10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the year ended December 31, 2005
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number: 333-97721

VERTIS, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3768322
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification)
250 West Pratt Street, Baltimore, MD	21201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (410) 528-9800

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant of Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o  No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large accelerate filer o Accelerate filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No x

The number of shares outstanding of Registrant’s common stock as of March 27, 2006 was 1,000 shares.

Documents Incorporated By Reference:   None

VERTIS, INC.

ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS

Form 10-K Item No.		Name of Item	Page
Part I
Item 1	Business		3
Item 1A	Risk Factors		8
Item 1B	Unresolved Staff Comments		11
Item 2	Properties		12
Item 3	Legal Proceedings		13
Item 4	Submission of Matters to Vote of Security Holders		13
Part II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters		14
Item 6	Selected Financial Data		14
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 7A	Quantitative and Qualitative Disclosures about Market Risk		34
Item 8	Financial Statements and Supplementary Data		34
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		35
Item 9A	Controls and Procedures		35
Item 9B	Other Information		35
Part III
Item 10	Directors and Executive Officers of Vertis, Inc.		36
Item 11	Executive Compensation		39
Item 12	Security Ownership of Certain Beneficial Owners and Management		45
Item 13	Certain Relationships and Related Transactions		48
Item 14	Principal Accountant Fees and Services		49
Part IV
Item 15	Exhibits and Financial Statement Schedules		51
Index to Financial Statements and Financial Statement Schedule			F-1
Signatures			F-38

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CAUTIONARY STATEMENTS

We have included in this Annual Report on Form 10-K, and from time to time our management may make, statements which may constitute “forward-looking statements” within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You may find discussions containing such forward-looking statements in “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as within this Annual Report generally. In addition, when used in this Annual Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “projects,” “intends” and similar expressions are intended to identify forward-looking statements. These forward-looking statements include statements other than historical information or statements of current condition, but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. It is possible that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in our specific forward-looking statements include, but are not limited to, those discussed under “Certain Factors That May Affect Our Business,” as well as:

·general economic and business conditions;

·changes in the advertising, marketing and information services markets;

·the financial condition of our customers;

·the possibility of future terrorist activities or the continuation or escalation of hostilities in the Middle East or elsewhere;

·our ability to execute key strategies;

·actions by our competitors;

·the effects of supplier price fluctuations on our operations, including fluctuations in the price of raw materials we use;

·downgrades in our credit ratings;

·changes in interest rates; and

·other matters discussed in this Annual Report generally.

Consequently, readers of this Annual Report should consider these forward-looking statements only as our current plans, estimates and beliefs. We do not undertake and specifically decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We undertake no obligation to update or revise any forward-looking statement in this Annual Report to reflect any new events or any change in conditions or circumstances. All of the forward-looking statements in this Annual Report are expressly qualified by these cautionary statements. Even if these plans, estimates or beliefs change because of future events or circumstances after the date of these statements, or because anticipated or unanticipated events occur, we disclaim any obligation to update these forward-looking statements.

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PART I

ITEM 1BUSINESS

Overview

Vertis, Inc. is a leading provider of targeted advertising, media, and marketing solutions that drive consumers to marketers more effectively. Our comprehensive products and services range from consumer research, audience targeting, creative services, and workflow management to targeted advertising inserts, direct mail, interactive marketing, packaging solutions, and digital one-to-one marketing and fulfillment. We deliver a comprehensive range of solutions that simplify, improve, and maximize the effectiveness of multiple phases of our customers’ marketing campaigns, from inception of an advertising concept, through design, production, targeted distribution, and ultimately the measurement of advertising effectiveness. We believe that our ability to produce cost-effective and measurable results in a relatively short time-frame is critically important to our clients. Our clients include more than 3,000 grocery stores, drug stores and other retail chains, general merchandise producers and manufacturers, financial and insurance service providers, newspapers, and advertising agencies.

We offer an extensive list of solutions across a broad spectrum of media designed to enable our clients to reach target customers with the most effective message. Customers may employ these services individually or on a combined basis to create an integrated end-to-end targeted marketing solution. We believe that the breadth of our client base limits our reliance on any individual customer. Our top ten customers in 2005 accounted for 33.7% of our net sales, and no customer accounted for more than 7.9% of our net sales. We have excellent relationships with our customers as evidenced by the average length of our relationships with our ten largest customers, which is over 16 years.

Vertis, Inc. is a Delaware Corporation incorporated in 1993. In 2005, Vertis had approximately $1.5 billion of net sales and 6,300 employees in North America. Our principal executive offices are located at 250 West Pratt Street, Baltimore, Maryland 21201. Our Internet address is www.vertisinc.com. Although we are not subject to the information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we file annual, quarterly and special reports and other information with the Securities and Exchange Commission, or SEC, pursuant to certain contractual obligations. Our filings are available to the public at the SEC’s website at www.sec.gov and also at our website, under “investor relations”, at the specified address shown above. You may read and copy any documents we file with the SEC at its public reference facility in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference facilities.

In this Annual Report, when we use the terms “Vertis,” “we,” “our,” and the “Company,” we mean Vertis, Inc., and its consolidated subsidiaries. The words “Vertis Holdings” refer to Vertis Holdings, Inc., the parent company of Vertis and its sole stockholder.

Business Segments

Following the sale of our Vertis Europe segment in the fourth quarter of 2005, as well as other management changes, we reviewed our business segmentation. Effective with this Annual Report, we changed our reportable segmentation to two business segments from the geographic segmentation used in prior periods.

We operate through two reportable business segments based on the way management views and manages the Company. These business segments are Advertising Inserts and Direct Mail.  Advertising Inserts provides a full product line of printed targeted advertising products inserted into newspapers. Direct Mail provides personalized direct mail products and various targeted direct marketing services. In addition, we also provide premedia and related services as well as media planning and placement services.

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These services will be referred to as “Corporate and Other” for discussion within this Annual Report. Also, included in Corporate and Other are corporate costs incurred by the Company.

Financial and other information relating to our business segments for each of 2005, 2004 and 2003 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Note 21, “Segment Information”, to our consolidated financial statements included in this Annual Report.

Advertising Inserts

General.Advertising Inserts provides the full array of targeted advertising insert products and services. Our products and services include:

·Targetable advertising insert programs for retailers and manufacturers

·Newspaper products (TV magazines, Sunday magazines, color comics and special supplements)

·Consumer research

·Creative services including page layout and design

We are a leading provider of advertising inserts and the largest single producer of newspaper TV listing guides and Sunday comics in the United States. In 2005, we produced more than 33 billion advertising inserts. Advertising inserts are typically produced in color on better quality paper than the reproductions that appear in run-of-press newspaper advertise­ments. In addition, advertising inserts allow marketers to vary layout, artwork, design, trim size, paper type, color and format. Versions may be targeted by newspaper zones and by specific customer demographics.

We provide 73 of the top 100 Sunday newspapers in the United States with circulation-building newspaper products and services through production of comics, TV listing guides, Sunday supplements and special sections. In 2005, we produced approximately 1.5 billion Sunday comics, and approximately 750 million TV listing guides.

Sales and Customers.Advertising Inserts employs approximately 50 sales representatives devoted to this segment’s specific products and services.  Our customers include grocery stores, drug stores, other retailers, newspapers, and consumer goods manufacturers. Our advertising insert products are distributed in national newspapers and, depending on their target audience, through various forms of mail distribution and in store circulation. Advertising Insert’s ten largest customers accounted for approximately 47.9% of the segment’s 2005 net sales. We have established and maintained long-standing customer relationships with our major customers.

Direct Mail

General.Direct Mail provides the full array of targeted direct marketing products and services. Our products and services include:

·Highly customized one-to-one marketing programs

·Automated digital fulfillment services

·Direct mail production with varying levels of personalization

·Data design, collection and management to identify target audiences

·Mailing management services

·Effectiveness measurement

·Response management, warehousing and fulfillment services

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We are one of the largest providers of highly customized direct mail, one-to-one marketing programs, mailing management services, automated digital fulfillment and specialty advertising products in the United States. We derive the majority of our revenues from the design, production, and execution of personalized advertising mailings rather than traditional, broadbase direct mailings. Personalized direct mail enables consumer goods and other marketers to communicate with their customers on an individual-by-individual basis, an approach that provides higher response rates than broad, non-personalized mailings.

We use sophisticated, data-driven techniques to target prospects and deliver full color, individualized marketing messages. We can process and manipulate databases to enable our customers to target direct mail recipients based on many attributes, ranging from age, gender, and address to spending habits, type of car owned, whether the recipient is a pet owner, and many others. These highly individualized marketing campaigns are designed to enhance customer response levels and improve client marketing efficiencies through on-demand workflow automation. The growth in customer data availability, the increasing sophistication of database marketing tools and the growing use of the internet for integrated marketing campaigns have significantly increased demand for these services.

Sales and Customers.Direct Mail employs approximately 40 sales representatives devoted to this segment’s specific products and services.   Our customers include consumer goods manufacturers, financial institutions, Internet advertisers, not-for-profit organizations, retailers and government agencies.  While a majority of our net sales are made directly to clients, we also sell our products and services through agencies and brokers. Direct Mail’s ten largest customers accounted for approximately 37.4% of the segment’s 2005 net sales. We have established and maintained long-standing customer relationships with our major customers.

Corporate and Other

General.Corporate and Other consists of a broad range of premedia, media and other technologies to assist clients with their advertising campaigns, including:

·Digital content management

·Graphic design and animation

·Digital photography, compositing and retouching

·In-store displays, billboards and building wraps

·Consulting services

·Newspaper advertising development

·Media planning and placement and software solutions

We are a leading provider of digital media production and content management solutions to retailers, consumer and commercial products companies and advertising agencies. Our services and technologies enable clients to more efficiently create, produce and manage traditional print and advertising content. More importantly, these services and technologies also enable clients to benefit from the influences of emerging digital advertising media such as CD-ROM and the Internet. Our integrated offering enables advertisers to maintain consistency of appearance of their products and brand names throughout various media forms. Additionally, included in the Corporate and Other is our Media Planning division designed to support our targeted capabilities and marketing efforts. Corporate and Other has approximately 50 sales representatives devoted to this segment’s specific products and services. Additionally, Corporate and Other includes corporate costs incurred by the Company.

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Raw Materials

In 2005, we spent approximately $590 million on raw materials. The primary raw materials required in our operations are paper and ink. We also use other raw materials, such as film, chemicals, computer supplies and proofing materials. We believe that there are adequate sources of supply for our primary raw materials and that our relationships with our suppliers yield improved quality, pricing and overall service to our customers; however, there can be no assurance that we will not be adversely affected by a tight market for our primary raw materials.

Our results of operations depend to a large extent on the cost of paper and our ability to pass along to our customers any increases in these costs and remain competitive when there are decreases. In recent years, the number of suppliers of paper has declined, and we have formed stronger commercial relationships with selected suppliers, allowing us to achieve more assured sourcing of high quality paper that meets our specifications.

We have contracts covering the purchases of ink and press supplies, (i.e. plates, blankets, solutions, etc.)  These contracts, which range from 1 to 3 years in length, include target minimum quantities and prices. All of these agreements allow for shortfalls of purchase minimums to be made up over the life of the contract. In addition, each of the agreements allows for the reduction in obligations for a decline in volume experienced by Vertis, and all have competitive pricing clauses, whereby suppliers’ prices must remain competitive in the market or the purchase minimums can be adjusted.

In January 2005, we purchased Elite Mailing and Fulfillment Services, Inc., a supplier with whom we previously had an agreement to purchase all of our requirements for mailing services (inserting, sorting, tying, bagging and applying postage to direct mail), for $3.4 million.

Competition

The principal methods of competition in our businesses are pricing, quality, flexibility, customer targeting capabilities, breadth of service, timeliness of delivery, customer service and other value-added services. Pricing depends in large part on the price of paper, which is our major raw material (see “Raw Materials” above). Pricing is also influenced by product type, shipping costs, operating efficiencies and the ability to control costs. We believe that the introduction of new technologies, continued excess capacity in this industry, consolidation in our customer’s markets, and softness in traditional brand advertising spending, combined with the cost pressures facing customers resulting from other factors, including the cost of paper, have resulted in margin pressures and increased competition in our core businesses.

Our major competitors in North America include R.R. Donnelley & Sons Company, Quebecor World, Inc., and American Color Graphics. In addition, we compete with other marketing services providers such as Valassis Communications, Inc., Harte-Hankes, Inc., ADVO, Inc., Acxiom Corporation, Experian, Inc., Applied Graphics Technologies, Inc., and Schawk, Inc. We also compete for advertising dollars with television, radio and other forms of electronic media.

Trade Names, Trademarks and Patents

We own certain trade names, trademarks and patents used in our business. The loss of any such trade name, other than “Vertis”, or any trademark or patent would not have a material adverse effect on our consolidated financial condition or results of operations.

Governmental Regulations

Our business is subject to a variety of federal, state and local laws, rules and regulations. Our production facilities are governed by laws and regulations relating to workplace safety and worker health, primarily the Occupational Safety and Health Act (“OSHA”) and the regulations promulgated thereunder.

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Except as described herein, we are not aware of any pending legislation that in our view is likely to affect significantly the operations of our business. We believe that our operations comply substantially with all applicable governmental rules and regulations.

Environmental Matters

Our operations are subject to a number of federal, state, local and foreign environmental laws and regulations including those regarding the discharge, emission, storage, treatment, handling and disposal of hazardous or toxic substances as well as remediation of contaminated soil and groundwater. While these laws and regulations impose significant capital and operating costs on our business and there are significant penalties for violations, these costs currently are not material.

Certain environmental laws hold current owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances. Because of our operations, the long history of industrial operations at some of our facilities, the operations of predecessor owners or operators of certain of our businesses, and the use, production and release of hazardous substances at these sites and at surrounding sites, we may be subject to liability under these environmental laws. Various facilities of ours have experienced some level of regulatory scrutiny in the past and are, or may become, subject to further regulatory inspections, future requests for investigation or liability for past practices.

The Comprehensive Environmental Response, Compensation & Liability Act of 1980 as amended (“CERCLA”), provides for strict, and under certain circumstances, joint and several liability, for among other things, generators of hazardous substances disposed of at contaminated sites. We have received requests for information or notifications of potential liability from the Environmental Protection Agency under CERCLA for a few off-site locations. We have not incurred any significant costs relating to these matters and we do not believe that we will incur material costs in the future in responding to conditions at these sites.

The nature of our operations exposes us to certain risks of liabilities and claims with respect to environmental matters. We believe our operations are currently in material compliance with applicable environmental laws and regulations. In many jurisdictions, environmental requirements may be expected to become more stringent in the future which could affect our ability to obtain or maintain necessary authorizations and approvals or result in increased environmental compliance costs.

We do not believe that environmental compliance requirements are likely to have a material effect on us. We cannot predict what additional environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted, or the amount of future expenditures that may be required in order to comply with these laws. There can be no assurance that future environmental compliance obligations or discovery of new conditions will not arise in connection with our operations or facilities and that these would not have a material adverse effect on our business, financial condition or results of operations.

Employees

As of December 31, 2005, we had approximately 6,300 employees. Most of the hourly employees at our North Brunswick and Newark, New Jersey facilities (approximately 176 employees) are represented by the Paper, Allied Industrial, Chemical and Energy Workers International Union. We believe we have satisfactory employee and labor relations.

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ITEM 1ARISK FACTORS

Our highly leveraged status may impair our financial condition and we may incur additional debt.

We currently have a substantial amount of debt. As of December 31, 2005, our total consolidated debt was $1.05 billion, excluding our accounts receivable securitization facility. Our substantial debt could have important consequences for our financial condition, including:

·making it more difficult for us to satisfy our obligations under the outstanding indebtedness;

·increasing our vulnerability to general adverse economic and industry conditions;

·limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and other general corporate requirements;

·requiring a substantial portion of our cash flow from operations for the payment of interest on our debt and reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate requirements;

·limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

·placing us at a competitive disadvantage to other less-leveraged competitors.

The indentures governing our debt instruments, subject to specified limitations, permit us and our subsidiaries to incur additional debt. In addition, as of December 31, 2005, our senior credit facility would permit us to borrow up to an additional $111.6 million.  If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash depends upon many factors, some of which are beyond our control.

Our ability to make payments on and refinance our debt and to fund planned capital expenditures depends on our ability to generate cash flow in the future. To some extent, this is subject to general economic, financial, competitive and other factors that are beyond our control. Based on the current and anticipated level of operations, we believe that our cash flow from operations, together with amounts available under our senior credit facility, is adequate to meet our anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for the next twelve months. We cannot assure you, however, that our business will continue to generate cash flow at or above current levels. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may have to refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you that any refinancing of this kind would be possible or that any additional financing could be obtained. The inability to obtain additional financing could materially impact our ability to meet our future debt service, capital expenditure and working capital requirements.

Covenant restrictions under our indebtedness may limit our ability to operate our business.

Our indentures and other debt agreements contain, among other things, covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities. The indentures and agreements restrict, among other things, our and the subsidiary guarantors’ ability to:

·borrow money;

·pay dividends or make distributions;

·purchase or redeem stock;

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·make investments and extend credit;

·engage in transactions with affiliates;

·engage in sale-leaseback transactions;

·consummate certain asset sales;

·effect a consolidation or merger or sell, transfer, lease or otherwise dispose of all or substantially all of our assets; and

·create liens on our assets.

In addition, our senior credit facility requires us to maintain a minimum Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) amount, as calculated per the credit agreement. For more information about the restrictions and requirements under our senior credit facility, see Note 11 “Long-Term Debt” to our consolidated financial statements included in this Annual Report and “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet the minimum EBITDA test. We cannot assure you that we will meet this test or that the lenders will waive any failure to meet this test. A breach of any of these covenants would result in a default under our indentures and debt agreements. All of our debt instruments have customary cross-default provisions. If an event of default under our debt instruments occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In that event, we might not have sufficient assets to pay amounts due on our outstanding debt.

The high level of competition in the advertising and marketing services industry could have a negative impact on our ability to service debt, particularly in a prolonged economic downturn.

The advertising and marketing services industry is highly competitive in most product categories and geographic regions. Competition is largely based on price, quality and servicing the specialized needs of customers. Moreover, rapid changes in information technology may result in more intense competition, as existing and new entrants seek to take advantage of new products, services and technologies that could render our products, services and technologies less competitive or, in some instances, even obsolete. See  “Competition” above. Technological advances in digital transmission of data and advertising creation have resulted in the in-house production of advertising content by certain end-users which has had a negative impact on our profitability. In addition, our industry has experienced competitive pricing pressure due to industry over-capacity which affects the margin on our advertising insert and direct mail products. The competitive pricing pressures have resulted in a decline in our margins. In addition, changes in product and equipment mix can have an impact on margins.

Any future periods of economic downturn could result in continuing increased competition and possibly affect our sales and profitability. A decline in sales and profitability may decrease our cash flow, and make it more difficult for us to service our level of debt.

Demand for our services may decrease due to a decline in clients’ or an industry’s financial condition or due to an economic downturn.

We cannot assure you that the demand for our services will continue at current levels. Our clients’ demands for our services may change based on their needs and financial condition. In addition, when economic downturns affect particular clients or industry groups, demand for advertising and marketing services provided to these clients or industry groups is often adversely affected. For example, a substantial portion of our revenue is generated from customers in various sectors of the retail industry. There can be

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no assurance that economic conditions or the level of demand for our services will improve or that they will not deteriorate. If there is another period of economic downturn or stagnation, our results of operations may be adversely affected.

Changes in the cost of paper could have a negative impact on our ability to service our indebtedness.

An increase in the cost of paper, a key raw material in our operations, may reduce our production volume and profits. If (i) we are not able to pass paper cost increases to our customers, or (ii) our customers reduce the size of their print advertising programs, our sales and profitability could be negatively affected. A decline in volume may decrease our cash flow, and make it difficult for us to service our level of debt.

Capacity in the paper industry has remained relatively stable in recent years. Increases or decreases in demand for paper have led to corresponding pricing changes and, in periods of high demand, to limitations on the availability of certain grades of paper, including grades used by us. A loss of the sources of paper supply or a disruption in those sources’ business or failure by them to meet our product needs on a timely basis could cause temporary shortages in needed materials which could have a negative effect on our net sales and profitability.

Regulations and government actions on direct marketing may affect us.

Federal and state legislatures have passed a variety of laws in recent years relating to direct marketing and related areas. This and similar future legislation, as well as other government actions, could negatively affect direct marketing activities by imposing restrictions on telemarketing and on advertising in certain industries such as tobacco and sweepstakes, increasing the postal rate and tightening privacy regulations. Therefore, they might have a substantial impact on our direct mail services, which represent approximately 21% of our consolidated revenues for the twelve months ended December 31, 2005, as we and our customers adjust our behaviors in response to such legislation and government actions.

We rely on key management personnel.

Our success will depend, in part, on the efforts of our executive officers and other key employees, including Mr. Dean D. Durbin. Mr. Durbin was appointed chief executive officer of the Company in February 2006. Mr. Donald E. Roland, former CEO, remains on the Company’s board of directors as a non-executive chairman. Mr. Durbin has significant years of service in the advertising and marketing industry. We believe Mr. Durbin provides us with an in-depth understanding of the needs of our customers and is key to delivering our integrated advertising products and marketing services. In addition, the market for qualified personnel is competitive and our future success will depend upon, among other factors, our ability to attract and retain these key personnel. The loss of the services of any of our key management personnel or the failure to attract and retain employees could have a material adverse effect on our results of operations and financial condition due to disruptions in leadership and continuity of our business relationships. The Company believes that Mr. Durbin, with more than eight years of experience with Vertis and its predecessor company Treasure Chest Advertising, as well as more than 30 years of experience in the advertising and marketing industry, will provide the insight and leadership necessary to continue to successfully manage the Company as Mr. Roland’s successor.

There can be no assurance that Thomas H. Lee Partners L.P and its affiliates (“THL L.P.”), as controlling shareholder, will exercise its control in our best interests as opposed to its own best interests.

Because of its position as controlling shareholder of Vertis, THL L.P. is able to exercise control over decisions affecting us, including:

·composition of our board of directors, and, through it, our direction and policies, including the appointment and removal of officers;

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·mergers or other business combinations and opportunities involving us;

·further issuance of capital stock or other securities by us;

·payment of dividends; and

·approval of our business plans and general business development.

There can be no assurance that THL L.P. will exercise its control in our best interests as opposed to its best interests as controlling shareholder.

In addition, THL L.P. owns debt securities in Vertis and Vertis Holdings, and may choose to take actions that are in its best interests as a debt holder, rather than a shareholder.

ITEM 1BUNRESOLVED STAFF COMMENTS

None.

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ITEM 2PROPERTIES

Executive Offices

Our principal executive offices are located at 250 West Pratt Street, Baltimore, Maryland, and comprise approximately 56,000 square feet of leased space, pursuant to a lease agreement expiring on August 31, 2007.

Production Facilities

As of December 31, 2005, we owned 13 and leased30 production facilities, with an aggregate area of approximately 3,400,000 square feet. The leased production facilities have lease terms expiring at various times from 2006 to 2016. We believe that our facilities are suitable and adequate for our business. We continually evaluate our facilities to ensure they are consistent with our operational needs and business strategy. A summary of production facilities is set forth in the table below:

Locations	Square Footage	Lease Term Expiration
Advertising Inserts Locations
Atlanta, GA(1)	94,700	Fee Ownership
Charlotte, NC.	105,400	April 30, 2013
City of Industry, CA	103,000	September 30, 2006
Columbus, OH	141,185	December 31, 2014
Dallas, TX	91,649	October 31, 2012
East Longmeadow, MA.	159,241	February 2, 2016
Elk Grove Village, IL.	80,665	August 31, 2007
Greenville, MI	130,000	Fee Ownership
Lenexa, KS	89,403	Fee Ownership
Manassas, VA	108,120	May 31, 2014
Niles, MI.	90,000	Fee Ownership
Pomona, CA	144,542	May 31, 2006
Portland, OR	125,250	November 30, 2007
Riverside, CA	84,000	Fee Ownership
Sacramento, CA	57,483	Fee Ownership
Salt Lake City, UT	103,600	June 14, 2009
San Antonio, TX.	67,900	Fee Ownership
San Leandro, CA	143,852	November 30, 2014
Saugerties, NY.	225,000	Fee Ownership
Tampa, FL.	72,418	December 31, 2008
Direct Mail Locations
Bristol, PA.	123,000	Fee Ownership
Chalfont, PA	320,000	Fee Ownership
Chicago, IL	38,302	July 31, 2009
Monroe Township, NJ	57,987	February 28, 2009
Newark, NJ	22,692	December 31, 2007
Newark, NJ	23,000	Fee Ownership
North Brunswick, NJ	173,232	Fee Ownership
Rochester, NY	80,000	Fee Ownership
Other Locations
Atlanta, GA.	15,588	February 28, 2006
Atlanta, GA.	10,607	March 31, 2008
Chicago, IL	52,024	May 31, 2011
Clifton Park, NY	10,680	May 31, 2010
Harrison, NJ	21,957	May 31, 2010
Irvine, CA	28,000	September 30, 2006

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Irving, TX	91,649	October 31, 2012
Long Island City, NY	11,500	August 31, 2006
New York, NY	6,500	July 31, 2006
New York, NY	9,000	September 30, 2010
North Haven, CT	31,600	December 27, 2007
Richmond, VA.	4,600	March 30, 2009
San Antonio, TX.	7,927	April 30, 2011
St. Louis, MO	10,500	September 18, 2006
St. Louis, MO	30,300	December 31, 2006

(1)Comprised of two adjacent facilities.

Sales Offices and Other Facilities

We maintain a large number of facilities for use as sales offices and other administrative purposes. All but two of the sales offices and other facilities are leased, with lease terms expiring at various times from 2006 to 2008.

ITEM 3LEGAL PROCEEDINGS

Certain claims, suits and complaints (including those involving environmental matters) which arise in the ordinary course of our business have been filed or are pending against us. We believe, based upon the currently available information, that all the results of such proceedings, individually, or in the aggregate would not have a material adverse effect on our consolidated financial condition or results of operations.

ITEM 4SUBMISSION OF VOTE TO SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of our fiscal year ended December 31, 2005.

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PART II

ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not applicable.

ITEM 6SELECTED FINANCIAL DATA

The following table sets forth selected historical consolidated financial data for Vertis and its subsidiaries as of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001. The historical data for the three-year period ended December 31, 2005 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report. The historical data for the two-year period ended December 31, 2002 has been derived from our audited consolidated financial statements not included herein. We sold our subsidiaries in Europe (the “European Subsidiaries”) during the fourth quarter of 2005. The table below presents the operating results of our European Subsidiaries as discontinued operations for all applicable periods.

EBITDA is included in this Annual Report as it is the primary measure we use to evaluate our performance. EBITDA, as we used it for this purpose, represents (loss) income from continuing operations before cumulative effect of accounting change, plus:

·Interest expense (net of interest income),

·Income tax expense (benefit), and

·Depreciation and amortization of intangibles.

We present EBITDA here to provide additional information regarding our performance and because it is the measure by which we gauge the profitability and assess the performance of our segments. EBITDA is not a measure of financial performance in accordance with accounting principles generally accepted in the United States of America (“GAAP”). You should not consider it an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Our calculation of EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. A full quantitative reconciliation of EBITDA to its most directly comparable GAAP measure, (loss) income from continuing operations before cumulative effect of accounting change, is set forth in Note 21 to our consolidated financial statements included elsewhere in this Annual Report.

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You should read the following selected historical consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the related historical consolidated financial statements and related notes included elsewhere in this Annual Report.

	Year ended December 31,
	2005		2004		2003		2002		2001
	(in thousands)
Operating data:
Net sales	$ 1,510,288		$ 1,506,839		$ 1,448,475		$ 1,536,361		$ 1,709,686
Operating income	105,627	(1)	113,644	(2)	82,139	(3)	117,755	(4)	64,559	(5)
Interest expense, net(6)	128,821		132,809		136,557		134,374		132,816
Loss from continuing operations before income tax expense (benefit) and cumulative effect of accounting change	(30,847	)	(66,850	)	(48,658	)	(19,969	)	(82,487	)
Loss from continuing operations before cumulative effect of accounting change	(22,840	)	(916	)	(97,212	)	(17,981	)	(58,935	)
(Loss) gain from discontinued operations, net(7)	(148,790	)(8)	(10,217	)	1,287		(15,565	)(9)	4,072
Cumulative effect of accounting change, net	1,600	(10)					86,600	(9)
Net loss	(173,230	)	(11,133	)	(95,925	)	(120,146	)	(54,863	)
Balance sheet data (at year end):
Working capital(11)	$ (74,064	)	$ (72,738	)	$ (60,857	)	$ (19,911	)	$ (74,221	)
Net property, plant and equipment	336,665		359,617		381,414		423,520		471,909
Total assets	872,639		1,049,795		1,147,498		1,134,998		1,337,346
Long-term debt (including current portion)	1,049,059		1,024,042		1,051,917		1,092,972		1,161,948
Accumulated deficit	(926,895	)	(753,661	)	(742,512	)	(646,579	)	(526,442	)
Other stockholder’s equity	401,017		405,101		400,314		396,587		378,625
Common stockholder’s (deficit) equity	(525,878	)	(348,560	)	(342,198	)	(249,992	)	(147,817	)
Other data:
Capital expenditures	$  42,200		$  45,636		$  40,195		$  39,638		$  66,390
Cash flows provided by operating activities	5,693		47,545		89,046		96,719		130,370
Cash flows used in investing activities	43,765		18,992		40,903		41,412		67,559
Cash flows provided by (used in) financing activities	39,332		(29,608	)	(53,176	)	(68,736	)	(50,619	)
EBITDA(12)	162,705		133,415		164,161		196,175		143,722
Dividends to parent	4								7,054
Ratio of earnings to fixed charges	—	(13)	—	(13)	—	(13)	—	(13)	—	(13)

(1)Includes $17.1 million of restructuring expenses.

(2)Includes $4.5 million of restructuring expenses.

(3)Includes $14.6 million of restructuring expenses.

(4)Includes $16.6 million of restructuring expenses.

(5)Includes $41.7 million of restructuring expenses.

(6)Interest expense, net includes interest expense, amortization of deferred financing fees, interest income and the write-off of deferred financing fees.

(7)In the fourth quarter of 2005, we sold our Europe segment, which is accounted for a discontinued operation in all periods.

(8)Includes $136.2 million in asset impairment charges which includes $111.2 million resulting from our write-off of the goodwill of our Europe segment and $25.0 million of Europe long-lived assets written off. Loss from discontinued operations also includes $1.6 million loss on sale of the Vertis Europe segment based on net proceeds of $2.4 million.

(9)Effective January 1, 2002, we adopted SFAS 142. Under this statement, goodwill and intangible assets with indefinite lives are no longer amortized. Under the transitional provisions of SFAS 142, our goodwill was tested for impairment as of January 1, 2002. Each of our reporting units fair value was determined based on a valuation study using the discounted cash flow method and the guideline company method. As a result of our impairment test completed in the third quarter of 2002, we recorded an impairment loss of $86.6 million to reduce the carrying value of goodwill to its implied fair value. This amount was reflected as a cumulative effect of accounting change. Additionally, a $21.8 million impairment loss was recorded at our Vertis Europe

15

segment and is included in the loss from discontinued operations. Impairment in both cases was due to a combination of factors including operating performance and acquisition price.

(10)Effective December 31, 2005, we adopted FIN 47 “Accounting for Conditional Asset Retirement Obligations”. FIN 47 requires that companies recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Upon adoption of FIN 47, we estimated and accrued for the cost to retire our leasehold improvements based on the present value of these costs. As a result of the adoption, we recorded a cumulative effect of accounting change of $1.6 million for the year ended December 31, 2005.

(11)We are a party to an agreement to sell certain trade accounts receivable of certain of our subsidiaries (see Note 7 to our consolidated financial statements for a more detailed discussion). The agreement allows for a maximum of $130.0 million of trade accounts receivable to be sold at any time based on the level of eligible receivables. We sell our trade accounts receivable through a bankruptcy-remote wholly-owned subsidiary, however, we maintain an interest in the receivables and are still responsible for the servicing and collection of those accounts receivable. The amount sold under these facilities, net of retained interest, was $130.0 million at December 31, 2005 and 2004, $122.5 million at December 31, 2003, $125.9 million at December 31, 2002, and $130.0 million as of December 31, 2001. These amounts are reflected as reductions of Accounts receivable, net on our consolidated balance sheet included in this Annual Report.

(12)A full quantitative reconciliation of EBITDA to its most directly comparable GAAP measure, consolidated (loss) income from continuing operations before cumulative effect of accounting change, is provided as follows:

	2005		2004		2003		2002		2001
	(in thousands)
Consolidated loss from continuing operations before cumulative effect of accounting change	$ (22,840	)	$   (916	)	$ (97,212	)	$ (17,981	)	$ (58,935	)
Interest expense, net	128,821		132,809		136,557		134,374		132,816
Income tax (benefit) expense	(8,007	)	(65,934	)	48,554		(1,988	)	(23,552	)
Depreciation and amortization of intangibles	64,731		67,456		76,262		81,770		93,393
EBITDA	$ 162,705		$ 133,415		$ 164,161		$ 196,175		$ 143,722

(13)Earnings were inadequate to cover fixed charges by $31.0 million, $66.9 million, $48.9 million, $20.0 million and $82.9 million for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively. See Exhibit 12.1 to this Annual Report for this computation. Net loss for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, includes $64.7 million, $67.5 million, $76.3 million, $81.8 million and $93.4 million, respectively, of non-cash depreciation and amortization expense.

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ITEM 7MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section provides a review of the financial condition and results of operations of Vertis during the three years ended December 31, 2005. The analysis is based on the consolidated financial statements and related notes that are included elsewhere in this Annual Report, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Introductory Overview

Executive Summary

Vertis is a leading provider of targeted advertising, media and marketing services. We deliver a comprehensive range of solutions that simplify, improve and maximize the effectiveness of multiple phases of our customers’ marketing campaigns from the inception of an advertising concept, through design, production, targeted distribution, and ultimately to providing advertising effectiveness measurement.

We operate through two reportable business segments based on the way management views and manages the Company. These business segments are Advertising Inserts and Direct Mail.  Advertising Inserts provides a full product line of printed targeted advertising products inserted into newspapers. Direct Mail provides personalized direct mail products and various targeted direct marketing services. In addition, we also provide premedia and related services as well as media planning and placement services. These services will be referred to as “Corporate and Other” for discussion with this Annual Report. Also, included in Corporate and Other are corporate costs incurred by the Company.

We use independent third-party source materials to track statistics pertaining to advertising growth. Based on these publications, advertising growth in 2004 increased by approximately 7% domestically and 6% worldwide, which represents a shift back to the historical growth rates experienced prior to 2001. The projection for 2005 US advertising growth was a 4.6% overall increase, and in 2006 projections estimate a 5.8% increase in domestic advertising spending.

Our operating performance in 2005 reflects strong growth in Direct Mail, which posted year-over-year growth in volume and pricing, including product, customer and equipment mix. Especially strong growth was realized in financial, pharmaceutical, and consumer product end-user groups. With respect to Advertising Inserts, overcapacity in this portion of the advertising industry continued to fuel competitive pricing pressures and lowered our volume, which was only partially offset by improved pricing, including product, customer and equipment mix. Although it is difficult to quantify, we believe product, customer, and equipment mix, especially in inserts, are the major drivers in the improvement in pricing. These mix changes occur routinely as customers manage their overall advertising spending. Generally, the decline in net sales in Advertising Inserts was broad-based, however, certain sectors within our retail customer base grew year-over-year, for example drug stores and general merchandisers. Although not as significant in terms of total net sales, the percentage decline from newspaper products was much greater than what we experienced in the retail space.

We expect the industry-wide overcapacity that has impacted Advertising Inserts to continue. To mitigate the negative impact of industry-wide overcapacity in this marketplace, we routinely maximize capacity utilization by allocating production to the most efficient equipment throughout the year. Additionally, in the first quarter of 2006 we closed our inserts production facility in Niles, Michigan.

Cost management continues to be a major focus of ours. Cost reductions have been accomplished through streamlining of shared service and corporate functions, combining operations, closing unprofitable locations, staff reductions and asset write-offs. These actions have resulted in the Company incurring approximately $129 million in restructuring charges since our recapitalization in 1999, of which approximately $10 million related to restructurings within our European segment. Our 2005 restructuring

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activities yielded year-over-year savings of approximately $20 million, which offset other operating cost increases including staffing and energy costs.

On December 22, 2004, the Company entered into a $200 million, four-year revolving credit agreement (the “Credit Facility”).  The Credit Facility replaces the $250 million revolving credit facility that was to expire in December 2005 (the “Prior Credit Facility”). The Prior Credit Facility was repaid in full and terminated concurrent with the closing of the Credit Facility.

In November 2005, we entered into a new $130 million three-year revolving trade receivables facility (the “A/R Facility”), terminating in December 2008, to sell substantially all trade accounts receivable generated by subsidiaries in the U.S. through the issuance of $130.0 million variable rate trade receivable backed notes. The A/R Facility replaces the previous three-year agreement entered into in December 2002 (the “2002 Facility”) which was due to expire on November 30, 2005. Funds advanced pursuant to the A/R Facility were used to pay off the remaining obligations under and terminate the 2002 Facility.

Liquidity continues to be a primary focus for the Company. The Company has approximately $111.6 million available to borrow under the Credit Facility, its primary source of funds. By terminating the Prior Credit Facility and entering into the Credit Facility, the Company has increased its financial flexibility by eliminating leverage and interest rate coverage covenants. Under the Credit Facility, the Company is subject to a minimum EBITDA covenant requiring the Company to maintain EBITDA, as defined by the Credit Facility, of $160 million on a trailing twelve-month basis. As of December 31, 2005, the Company was in compliance with all of its covenants, financial or otherwise. While we currently expect to be in compliance in future periods, there can be no assurance that we will continue to meet the minimum EBITDA required under the covenant. Based upon the latest projections for 2006, including results from January and February, we believe we will be in compliance in the upcoming year.

The Company continues to be highly leveraged. However, as a result of the refinancing of the Company’s revolving credit facility and other refinancings over the last few years, no significant debt repayments are due until 2008 and beyond. This, combined with the elimination of the leverage and interest rate covenants as discussed above, has allowed the Company to restructure the business and focus on improving operations.

Capital expenditures amounted to approximately $42.2 million, $45.6 million and $40.2 million in 2005, 2004 and 2003, respectively. Capital spending has been directed toward projects that improve efficiency, maintain our infrastructure, and upgrade our equipment base. We expect the level of capital expenditures in 2006 to be relatively consistent with the 2005 level of capital expenditures.

A large portion of the Company’s revenue is generally seasonal in nature. However, our efforts to expand our other product lines as well as expand the market for our advertising inserts to year-round customers, have reduced the overall seasonality of our revenues. Of our full year 2005 net sales, excluding the adjustment made in December 2005 related to the change in our revenue recognition policy surrounding the recording of print revenue, 23.2% of net sales were generated in the first quarter, 23.9% in the second, 24.8% in the third and 28.1% in the fourth. This adjustment is excluded here to present a more representative depiction of the Company’s quarterly sales. See Note 3 to the consolidated financial statements, included elsewhere in this Annual Report, for further discussion of this accounting change. Profitability continues to follow a more seasonal pattern due to the higher margins and efficiencies gained from running at higher capacity during the fourth quarter holiday production season. On the other hand, lower volume negatively impacts margins since we are not able to fully leverage fixed depreciation, amortization, interest and other costs that are incurred evenly throughout the year. Based on our historical experience and projected operations, we expect our operating results in the near future to be strongest in the fourth quarter and softest in the first.

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Discontinued Operations

During the third quarter of 2005, the Company determined to account for the operations of its European segment as a discontinued operation. The Company decided to sell the two divisions in this segment primarily because each has incurred operating losses in the past two years and neither was deemed a fit within the Company’s overall strategy. The direct mail division of this segment was sold on October 3, 2005 and the premedia division of this segment was sold on December 14, 2005.

The loss for Europe was $148.8 million and $10.2 million for the years ended December 31, 2005 and 2004, respectively, and is included in discontinued operations on the Company’s consolidated financial statements. Included in the 2005 loss are impairment charges of $136.2 million to write off the Europe goodwill and write-down other Europe long-lived assets, and a $1.6 million loss on sale of our Europe segment based on net proceeds of $2.4 million. Net sales for Vertis Europe, which is also included in the loss from discontinued operations for the years ended December 31, 2005 and December 31, 2004, were $100.0 million and $138.6 million, respectively. Interest was not allocated to discontinued operations as the European business was divested on a debt-free basis. Prior year financial statements have been restated to present the operations of Vertis Europe as a discontinued operation. See Note 4 to our consolidated financial statements included in this Annual Report for further discussion.

Restructuring

In 2005 the Company began a restructuring program (the “2005 Program”) aimed at regionalizing and streamlining operations to capitalize on operating efficiencies and improve productivity and consistency, and reducing the Company’s overall cost base. The 2005 Program included reductions in work force of approximately 490 employees and the closure of six premedia facilities, one advertising inserts warehouse, and two advertising inserts regional offices, some of which are associated with the consolidation of operations. The Company estimates the costs associated with actions taken under the 2005 Program to be $19.9 million (net of estimated sublease income of $1.3 million), substantially all of which were recorded in 2005. The execution of the 2005 Program is complete as of December 31, 2005. Included in the 2005 Program, are restructuring costs of $3.5 million related to reductions in workforce of approximately 130 employees in the Company’s Europe segment. These costs are included in the loss from discontinued operations on the Company’s condensed consolidated statement of operations. Cost savings achieved in 2005 as a result of the 2005 Program were $19.6 million, $18.9 million of which were staffing related with the remainder related to decreased facility costs. These savings impacted both the cost of production and the selling, general and administrative line items of the consolidated statement of operations included elsewhere in this Annual Report. Annual cost savings expected in future years as a result of the 2005 Program are estimated at $27.9 million, $26.8 million of which relate to expected staffing cost savings and $1.1 million related to facility costs savings.

Liabilities for severance costs related to future restructurings are not accrued as the amounts cannot be reasonably estimated. The Company is continuously evaluating the need to implement restructuring programs to rationalize its costs and improve operating efficiency. It is likely that the Company will incur additional restructuring costs in 2006 in an on-going effort to achieve these objectives.

In the year ended December 31, 2005, under the 2005 Program, the Advertising Inserts segment recorded $7.0 million in severance and related costs associated with the elimination of approximately 186 positions and $0.8 million in facility closure costs associated with the closure of two regional offices and one warehouse. The Direct Mail segment recorded $2.0 million in severance and related costs in 2005 associated with the elimination of approximately 33 positions.  Corporate and Other recorded $5.1 million in severance and related costs in 2005 associated with the elimination of approximately 91 positions and $1.7 million in facility closure costs associated with the closure of six premedia facilities offset by $0.1 million in gains from the sale of assets related to the closure of one of the premedia facilities. Additionally,

19

$0.7 million in costs were recorded in the first quarter of 2005 related to the amendment of an executive level employment agreement announced in 2004, as discussed below.

Included in the segment severance amounts above are approximately $2.5 million of aggregate severance costs allocated to the segments based on percentages established by management. These severance costs are related to the elimination of approximately 50 shared services positions for which the costs are allocated to the segments on a monthly basis.

In 2004, the Advertising Inserts segment recorded $0.2 million in severance costs. Corporate and Other recorded $0.3 million in severance costs due to headcount reductions of approximately 50 employees, and $3.5 million in facility closure costs. These costs were associated with the 2003 Program discussed below. Additionally, in 2004 the Company announced an amendment of an executive level employment agreement resulting in an estimated cost of $1.2 million. Corporate and Other recorded $0.5 million in restructuring costs in 2004 related to this amendment.

The Company began a restructuring program in the U.S. and the U.K. in the third quarter of 2003 (the “2003 Program”), the execution of which was complete as of June 2004. The 2003 Program included the closure of facilities, some of which were associated with the consolidation of operations; transfer of certain positions to the corporate office; reductions in work force of approximately 260 employees; and the abandonment of assets associated with vacating these premises. As of December 31, 2004, costs associated with the 2003 Program were $19.2 million (net of estimated sublease income of $7.7 million) of which approximately $3.0 million are non-cash costs. The Europe portion of the 2003 Program was complete as of December 31, 2003. The North America portion of the 2003 Program was complete as of the second quarter of 2004, however an adjustment to reduce restructuring expense of $3.0 million was made in December 2004 as the amount of facility closure costs expected to be paid was recalculated based on a revised assumption of estimated sublease income.

In 2003 the Advertising Inserts segment and the Direct Mail segment recorded, under the 2003 Program, $0.7 million and $0.2 million in severance costs, due to headcount reductions of approximately 20 employees each, respectively. Also under the 2003 Program, Corporate and Other recorded $3.9 million in severance costs due to headcount reductions of approximately 160 employees, $6.9 million in facility closure costs and $3.0 million in asset write-offs related to the closure of five facilities.

In connection with our restructuring actions discussed above, we recorded $17.1 million, $4.5 million, and $14.6 million of restructuring charges in the years ended December 31, 2005, 2004 and 2003, respectively. We expect to pay $5.4 million of the accrued restructuring costs in 2006 and the remainder, approximately $3.3 million, by 2011. For more information about our restructuring charges, see Note 5 to our consolidated financial statements included in this Annual Report.

Factors Affecting Comparability

Several factors can affect the comparability of our results from one period to another. Primary among these factors are the cost of paper, changes in business mix, the timing of restructuring expenses and the realization of the associated benefits.

The cost of paper is a principal factor in our pricing tocertain customers since a substantial portion of net sales includes the cost of paper. Therefore, changes in the cost of paper and changes in the proportion of paper supplied by our customers significantly affects our revenue generated from the sale of advertising insert and direct mail products, both of which are products where paper is a substantial portion of the costs of production. Changes in the cost of paper do not materially impact our net earnings since we are generally able to pass on increases in the cost of paper to our customers, while decreases in paper costs generally result in lower prices to customers.

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Variances in expenses expressed in terms of percentage of net sales can fluctuate based on changes in business mix and are influenced by the change in revenue directly resulting from changes in paper prices and the proportion of paper supplied by our customers. As our business mix changes, the nature of products sold in a period can lead to offsetting increases and decreases in different expense categories.

Also affecting the comparability of the results from year-to-year are the following items:

·Effect of the accounting policy revisions implemented in 2005 which include the revision to our revenue recognition policy surrounding the recording of print revenue and a revision to our maintenance parts capitalization policy. These revisions resulted in a $12.7 million decrease in revenue and a $16.0 million decrease in costs of production,

·$44.0 million loss in September 2004 from the termination of our leasehold interest in real estate properties (see further discussion in “Sources of Funds” section),

·$10.1 million insurance recovery in 2003 from a settlement to the legal proceeding arising from a life insurance policy which covered the former chairman of Vertis Holdings, and

·$67.4 million tax valuation allowance recorded in 2003 on deferred tax assets.

You should consider all of these factors in reviewing the discussion of our operating results.

Results of Operations

The following table presents major components from our consolidated statements of operations and consolidated statements of cash flows.

	Year ended December 31,								Percentage of Sales
	2005		2004			2003			2005		2004		2003
	(in thousands)
Net sales	$	1,510,288	$	1,506,839		$	1,448,475		100.0	%	100.0	%	100.0	%
Costs of production	1,166,708		1,160,473			1,109,650			77.3	%	77.1	%	76.6	%
Selling, general and administrative	156,103		160,765			165,775			10.3	%	10.7	%	11.4	%
Restructuring charges	17,119		4,501			14,649			1.1	%	0.2	%	1.0	%
Depreciation and amortization of intangibles	64,731		67,456			76,262			4.3	%	4.5	%	5.3	%
Total operating costs	1,404,661		1,393,195			1,366,336			93.0	%	92.5	%	94.3	%
Operating income	$	105,627	$	113,644		$	82,139		7.0	%	7.5	%	5.7	%
Other data:
Cash flows provided by operating activities	$	5,693	$	47,545		$	89,046
Cash flows used in investing activities	43,765		18,992			40,903
Cash flows provided by (used in)
financing activities	39,332		(29,608		)	(53,176		)
EBITDA	162,705		133,415			164,161			10.8	%	8.9	%	11.3	%

EBITDA  represents income (loss) from continuing operations before cumulative effect of accounting change, plus

·interest expense (net of interest income)

·income tax expense (benefit), and

·depreciation and amortization of intangibles.

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We present EBITDA here to provide additional information regarding our performance and because it is the measure by which we gauge the profitability and assess the performance of our segments. EBITDA is not a measure of financial performance in accordance with GAAP. You should not consider it an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Our calculation of EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. A full quantitative reconciliation of EBITDA to its most directly comparable GAAP measure, income (loss) from continuing operations before cumulative effect of accounting change, is provided as follows:

	Year ended December 31,
	2005			2004			2003
	(in thousands)
Loss from continuing operations before cumulative effect of accounting change	$	(22,840	)	$	(916	)	$	(97,212	)
Interest expense, net	128,821			132,809			136,557
Income tax (benefit) expense	(8,007		)	(65,934		)	48,554
Depreciation and amortization of intangibles	64,731			67,456			76,262
EBITDA	$	162,705		$	133,415		$	164,161

Results of Operations—2005 compared to 2004

Net Sales

For the year ended December 31, 2005, our consolidated net sales increased $3.5 million, or 0.2%, from $1,506.8 million in 2004 to $1,510.3 million in 2005.

At our Advertising Inserts segment, net sales decreased $19.0 million, or 1.8%, from $1,065.2 million for the year ended December 31, 2004 to $1,046.2 million for the year ended December 31, 2005. The primary changes in Advertising Inserts sales are as follows:

·The pass-through cost of paper increased by $27.0 million.

·Volume declined by $49.7 million.

·Pricing, including product, customer and equipment mix, increased by $11.2 million.

·Included in the net sales variance is a $7.4 million decrease resulting from the impact of the Company’s revision to its revenue recognition policy surrounding the recording of print revenue. See Note 3 to the consolidated financial statements included elsewhere in this Annual Report for further discussion.

At our Direct Mail segment, net sales increased $18.0 million, or 6.0%, from $297.9 million for the year ended December 31, 2004 to $315.9 million for the year ended December 31, 2005. The primary changes in Direct Mail sales are as follows:

·The pass-through cost of paper increased by $4.4 million.

·Volume increased by $4.3 million.

·Pricing, including product, customer and equipment mix, increased by $9.3 million.

·Included in the net sales variance is a $5.3 million decrease resulting from the impact of the Company’s revision to their revenue recognition policy surrounding the recording of print revenue. See Note 3 to the consolidated financial statements included elsewhere in this Annual Report for further discussion.

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Corporate and Other net sales decreased $2.2 million, or 1.4%, from $153.5 million for the year ended December 31, 2004 to $151.3 million for the year ended December 31, 2005. The primary changes in Corporate and Other sales are lower premedia sales partially offset by increased media and planning sales.

See also “Segment Performance” for a discussion of EBITDA by segment.

Operating Expenses

For the year ended December 31, 2005, our consolidated costs of production increased $6.2 million, or 0.5%, from $1,160.5 million in 2004 to $1,166.7 million in 2005, primarily attributable to a $31.4 million increase in the cost of paper. Additional cost increases include $8.9 million in freight costs and $4.8 million in utilities costs. Offsetting these cost increases are decreases in the cost of ink and other material expenses consumed, contract services related to the production process, and direct labor amounting to $12.1 million, $7.4 million, and $3.9 million, respectively. Additionally, in relation to the Company’s revision to our print revenue recognition policy and our maintenance parts capitalization policy, decreases in costs of production of $9.8 million and $6.2 million were recognized in 2005, respectively (see Note 3 to the consolidated financial statements included in this Annual Report).  These changes exclude the impact of volume changes on the Company’s cost of production.

Selling, general and administrative expenses decreased $4.7 million, or 2.9%, for the year ended  December 31, 2005, from $160.8 million in 2004 to $156.1 million in 2005. This change is attributable to a $7.1 million decrease in staffing costs offset by a $2.0 million write-off of amounts owed to the Company by a bankrupt customer.

Restructuring charges for the year ended December 31, 2005 totaled $17.1 million as compared to $4.5 million in 2004. See the “Restructuring” section for a detailed discussion of restructuring charges.

Other Expenses (Income)

Interest expense, net decreased $4.0 million in the year ended December 31, 2005 as compared to 2004. Included in the 2004 interest amount was $1.8 million of deferred financing fees written off in connection with the termination of our Prior Credit Facility (as defined in the “Debt Financing” section) in December 2004. Replacing the Prior Credit Facility was the Credit Facility (as defined in the “Debt Financing” section), which included lower funding costs than the prior agreement. Additionally, the Company held more US dollar denominated debt in 2005 than in 2004. This debt carried a lower rate of interest than borrowings in British pounds sterling, thus contributing to the decrease in interest expense. All of these factors, coupled with a lower average revolver balance, effectively offset an increase in interest rates related to the Credit Facility in 2005.  See Note 11 to our consolidated financial statements included in this Annual Report for further discussion of debt and related transactions.

Other, net decreased $40.0 million for the year ended December 31, 2005 from $47.7 million in 2004 to $7.7 million. This decrease is primarily due to a $44.0 million non-cash loss recorded in 2004 related to the termination of our leasehold interest in five real estate properties in two lease-leaseback transactions entered into in 1998 (see “Sources of Funds” section). For a more detailed discussion of the other miscellaneous components of Other, net see Note 18 to our consolidated financial statements included in this Annual Report.

Loss from continuing operations before cumulative effect of accounting change

Loss from continuing operations before cumulative effect of accounting change was $22.8 million for the year ended December 31, 2005, an increase of $21.9 million compared to a loss of $0.9 million for the year ended December 31, 2004. Included in the 2005 loss is an $8.3 million income tax benefit related to an agreement with the Internal Revenue Service to settle a tax liability relating to the termination of

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leasehold interests discussed in the “Sources of Funds” section  (see also “Other Factors” section below). Included in the 2004 loss is the $44.0 million loss from the termination of leasehold interests offset by a $66.7 million tax benefit related to the loss. Excluding these items, loss from continuing operations before cumulative effect of accounting change increased $7.5 million, or 31.8% in 2005 as compared to 2004. Included in this increase is a $12.6 million increase in restructuring charges, the components of which are discussed above. The balance of the increase in loss from continuing operations reflects the aforementioned changes in net sales and costs, as discussed above. See also “Segment Performance” below.

Segment Performance

Set forth below is a discussion of the performance of our business segments based on EBITDA, which is the measure reported to our chief operating decision maker for the purpose of making decisions about allocating resources to the segment and assessing performance of the segment. A tabular reconciliation of segment EBITDA to its most directly comparable consolidated GAAP measure, income (loss) from continuing operations before cumulative effect of accounting change, in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 131, “Disclosure about Segments of an Enterprise and Related Information”, is contained in Note 21 to our consolidated financial statements included elsewhere herein.

At the Advertising Inserts segment, EBITDA amounted to $125.4 million for the year ended December 31, 2005, a decrease of $18.2 million, or 12.7%, compared to $143.6 million in the comparable 2004 period. The primary changes in EBITDA are as follows:

·Volume declined by $24.9 million.

·Pricing, including product, customer and equipment mix, increased by $18.9 million.

·Restructuring costs increased $7.6 million and utility costs and freight costs, both adjusted for volume, increased $5.8 million and $4.7 million, respectively.

·Offsetting the decline in EBITDA is a $3.7 million net effect of the accounting revisions implemented in 2005 which include the revision to our revenue recognition policy surrounding the recording of print revenue and a revision to our maintenance parts capitalization policy. These accounting revisions resulted in an increase in EBITDA from the prior year. See Note 3 to the consolidated financial statements included elsewhere in this Annual Report.

At the Direct Mail segment, EBITDA amounted to $41.8 million for the year ended December 31, 2005, an increase of $3.8 million, or 10.0%, compared to $38.0 million in the comparable 2004 period. The primary changes in EBITDA are as follows:

·Volume increased by $3.1 million.

·Pricing, including product, customer and equipment mix, increased by $11.8 million.

·Restructuring costs increased $2.0 million. Additionally, other costs increased an aggregate of $9.3 million, primarily in repairs and maintenance, certain raw materials and staffing costs.

·The impact of the accounting revisions implemented in 2005, which include the revision to our revenue recognition policy surrounding the recording of print revenue and a revision to our maintenance parts capitalization policy, resulted in a $461 thousand decrease in Direct Mail EBITDA.

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Corporate and Other recorded an EBITDA loss of $4.4 million for the year ended December 31, 2005, a decrease of $43.8 million, or 90.9%, compared to a $48.2 million EBITDA loss for the year ended December 31, 2004. The primary changes in EBITDA are as follows:

·A loss of $44.0 million was incurred in 2004 from the termination of our leasehold interest in real estate properties.

·Restructuring costs increased $3.1 million.

Results of Operations—2004 compared to 2003

Net Sales

For the year ended December 31, 2004, our consolidated net sales increased $58.3 million, or 4.0%, from $1,448.5 million in 2003 to $1,506.8 million in 2004.

At our Advertising Inserts segment, net sales increased $48.7 million, or 4.8%, from $1,016.5 million for the year ended December 31, 2003 to $1,065.2 million for the year ended December 31, 2004. The primary changes in Advertising Inserts sales are as follows:

·The pass-through cost of paper increased by $47.7 million.

·Volume increased by $10.5 million.

·Pricing, including product, customer and equipment mix, declined by $11.4 million.

At our Direct Mail segment, net sales increased $6.9 million, or 2.4%, from $291.0 million for the year ended December 31, 2003 to $297.9 million for the year ended December 31, 2004. The primary changes in Direct Mail sales are as follows:

·The pass-through cost of paper increased by $2.2 million.

·Volume increased by $14.3 million.

·Pricing, including product, customer and equipment mix, declined by $8.5 million.

Corporate and Other net sales decreased $5.9 million, or 3.7%, from $159.4 million for the year ended December 31, 2003 to $153.5 million for the year ended December 31, 2004. The primary changes in Corporate and Other sales are due to lower premedia sales partially offset by increased media and planning sales.

See also “Segment Performance” for a discussion of EBITDA by segment.

Operating Expenses

For the year ended December 31, 2004, our consolidated costs of production increased $50.8 million, or 4.6%, from $1,109.7 million in 2003 to $1,160.5 million in 2004. The increase in paper and ink consumed represents $53.0 million for the year ended December 31, 2004. Additional increases in costs of production are attributable to higher energy costs, freight, repairs and maintenance and contract services. Offsetting these increased costs are decreases in staffing costs, particularly direct labor, group insurance and the cost of other materials used in the production process.

Restructuring charges for the year ended December 31, 2004 totaled $4.5 million. The comparable 2003 period included restructuring charges of $14.6 million. In 2004, the Advertising Inserts segment recorded $0.2 million in severance costs. Corporate and Other recorded $0.3 million in severance costs due to headcount reductions of approximately 50 employees, and $3.5 million in facility closure costs. These costs were associated with the 2003 Program discussed below. Additionally, in 2004 the Company announced an amendment of an executive level employment agreement resulting in an estimated cost of

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$1.2 million. Corporate and Other recorded $0.5 million in restructuring costs in 2004 related to this amendment.

Other Expenses (Income)

Interest expense, net decreased $3.7 million in the year ended December 31, 2004 as compared to 2003. Included in the 2003 interest amount was $11.0 million of deferred financing fees written off in connection with the retirement of the Term A and B loans, as well as $6.6 million in interest expense recorded on these loans prior to their write off in June 2003. In 2004, we recorded a full year of interest expense, $34.1 million, on the 9 ¾% senior secured second lien notes which were issued in June 2003 as compared to seven months of interest expense, $19.4 million, in 2003. This $14.7 million increase in interest expense was more than offset by the $17.6 million decrease from the prior year associated with the 2003 amounts discussed above. See Note 11 to our consolidated financial statements included in this Annual Report for further discussion of debt and related transactions.

The $53.5 million year-over-year change in Other, net from $5.8 million of income in 2003 to $47.7 million of expense in 2004 is primarily due to the $44.0 million non-cash loss associated with the termination of the Company’s leasehold interest in the properties as discussed in the “Sources of Funds” section, and a $10.1 million recovery recorded in 2003 received from a settlement to the legal proceeding arising from a life insurance policy which covered the former Chairman of Vertis Holdings, Inc. For a more detailed discussion of the other miscellaneous components of Other, net see Note 18 to our consolidated financial statements included in this Annual Report.

Loss from continuing operations before cumulative effect of accounting change

Loss from continuing operations before cumulative effect of accounting change was $0.9 million for the year ended December 31, 2004, a decrease of $96.3 million, or 99.1%, compared to a loss of $97.2 million for the year ended December 31, 2003. During 2004, we recorded a tax benefit of $65.9 million of which $66.7 million was the result of the termination of our leasehold interest in the real estate properties as discussed above. Included in the 2003 net loss is an increase of $67.4 million in the tax valuation allowance on deferred tax assets (see “Other Factors” below).  Loss from continuing operations before income taxes and cumulative effect of accounting change increased from the comparable prior year period by $18.2 million. This increase is a result of the changes in net sales and costs, as discussed above.

Segment Performance

Set forth below is a discussion of the performance of our business segments based on EBITDA, which is the measure reported to our chief operating decision makers for the purpose of making decisions about allocating resources to the segment and assessing performance of the segment. A tabular reconciliation of segment EBITDA to the directly comparable consolidated GAAP measure, (loss) income from continuing operations before cumulative effect of accounting change, in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 131, “Disclosure about Segments of an Enterprise and Related Information”, is contained in the notes to our consolidated financial statements included elsewhere herein.

At the Advertising Inserts segment, EBITDA amounted to $143.6 million for the year ended December 31, 2004, an increase of $4.6 million, or 3.3%, compared to $139.0 million in the comparable 2003 period. The primary changes in EBITDA are as follows:

·Volume increased by $5.3 million.

·Pricing, including product, customer and equipment mix, declined by $2.0 million.

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At the Direct Mail segment, EBITDA amounted to $38.0 million for the year ended December 31, 2004, an increase of $3.8 million, or 11.1%, compared to $34.2 million in the comparable 2003 period. The primary changes in EBITDA are as follows:

·Volume increased by $10.1 million.

·Pricing, including product, customer and equipment mix, declined by $4.9 million.

Corporate and Other recorded an EBITDA loss of $48.2 million for the year ended December 31, 2004, an increase in loss of $39.2 million, or greater than 100%, compared to a $9.0 million EBITDA loss for the year ended December 31, 2003. The primary changes in EBITDA are as follows:

·A loss of $44.0 million was incurred in 2004 from the termination of our leasehold interest in real estate properties.

·Restructuring costs decreased $9.5 million.

·The remainder of the change was driven by the revenue decline as discussed in the “Net Sales” section above.

Liquidity and Capital Resources

Sources of Funds

We fund our operations, acquisitions and investments with internally generated funds, revolving credit facility borrowings, sales of accounts receivable, and issuances of debt.

We believe that the facilities in place, as well as our cash flows, will be sufficient to meet operational needs (including capital expenditures, restructuring costs and interest payments) for the next twelve months and beyond. At December 31, 2005, we had approximately $111.6 million available to borrow under our revolving credit facility (the “Credit Facility” as defined in the “Debt Financing” section below). The maximum availability under the Credit Facility is $200 million, limited to a borrowing base calculated as follows: 85% of the Company’s eligible receivables; 65% of the net amount of eligible raw materials, finished goods, maintenance parts, unbilled receivables and the residual interest in the Company’s $130 million trade receivables securitization (see Note 7 to the consolidated financial statements included elsewhere in this Annual Report); and 45% of eligible machinery, equipment and owned real estate. The eligibility of such assets included in the calculation is set forth in the credit agreement. In addition, as is customary in asset-based agreements, there is a provision for the agent, in its reasonable credit judgment, to establish reserves against availability based on a change in circumstances. The agent’s right to alter existing reserves requires written consent from the borrowers when Compliance EBITDA, as defined in Note 11 to the consolidated financial statements, is in excess of $180 million on a quarterly trailing twelve-month basis. The agent is not required to obtain written consent when Compliance EBITDA on a quarterly trailing twelve-month basis is less than $180 million. At December 31, 2005, the Company’s borrowing base was calculated to be $201.1 million and the Company’s Compliance EBITDA was $182.5 million.

There can be no assurance, however, that our operations will generate sufficient cash flows or that we will always be able to refinance our current debt. In the event we are unable to obtain sufficient financing, we would pursue other sources of funding such as debt offerings by Vertis Holdings, equity offerings by us and/or Vertis Holdings or asset sales.

On September 14, 2004, we entered into a termination and release agreement whereby we terminated our leasehold interest in five real estate properties located in Austria. As a result of this transaction, we received net proceeds of approximately $31 million, after transaction expenses. These proceeds were

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applied against our revolving credit facility. As a result of the transaction, we recorded a non-cash loss related to the termination and release of $44.0 million and a tax benefit of $66.7 million.

Items that could impact our liquidity are described below.

Contractual Obligations

The following table discloses aggregate information about our contractual obligations as of December 31, 2005 and the periods in which payments are due:

Contractual Obligations	Total		Less than 1 year		1–3 years		3–5 years		After 5 years
	(In thousands)
Long-term debt	$	1,049,059			$	69,864	$	979,195
Interest payments(1)	398,495		$111,809		223,619		63,067
Operating leases	85,031		25,477		29,226		14,531		$15,797
Total contractual cash obligations	$	1,532,585	$	137,286	$	322,709	$	1,056,793	$	15,797

(1)Interest payments relate only to the interest on the Company’s debt for which the interest rate is fixed. The amount excludes interest owed under the Company’s revolving credit facility, for which the interest rate fluctuates. For further discussion, see Note 11 to the consolidated financial statements included in this Annual Report. The balance of the revolving credit facility at December 31, 2005 was $69.9 million and the weighted-average interest rate was 7.33%.

