Document:

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Exhibit 10.1

                                 LOAN AGREEMENT

     AGREEMENT dated this 15th day of FEBRUARY, 2007, by and between PEOPLES
EDUCATIONAL HOLDINGS, INC., a Delaware corporation with a mailing address of 299
MARKET STREET, SADDLE BROOK, NJ 07663 ("Borrower"), and SOVEREIGN BANK, a
corporation authorized to do business in Pennsylvania with an office at 1500
MARKET STREET, PHILADELPHIA, PA 19102 ("Bank").

                                   BACKGROUND

     Borrower desires to borrow from Bank and Bank is willing to loan to
Borrower, subject to the terms and conditions set forth herein, up to an
aggregate sum of TWENTY MILLION AND 00/100 DOLLARS ($20,000,000.00). In
connection therewith, Bank has issued its commitment letter dated FEBRUARY 2,
2007 to Borrower.

                                    AGREEMENT

     NOW THEREFORE, in consideration of the premises, and of the mutual promises
and undertakings of the parties set forth herein, and with the intention of
being legally bound hereby, the parties agree as follows:

     1. THE LOANS.

     (a) Amount. Bank shall make to Borrower (i) a term loan, in the stated
principal amount of $10,000,000.00 (the "Term Loan") and (ii) a revolving credit
loan (the "Revolving Loan"), in an amount of up to $10,000,000.00 (the
"Revolving Loan Commitment"); (each a "Loan" and together the "Loans"), all in
accordance with and subject to the terms and conditions set forth herein. Bank
will permanently reduce the Revolving Loan Commitment in minimum increments

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of $1,000,000.00 upon receiving written request from Borrower.

     (b) Loan Documents.

     (i) Borrower's obligation to repay the Loans and any other sums loaned to
Borrower by Bank is evidenced by Borrower'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 the "Notes"),
providing for payment as set forth therein.

     (ii) To secure Borrower's obligations under this Agreement and the Notes,
Borrower agrees to execute and deliver to Bank or cause to be executed and
delivered to Bank, as the case may be, the following:

     (A) a Security Agreement (the "Security Agreement") covering substantially
all of Borrower's and Guarantor's personal property, including all personal
property now owned or hereinafter acquired or arising (collectively, the
"Collateral");

     (B) such agreements, financing statements, continuation statements and
other security instruments as Bank shall reasonably require in order to create a
valid and perfected first priority security interest in all personal property
now owned or hereafter acquired by Borrower;

     (C) a guaranty and suretyship agreement ("Guaranty") executed by PEOPLES
EDUCATION, INC. ("Guarantor") in favor of Bank pursuant to which the Guarantor
guarantees and becomes surety for all payment, performance and other obligations
of Borrower in connection with the Loans; and

     (D) A pledge agreement (the "Pledge Agreement") of the Guarantor's
corporate stock owned by Borrower.

     (iii) Borrower agrees to execute and deliver such additional documents and
instruments as Bank shall reasonably require in order to perfect Bank's security
interest in any of the foregoing

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property. The Notes, the Security Agreement, the Guaranty, the Pledge Agreement,
ANY HEDGING CONTACT (AS DEFINED HEREIN), all financing statements and other
documents and instruments referred to above (all of which, together with this
Agreement, are herein collectively referred to as the "Loan Documents") shall be
in form and substance satisfactory to Bank, and all necessary filing and
recording fees with respect thereto shall be paid by Borrower.

     2. Representations and Warranties. Borrower hereby represents and warrants
to Bank (which representations and warranties shall survive until the Loans have
been paid in full) that:

     (a) Formation; Existence; Composition. Borrower and Guarantor are
corporations duly formed and validly existing under the laws of the State of
DELAWARE and have the power and authority to own and operate their properties.

     (b) Power and Authority; Authorization; Enforceability. Borrower and
Guarantor have full power, authority and legal right to execute, deliver and
comply with the Loan Documents to which each is a party and any other document
or instrument relating to the Loans to be executed by either of them, all
actions of Borrower and Guarantor and other authorizations necessary or
appropriate for the execution and delivery of and compliance with the Loan
Documents and such other documents and instruments have been taken or obtained
and, upon their execution, the Loan Documents and such other documents and
instruments shall constitute the valid and legally binding obligations of
Borrower and Guarantor, as the case may be, enforceable against Borrower or
Guarantor in accordance with their respective terms.

     (c) Consents/Approval of Loan Documents. No consent, approval or other
authorization of or by any court, administrative agency or other governmental
authority is required in connection with Borrower's execution and delivery of or
compliance with any of the Loan Documents.

     (d) Conflict; Breach. Borrower's and Guarantor's execution and delivery of
and

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compliance with the Loan Documents relating to the Loans will not conflict with
or result in a breach of any applicable law, judgment, order, writ, injunction,
decree, rule or regulation of any court, administrative agency or other
governmental authority, or of any agreement or other document or instrument to
which Borrower or the Guarantor is a party or by which either is bound, and such
action by Borrower and Guarantor will not result in the creation or imposition
of any lien, charge or encumbrance upon any property of Borrower and Guarantor
in favor of anyone other than Bank.

     (e) Litigation. There is no action, suit or proceeding pending or, to the
knowledge of Borrower and Guarantor, threatened against or affecting Borrower
and Guarantor or the Collateral before or by any court, administrative agency or
other governmental authority, or which brings into question the validity of the
transactions contemplated hereby.

     (f) Financial Statements. The financial statements of Borrower, copies of
which have been furnished to Bank, have been prepared in accordance with
generally accepted accounting principles consistently applied and fairly and
accurately reflect in all material respects the financial condition of Borrower
and Guarantor as of and for the period shown therein, and there has been no
material adverse change in the financial condition or business of Borrower and
Guarantor since the date thereof.

     (g) Tax Returns. Any and all federal, state and local income tax returns
required to have been filed by Borrower and Guarantor as of the date hereof,
have been filed, and all taxes reflected upon any such tax returns, all past due
taxes, interest and penalties and all estimated payments required to be paid
have been paid.

     (h) Title to Collateral. Borrower has good and marketable title to the
Collateral, subject to no lien, charge or encumbrance other than Permitted Liens
(as defined in the Security Agreement).

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     (i) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

     (j) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

     (k) Bankruptcy; Insolvency. Neither Borrower nor the Guarantor, as the case
may be, has applied for or consented to the appointment of a receiver, trustee
or liquidator of itself or any of its or property, admitted in writing its
inability to pay its debts as they mature, made a general assignment for the
benefit of creditors, been adjudicated a bankrupt or insolvent or filed a
voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, and no action
has been taken by it for the purpose of effecting any of the foregoing. No
order, judgment or decree has been entered by any court of competent
jurisdiction approving a petition seeking reorganization of Borrower or the
Guarantor or all or a substantial part of the assets of Borrower or the
Guarantor, or appointing a receiver, sequestrator, trustee or liquidator of
Borrower or the Guarantor or any of the property of Borrower or the Guarantor.

     (l) Other Loan Facilities. Neither Borrower nor Guarantor will have, after
the date hereof, any other loan facilities with or from any other entity.

     3. Covenants. Borrower covenants and agrees that, until the Loans have been
paid in full:

     (a) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

     (b) Additional Financing. Borrower shall not incur any additional
indebtedness without the prior consent of Bank.

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     (c) Status of Title to Property. Except as permitted under the Security
Agreement, Borrower shall not create or permit to exist any lien, encumbrance or
security interest in favor of any third party with respect to the Collateral and
Borrower shall keep all Collateral free from any such lien or security interest
other than those created in favor of Bank pursuant to the Loan Documents and
liens for taxes not yet due and payable.

