives violates the foregoing covenant, each of the Borrowers and the other Obligors, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys' fees and costs incurred by any Releasee as a result of such violation.

ARTICLE IX

RATIFICATION OF LIABILITY

Each of the Borrowers and the other Obligors party hereto hereby ratifies and reaffirms all of its payment and performance obligations and obligations to indemnify, contingent or otherwise, under this Forbearance Agreement and each other Loan Document to which it is a party, and hereby ratifies and reaffirms its grant of Liens on or security interests in its properties pursuant to such Loan Documents to which it is a party as security for the Obligations, and 

103849184 

confirms and agrees that such Liens and security interests hereafter secure all of the Obligations, including, without limitation, all additional Obligations hereafter arising or incurred pursuant to or in connection with this Forbearance Agreement, the Credit Agreement or any other Loan Document. Each of the Borrowers and the other Obligors party hereto (a) acknowledge receipt of a copy of this Forbearance Agreement, (b) consent to the terms and conditions of same, and (c) agree and acknowledge that each of the Loan Documents remains in full force and effect and is hereby ratified and confirmed.

ARTICLE X

MISCELLANEOUS

10.1

No Other Amendments; Reservation of Rights; No Waiver.  

(a)

Except as expressly modified hereby, all terms, conditions, covenants, representations and warranties contained in the Credit Agreement and each other Loan Document, and all rights of the Agent and Lenders, and all of the Obligations, shall remain in full force and effect.  Each of the Borrowers and the other Obligors party hereto hereby confirms that no such party has any right of setoff, recoupment or other offset or any defense, claim or counterclaim with respect to any of the Obligations, the Credit Agreement or any other Loan Document.

(b)

Except as expressly set forth herein, the effectiveness of this Forbearance Agreement shall not directly or indirectly (i) create any obligation to make any further Term Loans or to continue to defer any enforcement action after the occurrence of any Default or Event of Default (including, without limitation, any Forbearance Default), (ii) constitute a consent, amendment or waiver of any past, present or future violations of any provisions of the Credit Agreement or any other Loan Document, or to prejudice, any right, power, privilege or remedy of the Lenders or the Agent under the Credit Agreement, any other Loan Document or applicable law, nor shall the entering into this Forbearance Agreement preclude the Lenders or the Agent from refusing to enter into any further amendments or forbearances with respect to the Credit Agreement or any other Loan Document, (iii) amend, modify or operate as a waiver of any provision of the Credit Agreement or any other Loan Document or any right, power or remedy of the Agent or any Lender, (iv) constitute a consent to any merger or other transaction or to any sale, restructuring or refinancing transaction, or (v) constitute a course of dealing or other basis for altering any Obligations or any other contract or instrument.  Except as expressly set forth herein, the Agent and the Lenders reserve all of their rights, powers, and remedies under the Credit Agreement, the other Loan Documents and applicable law.  All of the provisions of the Credit Agreement and the other Loan Documents are hereby reiterated. For the avoidance of doubt, other than as otherwise expressly provided herein, this Forbearance Agreement shall not constitute a forbearance with respect to (i) any failure by any of the Borrowers and the other Obligors to comply with any covenant or other provision in the Credit Agreement or any other Loan Document or (ii) the occurrence or continuance of any present or future Default or Event of Default.

(c)

From and after the Forbearance Effective Date, (i) the term “Agreement” in the Credit Agreement, and all references to the Credit Agreement in any Loan Document shall mean the Credit Agreement as modified or supplemented by this Forbearance Agreement, and (ii) the term “Loan Documents” in the Credit Agreement and the other Loan 

103849184 

Documents shall include, without limitation, this Forbearance Agreement and any agreement, instrument or other document executed and/or delivered in connection herewith.

(d)

This Forbearance Agreement shall not be deemed or construed to be a satisfaction, reinstatement, novation or release of the Credit Agreement or any other Loan Document.  

(e)

In no event shall this Forbearance Agreement be deemed an amendment or modification to or the taking of any enforcement action under the Intercreditor Agreement.

10.2

Ratification and Confirmation; Survival.  Except as expressly set forth in this Forbearance Agreement, the terms, provisions and conditions of the Credit Agreement and the other Loan Documents are hereby ratified and confirmed and shall remain unchanged and in full force and effect without interruption or impairment of any kind.  Notwithstanding anything to the contrary herein, Article VIII hereof shall survive the termination of this Forbearance Agreement.

10.3

APPLICABLE LAW.  THIS FORBEARANCE AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

10.4

Headings.  The various headings of this Forbearance Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Forbearance Agreement or any provision hereof.

10.5

Counterparts.  This Forbearance Agreement may be executed by the parties hereto in several counterparts, each of which shall be an original and all of which shall constitute together but one and the same agreement.  This Forbearance Agreement shall become effective when the conditions set forth in Article VI hereof  have been satisfied.  Delivery of an executed counterpart of a signature page of this Forbearance Agreement by facsimile transmission or electronic transmission (in pdf format) will be effective as delivery of a manually executed counterpart hereof.  