The Company has contracts covering the purchases of ink and press supplies, (i.e. plates, blankets, solutions). These contracts, which range from 1 to 3 years in length, include target minimum quantities and prices. All of these agreements allow for shortfalls of purchase minimums to be made up over the life of the contract. In addition, each of the agreements allows for the reduction in obligations for a decline in volume experienced by Vertis, and all have competitive pricing clauses, whereby suppliers’ prices must remain competitive in the market or the purchase minimums can be adjusted. Because of these variable factors, the amounts are not included in the table above.

Debt Financing

On December 22, 2004, we entered into a $200 million, four-year revolving credit agreement (the “Credit Facility”) consisting of a revolving credit facility of up to $200 million that provides for issuances of up to $45 million in letters of credit. The Credit Facility matures December 22, 2008 with no repayment of principal until maturity. The Credit Facility replaced the $250 million revolving credit facility that was to expire in December 2005 (the “Prior Credit Facility”). The Prior Credit Facility was terminated on December 22, 2004 and the outstanding balance, totaling $102.9 million, was repaid in full using funds from the Credit Facility. No early termination penalties were incurred.

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Our Credit Facility, the outstanding 9 3/4% notes due April 1, 2009, the outstanding 10 7/8% notes due June 15, 2009, and the outstanding 13 1/2% senior subordinated notes due December 7, 2009 all contain customary covenants including restrictions on dividends and investments. In particular, these debt instruments all contain high-yield debt covenants imposing limitations on the payment of dividends or other distributions on or in respect of our capital stock. Substantially all of our assets are pledged as collateral for the outstanding debt under the Credit Facility. All of our debt has customary provisions requiring prepayment in the event of a change in control and from the proceeds of asset sales, as well as cross-default provisions. In addition, the Credit Facility includes a minimum EBITDA covenant requiring us to maintain Compliance EBITDA of $160 million on a trailing twelve-month basis. At December 31, 2005, our trailing twelve-month Compliance EBITDA as calculated under the credit agreement is $182.5 million. If we are unable to maintain this minimum Compliance EBITDA amount, the bank lenders could require us to repay any amounts owing under the Credit Facility. At December 31, 2005, we were in compliance with our debt covenants.

While we currently expect to be in compliance in future periods, there can be no assurance that our financial covenants will continue to be met. Based upon the latest projections for 2006, including actual results for January and February, we believe we will be in compliance in the upcoming year. For further information on our long-term debt, see Note 11 to the consolidated financial statements included elsewhere in this Annual Report.

Off-Balance Sheet Arrangements

In December 2002, we entered into a three-year agreement, due to expire on November 30, 2005, to sell substantially all trade accounts receivable generated by subsidiaries in the U.S. (the “2002 Facility”) through the issuance of $130.0 million variable rate trade receivable backed notes. In November 2005, we entered into a new $130 million three-year revolving trade receivables facility (the “A/R Facility”) terminating in December 2008. Funds advanced pursuant to the A/R Facility were used to pay off the remaining obligations under and terminate the 2002 Facility.

Under the A/R Facility, as well as the 2002 Facility previously in place, the Company sells its trade accounts receivable through a bankruptcy-remote wholly-owned subsidiary. However, we maintain an interest in the receivables and have been contracted to service the accounts receivable. We received cash proceeds for servicing of $3.0 million and $3.2 million in 2005 and 2004, respectively. These proceeds are fully offset by servicing costs.

The A/R Facility allows for a maximum of $130.0 million of trade accounts receivable to be sold at any time based on the level of eligible receivables and limited to a borrowing base linked to net receivables balances and collections. Additional deductions may be made if we fail to maintain a consolidated Compliance EBITDA of at least $180 million for any rolling four fiscal quarter period. Compliance EBITDA is the Consolidated EBITDA as reflected in Note 21 to our financial statements, included elsewhere herein, adjusted for certain items as defined in the credit agreement. In addition, the A/R Facility includes certain targets related to its receivables collections and credit experience including a minimum EBITDA of $160 million. There are also covenants customary for facilities of this type including requirements related to the characterization of receivables transactions, credit and collection policies, deposits of collections, maintenance by each party of its separate corporate identity including maintenance of separate records, books, assets and liabilities and disclosures about the transactions in the financial statements of Vertis Holdings and its consolidated subsidiaries. Failure to meet the targets or the covenants could lead to an acceleration of the obligations under the A/R Facility or the sale of assets securing the A/R Facility.

At December 31, 2005 and 2004, accounts receivable of $130.0 million had been sold under both the A/R Facility and the 2002 Facility, respectively, and as such are reflected as reductions of accounts receivable. At December 31, 2005 and 2004, we retained an interest in the pool of receivables in the form

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of overcollateralization and cash reserve accounts of $71.8 million and $58.0 million, under the A/R Facility and the 2002 Facility respectively, which is included in Accounts receivable, net on the consolidated balance sheet at allocated cost, which approximates fair value. The proceeds from collections reinvested in securitizations amounted to $1,595.7 million and $1,558.4 million in 2005 and 2004, respectively.

Fees for the program vary based on the amount of interests sold and the London Inter Bank Offered Rate (“LIBOR”) plus an average margin of 50 basis points under the A/R Facility and 90 basis points under the 2002 Facility. The loss on sale, which approximated the fees, totaled $5.2 million in 2005, $3.1 million in 2004 and $2.6 million in 2003, and is included in Other, net.

We have no other off-balance sheet arrangements that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.

Working Capital

Our current liabilities exceeded current assets by $74.1 million at December 31, 2005 and by $72.7 million at December 31, 2004. This represents a decrease in working capital of $1.4 million for the year ended December 31, 2005. Included in the current asset and current liability amounts for 2004 are amounts held for sale related to our Vertis Europe segment.  The two divisions comprising our Vertis Europe segment were sold in the fourth quarter of 2005 (see “Discontinued Operations” section), and therefore our 2005 consolidated balance sheet does not include Vertis Europe. Excluding the current assets and current liabilities held for sale in 2004, our current liabilities exceeded current assets by $88.8 million at December 31, 2004. This represents an increase in working capital from continuing operations of $14.7 million for the year ended December 31, 2005. The excess of current liabilities over current assets reflects the impact of accounts receivable sold under the A/R Facility.

We use the proceeds from the accounts receivable sales to reduce long-term borrowings under our revolving credit facility. After the sale of all trade accounts receivable, however, we still retain an interest in the receivables in the form of over-collateralization and cash reserve accounts, and we have been contracted to service the receivables. Therefore, if we add back the accounts receivable of $130.0 million sold under the A/R Facility as of December 31, 2005 and 2004, and reflect the offsetting increase in long-term debt as if the A/R Facility were not in place, our working capital from continuing operations at December 31, 2005 and December 31, 2004 would have been $55.9 million and $41.2 million, respectively. The ratio of current assets to current liabilities as of December 31, 2005 was 0.76 to 1 (1.18 to 1, excluding the impact of the A/R Facility) compared to 0.71 to 1 as of December 31, 2004 (1.13 to 1, excluding the impact of the A/R Facility).

The increase in working capital after adding back accounts receivable sold under the A/R Facility was due primarily to fluctuations in operating assets and liabilities, mainly accounts receivable and accounts payable.

Summary of Cash Flows

Cash Flows from Operating Activities

Net cash provided by continuing operating activities in 2005 decreased by $43.9 million from the 2004 level.   This decrease is primarily the result of changes in the timing of the settlement of payables and collection of receivables.

Net cash provided by continuing operating activities in 2004 decreased by $28.4 million from the 2003 level. This is principally the result of a use of cash in accounts payable of $15.4 million in 2004 versus a source of cash of $15.2 million in 2003.

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Net cash used in the operating activities of discontinued operations decreased by $2.0 million in 2005 from the 2004 level. In 2004, net cash used in the operating activities of our discontinued operations was $8.4 million compared to net cash provided by the operating activities of our discontinued operations of $4.8 million in 2003.

Cash Flows from Investing Activities

Net cash used for investing activities in 2005 increased by $24.8 million from the 2004 level, primarily due to the $31.1 million in proceeds received in 2004, as discussed below, and $3.4 million in expenditures in 2005 related to our acquisition of Elite (see Note 6 to our financial statements included elsewhere within this Annual Report).  Offsetting these amounts is $2.4 million in net proceeds received from the sale of our Vertis Europe divisions (see “Discontinued Operations” section). Additionally, included in the change in cash used in investing activities is a $3.7 million decrease associated with investing activities of our discontinued operations.

Net cash used for investing activities in 2004 decreased by $21.9 million when compared to 2003, primarily due to proceeds of $31.1 million from the termination of our leasehold interest in real estate properties (see “Sources of Funds” above) offset by a $5.4 million increase in capital expenditures in 2004 and a $2.1 million decrease in proceeds from the sale of property, plant and equipment.

Cash Flows from Financing Activities

In 2005, net cash provided by financing activities was $39.3 million as compared to a $29.6 million net usage of cash in 2004. Financing activities of our discontinued operations contributed $10.3 million of this fluctuation. The majority of the remainder relates to funding fluctuations under our revolving credit facility which reflect the relative levels of cash provided by operating activities and capital expenditures in each respective year.

In 2004, net cash used in financing activities decreased $23.6 million, $17.3 million of which was associated with our discontinued operations. During 2004 we entered into a $200 million, four-year revolving credit agreement and terminated the Prior Credit Facility, repaying the outstanding balance of $102.9 million using funds from the Credit Facility. Net cash used in financing activities in 2004 reflects these debt transactions.

Other Factors

On August 30, 2005, we reached a tentative settlement agreement with the IRS resolving disputes over the tax deductibility of net losses relating to the five leasehold interests in real estate properties that we entered into in 1998, and which we terminated in the third quarter of 2004 (see “Sources of Funds”). On January 23, 2006, we signed a closing agreement with the IRS. The closing agreement is subject to final approval from the Congressional Joint Committee on Taxation. As a result of this settlement agreement, we reduced our tax reserves related to the IRS examination from $10.3 million to $ 2.0 million. The remaining amount owed to the IRS and state tax authorities is classified as accrued income taxes in the consolidated balance sheet included in our financial statements. The reduction resulted in an $8.3 million tax benefit in 2005.

Additionally, in the fourth quarter of 2005, we sold the stock of our Europe direct mail subsidiary which generated a capital loss carryforward in the U.S. of $137.0 million. Also in the fourth quarter, our Europe premedia subsidiary sold the stock of its subsidiaries generating a U.K. capital loss carryforward of  $29.0 million. The U.S. capital loss carryforward expires in 2011. The U.K. capital loss can be carried forward indefinitely.

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At the end of 2005, the Company’s net operating loss carryforwards were $217.0 million. This amount is included in the consolidated Vertis Holdings net operating loss carryforward. The carryforwards expire beginning in 2007 through 2026.

Our valuation allowance related to our deferred tax asset, which was $40.5 million at the beginning of 2005, was increased by $92.0 million to $132.5 million at the end of 2005. The valuation allowance reserves all deferred tax assets that will not be offset by reversing taxable temporary differences. This treatment is required under SFAS No. 109, “Accounting for Income Taxes”, when in the judgment of management, it is not more likely than not that sufficient taxable income will be generated in the future to realize the deductible temporary difference. Our deferred tax assets and tax carryforwards remain available to offset taxable income in future years, thereby lowering any future cash tax obligations. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

New Accounting Pronouncements

In December 2004, the FASB issued SFAS 123R, which requires all share-based payments to employees, including grants of employee stock options and restricted stock, to be recognized in the financial statements based on their grant date fair values. The proforma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. Under SFAS 123R, companies must determine the transition method, either retroactive or prospective, to be used at the date of adoption; the appropriate fair value model to be used for valuing share-based payments; and the amortization method for compensation cost. The provisions of this Statement shall be effective for us in the reporting period beginning January 1, 2006. The adoption of this statement is not expected to have a material impact on our results of operations or financial position.

In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations”, an interpretation of FASB Statement No. 143. FIN 47 requires that Companies recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This interpretation is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application for interim financial information is permitted but is not required. Early adoption of this Interpretation is encouraged. We adopted FIN 47 in 2005 and as a result recorded a $1.6 million cumulative effect of accounting change (see our consolidated statement of operations included elsewhere in this Annual Report).

In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3”. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement does not change the guidance for reporting the correction of an error in previously issued financial statements or a change in accounting estimate.  The provisions of this Statement shall be effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. We are not able to assess at this time the future impact of this Statement on our consolidated financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of Statements No. 133 and 140” (“SFAS 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial

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instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company is not able to assess at this time the future impact of this Statement on its consolidated financial position or results of operations.

Application of Critical Accounting Policies

Our significant accounting policies are described in Note 2 to our consolidated financial statements included in this Annual Report. Several accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We base our estimates and judgments on historical experience, terms of existing contracts, observance of trends in the industry, information provided by customers and outside sources and various other assumptions that we believe to be reasonable under the circumstances. Significant accounting policies which we believe involve the application of significant judgment and discretion by management and are therefore “critical” accounting policies include:

Revenue Recognition

We provide a wide variety of print and print related services and products for specific customers, primarily under contract. Revenue is not recognized until the earnings process has been completed in accordance with the terms of the contracts. Print revenue is recognized when the product is shipped. Revenue from premedia operations is recognized upon the completion of orders. Unbilled receivables are recorded for completed services or products which remain unbilled as of the period end.

In 2005, the Company revised its revenue recognition policy. Under the new policy, revenue for printed materials is recognized when the product is shipped. Previously, revenue was recorded when these materials were completed and off press. This revision resulted in a $12.7 million decrease in revenue and a $2.9 million decrease in net income for the year ended December 31, 2005. Additionally, unbilled accounts receivable increased by $12.7 million and finished goods inventory balances increased by $9.8 million as a result of the change.

The Company charges customers for shipping and handling charges. The amounts billed to customers are recorded as net sales and actual charges paid by the Company are included in costs of production in the consolidated statements of operations.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the failure of our customers to make payments. If actual customer payments are less than our estimates, we would need to increase the allowance for doubtful accounts, which would adversely affect our results of operations. See the Financial Statement Schedule, which accompanies the Financial Statements in this Annual Report on Form 10-K, for a history of our charges to the allowance for doubtful accounts and write-offs taken over the three-year period ended December 31, 2005.

Long-lived Assets

We evaluate the recoverability of our long-lived assets, including property, plant and equipment and intangible assets, when there are changes in economic circumstances or business objectives that indicate the carrying value may not be recoverable. Our evaluations include estimated future cash flows, profitability and estimated future operating results and other factors determining fair value. As these

33

assumptions and estimates may change over time, it may or may not be necessary to record impairment charges.

Income Taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. We estimate future taxable income in assessing the need for the valuation allowance. In the event we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax assets would increase income in the period that determination was made.

Defined Benefit Pension Plans

Accounting for defined benefit pension plans requires various assumptions, including, but not limited to discount rates, expected rates of return on plan assets and future compensation rates. We evaluate these assumptions at least once each year and make changes as conditions warrant. Changes to these assumptions will increase or decrease our reported income, which will result in changes to the recorded benefit plan assets and liabilities.

We determined the discount rates using a measurement date of December 31, 2005. The weighted average discount rate assumed in 2005 was 5.50%. We developed our expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plans’ assets. Our expected long-term rate of return on plan assets is based on a target allocation of assets as follows: 60% for equity and 40% for fixed income securities. We assumed returns of 9%-11% for the equity securities and 6.5% for fixed income securities.

Item 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Qualitative Information

Our primary exposure to market risks relates to interest rate fluctuations on variable rate debt, which bears interest at the US Prime rate.

The objective of our risk management program is to seek a reduction in the potential negative earnings effects from changes in interest rates. To meet this objective, consistent with past practices, we intend to vary the proportions of fixed-rate and variable-rate debt based on our perception of interest rate trends and the marketplace for various debt instruments. We currently do not have any derivatives.

Quantitative Information

At December 31, 2005, 16.8% of our long-term debt held a variable interest rate (including off-balance sheet debt related to the accounts receivable securitization facility, the fees on which are variable).

If interest rates increased 10%, the expected effect related to variable-rate debt would be to increase net loss for the twelve months ended December 31, 2005 by approximately $1.3 million.

For the purpose of sensitivity analysis, we assumed the same percentage change for all variable-rate debt and held all factors constant. The sensitivity analysis is limited in that it is based on balances outstanding at December 31, 2005 and does not provide for changes in borrowings that may occur in the future.

ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Index to the consolidated financial statements and schedule on Page F-1 for our consolidated financial statements and notes thereto and supplementary schedule.

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ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9ACONTROLS AND PROCEDURES

The Company has carried out an evaluation under the supervision and with the participation of Vertis’ management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of December 31, 2005. No significant changes were made in our internal controls over financial reporting during the fourth quarter of 2005 that materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

ITEM 9BOTHER INFORMATION

None.

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PART III

ITEM 10DIRECTORS AND EXECUTIVE OFFICERS OF VERTIS

The following table sets forth certain information regarding the directors and executive officers of Vertis.

Name	Age		Positions
Dean D. Durbin	53	President and Chief Executive Officer
Stephen E. Tremblay	46	Chief Financial Officer
David Laverty	48	Senior Vice President and General Manager—Advertising Inserts
David P. Colatriano	43	Senior Vice President and General Manager—Direct Mail and Premedia
John V. Howard, Jr.	44	Chief Legal Officer and Secretary
Ann M. Raider	58	Chief Strategy Officer
Gary L. Sutula	61	Chief Information Officer
Donald E. Roland	63	Non-Executive Chairman of the Board of Directors
Ciara A. Burnham	39	Director
John T. Dillon	67	Director
Anthony J. DiNovi	43	Director
Thomas H. Lee	61	Director
Soren L. Oberg	35	Director
Michael S. Rawlings	51	Director
Scott M. Sperling	48	Director

Dean D. Durbin was named President and Chief Executive Officer of Vertis in February 2006. Prior to that he had served as President from November of 2004 and had been Chief Financial Officer of Vertis from March 2000 to Feb 2005. Mr. Durbin has also been Senior Vice President and Chief Financial Officer of Treasure Chest Advertising Company, Inc. (“TC Advertising”), one of our former operating units, since September 1997. Prior to joining TC Advertising, Mr. Durbin served as Vice President and Chief Financial Officer at Thomson Professional Publishing, and served for more than 13 years with the McGraw-Hill Companies, completing his tenure as Vice President and Group Controller, Construction Information Group. He is on the Board of Directors of the Baltimore Museum of Industry.

Stephen E. Tremblay was named Chief Financial Officer of Vertis in February 2005. From May 2003 to February 2005, he served as Senior Vice President Finance and Treasurer of Vertis and from May 1998 to May 2003 he served as Vice President Finance of Vertis. Prior to joining Vertis as Group Controller in 1997, Steve held senior financial management positions with Wellman, Inc. and served as a senior manager at Ernst & Young.

David Laverty was named Senior Vice President and General Manager of the Advertising Inserts segment of Vertis in April 2005. Prior to that, Mr. Laverty spent 25 years at Revlon Inc. where he held several senior-level positions, including Senior Vice President of Materials Management, Senior Vice President of Purchasing and Supply Chain, and Vice President of Manufacturing Operations for various Revlon facilities.

David P. Colatriano was named Senior Vice President and General Manager of Direct Mail and Premedia in April 2005. Prior to that, he served as Group President of Vertis North America East since August 2003. From June 2000 to August 2003, Mr. Colatriano served as the Group President of the former Direct Marketing Services segment of Vertis. Prior to June 2000 he held numerous positions at Webcraft Inc., beginning in January 1987, including Senior Vice President and General Manager, Vice President of

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Operations and Division Director. Prior to joining Webcraft, David worked as an Industrial Engineer with the Boeing Company.

John V. Howard, Jr. was named Chief Legal Officer and Secretary in February 2005. In July 2000, Mr. Howard was named Senior Vice President¾General Counsel of Vertis. Previously, Mr. Howard was Executive Vice President and General Counsel for Columbine JDS Systems, Inc. and Executive Vice President and General Counsel for Laser Tech Color, Inc. Prior to joining Columbine JDS Systems, Inc. and Laser Tech Color, Mr. Howard was Counsel and Chief Intellectual Property Counsel for Andersen Worldwide, S.C. in Chicago, the parent entity of Arthur Andersen and Andersen Consulting, in charge of all worldwide intellectual property matters for the Andersen organization. Before leaving for Andersen he was Chief Counsel for Quark, Inc., in Denver, developer of Quark XPress, in charge of all worldwide legal matters. Mr. Howard is also a Trustee on the Board of Trustees of the Hammond-Harwood House.

Ann M. Raider joined Vertis in April 2005 as Chief Strategy Officer. Prior to joining Vertis, Ms. Raider served from August 1999 to April 2005 as Senior Vice President of Sales and Marketing at SmartSource Direct, a division of News America Marketing. In addition, Ms. Raider co-founded Consumer Card Marketing, Inc., a loyalty marketing company, and held senior management positions at Shawmut National Corporation, H.P. Hood, and other corporations. Ms. Raider has also served as a marketing consultant to such organizations as Staples and Bank One.

Gary L. Sutula has been Chief Information Officer since February 2005. Prior to joining Vertis, Mr. Sutula served as Chief Operating Officer and Chief Information Officer of gLimit, Inc.; Corporate Senior Vice President and Chief Information Officer at R.R. Donnelley; Vice President and Chief Information Officer at Transamerica Financial Services; and Senior Vice President and Chief Information Officer at American Savings Bank (Washington Mutual). He is a board member of the Center for Information and Technology Management, Loyola University Chicago, and past President of the Chicago chapter of the Society for Information Management.

Donald E. Roland has served as a director of Vertis and Vertis Holdings since June 2000 and was named Chairman of the Board on April 2, 2001. He was Chief Executive Officer of Vertis from June 2000 until February 2006. He will continue to serve as non-executive Chairman of the Board of Directors beginning March 2006. Prior to June 2000, Mr. Roland was the President beginning in October 1994 and, starting in June 1995, Chief Executive Officer of TC Advertising. Mr. Roland joined TC Advertising in 1983 as Senior Vice President of Operations and became Executive Vice President in 1993. Prior to joining TC Advertising, he was at Times Mirror Press, the commercial printing division of the Los Angeles Times. In his 17 years at Times Mirror Press, Mr. Roland held numerous management positions including Director of Computer Graphics and Vice President of Operations. Mr. Roland is on the Board of Directors of the University of Maryland, Baltimore Foundation. He is also on the Advisory Board of the School of Continuing and Professional Studies, Center for Graphic Communications Management & Technology at New York University.

Ciara A. Burnham has been a director of Vertis and Vertis Holdings since April 2004. Ms. Burnham is a Senior Managing Director of Evercore Group Holdings, an affiliate of Evercore Partners, an advisory and investment firm. Ms. Burnham originally joined the firm in 1997 and rejoined in 2003. From 2001 through 2003, she was a founding partner of Five Mile Capital Partners, a hedge fund management company. Prior to joining Evercore, she was an equity research analyst with Sanford C. Bernstein & Co., Inc. and previously spent six years in consulting, most recently as an engagement manager at McKinsey & Co., Inc. Ms. Burnham also serves on the Board of Specialty Products & Insulation Co.

John T. Dillon has been a director of Vertis and Vertis Holdings since April 2005. In March 2005, Mr. Dillon became Vice Chairman of Evercore Capital Partners, a private equity fund, and a Senior Managing Director of Evercore Partners, an advisory and investment firm.  Prior to that, Mr. Dillon served as Chairman and CEO of paper and forest products company International Paper from April 1996 until

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October 2003.  Following his retirement, Mr. Dillon served, and continues to serve, as a director of Caterpillar Inc., Kellogg Co. and E.I. DuPont de Nemours, and currently sits on the board of two privately held companies.  Mr. Dillon is a past Chairman of the Business Roundtable.

Anthony J. DiNovi has been a director of Vertis since March 2001 and Vertis Holdings since December 1999. Mr. DiNovi has been employed by Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee Company since 1988 and currently serves as Co-President. Mr. DiNovi is currently a Director of American Media, Inc., Endurance Specialty Insurance, Ltd., Eye Care Centers of America, Inc., Michael Foods, Inc., Nortek, Inc., US LEC Corporation and various other private corporations.

Thomas H. Lee has been a director of Vertis since May 2001 and Vertis Holdings since December 1999. Mr. Lee founded Thomas H. Lee Partners, L.P. (formerly the Thomas H. Lee Company) in 1974 and since that time has served as its President. Mr. Lee serves or has served as a Director of numerous public and private companies in which the Lee Company and its affiliates have invested, including Finlay Enterprises, Inc., General Nutrition Companies, Metris Companies, Inc., Playtex Products, Inc., Snapple Beverage Corp., The Smith & Wollensky Restaurant Group, Inc., Wyndham International, Inc., Warner Music Group and New Refco Group Ltd., LLC. In addition, Mr. Lee is a Member of J.P. Morgan Chase & Co. National Advisory Board.

Soren L. Oberg has been a director of Vertis and Vertis Holdings since May 2001. Mr. Oberg has been employed by Thomas H. Lee Partners, L.P., and its predecessor Thomas H. Lee Company since 1993. From 1992 to 1993, Mr. Oberg worked at Morgan Stanley & Co., Inc. in the Merchant Banking Division. Mr. Oberg also serves on the boards of American Media, Inc., Cumulus Media Partners, Grupo Corporativo Ono and several other private companies.

Michael S. Rawlings has been a director of Vertis and Vertis Holdings since January 2003. Mr. Rawlings is also a partner at CIC Partners L.P. and a Director of ACE Cash Express, Inc. Prior to that, he was the President of Pizza Hut, Inc. from 1997 to 2002.

Scott M. Sperling has been a director of Vertis since May 2001 and Vertis Holdings since December 1999. Mr. Sperling has been employed by Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee Company since 1994 and currently serves as Co- President. Mr. Sperling is currently a Director of Houghton Mifflin Company, Fisher Scientific International, Inc., Wyndham International, Warner Music Group, ProSiebensat.1 Media AG, as well as several private companies.

The term of office of each executive officer is until the organizational meeting of our board of directors following the next annual meeting of our stockholders and until a successor is elected and qualified, or until that officer’s death, resignation, retirement, disqualification or removal.

Each of our directors was elected to hold office until the next annual meeting of our stockholders and until his successor is elected and qualified and subject to his death, resignation, retirement, disqualification or removal.

Audit Committee and Audit Committee Financial Expert

The Company has established a separate Audit Committee of the Board of Directors, comprised of three of its members: Ciara A. Burnham, Soren L. Oberg and Scott M. Sperling. The Company’s Board of Directors has determined that it does not have an audit committee financial expert as defined under the regulations of the Securities and Exchange Commission serving on its Audit Committee, and it is not required to do so. Our Board of Directors believes that the current members of the Board of Directors have substantial investment and management experience and significant financial expertise, and as a consequence, are fully capable of discharging their responsibilities as members of the Company’s Board of

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Directors notwithstanding that no current member of the Audit Committee is an “audit committee financial expert” as so defined.

Code of Ethics

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller and certain other senior financial personnel. The code of ethics was filed as Exhibit 14.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and is incorporated by reference in this Annual Report on Form 10-K. There has been no change to the code of ethics from 2003.

ITEM 11EXECUTIVE COMPENSATION

The following table sets forth the compensation paid in respect of the years ended December 31, 2005, 2004 and 2003 to Dean D. Durbin, President and Chief Executive Officer of Vertis and to each of the four other most highly paid executive officers of Vertis (collectively, the “Named Executive Officers”) that were employed by the Company at December 31, 2005.

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Summary Compensation Table

		Annual Compensation						Long-Term Compensation Awards
					Other							All
					Annual						Securities	Other
					Compen-			Restricted		Nil Cost	Underlying	Compen-
		Salary	Bonus		sation			Stock Awards		Options	Options	sation
Name and Principal Position		($)	($)		($)			($)(1)		(#) (2)	(#)(3)	($)
Dean D. Durbin	2005	480,180	200,000			11,880	(4)						6,300	(5)
President and Chief	2004	421,587				11,880	(4)		295,035
Executive Officer	2003	400,000				11,880	(4)						5,615	(5)
Stephen E. Tremblay	2005	289,149	100,000	(6)		11,880	(4)						6,021	(5)
Chief Financial Officer	2004	222,473				11,880	(4)		23,900
	2003	205,750				11,945	(4)						5,171	(5)
David P. Colatriano	2005	300,000				11,880	(4)						17,095	(7)
Senior Vice President and	2004	333,082				11,880	(4)		136,868				8,971	(7)
General Manager—Direct	2003	298,071				11,880	(4)						3,600	(5)
Marketing and Premedia
John V. Howard, Jr.	2005	284,760	100,000	(6)		11,880	(4)						5,695	(5)
Chief Legal Officer and	2004	273,000				11,880	(4)		135,373
Secretary	2003	273,000				11,880	(4)						6,000	(5)
Donald E. Roland	2005	650,000				24,000	(4)						6,000	(5)
Non-Executive Chairman	2004	650,000				24,000	(4)		1,130,025
and Former Chief Executive	2003	650,000				24,000	(4)						5,375	(5)
Officer (8)

(1)Restricted shares were issued in June 2004 pursuant to an offer made to eligible employees to exchange outstanding eligible stock options for restricted common stock on a 4 for 1 basis. Additionally, restricted shares are issued to certain employees throughout the year under various other agreements. See “Employment Arrangements with Executive Officers” for further discussion. Restricted stock awards are valued using an estimate of $20.48, which is based on a range of values determined by an independent valuation. The restricted shares will vest immediately prior to a liquidity event, generally defined as a public offering of our common stock (where immediately following such offering, the aggregate number of shares of common stock held by the public, not including affiliates of the Company, represents at least 20% of the total number of outstanding shares), merger or other business combination, or a sale or other disposition of all or substantially all of our assets to another entity for cash and/or publicly traded securities. Additionally, the restricted shares will vest upon the death or disability of the Named Executive Officer while employed by the Company. Although not reflected in the table above, restricted shares valued at $2.0 million, $0.9 million, $0.6 million and $0.6 million were granted to Messrs. Durbin, Tremblay, Colatriano and Howard on March 6, 2006, respectively.

(2)Nil cost options were granted in July 2004 pursuant to an offer made to eligible U.K. employees to exchange outstanding eligible stock options for nil cost options on a 4 for 1 basis. These Nil Cost Options were cancelled in the fourth quarter of 2005 in conjunction with the sale of the two divisions comprising the Vertis Europe segment (see Note 2 to our consolidated financial statements).

(3)All stock option grants were made pursuant to the Vertis Holdings, Inc. 1999 Equity Award Plan (the “Stock Plan”) and are described below under “Employment Arrangements with Executive Officers”. As shown above, there were no options granted in 2005, 2004 or 2003.

(4)Represents an auto allowance.

(5)Represents amounts contributed to 401(k) plan for the Named Executive Officer.

(6)The Company’s Board of Directors authorized the payment of these bonuses in February 2006 in recognition of prior performance efforts by Mr. Tremblay and Mr. Howard.

(7)In 2005, includes $4,346 for amounts contributed to 401(k) plan for Mr. Colatriano as well as $12,749 paid to Mr. Colatriano under the Company’s deferred compensation plan. In 2004, includes $8,971 for amounts paid to Mr. Colatriano under the Company’s deferred compensation plan.

(8)Mr. Roland transitioned from his position as Chief Executive Officer of Vertis to Non-Executive Chairman of Vertis in February 2006.

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Option Values at End of Fiscal 2005

In 2004, the Company extended an offer to all eligible U.S.-based employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible options for restricted common stock on a 4 for 1 basis. Additionally, in 2004 the Company extended an offer to all eligible U.K.-based employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible options for Nil Cost Options on a 4 for 1 basis.  All Named Executive Officers holding stock options participated in the exchange offers and exchanged their options for either restricted stock or nil cost options as applicable. See “Employment Arrangements with Executive Officers” for further discussion. Thus, there are no options held by any of the named officers at December 31, 2005. No stock appreciation rights have been granted to any of the Named Executive Officers.

Supplemental Executive Retirement Plan

The following table sets forth annual amounts payable to Messrs. Durbin, Tremblay, Colatriano, and Howard upon their retirement under Vertis Holdings and Subsidiaries Supplemental Executive Retirement Plan (the “SERP”).

Pension Plan Table

	Years of Service
Remuneration	____5___		___10___		____15___		____20___		____25____			____30___
$150,000	$	7,500	$	15,000	$	22,000	$	30,000		$	37,500	$	45,000
175,000	8,750		17,500		26,500		35,000			43,750		52,500
200,000	10,000		20,000		30,000		40,000			50,000		60,000
225,000	11,250		22,500		33,750		45,000			56,250		67,500
250,000	12,500		25,000		37,500		50,000			62,500		75,000
275,000	13,750		27,500		41,250		55,000			68,750		82,500
300,000	15,000		30,000		45,000		60,000			75,000		90,000
500,000	25,000		50,000		75,000		100,000			125,000		150,000
600,000	30,000		60,000		90,000		120,000			150,000		180,000
700,000	35,000		70,000		105,000		140,000			175,000		210,000
800,000	40,000		80,000		120,000		160,000			200,000		240,000
900,000	45,000		90,000		135,000		180,000			225,000		270,000

The compensation covered by the SERP includes each of the participant’s entire annual base salary. Messrs. Durbin, Tremblay, Colatriano, and Howard currently have 8, 9, 19, and 8 years of service, respectively. See “Employment Arrangements with Executive Officers” below. Benefits under the SERP are computed by multiplying the participant’s average salary for the last five years prior to retirement by a percentage equal to one percent for each year of service up to a maximum of 30 years. Benefits under the SERP are not subject to a deduction for Social Security. Benefits under the SERP are subject to an offset for amounts paid to participants under the Retirement Income Plan as of June 30, 2002 and for matching contributions under the Vertis 401(k) plan.

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Compensation of Directors

Donald E. Roland, the Chief Executive Officer of Vertis at December 31, 2005, did not receive any additional compensation for service as a member of the Board of Directors of Vertis (the “Board”). At December 31, 2005, Mr. Roland was the only director of Vertis who was also an executive officer of Vertis. In February 2006, Mr. Roland transitioned from the position of Chief Executive Officer to Non-Executive Chairman of the Board. For information relating to compensation of Mr. Roland, see “Employment Arrangements with Executive Officers” below.

All other directors of Vertis (each a “non-employee director”), except Mr. Rawlings, are directly affiliated with either Thomas H. Lee Partners (“THL”) or Evercore Capital Partners (“ECP”), two significant shareholders of Vertis Holdings. Mr. Rawlings was appointed to the Board upon the nomination of THL and ECP pursuant to the Amended and Restated Investors’ Agreement among Vertis Holdings, THL, ECP and others, dated March 23, 2001. With the exception of Mr. Rawlings, as discussed below, none of the non-employee directors individually receive any compensation from Vertis for serving on the Board. Vertis, however, entered into consulting agreements with Thomas H. Lee Capital, LLC (an affiliate of THL), THL Equity Advisors IV, LLC (an affiliate of THL) and Evercore Advisor Inc. (an affiliate of ECP), pursuant to which Vertis pays annual fees to these parties in amounts of approximately $220,000, $780,000 and $250,000. See “Certain Relationships and Related Transactions.”

Mr. Rawlings receives the following annual compensation for his service:

·  $50,000 for service on the Board,

·  $50,000 for business consulting services, and

·  up to 7,500 shares of restricted stock over a three-year period, subject to the plan’s provisions.

Employment Arrangements with Executive Officers

Roland Employment Agreement.   The Company has entered into an employment agreement with Donald E. Roland, effective August 31, 2003 (the “Roland Agreement”), pursuant to which Mr. Roland currently serves as Chairman and Chief Executive Officer until February 2006. Mr. Roland and Vertis are currently finalizing a transition agreement that will replace the Roland Agreement and will contain mutually agreed upon terms and conditions that reflect Mr. Roland’s transition from Chairman and Chief Executive Officer to Non-Executive Chairman. Until the transition agreement is executed, the Roland Agreement remains in full force and effect. The Roland Agreement may be terminated by either Mr. Roland or the Company at any time for any reason. Under the Roland Agreement, Mr. Roland receives an annual base salary, as adjusted by the board of directors, and various employment benefits. In 2005, Mr. Roland received a base salary of $650,000. The Roland Agreement also provides that Mr. Roland receive an annual bonus targeted at not less than 75% of base salary (assuming bonus targets under the Company’s Executive Incentive Plan (the “EIP”), which are based upon the percentages of the achievements of an internally calculated pro forma EBITDA measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals, and certain fringe benefits, including participation in the SERP. The Company has entered into a Restricted Stock Agreement with Mr. Roland, effective May 20, 2004, pursuant to which Mr. Roland exchanged certain options to purchase shares of the common stock of the Company for 55,177 restricted shares of common stock of Vertis Holdings.

Durbin Employment Agreement.   The Company has entered into an employment agreement with Dean D. Durbin, effective August 30, 2003, which was amended by the parties on March 9, 2006 (the “Durbin Amendment”) (collectively, the “Durbin Agreement”). The Durbin Amendment changed Mr. Durbin’s position to President and Chief Executive Officer of Vertis and adjusted his annual base salary to $570,000. The Durbin Agreement may be terminated by either Mr. Durbin or the Company at any time for any reason. Under the Durbin Agreement, Mr. Durbin receives an annual base salary, as adjusted by the board of directors, and various employment benefits. In 2005, Mr. Durbin received a base salary of $480,180. The Durbin Agreement also provides that Mr. Durbin receive an annual bonus targeted at not less than 75% of

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base salary (assuming bonus targets under the EIP, which are based upon the percentages of the achievements of an internally calculated pro forma EBITDA measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals, and certain fringe benefits, including participation in the SERP. On November 12, 2004, the Company amended the Durbin Agreement to provide that Mr. Durbin will be eligible, at the discretion of the Board of Directors, for a special bonus not to exceed $200,000 based upon his performance and payable at the discretion of the Board of Directors within 2005 (“Durbin Special Bonus”). The Durbin Special Bonus shall not be includable in any change of control or other severance calculations within the Durbin Employment Agreement. The Company has entered into a Restricted Stock Agreement with Mr. Durbin, effective May 20, 2004, pursuant to which Mr. Durbin exchanged certain options to purchase shares of the common stock of the Company for 14,406 restricted shares of common stock of Vertis Holdings.

Colatriano Employment Agreement.   The Company has entered into an employment agreement with Dave Colatriano, effective August 15, 2003 (the “Colatriano Agreement”), pursuant to which Mr. Colatriano currently serves as Senior Vice President and General Manager for Direct Mail and Premedia. The Colatriano Agreement may be terminated by either Mr. Colatriano or the Company at any time for any reason. Under the Colatriano Agreement, Mr. Colatriano receives an annual base salary, as adjusted by the board of directors, and various employment benefits. In 2005, Mr. Colatriano received a base salary of $300,000. The Colatriano Agreement also provides that Mr. Colatriano receive a signing bonus of $50,000. The Colatriano Agreement also provides an annual bonus targeted at 50% of his base salary (assuming bonus targets under the EIP, which are based upon the percentages of the achievements of an internally calculated pro forma EBITDA measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals, and certain fringe benefits, including participation in the SERP. As part of the Colatriano Agreement, Mr. Colatriano also received a grant of 5,000 restricted shares of common stock of Vertis Holdings.

Howard Employment Agreement.   The Company has entered into an employment agreement with John Howard, effective August 31, 2003 (as amended to date, the “Howard Agreement”), pursuant to which Mr. Howard currently serves as Chief Legal Officer and Secretary. The Howard Agreement may be terminated by either Mr. Howard or the Company at any time for any reason. Under the Howard Agreement, Mr. Howard receives an annual base salary, as adjusted by the board of directors, and various employment benefits. In 2005, Mr. Howard received a base salary of $284,760. The Howard Agreement also provides that Mr. Howard receive an annual bonus targeted at not less than 75% of base salary (assuming bonus targets under the EIP, which are based upon the percentages of the achievements of an internally calculated pro forma EBITDA measure, are met) and which can rise to 200% of the target incentive if the Company exceeds its goals, and certain fringe benefits, including participation in the SERP.

Severance Arrangements with Certain Executive Officers.   The employment agreements of, Dean D. Durbin,  John V. Howard, Jr., and Donald E. Roland, described above, contain provisions regarding executive severance arrangements (the “Severance Arrangements”), with each of these executive officers. Pursuant to the Severance Arrangements, if an executive officer’s employment is terminated by the Company without “cause” or by the executive officer for “good reason” following a “change in control” of the Company, the executive officer will receive a lump sum amount equal to three times the sum of (x) the executive officer’s annual base salary in effect immediately prior to the date of termination and (y) the greater of the target bonus for the executive officer under the EIP in the year immediately preceding that in which the termination occurs and the annual bonus the executive officer would have earned for the fiscal year in which the date of termination occurs absent such termination. In addition, (i) the executive officer will receive a lump sum payment equal to the sum of any awarded but unpaid compensation under the EIP and a pro rata portion to the date of the executive officer’s termination of the aggregate value of all contingent incentive compensation awards to the executive officer for all uncompleted periods under the EIP calculated based on actual performance achieved for the fiscal year through the date of termination, (ii) all outstanding stock incentive awards (including stock options) other than options that vest upon

43

attainment of performance goals will immediately vest and remain exercisable until upon the date of termination and shall remain exercisable in accordance with the terms of the option grant; and (iii) the executive officer and his or her eligible dependents will be entitled to one year of continued medical, dental, prescription and vision care insurance coverages (the “Continued Coverage”), except that Mr. Roland is entitled to receive 18 months of the Continued Coverage.

If an executive officer leaves the Company absent a change of control of the Company, the Severance Arrangements provide the following payments and benefits:

·if the executive officer’s employment is terminated upon his or her death or disability, the Company will pay to the executive officer or his or her estate a lump sum equal to earned annual base salary and earned annual bonus for completed fiscal years. In addition, the Company will provide the executive officer or his or her eligible dependents six months of the Continued Coverage (except that Mr. Roland and his eligible dependents will receive twelve months of the Continued Coverage) and each such executive officer will then be entitled to elect continuation coverage in accordance with the Internal Revenue Code of 1986 (the “COBRA coverage”);

·if the Company terminates the executive officer’s employment for cause or the executive officer resigns other than for good reason, the Company will pay to the executive officer a lump sum equal to his annual base salary earned through the date of termination that has not been paid and earned annual bonus prior to the date of termination; and

·if the Company terminates the executive officer’s employment other than for cause, death or disability, or the executive officer terminates for good reason, in addition to the payment of any unpaid amounts of the executive officer’s earned annual base salary and earned annual bonus for completed fiscal years, the Company will also pay:

·to Messrs. Durbin and Roland, a cash payment equal to two times the sum (the “Base Sum”) of (a) the respective executive officer’s annual base salary and (b) the greater of (x) the annual bonus earned by the respective executive officer for the last completed fiscal year prior to the fiscal year in which the termination occurs and (y) the annual bonus the respective executive officer would have earned for the fiscal year in which the termination occurs; and

·to Mr. Howard, a cash payment equal to 1.5 times the Base Sum;

Also, the Company will (i) provide the executive officer or his or her eligible dependents six months of the Continued Coverage (except that Mr. Roland and his eligible dependents will receive twelve months of the Continued Coverage) and each such executive officer will then be eligible for COBRA coverage, and (ii) credit the executive officer with an additional year of vesting for purposes of the executive officer’s then outstanding options, which will remain exercisable in accordance with the terms of the applicable option grants and equity plan.

The employment agreements of David P. Colatriano and the severance agreement of Stephen E. Tremblay contain provisions regarding severance arrangements. For Mr. Colatriano, if his employment is terminated by the Company without “cause” or if the Company requires that he be based at a location which is more than fifty miles from the office at which he is based at the time of the relocation, he will receive severance pay, in the form of payroll continuation of his annual base salary as of his date of separation for a period of twelve months. If he remains unemployed at the end of those payments, he is eligible for a continuation of the severance pay for each month in which he remains unemployed up to a maximum of six months. For Mr. Tremblay, if his employment is terminated by the Company without “cause”, he will receive severance pay, in the form of payroll continuation of his annual base salary as of his date of separation for a period of twelve months.

Compensation Committee Interlocks and Insider Participation

The Company does not have a compensation committee. Donald Ronald, former Chief Executive Officer of the Company, serves as the Non-Executive Chairman of the Board and participates in deliberations with the Board of Directors regarding compensation of executive officers.

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ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Vertis is a wholly-owned subsidiary of Vertis Holdings.

The following table sets forth certain information regarding the beneficial ownership of Vertis Holdings’ common stock as of March 6, 2006 for (i) each stockholder who is known by us to beneficially own more than 5% of Vertis Holdings common stock, (ii) each director and executive officer of Vertis and Vertis Holdings, and (iii) all of the directors and executive officers of Vertis and Vertis Holdings as a group.

	Shares Beneficially Owned
Name and Address of Beneficial Owner	Amount and Nature of Ownership(1)		Percentage of Class
Thomas H. Lee Partners L.P. and Affiliates(2)		8,844,938		64.4	%
c/o Thomas H. Lee Partners, L.P.,
75 State Street,
Boston, MA 02109
Evercore Capital Partners L.P. and Affiliates(3)		2,114,415		15.4	%
65 East 55th Street, 33rd Floor,
New York, NY 10022
Dean D. Durbin(4)		119,615		*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201
Stephen E. Tremblay		43,443		*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201
David Laverty		35,000		*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201
David P. Colatriano(5)		39,018		*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201
John V. Howard, Jr.		36,610		*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201
Ann M. Raider		13,267		*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201
Gary L. Sutula		25,668		*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201

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Donald E. Roland(6)	127,646	*
c/o Vertis, Inc.,
250 West Pratt Street,
Baltimore, MD 21201
Thomas H. Lee(7)	7,262,155	52.9	%
c/o THL Partners,
75 State Street,
Boston, MA 02109
Anthony J. DiNovi(8)	7,166,451	52.2	%
c/o THL Partners,
75 State Street,
Boston, MA 02109
Scott M. Sperling(9)	7,166,451	52.2	%
c/o THL Partners,
75 State Street,
Boston, MA 02109
Soren L. Oberg(10)	7,146,253	52.0	%
c/o THL Partners,
75 State Street,
Boston, MA 02109
Ciara A. Burnham(11)	2,114,415	15.4	%
c/o Evercore Capital Partners,
55 East 52nd Street, 43rd Floor,
New York, NY 10055
John T. Dillon(12)	2,114,415	15.4	%
c/o Evercore Capital Partners,
55 East 52nd Street, 43rd Floor,
New York, NY 10055
Michael Rawlings (13)	5,000	*
c/o CIC Partners LP,
500 Crescent Ct, Suite 250,
Dallas, TX 75201
All Directors and Executive Officers of Vertis and Vertis Holdings as a group (16 persons)(14)	605,935	4.41	%

*Less than one percent.

(1)This column includes shares which directors and executive officers of Vertis have the right to acquire within 60 days. This column also includes shares of the Company’s restricted stock that vest immediately prior to a liquidity event, generally defined as a public offering of the Company’s common stock (where immediately following such offering, the aggregate number of shares of common stock held by the public, not including affiliates of the Company, represents at least 20% of the total number of outstanding shares), merger or other business combination, or a sale or other disposition of all or substantially all of our assets to another entity for cash and/or publicly traded

46

securities (“Liquidity Event”). Except as otherwise indicated, each person and entity has sole voting and dispositive power with respect to the shares set forth in the table.

(2)Includes 6,135,560 shares of common stock and warrants to purchase 177,906 shares of common stock held by Thomas H. Lee Equity Fund IV, L.P. (“Fund IV”); 212,097 shares of common stock and warrants to purchase 6,149 shares of common stock held by Thomas H. Lee Foreign Fund IV, L.P. (“Foreign IV”); 595,905 shares of common stock and warrants to purchase 17,278 shares of common stock held by Thomas H. Lee Foreign Fund IV-B, L.P. (“Foreign IV-B”); 1,032 shares of common stock and warrants to purchase 30 shares of common stock held by Thomas H. Lee Investors Limited Partnership (“THLILP”); and 399,727 shares of common stock and warrants to purchase 11,585 shares of common stock held by other affiliates of Thomas H. Lee Partners, L.P. Also includes 1,248,295 shares of common stock and warrants to purchase 39,374 shares of common stock held by CLI/THLEF IV Vertis LLC (“CLI/THLEF”).

(3)Includes 925,225 shares of common stock held by Evercore Capital Partners L.P. (“Evercore Capital”); 222,199 shares of common stock held by Evercore Capital Partners (NQ) L.P. (“Evercore Capital NQ”); and 966,991 shares of common stock controlled by EBF Group LLC (“EBF”), which include 243,936 shares of common stock held by Evercore Capital Offshore Partners L.P., 30,262 shares of common stock held by Evercore Co-Investment Partnership L.P., 277,117 shares of common stock held by Aetna Life Insurance Company and 415,676 shares of common stock held by Capital Communications CDPQ Inc.

(4)Includes rights entitling Mr. Durbin to 6,002 shares of common stock upon the occurrence of certain sales or liquidation of Vertis Holdings and 113,613 shares of restricted stock that vest immediately prior to a Liquidity Event.

(5)Includes rights entitling Mr. Colatriano to 2,335 shares of common stock upon the occurrence of certain sales or liquidation of Vertis Holdings and 36,683 shares of restricted stock that vest immediately prior to a Liquidity Event.

(6)Includes 52,003 shares of common stock, rights entitling Mr. Roland to 20,466 shares of common stock upon the occurrence of certain sales or liquidation of Vertis Holdings and 55,177 shares of restricted stock that vest immediately prior to a Liquidity Event.

(7)Director of Vertis Holdings and Vertis; includes 96,495 shares of common stock and warrants to purchase 2,795 shares of common stock which are currently exercisable and owned directly by Mr. Lee; 16,391 shares of common stock and warrants to purchase 517 shares of common stock held by CLI/THLEF, which represent Mr. Lee’s pro rata ownership of those entities. Also includes the 6,135,560 shares of common stock and warrants to purchase 177,906 shares of common stock held by Fund IV; 212,097 shares of common stock and warrants to purchase 6,149 shares of common stock held by Foreign IV; 595,905 shares of common stock and warrants to purchase 17,278 shares of common stock held by Foreign IV-B; and 1,032 shares of common stock and warrants to purchase 30 shares of common stock held by THLILP. Mr. Lee disclaims beneficial ownership of the shares held by Fund IV, Foreign IV, Foreign IV-B and THLILP except to the extent of his pecuniary interest therein.

(8)Director of Vertis Holdings and Vertis; includes 17,899 shares of common stock and warrants to purchase 519 shares of common stock which are currently exercisable and owned directly by Mr. DiNovi; and 3,042 shares of common stock and warrants to purchase 96 shares of common stock held by CLI/THLEF, which represent Mr. DiNovi’s pro rata ownership of those entities. Also includes the 6,135,560 shares of common stock and warrants to purchase 177,906 shares of common stock held by Fund IV; 212,097 shares of common stock and warrants to purchase 6,149 shares of common stock held by Foreign IV; and 595,905 shares of common stock and warrants to purchase 17,278 shares of

47

common stock held by Foreign IV-B. Mr. DiNovi disclaims beneficial ownership of the shares held by Fund IV, Foreign IV, and Foreign IV-B except to the extent of his pecuniary interest therein.

(9)Director of Vertis Holdings and Vertis; includes 17,899 shares of common stock and warrants to purchase 519 shares of common stock which are currently exercisable and owned directly by Mr. Sperling; 3,042 shares of common stock and warrants to purchase 96 shares of common stock held by CLI/THLEF, which represent Mr. Sperling’s pro rata ownership of those entities. Also includes the 6,135,560 shares of common stock and warrants to purchase 177,906 shares of common stock held by Fund IV; 212,097 shares of common stock and warrants to purchase 6,149 shares of common stock held by Foreign IV; and 595,905 shares of common stock and warrants to purchase 17,278 shares of common stock held by Foreign IV-B. Mr. Sperling disclaims beneficial ownership of the shares held by Fund IV, Foreign IV, and Foreign IV-B except to the extent of his pecuniary interest therein.

(10)Director of Vertis Holdings and Vertis; includes 1,127 shares of common stock and warrants to purchase 33 shares of common stock which are currently exercisable and owned directly by Mr. Oberg; 192 shares of common stock and warrants to purchase 6 shares of common stock held by CLI/THLEF, which represent Mr. Oberg’s pro rata ownership of those entities. Also includes the 6,135,560 shares of common stock and warrants to purchase 177,906 shares of common stock held by Fund IV; 212,097 shares of common stock and warrants to purchase 6,149 shares of common stock held by Foreign IV; and 595,905 shares of common stock and warrants to purchase 17,278 shares of common stock held by Foreign IV-B. Mr. Oberg disclaims beneficial ownership of the shares held by Fund IV, Foreign IV and Foreign IV-B except to the extent of his pecuniary interest therein.

(11)Director of Vertis Holding and Vertis; includes beneficially owned shares in the amount of 925,225 shares of common stock held by Evercore Capital; 222,199 shares of common stock held by Evercore Capital NQ; and 966,991 shares of common stock controlled by EBF. Ms. Burnham disclaims beneficial ownership of the shares held by Evercore Capital, Evercore Capital NQ and EBF except to the extent of her pecuniary interest therein.

(12)Director of Vertis Holding and Vertis; includes beneficially owned shares in the amount of 925,225 shares of common stock held by Evercore Capital; 222,199 shares of common stock held by Evercore Capital NQ; and 966,991 shares of common stock controlled by EBF. Mr. Dillon disclaims beneficial ownership of the shares held by Evercore Capital, Evercore Capital NQ and EBF except to the extent of his pecuniary interest therein.

(13)Director of Vertis Holding and Vertis; includes 5,000 shares of restricted stock that vest immediately prior to a Liquidity Event.

(14)Includes 208,090 shares of common stock; rights to 28,803 shares of common stock upon the occurrence of certain sales or liquidation of Vertis Holdings, warrants to purchase 4,581 shares of common stock; and 364,461 shares of restricted stock that vest immediately prior to a Liquidity event.

ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 7, 1999, we entered into consulting agreements commencing January 1, 2000 with each of Thomas H. Lee Capital, LLC (an affiliate of Thomas H. Lee Equity Fund IV, LP, a significant stockholder of Vertis Holdings), THL Equity Advisors IV, LLC (an affiliate of Thomas H. Lee Equity Fund IV, LP), and Evercore Advisors Inc. (an affiliate of Evercore Capital Partners, LP, a significant stockholder of Vertis Holdings). Under each agreement, these parties have agreed to provide us with consulting services on matters involving corporate finance, strategic corporate planning and other management skills and services. The annual fees payable to these parties under these agreements amount to approximately $220,000, $780,000 and $250,000, respectively. Unless otherwise agreed, the consulting agreements with Thomas H. Lee Capital, LLC and THL Equity Advisors IV, LLC expire when certain

48

persons affiliated with THL cease to own at least one third of the number of Vertis Holdings common shares they collectively held immediately after December 7, 1999. The consulting agreement with Evercore Advisors Inc. expires when Evercore Capital Partners, LP and certain of its affiliates cease to own at least one third of the number of Vertis Holdings common shares they collectively held immediately after December 7, 1999. Among our directors of the board, Messrs. Di Novi, Lee, Oberg and Sperling are affiliated with THL and Ms. Burnham and Mr. Dillon are affiliated with ECP. See “Management”.

On December 7, 1999, Vertis Holdings issued to certain of its equity investors $100.0 million aggregate principal amount of 12.0% mezzanine notes as part of a unit including warrants to purchase common stock of Vertis Holdings at the time of Vertis Holdings’ recapitalization. Effective with the closing of the Credit Facility in December 2004, interest will continue to be 13% payable in-kind unless certain conditions set forth in the credit agreement are met. In addition, the bond indentures include covenants that restrict payments from the Company to Vertis Holdings.

In connection with the recapitalization of Vertis Holdings in 1999 and 2000, 44 of our employees, including Messrs. Durbin and Howard among the Named Executive Officers, were granted the option to purchase shares of Vertis Holdings and to finance such purchase through signing full-recourse loans with Vertis Holdings. These loans (the “Management Loans”) bear interest at 8.5% per year and compound quarterly, with the principal and interest due in a lump sum on varying dates up to December 7, 2005. The shares purchased with the Management Loans were held as security for the Management Loans.

On September 5, 2002, the Board of Directors of Vertis Holdings adopted a unanimous written consent offering those employees who had an outstanding Management Loan a one-time option to sell the shares securing the Management Loans back to Vertis Holdings in exchange for the cancellation of the Management Loans. These shares had an assumed fair market value of $31.50 as of September 5, 2002. In addition, Vertis Holdings would forgive the interest that had accrued on the Management Loans to any employee who sold their stock back to Vertis Holdings. The tax consequence, if any, of the interest forgiveness was the responsibility of the employee. Employees eligible for the Vertis’ Executive Incentive Plan were allowed to offset the tax consequences by a partial payment of their 2002 bonus. Substantially all employees holding the Management Loans elected this option. As of December 31, 2003, 111,448 shares of Vertis Holdings had been sold to the Company in exchange for cancellation of the Management Loans and $0.7 million of interest was forgiven.

ITEM 14PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional audit services rendered by Deloitte & Touche LLP, the member firms of Deloitte Touche Toumatsu, and their respective affiliates (collectively, the “Deloitte Entities”) for the audit of our consolidated annual financial statements for the years ended December 31, 2005 and 2004, and fees billed for other services rendered by Deloitte Entities.

	Year ended December 31,
	2005		2004
	(in thousands)
Audit fees(1)	$	1,214	$	1,376
Audit-related fees(2)	550		321
Tax fees(3)	631		650
Total fees billed	$	2,395	$	2,347

(1)Audit fees consist of fees for professional services rendered for the audit of our consolidated financial statements, review of financial statements included in our quarterly reports, comfort letters and other services related to SEC matters, as well as services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.

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(2)Audit-related fees consist mainly of services related to Sarbanes Oxley Section 404 readiness and agreed-upon procedures engagements.

(3)Tax fees consist of compliance fees for the preparation of the corporate tax returns, assistance with federal tax audit, tax advice and tax planning as well as other miscellaneous services.

Audit Committee Pre-Approval Policies

The audit committee has established pre-approval policies and procedures pursuant to which the audit committee must approve all audit and non-audit engagement fees and terms on a case-by-case basis (other than with respect to de minimis exceptions permitted by the Sarbanes-Oxley Act of 2002). The audit committee is also responsible for considering, to the extent applicable, whether the independent auditors’ provision of other non-audit services to the Company is compatible with maintaining the independence of the independent auditors. In accordance with the pre-approval policies and procedures of the audit committee, the Company’s management is authorized to retain the independent auditors to provide audit related services in addition to the annual audit, including services related to SEC filings, accounting and reporting research and consultations, internal control reviews, quarterly reviews, benefit plan audits, consultations as to regulatory issues regarding benefit plans, statutory audits of subsidiaries, attest services, acquisition due diligence services and corporate and subsidiary tax compliance and consulting services. Any additional services must be specifically pre-approved on an individual basis by the audit committee prior to the engagement of the independent auditor. The authority for such pre-approval may be delegated to one or more designated members of the audit committee with any such pre-approval reported to the audit committee at its next regularly scheduled meeting.

All services provided by Deloitte Entities in fiscal 2005 were pre-approved by the audit committee or its designee.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)Documents filed as part of this Report:

1.   Consolidated Financial Statements

The consolidated financial statements required to be filed in this Annual Report on Form 10-K are listed on page F-1 hereof.

2.   Financial Statement Schedules

The financial statement schedule required in this Annual Report on Form 10-K is listed on page F-1 hereof. The required schedule appears on page F-37 hereof.

3.   Exhibits

3.1	Restated Certificate of Incorporation of Vertis, Inc.**
3.2	Amended and Restated By-Laws of Vertis, Inc.**
4.1	Indenture, dated as of June 24, 2002, among Vertis, Inc., (the “Company”), as Issuer, the Company’s subsidiaries listed on the signature pages thereof (the “Subsidiary Guarantors”) and the Bank of New York, as trustee.**
4.2	Indenture, dated as of June 6, 2003 (the “Indenture”), among the Company as Issuer, the Subsidiary Guarantors and the Bank of New York, as Trustee.***
4.3	U.S. Security Agreement, dated December 7, 1999 and amended and restated as of June 6, 2003, among the Company, the Subsidiary Guarantors, Vertis Holdings, Inc. and certain of its subsidiaries listed on the signature page thereto, and GE Capital, as Collateral Agent #
10.1	$200,000,000 Credit Agreement dated December 22, 2004 by and among Vertis, Vertis Limited, Vertis Digital Services Limited, General Electric Capital Corporation, GECC Capital Markets Group, Inc., Bank of America, N.A. and the other lenders and credit parties named therein.^
10.2	Limited Consent and Amendment No. 1 to Credit Agreement, dated as of October 3, 2005 by and among Vertis, Vertis Limited and Vertis Digital Services Limited, as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders and the other Lenders.****
10.3	Amendment No. 2 to Credit Agreement, dated as of November 22, 2005 by and among Vertis and Vertis Digital Services Limited, as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders, and the other Lenders.****
10.4	Limited Consent and Amendment No. 3 to Credit Agreement, dated as of December 12, 2005 by and among Vertis and Vertis Digital Services Limited, as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders, and the other Lenders.****
10.5	Termination Agreement, dated November 25, 2005, by and among Manufacturers and Traders Trust Company, not individually but solely as trustee under the Amended and Restated Indenture and Servicing Agreement dated as of December 9, 2002, Vertis Receivables LLC and Vertis, Inc.****
10.6	Receivables Sale and Servicing Agreement dated November 25, 2005 by and among Each of the Entities Party Hereto From Time to Time as Originators, Vertis Receivables II, LLC as Buyer and Vertis, Inc. as Servicer.****

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10.7	Receivables Funding Administration Agreement dated as of November 25, 2005 by and among Vertis Receivables II, LLC, as Borrower, the Financial Institutions Signatory Hereto From Time to Time, as Lenders, and General Electric Capital Corporation, as a Lender, as Swing Line Lender and as Administrative Agent.****
10.8	Annex X to Receivables Sale and Servicing Agreement and Receivables Funding Administration Agreement dated as of November 25, 2005.****
10.9	Stock Purchase Agreement dated September 18, 2002 by and between Vertis Holdings and Dean D. Durbin.*†
10.10	Stock Purchase Agreement dated September 20, 2002 by and between Vertis Holdings and John V. Howard, Jr.*†
10.11	Stock Purchase Agreement dated September 24, 2002 by and between Vertis Holdings and Catherine S. Leggett.*†
10.12	Stock Purchase Agreement dated September 16, 2002 by and between Vertis Holdings and Adriaan Roosen.*†
10.13	Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and Donald Roland.#†
10.14	Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and Dean D. Durbin.#†
10.15	Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and Herbert W. Moloney III.#†
10.16	Service Agreement dated August 31, 2003 by and between Vertis Digital Services Limited and Adriaan Roosen.#†
10.17	Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and John Howard.#†
10.18	Employment Agreement dated August 31, 2003 by and between Vertis, Vertis Holdings and Catherine Leggett.†^
10.19	Memo of Understanding dated August 15, 2003 by and between Vertis and Thomas Zimmer.#†
10.20	Memo of understanding dated August 15, 2003 by and between Vertis and David Colatriano.^†
10.21	Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Dean D. Durbin.^†
10.22	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to Dean D. Durbin.†^
10.23	Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and John V. Howard, Jr.†^
10.24	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to John V. Howard, Jr.†^
10.25	Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Catherine S. Leggett.†^
10.26	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to Catherine S. Leggett.†^

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10.27	Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Herbert W. Moloney III.†^
10.28	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to Herbert W. Moloney III.†^
10.29	Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Donald E. Roland.†^
10.30	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to Donald E. Roland.†^
10.31	Nil Cost Option Agreement dated July 27, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Adriaan Roosen.†^
10.32	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to Adriaan Roosen.†^
10.33	Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and David P. Colatriano.†^
10.34	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to David P. Colatriano.†^
10.35	Restricted Stock Agreement dated May 20, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Thomas R. Zimmer.†^
10.36	Restricted Stock Incentive Memo dated April 5, 2004 on behalf of Vertis Holdings, Inc. to Thomas R. Zimmer.†^
10.37	Employment Agreement dated October 13, 2004 by and between Vertis and Joe. M Scott.†^
10.38	Restricted Stock Agreement dated November 1, 2004 by and among Vertis Holdings, Inc., Thomas H. Lee Equity Fund IV, L.P. and Joe M. Scott.†^
10.39	Memo of Understanding dated November 6, 2004 by and between Vertis and Herbert W. Moloney III amending Mr. Moloney’s Employment Agreement dated August 31, 2003, and filed as Exhibit 10.44 to Vertis’ 2003 Annual Report on Form 10-K.†^
10.40	Memo of Understanding dated November 6, 2004 by and between Vertis and Herbert W. Moloney III amending Mr. Moloney’s Employment Agreement dated August 31, 2003 and filed as Exhibit 10.44 to Vertis’ 2003 Annual Report on Form 10-K.†^
10.41	Memo of Understanding dated November 12, 2004 by and between Vertis and Dean D. Durbin amending Mr. Durbin’s Employment Agreement dated August 31, 2003 and filed as Exhibit 10.43 to Vertis’ 2003 Annual Report on Form 10-K.†^
10.42	Employment Agreement dated January 11, 2005 by and between Vertis and Gary L. Sutula.†^
10.43	Employment Agreement dated March 3, 2005 by and between Vertis and Ann M. Raider.†****
10.44	Termination Agreement dated November 9, 2005 by and between Vertis Digital Services Limited and Adriaan Roosen.†****
10.45	Letter Agreement dated March 9, 2006 amending Employment Agreement dated August 31, 2003 by and among Vertis, Vertis Holdings and Dean D. Durbin.†****
10.46	Executive Incentive Plan for Vertis Executives dated March 1, 2005.†****
10.47	Employee Incentive Plan for Vertis Executives dated February 1, 2006.†****

53

10.48	Vertis Holdings, Inc. 1999 Equity Award Plan****
10.49	Unanimous Written Consent of the Board of Directors of Vertis Holdings, Inc. changing the name of the Equity Award Plan to Vertis Holdings, Inc. 1999 Equity Award Plan****
12.1	Statement re computation of ratios of earnings to fixed charges.****
14.1	Code of Ethics.#
21.1	List of subsidiaries of Vertis, Inc.****
31.1	Certification of Dean D. Durbin, President and Chief Executive Officer, dated March 27, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.****
31.2	Certification of Stephen E. Tremblay, Chief Financial Officer, dated March 27, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.****
32.1	Certification of Dean D. Durbin, President and Chief Executive Officer, dated March 27, 2006, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.****
32.2	Certification of Stephen E. Tremblay, Chief Financial Officer, dated March 27, 2006, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.****

*	Incorporated by reference to the corresponding exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
**	Incorporated by reference to the corresponding exhibit to the Registrant’s registration statement on Form S-4 (No. 333-97721).
***	Incorporated by reference to the corresponding exhibit to the Registrant’s registration statement on Form S-4 (No. 333-106435).
****	Filed herewith.
#	Incorporated by reference to the corresponding exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
^	Incorporated by reference to the corresponding exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
†	This exhibit is a management contract or a compensatory plan or arrangement.