     (d) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

     (e) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

     (f) Financial Statements. Within forty-five (45) days after the end of each
fiscal year, Borrower shall furnish to Bank its management prepared financial
statements for such fiscal year, consisting of a consolidated balance sheet,
statement of income, retained earnings and cash flow together with a certificate
of compliance ("Certificate of Compliance") in a form acceptable to Bank from
the Chief Executive Officer, President, or Chief Financial Officer of Borrower.
Within forty-five (45) days after the end of each fiscal quarter, Borrower and
Guarantor shall furnish to Bank their management prepared financial statements
for such fiscal quarter, consisting of a consolidated balance sheet, statement
of income, retained earnings and cash flow together with a Certificate of
Compliance from the Chief Executive Officer, President, or Chief Financial
Officer of Borrower. Within One hundred twenty (120) days after the end of each
fiscal year, Borrower and Guarantor shall furnish to Bank a Certificate of
Compliance from the Chief Executive Officer, President, or Chief Financial
Officer of Borrower together with the financial statements of Borrower and
Guarantor for such fiscal year, consisting of a consolidated balance sheet,
statements of income, retained earnings and cash flow which shall all (i) be
prepared and audited by an independent certified public accountant
("Accountant") approved by Bank and accompanied by the Accountant's unqualified
opinions thereto, (ii) shall be prepared in

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accordance with accounting principals generally accepted in the United States,
(iii) shall be in a form reasonably satisfactory to Bank and (iv) shall be
certified as true and correct by the Chief Executive Officer, President, or
Chief Financial Officer of Borrower. Within One hundred twenty (120) days after
the end of each fiscal year, Borrower and Guarantor shall furnish to Bank any
management letters addressed from the Accountant to Borrower or Guarantor.
Concurrent with the delivery of every financial statement described herein, and
any other time that Bank may reasonably request, Borrower and Guarantor shall
provide their budget/forecasts.

     (g) Tax Returns. Within thirty (30) days after filing with the respective
taxing authorities, Borrower shall furnish to Bank copies of all of Borrower's
income tax returns for such fiscal year which shall be certified by an officer
of Borrower as true and correct copies of such returns as actually filed.

     (h) Principal Office. Borrower shall maintain its principal office and/or
the office where it keeps its books and records in the same location.

     (i) Books and Records. Borrower shall keep complete and accurate books and
records in accordance with generally accepted accounting principles consistently
applied. Borrower shall furnish to Bank all such written information relating to
its affairs as may be reasonably requested in writing by Bank from time to time.

     (j) Audit. Bank shall have the right at any time and from time to time,
upon at least five (5) days prior written notice and during regular business
hours, at Bank's expense, to audit the books and records of Borrower and
Borrower shall make available for any such audit all books, records and other
information that Bank may reasonably request for such purpose and to cooperate
fully with Bank in connection therewith. At no time during any such audit shall
Bank unreasonably interfere with Borrower's business operations.

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     (k) Changed Circumstances. Borrower shall promptly notify Bank of any
change in any material fact or circumstance represented or warranted by Borrower
herein and in any other documents furnished to Bank in connection with this
Agreement.

     (i) Bank's Costs. Borrower shall pay or reimburse Bank for all costs and
expenses (including but not limited to reasonable attorneys' fees) incurred by
Bank in connection with the preparation, review, modification and enforcement of
the Loan Documents and the administration and collection of the Loans.

     (m) Bank Fees. (i) As compensation for the expenses of underwriting and
evaluating the Loan, Borrower shall pay to Bank on the date hereof an
origination fee of $100,000.00. Such fee shall be in addition to the interest
and any and all other amounts which Borrower is required to pay under the Loan
Documents including but not limited to the fees described in the following
Section 3(m)(ii); (ii) Commencing on the LAST day of MARCH, 2007 and continuing
on the LAST day of each succeeding FISCAL QUARTER thereafter to and including
the LAST day of the FISCAL QUARTER immediately preceding the Maturity Date of
the Revolving Loan, Borrower shall pay to Bank a fee EQUAL to 25 BASIS POINTS
PER ANNUM (0.25% /annum) MULTIPLIED BY (the Revolving Loan Commitment MINUS the
average daily outstanding principal balance of the Revolving Loan for the
preceding fiscal quarter).

     (n) Maintenance of Existence. Borrower shall not make or permit any
substantial change in, or cease in whole or in part, its present business, or
engage in any other material way in activities apart from its present business.

     (o) Fixed Coverage Charge Ratio. BORROWER SHALL MAINTAIN A FIXED CHARGE
COVERAGE RATIO OF 1.50 TO 1OR GREATER CALCULATED AS FOLLOWS: EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA") MINUS DIVIDENDS AND
MINUS CASH TAXES MINUS

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CAPITAL EXPENDITURES NOT FUNDED THROUGH THE LOANS DIVIDED BY INTEREST EXPENSE
AND REQUIRED PRINCIPAL PAYMENTS ON THE LOANS. THIS RATIO WILL BE MEASURED ON A
ROLLING FOUR QUARTER BASIS AT EACH APPLICABLE FISCAL QUARTER END FOLLOWING THE
DATE HEREOF AND SHALL BE BASED ON THE CONSOLIDATED FINANCIAL RESULTS OF BORROWER
AND GUARANTOR. FURTHER, EBITDA WILL BE ADJUSTED FOR ANY NON-CASH EXPENSES/INCOME
FOR THIS COVENANT CALCULATION.

     (p) Maximum Total Funded Debt to EBITDA Ratio. BORROWER'S RATIO OF MAXIMUM
TOTAL FUNDED DEBT TO EBITDA (I) THROUGH MAY 31, 2007 SHALL NOT EXCEED 3.25X; AND
(II) FROM JUNE 1, 2007 THROUGH NOVEMBER 30,2007 SHALL NOT EXCEED 3.00X; AND
(III) FROM DECEMBER 1, 2007 THROUGH MAY 31, 2008 SHALL NOT EXCEED 2.50X; AND
(IV) THEREAFTER SHALL NOT EXCEED 2.00X. THIS RATIO WILL BE MEASURED ON A ROLLING
FOUR QUARTER BASIS AT EACH APPLICABLE FISCAL QUARTER END FOLLOWING THE DATE
HEREOF AND SHALL BE BASED ON THE CONSOLIDATED FINANCIAL RESULTS OF BORROWER AND
GUARANTOR. FURTHER, EBITDA WILL BE ADJUSTED FOR ANY NON-CASH EXPENSES/INCOME FOR
THIS COVENANT CALCULATION.

     (r) Mergers and Acquisitions. NEITHER BORROWER NOR GUARANTOR MAY ENTER INTO
A MERGER OR ACQUISITION TRANSACTION IN EXCESS OF $500,000.00 WITHOUT THE PRIOR
WRITTEN CONSENT OF BANK. THIS SECTION SHALL ALSO APPLY TO ALL OTHER SUBSIDIARY
MERGERS, ACQUISITIONS OR FORMATIONS BY BORROWER DURING THE TERMS OF THE LOANS.

     (s) Accounts. Borrower and Guarantor will maintain all of their Bank
accounts with Bank during the term of the Loans.

     (T) HEDGING CONTRACTS. WITHIN SIXTY DAYS (60) OF THE DATE OF THIS AGREEMENT
BORROWER SHALL ENTER INTO AN AGREEMENT ("HEDGING CONTRACT") WITH BANK DESIGNED
TO PROTECT BORROWER AGAINST FLUCTUATIONS IN INTEREST RATES ASSOCIATED WITH THE
TERM LOAN. THE LIABILITIES OF BORROWER UNDER A HEDGING CONTRACT SHALL BE KNOWN
AS "HEDGING OBLIGATIONS."