10.6

Severability.  Any provision of this Forbearance Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Forbearance Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

10.7

Agreement.  This Forbearance Agreement may not be amended or modified except in the manner specified for an amendment of or modification to the Credit Agreement in Section 10.2 of the Credit Agreement.

10.8

Assignment; Binding Effect; Third Party Beneficiaries.  

(a)

This Forbearance Agreement shall be binding upon and shall inure to the benefit of the parties hereto and each of the Lenders and their respective successors and assigns; provided that (i) the Borrowers may not assign or transfer their rights or obligations 

103849184 

hereunder without the prior written consent of the Administrative Agent and all Lenders, and (ii) the rights of sale, assignment and transfer of the Lenders are subject to Section 8.12 of the Credit Agreement. 

(b)

Without limiting the requirements of Section 8.12 of the Credit Agreement, each Participant Lender agrees that it will not assign all, or any ratable part of its Term Loans, Commitments or any rights or obligations under the Loan Documents to any Person unless such Person shall have agreed to be bound by this Forbearance Agreement (including the forbearance granted hereunder) and any such assignments shall be void in the absence of such agreement.

(c)

Except with respect to Article VIII hereof, no Person other than the parties hereto, the Lenders and the Releasees, shall have any rights hereunder or be entitled to rely on this Forbearance Agreement and all third-party beneficiary rights (other than the rights of the Releasees under Article VIII hereof) are hereby expressly disclaimed

10.9

Entire Agreement.  This Forbearance Agreement, the Credit Agreement and the other Loan Documents, together with any and all Annexes, Exhibits and Schedules thereto that are or have been delivered pursuant thereto, constitute the entire agreement and understanding of the parties in respect of the subject matter of the Credit Agreement and supersede all prior understandings, agreements or representations by or among the parties, written or oral, to the extent they relate in any way with respect thereto.

10.10

Further Assurances.  Each of the Borrowers and the other Obligors agrees to take all further actions and execute all further documents as the Administrative Agent or the Required Lenders may from time to time reasonably request to carry out the transactions contemplated by this Forbearance Agreement and all other agreements executed and delivered in connection herewith.

[SIGNATURE PAGE FOLLOWS]

103849184 

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

SCHOOL SPECIALTY, INC.,

the Administrative Borrower

By:  /s/ Michael P. Lavelle                                 

Name:   Michael P. Lavelle

Title:     President & Chief Executive Officer

			
	 
	 
	 

[Signature Page to Forbearance Agreement]

103849184 

CLASSROOMDIRECT.COM, LLC,

as a Borrower

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

DELTA EDUCATION, LLC,

as a Borrower

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

SPORTIME, LLC,

as a Borrower

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

CHILDCRAFT EDUCATION CORP.,

as a Borrower

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

BIRD-IN-HAND WOODWORKS, INC.,

as a Borrower

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

			
	 
	 
	 

[Signature Page to Forbearance Agreement]

103849184 

CALIFONE INTERNATIONAL, INC.,

as a Borrower

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

PREMIER AGENDAS, INC.,

as a Borrower

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    Executive Vice President

			
	 
	 
	 

[Signature Page to Forbearance Agreement]

103849184 

SELECT AGENDAS, CORP.,

as an Obligor

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

FREY SCIENTIFIC, INC.,

as an Obligor

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

SAX ARTS & CRAFTS, INC.,

as an Obligor

By:  /s/ Michael P. Lavelle                            

Name:  Michael P. Lavelle

Title:    President

			
	 
	 
	 

[Signature Page to Forbearance Agreement]

103849184 

BAYSIDE FINANCE, LLC, 

as Administrative Agent, Collateral Agent and 

Lender

By:  /s/ John Bolduc                                          

Name:  John Bolduc

Title:    Authorized Signatory

			
	 
	 
	 

[Signature Page to Forbearance Agreement]

103849184 

ANNEX A

SPECIFIED DEFAULTS

Any Default or Event of Default occurring under the Credit Agreement as a result of the Minimum Liquidity Test under Section 6.22 of the Credit Agreement being unsatisfied as at the last day of the fiscal month of December 2012 (i.e., December 29, 2012)

Any Default or Event of Default occurring under the Credit Agreement as a result of any default or events of default under the Revolving Credit Agreement, with respect to which the Revolving Agent, the Revolving Lenders and the Borrower have entered into a forbearance agreement in form and substance acceptable to the Participant Lenders

Any Default or Event of Default occurring under Section 7.1(n) of the Credit Agreement as a result of the occurrence of the Defaults or Events of Default described above and the Group Members’ liquidity issues previously disclosed to the Lenders

			
	 
	 
	 

103849184

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