54

VERTIS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2005 and 2004	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003	F-4
Consolidated Statements of Stockholder’s Deficit for the Years Ended December 31, 2005, 2004 and 2003	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	F-6
Notes to Consolidated Financial Statements	F-7
Schedule of Valuation and Qualifying Accounts for the Years Ended December 31, 2005, 2004 and 2003	F-37
Signatures	F-38

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of
Vertis, Inc. and Subsidiaries:
Baltimore, Maryland

We have audited the accompanying consolidated balance sheets of Vertis, Inc. and Subsidiaries (the “Company”), a wholly-owned subsidiary of Vertis Holdings, Inc. as of December 31, 2005 and 2004 and the related consolidated statements of operations, stockholder’s deficit, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule referred to in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vertis, Inc. and Subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

Deloitte & Touche LLP

Baltimore, Maryland
March 23, 2006

F-2

Vertis, Inc. and Subsidiaries

Consolidated Balance Sheets

As of December 31,	2005			2004
	In thousands, except per share amounts
ASSETS
Current Assets:
Cash and cash equivalents	$	1,828		$		2,638
Accounts receivable, net	151,406			142,818
Inventories, net	52,434			42,747
Maintenance parts, net	20,500			21,017
Prepaid expenses and other current assets	9,027			9,334
Assets held for sale				40,558
Total current assets	235,195			259,112
Property, plant and equipment, net	336,665			359,617
Goodwill	249,683			246,854
Deferred financing costs, net	20,755			26,815
Other assets, net	30,341			24,537
Assets held for sale				132,860
Total assets	$	872,639		$		1,049,795
LIABILITIES AND STOCKHOLDER’S DEFICIT
Current Liabilities:
Accounts payable	$	231,426		$		228,280
Compensation and benefits payable	37,773			37,127
Accrued interest	14,110			13,413
Accrued income taxes	2,347			10,427
Other current liabilities	23,603			18,070
Liabilities held for sale				24,533
Total current liabilities	309,259			331,850
Due to parent	7,898			7,410
Long-term debt	1,049,059			1,024,042
Other long-term liabilities	32,301			35,053
Total liabilities	1,398,517			1,398,355
Stockholder’s deficit:
Common stock—authorized 3,000 shares; $0.01 par value; issued and outstanding 1,000 shares
Contributed capital	409,689			409,059
Accumulated deficit	(926,895		)	(753,661			)
Accumulated other comprehensive loss	(8,672		)	(3,958			)
Total stockholder’s deficit	(525,878		)	(348,560			)
Total liabilities and stockholder’s deficit	$	872,639		$	1,049,795

See Notes to Consolidated Financial Statements.

F-3

Vertis, Inc. and Subsidiaries

Consolidated Statements of Operations

Year Ended December 31,	2005			2004			2003
	In thousands
Net sales	$	1,510,288		$	1,506,839		$	1,448,475
Operating expenses:
Costs of production	1,166,708			1,160,473			1,109,650
Selling, general and administrative	156,103			160,765			165,775
Restructuring charges	17,119			4,501			14,649
Depreciation and amortization of intangibles	64,731			67,456			76,262
	1,404,661			1,393,195			1,366,336
Operating income	105,627			113,644			82,139
Other expenses (income):
Interest expense, net	128,821			132,809			136,557
Other, net	7,653			47,685			(5,760		)
	136,474			180,494			130,797
Loss from continuing operations before income tax (benefit) expense and cumulative effect of accounting change	(30,847		)	(66,850		)	(48,658		)
Income tax (benefit) expense	(8,007		)	(65,934		)	48,554
Loss from continuing operations before cumulative effect of accounting change	(22,840		)	(916		)	(97,212		)
Discontinued operations:
(Loss) income from discontinued operations	(148,790		)	(10,217		)	1,287
Cumulative effect of accounting change	1,600
Net loss	$	(173,230	)	$	(11,133	)	$	(95,925	)

See Notes to Consolidated Financial Statements.

F-4

Vertis, Inc. and Subsidiaries
Consolidated Statements of Stockholder’s Deficit

											Accumulated
											Other
			Common		Contributed			Accumulated			Comprehensive
	Shares		Stock		Capital			Deficit			Income (Loss)			Total
	In thousands, except where otherwise noted
Balance at January 1, 2003		1		$ —		$ 408,965			$ (646,579	)		$ (12,378	)	$ (249,992	)
Net loss									(95,925	)				(95,925	)
Currency translation adjustment												3,037		3,037
Minimum pension liability adjustment, net of income tax benefit of $1.0 million												(1,436	)	(1,436	)
Fair value adjustment of interest rate swap, net of income tax provision of $1.0 million												2,127		2,127
Comprehensive loss														(92,197	)
Other						(1	)		(8	)				(9	)
Balance at December 31, 2003		1		—		408,964			(742,512	)		(8,650	)	(342,198	)
Net loss									(11,133	)				(11,133	)
Currency translation adjustment												5,962		5,962
Minimum pension liability adjustment												(1,270	)	(1,270	)
Comprehensive loss														(6,441	)
Dividends to parent									(15	)				(15	)
Capital contributions by parent						95								95
Other									(1	)				(1	)
Balance at December 31, 2004		1				409,059			(753,661	)		(3,958	)	(348,560	)
Net loss (1)									(173,230	)				(173,230	)
Currency translation adjustment (1)												(4,294	)	(4,294	)
Minimum pension liability adjustment												(420	)	(420	)
Comprehensive loss														(177,944	)
Dividends to parent									(4	)				(4	)
Capital contributions by parent						660								660
Other						(30	)							(30	)
Balance at December 31, 2005		1		$ —		$ 409,689			$ (926,895	)		$ (8,672	)	$ (525,878	)

(1)Includes a $1.4 million reclassification adjustment related to a translation gain realized upon the sale of the Company’s Europe segment (see Note 4).

See Notes to Consolidated Financial Statements.

F-5

Vertis, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Year Ended December 31,	2005			2004				2003
	In thousands
Cash Flows from Operating Activities:
Net loss	$	(173,230	)	$		(11,133	)	$		(95,925	)
Adjustments for discontinued operations	148,790			10,217				(1,287			)
Net loss from continuing operations	(24,440		)	(916			)	(97,212			)
Adjustments to reconcile net loss from continuing operations to net cash provided by continuing operating activities:
Depreciation and amortization	64,731			67,456				76,262
Amortization of deferred financing costs	7,265			7,831				8,045
Restructuring charges	17,119			4,501				14,649
Write-off of deferred financing fees				1,788				10,958
Cumulative effect of accounting change	1,600
Loss on termination of leasehold interest				44,012
Deferred income taxes				(66,733			)	47,322
Other non-cash income and expense, net	12,200			7,207				7,401
Changes in operating assets and liabilities (excluding effect of acquisitions and dispositions):
(Increase) decrease in accounts receivable	(14,361		)	7,340				7,788
Increase in inventories	(9,687		)	(4,970			)	(2,052			)
(Increase) decrease in prepaid expenses and other assets	(5,537		)	3,815				(4,148			)
(Decrease) increase in accounts payable and other liabilities	(36,890		)	(15,435			)	15,242
Net cash provided by continuing operating activities	12,000			55,896				84,255
Net (loss) income from discontinued operations	(148,790		)	(10,217			)	1,287
Change in net assets of discontinued operations held for sale	142,483			1,866				3,504
Net cash (used in) provided by discontinued operations	(6,307		)	(8,351			)	4,791
Net cash provided by operating activities	5,693			47,545				89,046
Cash Flows from Investing Activities:
Capital expenditures	(40,168		)	(43,731			)	(37,296			)
Software development costs capitalized	(2,032		)	(1,905			)	(2,899			)
Proceeds from sale of property, plant and equipment	1,021			808				2,894
Proceeds from sale of subsidiaries, net	2,361
Proceeds from termination of leasehold interest				31,068
Acquisition of business, net of cash acquired	(3,430		)					(93			)
Investing activities of discontinued operations	(1,517		)	(5,232			)	(3,509			)
Net cash used in investing activities	(43,765		)	(18,992			)	(40,903			)
Cash Flows from Financing Activities:
Issuance of long-term debt								340,714
Issuance of long-term debt under new revolving credit facility				103,294
Repayment of debt under prior revolving credit facility				(102,932			)
Net borrowings (repayments) under revolving credit facilities	15,049			(57,883			)	(85,300			)
Repayments of long-term debt	(6		)	(74			)	(310,474			)
Deferred financing costs	(1,204		)	(5,605			)	(12,846			)
Increase in outstanding checks drawn on controlled disbursement accounts	15,030			13,976				12,784
Dividends to parent	(4		)	(15			)
Capital contributions by parent				95
Distributions from (advances to) parent	1,150			(47			)	(375			)
Financing activities of discontinued operations	9,317			19,583				2,321
Net cash provided by (used in) financing activities	39,332			(29,608			)	(53,176			)
Effect of exchange rate changes on cash	(2,070		)	1,610				1,381
Net (decrease) increase in cash and cash equivalents	(810		)	555				(3,652			)
Cash and cash equivalents at beginning of year	2,638			2,083				5,735
Cash and cash equivalents at end of year	$	1,828		$	2,638			$	2,083

See Notes to Consolidated Financial Statements.

F-6

Vertis, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

1.BASIS OF PRESENTATION

Principles of Consolidation—The consolidated financial statements include those of Vertis, Inc., and its subsidiaries (together, the “Company”). All significant intercompany balances and transactions have been eliminated.

Ownership—The Company is a wholly-owned subsidiary of Vertis Holdings, Inc. (“Vertis Holdings”).

Business—The Company is a leading provider of targeted advertising, media and marketing services. The Company operates in two segments: Advertising Inserts and Direct Mail. Additionally, the Company provides other services which will be referred to as “Corporate and Other” for discussion in these financial statements (see Note 21).

Use of Estimates—The Company’s management must make estimates and assumptions in preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Reclassifications—Certain amounts for prior periods have been reclassified to conform to the current period presentation.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition—The Company provides a wide variety of print and print related services and products for specific customers, primarily under contract. Revenue is not recognized until the earnings process has been completed. Print revenue is recognized when the product is shipped (see Note 3). Revenue from premedia operations is recognized upon the completion of orders. Unbilled receivables are recorded for completed services or products which remain unbilled as of the period end.

The Company charges customers for shipping and handling charges. The amounts billed to customers are recorded as net sales and actual charges paid by the Company are included in costs of production in the consolidated statements of operations.

Cash and Cash Equivalents—Cash equivalents include all investments with initial maturities of 90 days or less. As the Company’s cash management program utilizes zero-balance accounts, book overdrafts in these accounts are reclassified as current liabilities, and the fluctuation within these accounts is shown as the change in outstanding checks drawn on controlled disbursement accounts in the financing section of the Company’s consolidated statements of cash flows.

Inventories—Inventories are recorded at the lower of cost or market determined primarily on the first-in, first-out method.

Maintenance Parts—The Company maintains a supply of maintenance parts, primarily cylinders, drive motors, rollers and gear boxes, which are classified as current assets on the Company’s consolidated balance sheets with the long-term portion included in Other assets, net.

Long-lived Assets—Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the assets’ estimated useful lives, or when applicable, the terms of the leases, if shorter.

The Company evaluates the recoverability of its long-lived assets, including property, plant and equipment and intangible assets, when there are changes in economic circumstances or business objectives that indicate the carrying value may not be recoverable. The Company’s evaluations include estimated future cash flows, profitability and estimated future operating results and other factors determining fair

F-7

value. As these assumptions and estimates may change over time, it may or may not be necessary to record impairment charges.

Software development costs incurred for software intended to be licensed to others are expensed until technological feasibility is determined, after which costs are capitalized until the product is ready for general release and sale. These costs are amortized over one to five-year lives beginning at the respective release dates.

Certain direct development costs associated with internal-use software are capitalized, including payroll costs for employees devoting time to the software projects and external costs of material and services by third-party providers. These costs are included in software development and are being amortized beginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

Intangible assets other than goodwill are amortized over the terms of the related agreements. Deferred financing costs are amortized over the terms of the related financing instruments.

Goodwill—Goodwill is accounted for under the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under the provisions of this statement, the Company’s goodwill is tested for impairment on an annual basis. The Company elected January 1 of each year as the annual test date. Each of the Company’s reporting units is tested for impairment by comparing the fair value of the reporting unit with the carrying value of that unit. Fair value is determined based on a valuation study performed by the Company using the discounted cash flow method and the estimated market values of the reporting units. See Note 4 for discussion of the Europe impairment loss recorded in 2005. No impairment of goodwill was noted in 2004 and 2003.

Income Taxes—Income taxes are accounted for under the asset and liability method as outlined in SFAS No. 109 “Accounting for Income Taxes” (“SFAS 109”). Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards.

The provision for federal income taxes recorded by the Company represents the amount calculated as outlined by SFAS 109 and allocated in accordance with a tax-sharing arrangement with Vertis Holdings. State and foreign income taxes represent actual amounts paid or payable by the Company.

Fair Value of Financial Instruments—The Company determines the fair value of its financial instruments as follows:

Cash and Cash Equivalents, Accounts Receivable and Accounts Payable—Carrying amounts approximate fair value because of the short maturities of these instruments.

Revolving Credit Facility—Carrying amount approximates fair value because its interest rates are based on variable reference rates.

Long-Term Debt (Excluding Revolving Credit Facility)—The fair value of the senior secured second lien notes, with a principal amount of $350.0 million, approximated $363 million and $380 million at December 31, 2005 and 2004, respectively. The fair value of the senior unsecured notes, with a principal amount of $350.0 million, approximated $346 million and $380 million at December 31, 2005 and 2004, respectively. The aggregate fair value of the remaining debt outstanding at December 31, 2005 and 2004 approximated $240 million and $310 million, respectively.

Stock Based Compensation—Employees of the Company participate in Vertis Holdings’ 1999 Equity Award Plan (the “Stock Plan”), which authorizes grants of stock options, restricted stock, performance shares and other stock based awards. Up until December 31, 2003, only options had been granted under the Stock Plan. In 2004, employees holding options were given the opportunity to exchange their outstanding eligible options for either restricted stock (U.S. - based employees) or Nil Cost Options (U.K.- based employees) as outlined in the exchange offer. All but approximately 21,904 of the options were exchanged and restricted shares and nil cost options were issued pursuant to the exchange offer. In conjunction with the sale of the Company’s European segment (see Note 4), as of December 31, 2005, all

F-8

nil cost options were cancelled. See Note 16, “Vertis Holdings Stock Award and Incentive Plan”, for further discussion. The Company accounts for the Stock Plan under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Approximately $0.1 million of employee compensation cost is reflected in net income in 2005. For the 7,618 options outstanding under the Stock Plan at December 31, 2005, variable accounting is being applied.

The following table summarizes the effect of accounting for these awards as if the fair value recognition provisions of SFAS No. 123, “Accounting for Stock Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123,” had been applied. There was no expense recorded in 2004.

	2005				2004				2003
	(in thousands)
Net loss:
As reported	$		(173,230	)	$		(11,133	)	$		(95,925	)
Deduct: total stock-based compensation determined under fair value based method for all awards, net of tax	(7			)	(11			)	(1,100			)
Proforma	$	(173,237		)	$	(11,144		)	$	(97,025		)

Concentration of Credit Risk—The Company provides services to a wide range of clients who operate in many industry sectors in varied geographic areas. The Company grants credit to all qualified clients and does not believe that it is exposed to undue concentration of credit risk to any significant degree.

New Accounting Pronouncements—In December 2004, the FASB issued SFAS 123R, “Share-Based Payments”, which requires all share-based payments to employees, including grants of employee stock options and restricted stock, to be recognized in the financial statements based on their grant date fair values. The proforma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. Under SFAS 123R, companies must determine the transition method, either retroactive or prospective, to be used at the date of adoption; the appropriate fair value model to be used for valuing share-based payments; and the amortization method for compensation cost. The provisions of this Statement shall be effective for the Company in the reporting period beginning January 1, 2006. The adoption of this statement is not expected to have a material impact on the Company’s results of operations or financial position.

In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations”, an interpretation of FASB Statement No. 143. FIN 47 requires that companies recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This interpretation is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application for interim financial information is permitted but is not required. Early adoption of this Interpretation is encouraged. The Company adopted FIN 47 on December 31, 2005 and as a result recorded a $1.6 million cumulative effect of accounting change (see the Company’s consolidated statement of operations). Proforma amounts for prior years are not presented as the impact on the Consolidated Statement of Operations would be insignificant and the cumulative effect would not be significantly different from the current year’s cumulative effect.

In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3”. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement does not change the guidance for reporting the correction of an error in previously issued financial statements or a change in accounting estimate.  The provisions of this Statement shall be effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The Company is not able to assess at this time the future impact of this Statement on its consolidated financial position or results of operations.

F-9

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of Statements No. 133 and 140” (“SFAS 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company is not able to assess at this time the future impact of this Statement on its consolidated financial position or results of operations.

3.SUMMARY OF ACCOUNTING REVISIONS

In 2005, the Company revised its revenue recognition policy for printed materials to recognize revenue when product is shipped. Previously revenue was recorded when these materials were completed and off-press. This revision resulted in a $12.7 million decrease in revenue and a $2.9 million increase in loss from continuing operations for the year ended December 31, 2005.

Based on a complete physical inventory of maintenance parts in 2005, the Company determined that it should have capitalized all maintenance parts, rather than just those assets that exceeded the Company’s previous $100 minimum threshold for capitalization. As a result, the Company recorded $6.2 million of maintenance part assets in 2005 that had not been capitalized previously. The recording of these assets decreased cost of production expenses and net loss for the year ended December 31, 2005 by $6.2 million.

4.DISCONTINUED OPERATIONS

During the third quarter of 2005, the Company determined to account for the operations of its European segment as a discontinued operation. The Company decided to sell the two divisions in this segment primarily because each has incurred operating losses in the past two years and neither was deemed a fit within the Company’s overall strategy. The direct mail division of this segment was sold on October 3, 2005 and the premedia division of this segment was sold on December 14, 2005.

Selected results of the Company’s European segment, which are included in the Loss from Discontinued Operations on the Condensed Consolidating Statements of Operations, are presented in the following table. No taxes were recorded in this segment due to pretax losses and tax benefits being offset by deferred tax valuation allowances, see Note 13. Interest was not allocated to discontinued operations as the divestiture of the European business was on a debt-free basis. Prior year financial statements have been restated.

	2005			2004			2003
	(in thousands)
Net sales	$	99,982		$	138,583		$	137,435
(Loss) income from operations	$	(147,238	)(1)	$	(10,217	)	$	1,287
Loss on sale of discontinued operations	(1,552		)(2)
(Loss) income from discontinued operations	$	(148,790	)	$	(10,217	)	$	1,287

(1)Includes $136.2 million of other impairment charges, as discussed below, and write-downs of long-lived assets recorded prior to the sale.

(2)The loss on sale of discontinued operations is net of the costs incurred to sell the Europe segment.

F-10

The current assets and liabilities of the discontinued operations are presented separately under the captions “Assets held for sale” and “Liabilities held for sale,” respectively, in the accompanying Condensed Consolidated Balance Sheet at December 31, 2004. The components of these balance sheet line items are specified in the discontinued operations’ balance sheet as follows:

	December 31,
	2004
	(in thousands)
Assets held for sale—Current:
Accounts receivable, net		$ 35,836
Inventory		1,850
Other current assets		2,872
Total current assets held for sale		$ 40,558
Assets held for sale—Long term:
Property, plant and equipment		19,821
Goodwill		113,010
Other long-term assets		29
Total long-term assets held for sale		$ 132,860
Liabilities held for sale:
Accounts payable		15,625
Accrued expenses and other current liabilities		8,908
Total liabilities held for sale		$ 24,533

As a result of the Company’s impairment testing, the Company recorded an impairment loss of $111.2 million at its Europe segment to reduce the carrying value of goodwill to its implied fair value. See Note 2 for discussion of the Company’s goodwill accounting policy. In addition, as a result of the conclusion of a direct mail contract within our Europe segment, long-lived assets with a carrying value of $1.2 million were deemed impaired and written off in the second quarter of 2005. The Company also recorded a $23.8 million loss to write-down the carrying value of the remaining long-lived assets of its discontinued operations to their estimated fair values, less cost to sell. These impairment losses are shown as discontinued operations for the year ended December 31, 2005.

5.   RESTRUCTURING

In 2005 the Company began a restructuring program (the “2005 Program”) aimed at regionalizing and streamlining operations to capitalize on operating efficiencies and improve productivity and consistency, and reducing the Company’s overall cost base. The 2005 Program included reductions in work force of approximately 490 employees; the closure of six premedia facilities, one advertising inserts warehouse, and two advertising inserts regional offices, some of which are associated with the consolidation of operations; and the transfer of certain positions. The Company estimates the costs associated with actions taken under the 2005 Program to be $19.9 million (net of estimated sublease income of $1.3 million), approximately all of which were recorded in 2005. The execution of the 2005 Program is complete as of December 31, 2005. Included in the 2005 Program, are restructuring costs of $3.5 million related to reductions in workforce of approximately 130 employees in the Company’s Vertis Europe segment. These costs are included in the loss from discontinued operations on the Company’s condensed consolidated statement of operations (see Note 4).

Liabilities for severance costs related to future restructurings are not accrued as the amounts cannot be reasonably estimated. The Company is continuously evaluating the need to implement restructuring programs to rationalize its costs and improve operating efficiency. It is likely that the Company will incur additional restructuring costs in 2006 in an on-going effort to achieve these objectives.

F-11

In the year ended December 31, 2005, under the 2005 Program, the Advertising Inserts segment recorded $7.0 million in severance and related costs associated with the elimination of approximately 186 positions and $0.8 million in facility closure costs associated with the closure of two regional offices and one warehouse. The Direct Mail segment recorded $2.0 million in severance and related costs in 2005 associated with the elimination of approximately 33 positions.  Corporate and Other recorded $5.1 million in severance and related costs in 2005 associated with the elimination of approximately 91 positions and $1.7 million in facility closure costs associated with the closure of six premedia facilities offset by $0.1 million in gains from the sale of assets related to the closure of one of the premedia facilities. Additionally, $0.7 million in costs were recorded in the first quarter of 2005 related to the amendment of an executive level employment agreement announced in 2004, as discussed below.

Included in the 2005 segment severance amounts above are approximately $2.5 million of aggregate severance costs allocated to the segments based on percentages established by management. These severance costs are related to the elimination of approximately 50 shared services positions for which the costs are allocated to the segments on a monthly basis.

In 2004, the Advertising Inserts segment recorded $0.2 million in severance costs. Corporate and Other recorded $0.3 million in severance costs due to headcount reductions of approximately 50 employees, and $3.5 million in facility closure costs. These costs were associated with the 2003 Program discussed below. Additionally, in 2004 the Company announced an amendment of an executive level employment agreement resulting in an estimated cost of $1.2 million. Corporate and Other recorded $0.5 million in restructuring costs in 2004 related to this amendment. Europe recorded $2.4 million in restructuring costs in 2004, which are included in the loss from discontinued operations on the Company’s consolidated statement of operations.

The Company began a restructuring program in the U.S. and the U.K. in the third quarter of 2003 (the “2003 Program”), the execution of which was complete as of June 2004. The 2003 Program included the closure of facilities, some of which were associated with the consolidation of operations; transfer of certain positions to the corporate office; reductions in work force of approximately 260 employees; and the abandonment of assets associated with vacating these premises. As of December 31, 2004, costs associated with the 2003 Program were $19.2 million (net of estimated sublease income of $7.7 million) of which approximately $3.0 million are non-cash costs. The European portion of the 2003 Program was complete as of December 31, 2003. The North American portion of the 2003 Program was complete as of the second quarter of 2004, however an adjustment to restructuring expense of $3.0 million was made in December 2004 as the amount of facility closure costs expected to be paid was recalculated based on a revised assumption of estimated sublease income.

In 2003 the Advertising Inserts segment and the Direct Mail segment recorded, under the 2003 Program, $0.7 million and $0.2 million in severance costs, due to headcount reductions of approximately 20 employees each, respectively. Also under the 2003 Program, Corporate and Other recorded $3.9 million in severance costs due to headcount reductions of approximately 160 employees, $6.9 million in facility closure costs and $3.0 million in asset write-offs related to the closure of five facilities. Europe recorded $0.6 million in restructuring costs in 2003, which are included in the loss from discontinued operations on the Company’s consolidated statement of operations.

F-12

The significant components of the restructuring and asset impairment charges were as follows:

	Severance			Asset Write			Facility
	and Related			Off & Disposal			Closing		Other
	Costs			Costs			Costs		Costs		Total
	(in thousands)
Balance at January 1, 2003		$   2,073			$ 2,019		$ 6,328		$ 850		$ 11,270
Restructuring charges in 2003		4,773			2,965		6,911				14,649
Restructuring payments and usage in 2003		(5,046	)		(4,984	)	(3,934	)	(325	)	(14,289	)
Balance at December 31, 2003		1,800			—		9,305		525		11,630
Restructuring charges in 2004		960			35		3,506				4,501
Restructuring payments and usage in 2004		(2,016	)		(35	)	(5,939	)	50		(7,940	)
Balance at December 31, 2004		744					6,872		575		8,191
Restructuring charges in 2005		14,748			(109	)	2,480	(1)			17,119
Restructuring payments and usage in 2005		(12,572	)		109		(3,557	)	(575	)	(16,595	)
Balance at December 31, 2005		$   2,920			$       —		$ 5,795		$   —		$   8,715

(1)Includes accretion expense of $0.3 million.

Accrued restructuring reserves total approximately $8.7 million at December 31, 2005. The Company expects to pay approximately $5.4 million of the accrued restructuring costs during the next year, and the remainder, approximately $3.3 million, by 2011. The portion of this accrual attributable to facility closing costs is recorded net of estimated sublease income at its present value. Actual future cash requirements may differ from the accrual, particularly if actual sublease income differs from current estimates.

The restructuring charges are comprised of the following:

	2005		2004	2003
	(in thousands)
Charges requiring cash payments	$ 17,228		$ 4,466	$ 11,684
(Gain) loss on asset disposals in closed locations	(109	)	35	2,965
	$ 17,119		$ 4,501	$ 14,649

6.   ACQUISITIONS

On January 20, 2005, the Company acquired Elite Mailing and Fulfillment Services, Inc. (“Elite”) for $3.4 million. Elite is a full-service lettershop and mail presorting facility based in Bellmawr, New Jersey. Elite has been a strategic partner of Vertis since 1996, providing lettershop and fulfillment services.

On June 10, 2003, the Company acquired the sales, marketing and media planning assets of The Newspaper Network, Inc. (collectively, “TNN”) by assuming the working capital deficit of approximately $4.3 million. The Newspaper Network, Inc. is a national sales and marketing company that provides a wide variety of print advertising services specializing in the planning, pricing and placement of newspaper advertising throughout the United States.

Goodwill arising in connection with the Elite acquisition and the TNN acquisition was approximately $2.8 million and $1.1 million, respectively.  Goodwill is calculated as the excess of the liabilities assumed over the fair value of the net assets acquired. The financial results of Elite and TNN are included in the Company’s consolidated financial statements from the date of acquisition.

F-13

The following unaudited pro forma information reflects the Company’s results adjusted to include Elite as though the acquisition had occurred at the beginning of 2004 and TNN as though the acquisition had occurred at the beginning of 2003.

	Twelve months ended
	December 31,
	2005		2004		2003
	(in thousands)
Net sales	$ 1,510,329		$ 1,507,601		$ 1,453,632
Loss from continuing operations before cumulative effect of accounting change	(22,859	)	(1,086	)	(96,999	)
Net loss	(173,249	)	(11,303	)	(96,138	)

7.   ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	2005		2004
	(in thousands)
Trade—billed	$ 125,889		$ 116,197
Trade—unbilled	17,355	(1)	23,722
Other receivables	9,725		6,242
	152,969		146,161
Allowance for doubtful accounts	(1,563	)	(3,343	)
	$ 151,406		$ 142,818

(1)Reduced by a $12.7 million adjustment related to the revision to the Company’s revenue recognition policy (see  Note 3).

In December 2002, the Company entered into a three-year agreement, due to expire on November 30, 2005, to sell substantially all trade accounts receivable generated by subsidiaries in the U.S. (the “2002 Facility”) through the issuance of $130.0 million variable rate trade receivable backed notes. In November 2005, the Company entered into a new $130 million three-year revolving trade receivables facility (the “A/R Facility”) terminating in December 2008. Funds advanced pursuant to the A/R Facility were used by the Company to pay off the remaining obligations under and terminate the 2002 Facility.

Under the A/R Facility, as well as the 2002 Facility previously in place, the Company sells its trade accounts receivable through a bankruptcy-remote wholly-owned subsidiary. However, the Company maintains an interest in the receivables and has been contracted to service the accounts receivable. The Company received cash proceeds for servicing of $3.0 million and $3.2 million in 2005 and 2004, respectively. These proceeds are fully offset by servicing costs.

The A/R Facility allows for a maximum of $130.0 million of trade accounts receivable to be sold at any time based on the level of eligible receivables and limited to a borrowing base linked to net receivables balances and collections. Additional deductions may be made if the Company fails to maintain a consolidated Compliance EBITDA (as defined in Note 11) of at least $180 million for any rolling four fiscal quarter period. In addition, the A/R Facility includes certain targets related to its receivables collections and credit experience including a minimum EBITDA of $160 million. There are also covenants customary for facilities of this type including requirements related to the characterization of receivables transactions, credit and collection policies, deposits of collections, maintenance by each party of its separate corporate identity including maintenance of separate records, books, assets and liabilities and disclosures about the transactions in the financial statements of Vertis Holdings and its consolidated subsidiaries. Failure to meet the targets or the covenants could lead to an acceleration of the obligations under the A/R Facility or the sale of assets securing the A/R Facility.

F-14

At December 31, 2005 and 2004, accounts receivable of $130.0 million had been sold under both the A/R Facility and the 2002 Facility, respectively, and as such are reflected as reductions of accounts receivable. At December 31, 2005 and 2004, the Company retained an interest in the pool of receivables in the form of overcollateralization and cash reserve accounts of $71.8 million and $58.0 million, under the A/R Facility and the 2002 Facility respectively, which is included in Accounts receivable, net on the consolidated balance sheet at allocated cost, which approximates fair value. The proceeds from collections reinvested in securitizations amounted to $1,595.7 million and $1,558.4 million in 2005 and 2004, respectively.

Fees for the program vary based on the amount of interests sold and the London Inter Bank Offered Rate (“LIBOR”) plus an average margin of 50 basis points under the A/R Facility and 90 basis points under the 2002 Facility. The Company also pays an unused commitment fee of 37.5 basis points on the difference between $130 million and the amount of any advances. The loss on sale, which approximated the fees, totaled $5.2 million in 2005, $3.1 million in 2004 and $2.6 million in 2003, and is included in Other, net.

8.   INVENTORIES

Inventories consisted of the following:

	2005		2004
	(in thousands)
Paper	$ 31,054		$ 29,574
Work in process	3,611		5,324
Finished goods	9,757	(1)
Ink and chemicals	3,743		3,444
Other	4,269		4,405
	$ 52,434		$ 42,747

(1)Amount represents adjustment associated with the revision to the Company’s revenue recognition policy (see  Note 3).

9.   PROPERTY, PLANT AND EQUIPMENT

The components and useful lives of property, plant and equipment were:

	Estimated
	Useful Life
	(Years)		2005		2004
	(in thousands)
Land			$     8,491		$     8,491
Machinery and equipment		5 to 15	649,774		643,386
Buildings and leasehold improvements		1 to 40	89,587		90,047
Furniture and fixtures		3 to 10	112,018		104,649
Internally developed computer software		3 to 5	18,953		16,920
Vehicles		3 to 5	1,159		1,242
Construction in progress and deposits on equipment purchases			21,187		21,868
			901,169		886,603
Accumulated depreciation and amortization			(564,504	)	(526,986	)
			$ 336,665		$ 359,617

F-15

10.INVESTMENTS

The Company had two subsidiaries which were special purpose limited liability companies (“LLCs”) that were the head lessees and sub-lessors in two lease-leaseback transactions entered into in 1998. Under these transactions, buildings with estimated useful lives of 65 years were leased by the LLCs for terms of 57 years (the “Headleases”) and subleased by the LLCs to the lessors for terms of 52 years (the “Subleases”). Under the guidelines of SFAS No. 13, “Accounting for Leases,” the Headleases qualified as capital leases and the Subleases qualified as leveraged leases. The Company’s investments represented approximately 24% of the buildings’ combined leasehold values, while the balance was furnished by third-party financing in the form of long-term debt that provided no recourse against the LLCs or the Company, but was secured by first liens on the properties.

On September 14, 2004, the Company entered into a termination and release agreement with the headlessor/sublessee whereby the Company terminated its leasehold interest in the properties. The Company received net proceeds of approximately $31 million, after transaction expenses, from one of the third parties that was financing the original arrangement. As a result of the transaction, the Company recorded a non-cash loss related to the termination and release of $44.0 million, which is included in Other, net in 2004, and a tax benefit of $66.7 million (see Note 13).

Other, net includes $1.0 million of income earned on the leveraged lease investments in 2004, prior to the termination of the leasehold interest, and $1.5 million in 2003.

11.LONG-TERM DEBT

Long-term debt consisted of the following in the order of priority:

	2005			2004
	(in thousands)
Revolving credit facility (due December 2008)	$	69,864		$	48,801
93¤4% senior secured second lien notes, net of discount (due April 2009)	344,827			343,235
107¤8% senior notes, net of discount (due June 2009)	348,756			348,399
131¤2% senior subordinated notes (due December 2009)	293,495			293,495
Discount—131¤2% senior subordinated credit facility	(7,883		)	(9,895		)
Other notes				7
	$	1,049,059		$	1,024,042

On December 22, 2004, the Company entered into a $200 million, four-year revolving credit agreement (the “Credit Facility”) consisting of a revolving credit facility of up to $200 million that provides for issuances of up to $45 million in letters of credit. The Credit Facility matures December 22, 2008 with no repayment of principal until maturity.

The maximum availability under the Credit Facility is $200 million, limited to a borrowing base calculated as follows: 85% of the Company’s eligible receivables; 65% of the net amount of eligible raw materials, finished goods, maintenance parts, unbilled receivables and the residual interest in the Company’s $130 million trade receivables securitization (see Note 7); and 45% of eligible machinery, equipment and owned real estate. The eligibility of such assets included in the calculation is set forth in the credit agreement. At December 31, 2005, the Company’s borrowing base calculation was $201.1 million.

In addition, as is customary in asset-based agreements, there is a provision for the agent, in its reasonable credit judgment, to establish reserves against availability based on a change in circumstances. The agent’s right to alter existing reserves requires written consent from the borrowers when Compliance EBITDA, as defined below, is in excess of $180 million on a quarterly trailing twelve-month basis. The agent is not required to obtain written consent when Compliance EBITDA on a quarterly trailing twelve-month basis is less than $180 million. At December 31, 2005, the Company’s trailing twelve-month Compliance EBITDA as calculated under the credit agreement is $182.5 million.

F-16

“Compliance EBITDA” is the Consolidated EBITDA as reflected in Note 21 to these financial statements adjusted for certain items as defined in the credit agreement.

The interest rate on the Credit Facility is either (a) the US Prime rate, plus a margin which fluctuates based on the Company’s senior secured leverage ratio (“Leverage Ratio”), defined as the ratio of senior secured debt to EBITDA, or (b) the US LIBOR rate plus a margin that fluctuates based on the Company’s Leverage Ratio. The EBITDA amount used in this calculation is not equivalent to the amount included in these financial statements, but rather is net of adjustments to exclude certain items as defined in the credit agreement. At December 31, 2005, the margin was 275 basis points above LIBOR. The Company also pays an unused commitment fee of 50 basis points on the difference between $200 million and the amount of loans and letters of credit outstanding.

At December 31, 2005, the weighted-average interest rate on the Credit Facility was 7.33% as compared to 7.56% at December 31, 2004.

The Credit Facility, the 9 3/4% senior secured second lien notes (the “9 3/4% Notes”), the 10 7/8% senior notes and the 13 1/2% senior subordinated notes contain customary covenants including restrictions on dividends, and investments. In particular, these debt instruments all contain customary high-yield debt covenants imposing limitations on the payment of dividends or other distributions on or in respect of the Company or the capital stock of its restricted subsidiaries. Substantially all of the Company’s assets are pledged as collateral for the outstanding debt under the Credit Facility, and, on a second lien basis, the 9 3/4% Notes. All of the Company’s debt has customary provisions requiring prepayment in the event of a change in control and from the proceeds of asset sales, as well as cross-default provisions. In addition, the Credit Facility requires the Company to maintain Compliance EBITDA of $160 million on a trailing twelve-month basis. At December 31, 2005, the Company’s trailing twelve-month Compliance EBITDA as calculated under the credit agreement is $182.5 million. If the Company is unable to maintain this minimum Compliance EBITDA amount, the bank lenders could require the Company to repay any amounts owing under the Credit Facility. At December 31, 2005, the Company was in compliance with its debt covenants.

At December 31, 2005, the aggregate maturities of long-term debt were:

	(in thousands)
2006
2007
2008		$	69,864
2009		979,195
2010
Thereafter
		$	1,049,059

12.LEASES

Facilities and certain equipment are leased under agreements that expire at various dates through 2016. Rental expense for continuing operations under operating leases for the years ended December 31, 2005, 2004 and 2003, was $26.2 million, $26.4 million, and $28.1 million, respectively.

F-17

At December 31, 2005, minimum annual rentals under non-cancelable operating leases (net of subleases) were:

	(in thousands)
2006		$	25,477
2007		17,931
2008		11,295
2009		8,144
2010		6,387
Thereafter		15,797
		$	85,031

Commitments under the lease agreements also extend in most instances to property taxes, insurance and maintenance and certain leases contain escalation clauses and extension options.

13.INCOME TAXES

Income tax (benefit) expense consisted of the following components:

	2005			2004			2003
	(in thousands)
Current:
Federal	$	(8,324	)	$	1,000		$	1,000
State and foreign	317			(201		)	1,069
	(8,007		)	799			2,069
Deferred:
Federal				(66,733		)	46,485
State and foreign
				(66,733		)	46,485
Total income tax (benefit) expense	$	(8,007	)	$	(65,934	)	$	48,554

Vertis Holdings files a consolidated Federal income tax return with all of its subsidiaries, including the Company. The components of income tax disclosed above have been allocated to the Company as if the Company had filed a separate consolidated tax return.

The Company’s tax allocation arrangement does not provide for remuneration in years in which the Company has a current taxable loss as in 2003, 2004, and 2005. There are no tax related intercompany balances due to or from the Company.

The Company’s foreign pre-tax income was not a significant component of total pre-tax income or loss. The Company has unremitted foreign earnings from its French subsidiary of approximately $1.0 million for which it has recorded a deferred tax liability.

The following is a reconciliation of the U.S. statutory federal income tax rate to the Company’s effective tax rates:

	2005		2004		2003
	(percent of pre-tax loss)
Statutory income tax rate	(35.0	)%	(35.0	)%	(35.0	)%
State income taxes, net of federal income tax benefits			(0.5	)	2.0
Change in valuation allowance	34.6		(65.7	)	132.3
Foreign income taxed at other rates	(0.1	)	1.6		4.0
Adjustment to contingency reserve	(27.0	)	1.5		2.0
Officer’s life insurance	(0.5	)			(7.0	)
Other	2.0		(0.4	)	1.3
Effective tax rate	(26.0	)%	(98.5	)%	99.6	%

F-18

The tax effects of significant items comprising deferred income taxes were:

	2005			2004
	(in thousands)
Employee benefits	$	15,054		$	15,354
Net tax benefit carry forwards	162,285			69,188
Accrued expenses and reserves	6,679			8,576
Other deductible differences				2,323
	184,018			95,441
Property, plant and equipment	(49,049		)	(52,832		)
Other taxable differences	(2,438		)	(2,119		)
	(51,487		)	(54,951		)
Valuation allowance	(132,531		)	(40,490		)
Net deferred income tax liability	$	—		$	—

On August 30, 2005, the Company reached a tentative settlement agreement with the IRS resolving disputes over the tax deductibility of net losses relating to five leasehold interests in real estate properties that the company entered into in 1998. On January 23, 2006, the Company signed a closing agreement with the IRS. The closing agreement is subject to final approval from the Congressional Joint Committee on Taxation.

As a result of the 2005 settlement agreement with the IRS, the Company reduced its tax reserves related to the IRS examination from $10.3 million to $ 2.0 million. The remaining amount owed to the IRS and state tax authorities is classified in the accompanying balance sheet as accrued income taxes. The reduction resulted in an $8.3 million tax benefit in 2005.

During 2004, the Company recorded a tax benefit of $66.7 million from the termination of the Company’s leasehold interest in the same real estate properties that were the subject of the Company’s 2005 IRS settlement (see Note 10 for further discussion).

In the fourth quarter of 2005 the Company sold the stock of its Europe direct mail subsidiary which generated a capital loss carryforward in the U.S. of $137.0 million. Also in the fourth quarter, the Europe premedia subsidiary of the Company sold the stock of its subsidiaries generating a U.K. capital loss carryforward of  $29.0 million. The U.S. capital loss carryforward expires in 2011. The UK capital loss can be carried forward indefinitely.

At the end of 2005 the Company’s federal net operating loss carryforwards were $217.0 million. This amount is included in the consolidated Vertis Holdings net operating loss carryforward. The carryforwards expire beginning in 2007 through 2026.

The Company’s valuation allowance related to its deferred tax asset, which was $40.5 million at the beginning of 2005, was increased by $92.0 million to $132.5 million at the end of 2005. The valuation allowance reserves all deferred tax assets that will not be offset by reversing taxable temporary differences. This treatment is required under SFAS No. 109, “Accounting for Income Taxes”, when in the judgment of management, it is not more likely than not that sufficient taxable income will be generated in the future to realize the deductible temporary differences. The Company’s deferred tax assets and tax carryforwards remain available to offset taxable income in future years, thereby lowering any future cash tax obligations. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

F-19

The Company is currently under examination by various states as well as the Internal Revenue Service in the United States. The Company believes it has adequate provisions for all open years.

The Company made income tax payments of $0.2 million, $0.4 million and $0.8 million for the years ended December 31, 2005, 2004, and 2003, respectively.

14.RETIREMENT PLANS

Defined Benefit Plans—The Company maintains defined benefit plans, including pension and supplemental executive retirement plans.

Information regarding the defined benefit plans, collectively, is as follows:

	2005			2004			2003
	(in thousands)
Components of net periodic pension cost:
Service cost	$	673		$	686		$	697
Interest cost	2,271			2,159			2,216
Expected return on assets	(1,358		)	(1,023		)	(1,187		)
Net amortization and deferral	1,155			944			721
Settlements and curtailments	443						1,212
	$	3,184		$	2,766		$	3,659
Changes in benefit obligations:
Benefit obligation at beginning of year	$	40,022		$	36,748
Service cost	673			686
Interest cost	2,271			2,159
Actuarial loss	1,907			2,145
Benefits paid	(2,512		)	(1,716		)
Settlements and curtailments	(1,573		)
Benefit obligation at end of year	$	40,788		$	40,022
Changes in plan assets:
Fair value of plan assets at beginning of year	$	15,076		$	11,707
Actual return on assets	903			1,037
Employer contributions	3,135			4,048
Benefits paid	(2,512		)	(1,716		)
Fair value of plan assets at end of year	$	16,602		$	15,076
Unfunded status	$	24,185		$	24,946
Unrecognized prior service cost	(869		)	(1,546		)
Unrecognized actuarial loss	(14,213		)	(14,348		)
Net amount recognized	$	9,103		$	9,052
Amounts recognized in the consolidated balance sheet:
Accrued benefit cost	$	22,556		$	22,086
Accumulated other comprehensive loss	(13,453		)	(13,034		)
Net amount recognized	$	9,103		$	9,052
Weighted-average assumptions used to calculate net periodic pension cost:
Discount rate	5.75		%	6.25		%	6.75		%
Expected return on plan assets	8.75		%	8.75		%	8.75		%
Annual compensation increase	3.00		%	3.00		%	3.00		%
Weighted-average assumptions used to determine benefit obligation:
Discount rate	5.50		%	5.75		%
Annual compensation increase	3.00		%	3.00		%

F-20

The Company expects to make approximately $3.0 million of cash contributions to its pension plans in 2006.

The Company expects to make the following benefit payments, which reflect expected future service:

	(in thousands)
2006		$	3,012
2007		2,277
2008		1,958
2009		2,823
2010		2,453
Thereafter		12,219
		$	24,742

For the Company’s pension plans, the percentage of fair value of plan assets by asset category as of the measurement date are as follows:

	2005			2004
Asset category:
Equity securities		56	%		57	%
Fixed Income		39	%		38	%
Cash and cash equivalents		5	%		5	%
		100	%		100	%

The Company’s investment strategy for the pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class. Target allocations for 2005 are shown in the table below.

The Company developed its expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plans’ assets, including the trustee’s review of asset class return expectations by several consultants and economists as well as long-term inflation assumptions. The Company’s expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on the Company’s investment strategy. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. The target allocation of assets is as follows:

				Expected
	Percent of			Long-term
	Total			Rate of Return
Asset category:
Large Cap Equities		47	%		9.0	%
Small/Mid Cap Equities		8	%		11.0	%
International Equities		5	%		10.2	%
Fixed Income		40	%		6.5	%
		100	%

Deferred Compensation—The Company also maintains a deferred compensation plan in which certain members of management may defer up to 100% of their total compensation through the date of their retirement. Long-term liabilities include balances related to this plan of $6.6 million as of December 31, 2005 and $6.8 million as of December 31, 2004.

F-21

Defined Contribution Plans—The Company maintains 401(k) and other investment plans for eligible employees. The Company recorded $5.0 million in expenses for the year ended December 31, 2005 and $7.6 million in 2003. The Company did not make matching contributions to its 401(k) plan in 2004 and thus did not record any expense for the year ended December 31, 2004.

15.   STOCKHOLDER’S DEFICIT

Contributed Capital—In December 2005, in conjunction with the sale of the premedia division of the Vertis Europe segment (see Note 4), Vertis Holdings assigned its rights to a $0.7 million receivable from the Vertis Europe premedia division to Vertis, Inc. as a contribution of capital. This receivable was subsequently waived by Vertis, Inc.

Vertis Holdings has 700,000 warrants outstanding at December 31, 2005, with an aggregate value of $15.8 million. These warrants are held by the lenders of the senior subordinated credit facility which entitle the holders to purchase one share of Vertis Holdings’ stock for $0.01 per share. The warrants are immediately exercisable and expire on June 30, 2011.

Dividends to Parent—The Company paid approximately $4,000 and $15,000 of cash dividends to Vertis Holdings in 2005 and 2004, respectively. No dividends were paid in 2003.

Accumulated Other Comprehensive Loss—The components of accumulated other comprehensive loss at December 31 were:

	2005									2004									2003
	Gross			Tax			Net			Gross			Tax			Net			Gross			Tax			Net
	(in thousands)
Cumulative translation adjustments	$	76					$	76		$	4,370					$	4,370		$	(1,592	)				$	(1,592	)
Minimum pension liability adjustment	(13,454		)	$	(4,706	)	(8,748		)	(13,034		)	$	(4,706	)	(8,328		)	(11,764		)	$	(4,706	)	(7,058		)
	$	(13,378	)	$	(4,706	)	$	(8,672	)	$	(8,664	)	$	(4,706	)	$	(3,958	)	$	(13,356	)	$	(4,706	)	$	(8,650	)

16.   VERTIS HOLDINGS STOCK AWARD AND INCENTIVE PLAN

Employees of the Company participate in the Vertis Holdings 1999 Equity Award Plan (the “Stock Plan”), which authorizes grants of stock options, restricted stock, performance shares and other stock based awards up to an aggregate limit of 10 million shares. On April 6, 2004, the Company extended an offer to all eligible U.S.-based employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible options for restricted common stock on a 4 for 1 basis. The restricted stock will vest immediately prior to a liquidity event, generally defined as a public offering of our common stock (where immediately following such offering, the aggregate number of shares of common stock held by the public, not including affiliates of the Company, represents at least 20% of the total number of outstanding shares), merger or other business combination, or a sale or other disposition of all or substantially all of our assets to another entity for cash and/or publicly traded securities. Of the 782,484 eligible Vertis Holdings options, 774,866 were exchanged. Pursuant to the exchange offer, on June 7, 2004 Vertis Holdings issued 193,739 restricted shares of stock. Additional restricted stock transactions are reflected in the table below. Upon issuance, unearned compensation is charged to stockholders’ equity on Vertis Holdings balance sheet for the fair value of the restricted stock as determined by an independent valuation. At December 31, 2005, there were 160,145 shares of restricted stock and 7,618 stock options outstanding under the Stock Plan.

On June 14, 2004, the Company extended an offer to all eligible U.K.-based employees holding options under the Stock Plan the opportunity to exchange their outstanding eligible options for Nil Cost

F-22

Options on a 4 for 1 basis. Of the 42,785 Vertis Holdings options eligible to be exchanged, 28,499 were exchanged. Pursuant to the exchange offer, on July 29, 2004 Vertis Holdings granted 7,126 Nil Cost Options. These Nil Cost Options were cancelled in the fourth quarter of 2005 in conjunction with the sale of the two divisions comprising the Vertis Europe segment (see Note 4).

The Company accounts for the Stock Plan under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.”  Approximately $0.1 million of employee compensation cost is reflected in net income in 2005. Due to the uncertainty of the timing of a liquidity event, which would trigger the vesting of the restricted stock, and the fact that the number of shares that will actually vest is unknown, compensation expense will not be recorded until a liquidity event takes place, or an event is probable of occurring. For the 7,618 options outstanding under the Stock Plan, variable accounting applies.  There is no expense recorded for the years ended December 31, 2005 and 2004 related to these options as the estimated fair value of the Company’s stock is not more than the exercise price of the options.

Transactions under the Stock Plan were as follows:

	Year Ended December 31,
	2005									2004								2003
	Restricted Stock			Nil Cost Options			Options			Restricted Stock			Nil Cost Options		Options			Options
	(thousands of shares)
Outstanding at beginning of year		197			7			22								858			888
Granted		30									201			7
Cancelled		(67	)		(7	)		(14	)		(4	)				(836	)		(30	)
Outstanding at end of year		160						8			197			7		22			858
Exercisable at end of period								8								21			684

Options outstanding at December 31, 2005 have an exercise price of $31.50 per share and ten-year terms, with 5,832 options expiring in 2009 and the remainder expiring in 2012. All outstanding options are fully vested at December 31, 2005. Restricted shares granted in 2005 and 2004 have an estimated fair value of $0.6 million and $4.1 million, respectively. At December 31, 2005, the Company had the ability to issue approximately 9.5 million additional shares under the Stock Plan. See the Stock Based Compensation section under Note 2 for further discussion.

17.   INTEREST EXPENSE, NET

Interest expense, net consists of the following:

	2005			2004			2003
	(In thousands)
Interest cost	$	123,320		$	124,311		$	118,663
Amortization of deferred financing fees	7,265			7,831			8,045
Write-off of deferred financing fees				1,788			10,958
Capitalized interest	(929		)	(798		)	(832		)
Interest income	(835		)	(323		)	(277		)
	$	128,821		$	132,809		$	136,557

F-23

The Company wrote off deferred financing fees of $1.8 million in December 2004 in connection with the termination of the Prior Credit Facility. In June 2003, the Company wrote off deferred financing fees of $11.0 million in connection with the retirement of the Term A and B loans. See Note 11 for further discussion of these debt transactions.

The Company made interest payments of $118.8 million, $123.2 million and $115.6 million in the years ended December 31, 2005, 2004 and 2003, respectively.

18.   OTHER, NET

Other, net for the year ended December 31, 2005 consists primarily of $5.2 million in fees associated with the A/R Facility (see Note 7), $1.6 million in losses on the sale of property, plant and equipment and $0.9 million in bank commitment fees.

Other, net for the year ended December 31, 2004 consists primarily of a $44.0 million loss associated with the termination of the Company’s leasehold interest in the properties as discussed in Note 10, offset by $1.0 million in income earned on investments accounted for as leveraged leases prior to the termination of the Company’s leasehold interest. Additionally, included in Other, net are $3.1 million in fees associated with the A/R Facility (see Note 7), $1.2 million in bank commitment fees and $0.4 million in losses on the sale of property, plant and equipment.

Other, net for the year ended December 31, 2003 consists primarily of a $10.1 million recovery from a settlement to the legal proceeding arising from a life insurance policy which covered the former Chairman of Vertis Holdings, Inc. Additionally, other, net includes $1.5 million in income earned on investments accounted for as leveraged leases (see Note 10), offset by $2.6 million in fees associated with the A/R Facility (see Note 7), $1.2 million in losses on the sale of property, plant and equipment and $1.1 million in expense related to the remaining fair market value of an interest rate swap agreement attached to a term loan that was paid off in 2003, at which point in time it became an ineffective cash flow hedge. The remaining $0.9 million in expense consists of miscellaneous charges such as commitment fees and foreign exchange losses.

19.   RELATED PARTY TRANSACTIONS

The Company has consulting agreements with the owners of Vertis Holdings under which these parties have agreed to provide the Company with consulting services on matters involving corporate finance, strategic corporate planning and other management skills and services. The annual fees payable to these parties under these agreements amount to approximately $1.3 million. The Company paid approximately $1.3 million in fees under these agreements in 2005, 2004 and 2003.

Included in the Company’s 2003 interest expense is $0.7 million of interest forgiven in relation to the cancellation of loans receivable from the Company’s employees.

F-24

20.   QUARTERLY FINANCIAL INFORMATION—UNAUDITED

The results of operations for the years ended December 31, 2005 and 2004 are presented below.

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(in thousands)
Year Ended December 31, 2005
Net sales(1)	$	353,889		$	363,399		$	378,154		$	414,846
Gross profit(2)	56,762			67,183			70,577			92,355
(Loss) income from continuing operations before income taxes and cumulative effect of accounting change	(28,392		)	(9,605		)	(5,923		)	13,073
(Loss) income from continuing operations before cumulative effect of accounting change	(28,650		)	(9,870		)	2,265			13,415
Loss from discontinued operations	(101,278		)	(19,152		)	(26,822		)	(1,538		)
Cumulative effect of accounting change (3)										1,600
Net (loss) income	(129,928		)	(29,022		)	(24,557		)	10,277
Year Ended December 31, 2004
Net sales	$	353,751		$	358,037		$	379,200		$	415,851
Gross profit	65,090			67,592			70,952			85,230
(Loss) income from continuing operations before income taxes taxes(4)	(10,421		)	(10,057		)	(50,023		)	3,651
(Loss) income from continuing operations	(10,643		)	(10,421		)	16,433			3,715
Loss from discontinued operations	(610		)	(1,225		)	(2,110		)	(6,272		)
Net (loss) income(4)	(11,253		)	(11,646		)	14,323			(2,557		)

(1)   Fourth quarter results include the effect on revenue of the Company’s revision to our revenue recognition policy which amounted to $12.7 million in 2005 (see Note 3).

(2)   Fourth quarter results include the effect of the Company’s revision to our revenue recognition policy, as well as the revision to our maintenance parts capitalization policy, the total of which amounted to a $3.3 million increase in 2005 (see Note 3).

(3)Fourth quarter results include the effect of adopting FIN 47 on December 31, 2005 (see Note 3).

(4)Third quarter results include a $44.0 million loss and a $66.7 million tax benefit resulting from the termination of the Company’s leasehold interest in properties as discussed in Note 10.

21.   SEGMENT INFORMATION

Following the sale of the Company’s Europe segment (see Note 4), as well as other management changes, the Company changed its reportable segmentation from the geographic segmentation used in prior periods. As of December 31, 2005, the Company operates in two business segments and all prior period segment data has been reclassified to conform to this presentation. The accounting policies of the business segments are the same as those described in Note 2 to the consolidated financial statements. The segments are:

·Advertising Inserts—provides advertising insert programs and circulation-building newspaper products such as TV magazines, Sunday magazines and color comics.

·Direct Mail—provides direct mail products with varying levels of personalization and direct marketing services such as fragrance samplers, coatings and chemical production, commercial printing and specialized digital printing.

F-25

In addition, the Company also provides outsourced digital premedia and image content management, creative services for advertising insert page layout and design, and media planning and placement services. These services are included in the table below as “Corporate and Other”. Corporate and Other also includes the Company’s general corporate costs, which reflect costs associated with the Company’s executive officers as well as other transactions that are not allocated to the Company’s business segments.

The Company had operations in Europe, principally in the United Kingdom, that were sold in the fourth quarter of 2005. The operational results of the Company’s European segment are included in discontinued operations for all periods presented within these financial statements. See Note 4 for further discussion.

Following is information regarding the Company’s segments: 

		2005			2004			2003
		(in thousands)
Net sales	Advertising Inserts	$	1,046,211		$	1,065,171		$	1,016,521
	Direct Mail	315,864			297,852			290,992
	Corporate and Other	151,268			153,469			159,438
	Elimination of intersegment sales	(3,055		)	(9,653		)	(18,476		)
	Consolidated	$	1,510,288		$	1,506,839		$	1,448,475
EBITDA	Advertising Inserts	$	125,396		$	143,611		$	138,966
	Direct Mail	41,757			38,027			34,240
	Corporate and Other	(4,448		)	(48,223		)	(9,045		)
	Consolidated EBITDA	162,705			133,415			164,161
	Depreciation and amortization
	of intangibles	64,731			67,456			76,262
	Interest expense, net	128,821			132,809			136,557
	Income tax (benefit) expense	(8,007		)	(65,934		)	48,554
	Consolidated loss from continuing operations before cumulative effect of accounting change	$	(22,840	)	$	(916	)	$	(97,212	)
Restructuring charges	Advertising Inserts	$	7,805		$	245		$	636
	Direct Mail	1,983			12			328
	Corporate and Other	7,331			4,244			13,685
	Consolidated	$	17,119		$	4,501		$	14,649
Depreciation and amortization of intangibles	Advertising Inserts	$	38,555		$	37,531		$	41,503
	Direct Mail	15,936			18,388			19,841
	Corporate and Other	10,240			11,537			14,918
	Consolidated	$	64,731		$	67,456		$	76,262
Additions to long-lived assets (excluding acquisitions)	Advertising Inserts	$	23,900		$	23,645		$	19,733
	Direct Mail	7,301			8,670			8,669
	Corporate and Other	10,999			13,321			11,793
	Consolidated	$	42,200		$	45,636		$	40,195
Identifiable Assets	Advertising Inserts	$	524,784		$	534,438		$	551,201
	Direct Mail	193,932			190,145			199,573
	Europe				174,653		(1)	161,387		(2)
	Corporate and Other	153,923			150,559			235,337
	Consolidated	$	872,639		$	1,049,795		$	1,147,498

F-26

Goodwill	Advertising Inserts	$	187,867	$	187,867	$	187,867
	Direct Mail	57,743		54,914		54,914
	Corporate and Other	4,073		4,073		7,299
	Consolidated	$	249,683	$	246,854	$	250,080

(1)Includes cash of $1.2 million and assets held for sale of $173.4 million.

(2)Includes cash of $0.9 million and assets held for sale of $160.5 million.

22.   GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The Company has senior notes (see Note 11), which are general unsecured obligations of Vertis, Inc., and guaranteed by certain of Vertis, Inc.’s domestic subsidiaries. Accordingly, the following condensed consolidated financial information as of December 31, 2005 and 2004, and for the years ended December 31, 2005, 2004 and 2003 are included for (a) Vertis, Inc. (the “Parent”) on a stand-alone basis, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries and (d) the Company on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries eliminate investments in subsidiaries, intercompany balances and intercompany transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been made because the subsidiaries are wholly-owned and the guarantees are full and unconditional and joint and several.