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THE HEDGING CONTRACT DELIVERED TO BANK WITHIN SIXTY (60) DAYS OF THE DATE OF
THIS AGREEMENT SHALL HAVE A MINIMUM TERM OF TWO (2) YEARS AND SHALL BE FOR
AMOUNT EQUAL TO OR GREATER THAN TWENTY FIVE PERCENT (25%) OF THE PRINCIPAL
BALANCE OF THE TERM LOAN. BORROWER ACKNOWLEDGES THAT ADDITIONAL OBLIGATIONS
MAYBE ASSOCIATED WITH PREPAYMENT, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF
ANY APPLICABLE HEDGING CONTRACT. FURTHER, BORROWER AGREES TO REIMBURSE BANK FOR
ANY INCREASE IN ANY COST TO BANK, OR REDUCTION IN THE AMOUNT OF ANY SUM
RECEIVABLE BY BANK, IN RESPECT, WHEREAS A RESULT OF ANY COSTS ASSOCIATED WITH
MARKING TO MARKET ANY HEDGING OBLIGATIONS THAT (IN THE REASONABLE DETERMINATION
OF BANK) ARE REQUIRED TO BE TERMINATED AS A RESULT OF ANY CONVERSION, REPAYMENT
OR PREPAYMENT OF THE HEDGING OBLIGATIONS.

     4. Conditions Precedent. The obligation of Bank to make the Loans to
Borrower is subject to the satisfaction of the following conditions precedent:

     (a) Leases. Borrower shall have furnished to Bank a copy of its lease with
PARAMUS WOODBROOK VENTURES LLC FOR 299 MARKET STREET, SADDLE BROOK, NJ 07663.

     (b) Representations and Warranties. Each and all of the representations and
warranties set forth in paragraph 2 hereof shall be true and correct in all
material respects AS EVIDENCED BY CLOSING CERTIFICATES.

     (c) Fees, Charges and Premiums. Borrower shall have paid for all premiums
on insurance policies and bonds, all recording and conveyancing costs assessed
against Borrower (including, without limitation, title insurance premiums), and
the legal fees and disbursements of Bank's counsel in connection with the Loans.

     (d) Delivery of Loan Documents. The Loan Documents shall have been duly
executed and delivered to Bank and, where applicable, shall have been recorded
or filed in the appropriate public office.

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     (e) Delivery of Other Documents. The following documents shall have been
delivered by or on behalf of Borrower and Guarantor to Bank:

          (i) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

          (ii) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

          (iii)[THIS SECTION HAS BEEN INTENTIONALLY DELETED]

          (iv) Property, Liability and Other Insurance. Evidence of such
insurance as Bank may reasonably require, covering any loss, damage or defect to
the Collateral or to persons or other property, including but not limited to:

               (A) A certificate to the effect that Borrower has procured
insurance policies protecting Borrower against any liability for loss or damage
to the Collateral; and

               (B) A certificate evidencing a policy of all risk insurance (with
a standard mortgagee clause in favor of Bank), in an amount and with a company
satisfactory to Bank.

          (v) [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

          (vi) Opinion of Counsel. A written opinion of Borrower's counsel
acceptable to Bank, which shall be satisfactory in form and substance to Bank,
including among other things,

               (A) with respect to the matters set forth in paragraphs 2(a),
(b), (c), (d) and (e) of this Agreement, and

               (B) to the effect that the Loans are not usurious.

          (vii) Corporate Documents. Certified resolutions, incumbency
certificate, Articles of Incorporation, By-laws, etc.

     (f) Due Diligence. Bank's due diligence process has come to a satisfactory
completion.

     (g) Financial Projections. Bank has received and has completed a
satisfactory review of

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three year financial projections for Borrower including quarterly EBITDA and
debt levels, and all assumptions thereof.

     (h) Financial Condition. There has been no material adverse change in the
financial condition of Borrower or the Guarantor as determined by Bank in its
reasonable sole discretion.

     5. Maximum Rate of Interest on Loans. Notwithstanding anything to the
contrary contained herein or in any other document executed in connection with
the Loans, the effective rate of interest on either Loan shall not exceed the
maximum effective rate of interest permitted by applicable law or regulation.
Borrower hereby agrees to give Bank written notice in the event that Borrower
has actual knowledge that an interest payment made to Bank with respect to a
Loan will cause the total interest payments collected in any one year to be
usurious under applicable law, provided, however, that the failure of Borrower
to give such notice does not constitute a default hereunder nor shall it be
construed as a waiver or consent by Borrower to Bank to charge or to collect
interest in excess of the maximum effective rate of interest permitted by
applicable law or regulation. Bank hereby agrees not to collect knowingly any
interest from Borrower in the form of fees or otherwise which will render a Loan
usurious. In the event that such interest would be usurious in Bank's opinion,
Bank reserves the right to reduce the interest payable by Borrower. This
provision shall survive Closing hereunder and the repayment of the Loans.

     6. Limitation of Bank's Liability. The rights and benefits of this
Agreement shall not inure to the benefit of any third party, except as provided
in paragraph 9(e) hereof. Notwithstanding anything to the contrary contained in
this Agreement or in any of the other Loan Documents, or any conduct or course
of conduct by Borrower or Bank or their respective affiliates, agents or
employees, neither this Agreement nor any such Loan Documents shall be construed
as creating

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any rights, claims or causes of action against Bank in favor of any other person
or entity other than Borrower.

     7. Indemnity. Borrower, for itself and all those claiming under or through
it, agrees to protect, indemnify, defend and hold harmless Bank, 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 this Agreement or in
connection herewith, except on account of the gross negligence or willful
misconduct of Bank. This obligation specifically shall survive the repayment of
the Loans.

     8. Defaults.

     (a) Events of Default. The occurrence of any one or more of the following
events shall, at the sole option of Bank, constitute an Event of Default
hereunder:

     (i) Borrower shall fail to make any payment of principal, interest, costs
and/or fees due to Bank under any Note or under any of the other Loan Documents
within ten (10) days after written notice from Bank of such failure to make such
payment, whether at maturity or by acceleration or otherwise; or

     (ii) Except as otherwise specifically provided for in this Agreement,
Borrower shall fail to observe or perform any of the covenants or agreements on
its part to be observed and performed under this Agreement or under any of the
other Loan Documents within thirty (30) days after written notice from Bank of
such non-compliance; or

     (iii) Any representation or warranty of title by Borrower under this
Agreement or under any of the other Loan Documents shall be untrue in any
material respect when made or shall become untrue in any material respect during
the term of any Loan; or

     (iv) Any Event of Default shall occur under any of the other Loan Documents
and shall

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continue beyond the expiration of any applicable notice and grace periods set
forth therein; or

     (v) There shall be a material adverse change in the financial condition of
Borrower or the Guarantor as determined by Bank in its reasonable sole
discretion; or

     (vi) Borrower or the Guarantor, as the case may be, shall apply for or
consent to the appointment of a receiver, trustee or liquidator of itself or any
of its property, admit in writing its inability to pay its debts as they mature,
make a general assignment for the benefit of creditors, be adjudicated a
bankrupt, insolvent or file a voluntary petition in bankruptcy, or a petition or
an answer seeking reorganization or an arrangement with creditors or to take
advantage of any bankruptcy reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law,
or if action shall be taken by Borrower or the Guarantor, as the case may be,
for the purpose of effecting any of the foregoing; or

     (vii) Any order, judgment or decree shall be entered by any court of
competent jurisdiction, approving a petition seeking reorganization of Borrower
or the Guarantor, as the case may be, or all or a substantial part of the assets
of Borrower, any general partner of Borrower, or the Guarantor, as the case may
be, or appointing a receiver, sequestrator, trustee or liquidator of Borrower or
the Guarantor, as the case may be, or any of its property, and such order,
judgment or decree shall continue unstayed and in effect for any period of
ninety (90) days; or

     (viii) The Collateral shall be materially injured or destroyed by fire or
other casualty for which the cost of restoration is not fully insured and if not
fully insured, Borrower has failed to deposit with Bank the difference between
the insurance proceeds received and the cost of restoration and replacement with
Bank in accordance with the terms of the Security Agreement; or

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     (ix) The liquidation, or transfer or disposition (by operation of law or
otherwise) for less than adequate consideration of a substantial portion of the
assets, of Borrower or any Guarantor; or

     (x) Without the prior written express consent of Bank, the direct or
indirect transfer of any ownership interest in Borrower or Guarantor, or of a
substantial part of the assets of Borrower or Guarantor.