F-27

Condensed Consolidating Balance Sheet at December 31, 2005

			Guarantor		Non-Guarantor
	Parent		Companies		Companies			Eliminations			Consolidated
	In thousands
ASSETS
Current Assets:
Cash and cash equivalents	$          320			$         85		$   1,423						$       1,828
Accounts receivable, net	145,853			4,824		729						151,406
Inventories	39,777			12,654		3						52,434
Maintenance parts	18,102			2,398								20,500
Prepaid expenses and other
current assets	7,614			1,396		17						9,027
Total current assets	211,666			21,357		2,172						235,195
Intercompany receivable	116,882								$ (116,882	)
Investments in subsidiaries	(12,982	)		859					12,123
Property, plant and equipment, net	271,094			65,482		89						336,665
Goodwill	198,229			51,454								249,683
Deferred financing costs, net	20,755											20,755
Other assets, net	29,672			649		20						30,341
Total Assets	$  835,316			$ 139,801		$   2,281			$ (104,759	)		$  872,639
LIABILITIES AND STOCKHOLDER’S
(DEFICIT) EQUITY
Current Liabilities:
Accounts payable	$  212,046			$ 19,138		$      242						$  231,426
Compensation and benefits payable	33,717			4,018		38						37,773
Accrued interest	14,110											14,110
Accrued income taxes	2,135					212						2,347
Other current liabilities	10,245			13,720		(362	)					23,603
Total current liabilities	272,253			36,876		130						309,259
Due to parent	7,898			97,305		19,577			$ (116,882	)		7,898
Long-term debt, net of current portion	1,049,059											1,049,059
Other long-term liabilities	31,984			317								32,301
Total liabilities	1,361,194			134,498		19,707			(116,882	)		1,398,517
Stockholder’s (deficit) equity	(525,878	)		5,303		(17,426	)		12,123			(525,878	)
Total Liabilities and Stockholder’s (Deficit) Equity	$  835,316			$ 139,801		$   2,281			$ (104,759	)		$  872,639

F-28

Condensed Consolidating Balance Sheet at December 31, 2004

	Parent		Guarantor Companies			Non- Guarantor Companies			Eliminations			Consolidated
	In thousands
ASSETS
Current Assets:
Cash and cash equivalents	$	297		$	33		$	2,308					$	2,638
Accounts receivable, net	123,751			18,736			331						142,818
Inventories	31,075			11,669			3						42,747
Maintenance parts	17,557			3,460									21,017
Prepaid expenses and other current assets	8,872			417			45						9,334
Assets held for sale							40,558						40,558
Total current assets	181,552			34,315			43,245						259,112
Intercompany receivable	1,038			34,284						$	(35,322)
Investments in subsidiaries	228,816			33,489						(262,305)
Property, plant and equipment, net	270,269			89,207			141						359,617
Goodwill	198,228			48,626									246,854
Deferred financing costs, net	26,815												26,815
Other assets, net	23,675			855			7						24,537
Assets held for sale							132,860						132,860
Total Assets	$	930,393		$	240,776		$	176,253		$	(297,627)		$	1,049,795
LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY
Current Liabilities:
Accounts payable	$	196,604		$	31,472		$	204					$	228,280
Compensation and benefits payable	29,455			7,637			35						37,127
Accrued interest	13,413												13,413
Accrued income taxes	10,490			(204)			141						10,427
Other current liabilities	18,557			(125)			(362)						18,070
Liabilities held for sale							24,533						24,533
Total current liabilities	268,519			38,780			24,551						331,850
Due to parent							42,732			$	(35,322)		7,410
Long-term debt, net of current portion	975,241						48,801						1,024,042
Other long-term liabilities	35,193			(166)			26						35,053
Total liabilities	1,278,953			38,614			116,110			(35,322)			1,398,355
Stockholder’s (deficit) equity	(348,560)			202,162			60,143			(262,305)			(348,560)
Total Liabilities and Stockholder’s
(Deficit) Equity	$	930,393		$	240,776		$	176,253		$	(297,627)		$	1,049,795

F-29

Condensed Consolidating Statement of Operations
Year ended December 31, 2005

	Parent			Guarantor Companies			Non- Guarantor Companies			Eliminations			Consolidated
	In thousands
Net sales	$	1,232,755		$	273,696		$	3,015			$	822		$	1,510,288
Operating expenses:
Costs of production	965,603			198,638			1,645				822			1,166,708
Selling, general and administrative	121,448			34,251			404							156,103
Restructuring charges	13,718			3,401										17,119
Depreciation and amortization of intangibles	51,606			13,101			24							64,731
	1,152,375			249,391			2,073				822			1,404,661
Operating income	80,380			24,305			942							105,627
Other expenses (income):
Interest expense, net	128,807			15			(1		)					128,821
Other, net	7,653													7,653
	136,460			15			(1		)					136,474
Equity in net loss of subsidiaries	(123,908		)	(107,123		)					231,031
(Loss) income before income taxes	(179,988		)	(82,833		)	943				231,031			(30,847		)
Income tax (benefit) expense	(8,358		)	34			317							(8,007		)
(Loss) income from continuing operations before cumulative effect of accounting change	(171,630		)	(82,867		)	626				231,031			(22,840		)
Loss from discontinued operations							(148,790		)					(148,790		)
Cumulative effect of accounting change	1,600													1,600
Net (loss) income	$	(173,230	)	$	(82,867	)	$	(148,164	)		$	231,031		$	(173,230	)

F-30

Condensed Consolidating Statement of Operations
Year ended December 31, 2004

	Parent			Guarantor Companies				Non- Guarantor Companies				Eliminations				Consolidated
	In thousands
Net sales	$	1,160,433			$	346,348			$	3,218			$	(3,160	)		$	1,506,839
Operating expenses:
Costs of production	905,534				256,376				1,723				(3,160		)		1,160,473
Selling, general and administrative	123,120				37,188				457								160,765
Restructuring charges	3,903				598												4,501
Depreciation and amortization of intangibles	49,280				18,024				152								67,456
	1,081,837				312,186				2,332				(3,160		)		1,393,195
Operating income	78,596				34,162				886								113,644
Other expenses (income):
Interest expense, net	132,799				10												132,809
Other, net	4,672				24				42,989								47,685
	137,471				34				42,989								180,494
Equity in net loss of subsidiaries	(18,491		)		(35,006		)						53,497
Loss before income taxes	(77,366		)		(878		)		(42,103		)		53,497				(66,850		)
Income tax (benefit) expense	(66,233		)		(11		)		310								(65,934		)
Loss from continuing operations	(11,133		)		(867		)		(42,413		)		53,497				(916		)
Loss from discontinued operations									(10,217		)						(10,217		)
Net (loss) income	$	(11,133	)		$	(867	)		$	(52,630	)		$	53,497			$	(11,133	)

F-31

Condensed Consolidating Statement of Operations
Year ended December 31, 2003

	Parent			Guarantor Companies				Non- Guarantor Companies			Eliminations				Consolidated
	In thousands
Net sales	$	1,107,715			$	356,937			$	3,785		$	(19,962	)		$	1,448,475
Operating expenses:
Costs of production	858,165				268,858				2,589			(19,962		)		1,109,650
Selling, general and administrative	130,002				35,328				445							165,775
Restructuring charges	14,495				154											14,649
Depreciation and amortization of intangibles	55,292				20,872				98							76,262
	1,057,954				325,212				3,132			(19,962		)		1,366,336
Operating income	49,761				31,725				653							82,139
Other expenses (income):
Interest expense, net	136,821				(264		)									136,557
Other, net	(5,791		)		31											(5,760		)
	131,030				(233		)									130,797
Equity in net income of subsidiaries	33,769				(1,304		)					(32,465		)
(Loss) income before income taxes	(47,500		)		30,654				653			(32,465		)		(48,658		)
Income tax expense (benefit)	48,425				(13		)		142							48,554
(Loss) income from continuing operations	(95,925		)		30,667				511			(32,465		)		(97,212		)
Income from discontinued operations									1,287							1,287
Net (loss) income	$	(95,925	)		$	30,667			$	1,798		$	(32,465	)		$	(95,925	)

F-32

Condensed Consolidating Statement of Cash Flows
Twelve months ended December 31, 2005

								Non-
				Guarantor				Guarantor				Consol-
	Parent			Companies				Companies				idated
	In thousands
Cash Flows from Operating Activities	$	(36,842	)		$	48,437			$	(5,902	)	$	5,693
Cash Flows from Investing Activities:
Capital expenditures	(36,238		)		(3,930		)					(40,168		)
Software development costs capitalized	(2,032		)									(2,032		)
Proceeds from sale of property, plant and equipment and divested assets	794				227							1,021
Proceeds from sale of subsidiaries, net	2,361											2,361
Acquisition of business, net of cash	(3,430		)									(3,430		)
Investing activities of discontinued operations									(1,517		)	(1,517		)
Net cash used in investing activities	(38,545		)		(3,703		)		(1,517		)	(43,765		)
Cash Flows from Financing Activities:
Net borrowings under revolving credit facilities	15,049											15,049
Repayments of long-term debt	(6		)									(6		)
Deferred financing costs	(1,204		)									(1,204		)
Increase in outstanding checks drawn on controlled disbursement accounts	14,349				681							15,030
Other financing activities	47,222				(45,363		)		(713)			1,146
Financing activities of discontinued operations									9,317			9,317
Net cash provided by (used in) financing activities	75,410				(44,682		)		8,604			39,332
Effect of exchange rate changes on cash									(2,070		)	(2,070		)
Net increase (decrease) in cash and cash equivalents	23				52				(885		)	(810		)
Cash and cash equivalents at beginning of year	297				33				2,308			2,638
Cash and cash equivalents at end of year	$	320			$	85			$	1,423		$	1,828

F-33

Condensed Consolidating Statement of Cash Flows
Twelve months ended December 31, 2004

								Non-
				Guarantor				Guarantor				Consol-
	Parent			Companies				Companies				idated
	In thousands
Cash Flows from Operating Activities	$	36,657			$	25,008			$	(14,120	)	$	47,545
Cash Flows from Investing Activities:
Capital expenditures	(36,739		)		(6,992		)					(43,731		)
Software development costs capitalized	(1,905		)									(1,905		)
Proceeds from sale of property, plant and equipment and divested assets	763				45							808
Proceeds from termination of leasehold interest									31,068			31,068
Investing activities of discontinued operations									(5,232		)	(5,232		)
Net cash (used in) provided by investing activities	(37,881		)		(6,947		)		25,836			(18,992		)
Cash Flows from Financing Activities:
Net repayments under revolving credit facilities	(57,521		)									(57,521		)
Repayments of long-term debt	(72		)		(2		)					(74		)
Deferred financing costs	(5,605		)									(5,605		)
Increase in outstanding checks drawn on controlled disbursement accounts	12,187				1,789							13,976
Other financing activities	52,143				(19,923		)		(32,187		)	33
Financing activities of discontinued operations									19,583			19,583
Net cash provided by (used in) financing activities	1,132				(18,136		)		(12,604		)	(29,608		)
Effect of exchange rate changes on cash									1,610			1,610
Net (decrease) increase in cash and cash equivalents	(92		)		(75		)		722			555
Cash and cash equivalents at beginning of year	389				108				1,586			2,083
Cash and cash equivalents at end of year	$	297			$	33			$	2,308		$	2,638

F-34

Condensed Consolidating Statement of Cash Flows
Twelve months ended December 31, 2003

								Non-
				Guarantor				Guarantor				Consol-
	Parent			Companies				Companies				idated
	In thousands
Cash Flows from Operating Activities	$	29,709			$	61,916			$	(2,579	)	89,046
Cash Flows from Investing Activities:
Capital expenditures	(27,148		)		(10,148		)					(37,296		)
Software development costs capitalized	(2,899		)									(2,899		)
Proceeds from sale of property, plant and equipment and divested assets	2,894											2,894
Acquisition of business, net of cash	(93		)									(93		)
Investing activities of discontinued operations									(3,509		)	(3,509		)
Net cash used in investing activities	(27,246		)		(10,148		)		(3,509		)	(40,903		)
Cash Flows from Financing Activities:
Issuance of long-term debt	340,714											340,714
Net repayments under revolving credit facilities	(85,300		)									(85,300		)
Repayments of long-term debt	(310,431		)		(43		)					(310,474		)
Deferred financing costs	(12,846		)									(12,846		)
Increase in outstanding checks drawn on controlled disbursement accounts	11,671				1,113							12,784
Other financing activities	50,528				(52,829		)		1,926			(375		)
Financing activities of discontinued operations									2,321			2,321
Net cash (used in) provided by financing activities	(5,664		)		(51,759		)		4,247			(53,176		)
Effect of exchange rate changes on cash									1,381			1,381
Net (decrease) increase in cash and cash equivalents	(3,201		)		9				(460		)	(3,652		)
Cash and cash equivalents at beginning of year	3,590				99				2,046			5,735
Cash and cash equivalents at end of year	$	389			$	108			$	1,586		$	2,083

F-35

23.COMMITMENTS AND CONTINGENCIES

Certain claims, suits and allegations that arise in the ordinary course of business and certain environmental claims have been filed or are pending against the Company. Management believes that all such matters in the aggregate would not have a material effect on the Company’s consolidated financial statements.

*   *   *   *   *

F-36

VERTIS, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

	Balance at Beginning of Year			Charges (Credits) to Costs and Expenses				Write offs Net of Recoveries				Balance at End of Year
	In thousands
Allowance for Doubtful Accounts
Year ended December 31, 2005		$	3,344		$	1,544			$	(3,325	)	$	1,563
Year ended December 31, 2004		$	3,865		$	709			$	(1,230	)	$	3,344
Year ended December 31, 2003		$	5,731		$	1,623			$	(3,489	)	$	3,865
Deferred Tax Valuation Allowance
Year ended December 31, 2005		$	40,490		$	92,041						$	132,531
Year ended December 31, 2004		$	74,393		$	(33,903	)					$	40,490
Year ended December 31, 2003		$	6,968		$	67,425						$	74,393

F-37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VERTIS, INC.
BY:	/s/ DEAN D. DURBIN
	Name: Dean D. Durbin
	Title: President and Chief Executive Officer

Date: March 27, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacities and on the dates indicated.

	Signatures		Capacity		Date
/s/ DEAN D. DURBIN		President and Chief Executive Officer		March 27, 2005
Dean D. Durbin		(Principal Executive Officer)
/s/ CIARA A. BURNHAM		Director		March 27, 2005
Ciara A. Burnham
/s/ JOHN T. DILLON		Director		March 27, 2005
John T. Dillon
/s/ ANTHONY J. DINOVI		Director		March 27, 2005
Anthony J. DiNovi
/s/ THOMAS H. LEE		Director		March 27, 2005
Thomas H. Lee
/s/ SOREN L. OBERG		Director		March 27, 2005
Soren L. Oberg
/s/ MICHAEL S. RAWLINGS		Director		March 27, 2005
Michael S. Rawlings
/s/ DONALD E. ROLAND		Director		March 27, 2005
Donald E. Roland
/s/ SCOTT M. SPERLING		Director		March 27, 2005
Scott M. Sperling
/s/ STEPHEN E. TREMBLAY		Chief Financial Officer (Principal Financial and		March 27, 2005
Stephen E. Tremblay		Accounting Officer)

F-38

EX-10.2

EXHIBIT 10.2

LIMITED CONSENT AND AMENDMENT NO. 1 TO CREDIT AGREEMENT

This Limited Consent and Amendment No. 1 to Credit Agreement, dated as of October 3, 2005 (this “Consent and Amendment”), is entered into by and among Vertis, Inc. (“Vertis”), Vertis Limited (“Vertis Limited”) and Vertis Digital Services Limited (“Digital Limited” and, collectively with Vertis and Vertis Limited, the “Borrowers” and each, individually, a “Borrower”), as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders (“Agent”), and the other Lenders.

RECITALS

A.Borrowers, the other Credit Parties, Agent and Lenders are parties to that certain Credit Agreement, dated as of December 22, 2004 (as now or hereafter amended, restated or otherwise modified, the “Credit Agreement”).

B.Borrowers and the other Credit Parties have requested that Agent and Lenders consent to (i) the sale of all of the issued and outstanding shares of Stock of Vertis Limited pursuant to an Agreement to be entered into by and between Webcraft, LLC, as seller, and Overgoal Limited, as buyer (“Buyer”), substantially in the form of Exhibit A to this Consent and Amendment (the “Stock Purchase Agreement”), and (ii) certain related actions as further described in Section 2 herein.  Upon consummation of the transactions contemplated by the Stock Purchase Agreement, Vertis Limited and each of its Subsidiaries listed on Schedule 1 attached hereto (each, a “Departing Entity”, and collectively, the “Departing Entities”) shall cease to be a Credit Party under the Credit Agreement and the other Loan Documents.

C.This Consent and Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Consent and Amendment.

NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and of the Loans and other extensions of credit heretofore, now or hereafter made to, or for the benefit of, Borrowers by Lenders, Borrowers, the other Credit Parties, Agent and Lenders hereby agree as follows:

1.Definitions.  Except to the extent otherwise specified herein, capitalized terms used in this Consent and Amendment shall have the same meanings ascribed to them in the Credit Agreement and Annex A thereto.

2.Consents.

2.1.Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the sale of all of the issued and outstanding shares of Stock of Vertis Limited to Buyer pursuant to the Stock Purchase Agreement; provided, that, any changes to the Stock Purchase Agreement from the version

thereof attached to this Consent and Amendment as Exhibit A shall be reasonably satisfactory to Agent.

2.2.Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the release of Agent’s Liens on all shares of Stock of each Departing Entity upon the closing of the transactions contemplated by the Stock Purchase Agreement to the extent such shares of Stock have been pledged to Agent pursuant to the Credit Agreement or any other Loan Document.

2.3.Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the release of Agent’s Liens on all properties and assets of each Departing Entity upon the closing of the transactions contemplated by the Stock Purchase Agreement to the extent such properties and assets have been pledged to Agent pursuant to the Credit Agreement or any other Loan Document.

2.4.As a result of the actions described above in Subsections 2.1, 2.2 and 2.3, upon the closing of the transactions contemplated by the Stock Purchase Agreement, Vertis Limited shall cease to be either a Borrower or a Credit Party under the Credit Agreement and the other Loan Documents.  Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to such termination at, and only at, such time, of Vertis Limited’s status as a Borrower and a Credit Party under the Credit Agreement and the other Loan Documents.

2.5.As a result of the actions described above in Subsections 2.1, 2.2 and 2.3, upon the closing of the transactions contemplated by the Stock Purchase Agreement, each Departing Entity shall cease to be a Credit Party under the Credit Agreement and the other Loan Documents.  Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the such termination at, and only at, such time, of each Departing Entity’s status as a Credit Party under the Credit Agreement and the other Loan Documents.

2.6.In connection with the closing of the transactions contemplated by the Stock Purchase Agreement, Vertis and the other Credit Parties (other than the Departing Entities) intend to forgive and forever discharge intercompany loans and obligations owing by the Departing Entities to Vertis and such other Credit Parties in an aggregate principal amount of up to £40,000,000 (the “Departing Entities Intercompany Debt Discharge”) and to assign to the Buyer an intercompany loan in the principal amount of £7,000,000 owing to Vertis by Vertis Limited (the “Assigned Vertis Limited Note”).  Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the Departing Entities Intercompany Debt Discharge as a part of, and at the time of the closing of, the transactions contemplated by the Stock Purchase Agreement and, upon the closing of the transactions contemplated by the Stock Purchase Agreement, Agent and Lenders hereby consent to the release of any Liens which Agent may have on any intercompany notes issued by the Departing Entities to Vertis and the other Credit Parties (other than the Departing Entities) in respect of the Departing Entities Intercompany Debt Discharge, to the assignment by Vertis to the Buyer of the Assigned Vertis Limited Note and to the release of any Liens which Agent may

2

have on any intercompany notes issued by Vertis Limited in respect of the Assigned Vertis Limited Note.

3.Further Assurances.

3.1.Each Credit Party shall, from time to time, execute and deliver such agreements, instruments, certificates, reports and other documents and take all such actions as Agent or Lenders at any time may reasonably request to evidence, further document, effectuate or otherwise implement the actions described above in Section 2, under the Credit Agreement and/or the other Loan Documents.

3.2.At the time of the closing of the transactions contemplated by the Stock Purchase Agreement and from time to time thereafter, Agent and Lenders shall execute and deliver such lien release instruments and documents and take such related actions as Vertis may reasonably request to evidence, further document, effectuate or otherwise implement the release of Agent’s Liens as described above in Section 2, under the Credit Agreement and the other Loan Documents.

4.Representations and Warranties.  The Borrowers and Credit Parties, jointly and severally, hereby represent and warrant to Agent and Lenders that:

4.1.Aside from (v) the agreements to provide indemnification/warranties which are set forth in the Stock Purchase Agreement, under which the maximum aggregate exposure is £300,000, (w) the agreement set forth in clause 21.2 of the Stock Purchase Agreement by Webcraft, LLC pursuant to which the Credit Parties (other than the Departing Entities) have agreed to be responsible for any liabilities relating to an employee, Mr. Adriaan Roosen, (x) a guaranty provided to Reader’s Digest in relation to potential employee liabilities regarding the Swindon workforce, under which the maximum aggregate exposure is £250,000, (y) a guaranty in favor of Capital One, a customer of the Departing Entities, under which the aggregate maximum exposure is £2,000,000, and (z) other claims, obligations, liabilities and exposures in an aggregate amount not to exceed £5,000,000, (i) there are no post-closing obligations and liabilities, including, without limitation, contingent obligations and liabilities, under the Stock Purchase Agreement of Vertis and the other Credit Parties (other than the Departing Entities) to the Buyer or any other Person, (ii) from and after the closing of the transactions contemplated by the Stock Purchase Agreement, Vertis and the other Credit Parties (other than the Departing Entities) shall not have any obligations, direct or indirect, contingent or otherwise, for the benefit of any of the Departing Entities and (iii) there is no existing guaranty, credit support, indemnity or other similar arrangement, by Vertis or Digital Limited or any other Credit Party, or by any of their direct or indirect Subsidiaries, aside from the Departing Entities, in favor of any Departing Entity, the Buyer or any employee, customer or creditor relating to any Departing Entity or the Buyer.

4.2.The execution, delivery and performance by the Borrowers and each of the other Credit Parties of this Consent and Amendment have been duly authorized by all necessary corporate action, and this Consent and Amendment constitutes the legal, valid and binding obligation of the Borrowers and each of the other Credit Parties enforceable against each of them in accordance with its terms, except as the enforcement hereof may be subject to the effect of any

3

applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally or to general principles of equity.

4.3.The execution, delivery and performance of this Consent and Amendment and the consummation of the transactions contemplated hereby by Borrowers and each Credit Party does not, and will not, contravene or conflict with any provision of (i) law, (ii) any judgment, decree or order, or (iii) the certificate or articles of incorporation or by-laws or other constituent documents of any Borrower or any Credit Party, and does not, and will not, contravene or conflict with, or cause any Lien to arise under, any provision of any indenture, agreement, mortgage, lease, instrument or other document, including, without limitation, the February 2003 Senior Subordinated Debt Documents, the 2002 Senior Debt Documents, the 2003 Senior Secured Debt Documents or the Mezzanine Debt Documents, binding upon or otherwise affecting any Borrower or any Credit Party or any property of any Borrower or any Credit Party.

4.4.No Default or Event of Default exists under the Credit Agreement or any other Loan Document or will exist after or be triggered by the execution, delivery and performance of this Consent and Amendment or the consummation of the transactions contemplated hereby and by the Stock Purchase Agreement.  In addition, each Borrower and each other Credit Party hereby represents, warrants and reaffirms that the Credit Agreement and each of the other Loan Documents remains in full force and effect.

5.Covenants.  Aside from (v) the agreements to provide indemnification/warranties which are set forth in the Stock Purchase Agreement, under which the maximum aggregate exposure is £300,000, (w) the agreement set forth in clause 21.2 of the Stock Purchase Agreement by Webcraft, LLC pursuant to which the Credit Parties (other than the Departing Entities) have agreed to be responsible for any liabilities relating to an employee, Mr. Adriaan Roosen, (x) a guaranty provided to Reader’s Digest in relation to potential employee liabilities regarding the Swindon workforce, under which the maximum aggregate exposure is £250,000, (y) a guaranty in favor of Capital One, a customer of the Departing Entities, under which the aggregate maximum exposure is £2,000,000, and (z) other claims, obligations, liabilities and exposures in an aggregate amount not to exceed £5,000,000, each Borrower and each other Credit Party executing this Consent and Amendment jointly and severally agrees as to all Credit Parties that from and after the date hereof, the Credit Parties shall not and shall not cause or permit their Subsidiaries directly or indirectly to create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any guaranty, credit support, indemnity or other similar arrangement, by Vertis or Digital Limited, or by any of their direct or indirect Subsidiaries (aside from the Departing Entities) in favor of any Departing Entity, the Buyer or any employee, customer or creditor relating to any Departing Entity or the Buyer.

6.Conditions Precedent to Effectiveness.  The effectiveness of the consents set forth in Section 2 hereof are in each instance subject to the satisfaction of each of the following conditions precedent:

6.1.Consent and Amendment.  This Consent and Amendment shall have been duly executed and delivered by the Borrowers, the Credit Parties, Agent and Lenders.

4

6.2.No Default.  No Default or Event of Default shall have occurred and be continuing or would result from the effectiveness of this Consent and Amendment or the consummation of any of the transactions contemplated hereby or by the Stock Purchase Agreement.

6.3.Opinion.  Agent and Lenders shall have received an opinion of counsel to Borrowers, Sullivan & Cromwell LLP, with respect to this Consent and Amendment, including, without limitation, as to this Consent and Amendment, the Stock Purchase Agreement and the transactions contemplated hereby and thereby not conflicting with any provision of the February 2003 Senior Subordinated Debt Documents, the 2002 Senior Debt Documents, the 2003 Senior Secured Debt Documents or the Mezzanine Debt Documents, all in form and substance acceptable to Agent.

6.4.Miscellaneous.  Agent and Lenders shall have received such other agreements, instruments and documents as Agent or Lenders may reasonably request.

7.Reference to and Effect Upon the Credit Agreement and other Loan Documents. 

7.1.Full Force and Effect.  Except as specifically provided herein, the Credit Agreement, the Notes and each other Loan Document shall remain in full force and effect and each is hereby ratified and confirmed by all Credit Parties, other than upon consummation of the transactions contemplated by the Stock Purchase Agreement, the Departing Entities.

7.2.No Waiver.  The execution, delivery and effect of this Consent and Amendment shall be limited precisely as written and shall not be deemed to (i) be a consent to any waiver of any term or condition, or to any amendment or modification of any term or condition (except as specifically provided herein) of the Credit Agreement or any other Loan Document or (ii) prejudice any right, power or remedy which the Agent or any Lender now has or may have in the future under or in connection with the Credit Agreement, the Notes or any other Loan Document.

7.3.Certain Terms.  Each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or any other word or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby, and each reference in any other Loan Document to the Credit Agreement or any word or words of similar import shall be and mean a reference to the Credit Agreement as amended hereby.

8.Counterparts.  This Consent and Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all such counterparts shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page to this Consent and Amendment by telecopier shall be as effective as delivery of a manually executed counterpart signature page to this Consent and Amendment.

9.Costs and Expenses.  As provided in the Credit Agreement, Borrowers shall pay the fees, costs and expenses incurred by Agent in connection with the preparation, execution and delivery of this Consent and Amendment (including, without limitation, attorneys’ fees).

5

10.GOVERNING LAW.  THIS CONSENT AND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPALS.

11.Headings.  Section headings in this Consent and Amendment are included herein for convenience of reference only and shall not constitute a part of this Consent and Amendment for any other purpose.

[Signature Pages Follow]

6

IN WITNESS WHEREOF, this Consent and Amendment has been duly executed as of the date first written above.

BORROWERS:
VERTIS, INC.
By:	/S/ Stephen E. Tremblay
Name:		Stephen E. Tremblay
Title:		Chief Financial Officer
VERTIS LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
VERTIS DIGITAL SERVICES LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director

GENERAL ELECTRIC CAPITAL CORPORATION
as Agent, an L/C Issuer and Lender
By:	/S/ Daniel D. McCready
		Duly Authorized Signatory

BANK OF AMERICA, N.A.
as a Lender
By:	/S/ Richard Levenson
Name:		Richard Levenson
Title:		Senior Vice President

The following Persons are signatory to this Amendment in their capacity as Credit Parties and not as Borrowers:

VERTIS HOLDINGS, INC.
By:	/S/ Stephen E. Tremblay
Name:		Stephen E. Tremblay
Title:		Chief Financial Officer
ENTERON GROUP LLC
By:	/S/ Stephen E. Tremblay
Name:		Stephen E. Tremblay
Title:		Chief Financial Officer
WEBCRAFT, LLC
By:	/S/ Stephen E. Tremblay
Name:		Stephen E. Tremblay
Title:		Chief Financial Officer
PRINTCO, INC.
By:	/S/ Stephen E. Tremblay
Name:		Stephen E. Tremblay
Title:		Chief Financial Officer
WEBCRAFT CHEMICALS, LLC
By:	/S/ Stephen E. Tremblay
Name:		Stephen E. Tremblay
Title:		Chief Financial Officer

VERTIS PRS LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
THE ADMAGIC GROUP LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
VERTIS DIRECT MARKETING SERVICES (CROYDON) LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
VERTIS DIRECT MARKETING SERVICES (LEICESTER) LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
VERTIS FULFILMENT SERVICES LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
ADMAGIC LIMITED
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director

VERTIS DIRECT RESPONSE LTD
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
FUSION PREMEDIA GROUP LTD
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director
VERTIS HARVEY HUNTER LTD
By:	/S/ Dean D. Durbin
Name:		Dean D. Durbin
Title:		Director

EXHIBIT A

to

CONSENT AND AMENDMENT

Stock Purchase Agreement

SCHEDULE 1

to

CONSENT AND AMENDMENT

Departing Entities

Vertis Limited

Vertis Direct Marketing Services (Croydon) Limited

Vertis Direct Marketing Services (Leicester) Limited

Vertis Fulfilment Services Limited

Vertis Direct Response Ltd

Vertis Harvey Hunter Ltd

EX-10.3

EXHIBIT 10.3

AMENDMENT NO. 2 TO CREDIT AGREEMENT

This Amendment No. 2 to Credit Agreement, dated as of November 22, 2005 (this “Amendment”), is entered into by and among Vertis, Inc. (“Vertis”) and Vertis Digital Services Limited (“Digital Limited” and, collectively with Vertis, the “Borrowers” and each, individually, a “Borrower”), as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders (“Agent”), and the other Lenders.

RECITALS

A.            Borrowers, the other Credit Parties, Agent and Lenders are parties to that certain Credit Agreement, dated as of December 22, 2004, including all annexes, exhibits and schedules thereto (as amended by that certain Limited Consent and Amendment No. 1 to Credit Agreement, dated as of October 3, 2005, and as from time to time further amended, restated, supplemented or otherwise modified, the “Credit Agreement”).

B.            Borrowers have requested that Agent and Lenders consent to certain amendments to the Credit Agreement as set forth herein in connection with the formation of Vertis Receivables II, LLC (“Vertis Receivables II”), a new wholly-owned Subsidiary of Vertis, to which Vertis and certain other Credit Parties will sell or otherwise transfer accounts receivable pursuant to that certain Receivables Sale and Servicing Agreement, dated as of November 25, 2005 (the “Receivables II Sale Agreement”), by and among the Originators (as defined therein), Vertis Receivables II, as Buyer, and Vertis, as Servicer, as well as certain other related transactions.

C.            Borrowers, Agent and Lenders are willing to consent to the amendments set forth herein pursuant to, and subject to, the terms and conditions set forth in this Amendment.

D.            This Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment.

NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and of the Loans and other extensions of credit heretofore, now or hereafter made to, or for the benefit of, Borrowers by Lenders, Borrowers, the other Credit Parties, Agent and Lenders hereby agree as follows:

1.             Definitions.  Except to the extent otherwise specified herein, capitalized terms used in this Amendment shall have the same meanings ascribed to them in the Credit Agreement and Annex A thereto.

2.             Amendments to Credit Agreement.

2.1.          Section 5.4 of the Credit Agreement is hereby amended by deleting the word “and” which appears at the end of clause (g), replacing the period at the end of clause (h) with “; and”, and inserting the following new clause (i) at the end thereof:

“(i)          Holdings and Borrowers may guarantee obligations of their Subsidiaries as sellers pursuant to the Receivables Purchase Agreement and related documents, so long as no such guaranty shall give rise to recourse liability (other than in connection with standard securitization undertakings) for the payment of any Receivables Purchase Agreement Assets.”

2.2.          Section 5.19 of the Credit Agreement is hereby amended by deleting the words “in accordance with the provisions of Section 5.7(c)” and replacing them with the words “in accordance with the provisions of Section 5.7(d)”.

2.3.          The definition of “Permitted Encumbrances” set forth in Annex A to the Credit Agreement is hereby amended by replacing the word “Borrowers” in clause (n) of such definition with the words “Receivables Sellers”.

2.4.          The definition of “Receivables Indenture” set forth in Annex A to the Credit Agreement is hereby amended by replacing the words “Amended and Restated Indenture and Servicing Agreement, dated as of December 9, 2002, among Vertis Receivables, LLC, Vertis and Manufacturers and Traders Trust Company, as Trustee” with the following:

“Receivables Funding and Administration Agreement, dated as of November 25, 2005, by and among the Receivables Subsidiary, as Borrower, the financial institutions signatory thereto from time to time as Lenders, and General Electric Capital Corporation, as a Lender, as Swing Line Lender and as Administrative Agent”.

2.5.          The definition of “Receivables Purchase Agreement” set forth in Annex A to the Credit Agreement is hereby amended by replacing the words “Amended and Restated Receivables Purchase Agreement dated as of December 9 2002 among Vertis as Initial Servicer, Vertis and certain of its Subsidiaries, as Sellers, and Vertis Receivables, LLC as Buyer” with the following:

“Receivables Sale and Servicing Agreement, dated as of November 25, 2005, by and among each of the Receivables Sellers party thereto from time to time as Originators, the Receivables Subsidiary, as Buyer, and Vertis, as Servicer”.

2.6.          The definition of “Receivables Purchase Agreement Assets” set forth in Annex A to the Credit Agreement is hereby amended by replacing the words “Collateral (as defined in Section 2.1 of the Receivables Indenture)” with the words “Borrower Collateral (as defined in the Receivables Indenture)”.

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2.7.          The definition of “Receivables Subsidiary” set forth in Annex A to the Credit Agreement is hereby amended by replacing the words “Vertis Receivables, LLC” with the words “Vertis Receivables II, LLC”.

2.8.          The definition of “Subsidiary” set forth in Annex A to the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“Subsidiary means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or may exercise the powers of a general partner.  Notwithstanding the foregoing (and except for purposes of Sections 3.7(c), 3.9 and 3.15, and the definitions of Unrestricted Subsidiary and Receivables Subsidiary contained herein), an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of Holdings or any of its other Subsidiaries for purposes of this Agreement.  Unless the context otherwise requires, each reference to a Subsidiary shall be a reference to a Subsidiary of a Borrower.”

2.9.          The last paragraph in the definition of “Unrestricted Subsidiary” set forth in Annex A to the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“Vertis may designate by written notice to the Agent any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Stock of, or owns any property of, Holdings or any Subsidiary thereof that is not a Subsidiary of the Subsidiary to be so designated; provided that each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which Agent or any Lender has recourse to any of the assets of Vertis or any of its Restricted Subsidiaries.”

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2.10.        The Agent and Lenders hereby consent to the prior formation of Vertis Receivables II, LLC.

3.             Representations and Warranties.  The Borrowers and Credit Parties, jointly and severally, hereby represent and warrant to Agent and Lenders that:

3.1.          The execution, delivery and performance by the Borrowers and each of the other Credit Parties of this Amendment have been duly authorized by all necessary corporate action, and this Amendment constitutes the legal, valid and binding obligation of the Borrowers and each of the other Credit Parties enforceable against each of them in accordance with its terms, except as the enforcement hereof may be subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally or to general principles of equity.

3.2.          The execution, delivery and performance of this Amendment and the consummation of the transactions contemplated hereby by Borrowers and each Credit Party does not, and will not, contravene or conflict with any provision of (i) law, (ii) any judgment, decree or order, or (iii) the certificate or articles of incorporation or by-laws or other constituent documents of any Borrower or any Credit Party, and does not, and will not, contravene or conflict with, or cause any Lien to arise under, any provision of any indenture, agreement, mortgage, lease, instrument or other document, including, without limitation, the Loan Documents, the February 2003 Senior Subordinated Debt Documents, the 2002 Senior Debt Documents, the 2003 Senior Secured Debt Documents or the Mezzanine Debt Documents, binding upon or otherwise affecting any Borrower or any Credit Party or any property of any Borrower or any Credit Party.

3.3.          No Default or Event of Default exists under the Credit Agreement or any other Loan Document or will be triggered by the execution, delivery and performance of this Amendment or the consummation of the transactions contemplated hereby and by the Receivables II Sale Agreement.  In addition, each Borrower and each other Credit Party hereby represents, warrants and reaffirms that the Credit Agreement and each of the other Loan Documents remains in full force and effect.

4.             Conditions Precedent to Effectiveness.  The effectiveness of the amendments set forth in Section 2 hereof are in each instance subject to the satisfaction of each of the following conditions precedent:

4.1.          Amendment.  This Amendment shall have been duly executed and delivered by the Borrowers, the Credit Parties, Agent and Lenders.

4.2.          No Default.  No Default or Event of Default shall have occurred and be continuing or would result from the effectiveness of this Amendment or the consummation of any of the transactions contemplated hereby or by the Receivables II Sale Agreement.

4.3.          Opinion.  Agent and Lenders shall have received an opinion of counsel to Borrowers, Sullivan & Cromwell LLP, with respect to this Amendment, including, without limitation, as to this Amendment, the Receivables II Sale Agreement and the transactions contemplated hereby and thereby not conflicting with any provision of the Loan Documents, the

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February 2003 Senior Subordinated Debt Documents, the 2002 Senior Debt Documents, the 2003 Senior Secured Debt Documents or the Mezzanine Debt Documents, all in form and substance acceptable to Agent.

4.4.          Pledge of Equity in Vertis Receivables II.  As required by Section 4.7 of the Credit Agreement, 100% of the capital Stock of Vertis Receivables II shall have been pledged by Vertis pursuant to an amendment or supplement, in form and substance satisfactory to Agent, to the Pledge Agreement, dated as of December 22, 2004, between Vertis, as Pledgor, and General Electric Capital Corporation, as Agent, and in connection therewith, Vertis shall have delivered to Agent the original stock certificate(s) evidencing 100% of the capital Stock of Vertis Receivables II, together with a stock power(s) duly endorsed in blank by Vertis.

4.5.          Unrestricted Subsidiary Designation.  The Credit Parties shall have delivered to the Agent evidence, in form and substance satisfactory to it, that Vertis Receivables II has been designated, and constitutes, an Unrestricted Subsidiary.

4.6.          Miscellaneous.  Agent and Lenders shall have received such other agreements, instruments and documents as Agent or Lenders may reasonably request.

5.             Reference to and Effect Upon the Credit Agreement and other Loan Documents. 

5.1.          Full Force and Effect.  Except as specifically provided herein, the Credit Agreement, the Notes and each other Loan Document shall remain in full force and effect and each is hereby ratified and confirmed by all Credit Parties.

5.2.          No Waiver.  The execution, delivery and effect of this Amendment shall be limited precisely as written and shall not be deemed to (i) be a consent to any waiver of any term or condition, or to any amendment or modification of any term or condition (except as specifically provided herein) of the Credit Agreement or any other Loan Document or (ii) prejudice any right, power or remedy which the Agent or any Lender now has or may have in the future under or in connection with the Credit Agreement, the Notes or any other Loan Document.

5.3.          Certain Terms.  Each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or any other word or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby, and each reference in any other Loan Document to the Credit Agreement or any word or words of similar import shall be and mean a reference to the Credit Agreement as amended hereby.

6.             Counterparts.  This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all such counterparts shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be as effective as delivery of a manually executed counterpart signature page to this Amendment.

7.             Costs and Expenses.  As provided in the Credit Agreement, Borrowers shall pay the reasonable fees, costs and expenses incurred by Agent in connection with the preparation, execution and delivery of this Amendment (including, without limitation, attorneys’ fees).

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8.             GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

9.             Headings.  Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

[Signature Pages Follow]

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IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first written above.

BORROWERS:
VERTIS, INC.
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
VERTIS DIGITAL SERVICES LIMITED
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer

GENERAL ELECTRIC CAPITAL CORPORATION
as Agent, an L/C Issuer and Lender
By:	Sandra Claghorn
Duly Authorized Signatory

BANK OF AMERICA, N.A.
as a Lender
By:	/S/ Richard Levenson
Name:		Richard Levenson
Title:		Senior Vice President

The following Persons are signatory to this Amendment in their capacity as Credit Parties and not as Borrowers:

VERTIS HOLDINGS, INC.
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
ENTERON GROUP LLC
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
WEBCRAFT, LLC
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
PRINTCO, INC.
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
VERTIS MAILING, LLC
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer

WEBCRAFT CHEMICALS, LLC
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
VERTIS PRS LIMITED
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
THE ADMAGIC GROUP LIMITED
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
ADMAGIC LIMITED
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
FUSION PREMEDIA GROUP LTD
By:	/S/ Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer

EX-10.4

EXHIBIT 10.4

LIMITED CONSENT AND AMENDMENT NO. 3 TO CREDIT AGREEMENT

This Limited Consent and Amendment No. 3 to Credit Agreement, dated as of December 12, 2005 (this “Consent and Amendment”), is entered into by and among Vertis, Inc. (“Vertis”) and Vertis Digital Services Limited (“Digital Limited” and, together with Vertis, the “Borrowers” and each, individually, a “Borrower”), as Borrowers, the other Credit Parties signatory hereto, General Electric Capital Corporation, as a Lender and as Agent for Lenders (“Agent”), and the other Lenders.

RECITALS

A.Borrowers, the other Credit Parties, Agent and Lenders are parties to that certain Credit Agreement, dated as of December 22, 2004, including all annexes, exhibits and schedule thereto (as amended by that certain Limited Consent and Amendment No. 1 to Credit Agreement, dated as of October 3, 2005, that certain Amendment No. 2 to Credit Agreement, dated as of November 22, 2005, and as from time to time further amended, restated, supplemented or otherwise modified, the “Credit Agreement”).

B.Borrowers and the other Credit Parties have requested that Agent and Lenders consent to (i) the sale of all of the issued and outstanding shares of Stock of Fusion Premedia Group Limited and Pismo Limited pursuant to an Agreement to be entered into by and between Digital Limited, as seller, and Adplates Group Limited, as buyer (“Buyer”), substantially in the form of Exhibit A to this Consent and Amendment (the “Stock Purchase Agreement”), and (ii) certain related actions as further described in Section 2 herein.  Upon consummation of the transactions contemplated by the Stock Purchase Agreement, (i) Fusion Premedia Group Limited and each of its Subsidiaries listed on Schedule 1 attached hereto (each, a “Departing Entity”, and collectively, the “Departing Entities”) shall cease to be a Credit Party under the Credit Agreement and the other Loan Documents and (ii) Digital Limited shall cease to be a Borrower under the Credit Agreement but will remain a Credit Party under, and for all purposes of, the Credit Agreement and all of the other Loan Documents.

C.This Consent and Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Consent and Amendment.

NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and of the Loans and other extensions of credit heretofore, now or hereafter made to, or for the benefit of, Borrowers by Lenders, Borrowers, the other Credit Parties, Agent and Lenders hereby agree as follows:

1.Definitions.  Except to the extent otherwise specified herein, capitalized terms used in this Consent and Amendment shall have the same meanings ascribed to them in the Credit Agreement and Annex A thereto.

2.Consents.

2.1.Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the sale of all of the issued and outstanding shares of Stock of Fusion Premedia Group Limited and Pismo Limited to Buyer pursuant to the Stock Purchase Agreement; provided, that, any changes to the Stock Purchase Agreement from the version thereof attached to this Consent and Amendment as Exhibit A shall be reasonably satisfactory to Agent.

2.2.Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the release of Agent’s Liens on all shares of Stock of each Departing Entity upon the closing of the transactions contemplated by the Stock Purchase Agreement to the extent such shares of Stock have been pledged to Agent pursuant to the Credit Agreement or any other Loan Document.

2.3.Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the release of Agent’s Liens on all properties and assets of each Departing Entity upon the closing of the transactions contemplated by the Stock Purchase Agreement to the extent such properties and assets have been pledged to Agent pursuant to the Credit Agreement or any other Loan Document.

2.4.As a result of the actions described above in Subsections 2.1, 2.2 and 2.3, upon the closing of the transactions contemplated by the Stock Purchase Agreement, each Departing Entity shall cease to be a Credit Party under the Credit Agreement and the other Loan Documents.  Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to the such termination at, and only at, such time, of each Departing Entity’s status as a Credit Party under the Credit Agreement and the other Loan Documents.

2.5.Upon closing of the sale of the Stock of the Departing Entities as contemplated by the Stock Purchase Agreement, Digital Limited shall cease to be a Borrower under the Credit Agreement but will remain a Credit Party under, and for all purposes of, the Credit Agreement and all of the other Loan Documents.  Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to Digital Limited ceasing to be a Borrower under the Credit Agreement upon, and only upon, closing of such sale; provided, that, Digital Limited shall remain a Credit Party under, and for all purposes of, the Credit Agreement and all of the other Loan Documents.  From and after the closing of the sale of the Stock of the Departing Entities as contemplated by the Stock Purchase Agreement, Digital Limited shall not (i) own the capital Stock of any Person, (ii) conduct any business, (iii) hold any material assets other than debts due from Vertis, Inc. and proceeds from the transactions contemplated by the Stock Purchase Agreement, or (iv) have any material liabilities other than certain intercompany receivables due to Vertis or Vertis Holdings, Inc. (“Holdings”) or pursuant to the Stock Purchase Agreement.

2.6.In connection with the closing of the transactions contemplated by the Stock Purchase Agreement, Vertis and the other Credit Parties (other than the Departing Entities) intend to forgive and/or capitalize intercompany loans and obligations owing by the Departing

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Entities to Vertis and such other Credit Parties in an aggregate principal amount of up to £11,600,000 (the “Departing Entities Intercompany Debt Discharge”) and to assign to certain parties certain intercompany loans as set forth in Exhibit B hereto and set off original and assigned receivables against payables as set forth in Exhibit B hereto (the “Assigned Receivables Transactions”).  Notwithstanding any provision of the Credit Agreement or any other Loan Document to the contrary, Agent and Lenders hereby consent to: (i) the Departing Entities Intercompany Debt Discharge as a part of, and at the time of the closing of, the transactions contemplated by the Stock Purchase Agreement and, upon the closing of the transactions contemplated by the Stock Purchase Agreement, Agent and Lenders hereby consent to the release of any Liens which Agent may have on any intercompany receivables or notes issued by the Departing Entities to Vertis and the other Credit Parties (other than the Departing Entities) in respect of the Departing Entities Intercompany Debt Discharge; (ii) the Assigned Receivables Transactions and the release of any Liens which Agent may have on any intercompany receivables issued by Digital Limited in respect of the Assigned Receivables Transactions; and (iii) the release of any guaranties given by the Credit Parties (other than the Departing Entities) of obligations of the Departing Entities.

3.Further Assurances.

3.1.Each Credit Party shall, from time to time, execute and deliver such agreements, instruments, certificates, reports and other documents and take all such actions as Agent or Lenders at any time may reasonably request to evidence, further document, effectuate or otherwise implement the actions described above in Section 2, under the Credit Agreement and/or the other Loan Documents.

3.2.At the time of the closing of the transactions contemplated by the Stock Purchase Agreement and from time to time thereafter, at Borrowers’ expense, Agent and Lenders shall execute and deliver such lien release instruments and documents and take such related actions as Vertis may reasonably request to evidence, further document, effectuate or otherwise implement the release of Agent’s Liens as described above in Section 2, under the Credit Agreement and the other Loan Documents.

4.Representations and Warranties.  The Borrowers and Credit Parties, jointly and severally, hereby represent and warrant to Agent and Lenders that:

4.1.Aside from (a) the agreements to provide indemnification/warranties and other clauses which are set forth in the Stock Purchase Agreement and the related tax deed, under which the maximum aggregate exposure is £2,000,000, (b) other claims, obligations, liabilities and exposures in an aggregate amount not to exceed £1,000,000, and (c) a guaranty by Holdings of the obligations of Vertis PRS Limited under the Agreement Relating to the Provision of Services for Magazines, dated as of July 10, 2003, by and among Fusion Premedia Group Limited, Holdings and Express Newspapers (the “Magazines Agreement”) and the Agreement Relating to the Provision of Auditing and Reprographic Services and Certain Display Advertising Services for Newspaper Titles, dated as of July 10, 2003, by and among Fusion Premedia Group Limited, Holdings and Express Newspapers (the “Newspaper Titles Agreement” and, together with the Magazine Agreement, the “Express Newspapers Agreements”), (i) there are no post-closing obligations and liabilities, including, without

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limitation, contingent obligations and liabilities, under the Stock Purchase Agreement of Vertis and the other Credit Parties (other than the Departing Entities) to the Buyer or any other Person, (ii) from and after the closing of the transactions contemplated by the Stock Purchase Agreement, Vertis and the other Credit Parties (other than the Departing Entities) shall not have any obligations, direct or indirect, contingent or otherwise, for the benefit of any of the Departing Entities and (iii) there is no existing guaranty, credit support, indemnity or other similar arrangement, by Vertis or Digital Limited or any other Credit Party, or by any of their direct or indirect Subsidiaries, aside from the Departing Entities, in favor of any Departing Entity, the Buyer or any employee, customer or creditor relating to any Departing Entity or the Buyer.

4.2.The execution, delivery and performance by the Borrowers and each of the other Credit Parties of this Consent and Amendment have been duly authorized by all necessary corporate action, and this Consent and Amendment constitutes the legal, valid and binding obligation of the Borrowers and each of the other Credit Parties enforceable against each of them in accordance with its terms, except as the enforcement hereof may be subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally or to general principles of equity.

4.3.The execution, delivery and performance of this Consent and Amendment and the consummation of the transactions contemplated hereby by Borrowers and each Credit Party does not, and will not, contravene or conflict with any provision of (i) law, (ii) any judgment, decree or order, or (iii) the certificate or articles of incorporation or by-laws or other constituent documents of any Borrower or any Credit Party, and does not, and will not, contravene or conflict with, or cause any Lien to arise under, any provision of any indenture, agreement, mortgage, lease, instrument or other document, including, without limitation, the February 2003 Senior Subordinated Debt Documents, the 2002 Senior Debt Documents, the 2003 Senior Secured Debt Documents or the Mezzanine Debt Documents, binding upon or otherwise affecting any Borrower or any Credit Party or any property of any Borrower or any Credit Party.

4.4.No Default or Event of Default exists under the Credit Agreement or any other Loan Document or will exist after or be triggered by the execution, delivery and performance of this Consent and Amendment or the consummation of the transactions contemplated hereby and by the Stock Purchase Agreement.  In addition, each Borrower and each other Credit Party hereby represents, warrants and reaffirms that the Credit Agreement and each of the other Loan Documents remains in full force and effect.

5.Covenants.  Aside from (a) the agreements to provide indemnification/warranties and other clauses which are set forth in the Stock Purchase Agreement and the related tax deed, under which the maximum aggregate exposure is £2,000,000, (b) other claims, obligations, liabilities and exposures in an aggregate amount not to exceed £1,000,000, and (c) a guaranty by Holdings of the obligations of Vertis PRS Limited under the Express Newspapers Agreements, each Borrower and each other Credit Party (other than the Departing Entities) executing this Consent and Amendment jointly and severally agrees as to all Credit Parties that from and after the date hereof, the Credit Parties shall not and shall not cause or permit their Subsidiaries directly or indirectly to create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any guaranty, credit support, indemnity or other similar

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arrangement, by Vertis or Digital Limited, or by any of their direct or indirect Subsidiaries (aside from the Departing Entities) in favor of any Departing Entity, the Buyer or any employee, customer or creditor relating to any Departing Entity or the Buyer.

6.Conditions Precedent to Effectiveness.  The effectiveness of the consents set forth in Section 2 hereof are in each instance subject to the satisfaction of each of the following conditions precedent:

6.1.Consent and Amendment.  This Consent and Amendment shall have been duly executed and delivered by the Borrowers, the Credit Parties, Agent and Lenders.

6.2.No Default.  No Default or Event of Default shall have occurred and be continuing or would result from the effectiveness of this Consent and Amendment or the consummation of any of the transactions contemplated hereby or by the Stock Purchase Agreement.

6.3.Opinion.  Agent and Lenders shall have received an opinion of counsel to Borrowers, Sullivan & Cromwell LLP, with respect to this Consent and Amendment, including, without limitation, as to this Consent and Amendment, the Stock Purchase Agreement and the transactions contemplated hereby and thereby not conflicting with any provision of the February 2003 Senior Subordinated Debt Documents, the 2002 Senior Debt Documents, the 2003 Senior Secured Debt Documents or the Mezzanine Debt Documents, all in form and substance acceptable to Agent.

6.4.Miscellaneous.  Agent and Lenders shall have received such other agreements, instruments and documents as Agent or Lenders may reasonably request.

7.Reference to and Effect Upon the Credit Agreement and other Loan Documents. 

7.1.Full Force and Effect.  Except as specifically provided herein, the Credit Agreement, the Notes and each other Loan Document shall remain in full force and effect and each is hereby ratified and confirmed by all Credit Parties (including in its capacity as a Credit Party, Digital Limited), other than upon consummation of the transactions contemplated by the Stock Purchase Agreement, the Departing Entities.

7.2.No Waiver.  The execution, delivery and effect of this Consent and Amendment shall be limited precisely as written and shall not be deemed to (i) be a consent to any waiver of any term or condition, or to any amendment or modification of any term or condition (except as specifically provided herein) of the Credit Agreement or any other Loan Document or (ii) prejudice any right, power or remedy which the Agent or any Lender now has or may have in the future under or in connection with the Credit Agreement, the Notes or any other Loan Document.

7.3.Certain Terms.  Each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or any other word or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby, and each reference in any other Loan Document to the Credit Agreement or any word or words of similar import shall be and mean a reference to the Credit Agreement as amended hereby.

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8.Counterparts.  This Consent and Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all such counterparts shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page to this Consent and Amendment by telecopier shall be as effective as delivery of a manually executed counterpart signature page to this Consent and Amendment.

9.Costs and Expenses.  As provided in the Credit Agreement, Borrowers shall pay the fees, costs and expenses incurred by Agent in connection with the preparation, execution and delivery of this Consent and Amendment (including, without limitation, attorneys’ fees).

10.GOVERNING LAW.  THIS CONSENT AND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPALS.

11.Headings.  Section headings in this Consent and Amendment are included herein for convenience of reference only and shall not constitute a part of this Consent and Amendment for any other purpose.

[Signature Pages Follow]

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IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first written above.

BORROWERS:
VERTIS, INC.
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
VERTIS DIGITAL SERVICES LIMITED
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer

GENERAL ELECTRIC CAPITAL

CORPORATION

as Agent, an L/C Issuer and Lender

By: Sandra Claghorn

Duly Authorized Signatory

BANK OF AMERICA, N.A.
as a Lender
By:	/S/	Richard Levenson
Name:		Richard Levenson
Title:		Senior Vice President

The following Persons are signatory to this Amendment in their capacity as Credit Parties and not as Borrowers:

VERTIS HOLDINGS, INC.
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
ENTERON GROUP LLC
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
WEBCRAFT, LLC
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
PRINTCO, INC.
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
VERTIS MAILING, LLC
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer

WEBCRAFT CHEMICALS, LLC
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
VERTIS PRS LIMITED
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
THE ADMAGIC GROUP LIMITED
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
ADMAGIC LIMITED
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer
FUSION PREMEDIA GROUP LTD
By:	/S/	Donald E. Roland
Name:		Donald E. Roland
Title:		Chairman and Chief Executive Officer

EXHIBIT A

to

CONSENT AND AMENDMENT

Stock Purchase Agreement

EXHIBIT B

to

CONSENT AND AMENDMENT

Assigned Receivables Transactions

SCHEDULE 1

to

CONSENT AND AMENDMENT

Departing Entities

Fusion Premedia Group Limited

Vertis PRS Limited

The Admagic Group Limited

Admagic Limited

EX-10.5

Exhibit 10.5

TERMINATION AGREEMENT

THIS TERMINATION AGREEMENT (this “Agreement”)is made and entered into as of November 25, 2005, among MANUFACTURERS AND TRADERS TRUST COMPANY, not individually but solely as trustee (the “Trustee”)under the Indenture (as hereinafter defined), VERTIS RECEIVABLES, LLC (“VR”), and VERTIS, INC. (“Vertis” or the “Servicer”).

STATEMENT OF FACTS

I.Pursuant to that certain Receivables Purchase Agreement, dated as of December 9, 2002 (the “Existing Receivables Purchase Agreement”)between VR, Vertis and certain subsidiaries of Vertis (collectively, the “Sellers”), VR has purchased from time to time from the Sellers certain receivables and related assets resulting from the sale of goods or the provision of services to customers of the Sellers (collectively, the “Receivables”).

II.VR, as issuer, Vertis, as Servicer and the Trustee have entered into an Amended and Restated Indenture and Servicing Agreement (the “Indenture”)dated as of December 9, 2002, which provides for, among other things, the issuance of certain Notes and the pledge of the Receivables and certain other collateral to Trustee for the benefit of Noteholders under the Indenture.

III.Pursuant to Consent Agreements dated as of November, 2005 with each Noteholder, VR has made arrangements to pay amounts to each Noteholder which such Noteholders have acknowledged constitute payment in full of all amounts owned to the Noteholders under the Indenture and the Notes and each Noteholder has delivered its Notes for cancellation to the Trustee. VR therefore desires to make arrangements with the Trustee to terminate the Indenture and release the security interest and lien of the Trustee in the Collateral

STATEMENT OF TERMS

NOW, THEREFORE, in consideration of the mutual covenants herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Definitions. Unless otherwise expressly defined herein, all capitalized terms used herein shall have the respective meanings given such terms in the Indenture.

2.Release of Collateral. (a) The Trustee, on behalf of the Noteholders and the Indemnified Parties, does hereby release and terminate and any all liens, security interests and other encumbrances on all of the Collateral and any other assets and properties of VR. VR hereby agrees that VR shall have no recourse against the Trustee or any Noteholder or Indemnified Party with respect to the Collateral or any portion thereof released hereunder.

(b)Each party hereto agrees that, at any time and from time to time, upon the written request of any other party hereto, it will execute, authorize and deliver such further documents

IN WITNESS, each of the parties hereto, by their respective duly authorized signatories, has executed and delivered this Agreement as of the date first above written.

MANUFACTURERS AND TRADERS TRUST
COMPANY, not in its individual capacity but
solely as Trustee under the Indenture on
behalf of the Noteholders
By		/s/ Steven J. Wattie
		Name:				STEVEN J. WATTIE
		Title:		VICE PRESIDENT
VERTIS RECEIVABLES, LLC
By	/s/ Donald E. Roland
	Name:				Donald E. Roland
	Title:		Chairman & CEO
VERTIS, INC.
By	/s/ Donald E. Roland
	Name:				Donald E. Roland
	Title:		Chairman & CEO

S-1

EX-10.6

Exhibit 10.6

EXECUTION COPY

RECEIVABLES SALE AND SERVICING AGREEMENT

Dated as of November 25, 2005

by and among

EACH OF THE ENTITIES PARTY HERETO FROM TIME TO TIME
AS ORIGINATORS,

VERTIS RECEIVABLES II, LLC,

as Buyer,

and

VERTIS, INC.,

as Servicer

Receivables Sale and Servicing Agreement

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS AND INTERPRETATION		1
	Section 1.01. Definitions	1
	Section 1.02. Rules of Construction	1
ARTICLE II TRANSFERS OF RECEIVABLES		2
	Section 2.01. Agreement to Transfer	2
	Section 2.02. Grant of Security Interest	3
	Section 2.03. Originator Support Agreement	3
	Section 2.04. Originators Remain Liable	4
ARTICLE III CONDITIONS PRECEDENT		4
	Section 3.01. Conditions Precedent to Initial Transfer	4
	Section 3.02. Termination of Transfers	5
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS		5
	Section 4.01. Representations and Warranties of the Transaction Parties	5
	Section 4.02. Affirmative Covenants of the Originators	13
	Section 4.03. Negative Covenants of the Originators	19
	Section 4.04. Breach of Representations, Warranties or Covenants	22
ARTICLE V INDEMNIFICATION		22
	Section 5.01. Indemnification	22
	Section 5.02. Indemnities by the Servicer	24
ARTICLE VI MISCELLANEOUS		25
	Section 6.01. Notices	25
	Section 6.02. No Waiver; Remedies	26
	Section 6.03. Successors and Assigns	27
	Section 6.04. Termination; Survival of Obligations.	27
	Section 6.05. Complete Agreement; Modification of Agreement	28
	Section 6.06. Amendments and Waivers	28
	Section 6.07. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial	28
	Section 6.08. Counterparts	29
	Section 6.09. Severability	29
	Section 6.10. Section Titles	30
	Section 6.11. No Setoff	30
	Section 6.12. Confidentiality	30
	Section 6.13. Further Assurances	31

	Section 6.14. Fees and Expenses	32
	Section 6.15. Nonrecourse Obligations	32
ARTICLE VII SERVICER PROVISIONS		32
	Section 7.01. Appointment of the Servicer	32
	Section 7.02. Duties and Responsibilities of the Servicer	32
	Section 7.03. Collections on Receivables	33
	Section 7.04. Covenants of the Servicer	35
	Section 7.05. Reporting Requirements of the Servicer	39
ARTICLE VIII EVENTS OF SERVICER TERMINATION		39
	Section 8.01. Events of Servicer Termination	39
ARTICLE IX SUCCESSOR SERVICER PROVISIONS		42
	Section 9.01. Servicer Not to Resign	42
	Section 9.02. Appointment of the Successor Servicer	43
	Section 9.03. Duties of the Servicer	43
	Section 9.04. Effect of Termination or Resignation	44
	Section 9.05. Power of Attorney	44

INDEX OF APPENDICES

Exhibit 2.01(a)	Form of Receivables Assignment
Exhibit 2.01(c)(ii)	Form of Subordinated Note
Exhibit 2.03	Form of Originator Support Agreement
Exhibit 9.05	Form of Power of Attorney
Schedule 4.01(b)	Jurisdiction of Organization; Executive Offices; Collateral Locations; Corporate, Legal and Other Names; Identification Numbers
Schedule 4.01(j)	Intellectual Property
Schedule 4.01(k)	Investigations, Audits, Etc.
Schedule 4.01(l)	Litigation
Schedule 4.01(n)	ERISA
Schedule 4.01(o)	Deposit and Disbursement Accounts
Schedule 4.01(z)	Supplementary Representations
Schedule 4.02(g)	Conduct of Business
Annex X	Definitions and Interpretations
Annex Y	Schedule of Documents
Annex Z	Financial Test

THIS RECEIVABLES SALE AND SERVICING AGREEMENT (as amended, restated, supplemented or otherwise modified and in effect from time to time, this “Agreement”) is entered into as of November 25, 2005 by and among each of the persons signatory hereto from time to time as Originators, each an “Originator” and, collectively, the “Originators”), VERTIS, INC. (“Parent”), a Delaware corporation, in its capacity as servicer hereunder (in such capacity, the “Servicer”) and VERTIS RECEIVABLES II, LLC, a Delaware limited liability company (“Buyer”).

RECITALS

A.Buyer is a special purpose limited liability company the sole member of which is the Parent.

B.Buyer has been formed for the sole purpose of purchasing all Receivables originated by each Originator and to finance such Receivables under the Funding Agreement.

C.Each Originator intends to sell, and Buyer intends to purchase, such Receivables, from time to time, as described herein.

D.In addition, the Member may, from time to time, contribute capital to Buyer in the form of Contributed Receivables or cash.

E.In order to effectuate the purposes of this Agreement and the Funding Agreement, Buyer desires to appoint Parent to service, administer and collect the Receivables securing the Advances pursuant to this Agreement and Parent is willing to act in such capacity as Servicer hereunder on the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS AND INTERPRETATION

Section 1.01.  Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in Annex X.

Section 1.02.  Rules of Construction.  For purposes of this Agreement, the rules of construction set forth in Annex X shall govern.  All Appendices hereto, or expressly identified to this Agreement, are incorporated herein by reference and, taken together with this Agreement, shall constitute but a single agreement.

ARTICLE II
TRANSFERS OF RECEIVABLES

Section 2.01.  Agreement to Transfer.

(a)Receivables Transfers.  Subject to the terms and conditions hereof, each Originator agrees to sell (without recourse except to the limited extent specifically provided herein) or, in the case of the Member, sell or contribute, to Buyer on the Effective Date and on each Business Day thereafter until the Commitment Termination Date (each such date, a “Transfer Date”) all Receivables owned by it on each such Transfer Date, and Buyer agrees to purchase or acquire as a capital contribution all such Receivables on each such Transfer Date.  All such Transfers by an Originator to Buyer shall collectively be evidenced by a certificate of assignment substantially in the form of Exhibit 2.01(a) (each, a “Receivables Assignment,” and collectively, the “Receivables Assignments”), and each Originator and Buyer shall execute and deliver a Receivables Assignment on or before the Effective Date.

(b)Determination of Sold Receivables.  On and as of each Transfer Date, (i) all Receivables then owned by each Originator (other than the Member) and not previously acquired by Buyer shall be sold immediately upon its creation, and (ii) to the extent Receivables then owned by the Member have not been contributed to Buyer in accordance with Section 2.01(d), such Receivables shall be sold to Buyer (each such Receivable sold immediately upon its creation pursuant to clauses (i) and (ii) above, individually, a “Sold Receivable” and, collectively, the “Sold Receivables”).

(c)Payment of Sale Price.  (i)  In consideration for each Sale of Sold Receivables hereunder, Buyer shall pay to the Originator thereof on the Transfer Date therefor the applicable Sale Price therefor in Dollars in immediately available funds.  All cash payments by Buyer under this Section 2.01(c)(i) shall be effected by means of a wire transfer on the day when due to such account or accounts as the Originators may designate from time to time.

(ii)To the extent that the Sale Price of Sold Receivables exceeds the amount of cash then available to Buyer, the applicable Originator hereby agrees to make a subordinated loan (each, a “Subordinated Loan”) to Buyer in an amount not to exceed the lesser of (i) the amount of such excess in satisfaction of the equivalent portion of the Sale Price not paid in cash and (ii) the maximum Subordinated Loan that could be borrowed without rendering Buyer’s Net Worth less than the Required Capital Amount.  The Subordinated Loans of an Originator shall be evidenced by a subordinated promissory note substantially in the form of Exhibit 2.01(c)(ii) hereto (a “Subordinated Note”) executed by Buyer and payable to such Originator.  The Subordinated Loans shall bear interest and be payable as provided in the Subordinated Note.

(d)Determination of Contributed Receivables.  Prior to the delivery of an Election Notice pursuant to this Section 2.01(d) on any Transfer Date the Member (i) may, by written notice to the Buyer, elect to treat the Receivables transferred by it on such date as a capital contribution to the Buyer, and (ii) hereby elects, on any Transfer Date on which the Buyer cannot pay the Sale Price therefore in cash or with Subordinated Loans, to treat the Receivables transferred by it on such date as a capital contribution to the Buyer (each Receivable that is the

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subject of an election under clause (i) or (ii) hereof shall be a “Contributed Receivable”).  Notwithstanding the foregoing, the Member shall not be obligated or required at any time to make any capital contributions to Buyer and may by written notice to the Buyer, revoke its election under clause (ii) above.  On any Transfer Date on which the Buyer cannot pay the Sale Price for Receivables in cash or with Subordinated Loans to an Originator, and if such Originator is the Member, Member does not elect to make a capital contribution of such Receivable Originator shall elect to terminate sales and transfers of Receivables hereunder by sending a written notice to Buyer and, at any time the Funding Agreement remains outstanding, to the Administrative Agent (any such notice an “Election Notice”).

(e)Ownership of Transferred Receivables.  On and after each Transfer Date and after giving effect to the Transfers to be made on each such date, Buyer shall own the Transferred Receivables and no Originator shall take any action inconsistent with such ownership nor shall any Originator claim any ownership interest in such Transferred Receivables.

(f)Servicing of Receivables.  So long as no Event of Servicer Termination shall have occurred and be continuing and no Successor Servicer has assumed the responsibilities and obligations of the Servicer pursuant to Section 9.02, the Servicer shall (i) conduct the servicing, administration and collection of the Transferred Receivables and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect the Transferred Receivables, all in accordance with (A) the terms of this Agreement, (B) customary and prudent servicing procedures for trade receivables of a similar type and (C) all applicable laws, rules and regulations, and (ii) hold all Contracts and other documents and incidents relating to the Transferred Receivables in trust for the benefit of Buyer, as the owner thereof, and for the sole purpose of facilitating the servicing of the Transferred Receivables in accordance with the terms of this Agreement.  Buyer hereby instructs the Servicer, and the Servicer hereby acknowledges, that the Servicer shall hold all Contracts and other documents relating to such Transferred Receivables in trust for the benefit of the Buyer and the Servicer’s retention and possession of such Contracts and documents shall at all times be solely in a custodial capacity for the benefit of the Buyer and its assigns and pledgees.

Section 2.02.  Grant of Security Interest.  The parties hereto intend that each Transfer shall be absolute and shall constitute a purchase and sale or capital contribution, as applicable, and not a loan.  Notwithstanding the foregoing, in addition to and not in derogation of any rights now or hereafter acquired by Buyer under Section 2.01 hereof, the parties hereto intend that this Agreement shall constitute a security agreement under applicable law and if a court of competent jurisdiction determines that any transaction provided for herein constitutes a loan and not a sale or capital contribution, as applicable, that each Originator shall be deemed to have granted, and each Originator does hereby grant, to Buyer a continuing security interest in all of such Originator’s right, title and interest in, to and under the Receivables whether now owned or hereafter acquired by such Originator to secure the obligations of such Originator to Buyer hereunder (including, if and to the extent that any Transfer is recharacterized as a transfer for security under applicable law, the obligation to transfer ownership of the Receivables hereunder).

Section 2.03.  Originator Support Agreement.  The Parent hereby agrees that in the event that any of its Affiliates become parties to this Agreement as Originators, the Parent shall undertake and agree, to and for the benefit of Buyer, to cause the due and punctual performance

3

and observance by each such Originator of all of the terms, conditions, agreements and undertakings on the part of such Originator to be performed or observed by it hereunder or under any other Related Document and, in connection therewith, shall execute and deliver to Buyer an Originator Support Agreement in the form attached hereto as Exhibit 2.03, to more fully evidence such undertaking.

Section 2.04.  Originators Remain Liable.  It is expressly agreed by the Originators that, anything herein to the contrary notwithstanding, each Originator shall remain liable to the Obligor (and any other party to the related Contract) under any and all of the Receivables originated by it and under the Contracts therefor to observe and perform all the conditions and obligations to be observed and performed by it thereunder.  Buyer shall not have any obligation or liability to the Obligor or any other party to the related Contract under any such Receivables or Contracts by reason of or arising out of this Agreement or the granting herein of a Lien thereon or the receipt by Buyer of any payment relating thereto pursuant hereto.  The exercise by Buyer of any of its rights under this Agreement shall not release any Originator from any of its respective duties or obligations under any such Receivables or Contracts.  Buyer shall not be required or obligated in any manner to perform or fulfill any of the obligations of any Originator under or pursuant to any such Receivable or Contract, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such Receivable or Contract, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.

ARTICLE III
CONDITIONS PRECEDENT

Section 3.01.  Conditions Precedent to Initial Transfer.  The initial Transfer hereunder shall be subject to satisfaction of each of the following conditions precedent:

(a)Sale Agreement; Other Documents.  This Agreement or counterparts hereof shall have been duly executed by, and delivered to, each Originator, the Servicer and Buyer, and Buyer shall have received such information, documents, instruments, agreements and legal opinions as Buyer shall request in connection with the transactions contemplated by this Agreement, including all those identified in the Schedule of Documents, each in form and substance satisfactory to Buyer.

(b)Governmental Approvals.  Buyer shall have received (i) satisfactory evidence that the Originators and the Servicer have obtained all required consents and approvals of all Persons, including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Related Documents and the consummation of the transactions contemplated hereby and thereby or (ii) an Officer’s Certificate from each Originator and the Servicer in form and substance satisfactory to Buyer affirming that no such consents or approvals are required.

(c)Compliance with Laws.  Each Originator shall be in compliance with all applicable foreign, federal, state, provincial and local laws and regulations, including, without limitation, those specifically referenced in Section 4.02(f).

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(d)Funding Agreement Conditions.  Each of those conditions precedent set forth in Section 3.01 of the Funding Agreement shall have been satisfied or waived in writing as provided therein.

The acceptance by any Originator of the Sale Price for any Sold Receivables and the contribution to Buyer by the Member of any Contributed Receivables on any Transfer Date shall be deemed to constitute, as of any such Transfer Date, a representation and warranty by such Originator that the conditions precedent set forth in this Section 3.01 have been satisfied.  Upon any such acceptance or contribution, title to the Transferred Receivables sold or contributed on such Transfer Date shall be vested absolutely in Buyer, whether or not such conditions were in fact so satisfied.

Section 3.02.  Termination of Transfers.  Transfers of Receivables hereunder shall terminate on the Commitment Termination Date.

ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 4.01.  Representations and Warranties of the Transaction Parties.  To induce Buyer to purchase the Sold Receivables and to acquire the Contributed Receivables, each Transaction Party, as applicable, makes the following representations and warranties to Buyer as to itself only as of the Closing Date and, except to the extent otherwise expressly provided below, as of each Transfer Date, each of which shall survive the execution and delivery of this Agreement.

(a)Organization, Powers and Good Standing.

(i)Organization.  Each of the Transaction Parties is (i) duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) is duly qualified to do business in all states where such qualification is required except where failure to be so qualified would not reasonably be expected to have a Material Adverse Effect within the meaning of clauses (b) through (e) of the definition thereof; (iii) has the requisite corporate or company power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business, in each case, as now, heretofore and proposed to be conducted; (iv) has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct, except where the failure to do any of the foregoing could not reasonably be expected to result in a Material Adverse Effect within the meaning of clauses (b) through (e) of the definition thereof; (v) is in compliance with its articles or certificate of incorporation and by-laws or operating agreement, as applicable; and (vi) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax laws and other laws, is in compliance with all applicable provisions of law,

5

except where the failure to so comply, individually or in the  aggregate, could not reasonably be expected to result in a Material Adverse Effect.

(ii)Corporate Powers.  The execution, delivery and performance by each Transaction Party of this Agreement and the other Related Documents to which it is a party and the creation and perfection of all Transfers and Liens provided for herein and therein and, solely with respect to clause (iv) below, the exercise by Buyer, or its assigns of any of its rights and remedies under any Related Document to which it is a party: (i) are within such Person’s corporate or company power; (ii) have been duly authorized by all necessary or proper corporate and shareholder or company and member action; (iii) do not result in the creation or imposition of any Adverse Claim upon any of the property of such Person; and (iv) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 3.01(b), all of which have been duly obtained, made or complied with prior to the Effective Date.  On or prior to the Effective Date, each of the Related Documents has been duly executed and delivered by each Transaction Party that is a party thereto and on the Closing Date each such Related Document shall then constitute a legal, valid and binding obligation of such Transaction Party, enforceable against it in accordance with its terms.

(iii)Binding Obligation.  This Agreement is, and the other Related Documents are the legally valid and binding obligations of the applicable parties thereto, each enforceable against each of such parties, as applicable, in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting, creditors’ rights generally and the effects of general principles of equity.

(b)Jurisdiction of Organization; Executive Offices; Collateral Locations; Corporate or Other Names; FEIN.  As of the Effective Date, each Originator is a registered organization of the type set forth on Schedule 4.01(b) and is organized under the laws of the State of Delaware (which is its only jurisdiction of organization) and each such Originator’s organizational identification number (if any), the current location of such Originator’s chief executive office, principal place of business, other offices, the warehouses and premises within which any records relating to the Receivables is stored or located, and the locations of its records concerning the Receivables are set forth in Schedule 4.01(b) or such other locations identified by such Originator in writing to the Borrower from and after the Closing Date.  During the five years prior to the Closing Date, except as set forth in Schedule 4.01(b), no Originator has been known as or used any corporate, legal, fictitious or trade name.  In addition, Schedule 4.01(b) lists the federal employer identification number of each Originator.

(c)Disclosure.  No representation or warranty of any Transaction Party contained in this Agreement, any of the other Related Documents or any other document, certificate or written statement furnished by on behalf of any Transaction Party to Buyer (or, in the case of the Servicer, to the Administrative Agent or any Lender) relating to this Agreement, the Transferred Receivables or any of the other Related Documents contains any untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in any material respect in light of the circumstances in which the same were made.

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(d)No Material Adverse Effect.  Since December 31, 2004 there have been no events or changes in facts or circumstances affecting any Transaction Party which have had or would reasonably be expected within the next twelve (12) months to have a Material Adverse Effect.

(e)No Conflict.  The execution, delivery and performance by each Transaction Party of this Agreement and the other Related Documents to which it is a party and the creation and perfection of all Transfers and Liens provided for herein and therein (i) does not and will not violate or conflict in any material respect with any laws, rules, regulations or orders of any Governmental Authority or violate, conflict with, result in a breach of, or constitute a default (with due notice or lapse of time or both) under any Contractual Obligation or organizational documents of any Transaction Party and (ii) does not result in the creation or imposition of any Adverse Claim upon any of the property of any Transaction Party other than the Adverse Claims created pursuant hereto.

(f)Solvency.  After giving effect to (i) the transactions contemplated by this Agreement and the other Related Documents and (ii) the payment and accrual of all transaction costs in connection with the foregoing, each Transaction Party is and will be Solvent.  After giving effect to the sale and contribution of Receivables and other payments and transactions contemplated on such Transfer Date, each Transaction Party is and will be Solvent. Notwithstanding the foregoing, the Buyer and its assigns agree that no Transaction Party shall be in breach of the representation and warranty set forth in this Section 4.01(f) solely because of the fact that the balance sheet of Holdings and its consolidated Subsidiaries, calculated in accordance with GAAP, reflects a negative net worth.

(g)Margin Regulations.

(i)No part of the proceeds of any Sale will be used for “buying” or “carrying” “margin stock” within the respective meanings of such terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any other purpose that violates the provisions of the regulations of the Board of Governors of the Federal Reserve System.  If requested by Buyer, each Transaction Party will furnish to Buyer a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form 0-1, as applicable, referred to in Regulation U.

(ii)None of the Transaction Parties is required to register as (i) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 or (ii) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

(h)Brokers.  As of the Effective Date, no broker or finder acting on behalf of any Transaction Party was employed or utilized in connection with this Agreement or the other Related Documents or the transactions contemplated hereby or thereby and no Transaction Party has any obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.

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(i)Compliance with Laws.  Each Transaction Party represents and warrants that it (i) is in compliance with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including, without limitation, Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56) and the obligations, covenants and conditions contained in all Contractual Obligations other than those laws, rules, regulations, orders and provisions of such Contractual Obligations the noncompliance with which could not be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect, and (ii) maintains all licenses, qualifications and permits referred to above.

(j)Intellectual Property.  As of the Effective Date, each Originator owns, is licensed to use or otherwise has the right to use, all material Intellectual Property used in or necessary for the conduct of its business as currently conducted that is material to (i) the ability of such Originator to perform its obligations under the Related Documents, (ii) the validity or enforceability of any Related Document or the rights and remedies of the Borrower, the Lenders or the Administrative Agent under any Related Document, (iii) the federal income tax attributes of the sale, contribution or pledge of the Transferred Receivables pursuant to any Related Document or (iv) the Transferred Receivables (or the collectibility thereof), the Contracts therefore, the Borrower Collateral (in each case, taken as a whole) or the ownership interests or Liens of the Borrower or the Lenders or the Administrative Agent thereon or the priority of such interests or Liens, and all such material Intellectual Property is identified on Schedule 4.01(j). As of the Effective Date, except as disclosed in Schedule 4.01(j), the use of such Intellectual Property by the Originators and the conduct of their businesses does not and has not been alleged by any Person to infringe on the rights of any Person.

(k)Investigations, Audits, Etc.  As of the Effective Date, except as set forth on Schedule 4.01(k), no Transaction Party or any of their Subsidiaries is the subject of any review or audit by the IRS or any governmental investigation concerning the violation or possible violation of any law that would reasonably be expected to result in any Material Adverse Effect within the meaning of clauses (b) through (e) of the definition thereof.

(l)Litigation; Adverse Facts.  Except as set forth on Schedule 4.01(l), there are no judgments outstanding against any Transaction Party or affecting any property of any Transaction Party as of the Effective Date, nor is there any Litigation pending, or to the best knowledge of any Transaction Party threatened, against any Transaction Party that would reasonably be expected to result in any Material Adverse Effect within the meaning of clauses (b) through (e) of the definition thereof.

(m)Taxes.

(i)As of the Effective Date, (i) all Tax Returns required to be filed by any Transaction Party or any other member of the Parent Group have been timely and properly filed and (ii) all taxes that are due (other than taxes being or about to be contested in good faith by appropriate proceedings and for which adequate reserves have been provided for in accordance with GAAP) have been paid, except where the failure to file Tax Returns or pay Taxes would not have a Material Adverse Effect.  No

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Governmental Authority has asserted any claim for taxes, or to any Transaction Party’s knowledge, has threatened to assert any claim for taxes that would, if not paid by a Transaction Party, have a Material Adverse Effect.  All taxes required by law to be withheld or collected and remitted (including, without limitation, income tax, unemployment insurance and workmen’s compensation premiums) with respect to the Transaction Parties have been withheld or collected and paid to the appropriate Governmental Authorities (or are properly being held for such payment), except for amounts the nonpayment of which would not be reasonably likely to have a Material Adverse Effect.

(ii)None of the Transaction Parties has been notified that either the IRS, or any other Governmental Authority, has raised, or intends to raise, any adjustments with respect to Taxes of the Transaction Parties, which adjustments would be reasonably likely to have a Material Adverse Effect.

(iii)It is not necessary that this Agreement or any other Related Document be filed, registered, recorded or enrolled in connection with any Taxes with any court, public office or other authority in any jurisdiction or that any ad valorem stamp duty, stamp duty, documentary, registration or similar tax or duty be paid on the execution or delivery of this Agreement or any other Related Document.

(n)ERISA.

(i)Schedule 4.01(n) lists all Plans and separately identifies all Pension Plans, including Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans, including all Retiree Welfare Plans as of the Effective Date.  As of the Effective Date, copies of all such listed Plans other than Multiemployer Plans as defined in ERISA Section 3(37)(A), together with a copy of the latest form IRS/DOL 5500-series for each such Plan (other than such Multiemployer Plans) have been provided or made available to Buyer.  Except with respect to Multiemployer Plans, each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred that would cause the loss of such qualification or tax-exempt status.  Each Plan (other than any Multiemployer Plan) is in material compliance with the applicable provisions of ERISA and the IRC, including the timely filing of all reports required under the IRC or ERISA.  With respect to each Multiemployer Plan, no Originator is aware of any material noncompliance with the applicable provisions of ERISA and the IRC, including the timely filing of all reports required under the IRC or ERISA.  Neither any Transaction Party nor ERISA Affiliate has failed to make any material contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.  Neither any Transaction Party nor ERISA Affiliate has engaged in a “prohibited transaction,” as defined in Section 406 of ERISA and Section 4975 of the IRC,

in connection with any Plan, that would subject any Transaction Party to a material tax on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of the IRC.

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(ii)As of the Effective Date, except as set forth in Schedule 4.01(n): (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred within the last five years or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Borrower, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan that would reasonably be expected to result in liabilities to the Transaction Parties and their ERISA Affiliates in excess of $500,000; (iv) no Transaction Party or ERISA Affiliate has incurred or reasonably expects to incur any liability in excess of $500,000 as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan of any Transaction Party or ERISA Affiliate has been terminated, except in a “standard termination” as that term is used in Section 4041(b)(1) of ERISA, nor has any Title IV Plan of any Transaction Party or ERISA Affiliate (determined at any time within the past five years) with Unfunded Pension Liabilities been transferred outside of the “controlled group” (within the meaning of Section 4001(a)(14) of ERISA) of any Transaction Party or ERISA Affiliate; (vi) except in the case of any ESOP, Stock of all Transaction Parties and their ERISA Affiliates makes up, in the aggregate, no more than 10% of fair market value of the assets of any Plan measured on the basis of fair market value as of the latest valuation date of any Plan; and (vii) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by S&P or an equivalent rating by another nationally recognized rating agency.

(o)Deposit and Disbursement Accounts.  Schedule 4.01(o) lists all banks and other financial institutions at which any Originator or the Servicer maintains deposit accounts established for the receipt of collections on Receivables, including any Collection Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

(p)Nonapplicability of Bulk Sales Laws.  No transaction contemplated by this Agreement or any of the other Related Documents requires compliance with any bulk sales act or similar law.

(q)Investment Company Act Exemptions.  Each purchase of Transferred Receivables under this Agreement constitutes a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act.

(r)Government Regulation.  No Transaction Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Debt or to perform its obligations hereunder or under any other Related Document.  The purchase or acquisition of the Transferred Receivables by Buyer hereunder, the application of the Sale Price therefor and the consummation of the transactions contemplated by this Agreement and the other Related Documents will not

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violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission.

(s)Notices to Obligors.  Each Transaction Party has directed all Obligors of Transferred Receivables originated by it to remit all payments with respect to such Receivables for deposit in a Lockbox or Collection Account.

(t)Books and Records; Minutes.  The by-laws or the certificate or articles of incorporation of each Originator require it to maintain (i) books and records of account and (ii) minutes of the meetings and other proceedings of its Stockholders and board of directors (or an analogous governing body).

(u)Ownership of Receivables; Liens.  Immediately prior to its transfer hereunder, each Originator owned each Receivable originated or acquired by it free and clear of any Adverse Claim and, from and pursuant to such transfer, Buyer will acquire valid and properly perfected title to and the sole record and beneficial ownership interest in each Transferred Receivable, free and clear of any Adverse Claim or restrictions on transferability.  Each Originator has received all assignments, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Originator’s right, title and interest in and to the Receivables originated or acquired by it and its other properties and assets.  Each Originator has rights in and full power to transfer its Receivables hereunder.  No effective financing statements or other similar instruments are of record in any filing office listing any Originator as debtor and purporting to cover the Transferred Receivables except those terminated on the Closing Date and financing statements filed in accordance with the Related Documents.

(v)[RESERVED].

(w)Representations and Warranties in Other Related Documents.  Each of the representations and warranties of each Transaction Party contained in the Related Documents (other than this Agreement) is true and correct and such Transaction Party hereby makes each such representation and warranty to, and for the benefit of, the Buyer as if the same were set forth in full herein.  Each Transaction Party consents to the assignment of Buyer’s rights with respect to all such representations and warranties to the Administrative Agent and the Lenders (and their respective successors and assigns) pursuant to the Funding Agreement as more fully described in Section 6.03 below.

(x)Receivables.  With respect to each Transferred Receivable acquired by the Buyer hereunder:

(i)Each Receivable included in any Borrower Base Certificate as an Eligible Receivable, as of the applicable Transfer Date therefor, satisfied the criteria for an Eligible Receivable on such Transfer Date;

(ii)immediately prior to its transfer to Buyer, such Receivable was owned by the Originator thereof free and clear of any Adverse Claim, and such Originator had the full right, power and authority to sell, contribute, assign, transfer and pledge its interest therein as contemplated under this Agreement and the other Related Documents and,

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upon such Transfer, Buyer will acquire valid and properly perfected title to and the sole record and beneficial ownership interest in such Receivable, free and clear of any Adverse Claim and, following such Transfer, such Receivable will not be subject to any Adverse Claim as a result of any action or inaction on the part of such Originator;

(iii)the Transfer of each such Receivable pursuant to this Agreement and the Receivables Assignment executed by the Originator thereof constitutes, as applicable, a valid sale, contribution, transfer, assignment, setover and conveyance to Buyer of all right, title and interest of such Originator in and to such Receivable; and

(iv)such Transferred Receivable was originated in compliance with the Credit and Collection Policies.

(y)Fair Value.  With respect to each Transferred Receivable acquired by the Buyer hereunder, (i) the consideration (taking into account any increase in the outstanding balance of the Subordinated Note) received from the Buyer in respect of such Transferred Receivable represents adequate consideration and fair and reasonably equivalent value for such Transferred Receivable as of the applicable Transfer Date and (ii) such consideration is not less than the fair market value of such Transferred Receivables, in each case, as of the applicable Transfer Date.

(z)Supplementary Representations.  Each of the representations and warranties of the Borrower set forth on Schedule 4.01(z) is true and correct in all respects.

(aa)Access to the Accounts.  None of the Transaction Parties has access to any of the Accounts.

(bb)Intent.  None of the Transaction Parties has entered into this Agreement or any of the other Related Documents with the intent of hindering, delaying or defrauding present or future creditors of any Transaction Party.  None of the Transaction Parties has removed or concealed any assets from its creditors or participated in the removal or concealing of assets of any Transaction Party or any Person entity, nor will any of them do so in the future.   The transfers contemplated by this Agreement are being undertaken in good faith by each Transaction Party for bona fide business purposes.

(cc)Conditions.  Upon any acceptance or contribution, title to the Transferred Receivables sold or contributed hereunder, the following are statements are true:

(i)the representations and warranties of each Originator contained herein or in any other Related Document are true and correct in all material respects unless previously cured pursuant to Section 4.04 hereof (without duplication of any materiality qualifier contained therein) as of such Transfer Date, both before and after giving effect to such Transfer and to the application of the Sale Price therefor, except to the extent that any such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted by this Agreement;

(ii)each Originator is in compliance with each of its covenants and other agreements set forth herein or in any other Related Document; and

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(iii)each Originator has such other action, including delivery of approvals, consents, opinions, documents and instruments to Buyer as Buyer has reasonably requested.

The representations and warranties described in this Section 4.01 shall survive the Transfer of the Transferred Receivables to Buyer, any subsequent assignment of the Transferred Receivables by Buyer, and the termination of this Agreement and the other Related Documents and shall continue until the indefeasible payment in full of all Transferred Receivables.

Section 4.02.  Affirmative Covenants of the Originators.  Each Originator covenants and agrees that, unless otherwise consented to by Buyer and the Administrative Agent, from and after the Effective Date and until the Termination Date:

(a)Offices and Records.  Each Originator shall maintain its jurisdiction of organization, principal place of business and chief executive office and the office at which it keeps its Records at the respective locations specified in Schedule 4.01(b) or, upon 30 days’ prior written notice to Buyer and the Administrative Agent, at such other location in a jurisdiction where all action requested by Buyer, any Lender or the Administrative Agent pursuant to Section 6.13 shall have been taken with respect to the Transferred Receivables.  Each Originator shall at its own cost and expense, for not less than three years from the date on which each Transferred Receivable was originated, or for such longer period as may be required by law, maintain adequate Records with respect to such Transferred Receivable, including records of all payments received, credits granted and merchandise returned with respect thereto.  Upon the request of Buyer, each Originator shall (i) mark each Contract (other than invoices) which constitutes “chattel paper” under the UCC and evidences a Transferred Receivable with a legend, acceptable to Buyer, evidencing that Buyer has purchased such Transferred Receivable and that the Administrative Agent, for the benefit of the Lenders, has a security interest in and lien thereon, and (ii) mark its computer records pertaining to the Transferred Receivables with such a legend.

(b)Access.  Each Originator shall, at its own expense, during normal business hours, from time to time upon ten (10) Business Days’ prior notice (or, if a Termination Event has occurred and in continuing, one (1) Business Day’s prior notice) and as frequently as Buyer or the Servicer determines to be appropriate: (i) provide Buyer, the Servicer and any of their respective officers, employees, agents and representatives access to its properties (including properties of such Originator utilized in connection with the collection, processing or servicing of the Transferred Receivables), facilities, advisors and employees (including officers) of each Originator, (ii) permit Buyer and the Servicer and any of their respective officers, employees, agents and representatives to inspect, audit and make extracts from such Originator’s books and records, including all Records maintained by such Originator, (iii) permit Buyer, the Servicer and their respective officers, employees, agents and representatives, to inspect, review and evaluate the Transferred Receivables of such Originator, and (iv) permit Buyer, the Servicer and their respective officers, employees, agents and representatives to discuss matters relating to the Transferred Receivables or such Originator’s performance under this Agreement or the affairs, finances and accounts of such Originator with any of its officers, directors, employees, representatives or agents (in each case, with those Persons having knowledge of such matters) and with its independent certified public accountants as specified in Section 4.02(c) below;

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provided, however, that, so long as no Termination Event or Incipient Termination Event has occurred and is continuing, (i) the Buyer shall be limited to two (2) audits pursuant to this Section 4.02(b) during each calendar year  and (ii) Originators’ obligation to reimburse out-of-pocket expenses in respect of each such audit shall not exceed $50,000.  If an Incipient Termination Event or a Termination Event shall have occurred and be continuing, or the Buyer, in good faith, notifies any Originator that an Incipient Termination Event or a Termination Event may have occurred, is imminent or deems its rights or interests in the Transferred Receivables insecure, each such Originator shall provide such access at all times and without advance notice and shall provide Buyer and the Servicer with access to its suppliers and customers; provided, that, such Originator shall have the opportunity to be present at the time of any such access to its such Originator’s suppliers or customers.  Each Originator shall make available to Buyer and the Servicer and their respective counsel, as quickly as is possible under the circumstances, originals or copies of all books and records, including Records maintained by such Originator, as Buyer or the Servicer may request.  Each Originator shall deliver any document or instrument necessary for Buyer or the Servicer, as they may from time to time request, to obtain records from any service bureau or other Person that maintains records for such Originator, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Originator.

(c)Communication with Accountants.  Each Originator authorizes Buyer and the Servicer and their designated representatives to communicate directly with its independent certified public accountants, and authorizes and, if requested by Buyer or Servicer, shall instruct those accountants to disclose and make available to Buyer, the Servicer and their designated representatives, any and all financial statements and other supporting financial documents, schedules and information relating to such Originator (including copies of any issued management letters) with respect to the business, financial condition and other affairs of such Originator; provided, that the Buyer or Servicer shall notify such Originator prior to any contact with such accountants and advisors and shall give such Originator the opportunity to participate in such discussions.  Each Originator agrees to render to Buyer and the Servicer at such Originator’s own cost and expense, such clerical and other assistance as may be reasonably requested with regard to the foregoing.  If any Termination Event shall have occurred and be continuing, each Originator shall, promptly upon request therefor, deliver to Buyer or its designee all Records reflecting activity through the close of business on the Business Day immediately preceding the date of such request.

(d)Compliance With Credit and Collection Policies.  Each Originator shall comply with the Credit and Collection Policies applicable to each Transferred Receivable and the Contracts therefor, and with the terms of such Receivables and Contracts.

(e)Assignment.  Each Originator hereby acknowledges that on the date hereof Buyer has collaterally assigned for security purposes all of its right, title and interest in, to and under this Agreement to the Administrative Agent for the benefit of the Administrative Agent, the Lenders, the Indemnified Persons and the Affected Parties and that the Administrative Agent, the Lenders, the Indemnified Persons and the Affected Parties are third party beneficiaries hereof.  Each Originator hereby further acknowledges that after the occurrence and during the continuation of a Termination Event all provisions of this Agreement shall inure to the benefit of the Administrative Agent and the Lenders, including the enforcement of any provision hereof,

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but that the Administrative Agent, the Lenders, the Indemnified Person and the Affected Parties shall have no obligations or duties under this Agreement. Each Originator hereby further acknowledges that the execution and performance of this Agreement are conditions precedent for the Administrative Agent and the Lenders to enter into the Funding Agreement and that the agreement of the Administrative Agent and Lenders to enter into the Funding Agreement will directly or indirectly benefit such Originator and constitutes good and valuable consideration for the rights and remedies of the Administrative Agent and each Lender with respect hereto.

(f)Compliance with Agreements and Applicable Laws.  Each Originator shall perform each of its obligations under this Agreement and the other Related Documents and comply with all federal, state, provincial and local laws and regulations applicable to it and the Receivables, including those relating to truth in lending, retail installment sales, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy, licensing, securities laws, margin regulations, taxation, ERISA and labor matters and environmental laws and environmental permits, except where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect.  Each Originator shall pay all Charges, including any stamp duties, which may be imposed as a result of the transactions contemplated by this Agreement and the other Related Documents, except to the extent such Charges are being contested in accordance with Section 4.01(m) or constitute an obligation solely of the Borrower.

(g)Maintenance of Existence and Conduct of Business.  Each Originator shall:  (i) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (ii) only engage in business of the types described on Schedule 4.02(g) and reasonable extensions thereof and in accordance with the terms of its certificate or articles of incorporation and by-laws; (iii) at all times maintain, preserve and protect all of its assets and properties which are necessary in the conduct of its business, including all licenses, permits, charters and registrations, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices in each case, to the extent the failure to do so could reasonably be expected to (i) materially impair the ability of such Originator to perform its obligations under the Related Documents, (ii) adversely affect the validity or enforceability of any Related Document or the rights and remedies of the Borrower, the Lenders or the Administrative Agent under any Related Document, (iii) adversely affect the federal income tax attributes of the sale, contribution or pledge of the Transferred Receivables pursuant to any Related Document or (iv) affect the enforceability or value of the Transferred Receivables (or the collectibility thereof), the Contracts therefore, the Borrower Collateral (in each case, taken as a whole) or the ownership interests or Liens of the Borrower or the Lenders or the Administrative Agent thereon or the priority of such interests or Liens; and (iv) transact business only in trade names and its legal name as of the Effective Date or, upon 30 days’ prior written notice to Buyer, in any other legal name with respect to which all action requested by Buyer pursuant to Section 6.13 shall have been taken with respect to the Transferred Receivables.

(h)Notice of Material Events.  Each Originator shall promptly inform Buyer in writing of the occurrence of any of the following, in each case setting forth the details thereof,

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any notices or other correspondence relating thereto, and what action, if any, such Originator proposes to take with respect thereto:

(i)(A) any Litigation commenced or threatened against Holdings, any Originator or any other Subsidiary of Holdings that (1) is asserted or instituted against any Plan, its fiduciaries (in their capacity as a fiduciary of any such Plan) or its assets or against Holdings, any Originator or any other Subsidiary of Holdings or any of their respective ERISA Affiliates in connection with any Plan that individually or in the aggregate could reasonably be expected to result in liabilities of any Originator or its ERISA Affiliates in excess of $500,000, (2) alleges criminal misconduct by Holdings, any Originator or any other Subsidiary of Holdings, or (3) if determined adversely, could reasonably be expected to have a Material Adverse Effect or  (B) any Litigation commenced or threatened against Holdings, any Originator or any other Subsidiary of Holdings with respect to or in connection with all or any portion of the Transferred Receivables that (A) seeks damages or penalties in an uninsured amount in excess of $250,000 in the aggregate or (B) seeks injunctive relief;

(ii)the commencement of a case or proceeding by or against Holdings, any Originator or any other Subsidiary of Holdings seeking a decree or order in respect of Holdings, any Originator or such Subsidiary (A) under the Bankruptcy Code or any other applicable federal, state, provincial or foreign bankruptcy or other similar law, (B) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for Holdings, any Originator or such Subsidiary or for any substantial part of such Person’s assets, or (C) ordering the winding-up or liquidation of the affairs of Holdings, any Originator or any other Subsidiary of Holdings;

(iii)(A) any Adverse Claim made or asserted against any of the Transferred Receivables of which it becomes aware or (B) any determination that a Transferred Receivable was not an Eligible Receivable at the time sale to Buyer or has ceased to be an Eligible Receivable on account of any matter giving rise to indemnification under Section 5.01;

(iv)the execution or filing with the IRS or any other Governmental Authority of any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges that could reasonably be expected to become a Lien on the Receivables; or

(v)any other event, circumstance or condition that has had or could reasonably be expected to have a Material Adverse Effect.

(i)Separate Identity.

(i)Each Originator shall, and shall cause each other member of the Parent Group to, maintain records and books of account separate from those of Buyer.

(ii)The financial statements of Holdings and its consolidated Subsidiaries shall disclose the effects of each Originator’s transactions in accordance with GAAP and, in addition, disclose that (A) Buyer’s sole business consists of the purchase or acceptance

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through capital contribution (in the case of the Member) and ownership of the Receivables from the Originators and the subsequent financing of such Receivables pursuant to the Funding Agreement, (B) Buyer is a separate legal entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Buyer’s assets prior to any value in Buyer becoming available to Buyer’s equity holders and (C) the assets of Buyer are not available to pay creditors of any Originator or any other Affiliate of such Originator.

(iii)The resolutions, agreements and other instruments underlying the transactions described in this Agreement shall be continuously maintained by each Originator as official records.

(iv)Each Originator shall, and shall cause each other member of the Parent Group to, maintain an arm’s-length relationship with Buyer and shall not hold itself out as being liable for the Debts or liabilities of Buyer.

(v)Each Originator shall, and shall cause each other member of the Parent Group to, keep its assets and its liabilities wholly separate from those of Buyer and shall not commingle the Buyer’s assets with the assets of any other Person.

(vi)No Originator shall or shall permit any other member of the Parent Group to, conduct its business in the name of the Buyer or in a manner designed to mislead third parties as to the separate identity of Buyer.

(vii)No Originator shall (and each Originator shall cause each other member of the Parent Group not to) mislead third parties by conducting or appearing to conduct business on behalf of Buyer or expressly or impliedly representing or suggesting that such Originator or any other member of the Parent Group is liable or responsible for the Debts of Buyer or that the assets of such Originator or any other member of the Parent Group are available to pay the creditors of Buyer.

(viii)The operating expenses and liabilities of Buyer shall be paid from Buyer’s own funds and not from any funds of any Originator or other member of the Parent Group.

(ix)Each Originator shall, and shall cause each other member of the Parent Group to, at all times have stationery and other business forms and a mailing address and telephone number separate from those of Buyer.

(x)Each Originator shall, and shall cause each other member of the Parent Group to, at all times limit its transactions with Buyer only to those expressly permitted hereunder or under any other Related Document.

(j)ERISA.  Each Originator shall give Buyer prompt written notice of (i) any event that could reasonably be expected to result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA and (ii) any event that could reasonably be expected to result in the incurrence by any Originator of any liabilities under Title IV of ERISA (other than premium payments arising in the ordinary course of business) in excess of $500,000.

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(k)Payment, Performance and Discharge of Obligations.

(i)Subject to Section 4.02(k)(ii), each Originator shall (and shall cause each other member of the Parent Group to) pay, perform and discharge or cause to be paid, performed and discharged all of its obligations and liabilities, including all Charges upon its income and properties and all lawful claims for labor, materials, supplies and services, promptly when due in each case, to the extent the failure to do so could reasonably be expected to (i) materially impair the ability of such Originator to perform its obligations under the Related Documents, (ii) adversely affect the validity or enforceability of any Related Document or the rights and remedies of the Borrower, the Lenders or the Administrative Agent under any Related Document, (iii) adversely affect the federal income tax attributes of the sale, contribution or pledge of the Transferred Receivables pursuant to any Related Document or (iv) affect the enforceability or value of the Transferred Receivables (or the collectibility thereof), the Contracts therefore, the Borrower Collateral (in each case, taken as a whole) or the ownership interests or Liens of the Borrower or the Lenders or the Administrative Agent thereon or the priority of such interests or Liens..

(ii)Each Originator and each other member of the Parent Group may in good faith contest, by appropriate proceedings, the validity or amount of any Charges or claims described in Section 4.02(k)(i); provided, that (A) adequate reserves with respect to such contest are maintained on the books of such Originator or such member, as applicable, in accordance with GAAP, (B) such contest is maintained and prosecuted continuously and with diligence, (C) none of the Receivables may become subject to forfeiture or loss as a result of such contest, (D) no Lien may be imposed to secure payment of such Charges or claims (excepting only Liens as to which foreclosure is not imminent and the use and value of the property to which the Lien attaches is not impaired during the pendency of such proceeding), and (E) Buyer has advised such Originator in writing that Buyer reasonably believes that nonpayment or nondischarge thereof could not reasonably be expected to have or result in a Material Adverse Effect within the meaning of clauses (b) through (e) thereof.

(l)Deposit of Collections.  Each Originator shall (and shall cause each of its Affiliates to) (i) instruct all Obligors to remit all payments with respect to any Receivables directly into a Collection Account, and (ii) deposit or cause to be deposited promptly into a Collection Account, and in any event no later than the first Business Day after receipt thereof, all Collections it may receive in respect of Transferred Receivables (and until so deposited, all such Collections shall be held in trust for the benefit of Buyer and its assigns (including the Administrative Agent and the Lenders)).  No Originator shall make or permit to be made deposits into a Lockbox or a Collection Account other than in accordance with this Agreement and the other Related Documents.  Without limiting the generality of the foregoing, each Originator shall take reasonable steps to assure that no Collections or other proceeds with respect to a Receivable reconveyed to it pursuant to Section 4.04 hereof are paid or deposited into any Lockbox or Collection Account.

(m)Accounting Changes.  If any Accounting Changes occur and such changes result in a change in the standards or terms used herein, then the parties hereto agree to enter into good

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faith negotiations in order to amend such provisions so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of such Persons and their Subsidiaries shall be the same after such Accounting Changes as if such Accounting Changes had not been made.  If the parties hereto agree upon the required amendments to this Agreement, then after appropriate amendments have been executed and the underlying Accounting Change with respect thereto has been implemented, any reference to GAAP contained herein shall, only to the extent of such Accounting Change, refer to GAAP consistently applied after giving effect to the implementation of such Accounting Change.  If such parties cannot agree upon the required amendments within 30 days following the date of implementation of any Accounting Change, then all financial statements delivered and all standards and terms used herein shall be prepared, delivered and used without regard to the underlying Accounting Change.

(n)General Trial Balance.  Each Originator shall generate its General Trial Balance on each day that such Originator transfers Receivables pursuant to this Agreement.  If at any time any Originator fails to generate its General Trial Balance, Buyer shall have the right to reconstruct such General Trial Balance so that a determination of the Sold Receivables and Contributed Receivables can be made.  Each Originator agrees to cooperate with such reconstruction, including by delivery to Buyer, upon Buyer’s request, of copies of all Records.

Section 4.03.  Negative Covenants of the Originators.  Each Originator covenants and agrees that, without the prior written consent of Buyer, from and after the Closing Date and until the Termination Date:

(a)Sale of Receivables and Related Assets.  No Originator shall sell, transfer, convey, assign (by operation of law or otherwise) or otherwise dispose of, or assign any right to receive income in respect of, any of its Receivables or Contracts therefor, or any of its rights with respect to any Lockbox or Collection Account, except for the sales, transfers, conveyances, assignments or dispositions expressly contemplated hereunder.

(b)Liens.  No Originator shall create, incur, assume or permit to exist any Adverse Claim on or with respect to its Receivables (whether now owned or hereafter acquired) except for Permitted Encumbrances that do not attach to Transferred Receivables.

(c)Modifications of Receivables or Contracts.  Except to the extent the Servicer is permitted to do so by the Credit and Collection Policies, no Originator shall extend, amend, forgive, discharge, compromise, cancel or otherwise modify the terms of any Transferred Receivable, or amend, modify or waive any term or condition of any Contract therefor in a manner that would have the effect of creating such a modification of a Receivable.

(d)Sale Characterization.  No Originator shall (and each Originator shall cause each other member of the Parent Group not to) make statements or disclosures or prepare any financial statements for any purpose, including for federal income tax, reporting or accounting purposes, that shall account for the transactions contemplated by this Agreement in any manner other than with respect to the Sale of each Sold Receivable originated or acquired by it, as a true sale or absolute assignment of its full right, title and ownership interest in such Transferred

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Receivable to Buyer and with respect to the Transfer of each Contributed Receivable originated or acquired by it, as a contribution to the capital of Buyer.

(e)Capital Structure and Business.  No Originator shall (and each Originator shall cause each other member of the Parent Group not to) (i) make any changes in any of its business objectives, purposes or operations that could reasonably be expected to have or result in a Material Adverse Effect or (ii) amend, supplement or otherwise modify its certificate or articles of incorporation, bylaws, limited liability company agreement and other organizational documents except where such amendment, supplement or other modification could not reasonably be expect to have or result in a Material Adverse Effect within the meaning of clause (b) through (e) of the definition thereof.  No Originator shall change the type of entity it is, its jurisdiction of organization or its organizational identification number, if any, issued by its state of organization, except upon 30 days’ prior written notice to Buyer and with respect to which jurisdiction all action requested by Buyer pursuant to Section 6.13 shall have been taken with respect to the Transferred Receivables.

(f)Actions Affecting Rights.  No Originator shall (i) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights given to the Buyer or its assignees hereunder or under the other Related Documents, including rights with respect to the Transferred Receivables; or (ii) fail to pay any Charge, fee or other obligation of such Originator with respect to the Transferred Receivables, or fail to defend any action, if such failure to pay or defend may adversely affect the priority or enforceability of the perfected title of Buyer to and the sole record and beneficial ownership interest of Buyer in the Transferred Receivables or, prior to their Transfer hereunder, such Originator’s right, title or interest therein.

(g)ERISA.  No Originator shall, or shall cause or permit any ERISA Affiliate to, cause or permit to occur an event that could reasonably be expected to result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or cause or permit to occur an ERISA Event.

(h)Change to Credit and Collection Policies.  No Originator shall fail to comply in any material respect with, and no material change, amendment, modification or waiver shall be made to, the Credit and Collection Policies without the prior written consent of Buyer.

(i)Adverse Tax Consequences.  No Originator shall take or permit to be taken any action (other than with respect to actions taken or to be taken solely by a Governmental Authority), or fail or neglect to perform, keep or observe any of its obligations hereunder or under the other Related Documents, that would have the effect directly or indirectly of subjecting any payment to Buyer, or to any assignee who is a resident of the United States of America, to withholding taxation.

(j)No Proceedings.  From and after the Effective Date and until the date one year plus one day following the Termination Date, no Originator shall, directly or indirectly, institute or cause to be instituted against Buyer any proceeding of the type referred to in Sections 8.01(d) and 8.01(e) of the Funding Agreement.

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(k)Mergers, Acquisitions, Sales, etc.  Other than as permitted pursuant to Section 5.6 of the Existing Credit Agreement, no Transaction Party shall (i) be a party to any merger or consolidation, or directly or indirectly purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or (ii) directly or indirectly sell, transfer, assign, convey or lease whether in one or a series of transactions, all or substantially all of its assets other than pursuant hereto, except for any such merger or consolidation, sale, transfer, conveyance, lease or assignment of or by any majority-owned Subsidiary into such Person or into, with or to any other majority-owned Subsidiary and any such purchase or other acquisition by such Person or any majority-owned Subsidiary of the assets or stock of any majority-owned Subsidiary. Notwithstanding the foregoing, other than the Parent in its capacity as the sole member of the Buyer, no member of the Parent Group shall be a party to any merger or consolidation, or directly or indirectly purchase or otherwise acquire all or substantially all of the assets or any Stock of the Buyer. In connection with any merger or consolidation that is permitted pursuant to Section 5.6 of the Existing Credit Agreement, each Originator will (i) provide written notice thereof to the Buyer, and (ii) take all such actions and deliver, or cause to be delivered, such opinion letters of counsel, certificates and other agreements that the Buyer deems reasonably necessary or desirable under the UCC to maintain the perfection and priority of the Buyer’s ownership interest in the Receivables.

(l)[RESERVED].

(m)Modification to the Credit Agreement.  Without the prior written consent of the Administrative Agent, the Parent will not agree to any amendment, modification or waiver to any provision of the Credit Agreement (other than the Existing Credit Agreement so long as the administrative agent thereunder is GE Capital or an Affiliate thereof) which impairs the rights of the Buyer, the Administrative Agent, the Indemnified Persons or the Affected Parties under any Related Document or with respect to the Transferred Receivables, the Collections thereon or the Borrower Collateral.

(n)Commingling.  No Originator shall (and each Originator shall cause each other member of the Parent Group not to) deposit or permit the deposit of any funds that do not constitute Collections of Transferred Receivables into any Lockbox or Collection Account, provided that after the Commitment Termination Date, so long as any Transferred Receivables of an Obligor remain unpaid, no Originator shall instruct such Obligor to remit Collections of any Receivables to any Person or account other than to a Lockbox or Collection Account.  If any funds not constituting collections of Transferred Receivables are nonetheless deposited into a Lockbox or Collection Account and such Originator so notifies Buyer, Buyer shall notify the Administrative Agent to promptly remit any such amounts to the applicable Originator.

(o)Excluded Receivables.  The definition of “Excluded Receivable” in Annex X makes specific reference to (i) response management facility located in Rochester, New York, (ii) sheet fed printing facility located in Chicago, Illinois and (iii) media placement business formerly known as The Newspaper Network located in Atlanta, Georgia, Greenville, South Carolina and Sacramento, California (each an “Excluded Unit”).  In the event any Originator elects to combine the operations of any other divisions or joint ventures of such Originator with an Excluded Unit or rename any such division or joint venture with the name of an Excluded

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Unit, the Originator will provide the Buyer not less than thirty (30) days written notice prior to the date of implementation of such action.  After giving such notice, such Originator shall (i) provide such information to the Buyer relating to such action as the Buyer may reasonably request and (ii) execute and deliver such amendments to this Agreement and other agreements and documents related hereto as the Buyer may reasonably request to maintain perfected in the Receivables intended to be conveyed hereunder.

Section 4.04.  Breach of Representations, Warranties or Covenants.  Upon discovery by any Originator or Buyer of any breach with respect to any Receivable of any (a) representation, warranty or covenant relating to the absence of Dilution Factors, or (b) representation, warranty or covenant described in Sections 4.01(s), 4.01(u), 4.01(x), 4.01(y), 4.02(l), 4.03(a), 4.03(b), 4.03(c), 4.03(n) or 4.03(o), the party discovering the same shall give prompt written notice thereof to the other parties hereto.  The Originator that breached such representation, warranty or covenant shall, if requested by notice from Buyer, on the first Business Day following receipt of such notice, either (a) repurchase the affected Transferred Receivable from Buyer for cash remitted to the applicable Collection Account or (b) transfer ownership of a new Eligible Receivable or new Eligible Receivables to Buyer on such Business Day without payment of the Sale Price therefor, in each case in an amount (the “Rejected Amount”) equal to the Billed Amount of such Transferred Receivable minus the sum of (i) Collections received in respect thereof plus (ii) the amount of any Dilution Factors taken into account in the calculation of the Original Sale Price thereof.  Each Originator shall take reasonable steps to assure that no Collections or other proceeds with respect to a Transferred Receivable so reconveyed to it are paid or deposited into any Collection Account.

ARTICLE V
INDEMNIFICATION

Section 5.01.  Indemnification.  Without limiting any other rights that Buyer or any of its Stockholders, any of its assignees including the Lenders and the Administrative Agent, or any of their respective officers, directors, employees, attorneys, agents or representatives and transferees, successors and assigns (each, a “Buyer Indemnified Person”) may have hereunder or under applicable law, each Originator hereby agrees to indemnify and hold harmless each Buyer Indemnified Person from and against any and all Indemnified Amounts that may be claimed or asserted against or incurred by any such Buyer Indemnified Person in connection with or arising out of the transactions contemplated under this Agreement or with respect to such Originator’s obligations under any other Related Document, any actions or failures to act in connection therewith, including any and all legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Related Documents, or in respect of any Transferred Receivable or any Contract therefor or the use by such Originator of the Sale Price therefor; provided, that no Originator shall be liable for any indemnification to a Buyer Indemnified Person to the extent that any such Indemnified Amounts (x) result from such Buyer Indemnified Person’s gross negligence or willful misconduct, as determined by a court of competent jurisdiction, (y) constitute  recourse for uncollectible or uncollected Transferred Receivables due to the credit risk, financial inability to pay or other failure (without cause or justification) or inability on the part of the related Obligor to perform its obligations thereunder or the occurrence of any event of bankruptcy with respect to such Obligor or (z) includes any tax imposed on or measured by the net income or profits or any franchise or other tax in lieu thereof

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(including branch profits or similar taxes) of any Indemnified Person by (i) the jurisdiction under the laws of which such Indemnified Person is organized or any political subdivision thereof or (ii) the jurisdiction of such Indemnified Person’s applicable lending office or any political subdivision thereof.  Subject to clauses (x), (y) and (z) of the proviso in the immediately preceding sentence, but otherwise without limiting the generality of the foregoing, each Originator shall pay on demand to each Buyer Indemnified Person any and all Indemnified Amounts relating to or resulting from:

(i)reliance on any representation or warranty made or deemed made by such Originator (or any of its officers) under or in connection with this Agreement or any other Related Document (without regard to any qualifications concerning the occurrence or non-occurrence of a Material Adverse Effect (other than a qualifier with respect to the financial condition of an Originator) or similar concepts of materiality) or on any other information delivered by such Originator pursuant hereto or thereto that shall have been incorrect when made or deemed made or delivered;

(ii)the failure by such Originator to comply with any term, provision or covenant contained in this Agreement, any other Related Document or any agreement executed in connection herewith or therewith (without regard to any qualifications concerning the occurrence or non-occurrence of a Material Adverse Effect (other than a qualifier with respect to the financial condition of an Originator) or similar concepts of materiality), any applicable law, rule or regulation with respect to any Transferred Receivable or the Contract therefor, or the nonconformity of any Transferred Receivable or the Contract therefor with any such applicable law, rule or regulation;

(iii)the failure to vest and maintain vested in Buyer, or to Transfer to Buyer, valid and properly perfected title to and sole record and beneficial ownership of the Receivables that constitute Transferred Receivables, together with all Collections in respect thereof, free and clear of any Adverse Claim;

(iv)any dispute, claim, offset or defense of any Obligor (other than its discharge in bankruptcy) to the payment of any Receivable that is the subject of a Transfer hereunder (including a defense based on such Receivable or the Contract therefor not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms (other than as a result of a discharge in bankruptcy), or any other claim resulting from the sale of the merchandise or services giving rise to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by any Originator or any Affiliate thereof acting as the Servicer or a Sub-Servicer);

(v)any products liability claim or other claim arising out of or in connection with merchandise, insurance or services that is the subject of any Contract;

(vi)the commingling of Collections with respect to Transferred Receivables by any Originator at any time with its other funds or the funds of any other Person except as required pursuant to Section 7.03 hereof;

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(vii)         any failure by such Originator to cause the filing of, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or any other applicable laws with respect to any Receivable that is the subject of a Transfer hereunder to the extent that such filing is necessary to maintain the perfection and priority of the Buyer in such Receivable, whether at the time of any such Transfer or at any subsequent time;

(viii)        any investigation, Litigation or proceeding related to this Agreement or the use of the Sale Price obtained in connection with any Sale or the ownership of Receivables or Collections with respect thereto or in respect of any Receivable or Contract;

(ix)           any claim brought by any Person other than a Buyer Indemnified Person arising from any activity by such Originator or any of its Affiliates in servicing, administering or collecting any Transferred Receivables;

(x)            any failure of (x) a Collection Account Bank to comply with the terms of the applicable Collection Account Agreement, (y) the Concentration Account Bank to comply with the terms of the Concentration Account Agreement, or (z) the Borrower Account Bank to comply with the terms of the Borrower Account Agreement;

(xi)           any withholding, deduction or Charge imposed upon any payments with respect to any Transferred Receivable, any Borrower Assigned Agreement or any other Borrower Collateral;

provided, that, the above provisions for indemnity shall not be interpreted to eliminate principles of causation in determining whether an indemnified loss has occurred.

If and to the extent that this Section 5.01 may be unenforceable for any reason, each Originator agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law.

Section 5.02.  Indemnities by the Servicer.

(a)           Without limiting any other rights that a Buyer Indemnified Person may have hereunder or under applicable law, the Servicer hereby agrees to indemnify and hold harmless each Buyer Indemnified Person from and against any and all Indemnified Amounts that may be claimed or asserted against or incurred by any such Buyer Indemnified Person in connection with or arising out of the collection activities of the Servicer hereunder or out of any breach by the Servicer of its obligations hereunder or under any other Related Document; provided, that the Servicer shall not be liable for any indemnification to a Buyer Indemnified Person to the extent that any such Indemnified Amount (x) results from such Buyer Indemnified Person’s gross negligence or willful misconduct, in each case as determined by a court of competent jurisdiction, or (y) constitutes recourse for uncollectible or uncollected Transferred Receivables due to the credit risk, financial inability to pay or other failure (without cause or justification) or inability on the part of the related Obligor to perform its obligations thereunder or the occurrence of any event of bankruptcy with respect to such Obligor.  Without limiting the generality of the

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foregoing, the Servicer shall pay on demand to each Buyer Indemnified Person any and all Indemnified Amounts relating to or resulting from:

(i)            reliance on any representation or warranty made or deemed made by the Servicer (or any of its officers) under or in connection with this Agreement or any other Related Document (without regard to any qualifications concerning the occurrence or non-occurrence of a Material Adverse Effect or similar concepts of materiality) or on any other information delivered by the Servicer pursuant hereto or thereto that shall have been incorrect when made or deemed made or delivered;

(ii)           the failure by the Servicer to comply with any term, provision or covenant contained in this Agreement, any other Related Document or any agreement executed in connection herewith or therewith (without regard to any qualifications concerning the occurrence or non-occurrence of a Material Adverse Effect or similar concepts of materiality), any applicable law, rule or regulation with respect to any Transferred Receivable or the Contract therefor, or the nonconformity of any Transferred Receivable or the Contract therefor with any such applicable law, rule or regulation;

(iii)          the imposition of any Adverse Claim with respect to any Transferred Receivable or the Borrower Collateral as a result of any action taken by the Servicer;

(iv)          the commingling of Collections with respect to Transferred Receivables by the Servicer at any time with its other funds or the funds of any other Person except as required pursuant to Section 7.03 hereof;

provided, that, the above provisions for indemnity shall not be interpreted to eliminate principles of causation in determining whether an indemnified loss has occurred.

If and to the extent that this Section 5.02 may be unenforceable for any reason, each Servicer agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law.

(b)           Any Indemnified Amounts subject to the indemnification provisions of this Section 5.02  shall be paid by the Servicer to the Buyer Indemnified Person entitled thereto within five Business Days following demand therefor.

ARTICLE VI
MISCELLANEOUS

Section 6.01.  Notices.  Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three Business Days after deposit in the

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United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by email of the signed notice in PDF form or facsimile transmission (with such email or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 6.01), (c) one Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number set forth below in this Section 6.01 or to such other address (or facsimile number) as may be substituted by notice given as herein provided:

Each Originator:	c/o Vertis, Inc.
	250 West Pratt Street
	Baltimore, MD 21201
	Attention: Chief Financial Officer and Chief Legal Officer
	Facsimile No.: (410) 454-0887
Buyer:	Vertis Receivables II, LLC
	250 West Pratt Street
	Baltimore, MD 21201
	Attention: Chief Financial Officer and Chief Legal Officer
	Facsimile No.: (410) 454-0887
Parent:	Vertis, Inc.
	250 West Pratt Street
	Baltimore, MD 21201
	Attention: Chief Financial Officer and Chief Legal Officer
	Facsimile No.: (410) 454-0887.

Without limiting the generality of the foregoing, all notices to be provided to the Buyer hereunder shall be delivered to both the Buyer and the Administrative Agent under the Funding Agreement, and shall be effective only upon such delivery to the Administrative Agent in accordance with the terms of the Funding Agreement.  The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice.  Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Buyer) designated in any written communication provided hereunder to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication.  Notwithstanding the foregoing, whenever it is provided herein that a notice is to be given to any other party hereto by a specific time, such notice shall only be effective if actually received by such party prior to such time, and if such notice is received after such time or on a day other than a Business Day, such notice shall only be effective on the immediately succeeding Business Day.

Section 6.02.  No Waiver; Remedies.  Buyer’s failure, at any time or times, to require strict performance by the Originators of any provision of this Agreement or any Receivables Assignment shall not waive, affect or diminish any right of Buyer thereafter to demand strict compliance and performance herewith or therewith.  Any suspension or waiver of any breach or default hereunder shall not suspend, waive or affect any other breach or default whether the same is prior or subsequent thereto and whether the same or of a different type.  None of the

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undertakings, agreements, warranties, covenants and representations of any Originator contained in this Agreement or any Receivables Assignment, and no breach or default by any Originator hereunder or thereunder, shall be deemed to have been suspended or waived by Buyer unless such waiver or suspension is by an instrument in writing signed by an officer of or other duly authorized signatory of Buyer and directed to such Originator specifying such suspension or waiver.  Buyer’s rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies that Buyer may have under any other agreement, including the other Related Documents, by operation of law or otherwise.  Recourse to the Receivables shall not be required.

Section 6.03.  Successors and Assigns.  This Agreement shall be binding upon and shall inure to the benefit of each Originator, Servicer and Buyer and their respective successors and permitted assigns, except as otherwise provided herein.  No Originator nor the Servicer may assign, transfer, hypothecate or otherwise convey its obligations or duties hereunder without the prior express written consent of Buyer.  Any such purported assignment, transfer, hypothecation or other conveyance by any Originator without the prior express written consent of Buyer, shall be void.  Each Originator and the Servicer acknowledges that Buyer may assign its rights granted hereunder, including the benefit of any indemnities under Article V, and upon such assignment, such assignee shall have, to the extent of such assignment, all rights of Buyer hereunder and, to the extent permitted under the Funding Agreement, may in turn assign such rights.  Each Originator and the Servicer agrees that, upon any such assignment, such assignee may enforce directly, without joinder of Buyer, the rights set forth in this Agreement.  All such assignees, including parties to the Funding Agreement in the case of any assignment to such parties, shall be third party beneficiaries of, and shall be entitled to enforce Buyer’s rights and remedies under, this Agreement to the same extent as Buyer or any of its designated representatives may do.  The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Originator, the Servicer and Buyer with respect to the transactions contemplated hereby and, except for the Lenders and the Administrative Agent, no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement.

Section 6.04.  Termination; Survival of Obligations.

(a)           This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the later of (i) the Termination Date and (ii) the date on which Buyer and Originators enter into a written agreement providing for the termination of their rights and obligations hereunder..

(b)           Except as otherwise expressly provided herein or in any other Related Document, no termination or cancellation (regardless of cause or procedure) of any commitment made by Buyer under this Agreement shall in any way affect or impair the obligations, duties and liabilities of any Originator or the rights of Buyer relating to any unpaid portion of any and all recourse and indemnity obligations of such Originator to Buyer, including those set forth in Sections 4.04, 5.01, 6.12, 6.14 and 6.15, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Commitment Termination Date.  Except as otherwise expressly provided herein or in any other Related Document, all undertakings, agreements, covenants, warranties and representations of or binding upon each Originator, and all rights of

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Buyer hereunder, all as contained in the Related Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the rights and remedies pursuant to Sections 4.04, the indemnification and payment provisions of Article V, and the provisions of Sections 4.03(j), 6.03, 6.12, 6.14 and 6.15 shall be continuing and shall survive any termination of this Agreement.

Section 6.05.  Complete Agreement; Modification of Agreement.  This Agreement and the other Related Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof, supersede all prior agreements and understandings relating to the subject matter hereof and thereof, and may not be modified, altered or amended except as set forth in Section 6.06.

Section 6.06.  Amendments and Waivers.  No amendment, modification, termination or waiver of any provision of this Agreement or any of the other Related Documents, or any consent to any departure by any Originator therefrom, shall in any event be effective unless the same shall be in writing and signed by each of the parties hereto; provided, that, prior to the Termination Date, no amendment, modification, termination or waiver of any provision of this Agreement or any of the other Related Documents, or any consent to any departure by any Originator therefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent.  No consent or demand in any case shall, in itself, entitle any party to any other consent or further notice or demand in similar or other circumstances.

Section 6.07.  Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.

(a)           THIS AGREEMENT AND EACH RELATED DOCUMENT (EXCEPT TO THE EXTENT THAT ANY RELATED DOCUMENT EXPRESSLY PROVIDES TO THE CONTRARY) AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES), EXCEPT TO THE EXTENT THAT THE PERFECTION, EFFECT OF PERFECTION OR PRIORITY OF THE INTERESTS OF THE BUYER IN THE RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

(b)           EACH PARTY HERETO HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THEM PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED DOCUMENT; PROVIDED, THAT EACH PARTY HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS

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MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE BOROUGH OF MANHATTAN IN NEW YORK CITY; PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE BUYER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE RECEIVABLES OR ANY OTHER SECURITY FOR THE OBLIGATIONS OF THE ORIGINATORS ARISING HEREUNDER, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF BUYER.  EACH PARTY HERETO SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PARTY HERETO HEREBY WAIVES ANY OBJECTION THAT SUCH PARTY 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 PARTY HERETO HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARTY AT THE ADDRESS SET FORTH IN SECTION 6.01 HEREOF AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH PARTY’S ACTUAL RECEIPT THEREOF OR THREE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL, PROPER POSTAGE PREPAID.  NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

(c)           BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 6.08.  Counterparts.  This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.

Section 6.09.  Severability.  Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such

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provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

Section 6.10.  Section Titles.  The section titles and table of contents contained in this Agreement are provided for ease of reference only and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

Section 6.11.  No Setoff.  Each Originator’s obligations under this Agreement shall not be affected by any right of setoff, counterclaim, recoupment, defense or other right such Originator might have against Buyer, all of which rights are hereby expressly waived by such Originator.

Section 6.12.  Confidentiality.

(a)           Except to the extent otherwise required by applicable law, as reasonably believed to be appropriate to be filed publicly with the Securities and Exchange Commission, or unless each Affected Party shall otherwise consent in writing, each Originator, the Servicer and Buyer agree to maintain the confidentiality of this Agreement (and all drafts hereof and documents ancillary hereto) in its communications with third parties other than any Affected Party or any Buyer Indemnified Person and otherwise not to disclose, deliver or otherwise make available to any third party (other than its directors, officers, employees, accountants or counsel) the original or any copy of all or any part of this Agreement (or any draft hereof and documents ancillary hereto) except to an Affected Party, a Buyer Indemnified Person.

(b)           Each Originator and the Servicer agrees that it shall not (and shall not permit any of its Subsidiaries to) issue any news release or make any public announcement pertaining to the transactions contemplated by this Agreement and the Related Documents without the prior written consent of Buyer (which consent shall not be unreasonably withheld) unless such news release or public announcement is required by law, in which case such Originator or the Servicer shall consult with Buyer prior to the issuance of such news release or public announcement.  Any Originator or the Servicer may, however, disclose the general terms of the transactions contemplated by this Agreement and the Related Documents to trade creditors, suppliers and other similarly-situated Persons so long as such disclosure is not in the form of a news release or public announcement.

(c)           Except to the extent otherwise required by applicable law, or in connection with any judicial or administrative proceedings, reasonably believed to be appropriate to be filed publicly with the Securities Exchange Commission, or unless the Originators and the Servicer otherwise consent in writing, the Buyer agrees (i) to maintain the confidentiality of (A) this Agreement (and all drafts hereof and documents ancillary hereto) and (B) all other confidential proprietary information with respect to the Originators, the Servicer and their respective Affiliates and each of their respective businesses obtained by the Buyer in connection with the structuring, negotiation and execution of the transactions contemplated herein and in the other documents ancillary hereto, in each case, in its communications with third parties other than any Originator or the Servicer, and (ii) not to disclose, deliver, or otherwise make available to any third party (other than its directors, officers, employees, accountants or counsel) the original or any copy of all or any part of this Agreement (or any draft hereof and documents ancillary

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hereto) except to any Originator. Notwithstanding the foregoing, Buyer shall be permitted to disclose copies of this Agreement and the confidential proprietary information described above to (1) each Affected Party and each Affected Party’s and their respective Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential and to not disclose or use such Information in violation of Regulation FD (17 C.F.R. § 243.100-243.103));  (2) any regulatory authority (it being understood that it will to the extent reasonably practicable provide the Originators and/or the Servicer with an opportunity to request confidential treatment from such regulatory authority), (3) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (4) to any other party to the Funding Agreement, (5) to the extent required in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Related Document or the enforcement of rights hereunder or thereunder, (6) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee or pledgee of (or participant in), or any prospective assignee or pledgee of (or participant in), any of its rights or obligations under this Agreement, (7) with the consent of the applicable Originator or Servicer or (8) to the extent such Agreement or other information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Buyer or Affected Party on a nonconfidential basis from a source other than Holdings or any Subsidiary thereof.

Section 6.13.  Further Assurances.

(a)           Each Originator shall, at its sole cost and expense, upon request of Buyer, promptly and duly execute and deliver any and all further instruments and documents and take such further actions that may be necessary or desirable or that Buyer may request to carry out more effectively the provisions and purposes of this Agreement or any other Related Document or to obtain the full benefits of this Agreement and of the rights and powers herein granted, including (i) using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of Buyer of any Transferred Receivable held by such Originator or in which such Originator has any rights not heretofore assigned, and (ii) filing any financing or continuation statements under the UCC with respect to the ownership interests or Liens granted hereunder or under any other Related Document.  Each Originator hereby authorizes Buyer, to file any such financing or continuation statements without the signature of such Originator to the extent permitted by applicable law.  A carbon, photographic or other reproduction of this Agreement or of any notice or financing statement covering the Transferred Receivables or any part thereof shall be sufficient as a notice or financing statement where permitted by law.  If any amount payable under or in connection with any of the Transferred Receivables is or shall become evidenced by any instrument, such instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Buyer immediately upon such Originator’s receipt thereof and promptly delivered to Buyer.

(b)           If any Originator fails to perform any agreement or obligation under this Section 6.13, Buyer may (but shall not be required to) itself perform, or cause performance of, such

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agreement or obligation, and the expenses of Buyer incurred in connection therewith shall be payable by such Originator upon demand of Buyer.

Section 6.14.  Fees and Expenses.  In addition to its indemnification obligations pursuant to Article V, each Originator agrees, jointly and severally, to pay on demand all Rating Agency fees and all costs and expenses incurred by Buyer in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Related Documents, including the fees and out-of-pocket expenses incurred by Buyer, (including any such amounts owed by Buyer in connection with its financing of the Transfers hereunder), for counsel, advisors, consultants and auditors retained in connection with the transactions contemplated hereby and advice in connection therewith, and each Originator agrees, jointly and severally, to pay all costs and expenses, if any (including reasonable attorneys’ fees and expenses but excluding any costs of enforcement or collection of the Transferred Receivables), in connection with the enforcement of this Agreement and the other Related Documents.

Section 6.15.  Nonrecourse Obligations.  Notwithstanding any provision in any other Section of this Agreement to the contrary, any obligation of Buyer to pay any amounts payable to the Originators pursuant to this Agreement shall be paid pursuant hereto only if the Buyer has Excess Funds.  In the event that the Buyer does not have Excess Funds, the excess of the amounts due hereunder (and subject to this Section 6.15) over the amounts paid shall not constitute a “claim” under Section 101(5) of the Bankruptcy Code against Buyer until such time as the Buyer has Excess Funds.