     (b) Acceleration and Remedies. Upon the occurrence of an Event of Default
hereunder, in addition to any other rights or remedies available to it hereunder
or under any other Loan Document or at law or in equity, Bank may exercise any
or all of the following rights and remedies as it may deem necessary or
appropriate:

     (i) declare the outstanding principal balance of the Loans, together with
all accrued and unpaid interest thereon and all other sums due hereunder or
under any of the other Loan Documents, to be immediately due and payable in
full; and/or

     (ii) set off all property of Borrower now or hereafter at any time in its
possession in any capacity whatsoever including but not limited to, any balance
or share of any deposit: trust or agency account, as to all of which property
Borrower hereby grants Bank a lien and security interest.

     (iii) Should an event described in section 8(a)(vi) or 8(a)(vii) of this
Loan Agreement occur, then Bank is entitled to preconfirmation and
postconfirmation interest, at the Default Rate (as hereinafter defined), on the
arrearages and other charges due on the Loans. Said interest on the arrearages
and other charges due on the Loans will be considered an element of an allowed
secured claim provided for by any bankruptcy plan.

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     (c) Remedies Cumulative, etc.

     (i) No right or remedy conferred upon or reserved to Bank under any of the
Loan Documents, or with respect to any guaranty of payment of the Loans or of
performance of any of Borrower's obligations under any of the Loan Documents or
any Collateral securing the payment of the Loans under any of the Loan
Documents, now or hereafter existing at law or in equity or by statute or other
legislative enactment, is intended to be or shall be deemed exclusive of any
other such right or remedy, and each and every such right or remedy shall be
cumulative and concurrent, and shall be in addition to every other such right or
remedy, and may be pursued singly, concurrently, successively or otherwise, at
the sole discretion of Bank, and shall not be exhausted by any one exercise
thereof but may be exercised as often as occasion therefore shall occur. No act
of Bank shall be deemed or construed as an election to proceed under any one
such right or remedy to the exclusion of any other such right or remedy;
furthermore, each such right or remedy of Bank shall be separate distinct and
cumulative any none shall be giving effect to the exclusion of any other. The
failure to exercise or delay in exercising any such right or remedy, or the
failure to insist upon strict performance of any term of any of the Loan
Documents, shall not be construed as a waiver or release of the same, or of any
Event of Default thereunder, or of any obligation or liability of Borrower
thereunder. Nothing herein, however, shall be construed to prevent Bank from
waiving any condition, obligation or default it should so elect. In the event of
such election by Bank, any waiver, in order to be effective, must be in writing
and signed by Bank, and any such waiver shall be strictly limited in its effect
to the condition, obligation or default specified therein and shall not extend
to any subsequent condition, obligation or default or impair any right of Bank
with respect thereto.

     (ii) The recovery of any judgment by Bank and/or the levy of execution
under any judgment shall not affect in any manner or to any extent, liens or
other security interests in any

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Collateral, or any rights, remedies or powers of Bank under any of the Loan
Documents or with respect to any Collateral, but such liens and security
interests, and such rights, remedies and powers of Bank shall continue
unimpaired as before. Further, the entry of any judgment by Bank shall not
affect in any way the interest rate payable under any of the Loan Documents on
any amounts due to Bank, but interest shall continue to accrue on such amounts
at the Default Rate.

     (iii) Borrower hereby waives presentment, demand, notice of nonpayment
protest notice of protest, or other notice of dishonor, and any and all other
notices in connection with any default in the payment of, or any enforcement of
the payment of, the Loans. To the extent permitted by law, Borrower waives the
right to any stay of execution and the benefit of all exemption laws now or
hereafter in effect. Borrower further waives and releases all procedural errors,
defects and imperfections in any proceedings instituted by Bank under the terms
of any of the Loan Documents or with respect to any Collateral.

     (iv) Borrower agrees that Bank may release, compromise, forbear with
respect to, waive, suspend, extend or renew any of the terms of the Loan
Documents (and Borrower hereby waives any notice of any of the foregoing), and
that the Loan Documents may be amended supplemented or modified by Bank and the
other signatory parties and that Bank may resort to any Collateral in such order
and manner as it may think fit, or accept the assignment, substitution,
exchange, pledge, or release of all or any portion of any Collateral, for such
consideration, or none, as it may require, without in any way affecting the
validity of any liens over or other security interest in the remainder of any
such Collateral (or the priority thereof or the position of any subordinate
holder of any lien or other security interest with respect thereto); and any
action taken by Bank pursuant to the foregoing shall in no way be construed as a
waiver or release of any right or remedy of Bank, or of any Event of Default, or
of any liability or

                                       17

<PAGE>

obligation of Borrower, under any of the Loan Documents.

     (d) Default Rate. Following the occurrence of any Event of Default and
continuing either until such Event of Default is cured or until the principal
sum there outstanding under the Notes and all other sums payable under the Loan
Documents are paid in full, the principal sum outstanding under the Notes shall
bear interest at the "Default Rate" (as defined in the Notes), and shall be
secured by the Loan Documents and all other Collateral.

     (e) Costs and Expenses. Following the occurrence of any Event of Default,
Borrower shall pay upon demand all costs and expenses (including all reasonable
amounts paid to attorneys, accountants, real estate brokers and other advisors
employed by Bank), incurred by Bank in the exercise of any of its rights,
remedies or powers under any of the Loan Documents or with respect to any
Collateral with respect to such Event of Default and any amount thereof not paid
promptly following demand therefor together with interest thereon at the Default
Rate from the date of such demand, shall become part of any Loan and shall be
secured by the Collateral. In connection with and as part of the foregoing, in
the event that any of the Loan Documents is placed in the hands of an attorney
for the collection of any sum payable thereunder, Borrower agrees to pay
reasonable attorneys' fees for the collection of the amount being claimed under
such Loan Document, as well as all costs, disbursements and allowances provided
by law, the payment of which sums shall be secured by the Collateral.

     9. Miscellaneous

     (a) Time of the Essence. All dates and times for the performance of
Borrower's obligations set forth herein shall be deemed to be of the essence of
this Agreement.

     (b) Broker's and Finder's Fees. Borrower represents and warrants that it
has not dealt with or through any broker or other intermediary in connection
with the Loans and agrees to

                                       18

<PAGE>

indemnify, defend and hold Bank harmless from and against any loss, liability or
damage (including attorneys' fees and expenses) arising from any claim for a
brokerage fee or finder's fee in connection with the Loans.

     (c) Severability. In the event that for any reason one or more of the
provisions of this Agreement or their application to any person or circumstance
shall be held to be invalid, illegal or unenforceable in any respect or to any
extent such provisions shall nevertheless remain valid, legal and enforceable in
all other respects and to such extent as may be permissible. In addition, any
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.

     (d) Successors and Assigns. This Agreement inures to the benefit of and
binds the parties hereto and their respective successors and assigns, and the
words "Borrower" and "Bank" where ever occurring herein shall be deemed to
include such respective successors and assigns. However, Borrower shall not
voluntarily, or by operation of law, assign or transfer any interest which it
may have under this Agreement or convey the Collateral or any part thereof,
without the prior written approval of Bank, except as otherwise expressly
permitted in this Agreement. Bank may assign or otherwise transfer the Loans and
any or all of the Loan Documents to any other person, and such other person
shall thereupon become vested with all of the benefits in respect thereof
granted to Bank herein or otherwise. Bank shall have the right to sell
participations in the Loans to any other persons or entities without the consent
of or notice to Borrower. Without the consent of or notice to Borrower, Bank may
disclose to any prospective purchaser of any securities issued or to be issued
by Bank, and any prospective or actual purchaser of any participation or other
interest in the Loans or any other loans made by Bank to Borrower, any

                                       19

<PAGE>

financial or other information, data or material in Bank's possession relating
to Borrower, the Loans or the Collateral.

     (e) Notices. All notices required or desired to be given to either 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, to such party at
its address set forth below.