ARTICLE VII
SERVICER PROVISIONS

Section 7.01.  Appointment of the Servicer.  Buyer hereby appoints the Servicer as its agent to service the Transferred Receivables and, in accordance with the Related Documents, to enforce Buyer’s rights and interests in and under each Transferred Receivable and Contract therefor and to serve in such capacity until the termination of its responsibilities pursuant to Sections 8.01 or 9.01.  In connection therewith, the Servicer hereby accepts such appointment and agrees to perform the duties and obligations set forth herein.  The Servicer may, with the prior written consent of the Buyer, subcontract with a Sub-Servicer for the collection, servicing or administration of the Transferred Receivables; provided, that (a) the Servicer shall remain liable for the performance of the duties and obligations of such Sub-Servicer pursuant to the terms hereof, (b) any Sub-Servicing Agreement that may be entered into and any other transactions or services relating to the Transferred Receivables involving a Sub-Servicer shall be deemed to be between the Sub-Servicer and the Servicer alone, and Buyer shall not be deemed a party thereto and shall have no obligations, duties or liabilities with respect to the Sub-Servicer and (c) each Sub-Servicing Agreement shall expressly provide that it shall automatically terminate upon the termination of the Servicer’s responsibilities hereunder in accordance with the terms hereof.

Section 7.02.  Duties and Responsibilities of the Servicer.

(a)           Subject to the provisions of this Agreement, the Servicer shall conduct the servicing, administration and collection of the Transferred Receivables and shall take, or cause to

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be taken, all actions that (i) may be necessary or advisable to service, administer and collect each Transferred Receivable from time to time, (ii) the Servicer would take if the Transferred Receivables were owned by the Servicer, and (iii) are consistent with the Credit and Collection Policies.

(b)           In addition to the foregoing, in order to ensure that the Buyer has adequate funding for the purchase of Receivables hereunder, the Servicer shall be responsible for the following:

(i)            preparation and delivery on behalf of Buyer all Borrowing Requests, Repayment Notices, Borrowing Base Certificates, Monthly Reports, Weekly Reports and Daily Reports required to be delivered under the Funding Agreement;

(ii)           calculation and monitoring of the Borrowing Base and the components thereof, and whether the Receivables included in the calculation of the Net Receivables Balance are in fact Eligible Receivables; and

(iii)          establishment, maintenance and administration of the Collection Accounts, the Concentration Account, and the Borrower Account in accordance with Article VIII of the Funding Agreement.

Section 7.03.  Collections on Receivables.

(a)           In the event that the Servicer is unable to determine the specific Transferred Receivables on which Collections have been received from the Obligor thereunder, the parties agree that such Collections shall be deemed to have been received on such Receivables in the order in which they were originated with respect to such Obligor.  In addition, if an Obligor is an obligor on Transferred Receivables and any other Receivables or indebtedness owed to any Originator, then, unless (i) otherwise required by applicable law or (ii) specified by the applicable Obligor in good faith and without direction of the Servicer, the Borrower or any member of the Parent Group with respect to the application of payments in respect of multiple Transferred Receivables owing by such Obligor, Collections on such Transferred Receivables or other Receivables or indebtedness shall be treated first, as a Collection of any Transferred Receivables of such Obligor, in the order in which they were originated, before being applied to any other Receivables or other indebtedness of such Obligor.  In the event that the Servicer is unable to determine the specific Transferred Receivables on which discounts, offsets or other non-cash reductions have been granted or made with respect to the Obligor thereunder, the parties agree for purposes of this Agreement only that such reductions shall be deemed to have been granted or made (i) prior to a Termination Event, on such Receivables as determined by the Servicer, and (ii) from and after the occurrence of a Termination Event, in the reverse order in which they were originated with respect to such Obligor.

(b)           If the Servicer determines that amounts unrelated to the Transferred Receivables (the “Unrelated Amounts”) have been deposited in any Account, then the Servicer shall provide written evidence thereof to the Buyer no later than the first Business Day following the day on which the Servicer had actual knowledge thereof, which evidence shall be provided in writing and shall be otherwise satisfactory to Buyer.

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(c)           Authorization of the Servicer.  Buyer hereby authorizes the Servicer to take, solely in accordance with the Credit and Collection Policies, any and all reasonable steps in its name and on its behalf necessary or desirable and not inconsistent with the rights of the Buyer hereunder, in the determination of the Servicer, to (a) collect all amounts due under any Transferred Receivable, including endorsing the applicable name on checks and other instruments representing Collections on such Receivable, and execute and deliver any and all instruments of satisfaction or cancellation or of partial or full release or discharge and all other comparable instruments with respect to any such Receivable and (b) after any Transferred Receivable becomes a Delinquent Receivable or a Defaulted Receivable and to the extent permitted under and in compliance with applicable law and regulations, commence proceedings with respect to the enforcement of payment of any such Receivable and the Contract therefor and adjust, settle or compromise any payments due thereunder, in each case to the same extent as the applicable Originator could have done if it had continued to own such Receivable.  The Borrower shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder.  Notwithstanding anything to the contrary contained herein, at any time at which the Administrative Agent succeeds to, or upon the exercise of remedies with respect to, Buyer’s rights under this Agreement (in each case in accordance with the provisions of the Funding Agreement), the Administrative Agent shall also have the absolute and unlimited right to direct the Servicer (at the Servicer’s expense) (i) to commence or settle any legal action to enforce collection of any Transferred Receivable or (ii) to foreclose upon, repossess or take any other action that the Buyer deems necessary or advisable with respect thereto.  In no event shall the Servicer be entitled to make Buyer or any Affected Party a party to any Litigation without such Affected Party’s express prior written consent.

(d)           Servicing Fees.  As compensation for its servicing activities and as reimbursement for its reasonable expenses in connection therewith, the Servicer shall be entitled to receive the Servicing Fees monthly on each Settlement Date.  Such Servicing Fees shall be payable from available funds in accordance with Section 2.07 and 2.08 of the Funding Agreement.  The Servicer shall be required to pay for all expenses incurred by it in connection with its activities hereunder (including any payments to accountants, counsel or any other Person) and shall not be entitled to any payment therefor other than the Servicing Fees.

(e)           Sales of Receivables.  The Buyer agrees that the Servicer, on behalf of the Buyer, may from time to time sell or otherwise transfer Transferred Receivables for which the applicable Obligor is a BK Obligor to a third party that is not an Affiliate of Holdings; provided, that, (i) until the Termination Date, no such transfers shall be permitted under this Section 7.03(e) if either a Termination Event or an Incipient Termination Event shall have occurred and be continuing prior to or after the consummation of any such transfer, (ii) the Outstanding Balance of any Transferred Receivables sold or otherwise transferred pursuant to this Section 7.03(e) in any transaction shall not exceed $3,000,000, (iii) the aggregate Outstanding Balance of all Transferred Receivables sold or otherwise transferred pursuant to this Section 7.03(e) from and after the Closing Date shall not exceed $10,000,000, (iv) each sale or transfer of Transferred Receivables pursuant to this Section 7.03(e) shall be made without any recourse to the Buyer and (v) any buyer of any Transferred Receivables sold or otherwise transferred pursuant to this Section 7.03(e) shall agree in writing that, until the date that is one year plus one day following the date on which all Borrower Obligations have been indefeasibly paid in full in cash, such

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Person shall not, directly or indirectly, institute or cause to be instituted against Buyer any proceeding of the type referred to in Sections 8.01(c) or 8.01(d) of this Agreement.

(f)            Computer Records.  The Servicer shall maintain, consistent with the requirements of Section 2.01(f)(i), computer records of all invoices that are (or evidence) Contracts and from which duplicate copies of such invoices can be produced.

Section 7.04.  Covenants of the Servicer.  The Servicer covenants and agrees that from and after the Effective Date and until the Termination Date:

(a)           Compliance with Agreements and Applicable Laws.  The Servicer shall perform each of its obligations under this Agreement and the other Related Documents and comply with all federal, state, provincial and local laws and regulations applicable to it and the Receivables, including those relating to truth in lending, retail installment sales, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy, licensing, securities laws, margin regulations, taxation, ERISA and labor matters and environmental laws and environmental permits, except where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect.

(b)           Maintenance of Existence and Conduct of Business.  The Servicer shall:  (i) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (ii) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder and in accordance with the terms of its certificate or articles of incorporation and by-laws; and (iii) at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, including all licenses, permits, charters and registrations, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices, except to the extent that the failure to comply with this clauses (ii) and (iii) could not reasonably be expected to have a Material Adverse Effect within the meaning of clauses (b) through (e) of the definition thereof.

(c)           Deposit of Collections.  The Servicer shall deposit or cause to be deposited promptly into a Collection Account, and in any event no later than the first Business Day after receipt thereof, all Collections it may receive with respect to any Transferred Receivable.

(d)           ERISA.  The Servicer shall give the Administrative Agent prompt written notice of any event that (i) could reasonably be expected to result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA, or (ii) could reasonably be expected to result in the incurrence by Servicer of any liabilities under Title IV of ERISA (other than premium payments arising in the ordinary course of business) in excess of $500,000.

(e)           Compliance with Credit and Collection Policies.  The Servicer shall comply with the Credit and Collection Policies with respect to each Transferred Receivable and the Contract therefor.  The Servicer shall not extend, amend, forgive, discharge, compromise, waive, cancel or otherwise modify the terms of any Transferred Receivable or amend, modify or waive any term or condition of any Contract related thereto in a manner that would have the effect of creating

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such a modification of a Receivable, except that the Servicer may (i) reduce the Outstanding Balance of a Receivable as required to reflect any Dilution Factors and (ii) take such actions, to the extent permitted by the Credit and Collection Policies, as the Servicer may deem reasonably necessary or desirable in order to maximize Collections with respect to any past-due Receivable so long as, after giving effect to any such action, no Receivables which constituted Eligible Receivables prior to such action would no longer constitute Eligible Receivables as a result of such action.  The Servicer shall not without the prior written consent of the Buyer amend, modify or waive any term or provision of the Credit and Collection Policies.

(f)            Ownership of Transferred Receivables; Servicing Records.  The Servicer shall (i) identify the Transferred Receivables clearly and unambiguously in its Servicing Records to reflect that such Transferred Receivables are the property of the Borrower and that a Lien on such Transferred Receivables has been granted to the Administrative Agent for the benefit of the Lenders; (ii) maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing such Receivables in the event of the destruction of any originals thereof) as are necessary or advisable in accordance with industry practice (1) to reflect promptly (a) all payments received and all credits and extensions granted with respect to such Receivables, (b) the return, rejection, repossessions, or stoppage in transit of any merchandise the sale of which has given rise to any such Receivable and (c) any other reductions in the Outstanding Balance of the Receivables on account of Dilution Factors; and (2) to determine no less frequently than the date each Daily Report, Weekly Report or Monthly Report is due, whether each Transferred Receivable then outstanding qualifies as an Eligible Receivable; (iii) by no later than the Effective Date, mark conspicuously with a legend, in form and substance satisfactory to the Buyer, its computer records pertaining to Substantial Contracts that constitute Borrower Collateral, and its file cabinets or other storage facilities where it maintains information pertaining to the Borrower Collateral, to evidence the assignment of the Receivables under this Agreement and the assignment and Liens granted pursuant to the Funding Agreement.  Upon the occurrence and during the continuance of a Termination Event, the Servicer shall deliver and turn over such books and records to the Buyer or its representatives at any time on demand.  The Servicer shall permit any representative of the Buyer to inspect such books and records and shall provide photocopies thereof to Buyer as more specifically set forth in Section 7.04(i).

(g)           Payment and Performance of Charges and other Obligations.

(i)            Subject to Section 7.04(g)(ii), the Servicer shall pay, perform and discharge or cause to be paid, performed and discharged promptly all charges and claims payable by it, including (A) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding with respect to its employees, and (B) lawful claims for labor, materials, supplies and services or otherwise before any amount thereof shall become past due in each case, to the extent the failure to do so could reasonably be expected to (i) materially impair the ability of such Servicer to perform its obligations under the Related Documents, (ii) adversely affect the validity or enforceability of any Related Document or the rights and remedies of the Borrower, the Lenders or the Administrative Agent under any Related Document, (iii) adversely affect the federal income tax attributes of the sale, contribution or pledge of the Transferred Receivables

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pursuant to any Related Document or (iv) affect the enforceability or value of the Transferred Receivables (or the collectibility thereof), the Contracts therefore, the Borrower Collateral (in each case, taken as a whole) or the ownership interests or Liens of the Borrower or the Lenders or the Administrative Agent thereon or the priority of such interests or Liens.

(ii)           The Servicer may in good faith contest, by appropriate proceedings, the validity or amount of any charges or claims described in Section 7.04(g)(i); provided that (A) adequate reserves with respect to such contest are maintained on the books of the Servicer, in accordance with GAAP, (B) such contest is maintained and prosecuted continuously and with diligence, (C) none of the Borrower Collateral becomes subject to forfeiture or loss as a result of such contest, (D) no Lien shall be imposed to secure payment of such charges or claims (excepting only Liens as to which foreclosure is not imminent and the use and value of the property to which the Lien attaches is not impaired during the pendency of such proceeding), and (E) the Administrative Agent has not advised the Servicer in writing that it reasonably believes that failure to pay or to discharge such claims or charges could have or result in a Material Adverse Effect.

(h)           Access.  Subject to the requirements of Section 4.02(b), the Servicer agrees to provide Buyer, the Buyer’s officers, employees, directors, agents and representatives with all access that the Originators have covenanted and agreed to provide to the Buyer in Section 4.02(b).

(i)            Communication with Accountants.  The Servicer authorizes Buyer to communicate directly with its independent certified public accountants, and authorizes and, shall upon Buyer’s request, instruct those accountants to disclose and make available to Buyer, its officers, employees, agents and representatives any and all financial statements and other supporting financial documents, schedules and information relating to the Servicer (including copies of any issued management letters) with respect to the business, financial condition and other affairs of the Servicer; provided, that the Buyer shall notify the Servicer prior to any contact with such accountants and advisors and shall give the Servicer the opportunity to participate in such discussions.  The Servicer agrees to render to Buyer, at the Servicer’s own cost and expense, such clerical and other assistance as may be reasonably requested with regard to the foregoing.

(j)            Collection of Transferred Receivables.  In connection with the collection of amounts due or to become due under the Transferred Receivables, the Borrower Assigned Agreements and any other Borrower Collateral, the Servicer shall take such action as it, and from and after the occurrence and during the continuance of a Termination Event, the Buyer may deem necessary or desirable to enforce collection of the Transferred Receivables, the Borrower Assigned Agreements and the other Borrower Collateral.  If (i) an Incipient Termination Event or a Termination Event shall have occurred and be continuing or (ii) the Buyer in good faith believes that an Incipient Termination Event or a Termination Event is imminent, then the Buyer may, without prior notice to any Originator or the Servicer, (x) exercise its right to take exclusive ownership and control of (1) the Lockboxes and the Collection Accounts in accordance with the terms of the applicable Collection Account Agreements and (2) the Concentration Account(in which case the Servicer shall be required to deposit any Collections it then has in its possession

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or at any time thereafter receives, immediately in the Agent Account) and (y) notify any Obligor under any Transferred Receivable or obligors under the Borrower Assigned Agreements of the sale to Buyer of such Transferred Receivables and of the pledge of such Transferred Receivables or Borrower Assigned Agreements, as the case may be, to the Buyer and its assignees and direct that payments of all amounts due or to become due to the Buyer thereunder be made directly to the Buyer or any servicer, collection agent or lockbox or other account designated by the Buyer and the Buyer may enforce collection of any such Transferred Receivable or the Borrower Assigned Agreements and adjust, settle or compromise the amount or payment thereof.  The Buyer shall provide prompt notice to the Servicer of any such notification of assignment, pledge or direction of payment to the Obligors under any Transferred Receivables.

(k)           Performance of Borrower Assigned Agreements.  The Servicer shall (i) perform and observe all the terms and provisions of the Borrower Assigned Agreements to be performed or observed by it, enforce the Borrower Assigned Agreements on behalf of the Borrower in accordance with their terms and take all action as may from time to time be requested by the Buyer in order to accomplish the foregoing, and (ii) upon the request of and as directed by the Buyer, make such demands and requests to any other party to the Borrower Assigned Agreements as are permitted to be made by the Servicer thereunder.

(l)            License for Use of Software and Other Intellectual Property.  Unless expressly prohibited by the licensor thereof or any provision of applicable law, if any, the Servicer hereby grants to the Buyer (and to the Administrative Agent on behalf of the Lenders as assignee of the Buyer) a limited license to use, without charge, the Servicer’s computer programs, software, printouts and other computer materials, technical knowledge or processes, data bases, materials, trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights of use of any name, labels, fictitious names, inventions, designs, trade secrets, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials or any property of a similar nature, as it pertains to the Transferred Receivables and the other Borrower Collateral, or any rights to any of the foregoing, only as reasonably required in connection with the collection of the Transferred Receivables and the advertising for sale, and selling any of the Borrower Collateral, or exercising of any other remedies with respect thereto, and the Servicer agrees that its rights under all licenses and franchise agreements shall inure to the Buyer (and to the Administrative Agent on behalf of the Lenders as assignee of the Buyer) for purposes of the license granted herein.  Except upon the occurrence and during the continuation of a Termination Event, the Buyer agrees not to use (and shall cause the Administrative Agent to covenant not to use) any such license without giving the Servicer prior written notice.

(m)          Deposit of Collections.  The Servicer shall (and shall cause each of its Affiliates to) (i) instruct all Obligors to remit all payments with respect to any Transferred Receivables directly into a Lockbox or Collection Account, and (ii) deposit or cause to be deposited promptly into a Lockbox or Collection Account, and in any event no later than the first Business Day after receipt thereof, all Collections it may receive in respect of Transferred Receivables (and until so deposited, all such Collections shall be held in trust for the benefit of Buyer and its assigns (including the Administrative Agent and the Lenders).  The Servicer shall not make or permit to be made deposits into a Lockbox or a Collection Account other than in accordance with this

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Agreement and the other Related Documents.  Without limiting the generality of the foregoing, the Servicer shall take reasonable steps to assure that no Collections or other proceeds with respect to a Receivable reconveyed to any Originator pursuant to Section 4.04 hereof are paid or deposited into any Lockbox or Collection Account.

(n)           Commingling.  The Servicer shall not (and shall cause each other member of the Parent Group not to) deposit or permit the deposit of any funds that do not constitute Collections of Transferred Receivables into any Lockbox or Collection Account except as otherwise permitted by Section 4.03(n) hereof.  If any funds not constituting Collections of Transferred Receivables are nonetheless deposited into a Lockbox or Collection Account and the Servicer so notifies Buyer, Buyer shall promptly remit any such amounts to the applicable Originator.  So long as any Transferred Receivables of an Obligor remain unpaid, the Servicer shall not instruct such Obligor to remit Collections of any Receivables to any Person or account other than to a Lockbox or Collection Account.

(o)           Separate Identity.  The Servicer shall comply with Section 4.02(i) to the same extent as if it were an Originator.

Section 7.05.  Reporting Requirements of the Servicer.  The Servicer hereby agrees that, from and after the Effective Date and until the Termination Date, it shall prepare and deliver or cause to be prepared and delivered to the Lenders and the Administrative Agent, on behalf of the Buyer, the financial statements, notices, reports, and other information set forth in Annex 5.02(a) to the Funding Agreement at the times, to the Persons and in the manner set forth in Annex 5.02(a) of the Funding Agreement.

ARTICLE VIII
EVENTS OF SERVICER TERMINATION

Section 8.01.  Events of Servicer Termination.  If any of the following events (each, an “Event of Servicer Termination”) shall occur (regardless of the reason therefor):

(a)           the Servicer shall (i) fail to make any payment or deposit hereunder when due and payable and the same shall remain unremedied for three (3) Business Days or more; (ii) fail to deliver when due any of the reports required to be delivered pursuant to Section 7.05 or any other report related to the Receivables as required by the other Related Documents and the same shall remain unremedied for five (5) Business Days after the date specified for delivery of any report;  or (iii) fail or neglect to perform, keep or observe any other provision of this Agreement or the other Related Documents (other than any provision embodied in or covered by any other clause of this Section 8.01) and the same shall remain unremedied for thirty (30) days or more following the earlier to occur of an Authorized Officer of the Servicer becoming aware of such breach and the Servicer’s receipt of notice thereof; or

(b)           the Servicer or any Subsidiary which acts as a Sub-Servicer shall fail to pay when due or within any applicable grace period any principal or interest on Debt or any Contingent Obligations or (2) a breach or default of the Servicer or any Subsidiary which acts as a Sub-Servicer shall occur, or any condition or event shall occur, with respect to any Debt or any

39

Contingent Obligations, in each case if the effect of such breach, default or occurrence is to cause or to permit the holder or holders then to cause, Debt and/or Contingent Obligations having an aggregate principal amount in excess of $5,000,000 to become or be declared due prior to their stated maturity or

(c)           (1) the Servicer or any Subsidiary which acts as a Sub-Servicer commences a voluntary case under the Bankruptcy Code, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (2) the Servicer or any Subsidiary which acts as a Sub-Servicer makes any assignment for the benefit of creditors; or (3) the board of directors (or equivalent thereof) or the shareholders (or equivalent thereof) of the Servicer or any Subsidiary which acts as a Sub-Servicer adopts any resolution or otherwise authorizes action in connection with the administration, liquidation, winding-up or dissolution of the Servicer or any Subsidiary which acts as a Sub-Servicer or to approve any of the actions referred to in this Section 8.01(c); or

(d)           (1) a court enters a decree or order for relief with respect to the Servicer or any Subsidiary which acts as a Sub-Servicer in an involuntary case under the Bankruptcy Code, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law; or (2) the continuance of any of the following events for sixty (60) days unless dismissed, bonded or discharged:  (a) an involuntary case is commenced againstthe Servicer or any Subsidiary which acts as a Sub-Servicer, under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian, administrator or other officer having similar powers overthe Servicer or any Subsidiary which acts as a Sub-Servicer, or over all or a substantial part of its property, is entered; or (c) a receiver, trustee or other custodian is appointed without the consent of the Servicer or any Subsidiary which acts as a Sub-Servicer for, or an encumbrance takes possession of, all or a substantial part of the property of the Servicer or any Subsidiary which acts as a Sub-Servicer; or

(e)           the Servicer or any Subsidiary which acts as a Sub-Servicer generally does not pay its debts as such debts become due or any Authorized Officer thereof admits in writing its inability to, or is generally unable to, pay its debts as such debts become due; or

(f)            any money judgment, writ or warrant of attachment, or similar process (other than those described elsewhere in this Section 8.01) involving an amount in the aggregate at any time in excess of $5,000,000 (to the extent not adequately covered by insurance provided by a reputable and solvent insurance company) is entered or filed against the Servicer or any Subsidiary which acts as a Sub-Servicer or any of their respective assets and remains undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than five (5) Business Days prior to the date of any proposed sale thereunder; or

(g)           (i) any information contained in any Borrowing Base Certificate is untrue or incorrect in any respect other than an Immaterial Misstatement, (ii) any information contained in any Monthly Report, Weekly Report or Daily Report is untrue or incorrect in any material respect or (iii) any representation or warranty of the Servicer herein or in any other Related

40

Document or in any written statement, report, financial statement or certificate (other than a Borrowing Base Certificate) made or delivered by the Servicer to any Affected Party hereto or thereto is untrue or incorrect in any material respect (without duplication of any materiality qualifier contained therein) as of the date when made or deemed made and such representation and warranty, if relating to any Transferred Receivable, has not been cured by the repurchase of any such Transferred Receivable pursuant to Section 4.04; or

(h)           the Buyer shall have determined that any event or condition that materially adversely affects the ability of the Servicer to collect the Transferred Receivables or to otherwise perform hereunder has occurred; or

(i)            a Termination Event shall have occurred or this Agreement shall have been terminated; or

(j)            a deterioration has taken place in the quality of servicing of Transferred Receivables or other Receivables serviced by the Servicer that the Buyer, in its sole discretion, determines to be material, and such material deterioration has not been eliminated within 30 days after written notice thereof shall have been given by the Administrative Agent to the Servicer; or

(k)           the Servicer shall assign or purport to assign any of its obligations hereunder without the prior written consent of the Buyer; or

(l)            a Change of Control shall occur; or

(m)          a default or breach of the test set forth in Annex Z shall occur and (i) such event cannot reasonably be expected to be corrected or reversed within 45 days of the date of such default or breach or (ii) 45 days shall have passed since the date of such default or breach; or

(n)           (i) Holdings or any of Holdings’ Significant Subsidiaries shall fail to pay when due or within any applicable grace period any principal or interest on Debt or any Contingent Obligations or (2) a breach or default of Holdings or any of Holdings’ Significant Subsidiaries shall occur, or any condition or event shall occur, with respect to any Debt or any Contingent Obligations, in each case if the effect of such breach, default or occurrence is to cause or to permit the holder or holders then to cause, Debt and/or Contingent Obligations having an aggregate principal amount in excess of $5,000,000 to become or be declared due prior to their stated maturity;

(ii) (1) Holdings or any of Holdings’ Significant Subsidiaries commences a voluntary case under the Bankruptcy Code, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (2) Holdings or any of Holdings’ Significant Subsidiaries makes any assignment for the benefit of creditors; or (3) the board of directors (or equivalent thereof) or the shareholders (or equivalent thereof) of Holdings or any of Holdings’ Significant Subsidiaries adopts any resolution or otherwise authorizes action in connection with the administration, liquidation, winding-up or dissolution of Holdings or any of Holdings’ Significant Subsidiaries or to approve any of the actions referred to in this Section 8.01(n)(ii); or

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(iii)          (1) a court enters a decree or order for relief with respect to Holdings or any of Holdings’ Significant Subsidiaries in an involuntary case under the Bankruptcy Code, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law; or (2) the continuance of any of the following events for sixty (60) days unless dismissed, bonded or discharged:  (A) an involuntary case is commenced against the Holdings or any of Holdings’ Significant Subsidiaries, under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (B) a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian, administrator or other officer having similar powers over Holdings or any of Holdings’ Significant Subsidiaries, or over all or a substantial part of its property, is entered; or (C) a receiver, trustee or other custodian is appointed without the consent of Holdings or any of Holdings’ Significant Subsidiaries for, or an encumbrance takes possession of, all or a substantial part of the property of Holdings or any of Holdings’ Significant Subsidiaries; or

(iv)          Holdings or any of Holdings’ Significant Subsidiaries generally does not pay its debts as such debts become due or any Authorized Officer thereof admits in writing its inability to, or is generally unable to, pay its debts as such debts become due; or

(iv)          any money judgment, writ or warrant of attachment, or similar process (other than those described elsewhere in this Section 8.01) involving an amount in the aggregate at any time in excess of $5,000,000 (to the extent not adequately covered by insurance provided by a reputable and solvent insurance company) is entered or filed against Holdings or any of Holdings’ Significant Subsidiaries or any of their respective assets and remains undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than five (5) Business Days prior to the date of any proposed sale thereunder;

then, and in any such event, the Buyer may, by delivery of a Servicer Termination Notice to the Servicer, terminate the servicing responsibilities of the Servicer hereunder, without demand, protest or further notice of any kind, all of which are hereby waived by the Servicer.  Upon the delivery of any such notice, all authority and power of the Servicer under this Agreement shall pass to and be vested in the Successor Servicer acting pursuant to Section 9.02; provided, that notwithstanding anything to the contrary herein, the Servicer agrees to continue to follow the procedures set forth in Section 7.02 with respect to Collections on the Transferred Receivables until a Successor Servicer has assumed the responsibilities and obligations of the Servicer in accordance with Section 9.02.

ARTICLE IX
SUCCESSOR SERVICER PROVISIONS

Section 9.01.  Servicer Not to Resign.  The Servicer shall not resign from the obligations and duties hereby imposed on it except upon a determination that (a) the performance of its duties hereunder has become impermissible under applicable law or regulation and (b) there is no reasonable action that the Servicer could take to make the performance of its duties hereunder become permissible under applicable law.  Any such determination shall (i) with respect to clause (a) above, be evidenced by an opinion of counsel to such effect and (ii) with respect to clause (b) above, be evidenced by an Officer’s Certificate to such effect, in each case delivered

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to the Administrative Agent.  No such resignation shall become effective until a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 9.02.

Section 9.02.  Appointment of the Successor Servicer.  In connection with the termination of the Servicer’s responsibilities or the resignation by the Servicer under this Agreement pursuant to Sections 8.01 or 9.01, the Buyer may at any time appoint a successor servicer to the Servicer that shall be acceptable to the Administrative Agent and shall succeed to all rights and assume all of the responsibilities, duties and liabilities of the Servicer under this Agreement (the Administrative Agent, in such capacity, or such successor servicer being referred to as the “Successor Servicer”); provided, that the Successor Servicer shall have no responsibility for any actions of the Servicer prior to the date of its appointment or assumption of duties as Successor Servicer.  In selecting a Successor Servicer, the Buyer may (but shall not be required to) obtain bids from any potential Successor Servicer and may agree to any bid it deems appropriate.  The Successor Servicer shall accept its appointment by executing, acknowledging and delivering to the Buyer an instrument in form and substance acceptable to the Buyer.

Section 9.03.  Duties of the Servicer.  The Servicer covenants and agrees that, following the appointment of, or assumption of duties by, a Successor Servicer:

(a)           The Servicer shall terminate its activities as Servicer hereunder in a manner that facilitates the transfer of servicing duties to the Successor Servicer and is otherwise acceptable to the Buyer and, without limiting the generality of the foregoing, shall, at its own expense, timely deliver (i) any funds to the Administrative Agent that were required to be remitted to the Administrative Agent for deposit in the Agent Account under the Funding Agreement and (ii) all Servicing Records and other information with respect to the Transferred Receivables to the Successor Servicer at a place selected by the Successor Servicer.  The Servicer shall cooperate with the Successor Servicer in effecting the termination of the responsibilities and rights of the predecessor Servicer under this Agreement and shall account for all funds and shall execute and deliver such instruments and do such other things as may be required to vest and confirm in the Successor Servicer all rights, powers, duties, responsibilities, obligations and liabilities of the Servicer.  All reasonable costs and expenses (including reasonable attorneys’ fees) incurred in connection with transferring all files and other documents in respect of the Transferred Receivables to the Successor Servicer shall be for the account of the predecessor Servicer.

(b)           The Servicer shall terminate each existing Sub-Servicing Agreement and the Successor Servicer shall not be deemed to have assumed any of the Servicer’s interests therein or to have replaced the Servicer as a party thereto.

(c)           In the event that the Servicer is terminated as Servicer hereunder but no Successor Servicer has been appointed, the Servicer shall at the direction of Buyer with the consent of the Administrative Agent timely deliver to the Administrative Agent as assignee of Buyer or its designee, at a place designated by the Administrative Agent or such designee, copies of all Servicing Records and other information with respect to the Transferred Receivables which otherwise would be required to be delivered to the Successor Servicer under Section 9.03(a) above, and all reasonable costs and expenses (including reasonable attorneys’ fees) incurred in

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connection with transferring such files and other documents to the Administrative Agent shall be for the account of the predecessor Servicer.

Section 9.04.  Effect of Termination or Resignation.  Any termination of or resignation by the Servicer hereunder shall not affect any claims that the Buyer or its assigns may have against the Servicer for events or actions taken or not taken by the Servicer arising prior to any such termination or resignation.

Section 9.05.  Power of Attorney.  On the Closing Date, the Servicer shall execute and deliver a power of attorney in substantially in the form attached hereto as Exhibit 9.05 (a “Power of Attorney”).  The Power of Attorney is a power coupled with an interest and shall be irrevocable until this Agreement has terminated in accordance with its terms and all of the Transferred Receivables have been indefeasibly paid or otherwise written off as uncollectible.  The powers conferred on the Buyer under each Power of Attorney are solely to protect the interests of the Buyer in the Transferred Receivables and the ability of the Successor Servicer to assume the servicing rights, powers and responsibilities of the Servicer hereunder and shall not impose any duty upon the Buyer or the Successor Servicer to exercise any such powers.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have caused this Receivables Sale and Servicing Agreement to be executed by their respective duly authorized representatives, as of the date first above written.

VERTIS RECEIVABLES II, LLC, as Buyer
By:	/S/ John V. Howard, Jr.
Name:		John V. Howard, Jr.
Title:		Chief Legal Officer and Secretary
VERTIS, INC., as Servicer, an Originator and as Parent
By:	/S/ John V. Howard, Jr.
Name:		John V. Howard, Jr.
Title:		Chief Legal Officer and Secretary
WEBCRAFT, LLC, as an Originator
By:	/S/ John V. Howard, Jr.
Name:		John V. Howard, Jr.
Title:		Chief Legal Officer and Secretary
WEBCRAFT CHEMICALS, LLC, as an Originator
By:	/S/ John V. Howard, Jr.
Name:		John V. Howard, Jr.
Title:		Chief Legal Officer and Secretary
ENTERON GROUP, LLC, as an Originator
By:	/S/ John V. Howard, Jr.
Name:		John V. Howard, Jr.
Title:		Chief Legal Officer and Secretary
VERTIS MAILING, LLC, as an Originator
By:	/S/ John V. Howard, Jr.
Name:		John V. Howard, Jr.
Title:		Chief Legal Officer and Secretary

S-1

EXHIBIT 2.01(a)

Form of

RECEIVABLES ASSIGNMENT

THIS RECEIVABLES ASSIGNMENT (the “Receivables Assignment”) is entered into as of November 25, 2005 by and between [Name of Originator] (the “Originator”) and VERTIS RECEIVABLES II, LLC (“Buyer”).

1.We refer to that certain Receivables Sale and Servicing Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Sale Agreement”) of even date herewith among the Originator, the other Originators party thereto, Vertis, Inc. and Buyer.  All of the terms, covenants and conditions of the Sale Agreement are hereby made a part of this Receivables Assignment and are deemed incorporated herein in full.  Unless otherwise defined herein, capitalized terms or matters of construction defined or established in the Sale Agreement shall be applied herein as defined or established therein.

2.For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Originator hereby sells, or, in the event the Originator is a Member of Buyer, sells or contributes, to Buyer, without recourse, except as provided in Section 4.04 of the Sale Agreement, all of the Originator’s right, title and interest in, to and under all of its Receivables (including all Collections, Records and proceeds with respect thereto) existing as of the Closing Date and thereafter created or arising at any time until the Commitment Termination Date.

3.Subject to the terms and conditions of the Sale Agreement, the Originator hereby covenants and agrees to assign, sell or contribute, as applicable, execute and deliver, or cause to be assigned, sold or contributed, executed and delivered, and to do or make, or cause to be done or made, upon request of Buyer and at the Originator’s expense, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by Buyer for the purpose of or in connection with acquiring or more effectively vesting in Buyer or evidencing the vesting in Buyer of the property, rights, title and interests of the Originator sold or contributed hereunder or intended to be sold or contributed hereunder.

4.Wherever possible, each provision of this Receivables Assignment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Receivables Assignment shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Receivables Assignment.

5.THIS RECEIVABLES ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO

CONFLICTS OF LAW PRINCIPLES), AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

IN WITNESS WHEREOF, the parties have caused this Receivables Assignment to be executed by their respective officers thereunto duly authorized, as of the day and year first above written.

[NAME OF ORIGINATOR]

By:

Name:

Title:

VERTIS RECEIVABLES II, LLC, as Buyer

By:

Name:

Title:

2

EXHIBIT 2.01(c)(ii)

Form of

SUBORDINATED NOTE

$[                ] [                ]

FOR VALUE RECEIVED, the undersigned, VERTIS RECEIVABLES II, LLC, a Delaware limited liability company (the “Borrower”), hereby promises to pay to the order of [                                ], a [                                ] (the “Subordinated Lender”), or its assigns, at 250 West Pratt Street, Baltimore, MD  21201, or at such other place as the holder of this Subordinated Note (“Note”) may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of [         ] DOLLARS [$         ], or, if less, the aggregate unpaid principal amount of all Subordinated Loans (as defined in the Sale Agreement referred to below) made to the Borrower, upon the earlier to occur of (i) Final Advance Date and (ii) the Termination Date (in each case, as defined in Annex X to the Sale Agreement referred to below), together with interest thereon from time to time from the Effective Date (as defined in the Sale Agreement referred to below) at the rate shown in The Wall Street Journal as the “Prime Rate” on such date (the “Interest Rate”) on the unpaid principal amount of each Subordinated Loan for the period commencing on and including the date of such Subordinated Loan to but excluding the date such Subordinated Loan is paid in full.

The date, amount and interest rate of each Subordinated Loan made by the Subordinated Lender to the Borrower, and each payment made by or on behalf of the Borrower on account of the principal thereof, shall be recorded by the Subordinated Lender on its books and, prior to any transfer of this Note, endorsed by the Subordinated Lender on the schedule attached hereto or any continuation thereof.  The books of the Subordinated Lender and such schedule shall be presumptive evidence of the amounts due and owing to the Subordinated Lender by the Borrower; provided, that any failure of the Subordinated Lender to record a notation in its books or on the schedule to this Note as aforesaid or any error in so recording shall not limit or otherwise affect the obligation of the Borrower to repay Subordinated Loans in accordance with their respective terms set forth herein.

All capitalized terms, unless otherwise defined herein, shall have the meanings assigned to them in the Receivables Sale and Servicing Agreement of even date herewith (as the same may be subsequently amended, restated or otherwise modified, the “Sale Agreement”) by and among the Borrower, the Subordinated Lender, the other Originators thereunder and Vertis, Inc.  This Note is issued pursuant to the Sale Agreement and is one of the Subordinated Notes referred to therein.  All of the terms, covenants and conditions of the Sale Agreement and all other instruments evidencing the indebtedness hereunder, including the other Related Documents, are hereby made a part of this Note and are deemed incorporated herein in full.

The Borrower may at any time and from time to time voluntarily repay, in whole or in part, all Subordinated Loans made hereunder.  Any amount so repaid may, subject to the terms and conditions hereof, be reborrowed hereunder; provided, that all repayments of

Subordinated Loans or any portion thereof shall be made together with payment of all interest accrued on the amount repaid to (but excluding) the date of such repayment.

Interest shall be payable on the outstanding principal amount of this Note from time to time in arrears on the first Business Day of each calendar month.  All computations of interest shall be made by the Subordinated Lender on the basis of a 365 day year, in each case for the actual number of days occurring in the period for which such interest is payable.  The Interest Rate shall be determined (i) on the first Business Day immediately prior to the Effective Date for calculation of the Interest Rate for the period from the Effective Date through the end of the first calendar month following the Effective Date, and (ii) as of the last Business Day of each month for use in calculating the interest that is payable for the following calendar month, and the Interest Rate so determined shall be utilized for such calendar month.  Each determination by the Subordinated Lender of an interest rate hereunder shall be final, binding and conclusive on the Borrower (absent manifest error).  The Borrower shall pay interest at the applicable Interest Rate on unpaid interest on any Subordinated Loan or any installment thereof, and on any other amount payable by the Borrower hereunder (to the extent permitted by law) that shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) for the period commencing on the due date thereof to (but excluding) the date the same is indefeasibly paid in full.

If any payment or prepayment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the Interest Rate during such extension.

As set forth below, the indebtedness evidenced by this Subordinated Note is subordinate in right of payment to all Borrower Obligations and all renewals, extensions, refinancings or refundings of any such obligations (whether for principal, interest (including but not limited to interest accruing after the filing of a petition initiating any bankruptcy, insolvency or receivership proceeding (each, an “Insolvency Proceeding”) whether or not such interest is allowed in such Insolvency Proceeding), fees, indemnities, repurchase price, expenses or otherwise) (collectively, the “Senior Obligations”).  The subordination provisions contained herein are for the direct benefit of, and may be enforced by, any holder of a Senior Obligation, and may not be terminated, amended or otherwise revoked until the Senior Obligations have been indefeasibly paid in full in cash and the Related Documents terminated in accordance with their respective terms. This Subordinated Note shall not be subject to any defense or any rights of set-off, including on account of any past or present debt.  Upon the occurrence and during the continuance of any Termination Event or Incipient Termination Event, the Subordinated Lender shall not demand, accelerate, sue for, take, receive or accept from the Borrower, directly or indirectly, in cash or other property or by set-off or any other manner (including, without limitation, from or by way of collateral) any payment of or security for all or any part of the indebtedness under this Subordinated Note or exercise any remedies or take any action or proceeding to enforce the same.  The Subordinated Lender hereby agrees that prior to the date that is one year and one day after all of the Senior Obligations have been indefeasibly paid in full in cash and the Related Documents terminated in accordance with their respective terms, the Subordinated Lender will not take any action to institute any Insolvency Proceeding in respect of the Borrower or which would be reasonably likely to cause the Borrower to be subject to, or seek the protection of, any such Insolvency Proceeding.

2

If the Borrower becomes subject to any Insolvency Proceeding, then the holders of the Senior Obligations shall receive payment in full of all amounts due or to become due on or with respect to the Senior Obligations before the Subordinated Lender shall be entitled to receive any payment on account of this Subordinated Note.  Accordingly, any payment or distribution of assets of the Borrower of any kind or character, whether in cash, securities or other property, in any applicable Insolvency Proceeding, that would otherwise be payable to or deliverable upon or with respect to any or all indebtedness under this Subordinated Note, is hereby assigned to and shall be paid or delivered by the person making such payment or delivery (whether a trustee in bankruptcy, a receiver, custodian or liquidating trustee or otherwise) directly to the Administrative Agent for application to, or as collateral for the payment of, the Senior Obligations until such Senior Obligations shall have been indefeasibly paid in full in cash.

In no contingency or event whatsoever, whether by reason of advancement of the proceeds hereof or otherwise, shall the amount paid or agreed to be paid to Subordinated Lender for the use, forbearance or detention of money advanced hereunder exceed the highest rate of interest permissible under law (the “Maximum Lawful Rate”).  In the event that a court of competent jurisdiction determines that Subordinated Lender has charged or received interest hereunder in excess of the Maximum Lawful Rate, the amount of interest payable hereunder shall be equal to the amount payable under the Maximum Lawful Rate; provided, that if at any time thereafter the amount of interest payable to Subordinated Lender hereunder is less than the amount payable under the Maximum Lawful Rate, the Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Subordinated Lender from the making of Subordinated Loans hereunder is equal to the total interest that Subordinated Lender would have received had the amount of interest payable to Subordinated Lender hereunder been (but for the operation of this paragraph) the amount of interest payable from the Effective Date.  Thereafter, the amount of interest payable hereunder shall be the amount determined in accordance with the terms hereof unless and until the amount so calculated again exceeds the amount payable under the Maximum Lawful Rate, in which event this paragraph shall again apply.  In no event shall the total interest received by Subordinated Lender pursuant to the terms hereof exceed the amount that Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate.  In the event the amount payable under the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.  In the event that a court of competent jurisdiction, notwithstanding the provisions of this Note, shall make a final determination that Subordinated Lender has received interest hereunder in excess of the Maximum Lawful Rate, Subordinated Lender shall, to the extent permitted by applicable law, promptly apply such excess first to any interest due and not yet paid hereunder, then to the outstanding principal amount of the Subordinated Loans, then to fees and any other unpaid charges, and thereafter shall refund any excess to the Borrower or as a court of competent jurisdiction may otherwise order.

Wherever possible each provision of this Note shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note.

3

Time is of the essence of this Note.  To the fullest extent permitted by applicable law, the Borrower expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note.

BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE BORROWER HERETO WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS NOTE, THE SALE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES), AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

IN WITNESS WHEREOF, the Borrower has caused this Note to be signed and delivered by its duly authorized officer as of the date set forth above.

VERTIS RECEIVABLES II, LLC

By:

Name:

Title:

4

SCHEDULE OF LOANS TO SUBORDINATED NOTE

Date Amount of
Subordinated Loan Amount of
Principal Paid Unpaid
Principal Balance Notation
made by

5

EXHIBIT 2.03

Form of

ORIGINATOR SUPPORT AGREEMENT

THIS ORIGINATOR SUPPORT AGREEMENT (“Agreement”) is entered into as of [            ,        ], by VERTIS, INC., a Delaware corporation (“Parent”), in favor of VERTIS RECEIVABLES II, LLC, a Delaware limited liability company (“SPE”).

RECITALS

A.SPE, as purchaser, has entered into a Receivables Sale and Servicing Agreement dated as of November 25, 2005 (as the same may from time to time be amended, restated, supplemented or otherwise modified, the “Sale Agreement”), with Parent, and the persons party thereto as “Originators.”  Unless otherwise defined herein, capitalized terms or matters of construction defined or established Annex X to the Sale Agreement shall be applied herein as defined or established therein.

B.It is a condition precedent to [            ] becoming a party to the Sale Agreement as an “Originator” that Parent, as owner, directly or indirectly, of at least 100% of the outstanding Stock having ordinary voting power to elect the board of directors of [            ] and each other Originator, shall have executed and delivered this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce SPE to make purchases under the Sale Agreement, Parent hereby agrees as follows:

Section 1.  Unconditional Undertaking.  Parent hereby unconditionally and irrevocably undertakes and agrees with and for the benefit of SPE and the Administrative Agent (for itself and for the benefit of the Lenders and the Swing Line Lender) to cause the due and punctual performance and observance by the Servicer and each other Originator and their respective successors and assigns (collectively, the “Vertis Entities”) of all of the terms, covenants, conditions, agreements and undertakings on the part of such Vertis Entity to be performed or observed under the Sale Agreement or any document delivered by such Vertis Entity in connection with the Sale Agreement, the Funding Agreement and the Related Documents in accordance with the terms thereof, including the punctual payment when due of all obligations of such Vertis Entity now or hereafter existing under the Sale Agreement whether for indemnification payments, fees, expenses or otherwise (such terms, covenants, conditions, agreements, undertakings and other obligations being the “Guaranteed Obligations”), and agrees to pay any and all reasonable and documented expenses (including reasonable and documented fees and expenses of attorneys, auditors and accountants) incurred by SPE and its assigns in enforcing any rights under this Agreement; provided, that the foregoing unconditional undertaking of Parent is not intended to, and shall not, constitute a guarantee of the collectibility or payment of the Transferred Receivables.  Parent agrees that each of its Subsidiaries that

becomes an “Originator” under the Sale Agreement shall be deemed to be an “Originator” for purposes of this Agreement.  In the event that any Vertis Entity shall fail in any manner whatsoever to perform or observe any of its Guaranteed Obligations when the same shall be required to be performed or observed under the Sale Agreement or any such other Related Document, then Parent will itself duly and punctually perform or observe, or cause to be duly and punctually performed or observed, such Guaranteed Obligations, and it shall not be a condition to the accrual of the obligation of Parent hereunder to perform or observe any Guaranteed Obligation (or to cause the same to be performed or observed) that SPE or the Administrative Agent, as applicable, shall have first made any request of or demand upon or given any notice to Parent or to any Vertis Entity or their respective successors or assigns, or have instituted any action or proceeding against Parent or any Vertis Entity or their respective successors or assigns in respect thereof.

Section 2.  Obligation Absolute.  Parent undertakes that the Guaranteed Obligations will be performed or paid strictly in accordance with the terms of the Sale Agreement or any other Related Document delivered by a Vertis Entity in connection with the Sale Agreement regardless of any law, regulation or order applicable to SPE now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of SPE or the Administrative Agent with respect thereto.  The obligations of Parent under this Agreement are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against Parent to enforce this Agreement, irrespective of whether any action is brought against any Vertis Entity or whether any Vertis Entity is joined in any such action or actions.  The liability of Parent under this Agreement shall be absolute and unconditional irrespective of:

(a)any lack of validity or enforceability of the Sale Agreement or any other agreement or instrument relating thereto;

(b)any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Sale Agreement or any other agreement or instrument relating thereto, including, without limitation, any increase in the Guaranteed Obligations resulting from additional purchases or contributions of Receivables or otherwise;

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

(d)any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other assets of any Vertis Entity or any of its subsidiaries;

(e)any change, restructuring or termination of the corporate structure or existence of any Vertis Entity or any of its subsidiaries; or

2

(f)any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Vertis Entity or a guarantor.

This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by SPE upon the insolvency, bankruptcy or reorganization of any Vertis Entity or otherwise, all as though payment had not been made.

Section 3.  Waivers.  Parent hereby waives promptness, diligence, notice of acceptance and, except to the extent required under the Sale Agreement any other notice with respect to any of the Guaranteed Obligations and this Agreement and any requirement that SPE protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Vertis Entity or any other person or entity or any collateral.

Section 4.  Subrogation.  Parent agrees not to exercise any rights that it may acquire by way of subrogation against any Vertis Entity and its property or any rights of indemnification, contribution and reimbursement from any Vertis Entity and its property, in each case in connection with this Agreement and any payments made hereunder, until such time as the Guaranteed Obligations have been paid and performed in full and the Termination Date has occurred.

Section 5.  Separate Identity from Buyer.  Parent shall itself, and shall ensure that each of its Affiliates, at all times comply with the covenants and agreements of the Originators set forth in Section 4.02(i) of the Sale Agreement as if Parent and each of its Affiliates were identified therein.  Parent is party to no agreements with SPE or the Administrative Agent other than pursuant to the Related Documents.

Section 6.  No Proceedings.  From and after the Closing Date and until the date one year plus one day following the date on which all Borrower Obligations have been indefeasibly paid in full in cash, Parent shall not, directly or indirectly, institute or cause to be instituted against SPE any proceeding of the type referred to in Sections 8.01(c) or 8.01(d) of the Sale Agreement.

Section 7.  Amendments and Waivers.  No amendment or waiver of any provision of this Agreement, and no consent to any departure by Parent herefrom, shall in any event be effective unless the same shall be in writing and signed by SPE and the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Section 8.  Addresses for Notices.  All notices and other communications hereunder shall be sent in the manner provided in Section 6.01 of the Sale Agreement, which provisions are incorporated herein by this reference as though fully set forth herein.

Section 9.  No Waiver; Remedies.  No failure on the part of SPE or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any

3

other or further exercise thereof or the exercise of any other right.  The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 10.  Continuing Agreement; Assignments under Sale Agreement.  This Agreement is a continuing agreement and shall (a) remain in full force and effect until the Termination Date has occurred and the payment and performance in full of the Guaranteed Obligations and the payment of all other amounts payable under this Agreement, (b) be binding upon Parent, its successors and assigns, and (c) inure to the benefit of, and be enforceable by, SPE and its successors, transferees and assigns.  Without limiting the generality of the foregoing clause (c), if Buyer assigns all or any of the Transferred Receivables, or any interest therein, the assignees shall thereupon become vested with all the benefits in respect thereof granted to SPE and the Administrative Agent herein or otherwise, including the rights to receive any notices hereunder, to consent to any waivers, amendments or other modifications of this Agreement, and/or to be reimbursed for any expenses in enforcing any rights hereunder.

Section 11.  Severability.  Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

Section 12.  GOVERNING LAW.  THIS AGREEMENT AND THE ORIGINATOR OBLIGATIONS ARISING HEREUNDER SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

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

VERTIS, INC., as Parent

By:

Name:

Title:

4

EXHIBIT 9.05

Form of

POWER OF ATTORNEY

This Power of Attorney is executed and delivered by Vertis, Inc., as Servicer “Grantor”) in favor of Vertis Receivables II, LLC (“SPE”) or such Successor Servicer as the SPE may designate herein (the SPE or such Successor Servicer, the “Attorney”) pursuant to that certain Receivables Sale and Servicing Agreement dated as of November 25, 2005 (as the same may from time to time be amended, restated, supplement or otherwise modified, the “Sale Agreement”), by and among Grantor, as Servicer, the persons party thereto as “Originators”, and SPE, as Buyer (the “SPE”).  Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Sale Agreement.  No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocably waives any right to commence any suit or action, in law or equity, against any person or entity that acts in reliance upon or acknowledges the authority granted under this Power of Attorney.  The power of attorney granted hereby is coupled with an interest and may not be revoked or cancelled by Grantor until all Transferred Receivables under the Sale Agreement have been indefeasibly paid in full and/or written-off as uncollectible and Attorney has provided its written consent thereto.

Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as its true and lawful attorney in fact with full irrevocable power and authority in its place and stead and in its name or in Attorney’s own name, from time to time in Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments that may be necessary or desirable to accomplish the purposes of the Sale Agreement, and, without limiting the generality of the foregoing, hereby grants to Attorney the power and right, on its behalf, without notice to or assent by it, upon the occurrence and during the continuance of any Termination Event, to do the following:  (a) open mail for it, and ask, demand, collect, give acquittances and receipts for, take possession of, or endorse and receive payment of, any checks, drafts, notes, acceptances, or other instruments for the payment of moneys due in respect of Transferred Receivables, and sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any Transferred Receivable or other Borrower Collateral; (b) pay or discharge any taxes, Liens, or other encumbrances levied or placed on or threatened against any Borrower Collateral; (c) defend any suit, action or proceeding brought against it or any Borrower Collateral if the Grantor does not defend such suit, action or proceeding or if Attorney believes that it is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (d) file or prosecute any claim, Litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the

purpose of collecting any and all such moneys due with respect to any Transferred Receivable or other Borrower Collateral or otherwise with respect to the Related Documents whenever payable and to enforce any other right in respect of its property; (e) sell, transfer, pledge, make any agreement with respect to, or otherwise deal with, any Transferred Receivables or other Borrower Collateral, and execute, in connection with such sale or action, any endorsements, assignments or other instruments of conveyance or transfer in connection therewith; and (g) cause the certified public accountants then engaged by it to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney’s request, any and all financial statements or other reports required to be delivered by or on behalf of Grantor under the Related Documents, all as though Attorney were the absolute owner of its property for all purposes, and to do, at Attorney’s option and its expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon the Transferred Receivables and the SPE’s interests therein, all as fully and effectively as it might do.  Grantor hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor, and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this         day of November, 2005.

Grantor
ATTEST:
By:	(SEAL)
Title:

[Notarization in appropriate form for the state of execution is required.]

2

SCHEDULE 4.01(b)

JURISDICTION OF ORGANIZATION; EXECUTIVE OFFICES; COLLATERAL
LOCATIONS; CORPORATE, LEGAL AND OTHER NAMES; IDENTIFICATION
NUMBERS

[Attached]

SCHEDULE 4.01(j)

INTELLECTUAL PROPERTY

None.

SCHEDULE 4.01(k)

INVESTIGATIONS, AUDITS, ETC.

[Attached]

SCHEDULE 4.01(l)

LITIGATION

[Attached]

SCHEDULE 4.01(n)

ERISA

[Attached]

SCHEDULE 4.01(o)

DEPOSIT AND DISBURSEMENT ACCOUNTS

[Attached]

SCHEDULE 4.01(z)

SUPPLEMENTARY REPRESENTATIONS

In addition to the representations, warranties and covenants contained in Section 4.01 hereof, each Originator, hereby makes the following additional representations, warranties and covenants:

1.Receivables.  Each Eligible Receivable constitutes an “account” or a “general intangible” within the meaning of the applicable UCC.

2.Creation of Security Interest.  Immediately prior to their transfer thereof to the Buyer, the Originators owned and had good and marketable title to the Receivables free and clear of any Adverse Claim.  The Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Receivables, the Accounts and the Lockboxes in favor of the Buyer, which security interest is prior to all other Adverse Claims and is enforceable as such as against any creditors of and purchasers from the Originators.

3.Perfection.  The Originators have caused the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the sale of the Receivables from the Originators to the Buyer pursuant to this Agreement.

4.Priority.

(a)Other than the transfer of the Receivables by the Originators to the Borrower pursuant to this Agreement, no Originator  has pledged, assigned, sold, conveyed, or otherwise granted a security interest in any of the Receivables, the Accounts or the Lockboxes to any other Person.

(b)No Originator has authorized, or is aware of, any filing of any financing statement against any Originator that include a description of collateral covering the Receivables or all other assets transferred to the Buyer hereunder, other than any financing statement filed pursuant to this Agreement and the Funding Agreement or financing statements that have been validly terminated on or prior to the date hereof.

(c)No Originator is aware of any judgment, ERISA or tax lien filings against any Originator.

(d)None of the Accounts or any of the Lockboxes are in the name of any Person other than the Borrower or the Administrative Agent.  No Originator has consented to any Bank complying with instructions of any person other than the Administrative Agent.

5.Survival of Supplemental Representations.  Notwithstanding any other provision of this Agreement or any other Related Document, the representations contained in this Schedule 4.01(z) shall be continuing, and remain in full force and effect until the termination of the Sale Agreement in accordance with Section 6.04 thereof.

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6.Originators to Maintain Perfection and Priority.  In order to evidence the interests of the Buyer under this Agreement, each Originator shall, from time to time take such action, or execute and deliver such instruments (other than filing financing statements) as may be necessary or advisable (including, such actions as are requested by the Buyer) to maintain and perfect, as a first-priority interest, the Buyer’s ownership and security interest in the Receivables and all other assets sold to the Buyer pursuant hereto.  Each Originator shall, from time to time and within the time limits established by law, prepare and present to the Buyer for the Buyer’s authorization and approval all financing statements, amendments, continuations or initial financing statements in lieu of a continuation statement in the, or other filings necessary to continue, maintain and perfect the Buyer’s ownership and security interest in the Receivables and all other assets sold to the Buyer pursuant hereto as a first-priority interest. The Buyer’s approval of such filings shall authorize the Originators to file such financing statements under the UCC without the signature of the Buyer where allowed by applicable law.  Notwithstanding anything else in the Related Documents to the contrary, neither the Servicer nor any Originator shall have any authority to file a termination, partial termination, release, partial release or any amendment that deletes the name of a debtor or excludes collateral of any such financing statements, without the prior written consent of the Buyer.

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SCHEDULE 4.02(g)

CONDUCT OF BUSINESS

[Attached]

ANNEX X

DEFINITIONS

[Attached]

ANNEX Y

SCHEDULE OF DOCUMENTS

[Attached]

ANNEX Z

FINANCIAL TEST

Minimum EBITDA.  Holdings and its Subsidiaries on a consolidated basis shall have, at the end of each Fiscal Quarter, EBITDA (as calculated in accordance with the table set forth below) for the four fiscal quarter period then ended of not less than $160,000,000.  In the event that Holdings and its Subsidiaries are not in compliance with the preceding sentence, THL and Evercore shall have the option to make a common equity or, on terms and conditions acceptable to Administrative Agent, preferred equity, contribution to Holdings and the net proceeds of such equity contribution shall be treated on a dollar for dollar basis as EBITDA for purposes of determining compliance with the preceding sentence; provided, that, such an equity contribution shall, for purposes of its treatment as EBITDA, (i) not be made more than once in any fiscal year and (ii) not exceed $15,000,000 in amount (i.e., not more than $15,000,000 of such an equity contribution shall be treated as a replacement for EBITDA in any year and such an equity contribution may only be made once per year).

“EBITDA” shall be calculated in accordance with the following table:

Consolidated Net Income is defined as follows:
Net income during the measuring period on a consolidated basis excluding:		$
	the income (or deficit) accrued prior to the date a Subsidiary was merged or consolidated into Holdings or any of Holdings’ Subsidiaries
	the income (or deficit) from operations of any entity that is not a Subsidiary of Holdings but in which Holdings has an ownership interest, except to the extent any such income has actually been received by Holdings or any of its Subsidiaries in the form of cash dividends or distributions
	any restoration to income of any contingency reserve greater than $1,000,000, except to the extent that provision for such reserve was made out of income accrued during such period
	any net gain (or loss) attributable to the write-up (or write-down) of any asset (other than accounts and inventory)
	any net gain from the collection of the proceeds of life insurance policies

	any net gain (or loss) arising from the sale of any securities, or the extinguishment of any Indebtedness, of Holdings or any of their Subsidiaries
Consolidated Net Income		$
EBITDA is defined as follows:
Consolidated Net Income (from above)		$
Plus:	(in each case to the extent included in the calculation of Consolidated Net Income, but without duplication):
	Interest Expense, net of interest income
	Non-cash interest expense and amortization of original issue discount
	any fees payable with respect to the Related Documents
	gain/ (losses) from extraordinary items
	any gain (or loss) arising from the sale, exchange or other disposition of assets out of the ordinary course of business, other than accounts and inventory
	any other non-cash gains/(losses) (other than non-cash losses relating to write-offs, write-downs or reserves with respect to accounts and inventory)
	non-recurring gains/ (losses)
	any provision for income taxes/ (net of income tax credits)
	amortization of deferred financing fees
	restructuring charges (GAAP)
	restructuring charges (non-GAAP)
	depreciation and amortization
	any deduction as the result of any grant to any members of the management of Holdings or any of its Subsidiaries of any Stock
	EBITDA	$
	Required EBITDA	$	160,000,000

2

Capitalized terms used in this Annex Z and not otherwise defined herein shall have the respective meanings ascribed to them in Annex X.

Rules of Construction Concerning Financial Tests.  Unless otherwise specifically provided therein, any accounting term used in any Related Document shall have the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed in accordance with GAAP consistently applied.  That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing.  If any Accounting Changes occur and such changes result in a change in the calculation of the financial tests, standards or terms used in any Related Document, then the parties thereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of such Persons and their Subsidiaries shall be the same after such Accounting Changes as if such Accounting Changes had not been made.  If the parties thereto agree upon the required amendments thereto, then after appropriate amendments have been executed and the underlying Accounting Change with respect thereto has been implemented, any reference to GAAP contained therein shall, only to the extent of such Accounting Change, refer to GAAP consistently applied after giving effect to the implementation of such Accounting Change.  If such parties cannot agree upon the required amendments within 30 days following the date of implementation of any Accounting Change, then all financial statements delivered and all calculations of financial tests and other standards and terms in accordance with the Related Documents shall be prepared, delivered and made without regard to the underlying Accounting Change.

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EX-10.7

Exhibit 10.7

EXECUTION COPY

RECEIVABLES FUNDING AND ADMINISTRATION AGREEMENT

Dated as of November 25, 2005

by and among

VERTIS RECEIVABLES II, LLC,

as Borrower,

THE FINANCIAL INSTITUTIONS SIGNATORY HERETO FROM TIME TO TIME,

as Lenders,

and

GENERAL ELECTRIC CAPITAL CORPORATION,

as a Lender, as Swing Line Lender and as Administrative Agent

Receivables Funding and Administration Agreement

TABLE OF CONTENTS

		Page
ARTICLE I. DEFINITIONS AND INTERPRETATION		1
	Section 1.01. Definitions	1
	Section 1.02. Rules of Construction	1
ARTICLE II. AMOUNTS AND TERMS OF ADVANCES		2
	Section 2.01. Advances	2
	Section 2.02. Optional Changes in Aggregate Commitment	4
	Section 2.03. Procedures for Making Advances	5
	Section 2.04. Pledge and Release of Transferred Receivables	8
	Section 2.05. Commitment Termination Date	8
	Section 2.06. Interest; Charges	8
	Section 2.07. Fees	9
	Section 2.08. Application of Collections; Time and Method of Payments	9
	Section 2.09. Capital Requirements; Additional Costs	14
	Section 2.10. Breakage Costs	15
ARTICLE III. CONDITIONS PRECEDENT		15
	Section 3.01. Conditions to Effectiveness of Agreement	15
	Section 3.02. Conditions Precedent to All Advances	17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES		18
	Section 4.01. Representations and Warranties of the Borrower	18
ARTICLE V. GENERAL COVENANTS OF THE BORROWER		26
	Section 5.01. Affirmative Covenants of the Borrower	26
	Section 5.02. Reporting Requirements of the Borrower	27
	Section 5.03. Negative Covenants of the Borrower	28
ARTICLE VI. ACCOUNTS		31
	Section 6.01. Establishment of Accounts	31
ARTICLE VII. GRANT OF SECURITY INTERESTS		34
	Section 7.01. Borrower’s Grant of Security Interest	34
	Section 7.02. Borrower’s Agreements	36
	Section 7.03. Delivery of Collateral	36

i

	Section 7.04. Borrower Remains Liable	36
	Section 7.05. Covenants of the Borrower Regarding the Borrower Collateral	36
ARTICLE VIII. TERMINATION EVENTS		39
	Section 8.01. Termination Events	39
ARTICLE IX. REMEDIES		43
	Section 9.01. Actions Upon Termination Event	43
	Section 9.02. Exercise of Remedies	45
	Section 9.03. Power of Attorney	46
	Section 9.04. Continuing Security Interest	46
ARTICLE X. INDEMNIFICATION		46
	Section 10.01. Indemnities by the Borrower	46
ARTICLE XI. ADMINISTRATIVE AGENT		48
	Section 11.01. Authorization and Action	48
	Section 11.02. Reliance	48
	Section 11.03. GE Capital and Affiliates	49
	Section 11.04. Lender Credit Decision	49
	Section 11.05. Indemnification	50
	Section 11.06. Successor Administrative Agent	50
	Section 11.07. Setoff and Sharing of Payments	51
ARTICLE XII. MISCELLANEOUS		51
	Section 12.01. Notices	51
	Section 12.02. Binding Effect; Assignability	52
	Section 12.03. Termination; Survival of Borrower Obligations Upon Commitment Termination Date	55
	Section 12.04. Costs, Expenses and Taxes	55
	Section 12.05. Confidentiality	57
	Section 12.06. Complete Agreement; Modification of Agreement	58
	Section 12.07. Amendments and Waivers	58
	Section 12.08. No Waiver; Remedies	60
	Section 12.09. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL	60
	Section 12.10. Counterparts	62
	Section 12.11. Severability	62
	Section 12.12. Section Titles	62
	Section 12.13. Further Assurances	62
	Section 12.14. No Proceedings	63
	Section 12.15. Limitation on Payments	63

ii

EXHIBITS
Exhibit 2.01(a)(ii)	Form of Revolving Note
Exhibit 2.01(b)(ii)	Form of Swing Line Note
Exhibit 2.02(a)	Form of Commitment Reduction Notice
Exhibit 2.02(b)	Form of Commitment Termination Notice
Exhibit 2.03(a)	Form of Borrowing Request
Exhibit 2.03(h)	Form of Repayment Notice
Exhibit 5.02(b)	Form of Borrowing Base Certificate
Exhibit 9.03	Form of Power of Attorney
Exhibit 12.02(b)	Form of Assignment Agreement
Exhibit A	Credit and Collection Policy
Schedule 4.01(b)	Jurisdiction of organization/organizational number; Executive Offices; Collateral Locations; Corporate or Other Names
Schedule 4.01(i)	Taxes
Schedule 4.01(q)	Deposit and Disbursement Accounts
Schedule 4.01(v)	Supplementary Representations
Schedule 5.01(b)	Trade Names/Borrower
Annex 5.02(a)	Reporting Requirements of the Borrower (including Form of Monthly Report)
Annex W	Administrative Agent’s Account/Lenders’ Accounts
Annex X	Definitions and Interpretations
Annex Y	Schedule of Documents
Annex Z	Special Concentration Percentages

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THIS RECEIVABLES FUNDING AND ADMINISTRATION AGREEMENT (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “Agreement”) is entered into as of November 25, 2005 by and among VERTIS RECEIVABLES II, LLC, a Delaware limited liability company (the “Borrower”), the financial institutions signatory hereto from time to time as lenders (the “Lenders”), and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as a Lender, as swing line lender (in such capacity, the “Swing Line Lender”) and as administrative agent for the Lenders hereunder (in such capacity, the “Administrative Agent”).