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

With a
copy to:    ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
            2800 LASALLE PLAZA
            800 LASALLE AVENUE
            MINNEAPOLIS, MN 55402

Bank:       SOVEREIGN BANK
            1500 MARKET STREET
            PHILADELPHIA, PA 19102

with a
copy to:    LAW OFFICES OF MCGILL & LANOCE
            6064 RIDGE AVENUE
            PHILADELPHIA, PENNSYLVANIA 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. 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

                                       20

<PAGE>

entitled to receive such notice.

     (g) Definitions; Number and Gender. In the event Borrower consists of more
than one person or entity, the obligations and liabilities hereunder of each of
such persons and entities shall be joint and several, and the word "Borrower"
shall mean all or some or any of them. For purposes of this Agreement, the
singular shall be deemed to include the plural and the neuter shall be deemed to
include the masculine and feminine, as the context may require.

     (h) Captions. The captions or headings of the paragraphs of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any of the terms or provisions of this Agreement.

     (i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.

     (j) Complete Agreement. This Agreement shall only be amended or modified
only by an instrument in writing that explicitly states that it amends this
Agreement and is signed by the party against whom enforcement of the amendment
is sought.

     (k) Waiver of Jury Trial; Consent to Jurisdiction and Venue; Consent to
Service of Process. BORROWER 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
BORROWER AND BORROWER ACKNOWLEDGES THAT NEITHER BANK 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

                                       21

<PAGE>

NULLIFY ITS EFFECT. BORROWER FURTHER ACKNOWLEDGES THAT BORROWER 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 BORROWER'S OWN FREE WILL, AND THAT BORROWER HAS HAD THE OPPORTUNITY
TO DISCUSS THIS WAIVER WITH COUNSEL. BORROWER 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. BORROWER FURTHER ACKNOWLEDGES THAT BORROWER
HAS READ AND UNDERSTANDS THE MEANING OF THIS WAIVER PROVISION. BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT AS BANK MAY SELECT,
FOR ANY PROCEEDING IN CONNECTION HEREWITH. BORROWER 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 JERSEY OR DELAWARE. THE FOREGOING SHALL BE DEEMED
INDEPENDENT

                                       22

<PAGE>

COVENANTS.

     IN WITNESS WHEREOF, Borrower and Bank has executed this Agreement on the
date first above set forth.

WITNESS:                                PEOPLES EDUCATIONAL HOLDINGS, INC.

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

                                        SOVEREIGN BANK

                                        BY: /S/ KIMBERLY A. TAVARES
                                            ------------------------------------
                                            KIMBERLY A. TAVARES
                                            VICE PRESIDENT

                                       23<PAGE>

Exhibit 10.2

                        REVOLVING CREDIT PROMISSORY NOTE

$10,000,000.00                                        PHILADELPHIA, PENNSYLVANIA

                                                      FEBRUARY 15, 2007

     FOR VALUE RECEIVED, PEOPLES EDUCATIONAL HOLDINGS, INC. ("Borrower"), with a
mailing address of 299 MARKET STREET, SADDLE BROOK, NJ 07663 promises to pay to
the order of SOVEREIGN BANK, a corporation authorized to do business in
Pennsylvania and New Jersey with an office at 1500 MARKET STREET, PHILADELPHIA,
PA 19102 ("Bank"), at such office of Bank or at such other place as Bank may
designate from time to time in writing, the principal balance ("Principal
Balance") of TEN MILLION AND 00/100 DOLLARS ($10,000,000.00) in lawful money of
the United States of America, together with interest thereon from the date
hereof at the rates hereinafter provided, and both payable as hereinafter
provided. This note ("Note") evidences a revolving credit loan ("Revolving
Credit Loan ") in the amount of $10,000,000.00 ("REVOLVING CREDIT LOAN
COMMITMENT") by Bank to Borrower.

     1. INTEREST RATE.

(a) For the purposes of this Note, the following terms shall have the meanings
ascribed to them

                                        1

<PAGE>

below:

     (i) "Business Day" means:

          (A)  any day which is neither a Saturday or Sunday nor a legal holiday
               on which commercial banks are authorized or required to be closed
               in New York City;

          (B)  when such term is used to describe a day on which a payment or
               prepayment is to be made in respect of a LIBOR Rate Loan, any day
               which is: (i) neither a Saturday or Sunday nor a legal holiday on
               which commercial banks are authorized or required to be closed in
               New York City; and (ii) a London Banking Day; and

          (C)  when such term is used to describe a day on which an interest
               rate determination is to be made in respect of a LIBOR Rate Loan,
               any day which is a London Banking Day.

     (ii) Interest Period: means the period of time commencing one (1) business
day after an Interest Rate Election Date and either:

          (A)  in the case of a LIBOR Rate Tranche:

               (I)  If the LIBOR Rate selected for such LIBOR Rate Tranche is
                    "one-day": the following day and continuing from day to day;
                    provided, however, that if an Interest Period would end on a
                    day that is not a Business Day, such Interest Period shall
                    be extended to the next succeeding Business Day.

               (II) the LIBOR Rate selected for such LIBOR Rate Tranche is other
                    than "one-day": and continuing for a period of time
                    associated with a LIBOR Rate offered by Bank and chosen by
                    Borrower, (i.e., 1 month LIBOR Rate, 2 month LIBOR Rate, 3
                    month LIBOR Rate, 6 month LIBOR Rate); provided, however,
                    that if an Interest Period would end on a day that is not a
                    Business Day, such Interest Period shall be extended to the
                    next succeeding Business Day unless such next succeeding
                    Business Day would fall in the next calendar month, in which
                    case such Interest Period shall end on the immediately
                    preceding Business Day.

             or (B) in the case of a Prime Rate Tranche the following day
                    and continuing from day to day; provided, however, that if
                    an Interest Period would end on a

                                        2

<PAGE>

                    day that is not a Business Day, such Interest Period shall
                    be extended to the next succeeding Business Day.

     (iii) Interest Rate Election Date: means a date in each calendar month
which is one (1) business day before the commencement of the next succeeding
Interest Period.

     (iv) LIBOR Interest Rate: means a fluctuating rate of interest per annum
(which shall change, if at all, at the beginning of each Interest Period in
accordance with changes in the LIBOR Rate as calculated pursuant to paragraph 1
(a) (v) below) equal to either: (A) THE LIBOR RATE PLUS TWO HUNDRED (200) BASIS
POINTS (2.0%) IF, AT OF THE END OF THE MOST RECENT FISCAL QUARTER, BORROWER'S
TOTAL FUNDED DEBT TO EBITDA RATIO IS LESS THAN OR EQUAL TO 2.00:1 or (B) THE
LIBOR RATE PLUS TWO HUNDRED (225) BASIS POINTS (2.25%) IF, AT OF THE END OF THE
MOST RECENT FISCAL QUARTER, BORROWER'S TOTAL FUNDED DEBT TO EBITDA RATIO IS
GREATER THAN 2.00:1.

     (v) LIBOR Rate: means the rate obtained by dividing (i) the one-day,
one-month, two-month, three-month or six-month interest period London Interbank
Offered Rate (as selected by Borrower) as fixed by the British Bankers
Association for United States dollar deposits in the London Interbank Eurodollar
Market at approximately 11:00 a.m. London, England time (or as soon thereafter
as practicable) as determined by Bank from any broker, quoting service or
commonly available source utilized by Bank by (ii) a percentage equal to 100%
minus the stated maximum rate of all reserves required to be maintained against
"Eurocurrency Liabilities" as specified in Regulation D (or against any other
category of liabilities which includes deposits by reference to which the
interest rate on LIBOR Rate Tranche or Tranches is determined or any category of
extensions of credit or other assets which includes loans by a non-United
States' office of a bank to United States' residents) on such date to any member
bank of the Federal Reserve System. Each determination of the LIBOR Rate
applicable to a particular Interest

                                        3

<PAGE>

Period shall be made by Bank and shall be conclusive and binding upon Borrower
absent manifest error.

     (vi) LIBOR Rate Tranche(s): means, for each Interest Period, the portions
of all of the outstanding Principal Balance of the Revolving Credit Loan with
respect to which Borrower has elected to pay interest at the LIBOR Interest
Rate. Borrower shall not be permitted to maintain more than four (4) LIBOR Rate
Tranches at a time.

     (vii) Maturity Date: means MARCH 1, 2012.

     (viii) Prime Interest Rate: means a fluctuating rate of interest per annum
equal to either: (A) THE PRIME RATE IF, AT OF THE END OF THE MOST RECENT FISCAL
QUARTER, BORROWER'S TOTAL FUNDED DEBT TO EBITDA RATIO IS LESS THAN OR EQUAL TO
2.00:1 or (B) THE PRIME RATE PLUS FIFTY (50) BASIS POINTS (0.50%) IF, AT OF THE
END OF THE MOST RECENT FISCAL QUARTER, BORROWER'S TOTAL FUNDED DEBT TO EBITDA
RATIO IS GREATER THAN 2.00:1.

     (ix) Prime Rate: means the rate of interest announced from time to time by
Bank as its "prime rate" or "prime lending rate" whether or not such rate is
published or otherwise made known to Borrower; provided, however, that such rate
shall be immediately and easily available to the public at any time and from
time to time during the term of the Revolving Credit Loan. This rate of interest
is determined from time to time by Bank as a means of pricing some loans to its
customers and is neither tied to any external rate of interest or index nor does
it necessarily reflect the lowest rate of interest actually charged by Bank to
any particular class or category of customers of Bank. Changes in a prime-based
interest rate hereunder shall be effective on the same date as Bank effects a
change in its prime rate.

     (x) Prime Rate Tranche: means that portion of the Principal Balance with
respect to which Borrower has elected to pay interest at the Prime Interest
Rate.

                                        4

<PAGE>

(b) Throughout the term of the Revolving Credit Loan, Borrower shall be
permitted to elect to have a portion or portions of the Principal Balance accrue
interest at either the LIBOR Interest Rate or the Prime Interest Rate on and
subject to the terms of this paragraph 1(b). No later than each Interest Rate
Election Date, Borrower shall advise Bank in writing of Borrower's election (the
"Rate Election") of the portions of the Principal Balance for which interest
shall accrue during the next succeeding Interest Period at either the LIBOR
Interest Rate or the Prime Interest Rate. If Borrower fails so to advise Bank in
writing of its Rate Election on or before the applicable Interest Rate Election
Date then, during the next following Interest Period, all interest shall accrue
on the outstanding Principal Balance, or such portion thereof for which a Rate
Election has not been designated by such Interest Rate Election Date, at the
LIBOR Interest Rate based upon a "one-day" LIBOR Rate. In furtherance of the
foregoing, Borrower understands and acknowledges that, other than the LIBOR
Interest Rate based upon a "one-day" LIBOR Rate, any Rate Election made by
Borrower for the LIBOR Interest Rate pursuant to this Note shall be applicable
only for the next succeeding Interest Period and not thereafter without a new
Rate Election in accordance with the terms of this Note. Notwithstanding
anything contained herein to the contrary, if at any time during the term hereof
Bank shall have determined in good faith (which determination shall be
conclusive and binding upon Borrower) that U.S. dollar deposits in an amount
approximately equal to the Principal Balance which is to bear interest at a
particular LIBOR Rate during such particular Interest Period in accordance with
the provisions of this Note are not generally available at such time in the
London interbank market, or

                                        5

<PAGE>

reasonable means do not exist for ascertaining a LIBOR Rate for such particular
Interest Period, the interest rate applicable to the Principal Balance, or such
portions thereof, with respect to which such LIBOR Rate applies, shall
automatically be converted to the Prime Interest Rate and shall remain in effect
thereafter with respect to such Principal Balance, or portions, thereof, until
the expiration of the Interest Period in which Bank shall have determined in
good faith (which determination shall be conclusive and binding upon Borrower)
that the aforesaid circumstances no longer exist.

(c) All interest to be computed at the rate set forth in this Note, late fees
and all other fees and charges payable under this Note, shall continue to be due
and payable at such rates for so long as any balance remains outstanding
hereunder whether or not this has matured or been accelerated. This provision
shall survive and apply following any default, maturity, acceleration, recovery
of judgment, judgment of foreclosure, bankruptcy, insolvency proceedings of any
kind or the happening of any other event or occurrence, similar or dissimilar.

(d) The annual interest rate hereunder shall be calculated on the basis of a
360-day year and the actual number of days elapsed. Notwithstanding anything to
the contrary contained herein or in any other document executed in connection
with the Revolving Credit Loan, the effective rate of interest hereunder shall
not exceed the maximum effective rate of interest permitted by applicable law or
regulation. Borrower hereby agrees to give Bank written notice in the event
Borrower has actual knowledge that any interest payment made to Bank with
respect to this Note will cause the total interest payments collected in any one
year to be usurious under applicable

                                        6

<PAGE>

law, provided, however, that the failure of Borrower to give such notice does
not constitute a default under the Revolving Credit Loan nor shall it be
construed as a waiver or consent by Borrower to Bank charge or collect interest
in excess of the maximum effective rate of interest permitted by applicable law
or regulation. Bank hereby agrees not to collect knowingly any interest from
Borrower in the form of fees or otherwise which will render the Revolving Credit
Loan usurious. In the event that such interest would be usurious in Bank's
opinion, Bank reserves the right to reduce the interest payable by Borrower.
This provision shall survive the repayment of this Note.

     2. PAYMENTS OF PRINCIPAL AND INTEREST.

(a) Interest shall be calculated on the Prime Rate Tranche at the Prime Interest
Rate. Interest shall be calculated on the LIBOR Rate Tranche(s), if any, at the
LIBOR Interest Rate applicable to each LIBOR Rate Tranche. Commencing on the
FIRST day of MARCH, 2007 and continuing on the first day of each succeeding
calendar MONTH thereafter until all sums outstanding hereunder are repaid in
full, Borrower shall pay to Bank INTEREST ONLY accrued on the outstanding Prime
Rate Traunche. Commencing on the date hereof and continuing until all sums
outstanding hereunder are repaid in full, Borrower shall pay to Bank INTEREST
ONLY accrued on each outstanding LIBOR Rate Traunche(s) on the earlier of either
(i) the LAST day of an Interest Period associated with a LIBOR Rate Traunche or
(ii) the last day of each and every CALENDAR quarter which happens to fall
within an Interest Period associated with a LIBOR Rate Traunche.

(b) The payments made under this Note may be applied on account of interest,
principal, or other sums due hereunder in such priority as Bank or any holder of
this Note may determine. All

                                        7

<PAGE>

payments which are applied to the reduction of the Principal Balance shall be
applied first towards the reduction of such portions of the Principal Balance
which are part of the Prime Rate Tranche and, second towards the reduction of
the remaining Principal Balance.

(c) If this Note is to be repaid in installments any prepayments shall be
credited to installments of principal in the inverse order of maturity, and any
installments hereunder shall not be reduced or postponed by any partial
prepayments. The unpaid Principal Balance then outstanding together with all
accrued and unpaid interest thereon shall become due and payable on the MATURITY
DATE.

     3. ADVANCES AND READVANCES. Borrower shall have the right to repay portions
of this Note and thereafter, prior to any Event of Default, to request
additional advances in accordance with the terms and conditions of this Note and
the Loan Agreement (hereinafter defined); provided however, that among other
things, no advance shall be made, if : (a) an Event of Default has occurred or
with the passage of time will occur; or (b) if any of the representations or
warranties in the Loan Documents are or with the passage of time will become
inaccurate; or (c) upon the making of such advance, the outstanding Principal
Balance, including the requested advance, would EXCEED $10,000,000.00.