RECITALS

A.            The Borrower is a special purpose limited liability company the sole member of which is Parent (in such capacity, the “Member”).

B.            The Borrower has been formed for the purpose of purchasing, or otherwise acquiring by capital contribution, Receivables of the Originators party to the Sale Agreement.

C.            The Borrower intends to fund its purchases of the Receivables, in part, by borrowing Advances and pledging all of its right, title and interest in and to the Receivables as security therefor, and, subject to the terms and conditions hereof, the Lenders intend to make such Advances, from time to time, as described herein.

D.            The Administrative Agent has been requested and is willing to act as administrative agent on behalf of each of the Lenders in connection with the making and financing of such Advances.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS AND INTERPRETATION

Section 1.01.  Definitions.  Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in Annex X.

Section 1.02.  Rules of Construction.  For purposes of this Agreement, the rules of construction set forth in Annex X shall govern.  All Appendices hereto, or expressly identified to this Agreement, are incorporated herein by reference and, taken together with this Agreement, shall constitute but a single agreement.

ARTICLE II.

AMOUNTS AND TERMS OF ADVANCES

Section 2.01.  Advances.

(a)           Revolving Credit Advances.  (i)  From and after the Effective Date and until the Commitment Termination Date and subject to the terms and conditions hereof, each Lender (other than the Swing Line Lender) severally agrees to make its Pro Rata Share of advances (each such advance hereunder, a “Revolving Credit Advance”) to the Borrower from time to time.  The Outstanding Principal Amount of all Revolving Credit Advances shall not at any time exceed the Aggregate Commitment and the Outstanding Principal Amount of Revolving Credit Advances made by each Lender shall not exceed such Lender’s several Commitment.  Except to the extent provided in Section 2.06(c), no Lender shall make any Revolving Credit Advances if, after giving effect thereto, a Funding Excess would exist.  The Borrower may from time to time borrow, repay and reborrow Revolving Credit Advances hereunder on the terms and conditions set forth herein.

(ii)           The Borrower shall execute and deliver to each Lender (other than a Swing Line Lender) that makes a request therefor, a note to evidence the Revolving Credit Advances which may be made hereunder from time to time by such Lender.  Each such note shall be (x) in the principal amount of the Commitment of the applicable Lender, (y) dated as of the date of issuance thereof, and (z) substantially in the form of Exhibit 2.01(a)(ii)(each, a “Revolving Note”).  Each Revolving Note shall represent the obligation of the Borrower to pay the amount of each Lender’s Commitment or, if less, the Lender’s Pro Rata Share of the aggregate Outstanding Principal Amount of all outstanding Revolving Credit Advances made to the Borrower, together with interest thereon as prescribed in Section 2.06.  The Outstanding Principal Amount of Revolving Credit Advances and all other accrued and unpaid Borrower Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date.

(b)           Swing Line Advances.  (i) From and after the Effective Date and until the Commitment Termination Date and subject to the terms and conditions hereof, the Swing Line Lender agrees to make advances (each such advance hereunder, a “Swing Line Advance”) to the Borrower from time to time.  The aggregate amount of the Swing Line Loan shall not at any time exceed the Swing Line Commitment.  Under no circumstances shall the Swing Line Lender make a Swing Line Advance if, after giving effect thereto, the aggregate amount of the Swing Line Loan would exceed the Swing Line Commitment.  The Swing Line Lender shall not make any Swing Line Advance, if after giving effect thereto, a Funding Excess would exist. The Borrower may from time to time borrow, repay and reborrow Swing Line Advances hereunder on the terms and conditions set forth herein.  Unless the Swing Line Lender has received at least one Business Day’s prior written notice from the Lenders instructing it not to make a Swing Line Advance, the Swing Line Lender shall, notwithstanding the failure of any condition precedent set forth in Section 3.01 or 3.02, be entitled to fund such Swing Line Advance, and to have the Lenders make Revolving Credit Advances in accordance with Section 2.01(b)(iii)or purchase participating interests in accordance with Section 2.01(b)(iv).  Subject to Section 12.15(b), the

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Borrower shall repay the aggregate outstanding principal amount of the Swing Line Loan in full in immediately available funds on the Commitment Termination Date.

(ii)           The Borrower shall execute and deliver to the Swing Line Lender a note to evidence the Swing Line Loan.  Such note shall be in the principal amount of the Swing Line Commitment, dated the Closing Date and substantially in the form of Exhibit 2.01(b)(ii)(the “Swing Line Note”).  The Swing Line Note shall represent the obligation of the Borrower to pay the Swing Line Loan, together with interest thereon as prescribed in Section 2.06.  The Swing Line Loan and all other accrued and unpaid Borrower Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date.

(iii)          The Swing Line Lender, at any time and from time to time no less frequently than once per month, shall on behalf of the Borrower (and the Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Lender (excluding the Swing Line Lender) to make a Revolving Credit Advance to the Borrower in an amount equal to such Lender’s Pro Rata Share of the principal amount of the Swing Line Loan (the “Refunded Swing Line Loan”) outstanding on the date such notice is given.  Unless the Commitment Termination Date  has occurred (in which event the procedures of subsection (iv)below shall apply) and regardless of whether the conditions precedent set forth in Sections 3.01 and 3.02 to the making of a Revolving Credit Advance are then satisfied, each Lender shall disburse directly to the Administrative Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior to 3:00 p.m. (New York time), in immediately available funds on the Business Day next succeeding the date on which such notice is given; provided that (i) no Lender shall be required to make such a Revolving Credit Advance if the Swing Line Advance to be financed was made in violation of the fourth sentence of Section 2.01(b)(i)and the Funding Excess resulting therefrom has not yet been cured, (ii) no Lender shall be required to make such a Revolving Credit Advance if, after giving effect to such Revolving Credit Advance, the Outstanding Principal Amount of the Revolving Credit Advances made by such Lender would exceed such Lender’s several Commitment and (iii) no Lender shall be required to make such a Revolving Credit Advance after the Final Advance Date.  The proceeds of such Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan.

(iv)          If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section 2.01(b)(iii), the Commitment Termination Date or one of the events described in Sections 8.01(d)or (e)has occurred, then, subject to the provisions of Section 2.01(b)(v)below, each Lender shall, on the date such Revolving Credit Advance was to have been made for the benefit of the Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of such Swing Line Loan.  Upon request by the Swing Line Lender, each Lender shall promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation interest.

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(v)           Each Lender’s obligation to make Revolving Credit Advances in accordance with Section 2.01(b)(iii)and to purchase participation interests in accordance with Section 2.01(b)(iv)shall, except to the extent described in the proviso set forth in the second to last sentence of Section 2.01(b)(iii), be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right that such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Termination Event or Incipient Termination Event; (C) any inability of the Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement at any time; or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.  If any Lender does not make available to the Administrative Agent or the Swing Line Lender, as applicable, the amount required pursuant to Sections 2.01(b)(iii)or (b)(iv), as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Index Rate thereafter.

Section 2.02.  Optional Changes in Aggregate Commitment.

(a)           So long as no Incipient Termination Event or Termination Event shall have occurred and be continuing, the Borrower may reduce the Aggregate Commitment permanently; provided, that (i) the Borrower shall give ten Business Days’ prior written notice of any such reduction to the Administrative Agent substantially in the form of Exhibit 2.02(a)(each such notice, a “Commitment Reduction Notice”), (ii) any partial reduction of the Aggregate Commitment shall be in a minimum amount of $5,000,000 or an integral multiple thereof and (iii) no such partial reduction shall reduce the Aggregate Commitment below the greater of (x) the Outstanding Principal Amount at such time and (y) $100,000,000.  Any such reduction in the Aggregate Commitment shall result in (i) a reduction in each Lender’s Commitment in an amount equal to such Lender’s Pro Rata Share of the amount by which the Aggregate Commitment is being reduced and (ii) a proportional reduction in the Swing Line Commitment; provided, however, that no such partial reduction shall reduce the Swing Line Commitment below the aggregate amount of the Swing Line Loan.

(b)           The Borrower may, at any time, on at least 30 days’ prior written notice by the Borrower to the Administrative Agent, irrevocably terminate the Aggregate Commitment; provided, that (i) such notice of termination shall be substantially in the form of Exhibit 2.02(b) (the “Commitment Termination Notice”) and (ii) the Borrower shall reduce the aggregate outstanding amount of Advances to zero on the date specified in such notice, and make all payments required by Section 2.03(h)at the time and in the manner specified therein.  Upon such termination, the Borrower’s right to request that any Lender make any Advances hereunder shall simultaneously terminate and the Commitment Termination Date shall automatically occur.

(c)           Each written notice required to be delivered pursuant to Sections 2.02(a)and (b)shall be irrevocable and shall be effective (i) on the day of receipt if received by the Administrative Agent and the Lenders not later than 2:00 p.m. (New York time) on any Business Day and (ii) on the immediately succeeding Business Day if received by the Administrative

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Agent and the Lenders after such time on such Business Day or if any such notice is received on a day other than a Business Day (regardless of the time of day such notice is received).  Each such notice of termination or reduction shall specify, respectively, the amount of, or the amount of the proposed reduction in, the Aggregate Commitment.

Section 2.03.  Procedures for Making Advances.

(a)           Borrowing Requests.  Except as provided in Section 2.06(c), each Borrowing shall be made upon notice by the Borrower to the Administrative Agent in the manner provided herein.  Any such notice must be given in writing so that it is received no later than 12:00 noon (New York time) on the Business Day of the proposed Advance Date set forth therein. Each Borrowing requested pursuant to a Borrowing Request shall be in the form of an Swing Line Advance until such Swing Line Advance is refunded or otherwise refinanced in accordance with Section 2.01(b)(iii) or (b)(iv). Each such notice (a “Borrowing Request”) shall (i) be substantially in the form of Exhibit 2.03(a), (ii) be irrevocable and (iii) specify the amount of the requested Borrowing (which shall be in a minimum amount of $1,000,000 or an intergral multiple of $100,000 in excess of $1,000,000) and the proposed Advance Date (which shall be a Business Day), and shall include such other information as may be required by the Lenders and the Administrative Agent.  Unless a LIBOR Rate Disruption Event shall have occurred, each Advance shall be a LIBOR Rate Advance. The Administrative Agent shall review the Borrowing Base Certificate delivered in connection with each Borrowing Request to confirm whether a Funding Excess exists or would arise after giving effect to the Borrowing requested in the related Borrowing Request.  If, in connection with such review, the Administrative Agent determines that a Funding Excess exists or would arise after giving effect to the Borrowing requested in the related Borrowing Request, the Administrative Agent shall promptly notify each Lender thereof.

(b)           Advances; Payments.

(i)            (A) The Administrative Agent shall, promptly after receipt of a Borrowing Request and in any event prior to 12:00 noon (New York time) on the date such Borrowing Request is deemed received, by telecopy, telephone or other similar form of communication notify the Swing Line Lender of its receipt of a Borrowing Request relating to a request for Swing Line Advances, and (B) the Swing Line Lender shall make the amount of such Swing Line Advance available to the Administrative Agent in same day funds by wire transfer to the Administrative Agent’s account as set forth in Annex W not later than 3:00 p.m. (New York time) on the requested Advance Date.  After receipt of such wire transfers (or, in the Administrative Agent’s sole discretion in accordance with Section 2.03(c), before receipt of such wire transfers), subject to the terms hereof (including, without limitation, the satisfaction of the conditions precedent set forth in Section 3.02), the Administrative Agent shall make available to the Borrower by deposit into the Borrower Account on the Advance Date therefor, the lesser of (x) the amount of the requested Borrowing and (y) the Funding Availability.  All payments by each Lender under this Section 2.03(b)(i)shall be made without setoff, counterclaim or deduction of any kind.

(ii)           On each Interest Payment Date, the Administrative Agent will advise each Lender (other than the Swing Line Lender) by telephone or telecopy of the

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amount of such Lender’s Pro Rata Share of principal, interest and Fees (to the extent payable to all Lenders) paid for the benefit of Lenders with respect to each applicable Revolving Credit Advance.  Provided that such Lender has made all payments required to be made by it and purchased all participations required to be purchased by it under this Agreement and the other Related Documents as of such Interest Payment Date, the Administrative Agent will pay to each Lender such Lender’s Pro Rata Share of principal, interest and Fees (to the extent payable to all Lenders) with respect to each applicable Revolving Credit Advance, paid by the Borrower since the previous Interest Payment Date for the benefit of that Lender.  Such payments shall be made by wire transfer to such Lender’s account (as specified by such Lender in Annex W or the applicable Assignment Agreement) not later than 2:00 p.m. (New York time) on each Interest Payment Date.

(iii)          On each Interest Payment Date, the Administrative Agent will advise the Swing Line Lender of the amount of principal, interest and Fees paid for the benefit of the Swing Line Lender with respect to the Swing Line Loan.  The Administrative Agent will pay to the Swing Line Lender the amount of principal, interest and Fees paid by the Borrower since the previous Interest Payment Date for the benefit of the Swing Line Lender.  Such payments shall be made by wire transfer or by book balance to the Swing Line Lender’s account (as specified by the Swing Line Lender in Annex W or the applicable Assignment Agreement) not later than 2:00 p.m. (New York time) on each Interest Payment Date.

(c)           Availability of Lenders’ Advances.  The Administrative Agent may assume that each Lender (other than the Swing Line Lender) will make its Pro Rata Share of each Borrowing of Revolving Credit Advances available to the Administrative Agent on each Advance Date.  If the Administrative Agent has made available to the Borrower such Lender’s Pro Rata Share of any such Borrowing but such Pro Rata Share is not, in fact, paid to the Administrative Agent by such Lender when due, the Administrative Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim or deduction of any kind.  If any Lender fails to pay the amount of its Pro Rata Share of amounts paid by the Administrative Agent on its behalf pursuant to the preceding sentence forthwith upon the Administrative Agent’s demand, the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately repay such amount to the Administrative Agent.  Nothing in this Section 2.03(c)or elsewhere in this Agreement or the other Related Documents shall be deemed to require the Administrative Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder.  To the extent that the Administrative Agent advances funds to the Borrower on behalf of any Lender and is not reimbursed therefor on the same Business Day as such Revolving Credit Advance is made, the Administrative Agent shall be entitled to retain for its account all interest accrued on such Revolving Credit Advance from the date of such Revolving Credit Advance to the date such Revolving Credit Advance is reimbursed by the applicable Lender.

(d)           Return of Payments.  (i)  If the Administrative Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by the Administrative Agent from the Borrower and such related payment is not received by the Administrative Agent, then the Administrative Agent will be entitled to recover

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such amount from such Lender on demand without set-off, counterclaim or deduction of any kind.

(ii)           If at any time any amount received by the Administrative Agent under this Agreement must be returned to the Borrower or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Related Document, the Administrative Agent will not be required to distribute any portion thereof to any Lender.  In addition, each Lender will repay to the Administrative Agent on demand any portion of such amount that the Administrative Agent has distributed to such Lender, together with interest at such rate, if any, as the Administrative Agent is required to pay to the Borrower or such other Person, without set-off, counterclaim or deduction of any kind.

(e)           Non-Funding Lenders.  The failure of any Lender (each such Lender, a “Non-Funding Lender”) to make any Revolving Credit Advance to be made by it on the date specified therefor shall not relieve any other Lender (each such other Lender, an “Other Lender”) of its obligations to make the Revolving Credit Advance to be made by it, but neither any Other Lender nor the Administrative Agent shall be responsible for the failure of any Non-Funding Lender to make a Revolving Credit Advance to be made by such Non-Funding Lender.  Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Related Document or constitute a “Lender” (or be included in the calculation of “Requisite Lenders” hereunder) for any voting or consent rights under or with respect to any Related Document unless and until such Non-Funding Lender shall have cured in full its failures to make Revolving Credit Advances hereunder.

(f)            Dissemination of Information.  The Administrative Agent will use reasonable efforts to provide Lenders with (i) copies of all notices and other documents provided to the Administrative Agent pursuant to Section 5.02, (ii) any notice of an Incipient Termination Event or Termination Event received by the Administrative Agent from, or delivered by the Administrative Agent to, the Borrower, (iii) notice of any Termination Event of which the Administrative Agent has actually become aware and (iv) notice of any action taken by the Administrative Agent following any Termination Event; provided, however, that, in the absence of gross negligence or wilful misconduct, the Administrative Agent shall not be liable to any Lender for any failure to do so.

(g)           Actions in Concert.  Anything in this Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement, the Revolving Notes or the Swing Line Note (including exercising any rights of set-off) without first obtaining the prior written consent of the Administrative Agent or the Requisite Lenders, it being the intent of the Lenders that any such action to protect or enforce rights under this Agreement, the Revolving Notes and the Swing Line Note shall, subject to any provision herein requiring that each Lender consent to a particular action, be taken in concert and at the direction or with the consent of the Administrative Agent or the Requisite Lenders.

(h)           Principal Repayments.  Subject to Section 12.15(b), the Borrower may at any time repay outstanding Advances hereunder; provided that (i) the Borrower shall give not

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less than one Business Day’s prior written notice of any such repayment to the Administrative Agent substantially in the form of Exhibit 2.03(h)(each such notice, a “Repayment Notice”), (ii) each such notice shall be irrevocable, (iii) each such notice shall specify the amount of the requested repayment and the proposed date of such repayment (which shall be a Business Day),  (iv) any such repayment shall be applied first to the Swing Line Loan until the Outstanding Principal Amount thereof has been reduced to zero, and second to the outstanding Revolving Credit Advances (provided, that if a Funding Excess exists and any outstanding Swing Line Advances were made in violation of the fourth sentence of Section 2.01(b)(i) or were funded after the Commitment Termination Date, then such Swing Line Advance will be repaid after the Revolving Credit Advances) and (v) any such repayment must be accompanied by payment of (A) all interest accrued and unpaid on the portion of the outstanding principal balance of the Advances to be repaid through but excluding the date of such repayment and (B) the amounts required to be paid in accordance with Section 2.10, if any.  Any such notice of repayment must be received by the Administrative Agent no later than 4:00 p.m. (New York time) on the Business Day immediately preceding the date of the proposed repayment; provided, further, that the foregoing requirements shall not apply to repayment of the outstanding principal amount of Advances as a result of the application of Collections pursuant to Section 2.08.

Section 2.04.  Pledge and Release of Transferred Receivables.

(a)           Pledge.  The Borrower shall indicate in its Records that the Transferred Receivables have been pledged hereunder and that the Administrative Agent has a lien on and security interest in all such Transferred Receivables for the benefit of the Lenders.  The Borrower shall, and shall cause the Servicer to, hold all Contracts and other documents relating to such Transferred Receivables in trust for the benefit of the Administrative Agent on behalf of the Lenders in accordance with their interests hereunder.

(b)           Repurchases of Transferred Receivables.  If an Originator is required to repurchase Transferred Receivables from the Borrower pursuant to Section 4.04 of the Sale Agreement, upon payment by such Originator to a Collection Account of the applicable repurchase price thereof (which repurchase price shall not be less than an amount equal to the Billed Amount of such Transferred Receivable minus the sum of (A) Collections received in respect thereof and (B) the amount of any Dilution Factors taken into account in the calculation of the Sale Price therefor), the Administrative Agent on behalf of the Lenders shall  be deemed to have released their liens on and security interests in the Transferred Receivables being so repurchased without any requirement of further action by the Agent or any Lender.

Section 2.05.  Commitment Termination Date.  Notwithstanding anything to the contrary set forth herein, no Lender shall have any obligation to make any Advances from and after the Commitment Termination Date.

Section 2.06.  Interest; Charges.

(a)           The Borrower shall pay interest to the Administrative Agent, for the ratable benefit of the Lenders, with respect to the outstanding amount of each Revolving Credit Advance made or maintained by each Lender, in arrears on each applicable Interest Payment Date, (i) for each LIBOR Rate Advance, at the applicable LIBOR Rate as in effect from time to

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time during the period applicable to such Interest Payment Date, and (ii) for each Index Rate Advance outstanding from time to time, at the applicable Index Rate as in effect from time to time during the period applicable to such Interest Payment Date.  The Borrower shall pay interest to the Administrative Agent, for the benefit of the Swing Line Lender, with respect to the outstanding amount of each Swing Line Advance, in arrears on each applicable Interest Payment Date, at the LIBOR Rate as in effect from time to time during the period applicable to such Interest Payment Date.  Interest for each Advance shall be calculated based upon actual days elapsed during the applicable calendar month or other period, for a 360 day year based upon actual days elapsed since the last Interest Payment Date.  Unless a LIBOR Rate Disruption Event shall have occurred, each Advance shall be a LIBOR Rate Advance.

(b)           So long as any Termination Event shall have occurred and be continuing, the interest rates applicable to each Advance and any other unpaid Borrower Obligation hereunder shall be increased by two percent (2.0%) per annum (such increased rate, in each case, the “Default Rate”), and all outstanding Borrower Obligations shall bear interest at the applicable Default Rate from the date of such Termination Event until such Termination Event is waived or cured.

(c)           The Administrative Agent is authorized to, and at its sole election may, charge to the Borrower as Revolving Credit Advances and cause to be paid all Fees, Rating Agency fees, expenses, charges, costs, interest and principal, other than principal of the Advances, owing by the Borrower under this Agreement or any of the other Related Documents if and to the extent the Borrower fails to pay any such amounts as and when due, and any charges so made shall constitute part of the Outstanding Principal Amount hereunder even if such charges would cause the aggregate balance of the Outstanding Principal Amount to exceed the Borrowing Base.

Section 2.07.  Fees.

(a)           On the Effective Date, the Borrower shall pay to the Administrative Agent, for the account of itself and the Lenders, as applicable, the fees set forth in the Fee Letter that are payable on the Effective Date.

(b)           From and after the Closing Date, as additional compensation for the Lenders, the Borrower agrees to pay to Administrative Agent, for the ratable benefit of such Lenders, monthly in arrears, on each Settlement Date prior to the Commitment Termination Date and on the Commitment Termination Date, the Unused Commitment Fee.

(c)           On each Settlement Date, the Borrower shall pay to the Servicer or to the Successor Servicer, as applicable, the Servicing Fee or the Successor Servicing Fees and Expenses, respectively, in each case to the extent of available funds therefor pursuant to Section 2.08.

Section 2.08.  Application of Collections; Time and Method of Payments.  The entirety of this Section 2.08 shall be subject to Section 12.15(b) (including, without limitation, subsections (a), (b), (c), (d) and (e)).

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(a)           Each Advance shall mature, and be payable, on the earlier of (i) the date funds are allocated to such Advance pursuant to clause (iii)or (iv)of subsection (c)below (and in such case only to the extent of the funds so allocated), and (ii) the Commitment Termination Date (in which case such Advance shall be payable in full).

(b)           On each Business Day, the Administrative Agent shall allocate amounts on deposit in the Agent Account on such day and not previously allocated under this subsection (b)as follows, in the following order of priority:

(i)            first, to be retained in the Agent Account and paid in accordance with clause (i)of the following subsection (c), an amount equal to the aggregate Fees accrued and unpaid through such date and all unreimbursed expenses of the Administrative Agent which are reimbursable pursuant to the terms hereof; provided, that, the sum of (i) the amounts retained pursuant to this clause first and (ii) the amounts paid pursuant to clause (i) of the following subsection (c) shall not exceed $100,000 in any calendar year;

(ii)           second, to be retained in the Agent Account and paid in accordance with clause (ii)of the following subsection (c), an amount equal to the aggregate interest with respect to all outstanding Advances;

(iii)          third, unless an Event of Servicer Termination (other than the type specified in Section 8.01(i) of the Sale Agreement) has occurred and is continuing, to be retained in the Agent Account and paid in accordance with clause (iii) of the following subsection (c), an amount equal to the aggregate Servicing Fees and accrued and unpaid through such date;

(iv)          fourth, to be retained in the Agent Account and paid in accordance with clause (iv) of the following subsection (c) or set aside and applied by the Administrative Agent in accordance with the following subsection (d), as applicable, an amount equal to all outstanding Advances which are then due and payable on such Business Bay; it being understood that if and to extent a Funding Excess is determined to exist on such Business Day, Advances in an amount equal to such Funding Excess are due and payable in accordance with the following subsection (d);

(v)           fifth, the extent not already retained in the Agent Account in accordance with clause first, to be retained in the Agent Account and paid in accordance with clause (vi)of the following subsection (c), an amount equal to the aggregate Fees accrued and unpaid through such date and all unreimbursed expenses of the Administrative Agent which are reimbursable pursuant to the terms hereof;

(vi)          sixth, if any of the conditions precedent set forth in Section 3.02shall not be satisfied, to be retained in the Agent Account until paid in accordance with the following subsection (c)or all such conditions are satisfied;

(vii)         seventh, to be retained in the Agent Account and paid in accordance with the following subsection (c), an amount equal to the aggregate amount

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of all other accrued and unpaid Borrower Obligations which are then required to be paid according to such subsection, including, without limitation, the expenses of the Lenders reimbursable under Section 12.04; and

(viii)        eighth, unless a Termination Event or Incipient Termination Event has occurred and is continuing, (A) to be paid as directed by the applicable Originator to the Borrower and the Agent in writing, first, an amount equal to the purchase price for Sold Receivables payable on that date, then to the extent of remaining amounts available to the payment of the balance due on the applicable Subordinated Note, and (B) then any remaining amounts available after such payment shall be paid to the Borrower Account (if a Termination Event or Incipient Termination Event has occurred and is continuing, all such amounts payable under this clause seventh, shall remain in the Agent Account).

(c)           On each Settlement Date on which any Borrower Obligations are due for payment, the Administrative Agent shall withdraw amounts on deposit in the Agent Account and pay such amounts as follows in the following order of priority:

(i)            first, to the extent then due and payable, pro rata, to the payment of all Fees accrued and unpaid through such date and all unreimbursed expenses of the Administrative Agent which are reimbursable pursuant to the terms hereof; provided, that, the disbursement pursuant to this clause first shall not exceed $100,000 in any calendar year;

(ii)           second, if such Business Day is an Interest Payment Date, to the payment of accrued and unpaid interest which is then due and payable in respect of the applicable Advances, pro rata;

(iii)          third, unless an Event of Servicer Termination (other than the type specified in Section 8.01(i) of the Sale Agreement) has occurred and is continuing, to the payment of all Servicing Fees accrued and unpaid through such date;

(iv)          fourth, to the payment of any outstanding Advances then due and payable, pro rata; provided, that principal on Advances shall be applied in the following order, to the payment of the Outstanding Principal Amount of Advances, first, in respect of Swing Line Advances, (provided, that if a Funding Excess exists and any outstanding Swing Line Advances were made in violation of the fourth sentence of Section 2.01(b)(i), then such Swing Line Advance will be repaid after the Revolving Credit Advances), and second, in respect of Revolving Credit Advances, pro rata;

(v)           fifth, if any of the conditions precedent set forth in Section 3.02 shall not be satisfied, to the payment of the Outstanding Principal Amount of all other Advances, first, in respect of Swing Line Advances (provided, that if a Funding Excess exists and any outstanding Swing Line Advances were made in violation of the fourth sentence of Section 2.01(b)(i), then such Swing Line Advance will be repaid after the Revolving Credit Advances), and second, in respect of Revolving Credit Advances, together with amounts payable with respect thereto under Section 2.10, if any, pro rata;

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(vi)          sixth, to the extent then due and payable and not otherwise paid in accordance with clause first above, pro rata, to the payment of all Fees accrued and unpaid through such date and all unreimbursed expenses of the Administrative Agent which are reimbursable pursuant to the terms hereof;

(vii)         seventh, to the extent then due and payable, pro rata, to the payment of all other obligations of the Borrower accrued and unpaid hereunder, including, without limitation, the expenses of the Lenders reimbursable under Section 12.04; and

(viii)        eighth, unless a Termination Event or Incipient Termination Event has occurred and is continuing, (A) to be paid as directed by the applicable Originator to the Borrower and the Agent in writing, first, an amount equal to the purchase price for Sold Receivables payable on that date, then to the extent of remaining amounts available to the payment of the balance due on the applicable Subordinated Note, and (B) then any remaining amounts available after such payment shall be paid to the Borrower Account (if a Termination Event or Incipient Termination Event has occurred and is continuing, all such amounts payable under this clause seventh, shall remain in the Agent Account).

(d)           If and to the extent a Funding Excess is determined to exist on any Business Day, (i) by no later than 4:00 p.m. (New York time) on the Business Day immediately succeeding the Business Day that such Funding Excess was determined to exist, the Administrative Agent shall allocate the amounts set aside pursuant to clause (b)(iv) of Section 2.08 to reduce such Funding Excess and (ii) if such Funding Excess is greater than the amounts set aside pursuant to clause (b)(iv) of Section 2.08 to reduce such Funding Excess, the Borrower shall deposit in the Agent Account, by no later than 4:00 p.m. (New York time) on the Business Day immediately succeeding the Business Day that such Funding Excess was determined to exist, an amount equal to the amount of such shortfall.  Such amounts paid or allocated pursuant to the foregoing sentence shall be applied by the Administrative Agent first, in immediate repayment of the outstanding amount of Swing Line Advances, and if no Swing Line Advances are outstanding, and second, in immediate repayment of the outstanding amount of Revolving Credit Advances (together with amounts payable with respect thereto under Section 2.10).

(e)           To the extent that amounts on deposit in the Agent Account on any day are insufficient to pay amounts due on such day in respect of the matured portion of any Advances or any interest, Fees or any other amounts due and payable by the Borrower hereunder, the Borrower shall pay, upon notice from the Administrative Agent, the amount of such insufficiency to the Administrative Agent in Dollars, in immediately available funds (for the account of the Administrative Agent, the applicable Lenders, Affected Parties or Indemnified Persons) not later than 4:00 p.m. (New York time) on such day.  Any such payment made on such date but after such time shall be deemed to have been made on, and interest shall continue to accrue and be payable thereon at the LIBOR Rate (in the case of LIBOR Rate Advances) or the Index Rate (in all other cases), until the next succeeding Business Day.

(f)            The Borrower hereby irrevocably waives the right to direct the application of any and all payments received from or on behalf of the Borrower, and the Borrower hereby

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irrevocably agrees that any and all such payments shall be applied by the Administrative Agent in accordance with this Section 2.08.

(g)           All payments of principal of the Advances and all payments of interest, Fees and other amounts payable by the Borrower hereunder shall be made in Dollars, in immediately available funds.  If any such payment becomes due on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day and interest thereon at the LIBOR Rate (in the case of LIBOR Rate Advances) or Index Rate (in all other cases) shall be payable during such extension.  Payments received at or prior to 4:00 p.m. (New York time) on any Business Day shall be deemed to have been received on such Business Day.  Payments received after 4:00 p.m. (New York time) on any Business Day or on a day that is not a Business Day shall be deemed to have been received on the following Business Day.

(h)           Any and all payments by the Borrower hereunder shall be made in accordance with this Section 2.08 without setoff or counterclaim and free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, Charges or withholdings (excluding any tax imposed on or measured by the net income or profits or any franchise or other tax in lieu thereof (including branch profits or similar taxes) of any Affected Party by (i) the jurisdiction under the laws of which such Affected Party is organized or any political subdivision thereof, or (ii) the jurisdiction of such Affected Party’s applicable lending office or any political subdivision thereof) (such non-excluded taxes, levies, imposts, deductions, Charges and withholdings being “Indemnified Taxes”).  If the Borrower shall be required by law to deduct any Indemnified Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.08) the Affected Party entitled to receive any such payment receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, and (iii) the Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law.  Within 30 days after the date of any payment of Indemnified Taxes, the Borrower shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof.  The Borrower shall indemnify any Affected Party from and against, and, within ten days of demand therefor, pay any Affected Party for, the full amount of Indemnified Taxes (together with any taxes imposed by any jurisdiction on amounts payable under this Section 2.08) paid by such Affected Party and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally asserted.  The foregoing notwithstanding, the Borrower shall have no obligation to increase the amount paid or indemnify any Affected Party under this Section 2.08(h) to the extent such amounts are payable as a result of, (i) in the case of an Affected Party that is a U.S person as defined in I.R.C. § 7701(a)(30) but is not a person to whom a payment of interest may be made under Treas. Reg. § 1.6049-4(c) without the payor being required to file an information return, the failure of the Affected Party to provide the Borrower with a validly prepared and executed Form W-9 or, (ii) in the case of an Affected Party that is not a U.S. person as defined in I.R.C. § 7701(a)(30), the failure of such person to provide the Borrower with a validly prepared and executed Form W-8BEN, W-8EXP or W-8ECI demonstrating that such Affected Party is eligible for the portfolio interest exemption under I.R.C. § 871(h) and 881(c) or other exemption under U.S. law or applicable treaty

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providing for no withholding on the relevant payment; provided, however, that the Affected Party shall have no obligation to deliver such forms to the extent it is no longer able to deliver such forms due to a change in law.

(i)            Upon receipt of a notice in accordance with Section 7.03 of the Sale Agreement, the Administrative Agent shall, if such amounts have not been applied to the Borrower Obligations, segregate the Unrelated Amounts and the same shall not be deemed to constitute Collections on Transferred Receivables.

Section 2.09.  Capital Requirements; Additional Costs.

(a)           If, due to any Regulatory Change or any other adoption or any change in any law, treaty, governmental (or quasi governmental) rule, regulation, guideline or order, there shall be (i) any increase the cost to any Affected Party of agreeing to make or making, funding or maintaining any commitment hereunder or under any other Related Document, including with respect to any Advances or other Outstanding Principal Amount, (ii) any reduction in any amount receivable by such Affected Party hereunder or thereunder, including with respect to any Advances, or other Outstanding Principal Amount or (iii) any increase in the amount of capital, reserves or other funds required to be maintained by such Affected Party against commitments made by it under this Agreement or any other Related Document and the result of such increase is a reduction in the rate of return on such Affected Party’s capital as a consequence of its commitments hereunder or thereunder (any such increase in cost or reduction in amounts receivable or rate of return are hereinafter referred to as “Additional Costs”), then the Borrower shall from time to time and within 15 days after notice and demand from the Administrative Agent to the Borrower (together with the certificate referred to in the next sentence) pay to the Administrative Agent on behalf of such Affected Party additional amounts sufficient to compensate such Affected Party for such Additional Costs together with interest thereon from the date demanded until payment in full thereof at the applicable Index Rate.  A certificate as to the amount of such Increased Costs and showing the basis of the computation thereof submitted by the Affected Party to the Borrower shall be final, binding and conclusive on the parties hereto (absent manifest error) for all purposes. Each Affected Party agrees that, as promptly as practicable after it becomes aware of any circumstance referred to above that would result in any such Additional Costs, it shall, to the extent not inconsistent with its internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by the Borrower pursuant to this Section 2.09(a).

(b)           Determinations by any Affected Party for purposes of this Section 2.09 of the effect of any Regulatory Change on its costs of making, funding or maintaining any commitments hereunder or under any other Related Documents or on amounts payable to it hereunder or thereunder or of the additional amounts required to compensate such Affected Party in respect of any Additional Costs shall be set forth in a written notice to the Borrower in reasonable detail and shall be final, binding and conclusive on the Borrower (absent manifest error) for all purposes.

(c)           Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert

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that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Rate Advance, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Rate Advance at another branch or office of that Lender without, in that Lender’s opinion, adversely affecting it or its Advances or the income obtained therefrom, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Rate Advances shall terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR Rate Advances owing to such Lender, together with interest accrued thereon, unless Borrower, within five (5) Business Days after the delivery of such notice and demand, converts all such LIBOR Rate Advances into Index Rate Advances.

Section 2.10.  Breakage Costs.  To induce the Lenders to provide the LIBOR Rate on the terms provided herein, if (i) any LIBOR Rate Advances are, except by reason of the requirements in Section 2.03(c), repaid in whole or in part on any date other than an Interest Payment Date (whether that repayment is made pursuant to any other provision of this Agreement or any other Related Document or is the result of acceleration, by operation of law or otherwise); (ii) the Borrower shall default in payment when due of the principal amount of or interest on any LIBOR Rate Advance; (iii) the Borrower shall default in making any borrowing of LIBOR Rate Advances after the Borrower has given notice requesting the same in accordance herewith (including any failure to satisfy conditions precedent to the making of any LIBOR Rate Advances); or (iv) the Borrower shall fail to make any prepayment of a LIBOR Rate Advance after the Borrower has given a notice thereof in accordance herewith, then, in any such case, the Borrower shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing (any such loss, cost or expense, “Breakage Costs”).  Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained (if any).  For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Rate Advance through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Rate Advance; provided, however, that each Lender may fund each of its LIBOR Rate Advances in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection.  This covenant shall survive the termination of this Agreement and the payment of the Revolving Notes and all other amounts payable hereunder.  The determination by any Lender of the amount of any such loss or expense shall be set forth in a written notice to the Borrower in reasonable detail and shall be final, binding and conclusive on the Borrower (absent manifest error) for all purposes.  Notwithstanding the foregoing, the Borrower shall in no case be liable for any Breakage Costs incurred pursuant to clause (i) of the first sentence of this Section 2.10 if the principal amount of any repayment of LIBOR Rate Advances made on any date of determination is less than $25,000,000.

ARTICLE III.

CONDITIONS PRECEDENT

Section 3.01.  Conditions to Effectiveness of Agreement.  This Agreement shall not be effective until the date on which each of the following conditions have been satisfied, in

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the sole discretion of, or waived in writing by, the Lenders and the Administrative Agent (such date, the “Effective Date”):

(a)           Funding Agreement; Other Related Documents.  This Agreement and (to the extent requested by the Lenders) the Notes shall have been duly executed by, and delivered to, the parties hereto and the Lenders and the Administrative Agent shall have received such other documents, instruments, agreements and legal opinions as each Lender and the Administrative Agent shall request in connection with the transactions contemplated by this Agreement, including all those listed in the Schedule of Documents, each in form and substance satisfactory to each Lender and the Administrative Agent.

(b)           Governmental Approvals.  The Lenders and the Administrative Agent shall have received (i) satisfactory evidence that the Borrower, the Servicer and the Originators have obtained all required consents and approvals of all Persons, including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Related Documents and the consummation of the transactions contemplated hereby or thereby or (ii) an Officer’s Certificate from each of the Borrower and the Servicer in form and substance satisfactory to the Lenders and the Administrative Agent affirming that no such consents or approvals are required.

(c)           Compliance with Laws.  The Borrower and the Transaction Parties shall be in compliance with all applicable foreign, federal, state and local laws and regulations, including, without limitation, those specifically referenced in Section 5.01(a), except to the extent noncompliance could not reasonably be expected to have a Material Adverse Effect.

(d)           Payment of Fees.  The Borrower shall have paid all fees required to be paid by it on the Effective Date, including all fees required hereunder and under the Fee Letter, and shall have reimbursed the Administrative Agent for all Rating Agency fees and all other reasonable fees, costs and expenses of closing the transactions contemplated hereunder and under the other Related Documents, including the Administrative Agent’s reasonable legal and audit expenses, and other document preparation costs.

(e)           Representations and Warranties.  Each representation and warranty by the Borrower and each Transaction Party contained herein and in each other Related Document shall be true and correct as of the Effective Date, except to the extent that such representation or warranty expressly relates solely to an earlier date.

(f)            No Termination Event.  No Incipient Termination Event or Termination Event hereunder shall have occurred and be continuing or would result after giving effect to any of the transactions contemplated on the Closing Date.

(g)           Audit.  The Administrative Agent shall have completed a prefunding audit of the Receivables as of the Closing Date, the scope and results of which are satisfactory to the Administrative Agent and each Lender in its sole discretion.

(h)           Material Adverse Change.  There will have been (i) since September 30, 2005 no material adverse change individually or in the aggregate, (x) in the business, the

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financial or other condition of the Transaction Parties, taken as a whole, or (y) in the Receivables or Related Property, taken as a whole and (ii) no litigation commenced which is reasonably likely to be adversely determined, and if so determined, would have a Material Adverse Effect on the Borrower or the Transaction Parties taken as a whole, their business, or which challenges the transactions contemplated under this Agreement, the Sale Agreement and the other Related Documents.

(i)            Prior Obligations.  Evidence satisfactory to the Administrative Agent that all obligations under the Existing Securitization Program will have been satisfied concurrently with the making of the initial Advance and that all Liens upon any of the Receivables to be transferred to Borrower under the Sale Agreement shall have been terminated and released immediately upon such payment.

(j)            Waiver of Set-Off Rights.  Each Originator shall have waived its rights of set-off with respect to the Receivables.

(k)           Rating Agency Confirmations.   The Administrative Agent shall have received such confirmations or assurances from the Rating Agencies related to the transactions contemplated by this Agreement and the other Related Documents deemed necessary or desirable by the Administrative Agent.

Section 3.02.  Conditions Precedent to All Advances.  No Lender shall be obligated to make any Advances hereunder (including the initial Advances but excluding Advances made pursuant to Section 2.01(b)(iii),Section 2.01(b)(iv)or 2.06(c)) on any date if, as of the date thereof:

(a)           any representation or warranty of the Borrower, the Servicer or any Originator contained herein or in any of the other Related Documents shall be untrue or incorrect in any material respect (without duplication of any materiality qualifier contained therein) as of such date (unless the giving of any such untrue or incorrect representation or warranty has been cured in accordance with Section 4.04 of the Sale Agreement), either before or after giving effect to the Advances to be made on such date and to the application of the proceeds therefrom, except to the extent that such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted by this Agreement;

(b)           any event shall have occurred, or would result from the making of such Advances or from the application of the proceeds therefrom, that constitutes an Incipient Termination Event, a Termination Event, an Incipient Servicer Termination Event or an Event of Servicer Termination;

(c)           the Commitment Termination Date shall have occurred;

(d)           either before or after giving effect to such Advance and to the application of the proceeds therefrom, a Funding Excess would exist; or

(e)           any Originator, the Borrower or the Servicer shall fail to have taken such other action, including delivery of approvals, consents, opinions, documents and instruments to

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the Lenders and the Administrative Agent, as any Lender or the Administrative Agent and, if applicable, either Rating Agency, may reasonably request;

(f)            on or prior to such date, the Borrower or the Servicer shall have failed to  deliver any Monthly Report, Weekly Report, Daily Report or Borrowing Base Certificate required to be delivered in accordance with Section 5.02 hereof or the Sale Agreement and such failure shall be continuing;

(g)           the Administrative Agent shall have determined that any event or condition has occurred that has had, or could reasonably be expected to have or result in, a Material Adverse Effect.

The delivery by the Borrower of a Borrowing Request and the acceptance by the Borrower of the funds from the related Borrowing on any Advance Date shall be deemed to constitute, as of any such Advance Date, as the case may be, a representation and warranty by the Borrower that the conditions in this Section 3.02 have been satisfied.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES

Section 4.01.  Representations and Warranties of the Borrower.  To induce each Lender to make Advances from time to time and the Administrative Agent to take any action required to be performed by it hereunder, the Borrower makes the following representations and warranties to each Lender and the Administrative Agent on the Effective Date and each Advance Date, each and all of which shall survive the execution and delivery of this Agreement.

(a)           Existence; Compliance with Law.  The Borrower (i) is a limited liability company duly formed, validly existing and in good standing under the laws of its jurisdiction of incorporation, is a “registered organization” as defined in the UCC of such jurisdiction and is not organized under the laws of any other jurisdiction; (ii) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect; (iii) has the requisite power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business, in each case, as now, heretofore and proposed to be conducted; (iv) has all material licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its limited liability company agreement; and (vi) subject to specific representations set forth herein regarding ERISA, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof.

(b)           Executive Offices; Collateral Locations; Corporate or Other Names; FEIN.  The state of organization and the organization identification number of the Borrower and

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current location of the Borrower’s chief executive office, principal place of business, other offices, the premises within which any Borrower Collateral is stored or located, and the locations of its records concerning the Borrower Collateral (including originals of the Borrower Assigned Agreements) are set forth in Schedule 4.01(b)or such other locations identified in writing by the Borrower to the Administrative Agent after the Closing Date and none of such locations has changed since the date of the formation of the Borrower.  Except as set forth in Schedule 4.01(b), the Borrower has not been known as or used any fictitious or trade name.  In addition, Schedule 4.01(b)lists the federal employer identification number of the Borrower.

(c)           Power, Authorization, Enforceable Obligations.  The execution, delivery and performance by the Borrower of this Agreement and the other Related Documents to which it is a party, and the creation and perfection of all Liens and ownership interests provided for herein and therein: (i) are within the Borrower’s limited liability company power; (ii) have been duly authorized by all necessary or proper actions; (iii) do not contravene any provision of the Borrower’s certificate of formation or limited liability company agreement; (iv) do not violate any law or regulation, or any order or decree of any court or Governmental Authority except if such violations have not had and could not reasonably be expected to have a Material Adverse Effect; (v) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Borrower is a party or by which the Borrower or any of the property of the Borrower is bound; (vi) do not result in the creation or imposition of any Adverse Claim upon any of the property of the Borrower; and (vii) do not require the consent or approval of any Governmental Authority or any other Person, except those which have been duly obtained, made or complied with prior to the Effective Date as provided in Section 3.01(b).  The exercise by each of the Borrower, the Lenders or the Administrative Agent of any of its rights and remedies under any Related Document to which it is a party do not require the consent or approval of any Governmental Authority or any other Person, except those which will have been duly obtained, made or complied with prior to the Closing Date as provided in Section 3.01(b).  On or prior to the Effective Date, each of the Related Documents to which the Borrower is a party shall have been duly executed and delivered by the Borrower and each such Related Document shall then constitute a legal, valid and binding obligation of the Borrower enforceable against it in accordance with its terms.

(d)           No Litigation.  No Litigation is now pending or, to the knowledge of the Borrower, threatened against the Borrower that (i) challenges the Borrower’s right or power to enter into or perform any of its obligations under the Related Documents to which it is a party, or the validity or enforceability of any Related Document or any action taken thereunder, (ii) seeks to prevent the transfer, sale, pledge or contribution of any Receivable or the consummation of any of the transactions contemplated under this Agreement or the other Related Documents, or (iii) is reasonably likely to be adversely determined and, if adversely determined, could reasonably be expected to have a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof.  There is no Litigation pending or threatened that seeks damages or injunctive relief against, or alleges criminal misconduct by, the Borrower.

(e)           Solvency.  After giving effect to the sale or contribution of Receivables and the Advances to be made on such date and to the application of the proceeds therefrom, the Borrower is and will be Solvent.

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(f)            Material Adverse Effect.  Since the date of the Borrower’s organization, (i) the Borrower has not incurred any obligations, contingent or non-contingent liabilities, liabilities for Charges, long-term leases or unusual forward or long-term commitments, other than in connection with the transaction contemplated by the Related Documents, (ii) no contract, lease or other agreement or instrument has been entered into by the Borrower or has become binding upon the Borrower’s assets, other than in connection with the Related Documents, and no law or regulation applicable to the Borrower has been adopted that has had or could reasonably be expected to have a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof and (iii) the Borrower is not in default and no third party is in default under any material contract, lease or other agreement or instrument to which the Borrower is a party.  Since the date of the Borrower’s organization, no event has occurred with respect to the Borrower that alone or together with other events could reasonably be expected to have a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof.

(g)           Ownership of Property; Liens.  None of the properties and assets (including the Transferred Receivables) of the Borrower are subject to any Adverse Claims other than Permitted Encumbrances not attaching to Transferred Receivables, and there are no facts, circumstances or conditions known to the Borrower that may result in (i) with respect to the Transferred Receivables, any Adverse Claims (including Adverse Claims arising under environmental laws) and (ii) with respect to its other properties and assets, any Adverse Claims (including Adverse Claims arising under environmental laws) other than Permitted Encumbrances.  The Borrower has received all assignments, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect the Borrower’s right, title and interest in and to the Transferred Receivables and its other properties and assets.  No effective financing statement or other similar instrument are of record in any filing office listing the Borrower or any Originator as debtor and covering any of the Transferred Receivables or the other Borrower Collateral, and the Liens granted to the Lender pursuant to Section 7.01 are and will be at all times fully perfected first priority Liens in and to the Borrower Collateral.

(h)           Ventures, Subsidiaries and Affiliates; Outstanding Stock and Debt.  The Borrower has no Subsidiaries, and is not engaged in any joint venture or partnership with any other Person.  The Borrower has no Investments in any Person other than Permitted Investments.  The Member is the only member of the Borrower.  There are no outstanding rights to purchase or options, warrants or similar rights or agreements pursuant to which the Borrower may be required to issue, sell, repurchase or redeem some or all of its membership interests. Other than the Subordinated Loans, the Borrower has no outstanding Debt on the Effective Date.

(i)            Taxes.  All Tax Returns required to be filed by the Borrower have been timely and properly filed and (ii) all taxes that are payable by the Borrower (other than taxes being or about to be contested in good faith by appropriate proceedings and for which adequate reserves have been provided for in accordance with GAAP) have been paid, except where the failure to file Tax Returns or pay Taxes would not have a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof and has not resulted in a Lien which has attached to the Receivables.  No Governmental Authority has asserted any claim for taxes, or to the Borrower’s knowledge, has threatened to assert any claim for taxes that

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would, if not paid, have a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof or would result in a Lien which would attach to the Receivables.  All taxes required by law to be withheld or collected and remitted (including, without limitation, income tax, unemployment insurance and workmen’s compensation premiums) with respect to the Borrower have been withheld or collected and paid to the appropriate Governmental Authorities (or are properly being held for such payment), except for amounts the nonpayment of which would not be reasonably likely to have a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof.  It is not necessary that this Agreement or any other Related Document be filed, registered, recorded or enrolled in connection with any Taxes with any court, public office or other authority in any jurisdiction or that any ad valorem stamp duty, stamp duty, documentary, registration or similar tax or duty be paid on the execution or delivery of this Agreement or any other Related Document. Except as described on Schedule 4.01(i), as of the Effective Date, neither the Borrower nor any Affiliate that files tax returns including tax items for the Borrower has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges.  As of the Effective Date, (i) Borrower has elected to be disregarded as an entity separate from its owner for federal income tax purposes under Section 301.7701-3(b)(1) of the United States Treasury Regulations and is therefore not an association taxable as a corporation for federal income tax purposes, and (ii) neither the Borrower nor any of its Affiliates has agreed or been requested to make any adjustment under IRC 481(a), by reason of a change in accounting method or otherwise, that could reasonably be expected to have a Material Adverse Effect.  The Advances will constitute Debt for federal income tax purposes.

(j)            Full Disclosure.  No representation or warranty of the Borrower contained in this Agreement, any Borrowing Base Certificate, any of the other Related Documents or any other document, certificate or written statement furnished by on behalf of the Borrower to the Administrative Agent or any Lender relating to this Agreement, the Transferred Receivables or any of the other Related Documents contains any untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in any material respect in light of the circumstances in which the same were made. All information contained in this Agreement, any Borrowing Base Certificate or any of the other Related Documents, or any other written statement or information furnished to any Lender or the Administrative Agent has been prepared in good faith by the management of the Borrower with the exercise of reasonable diligence.

(k)           ERISA.  The Borrower is in compliance with ERISA and has not incurred and does not expect to incur any liabilities (other than (x) premium payments arising in the ordinary course of business, (y) liabilities arising under Section 4041(b) of ERISA and (z) interest or penalties in connection with late premium payments that have not remained outstanding for more than thirty (30) days from the day such interest or penalties were incurred) payable to the PBGC under Title IV of ERISA.

(l)            Brokers.  No broker or finder acting on behalf of the Borrower was employed or utilized in connection with this Agreement or the other Related Documents or the transactions contemplated hereby or thereby and the Borrower has no obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.

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(m)          Margin Regulations.  The Borrower is not engaged in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin security,” as such terms are defined in Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as “Margin Stock”).  The Borrower owns no Margin Stock, and no portion of the proceeds of the Advances made hereunder will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Debt that was originally incurred to purchase or carry any Margin Stock or for any other purpose that might cause any portion of such proceeds to be considered a “purpose credit” within the meaning of Regulations T, U or X of the Federal Reserve Board.  The Borrower will not take or permit to be taken any action that might cause any Related Document to violate any regulation of the Federal Reserve Board.

(n)           Nonapplicability of Bulk Sales Laws.  No transaction contemplated by this Agreement or any of the Related Documents requires compliance with any bulk sales act or similar law.

(o)           Government Regulation.  The Borrower is not an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act.  The making of Advances by the Lenders hereunder, the application of the proceeds thereof and the consummation of the transactions contemplated by this Agreement and the other Related Documents will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission.

(p)           Nonconsolidation.  The Borrower is operated in such a manner that the separate corporate existence of the Borrower, on the one hand, and any member of the Parent Group, on the other hand, would not be disregarded in the event of the bankruptcy or insolvency of any member of the Parent Group and, without limiting the generality of the foregoing:

(i)            the Borrower is a limited purpose limited liability company whose activities are restricted in its limited liability company agreement to those activities expressly permitted hereunder and under the other Related Documents and the Borrower has not engaged, and does not presently engage, in any business or other activity other than those activities expressly permitted hereunder and under the other Related Documents, nor has the Borrower entered into any agreement other than this Agreement, the other Related Documents to which it is a party and, with the prior written consent of the Administrative Agent, any other agreement necessary to carry out more effectively the provisions and purposes hereof or thereof;

(ii)           the Borrower has duly appointed a board of managers and its business is managed solely by its own officers and managers, each of whom when acting for the Borrower shall be acting solely in his or her capacity as an officer or manager and not as an officer, director, employee or agent of any member of the Parent Group;

(iii)          Borrower shall compensate all employees, consultants and agents directly or indirectly through reimbursement of the Parent, from its own funds, for services provided to the Borrower by such employees, consultants and agents and, to the

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extent any employee, consultant or agent of the Borrower is also an employee, consultant or agent of such member of the Parent Group on a basis which reflects the respective services rendered to the Borrower and such member of the Parent Group and in accordance with the terms of the Administrative Services Agreement;

(iv)          Borrower shall pay its own incidental administrative costs and expenses not covered under the terms of the Administrative Services Agreement from its own funds, and shall allocate all other shared overhead expenses (including, without limitation, telephone and other utility charges, the services of shared employees, consultants and agents, and reasonable legal and auditing expenses) which are not reflected in the Servicing Fee, and other items of cost and expense shared between the Borrower and the Parent, pursuant to the terms of the Administrative Services Agreement, on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use or the value of services rendered; except as otherwise expressly permitted hereunder, under the other Related Documents and under the Borrower’s organizational documents, no member of the Parent Group (A) pays the Borrower’s expenses, (B) guarantees the Borrower’s obligations, or (C) advances funds to the Borrower for the payment of expenses or otherwise;

(v)           other than the purchase and acceptance through capital contribution of Transferred Receivables pursuant to the Sale Agreement, the acceptance of Subordinated Loans therein, the payment of distributions and the return of capital to the Member, the servicing arrangements with the Servicer under the Sale Agreement and the transactions contemplated under the Administrative Services Agreement, the Borrower engages and has engaged in no intercorporate transactions with any member of the Parent Group;

(vi)          the Borrower maintains records and books of account separate from that of each member of the Parent Group, holds regular meetings of its board of directors and otherwise observes limited liability company formalities;

(vii)         (A) the financial statements (other than consolidated financial statements) and books and records of the Borrower and each member of the Parent Group reflect the separate existence of the Borrower and (B) the consolidated financial statements of the Parent Group shall contain disclosure to the effect that the Borrower’s assets are not available to the creditors of any member of the Parent Group;

(viii)        (A) the Borrower maintains its assets separately from the assets of each member of the Parent Group (including through the maintenance of separate bank accounts and except for any Records to the extent necessary to assist the Servicer in connection with the servicing of the Transferred Receivables), (B) the Borrower’s funds (including all money, checks and other cash proceeds) and assets, and records relating thereto, have not been and are not commingled with those of any member of the Parent Group and (C) the separate creditors of the Borrower will be entitled, on the winding-up of the Borrower, to be satisfied out of the Borrower’s assets prior to any value in the Borrower becoming available to the Member;

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(ix)           all business correspondence and other communications of the Borrower are conducted in the Borrower’s own name, on its own stationery and through a separately-listed telephone number;

(x)            the Borrower has and shall maintain separate office space from the offices of any member of the Parent Group and identify such office by a sign in its own name;

(xi)           the Borrower shall respond to any inquiries with respect to ownership of a Transferred Receivable by stating that it is the owner of such Transferred Receivable, and that such Transferred Receivable is pledged to the Administrative Agent for the benefit of the Lenders;

(xii)          the Borrower presents itself to the public as a legal entity separate from each such member and independently engaged in the business of purchasing and financing Receivables;

(xiii)         the Borrower maintains at least one independent manager each of whom (A) is not a Stockholder, director, officer, employee or associate, or any relative of the foregoing, of any member of the Parent Group (other than the Borrower), all as provided in its limited liability company agreement, (B) has (1) prior experience as an independent director for an entity whose organizational documents required the unanimous consent of all independent managers thereof before such corporation could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (2) at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management, independent director services or placement services to issuers of securitization or structured finance instruments, agreements or securities, and (C) is otherwise acceptable to the Administrative Agent;

(xiv)        the limited liability company agreement of the Borrower requires the affirmative vote of each independent manager before a voluntary petition under Section 301 of the Bankruptcy Code may be filed by the Borrower; and

(xv)         Borrower shall maintain (1) correct and complete books and records of account and (2) minutes of the meetings and other proceedings of its members and board of managers.

(q)           Deposit and Disbursement Accounts.  Schedule 4.01(q) lists all banks and other financial institutions at which the Borrower maintains deposit or other bank accounts as of the Closing Date, including any Account, and such schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.  Each Account constitutes a deposit account or a securities account within the meaning of the applicable UCC.  The Borrower (or the Servicer on its behalf) has delivered to the Administrative Agent a fully executed agreement pursuant to which the Borrower Account Bank

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(with respect to the Borrower Account), the Concentration Account Bank (in the case of the Concentration Account) and each Collection Account Bank (with respect to each Collection Account) has agreed to comply with all instructions originated by the Administrative Agent directing the disposition of funds in the Accounts without further consent by the Borrower, the Servicer or any Originator.  None of the Transaction Parties has access to any of the Accounts. No Account is in the name of any person other than the Borrower or the Administrative Agent, and the Borrower has not consented to any Bank following the instructions of any Person other than the Administrative Agent.  Accordingly, the Administrative Agent has a first priority perfected security interest in each Account, and all funds on deposit therein.

(r)            Transferred Receivables.

(i)            Transfers.  Each Transferred Receivable was purchased by or contributed to the Borrower on the relevant Transfer Date pursuant to the Sale Agreement.

(ii)           Eligibility.  Each Transferred Receivable designated as an Eligible Receivable in each Borrowing Base Certificate, Monthly Report, Weekly Report or Daily Report, as the case may be, constitutes an Eligible Receivable as of the date specified in such Borrowing Base Certificate, Monthly Report, Weekly Report or Daily Report, as applicable.

(iii)          Nonavoidability of Transfers.  The Borrower shall (A) have received each Contributed Receivable as a contribution to the capital of the Borrower by the Member as a member of the Borrower and (B) (1) have purchased each Sold Receivable from the applicable Originator for cash consideration or with the proceeds of a Subordinated Loan and (2) have accepted assignment of any Eligible Receivables transferred pursuant to clause (b) of Section 4.04 of the Sale Agreement, in each case in an amount that constitutes fair consideration and reasonably equivalent value therefor. No Sale has been made for or on account of an antecedent debt (other than any contractual obligation to purchase Receivables from the Originators under the Sale Agreement) owed by any Originator to the Borrower and no such Sale is or may be avoidable or subject to avoidance under any bankruptcy laws, rules or regulations.

(s)           Assignment of Interest in Related Documents.  The Borrower’s interests in, to and under the Receivables Sale and Servicing Agreement and each Originator Support Agreement, if any, have been assigned by the Borrower to the Administrative Agent (for the benefit of itself and the Lenders) as security for the Borrower Obligations.

(t)            Notices to Obligors.  Each Obligor of Transferred Receivables has been directed to remit all payments with respect to such Receivables for deposit in a Lockbox or Collection Account.

(u)           Representations and Warranties in Other Related Documents.  Each of the representations and warranties of the Borrower contained in the Related Documents (other than this Agreement) is true and correct in all respects and the Borrower hereby makes each such

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representation and warranty to, and for the benefit of, the Lenders and the Administrative Agent as if the same were set forth in full herein.

(v)           Supplementary Representations.  Each of the representations and warranties of the Borrower set forth on Schedule 4.01(v)is true and correct in all respects.

(w)          Intent. The Borrower has not entered into this Agreement or any of the other Related Documents with the intent of hindering, delaying or defrauding present or future creditors of itself or any Transaction Party.  The Borrower has not removed or concealed any assets from its creditors or participated in the removal or concealing of assets of any Transaction Party or any other Person, nor will any of them do so in the future.   The transfers contemplated by this Agreement and the other Transaction Documents are being undertaken in good faith by the Borrower for bona fide business purposes.

ARTICLE V.

GENERAL COVENANTS OF THE BORROWER

Section 5.01.  Affirmative Covenants of the Borrower.  The Borrower covenants and agrees that from and after the Effective Date and until the Termination Date:

(a)           Compliance with Agreements and Applicable Laws.  The Borrower shall (i) perform each of its obligations under this Agreement and the other Related Documents and (ii) comply with all federal, state and local laws and regulations applicable to it and the Transferred Receivables, including those relating to truth in lending, retail installment sales, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy, licensing, taxation, ERISA and labor matters and environmental laws and environmental permits except, solely with respect to this clause (ii), where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

(b)           Maintenance of Existence and Conduct of Business.  The Borrower shall:  (i) do or cause to be done all things necessary to preserve and keep in full force and effect its limited liability company existence and its rights and franchises; (ii) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder and in accordance with (1) the terms of its limited liability company agreement and (2) Section 4.01(p); (iii) at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, including all licenses, permits, charters and registrations, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and (iv) transact business only in the name of “Vertis Receivables II, LLC” or such trade names as are set forth in Schedule 5.01(b) or upon 30 days’ prior written notice to Administrative Agent, in any other legal name with respect to which all action requested by Administrative Agent pursuant to Section 12.13 shall have been taken with respect to the Transferred Receivable

(c)           Deposit of Collections.  The Borrower shall deposit or cause to be deposited promptly into a Collection Account, and in any event no later than the first Business

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Day after receipt thereof, all Collections it may receive with respect to any Transferred Receivable.

(d)           Use of Proceeds.  The Borrower shall utilize the proceeds of the Advances made hereunder solely for (i) the repayment of Advances made hereunder and the payment of any fees due hereunder, (ii) the purchase of Receivables from the Originators pursuant to the Sale Agreement, (iii) the payment of distributions to the Member, (iv) the repayment of Subordinated Loans, and (v) the payment of administrative fees or Servicing Fees or expenses to the Servicer or routine administrative or operating expenses, in each case only as expressly permitted by and in accordance with the terms of this Agreement and the other Related Documents.

(e)           Payment and Performance of Charges and other Obligations.

(i)            Subject to Section 5.01(e)(ii), the Borrower shall pay, perform and discharge or cause to be paid, performed and discharged promptly all charges and claims payable by it, including (A) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding required to be paid by it, and (B) lawful claims for labor, materials, supplies and services or otherwise before any thereof shall become past due.

(ii)           The Borrower may in good faith contest, by appropriate proceedings, the validity or amount of any charges or claims described in Section 5.01(e)(i); provided, that (A) adequate reserves with respect to such contest are maintained on the books of the Borrower, in accordance with GAAP, (B) such contest is maintained and prosecuted continuously and with diligence, (C) none of the Borrower Collateral becomes subject to forfeiture or loss as a result of such contest, (D) no Lien shall be imposed to secure payment of such charges or claims other than inchoate tax liens and (E) the Administrative Agent has not advised the Borrower in writing that it reasonably believes that failure to pay or to discharge such claims or charges could have or result in a Material Adverse Effect within the meaning of clauses (a)(ii) and (b) through (e) of the definition thereof.