     4. REVOLVING LINE OF CREDIT AND PREPAYMENT. The Revolving Credit Loan is a
revolving line of credit. Borrower may borrow and reborrow hereunder The unpaid
Principal Balance under this Note at any time may be evidenced by endorsements
on this Note or

                                        8

<PAGE>

by Bank's internal records, including daily printouts, and shall constitute
prima facie evidence of the accuracy of the information. Bank will permanently
reduce the Revolving Credit Loan Commitment in minimum increments of
$1,000,000.00 upon receiving written request from Borrower.

(a) Borrower may prepay the unpaid Principal Balance in full or in part at any
time or from time to time; provided, however, that (i) Borrower shall pay all
interest accrued hereunder, to the date of prepayment and (ii) should a LIBOR
Rate Tranche be repaid prior to the expiration of its applicable Interest
Period, then Borrower shall pay to Bank compensation pursuant to the following
formula: the then current rate for United States Treasury securities (bills on a
discounted basis shall be converted to a bond equivalent) with a maturity date
closest to the end of said Interest Period as to which prepayment is made,
subtracted from the LIBOR Interest Rate for said LIBOR Rate Tranche. If the
result of this calculation is a positive number, then the resulting percentage
shall be multiplied by: the amount of said LIBOR Rate Tranche being prepaid. The
resulting amount shall be divided by: 360 and multiplied by the number of days
remaining in said Interest Period as to which the prepayment is being made. Said
amount shall be reduced to present value calculated by using the referenced
United States Treasury securities rate and the number of days remaining on the
Interest Period for said LIBOR Rate Traunche.

     5. SECURITY. This Note, and the due performance by Borrower of all of its
obligations hereunder, is secured by, inter alia, (a) security interests in
substantially all personal property of Borrower and Guarantor pursuant to the
terms of a Security Agreement (the "Security

                                        9

<PAGE>

Agreement") of even date herewith and (b) A guaranty and suretyship agreement
("Guaranty") executed by PEOPLES EDUCATION, INC. ("Guarantor") in favor of Bank
pursuant to which the Guarantor guarantees and becomes surety for all payment,
performance and other obligations of Borrower in connection with the Loans (as
defined in the Loan Agreement).

     This Note, the Security Agreement, the Loan Agreement [of even date
executed in connection with this transaction] ("Loan Agreement"), the Guaranty,
the Term Note (as defined in the Loan Agreement) and any other document executed
and delivered in connection with the Loan Agreement are each hereinafter
referred to as a "Loan Document" and collectively as the "Loan Documents." Any
collateral securing any of Borrower's obligations under any of the Loan
Documents is hereinafter referred to collectively as the "Collateral."

     6. LATE CHARGE. In the event that any payment of principal or interest due
to Bank hereunder shall not be paid when due and shall remain unpaid in excess
of fifteen (15) days after the due date, in addition to and not in limitation of
any other rights or remedies which Bank may have in respect thereof under any of
the Loan Documents or in respect of any Collateral, Borrower shall pay Bank on
demand a "late charge" computed at the rate of five cents ($.05) for each dollar
(or part thereof) of the amount not paid, to cover the extra expense and
inconvenience to Bank in ensuring payment of such delinquent amount. Borrower
acknowledges that its failure to pay any amount due hereunder within such
fifteen (15) day period will result in Bank incurring additional expense in
servicing the Revolving Credit Loan evidenced by this Note, the loss of the use
of the money due and frustration to Bank in meeting its loan commitments, that
the damages to Bank in connection with such late payment are extremely

                                       10

<PAGE>

difficult and impractical to ascertain, and that a sum equal to five cents
($.05) for each dollar which is not paid within such fifteen (15) day period is
a reasonable estimate of the damages incurred by Bank in connection with any
such late payment. The amount of any such "late charge" not paid promptly
following demand therefor shall be deemed outstanding and payable pursuant to
this Note and secured by the Collateral; provided, however, that the "late
charge" shall not be or become part of the Principal Balance.

     7. EVENTS OF DEFAULT. In addition to any other event referred to herein,
the occurrence of which, by the terms hereof, constitutes an Event of Default
hereunder, the occurrence of any one or more of the following events shall
constitute an Event of Default hereunder:

     (a) Borrower shall fail to make any payment of principal, interest, fees
and/or costs due to Bank under this Note or under any of the other Loan
Documents within ten (10) days after the same is due and payable, whether at
maturity or by acceleration or otherwise;

     (b) Except as specifically otherwise provided for in this Note, Borrower
shall fail to observe or perform any of the covenants or agreements on its part
to be observed or performed under this Note within thirty (30) days after
written notice from Bank of such non-compliance;

     (c) Any Event of Default shall occur under the terms of any of the other
Loan Documents which continues beyond applicable notice and grace periods, if
any, set forth therein.

     8. REMEDIES. Upon the occurrence of any Event of Default, then the entire
unpaid Principal Balance hereunder plus all interest accrued thereon plus all
other sums due and payable

                                       11

<PAGE>

to Bank under the Loan Documents shall, at the option of Bank, become due and
payable immediately without presentment, demand, notice of nonpayment, protest,
notice of protest or other notice of dishonor, all of which are hereby expressly
waived by Borrower.

     Should an event described in section 8(a)(vi) or section 8(a)(vii) of the
Loan Agreement occur, then Bank is entitled to preconfirmation and
postconfirmation interest, at the Default Rate, on the Revolving Credit Loan
arrearages and other charges. Said interest on the Revolving Credit Loan
arrearages and other charges will be considered an element of an allowed secured
claim provided for by any plan.

     9. [THIS SECTION HAS BEEN INTENTIONALLY DELETED]

     10. REMEDIES CUMULATIVE, ETC.

     (a) No right or remedy conferred upon or reserved to Bank under any of the
Loan Documents, or with respect to any Collateral, or now or hereafter existing
at law or in equity or by statute or other legislative enactment, is intended to
be exclusive of any other right or remedy, and each and every such right or
remedy shall be cumulative and concurrent, and shall be in addition to every
other such right or remedy, and may be pursued singly, concurrently,
successively or otherwise, at the sole discretion of Bank, and shall not be
exhausted by any one exercise thereof but may be exercised as often as occasion
therefor shall occur. No act of Bank shall be deemed or construed as an election
to proceed under any one such right or remedy to the exclusion of any other such
right or remedy; furthermore, each such right or remedy of Bank

                                       12

<PAGE>

shall be separate, distinct and cumulative and none shall be given effect to the
exclusion of any other. The failure to exercise or delay in exercising any such
right or remedy, or the failure to insist upon strict performance of any term of
any of the Loan Documents, shall not be construed as a waiver or release of the
same, or of any Event of Default thereunder, or of any obligation or liability
of Borrower thereunder.

     (b) The recovery of any judgment by Bank and/or the levy of execution under
any judgment upon any Collateral shall not affect in any manner or to any extent
the lien or any security interest in such Collateral under the Security
Agreement, or any rights, remedies or powers of Bank under any of the Loan
Documents or with respect to any Collateral, but such lien and such security
interest, and such rights, remedies and power of Bank shall continue unimpaired
as before. Further, the exercise by Bank of its rights and remedies and the
entry of any judgment by Bank shall not affect in any way the interest rate
payable hereunder or under any of the other Loan Documents on any amounts due to
Bank but interest shall continue to accrue on such amounts at the Default Rate
(as hereinafter defined).

     (c) Borrower hereby waives presentment, demand, notice of nonpayment,
protest, notice of protest or other notice of dishonor, and any and all other
notices in connection with any default in the payment of, or any enforcement of
the payment of, all amounts due under the Loan Documents. To the extent
permitted by law, Borrower waives the right to any stay of execution and the
benefit of all exemption laws now or hereafter in effect. Borrower further
waives and releases all material procedural errors, defects and imperfections in
any proceedings instituted by Bank under the terms of any Loan Document or with
respect to any Collateral.

     (d) Borrower agrees that Bank may release, compromise, forbear with respect
to, waive,

                                       13

<PAGE>

suspend, extend or renew any of the terms of the Loan Documents (and Borrower
hereby waives any notice of any of the foregoing), and that Bank may resort to
any Collateral in such order and manner as it may think fit, or accept the
assignment, substitution, exchange, pledge, or release of all or any portion of
any Collateral, for such consideration, or none, as it may require, without in
any way affecting the validity of any liens over or other security interest in
the remainder of any such Collateral (or the priority thereof or the position of
any subordinate holder of any lien or other security interest with respect
thereto); and any action taken by Bank pursuant to the foregoing shall in no way
be construed as a waiver or release of any right or remedy of Bank, or of any
Event of Default, or of any liability or obligation of Borrower, under any of
the Loan Documents.

     11. DEFAULT RATE. Following the occurrence of an Event of Default hereunder
and continuing until the Principal Balance then outstanding hereunder and all
other sums payable under the Loan Documents are paid in full, the Principal
Balance outstanding hereunder shall bear interest at two percent (2%) per annum
in excess of the Prime Interest Rate ("Default Rate") and shall be secured by
the Collateral.

     12. COSTS AND EXPENSES. Following the occurrence of any Event of Default,
Borrower shall pay upon demand all reasonable costs and expenses (including all
reasonable amounts paid to attorneys, accountants and other advisors employed by
Bank), incurred by Bank in the exercise of any of its rights, remedies or powers
under any of the Loan Documents or with respect to any Collateral with respect
to such Event of Default, and any amount thereof not paid promptly following
demand therefor shall be added to the Principal Balance hereunder and shall bear
interest at the Default Rate from the date of such demand until paid in full,
and shall be

                                       14

<PAGE>

secured by the Collateral. In connection with and as part of the foregoing, in
the event that any of the Loan Documents is placed in the hands of an attorney
for the collection of any sum payable thereunder, Borrower agrees to pay
reasonable attorneys' fees for the collection of the amount being claimed under
the Loan Document, as well as all costs, disbursements and allowances provided
by law, the payment of which sums shall be secured by the Collateral. Nothing in
this paragraph 11 shall limit the obligation of Borrower to pay any and all
costs and expenses for which Borrower is otherwise liable under any of the Loan
Documents.

     13. INCREASED COSTS, TAXES, ETC. Borrower shall pay to Bank from time to
time such amounts as Bank may determine to be necessary to compensate Bank for
any costs incurred by Bank which Bank determines are attributable to its making
or maintaining the Revolving Credit Loan hereunder or its obligation to make any
such Revolving Credit Loan hereunder, or any reduction in any amount receivable
by Bank under this Note in respect of the Revolving Credit Loan or such
obligation (such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any change after the date of
the Revolving Credit Note in U.S. federal, state, municipal, or foreign laws or
regulations (including Regulation D), or the adoption or making after such date
of any interpretations, directives, or requirements applying to a class of banks
including Bank of or under any U.S., federal, state, municipal, or any foreign
laws or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof ("Regulatory Change"), which: (1) changes the basis of
taxation of any amounts payable to Bank under this Note in respect of the
Revolving Credit Loan (other than taxes imposed on the overall net income of
Bank); or (2) imposes or modifies any reserve, special deposit, compulsory

                                       15

<PAGE>

loan, or similar requirements relating to any extensions of credit or other
assets of, or any deposits with or other liabilities of, Bank; or (3) imposes
any other condition affecting this Note (or any of such extensions of credit or
liabilities). Bank will notify Borrower of any event occurring after the date of
this Note which will entitle Bank to compensation as promptly as practicable
after it obtains knowledge thereof and determines to request such compensation.
Determinations by Bank of the effect of any Regulatory Change on its costs of
making or maintaining the Revolving Credit Loan or on amounts receivable by it
in respect of the Revolving Credit Loan, and of the additional amounts required
to compensate Bank in respect of any Additional Costs, shall be conclusive,
provided that such determinations are made on a reasonable basis. Borrower shall
pay or reimburse Bank upon demand the amount of such Additional Costs without
credit against any indebtedness by this Note. If Borrower does not or may not do
so, Bank may at its option accelerate the indebtedness evidenced by this Note to
maturity as in the case of default by Borrower.

     14. SEVERABILITY. In the event that for any reason one or more of the
provisions of this Note or their application to any person or circumstance shall
be held to be invalid, illegal or unenforceable in any respect or to any extent,
such provisions shall nevertheless remain valid, legal and enforceable in all
such other respects and to such extent as may be permissible. In addition, any
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Note, but this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.

     15. SUCCESSORS AND ASSIGNS. This Note inures to the benefit of Bank and
binds Borrower, and their respective successors and assigns, and the words
"Bank" and "Borrower"

                                       16

<PAGE>

whenever occurring herein shall be deemed and construed to include such
respective successors and assigns.

     16. 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, to such party at its
address set forth below:

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

     With a
     copy to:   ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
                2800 LASALLE PLAZA
                800 LASALLE AVENUE
                MINNEAPOLIS, MN 55402

     Bank:      SOVEREIGN BANK
                1500 MARKET STREET
                PHILADELPHIA, PA 19102

     With a
     copy to:   LAW OFFICES OF MCGILL & LANOCE
                6064 RIDGE AVENUE
                PHILADELPHIA, PENNSYLVANIA 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. 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.

     17. DEFINITIONS; NUMBER AND GENDER. In the event Borrower consists of

                                       17

<PAGE>

more than one person or entity, the obligations and liabilities hereunder of
each of such persons and entities shall be joint and several and the word
"Borrower" shall mean all or some or any of them. For purposes of this Note, the
singular shall be deemed to include the plural and the neuter shall be deemed to
include the masculine and feminine, as the context may require. The references
herein to the Loan Documents or any one of them shall include any supplements to
or any amendments of or restatements of such Loan Documents or any one of them.

     18. REDUCTIONS TO ZERO. The fact that the principal balance of this Note
may be reduced to zero from time to time will not affect the continuing validity
of this Note, and the principal balance of this Note may be increased to the
full Principal Balance or to any lesser amount after any such reduction to zero.

     19. INCORPORATION BY REFERENCE. All of the terms and provisions of the Loan
Documents, to the extent not inconsistent herewith, are hereby incorporated
herein by reference.

     20. CAPTIONS. The captions or headings of the paragraphs shall not affect
the meaning or construction of any of the terms or provisions of this Note.

     21. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.

     22. Complete Agreement. This Note shall only be amended or modified by an
instrument in writing that explicitly states that it amends this Note and is
signed by the party against whom enforcement of the amendment is sought.

     23. CONSENT TO JURISDICTION AND VENUE; CONSENT TO SERVICE OF PROCESS;
WAIVER OF JURY TRIAL. BORROWER WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, OR RELATED TO, THE

                                       18

<PAGE>

SUBJECT MATTER OF THIS NOTE 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 BORROWER AND BORROWER ACKNOWLEDGES THAT
NEITHER BANK 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. BORROWER FURTHER ACKNOWLEDGES THAT BORROWER HAS
BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING
OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED BY BORROWER'S OWN FREE WILL, AND THAT BORROWER HAS HAD THE OPPORTUNITY
TO DISCUSS THIS WAIVER WITH COUNSEL. BORROWER AGREES THAT THE OBLIGATIONS
EVIDENCED BY THIS NOTE ARE EXEMPTED TRANSACTIONS UNDER THE TRUTH-IN-LENDING ACT,
15 U.S.C. SECTION 1601, ET SEQ. BORROWER FURTHER ACKNOWLEDGES THAT BORROWER HAS
READ AND UNDERSTANDS THE MEANING OF THIS WAIVER PROVISION. BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT AS BANK MAY SELECT,
FOR ANY PROCEEDING IN CONNECTION HEREWITH. BORROWER 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, DELAWARE OR NEW JERSEY. THE FOREGOING SHALL BE

                                       19

<PAGE>

DEEMED INDEPENDENT COVENANTS.

          IN WITNESS WHEREOF, Borrower has executed this Promissory Note the day
and year first above written.

WITNESS:                                PEOPLES EDUCATIONAL HOLDINGS, INC.

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

                                       20

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