(f)            ERISA.  The Borrower shall give the Administrative Agent prompt written notice of any event that (i) could reasonably be expected to result in the imposition of a Lien on any Borrower Collateral under Section 412 of the IRC or Section 302 or 4068 of ERISA, or (ii) could reasonably be expected to result in the incurrence by Borrower of any liabilities under Title IV of ERISA (other than premium payments arising in the ordinary course of business).

Section 5.02.  Reporting Requirements of the Borrower.  The Borrower hereby agrees that from and after the Effective Date until the Termination Date, it shall furnish or cause to be furnished to the Administrative Agent and the Lenders:

(a)           The financial statements, notices, reports and other information at the times, to the Persons and in the manner set forth in Annex 5.02(a).

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(b)           No later than 11:00 a.m. on any Advance Date and at the same time each Monthly Report, Weekly Report or Daily Report, as applicable, is required to be delivered pursuant to the terms of Annex 5.02(a), a completed certificate in the form attached hereto as Exhibit 5.02(b) (each, a “Borrowing Base Certificate”), provided, that if (i) an Incipient Termination Event or a Termination Event shall have occurred and be continuing or (ii) the Administrative Agent, in good faith, believes that an Incipient Termination Event or a Termination Event is imminent or reasonably deems the Lenders’ rights or interests in the Transferred Receivables or the Borrower Collateral insecure, then such Borrowing Base Certificates shall be delivered daily; and each Borrowing Base Certificate shall be prepared by the Borrower or the Servicer as of the last day of the previous month or week, in the event Borrowing Base Certificates are required to be delivered on a monthly or weekly basis, and as of the close of business on the previous Business Day, in the event Borrowing Base Certificates are required to be delivered on each Business Day.

(c)           Such other reports, statements and reconciliations with respect to the Borrowing Base or Borrower Collateral as any Lender or the Administrative Agent shall from time to time request in its reasonable discretion.

Section 5.03.  Negative Covenants of the Borrower.  The Borrower covenants and agrees that, without the prior written consent of the Requisite Lenders and the Administrative Agent (other than in connection with the waiver of any of the covenants set forth in subsections (c), (d), (n) or (p) of this Section 5.03 which shall only require the prior written consent of the Administrative Agent), from and after the Effective Date until the Termination Date:

(a)           Sale of Membership Interests and Assets.  The Borrower shall not sell, transfer, convey, assign or otherwise dispose of, or assign any right to receive income in respect of, any of its properties or other assets or issue any membership interests (whether in a public or a private offering or otherwise), any Transferred Receivable or Contract therefor or any of its rights with respect to any Lockbox or any Account, the Agent Account or any other deposit account in which any Collections of any Transferred Receivable are deposited except as otherwise expressly permitted by this Agreement or any of the other Related Documents.

(b)           Liens.  Except to the extent contemplated in Section 7.03(c) of the Sale Agreement, the Borrower shall not create, incur, assume or permit to exist (i) any Adverse Claim on or with respect to its Transferred Receivables or (ii) any Adverse Claim on or with respect to its other properties or assets (whether now owned or hereafter acquired) except for Permitted Encumbrances.  In addition, the Borrower shall not become a party to any agreement, note, indenture or instrument or take any other action that would prohibit the creation of a Lien on any of its properties or other assets in favor of the Lenders as additional collateral for the Borrower Obligations, except as otherwise expressly permitted by this Agreement or any of the other Related Documents.

(c)           Modifications of Receivables, Contracts or Credit and Collection Policies.  The Borrower shall not, without the prior written consent of the Administrative Agent, extend, amend, forgive, discharge, compromise, waive, cancel or otherwise modify the terms of any Transferred Receivable or amend, modify or waive any term or condition of any Contract related thereto, provided, that the Borrower may (i) take, and may authorize the Servicer on its behalf to

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take, such actions as are expressly permitted by the terms of any Related Document or the Credit and Collection Policies so long as, after giving effect to any such action, no Receivables which constituted Eligible Receivables prior to such action would no longer constitute Eligible Receivables as a result of such action, and (ii) sell or otherwise transfer Transferred Receivables for which the applicable Obligor is a BK Obligor to a third party that is not an Affiliate of Holdings; provided, that with respect to the sales or transfers contemplated by this Section 5.03(c)(iii), (A) until the Termination Date, no such transfers shall be permitted under this Section 5.03(c)(iii) if either a Termination Event or an Incipient Termination Event shall have occurred and be continuing prior to or after the consummation of any such transfer, (B) the Outstanding Balance of any Transferred Receivables sold or otherwise transferred in any transaction pursuant to this Section 5.03(c)(iii) shall not exceed $3,000,000, (C) the aggregate Outstanding Balance of all Transferred Receivables sold or otherwise transferred pursuant to this Section 5.03(c)(iii) from and after the Closing Date shall not exceed $10,000,000, (D) each sale or transfer of Transferred Receivables pursuant to this Section 5.03(c)(iii) shall be made without any recourse to the Borrower and (E) any buyer of any Transferred Receivables sold or otherwise transferred pursuant to this Section 5.03(c)(iii) shall agree in writing that, until the date that is one year plus one day following the date on which all Borrower Obligations have been indefeasibly paid in full in cash, such Person shall not, directly or indirectly, institute or cause to be instituted against Borrower any proceeding of the type referred to in Sections 8.01(d) or 8.01(e) of this Agreement.

(d)           Changes in Instructions to Obligors.  The Borrower shall not make any change in its instructions to Obligors regarding the deposit of Collections with respect to the Transferred Receivables, except to the extent the Administrative Agent directs the Borrower to change such instructions to Obligors or the Administrative Agent consents in writing to such change or as otherwise required by this Agreement.

(e)           Capital Structure and Business.  The Borrower shall not (i) make any changes in any of its business objectives, purposes or operations, (ii) make any change in its capital structure, including the issuance of any membership interests, warrants or other securities convertible into membership interests or any revision of the terms of its outstanding membership interests, (iii) amend, waive or modify any term or provision of its certificate of formation or limited liability company agreement, (iv) make any change to its name indicated on the public records of its jurisdiction of organization or (v) change its jurisdiction of organization.  The Borrower shall not engage in any business other than as provided in its certificate of formation, limited liability company agreement and the Related Documents.  Without limiting the foregoing, the Borrower shall not make an election to be treated as an association taxable as a corporation under Section 301.7701-3(a) of the Treasury Regulations and shall not issue any additional membership interests or take other actions which would cause the Company to cease to be disregarded as an entity separate from its owner for federal income tax purposes.

(f)            Mergers, Subsidiaries, Etc.  The Borrower shall not directly or indirectly, by operation of law or otherwise, (i) form or acquire any Subsidiary, or (ii) merge with, consolidate with, acquire all or substantially all of the assets or capital Stock of, or otherwise combine with or acquire, any Person.

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(g)           Sale Characterization; Receivables Sale and Servicing Agreement.  The Borrower shall not make statements or disclosures, prepare any financial statements or in any other respect account for or treat the transactions contemplated by the Sale Agreement (including for accounting, tax and reporting purposes) in any manner other than (i) with respect to each Sale of each Sold Receivable effected pursuant to the Sale Agreement, as a true sale and absolute assignment of the title to and sole record and beneficial ownership interest of the Transferred Receivables by the Originators to the Borrower or (ii) with respect to each contribution of Contributed Receivables thereunder, as an increase in the stated capital of the Borrower.

(h)           Restricted Payments.  The Borrower shall not enter into any lending transaction with any other Person.  The Borrower shall not at any time (i) advance credit to any Person or (ii) declare any distributions, repurchase any membership interest, return any capital, or make any other payment or distribution of cash or other property or assets in respect of the Borrower’s membership interest or make a repayment with respect to any Subordinated Loans if, after giving effect to any such advance or distribution, a Funding Excess, Incipient Termination Event or Termination Event would exist or otherwise result therefrom.

(i)            Indebtedness.  The Borrower shall not create, incur, assume or permit to exist any Debt, except (i) Debt of the Borrower to any Affected Party, Indemnified Person, the Servicer or any other Person expressly permitted by this Agreement or any other Related Document, (ii) Subordinated Loans pursuant to the Subordinated Notes, (iii) deferred taxes, and (iv) endorser liability in connection with the endorsement of negotiable instruments for deposit or collection in the ordinary course of business.

(j)            Prohibited Transactions.  The Borrower shall not enter into, or be a party to, any transaction with any Person except as expressly permitted hereunder or under any other Related Document except as reasonably necessary or advisable to its performance of its obligations hereunder and under the other Related Documents.

(k)           Investments.  Except as otherwise expressly permitted hereunder or under the other Related Documents, the Borrower shall not make any investment in, or make or accrue loans or advances of money to, any Person, including the Member, any director, officer or employee of the Borrower, Holdings or any of Holdings’ other Subsidiaries, through the direct or indirect lending of money, holding of securities or otherwise, except with respect to Transferred Receivables and Permitted Investments.

(l)            Commingling.  The Borrower shall not deposit or permit the deposit of any funds that do not constitute Collections of Transferred Receivables into any Collection Account or the Concentration Account, except as otherwise contemplated under Section 4.02(l) of the Sale Agreement.  If funds that are not Collections are deposited into a Collection Account or the Concentration Account, the Borrower shall, or shall cause the Servicer to notify the Administrative Agent in writing promptly upon discovery thereof, and, the Administrative Agent shall promptly remit (or direct the applicable Collection Account Bank or the Concentration Account Bank to remit) any such amounts that are not Collections to the applicable Originator or other Person designated in such notice.

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(m)          ERISA.  The Borrower shall not cause or permit to occur an event that (i) could reasonably be expected to result in the imposition of a Lien on any Borrower Collateral under Section 412 of the IRC or Section 302 or 4068 of ERISA, or (ii) could reasonably be expected to result in the incurrence by Borrower of any liabilities under Title IV of ERISA (other than (x) premium payments arising in the ordinary course of business, (y) liabilities arising under Section 4041(b) of ERISA and (z) interest or penalties in connection with late premium payments that have not remained outstanding for more than thirty (30) days from the day such interest or penalties were incurred).

(n)           Related Documents.  The Borrower shall not amend, modify or waive any term or provision of any Related Document without the prior written consent of the Administrative Agent.

(o)           Board Policies.  The Borrower shall not modify the terms of any policy or resolutions of its board of managers if such modification could reasonably be expected to have or result in a Material Adverse Effect.

(p)           Additional Members of Borrower.  The Borrower shall not admit any additional member without the prior written consent of the Administrative Agent other than a “Special Member” as such term is defined in the Borrower’s limited liability company agreement as of the date hereof.

ARTICLE VI.

ACCOUNTS

Section 6.01.  Establishment of Accounts.

(a)           Collection Accounts.

(i)            The Borrower has established with each Collection Account Bank one or more Collection Accounts subject, in each case, to a fully executed Collection Account Agreement.  The Borrower agrees that the Administrative Agent shall have exclusive dominion and control of each Collection Account and all monies, instruments and other property from time to time on deposit therein.  The Borrower shall not make or cause to be made, or have any ability to make or cause to be made, any withdrawals from any Collection Account except as provided in Section 6.01(b)(ii).

(ii)           The Borrower (or an Originator on Borrower’s behalf) has instructed all existing Obligors of Transferred Receivables, and shall instruct all future Obligors of such Receivables, to make payments in respect thereof only (A) by check or money order mailed to one or more lockboxes or post office boxes under the control of the Administrative Agent (each a “Lockbox” and collectively the “Lockboxes”) or (B) by wire transfer or moneygram directly to a Collection Account.  Schedule 4.01(q) lists all Lockboxes and all Collection Account Banks at which the Borrower maintains Collection Accounts as of the Effective Date, and such schedule correctly identifies (1) with respect to each such Collection Account Bank, the name, address and telephone number thereof,

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(2) with respect to each Collection Account, the name in which such account is held and the complete account number therefor, and (3) with respect to each Lockbox, the lockbox number and address thereof.  The Borrower (or the Servicer on Borrower’s behalf) shall endorse, to the extent necessary, all checks or other instruments received in any Lockbox so that the same can be deposited in the Collection Account, in the form so received (with all necessary endorsements), on the first Business Day after the date of receipt thereof.  In addition, the Borrower shall deposit or cause to be deposited into a Collection Account all cash, checks, money orders or other proceeds of Transferred Receivables or Borrower Collateral received by it other than in a Lockbox or a Collection Account, in the form so received (with all necessary endorsements), not later than the close of business on the first Business Day following the date of receipt thereof, and until so deposited all such items or other proceeds shall be held in trust for the benefit of the Administrative Agent.  The Borrower shall not make and shall not permit the Servicer to make any deposits into a Lockbox or any Collection Account except in accordance with the terms of this Agreement or any other Related Document.

(iii)          If, for any reason, a Collection Account Agreement terminates or any Collection Account Bank fails to comply with its obligations under the Collection Account Agreement to which it is a party, then the Borrower shall promptly notify all Obligors of Transferred Receivables who had previously been instructed to make payments to a Collection Account maintained at any such Collection Account Bank to make all future payments to a new Collection Account in accordance with this Section 6.01(a)(iii).  Neither the Borrower nor the Servicer on the Borrower’s behalf shall close any Collection Account unless it shall have (A) received the prior written consent of the Administrative Agent, (B) established a new account with the same Collection Account Bank or with a new depositary institution satisfactory to the Administrative Agent, (C) entered into an agreement covering such new account with such Collection Account Bank or with such new depositary institution substantially in the form of the predecessor Collection Account Agreement or that is satisfactory in all respects to the Administrative Agent (whereupon, for all purposes of this Agreement and the other Related Documents, such new account shall become a Collection Account, such new agreement shall become a Collection Account Agreement and any new depositary institution shall become a Collection Account Bank), and (D) taken all such action as the Administrative Agent shall reasonably require to grant and perfect a first priority Lien in such new Collection Account to the Lender under Section 7.01 of this Agreement.  Except as permitted by this Section 6.01(a), the Borrower shall not, and shall not permit the Servicer to, open any new Lockbox or Collection Account without the prior written consent of the Administrative Agent.

(b)           Concentration Account.

(i)            The Borrower has established the Concentration Account subject to a fully executed Concentration Account Agreement.  The Borrower agrees that the Administrative Agent shall have exclusive dominion and control of the Concentration Account and all monies, instruments and other property from time to time on deposit therein.

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(ii)           The Borrower (or the Servicer on Borrower’s behalf) shall require all Collection Account Banks to automatically transfer to the Concentration Account on a daily basis all collected and available funds on deposit in each Collection Account.  The Borrower (or the Servicer on Borrower’s behalf) will require the Concentration Account Bank to automatically transfer all collected and available funds on deposit in the Concentration Account to the Agent Account on a daily basis.

(iii)          If, for any reason, the Concentration Account Agreement relating to the Concentration Account terminates or the Concentration Account Bank fails to comply with its obligations under such Concentration Account Agreement, then the Borrower shall promptly notify the Administrative Agent thereof and the Borrower, the Servicer or the Administrative Agent, as the case may be, shall instruct all Collection Account Banks who had previously been instructed to make transfers to the Concentration Account maintained at any such Concentration Account Bank to make all future payments to a new Concentration Account in accordance with this Section 6.01(b)(iii).  Neither the Borrower nor the Servicer on the Borrower’s behalf shall close the Concentration Account unless it shall have (A) received the prior written consent of the Administrative Agent, (B) established a new account with the same Concentration Account Bank or with a new depositary institution satisfactory to the Administrative Agent, (C) entered into an agreement covering such new account with such Concentration Account Bank or with such new depositary institution substantially in the form of the Concentration Account Agreement or that is satisfactory in all respects to the Administrative Agent (whereupon, for all purposes of this Agreement and the other Related Documents, such new account shall become the Concentration Account, such new agreement shall become a Concentration Account Agreement and any new depositary institution shall become the Concentration Account Bank), and (D) taken all such action as the Administrative Agent shall reasonably require to grant and perfect a first priority Lien in such new Concentration Account to the Lender under Section 7.01 of this Agreement.  Except as permitted by this Section 6.01(b), the Borrower shall not, and shall not permit the Servicer to open a new Concentration Account without the prior written consent of the Administrative Agent.

(c)           Agent Account.

(i)            The Administrative Agent has established and shall maintain the Agent Account with Deutsche Bank Trust Company Americas (the “Depositary”).  The Agent Account shall be registered in the name of the Administrative Agent and the Administrative Agent shall, subject to the terms of this Agreement, have exclusive dominion and control thereof and of all monies, instruments and other property from time to time on deposit therein.

(ii)           The Lenders and the Administrative Agent shall deposit into the Agent Account from time to time all monies, instruments and other property received by any of them as proceeds of the Transferred Receivables.

(iii)          If, for any reason, the Depositary wishes to resign as depositary of the Agent Account or fails to carry out the instructions of the Administrative Agent, then

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the Administrative Agent shall promptly notify the Lenders.  Neither the Lenders nor the Administrative Agent shall close the Agent Account unless (A) a new deposit account has been established with a new depositary institution, (B) the Lenders and the Administrative Agent have entered into an agreement covering such new account with such new depositary institution satisfactory in all respects to the Administrative Agent (whereupon such new account shall become the Agent Account and such new depositary institution shall become the Depositary for all purposes of this Agreement and the other Related Documents), and (C) the Lenders and the Administrative Agent have taken all such action as the Administrative Agent shall require to grant and perfect a first priority Lien in such new Agent Account to the Administrative Agent on behalf of the Lenders.

(d)           Borrower Account.

(i)            The Borrower has established the Borrower Account subject to a fully executed Borrower Account Agreement and agrees that, subject to clause (ii) below, the Administrative Agent shall have exclusive dominion and control of such Borrower Account and all monies, instruments and other property from time to time on deposit therein.

(ii)           The Administrative Agent hereby agrees that until such time as it exercises its right to take control of the Borrower Account under Section 7.05(d), the Borrower Account Bank shall be entitled to follow the instructions of the Borrower, or the Administrative Agent on behalf of the Borrower, with respect to the withdrawal, transfer or payment of funds on deposit in the Borrower Account.

ARTICLE VII.

GRANT OF SECURITY INTERESTS

Section 7.01.  Borrower’s Grant of Security Interest.  To secure the prompt and complete payment, performance and observance of all Borrower Obligations, and to induce the Administrative Agent and the Lenders to enter into this Agreement and perform the obligations required to be performed by them hereunder in accordance with the terms and conditions hereof, the Borrower hereby grants, assigns, conveys, pledges, hypothecates and transfers to the Administrative Agent, for the benefit of the Administrative Agent, the Lenders, the Indemnified Persons and the Affected Parties, a Lien upon and security interest in all of the Borrower’s right, title and interest in, to and under, but none of its obligations arising from, the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of, the Borrower (including under any trade names, styles or derivations of the Borrower), and regardless of where located (all of which being hereinafter collectively referred to as the “Borrower Collateral”):

(a)           all Receivables;

(b)           the Sale Agreement, all Collection Account Agreements, the Concentration Account Agreement and all other Related Documents now or hereafter in effect relating to the purchase, servicing, processing or collection of Receivables (collectively, the “Borrower Assigned Agreements”), including (i) all rights of the Borrower to receive moneys

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due and to become due thereunder or pursuant thereto, (ii) all rights of the Borrower to receive proceeds of any insurance, indemnity, warranty or guaranty with respect thereto, (iii) all claims of the Borrower for damages or breach with respect thereto or for default thereunder and (iv) the right of the Borrower to amend, waive or terminate the same and to perform and to compel performance and otherwise exercise all remedies thereunder;

(c)           all of the following (collectively, the “Borrower Account Collateral”):

(i)            the Collection Accounts, the Lockboxes, and all funds on deposit therein and all certificates and instruments, if any, from time to time representing or evidencing the Collection Accounts, the Lockboxes or such funds,

(ii)           the Agent Account and all funds on deposit therein and all certificates and instruments, if any, from time to time representing or evidencing the Agent Account or such funds,

(iii)          the Concentration Account and all funds on deposit therein and all certificates and instruments, if any, from time to time representing or evidencing the Concentration Account or such funds,

(iv)          the Borrower Account and all funds on deposit therein and all certificates and instruments, if any, from time to time representing or evidencing the Borrower Account or such funds,

(v)           all notes, certificates of deposit and other instruments from time to time delivered to or otherwise possessed by any Lender or any assignee or agent on behalf of any Lender in substitution for or in addition to any of the then existing Borrower Account Collateral, and

(vi)          all interest, dividends, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed with respect to or in exchange for any and all of the then existing Borrower Account Collateral;

(d)           all other property relating to the Receivables that may from time to time hereafter be granted and pledged by the Borrower or by any Person on its behalf whether under this Agreement or otherwise, including any deposit with any Lender or the Administrative Agent of additional funds by the Borrower;

(e)           all other personal property of the Borrower of every kind and nature not described above including without limitation all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents, accounts, chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights, commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, and all general intangibles (including all payment intangibles); and

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(f)            to the extent not otherwise included, all proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and profits of, each of the foregoing Borrower Collateral (including proceeds that constitute property of the types described in Sections 7.01(a) through (e)).

Section 7.02.  Borrower’s Agreements.  The Borrower hereby (a) collaterally assigns, transfers and conveys the benefits of the representations, warranties and covenants of each Originator made to the Borrower under the Sale Agreement to the Administrative Agent for the benefit of the Lenders hereunder; (b) acknowledges and agrees that the rights of the Borrower to require payment of a Rejected Amount from an Originator under the Sale Agreement may be enforced by the Lenders and the Administrative Agent; and (c) certifies that the Sale Agreement provides that the indemnification and payment provisions of Article V thereof and the provisions of Sections 4.03(j), Section 4.04, 6.12, 6.14 and 6.15 thereof shall survive the sale of the Transferred Receivables (and undivided percentage ownership interests therein) and the termination of the Sale Agreement and this Agreement.

Section 7.03.  Delivery of Collateral.  All certificates or instruments representing or evidencing all or any portion of the Borrower Collateral shall be delivered to and held by or on behalf of the Administrative Agent and shall be in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Administrative Agent.  The Administrative Agent shall have the right (a) at any time to exchange certificates or instruments representing or evidencing Borrower Collateral for certificates or instruments of smaller or larger denominations and (b) upon the occurrence of a Termination Event, to exercise its rights and remedies with respect to such Collateral under the UCC.

Section 7.04.  Borrower Remains Liable.  It is expressly agreed by the Borrower that, anything herein to the contrary notwithstanding, the Borrower shall remain liable under any and all of the Transferred Receivables, the Contracts therefor, the Borrower Assigned Agreements and any other agreements constituting the Borrower Collateral to which it is a party to observe and perform all the conditions and obligations to be observed and performed by it thereunder.  The Lenders and the Administrative Agent shall not have any obligation or liability under any such Receivables, Contracts or agreements by reason of or arising out of this Agreement or the granting herein or therein of a Lien thereon or the receipt by the Administrative Agent or the Lenders of any payment relating thereto pursuant hereto or thereto.  The exercise by any Lender or the Administrative Agent of any of its respective rights under this Agreement shall not release any Originator, the Borrower or the Servicer from any of their respective duties or obligations under any such Receivables, Contracts or agreements.  None of the Lenders or the Administrative Agent shall be required or obligated in any manner to perform or fulfill any of the obligations of any Originator, the Borrower or the Servicer under or pursuant to any such Receivable, Contract or agreement, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such Receivable, Contract or agreement, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.

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Section 7.05.  Covenants of the Borrower Regarding the Borrower Collateral.

(a)           Offices and Records.  The Borrower shall maintain its principal place of business and chief executive office and the office at which it stores its Records at the respective locations specified in Schedule 4.01(b) or, upon 30 days’ prior written notice to the Administrative Agent, at such other location in a jurisdiction where all action requested by the Administrative Agent pursuant to Section 12.13 shall have been taken with respect to the Borrower Collateral.  The Borrower shall, and shall cause the Servicer to at its own cost and expense, maintain adequate and complete records of the Transferred Receivables and the Borrower Collateral, including records of any and all payments received, credits granted and merchandise returned with respect thereto and all other dealings therewith.  The Borrower shall, and shall cause the Servicer to, by no later than the Effective Date, mark conspicuously with a legend, in form and substance satisfactory to the Administrative Agent, its computer records pertaining to the Borrower Collateral and its file cabinets or other storage facilities where it maintains information pertaining to Substantial Contracts that constitute the Borrower Collateral, to evidence this Agreement and the assignment and Liens granted pursuant to this Article VIII.  Upon the occurrence and during the continuance of a Termination Event, the Borrower shall, and shall cause the Servicer to, deliver and turn over such books and records to the Administrative Agent or its representatives at any time on demand of the Administrative Agent.  Prior to the occurrence of a Termination Event and upon notice from the Administrative Agent, the Borrower shall, and shall cause the Servicer to, permit any representative of the Administrative Agent to inspect such books and records and shall provide photocopies thereof to the Administrative Agent as more specifically set forth in Section 7.05(b).

(b)           Access.  The Borrower shall, and shall cause the Servicer to, at its or the Servicer’s own expense, during normal business hours, from time to time upon ten (10) Business Day’s prior notice (or, if a Termination Event has occurred and in continuing, one (1) Business Day’s prior notice) as frequently as the Administrative Agent determines to be appropriate:  (i) provide the Administrative Agent and any of its officers, employees and agents access to its properties (including properties utilized in connection with the collection, processing or servicing of the Transferred Receivables), facilities, advisors and employees (including officers) and to the Borrower Collateral, (ii) permit the Administrative Agent and any of its officers, employees and agents to inspect, audit and make extracts from its books and records, including all Records, (iii) permit the Administrative Agent and its officers, employees and agents to inspect, review and evaluate the Transferred Receivables and the Borrower Collateral and (iv) permit the Administrative Agent and its officers, employees and agents to discuss matters relating to the Transferred Receivables or its performance under this Agreement or the other Related Documents or its affairs, finances and accounts with any of its officers, directors, employees, representatives or agents (in each case, with those persons having knowledge of such matters) and with its independent certified public accountants as specified in Section 7.05(c); provided, however, that, so long as no Termination Event or Incipient Termination Event has occurred and is continuing, (i) the Administrative Agent shall be limited to two (2) audits pursuant to this Section 7.05(b) during each calendar year and (ii) the Borrower’s obligations to reimburse out-of-pocket expenses in respect of each such audit shall not exceed (x) $50,000 minus (y) the amounts incurred by the Originators pursuant to Section 4.02(b) of the Sale Agreement in connection with any contemporaneous audit of the Originators. The Borrower agrees that it shall not request any audit of any Originator under Section 4.02(b) of the Sale Agreement unless directed in writing to do so by the Administrative Agent. If (i) the Administrative Agent in good

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faith deems any Lender’s rights or interests in the Transferred Receivables, the Borrower Assigned Agreements or any other Borrower Collateral insecure or the Administrative Agent in good faith believes that an Incipient Termination Event or a Termination Event is imminent or (ii) an Incipient Termination Event or a Termination Event shall have occurred and be continuing, then the Borrower shall, and shall cause the Servicer to, at its own expense, provide such access at all times without prior notice from the Administrative Agent and provide the Administrative Agent with access to the suppliers and customers of the Borrower and the Servicer; provided, that, the Borrower shall have the opportunity to be present at the time of any such access to it’s the Borrower’s suppliers or customers.  The Borrower shall, and shall cause the Servicer to, make available to the Administrative Agent and its counsel, as quickly as is possible under the circumstances, copies of all books and records, including Records, that the Administrative Agent may request.  The Borrower shall, and shall cause the Servicer to, and the Servicer shall deliver any document or instrument necessary for the Administrative Agent, as the Administrative Agent may from time to time request, to obtain records from any service bureau or other Person that maintains records for the Borrower or the Servicer, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by the Borrower or the Servicer.

(c)           Communication with Accountants.  The Borrower hereby authorizes (and shall cause the Servicer to authorize) the Lenders and the Administrative Agent to communicate directly with its independent certified public accountants and authorizes and shall instruct those accountants and advisors to disclose and make available to the Lenders and the Administrative Agent any and all financial statements and other supporting financial documents, schedules and information relating to the Borrower or the Servicer (including copies of any issued management letters) and to discuss matters with respect to its business, financial condition and other affairs; provided, that the Administrative Agent shall notify the Borrower or the Servicer, as applicable, prior to any contact with such accountants and advisors and shall give the Borrower or the Servicer, as applicable, the opportunity to participate in such discussions.

(d)           Collection of Transferred Receivables.  In connection with the collection of amounts due or to become due to the Borrower under the Transferred Receivables, the Borrower Assigned Agreements and any other Borrower Collateral pursuant to the Sale Agreement, the Borrower shall, or shall cause the Servicer to, take such action as it, and from and after the occurrence and during the continuance of a Termination Event, the Administrative Agent, may deem necessary or desirable to enforce collection of the Transferred Receivables, the Borrower Assigned Agreements and the other Borrower Collateral; provided that the Borrower may, rather than commencing any such action or taking any other enforcement action, at its option, elect to pay to the Administrative Agent, for deposit into the Agent Account, an amount equal to the Outstanding Balance of any such Transferred Receivable; provided, further, that if a Termination Event shall have occurred and be continuing, then the Administrative Agent may, without prior notice to the Seller or the Servicer, (x) exercise its rights under the Account Agreements (in which case the Servicer shall be required, pursuant to the Sale Agreement, to deposit any Collections it then has in its possession or at any time thereafter receives, immediately in a Collection Account or, if directed by the Administration Agent, in the Agent Account) and (y) notify any Obligor under any Transferred Receivable or obligors under the Borrower Assigned Agreements of the pledge of such Transferred Receivables or Borrower

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Assigned Agreements, as the case may be, to the Administrative Agent on behalf of the Lenders hereunder and direct that payments of all amounts due or to become due to the Borrower thereunder be made directly to the Administrative Agent or any servicer, collection agent or lockbox or other account designated by the Administrative Agent and, upon such notification and at the sole cost and expense of the Borrower, the Administrative Agent may enforce collection of any such Transferred Receivable or the Borrower Assigned Agreements and adjust, settle or compromise the amount or payment thereof.  The Administrative Agent shall provide prompt notice to the Borrower and the Servicer of any such notification of pledge or direction of payment to the Obligors under any Transferred Receivables.

(e)           Performance of Borrower Assigned Agreements.  The Borrower shall, and shall cause the Servicer to, (i) perform and observe all the terms and provisions of the Borrower Assigned Agreements to be performed or observed by it, maintain the Borrower Assigned Agreements in full force and effect, enforce the Borrower Assigned Agreements in accordance with their terms and take all action as may from time to time be requested by the Administrative Agent in order to accomplish the foregoing, and (ii) upon the request of and as directed by the Administrative Agent, make such demands and requests to any other party to the Borrower Assigned Agreements as are permitted to be made by the Borrower or the Servicer thereunder.

(f)            License for Use of Software and Other Intellectual Property.  Unless expressly prohibited by the licensor thereof or any provision of applicable law, if any, the Borrower hereby grants to the Administrative Agent on behalf of the Lenders a limited license to use, without charge, the Borrower’s rights to use its own and the Servicer’s computer programs, software, printouts and other computer materials, technical knowledge or processes, data bases, materials, trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights of use of any name, labels, fictitious names, inventions, designs, trade secrets, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials or any property of a similar nature, as it pertains to the Borrower Collateral, or any rights to any of the foregoing, only as reasonably required in connection with the collection of the Transferred Receivables and the advertising for sale, and selling any of the Borrower Collateral, or exercising of any other remedies hereto, and the Borrower agrees that its rights under all licenses and franchise agreements shall inure to the Administrative Agent’s benefit (on behalf of the Lenders) for purposes of the license granted herein.  Except upon the occurrence and during the continuation of a Termination Event, the Administrative Agent and the Lenders agree not to use any such license without giving the Borrower prior written notice.

ARTICLE VIII.

TERMINATION EVENTS

Section 8.01.  Termination Events.  If any of the following events (each, a “Termination Event”) shall occur (regardless of the reason therefor):

(a)           (i) the Borrower shall fail to pay, (A) any installment or other payment of principal of any Advance when due, or to repay Advances to reduce their balance to the

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maximum amount of Revolving Loans then permitted to be outstanding when due or (B) within three (3) Business Days after the due date, any interest on any Advances, any other Borrower Obligations or any other amount due under this Agreement or any of the other Related Documents or (ii) any Transaction Party shall fail to pay, within three (3) Business Days after the due date, any amount due under the Sale Agreement or any of the other Related Documents; provided, that no Termination Event shall occur if such any failure to pay arises solely as a result of the failure of the Administrative Agent to make transfers of amounts available in the Agent Account on any Settlement Date in accordance with Section 2.08; or

(b)           (i) the Borrower or any Transaction Party shall fail or neglect to perform, keep or observe any requirement set forth in Section 5.01(c) or Section 5.03 of this Agreement or Section 4.02(l) or Section 4.03 of the Sale Agreement, (ii) the Borrower or any Transaction Party shall fail or neglect to perform, keep or observe any requirement set forth in Section 5.02 of this Agreement and the same shall remain unremedied for five (5) Business Days after the date specified for performance of any such requirement or (iii) the Borrower or any Transaction Party shall fail or neglect to perform, keep or observe any other covenant or other provision of this Agreement or the other Related Documents (other than any provision embodied in or covered by any other clause of this Section 8.01) and the same shall remain unremedied for thirty (30) Business Days or more following the earlier to occur of an Authorized Officer of the Borrower or the applicable Transaction Party becoming aware of such breach and the Borrower’s receipt of notice thereof; or

(c)           (1) any Transaction Party or the Borrower shall fail to pay when due or within any applicable grace period any principal or interest on Debt (other than the Advances with respect to the Borrower) or any Contingent Obligations or (2) a breach or default of any Transaction Party or the Borrower, or the occurrence of any condition or event, with respect to any Debt (other than the Advances with respect to the Borrower) or any Contingent Obligations, in each case if the effect of such breach, default or occurrence is to cause or to permit the holder or holders then to cause, Debt and/or Contingent Obligations having an aggregate principal amount in excess of $5,000,000 to become or be declared due prior to their stated maturity; or

(d)

(i)            (1) A court enters a decree or order for relief with respect to any Transaction Party in an involuntary case under the Bankruptcy Code, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law; or (2) the continuance of any of the following events for sixty (60) days unless dismissed, bonded or discharged:  (a) an involuntary case is commenced against any Transaction Party under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian, administrator or other officer having similar powers overany Transaction Party or over all or a substantial part of its property, is entered; or (c) a receiver, trustee or other custodian is appointed without the consent of a Transaction Party for, or an encumbrance takes possession of, all or a substantial part of the property ofsuch Transaction Party; or

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(ii)           a case or proceeding shall have been commenced against the Borrower seeking a decree or order in respect of the Borrower under the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, (i) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for the Borrower or for any substantial part of the Borrower’s assets, or (ii) ordering the winding up or liquidation of the affairs of any such Person;

(e)           (1) Any Transaction Party or the Borrower commences a voluntary case under the Bankruptcy Code, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (2) any Transaction Party or the Borrower makes any assignment for the benefit of creditors; or (3) the board of directors (or equivalent thereof) or the shareholders (or equivalent thereof) of any Transaction Party or the Borrower adopts any resolution or otherwise authorizes action in connection with the administration, liquidation, winding-up or dissolution of such Transaction Party or the Borrower or to approve any of the actions referred to in this Section 8.01(e);

(f)            (i) any Originator, the Borrower or the Servicer generally does not pay its debts as such debts become due (within the meaning of Section 303(h) of the Bankruptcy Code of the United States), (ii) any Authorized Officer of any Originator, the Borrower or the Servicer admits in writing its inability to, or is generally unable to, pay its debts as such debts become due or (iii) any Originator, the Borrower or the Servicer is not Solvent; or

(g)           any money judgment, writ or warrant of attachment, or similar process (other than those described elsewhere in this Section 8.01) involving an amount in the aggregate at any time in excess of $5,000,000 (to the extent not adequately covered by insurance provided by a reputable and solvent insurance company) is entered or filed against one or more of the Transaction Party or the Borrower or any of their respective assets and remains undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than five (5) Business Days prior to the date of any proposed sale thereunder; or

(h)           a judgment or order for the payment of money shall be rendered against the Borrower; or

(i)            (i) any information contained in any Borrowing Base Certificate or any Borrowing Request is untrue or incorrect in any respect other than an Immaterial Misstatement, or (ii) any representation or warranty of any Originator or the Borrower herein or in any other Related Document or in any statement, report, financial statement or certificate (other than a Borrowing Base Certificate or any Borrowing Request) made or delivered by or on behalf of such Originator or the Borrower to any Affected Party hereto or thereto is untrue or incorrect in any material respect (without duplication of any materiality qualifier contained therein) as of the date when made or deemed made (unless previously cured by such Originator pursuant to Section 4.04 of the Sale Agreement); or

(j)            any Governmental Authority (including the IRS or the PBGC) shall file notice of a Lien with regard to any assets of any Originator or any of such Originator’s ERISA

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Affiliates (other than a Lien (i) limited by its terms to assets other than Receivables and (ii) not materially adversely affecting the financial condition of such Originator or such ERISA Affiliate or the ability of any Transaction Party or the Borrower to perform its duties hereunder or under the Related Documents); or

(k)           any Governmental Authority (including the IRS or the PBGC) shall file notice of a Lien with regard to any of the assets of the Borrower, including, without limitation, any Lien on any Borrower Collateral under Section 412 of the IRC or Section 302 or 4068 of ERISA; or

(l)            (1) there shall have occurred any event which, in the reasonable judgment of the Administrative Agent, materially and adversely impairs (i) the ability of any Originator to originate Receivables of a credit quality which are at least of the credit quality of the Receivables as of the Effective Date, (ii) the financial condition or operations of any Originator or the Borrower, or (iii) the collectibility of Receivables, or (2) the Administrative Agent shall have determined (and so notified the Borrower) that any event or condition that has had or could reasonably be expected to have or result in a Material Adverse Effect has occurred; or

(m)          the Sale Agreement shall for any reason cease to evidence the transfer to the Borrower of the legal and equitable title to, and ownership of, the Transferred Receivables; or

(n)           except as otherwise expressly provided herein, any Account Agreement or the Sale Agreement shall have been modified, amended or terminated without the prior written consent of the Administrative Agent; or

(o)           (i) any Event of Servicer Termination specified in Section 8.01(a) through (m) of the Sale Agreement shall have occurred, or (ii) an Event of Servicer Termination specified in Section 8.01(n) of the Sale Agreement shall have occurred; or

(p)           (A) the Borrower shall cease to hold valid and properly perfected title to and sole record and beneficial ownership in the Transferred Receivables and the other Borrower Collateral or (B) the Administrative Agent (on behalf of the Lenders) shall cease to hold a first priority, perfected Lien in the Transferred Receivables or any of the Borrower Collateral; or

(q)           a Change of Control shall occur; or

(r)            the Borrower shall amend its certificate of formation or limited liability company agreement without the express prior written consent of the Requisite Lenders and the Administrative Agent; or

(s)           the Borrower shall have received an Election Notice pursuant to Section 2.01(d)of the Sale Agreement; or

(t)            (i) the Default Ratio shall exceed 3.0%; (ii) the Delinquency Ratio shall exceed 2.5%; (iii) the Dilution Trigger Ratio shall exceed 3.0% or (iv) the Receivables Collection Turnover shall exceed 45 days; or

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(u)           any material provision of any Related Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms (or any Originator or the Borrower shall challenge the enforceability of any Related Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Related Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms); or

(v)           the incurrence of a liability to the PBGC under Title IV of ERISA by any Originator or the Servicer or any of their respective ERISA Affiliates (except for premium payments arising in the ordinary course of business and liabilities arising under Section 4041(b) of ERISA), in excess of $500,000;

(w)          any member of the Parent Group shall create, incur, assume or permit to exist any Debt, except (i) Debt of such Person to any Affected Party, Buyer Indemnified Person or any other Person expressly permitted by the Sale Agreement or any other Related Document, and (ii) other Debt permitted pursuant to Section 5.1 of the Existing Credit Agreement as in effect as of the Closing Date; or

(x)            a Funding Excess exists at any time and the Borrower has not repaid the amount of such Funding Excess within one (1) Business Day in accordance with Section 2.08 hereof;

then, and in any such event, the Administrative Agent, may, with the consent of the Requisite Lenders, and shall, at the request of the Requisite Lenders, by notice to the Borrower, declare the Commitment Termination Date to have occurred without demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, that the Commitment Termination Date shall automatically occur (i) upon the occurrence of any of the Termination Events described in Sections 8.01(d), (e), (j), (k) or (s), (ii) three days after the occurrence of the Termination Event described in Section 8.01(a)if the same shall not have been remedied by such time or (iii) four Business Days after the occurrence of the Termination Event described in Section 8.01(x) if the same shall not have been remedied by such time, in each case without demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.  Upon the occurrence of the Commitment Termination Date, all Borrower Obligations shall automatically be and become due and payable in full, without any action to be taken on the part of any Person.  In addition, if any Event of Servicer Termination shall have occurred, then, the Administrative Agent may, and shall, at the request of the Requisite Lenders, by delivery of a Servicer Termination Notice to Buyer and the Servicer, terminate the servicing responsibilities of the Servicer under the Sale Agreement in accordance with the terms thereof.

ARTICLE IX.

REMEDIES

Section 9.01.  Actions Upon Termination Event.  Except as provided in Section 9.01(f) below, if any Termination Event shall have occurred and be continuing and the Administrative Agent shall have declared the Commitment Termination Date to have occurred or the Commitment Termination Date shall be deemed to have occurred pursuant to Section 8.01,

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then the Administrative Agent may exercise in respect of the Borrower Collateral, in addition to any and all other rights and remedies granted to it hereunder, under any other Related Document or under any other instrument or agreement securing, evidencing or relating to the Borrower Obligations or otherwise available to it, all of the rights and remedies of a secured party upon default under the UCC (such rights and remedies to be cumulative and nonexclusive), and, in addition, may take the following actions:

(a)           The Administrative Agent may, without notice to the Borrower except as required by law and at any time or from time to time, (i) charge, offset or otherwise apply amounts payable to the Borrower from the Agent Account, the Borrower Account, the Concentration Account or any Collection Account against all or any part of the Borrower Obligations and (ii) without limiting the terms of Section 7.05(d), notify any Obligor under any Transferred Receivable or obligors under the Borrower Assigned Agreements of the transfer of the Transferred Receivables to the Borrower and of the pledge of such Transferred Receivables or Borrower Assigned Agreements, as the case may be, to the Administrative Agent on behalf of the Lenders hereunder and direct that payments of all amounts due or to become due to the Borrower thereunder be made directly to the Administrative Agent or any servicer, collection agent or lockbox or other account designated by the Administrative Agent.

(b)           The Administrative Agent may, without notice except as specified below, solicit and accept bids for and sell the Borrower Collateral or any part thereof to any Person other than the Borrower or any Originator in one or more parcels at public or private sale, at any exchange, broker’s board or any of the Lenders’ or Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable.  The Administrative Agent shall have the right to conduct such sales on the Borrower’s premises or elsewhere and shall have the right to use any of the Borrower’s premises without charge for such sales at such time or times as the Administrative Agent deems necessary or advisable.  The Borrower agrees that, to the extent notice of sale shall be required by law, ten days’ notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification.  The Administrative Agent shall not be obligated to make any sale of Borrower Collateral regardless of notice of sale having been given.  The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may, without further notice, be made at the time and place to which it was so adjourned.  Every such sale shall operate to divest all right, title, interest, claim and demand whatsoever of the Borrower in and to the Borrower Collateral so sold, and shall be a perpetual bar, both at law and in equity, against each Originator, the Borrower, any Person claiming any right in the Borrower Collateral sold through any Originator or the Borrower, and their respective successors or assigns.  The Administrative Agent shall deposit the net proceeds of any such sale in the Agent Account and such proceeds shall be applied against all or any part of the Borrower Obligations.

(c)           Upon the completion of any sale under Section 9.01(b), the Borrower shall deliver or cause to be delivered to the purchaser or purchasers at such sale on the date thereof, or within a reasonable time thereafter if it shall be impracticable to make immediate delivery, all of the Borrower Collateral sold on such date, but in any event full title and right of possession to such property shall vest in such purchaser or purchasers upon the completion of such sale.  Nevertheless, if so requested by the Administrative Agent or by any such purchaser, the

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Borrower shall confirm any such sale or transfer by executing and delivering to such purchaser all proper instruments of conveyance and transfer and releases as may be designated in any such request.

(d)           At any sale under Section 9.01(b), any Lender or the Administrative Agent may bid for and purchase the property offered for sale and, upon compliance with the terms of sale, may hold, retain and dispose of such property without further accountability therefor.

(e)           The Administrative Agent may (but in no event shall be obligated to) exercise, at the sole cost and expense of the Borrower, any and all rights and remedies of the Borrower under or in connection with the Borrower Assigned Agreements or the other Borrower Collateral, including any and all rights of the Borrower to demand or otherwise require payment of any amount under, or performance of any provisions of, the Borrower Assigned Agreements.  Without limiting the foregoing, the Administrative Agent shall, upon the occurrence of any Event of Servicer Termination, have the right to name any Successor Servicer (including itself) pursuant to Article VIII of the Sale Agreement.

(f)            If only a Termination Event specified in Section 8.01(o)(ii) hereof shall have occurred and be continuing, the Administrative Agent’s remedies shall be limited to the rights expressly provided for in this Section 9.01(f) and those incidental to the exercise thereof.  Administrative Agent shall have the right to, or the right to direct the Buyer to: (i) terminate the Servicer and take all actions in furtherance thereof in accordance with Article 9 of the Sale Agreement, (ii) exercise all rights of the Buyer or the Administrative Agent, under the terms of the Sale Agreement, to direct the conduct of the Servicer thereunder, and (iii) to collect and enforce the Borrower Collateral in as provided in Section 9-607 of the applicable UCC and to apply Collections to the Borrower Obligations in accordance Article II hereof; provided, Administrative Agent shall not have any right to foreclose on the Borrower Collateral in the manner provided in Section 9-610 or 9-620 of the applicable UCC.   For the avoidance of doubt, (i) upon the occurrence and during the continuance of a Termination Event specified in Section 8.01(o)(ii) hereof, no Lender shall have any obligation to make any Advances pursuant to this Agreement and (ii) if, in addition to the Termination Event specified in Section 8.01(o)(ii) hereof, any other Termination Event shall have occurred and be continuing, the Administrative Agent shall be entitled to exercise any of the other remedies set forth in this Article IX.

Section 9.02.  Exercise of Remedies.  No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege under this Agreement and no course of dealing between any Originator, the Borrower or the Servicer, on the one hand, and the Administrative Agent or any Lender, on the other hand, shall operate as a waiver of such right, power or privilege, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege.  The rights and remedies under this Agreement are cumulative, may be exercised singly or concurrently, and are not exclusive of any rights or remedies that the Administrative Agent or any Lender would otherwise have at law or in equity.  No notice to or demand on any party hereto shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the party providing such notice or making such demand to any other or further action in any circumstances without notice or demand.

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Section 9.03.  Power of Attorney.  On the Closing Date, the Borrower shall execute and deliver a power of attorney substantially in the form attached hereto as Exhibit 9.03 (a “Power of Attorney”).  The Power of Attorney is a power coupled with an interest and shall be irrevocable until this Agreement has terminated in accordance with its terms and all of the Borrower Obligations are indefeasibly paid or otherwise satisfied in full.  The powers conferred on the Administrative Agent under each Power of Attorney are solely to protect the Liens of the Administrative Agent and the Lenders upon and interests in the Borrower Collateral and shall not impose any duty upon the Administrative Agent to exercise any such powers.  The Administrative Agent shall not be accountable for any amount other than amounts that it actually receives as a result of the exercise of such powers and none of the Administrative Agent’s officers, directors, employees, agents or representatives shall be responsible to the Borrower, any Originator, the Servicer or any other Person for any act or failure to act, except to the extent of damages attributable to their own gross negligence or willful misconduct as determined by a court of competent jurisdiction.

Section 9.04.  Continuing Security Interest.  This Agreement shall create a continuing Lien in the Borrower Collateral until the Termination Date.

ARTICLE X.

INDEMNIFICATION

Section 10.01.  Indemnities by the Borrower.

(a)           Without limiting any other rights that the Lenders or the Administrative Agent or any of their respective officers, directors, employees, attorneys, agents, representatives, transferees, successors or assigns (each, an “Indemnified Person”) may have hereunder or under applicable law, the Borrower hereby agrees to indemnify and hold harmless each Indemnified Person from and against any and all Indemnified Amounts that may be claimed or asserted  by any Person other than the Borrower against or incurred by any such Indemnified Person in connection with or arising out of the transactions contemplated under this Agreement or under any other Related Document or any actions or failures to act in connection therewith, including any and all Rating Agency costs and any and all legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Related Documents; provided, that the Borrower shall not be liable for any indemnification to an Indemnified Person to the extent that any such Indemnified Amount (v) in the case of an Affected Party that is a U.S person as defined in I.R.C. § 7701(a)(30) but is not a person to whom a payment of interest may be made under Treas. Reg. § 1.6049-4(c) without the payor being required to file an information return, results from a failure of the Affected Party to provide the Borrower with a validly prepared and executed Form W-9, (w) in the case of an Affected Party that is not a U.S. person as defined in I.R.C. § 7701(a)(30), results from a failure of the Affected Party to provide Borrower with a validly prepared and executed Form W-8BEN, W-8EXP or W-8ECI demonstrating that such Affected Party is eligible for the portfolio interest exemption under I.R.C. § 871(h) and 881(c) or other exemption under U.S. law or applicable treaty providing for no withholding on the relevant payment; provided, however, that the Affected Party shall have no obligation to deliver such forms to the extent it is no longer able to deliver such forms due to a change in law,  (x) results from such Indemnified Person’s gross

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negligence or willful misconduct, in each case as determined by a court of competent jurisdiction, (y) constitutes recourse for uncollectible or uncollected Transferred Receivables as a result of the insolvency, bankruptcy or the failure (without cause or justification) or inability on the part of the related Obligor to perform its obligations thereunder or (z) includes any tax imposed on or measured by the net income or profits or any franchise or other tax in lieu thereof (including branch profits or similar taxes) of any Indemnified Person by (i) the jurisdiction under the laws of which such Indemnified Person is organized or any political subdivision thereof or (ii) the jurisdiction of such Indemnified Person’s applicable lending office or any political subdivision thereof.  Without limiting the generality of the foregoing, the Borrower shall pay on demand to each Indemnified Person any and all Indemnified Amounts relating to or resulting from:

(i)            reliance on any representation or warranty made or deemed made by the Borrower (or any of its officers) under or in connection with this Agreement or any other Related Document (without regard to any qualifications concerning the occurrence or non-occurrence of a Material Adverse Effect or similar concepts of materiality) or on any other information delivered by the Borrower pursuant hereto or thereto that shall have been incorrect when made or deemed made or delivered;

(ii)           the failure by the Borrower to comply with any term, provision or covenant contained in this Agreement, any other Related Document or any agreement executed in connection herewith or therewith (without regard to any qualifications concerning the occurrence or non-occurrence of a Material Adverse Effect or similar concepts of materiality), any applicable law, rule or regulation with respect to any Transferred Receivable or the Contract therefor, or the nonconformity of any Transferred Receivable or the Contract therefor with any such applicable law, rule or regulation;

(iii)          (1) the failure to vest and maintain vested in the Borrower valid and properly perfected title to and sole record and beneficial ownership of the Receivables that constitute Transferred Receivables, together with all Collections in respect thereof and all other Borrower Collateral, free and clear of any Adverse Claim and (2) the failure to maintain or transfer to the Administrative Agent, for the benefit of itself and the Lenders, a first priority, perfected Lien in any portion of the Borrower Collateral;

(iv)          any dispute, claim, offset or defense of any Obligor (other than its discharge in bankruptcy) to the payment of any Transferred Receivable (including a defense based on such Receivable or the Contract therefor not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services giving rise to such Receivable or the furnishing of or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by any of its Affiliates acting as Servicer);

(v)           any products liability claim or other claim arising out of or in connection with merchandise, insurance or services that is the subject of any Contract with respect to any Transferred Receivable;

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(vi)          the commingling of Collections with respect to Transferred Receivables by the Borrower at any time with its other funds or the funds of any other Person except as contemplated pursuant to Section 7.03 of the Sale Agreement;

(vii)         any failure by the Borrower to cause the filing of, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or any other applicable laws with respect to any Transferred Receivable hereunder or any other Borrower Collateral, whether at the time of the Borrower’s acquisition thereof or any Advance made hereunder or at any subsequent time;

(viii)        any investigation, litigation or proceeding related to this Agreement or the ownership of Receivables or Collections with respect thereto;

(ix)           any failure of (x) a Collection Account Bank to comply with the terms of the applicable Collection Account Agreement, (y) the Concentration Account Bank to comply with the terms of the Concentration Account Agreement, or (z) the Borrower Account Bank to comply with the terms of the Borrower Account Agreement; or

(x)            any withholding, deduction or Charge imposed upon any payments with respect to any Transferred Receivable, any Borrower Assigned Agreement or any other Borrower Collateral.

If and to the extent that this Section 10.01 may be unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law.

(b)           Any Indemnified Amounts subject to the indemnification provisions of this Section 10.01 not paid in accordance with Section 2.08 shall be paid by the Borrower to the Indemnified Person entitled thereto within five Business Days following demand therefor.

ARTICLE XI.

ADMINISTRATIVE AGENT

Section 11.01.  Authorization and Action.

(a)           The Administrative Agent may take such action and carry out such functions under this Agreement as are authorized to be performed by it pursuant to the terms of this Agreement, any other Related Document or otherwise contemplated hereby or thereby or are reasonably incidental thereto; provided, that the duties of the Administrative Agent under this Agreement and the other Related Documents shall be determined solely by the express provisions of this Agreement, and, other than the duties set forth in Section 11.02, any permissive right of the Administrative Agent hereunder shall not be construed as a duty.

Section 11.02.  Reliance.  None of the Administrative Agent, any of its Affiliates or any of their respective directors, officers, agents or employees shall be liable for any action

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taken or omitted to be taken by any of them under or in connection with this Agreement or the other Related Documents, except for damages solely caused by its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.  Without limiting the generality of the foregoing, and notwithstanding any term or provision hereof to the contrary, the Borrower and each Lender hereby acknowledge and agree that the Administrative Agent as such (a) has no duties or obligations other than as set forth expressly herein, and has no fiduciary obligations to any person, (b) acts as a representative hereunder for the Lenders and has no duties or obligations to, shall incur no liabilities or obligations to, and does not act as an agent in any capacity for, the Borrower (other than, with respect to the Administrative Agent, under the Power of Attorney with respect to remedial actions) or the Originators, (c) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts, (d) makes no representation or warranty hereunder to any Affected Party and shall not be responsible to any such Person for any statements, representations or warranties made in or in connection with this Agreement or the other Related Documents, (e) except to the extent set forth in Section 2.03(a), shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Related Documents on the part of the Borrower, the Servicer, any Originator, the Parent, Holdings or any Lender, or to inspect the property (including the books and records) of the Borrower, the Servicer, any Originator, the Parent, Holdings or any Lender, (f) shall not be responsible to the Borrower, the Servicer, any Lender or any other Person for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Related Documents or any other instrument or document furnished pursuant hereto or thereto, (g) shall incur no liability under or in respect of this Agreement or the other Related Documents by acting upon any notice, consent, certificate or other instrument or writing believed by it to be genuine and signed, sent or communicated by the proper party or parties and (h) shall not be bound to make any investigation into the facts or matters stated in any notice or other communication hereunder and may conclusively rely on the accuracy of such facts or matters.

Section 11.03.  GE Capital and Affiliates.  GE Capital and its Affiliates may generally engage in any kind of business with any Obligor, the Parent, the Originators, the Borrower, the Servicer, Holdings, any Lender, any of their respective Affiliates and any Person who may do business with or own securities of such Persons or any of their respective Affiliates, all as if GE Capital were not the Administrative Agent and without the duty to account therefor to any Obligor, the Parent, any Originator, the Borrower, the Servicer, Holdings, any Lender or any other Person.

Section 11.04.  Lender Credit Decision.  Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based upon such documents and information as it has deemed appropriate, made its own credit and financial analysis of the Borrower and its own decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

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Section 11.05.  Indemnification.  Each of the Lenders severally agrees to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower and without limiting the obligations of the Borrower hereunder), ratably according to their respective Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other Related Document or any action taken or omitted by the Administrative Agent in connection herewith or therewith; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent’s gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.  Without limiting the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Related Document, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower.

Section 11.06.  Successor Administrative Agent.  The Administrative Agent may resign at any time by giving not less than thirty (30) days’ prior written notice thereof to each of the Lenders and the Borrower.  Upon any such resignation, the Requisite Lenders shall have the right to appoint a successor Administrative Agent that meets the qualifications of an assignee of a Lender hereunder; provided, that, so long as no Termination Event or an Incipient Termination Event shall have occurred and be continuing, such successor Administrative Agent shall require the approval by the Borrower, which approval shall not be unreasonably withheld or delayed. If no successor Administrative Agent shall have been so appointed by the Requisite Lenders and shall have accepted such appointment within 30 days after the resigning the Administrative Agent’s giving notice of resignation, then the resigning Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution which commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof which has a long-term debt rating from S&P of “A–” or better and Moody’s of “A3” or better and has a combined capital and surplus of at least $300,000,000.  If no successor Administrative Agent has been appointed pursuant to the foregoing, by the 30th day after the date such notice of resignation was given by the resigning Administrative Agent, such resignation shall become effective and the Requisite Lenders shall thereafter perform all the duties of the Administrative Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided above.  Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Administrative Agent.  Upon the earlier of the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent or the effective date of the resigning Administrative Agent’s resignation, the resigning Administrative Agent shall be discharged from its duties and obligations under this Agreement

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and the other Related Documents, except that any indemnity rights or other rights in favor of such resigning Administrative Agent shall continue.  After any resigning Administrative Agent’s resignation hereunder, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement and the other Related Documents.

Section 11.07.  Setoff and Sharing of Payments.  In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Termination Event, each Lender and each holder of any Note is hereby authorized at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived (but subject to Section 2.03(b)(i)), to set off and to appropriate and to apply any and all balances held by it at any of its offices for the account of the Borrower (regardless of whether such balances are then due to the Borrower) and any other properties or assets any time held or owing by that Lender or that holder to or for the credit or for the account of the Borrower against and on account of any of the Borrower Obligations which are not paid when due.  Any Lender or holder of any Note exercising a right to set off or otherwise receiving any payment on account of the Borrower Obligations in excess of its Pro Rata Share thereof shall purchase for cash (and the other Lenders or holders shall sell) such participations in each such other Lender’s or holder’s Pro Rata Share of the Borrower Obligations as would be necessary to cause such Lender to share the amount so set off or otherwise received with each other Lender or holder in accordance with their respective Pro Rata Shares.  Each Lender’s obligation pursuant to this Section 11.07 is in addition to and not in limitation of its obligations to purchase a participation equal to its Pro Rata Share of the Swing Line Loan pursuant to Section 2.01(b).  The Borrower agrees, to the fullest extent permitted by law, that (a) any Lender or holder may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Borrower Obligations and may sell participations in such amount so set off to other Lenders and holders and (b) any Lender or holders so purchasing a participation in the Advances made or other Borrower Obligations held by other Lenders or holders may exercise all rights of set off, bankers’ lien, counterclaim or similar rights with respect to such participation as fully as if such Lender or holder were a direct holder of the Advances, and the other Borrower Obligations in the amount of such participation.  Notwithstanding the foregoing, if all or any portion of the set-off amount or payment otherwise received is thereafter recovered from the Lender that has exercised the right of set-off, the purchase of participations by that Lender shall be rescinded and the purchase price restored without interest.

ARTICLE XII.

MISCELLANEOUS

Section 12.01.  Notices.  Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three Business Days after deposit in

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the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by email of the signed notice in PDF form or facsimile (with such email or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 12.01), (c) one Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when delivered, if hand delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number set forth below or to such other address (or facsimile number) as may be substituted by notice given as herein provided.  The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice.  Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than any Lender and the Administrative Agent) designated in any written notice provided hereunder to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication.  Notwithstanding the foregoing, whenever it is provided herein that a notice is to be given to any other party hereto by a specific time, such notice shall only be effective if actually received by such party prior to such time, and if such notice is received after such time or on a day other than a Business Day, such notice shall only be effective on the immediately succeeding Business Day.

Borrower:

Vertis Receivables II, LLC

250 W. Pratt Street

Baltimore, MD 21201

Attention: Chief Financial Officer and Chief Legal Officer

Telephone:

Facsimile:

Administrative Agent:

General Electric Capital Corporation

201 Merritt 7

Norwalk, Connecticut 06851

Attention: Vice President, Portfolio Underwriting

Telephone:

Facsimile:

Section 12.02.  Binding Effect; Assignability.

(a)           This Agreement shall be binding upon and inure to the benefit of the Borrower, each Lender and the Administrative Agent and their respective successors and permitted assigns.  The Borrower may not assign, transfer, hypothecate or otherwise convey any of its rights or obligations hereunder or interests herein without the express prior written consent of the Requisite Lenders and the Administrative Agent.  Any such purported assignment, transfer, hypothecation or other conveyance by the Borrower without the prior express written consent of the Requisite Lenders and the Administrative Agent shall be void.

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(b)           The Borrower hereby consents to any Lender’s assignment or pledge of, and/or sale of participations in, at any time or times after the Effective Date of the Related Documents, Advances, and any Commitment or of any portion thereof or interest therein, including any Lender’s rights, title, interests, remedies, powers or duties thereunder  (including, without limitation, an assignment by the Swing Line Lender of all or any portion of its Swing Line Commitment), whether evidenced by a writing or not, made in accordance with this Section 12.02(b).  Any assignment by a Lender shall (i) require the execution of an assignment agreement (an “Assignment Agreement”) substantially in the form attached hereto as Exhibit 12.02(b)or otherwise in form and substance satisfactory to the Administrative Agent, and acknowledged by, the Administrative Agent and other than in the case of an assignment by a Lender to one of its Affiliates, the consent of the Administrative Agent and, so long as no Termination Event has occurred and is continuing, the Borrower (which consent shall not be unreasonably withheld or delayed); (ii) so long as no Termination Event or an Incipient Termination Event shall have occurred and be continuing, each assignee of a Lender (other than a SPV) shall require the approval by the Borrower, which approval shall not be unreasonably withheld or delayed; provided, further that assignments by a Lender to any Affiliate of the Agent or any Lenders shall not be subject to the consent of the Borrower; (iii) if a partial assignment, be in an amount at least equal to $5,000,000 and, after giving effect to any such partial assignment, the assigning Lender shall have retained Commitments in an amount at least equal to $5,000,000; (iv) require the delivery to the Administration Agent by the assignee or participant, as the case may be, of any forms, certificates or other evidence with respect to United States tax withholding matters, and (iv) other than in the case of an assignment by a Lender to one of its Affiliates, include a payment to the Administrative Agent by the assignor or assignee Lender of an assignment fee of $3,500.  In the case of an assignment by a Lender under this Section 12.02, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were a Lender hereunder.  The assigning Lender shall be relieved of its obligations hereunder with respect to its  Commitments or assigned portion thereof from and after the date of such assignment.  The Borrower hereby acknowledges and agrees that any assignment made in accordance with this Section 12.02(b)will give rise to a direct obligation of the Borrower to the assignee and that the assignee shall thereupon be a “Lender” for all purposes.  In all instances, each Lender’s obligation to make Revolving Credit Advances hereunder shall be several and not joint and shall be limited to such Lender’s Pro Rata Share of the applicable Commitment.  In the event any Lender assigns or otherwise transfers all or any part of a Revolving Note or the Swing Line Note, such Lender shall so notify the Borrower and the Borrower shall, upon the request of  such Lender, execute new Revolving Notes or Swing Line Notes in exchange for the Revolving Notes or Swing Line Notes, as the case may be, being assigned.  Notwithstanding the foregoing provisions of this Section 12.02(b), any Lender may at any time pledge or assign all or any portion of such Lender’s rights under this Agreement and the other Related Documents to any Federal Reserve Bank or to any holder or trustee of such Lender’s securities; provided, however, that no such pledge or assignment to any Federal Reserve Bank, holder or trustee shall release such Lender from such Lender’s obligations hereunder or under any other Related  Document and no such holder or trustee shall be entitled to enforce any rights of such Lender hereunder unless such holder or trustee becomes a Lender hereunder through execution of an Assignment Agreement as set forth above.  A Lender may not grant an assignment or participation to a Person who is (x) not a “United States person” (within the meaning of IRC Section 7701(a)(30) unless such Person is exempt from United States withholding tax as of the date of such

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participation and provides a Form W-8BEN, W-8ECI or W-8IMY, as applicable, to the Administrative Agent before giving effect to such assignment.

(c)           In addition to the foregoing right, any Lender may, without notice to or consent from the Administrative Agent or the Borrower, (x) grant to an SPV the option to make all or any part of any Advance that such Lender would otherwise be required to make hereunder (and the exercise of such option by such SPV and the making of Loans pursuant thereto shall satisfy the obligation of such Lender to make such Loans hereunder); (y) assign to an SPV all or a portion of its rights (but not its obligations) under the Related Documents, including a sale of any Advances or other Borrower Obligations hereunder and such Lender’s right to receive payment with respect to any such Borrower Obligation and (z) sell participations to one or more Persons in or to all or a portion of its rights and obligations under the Related Documents (including all its rights and obligations with respect to the Advances); provided, however, that (x) no such SPV or participant shall have a commitment, or be deemed to have made an offer to commit, to make Advances hereunder, and none shall be liable to any Person for any obligations of such Lender hereunder (it being understood that nothing in this Section 12.02(c)shall limit any rights the Lender may have as against such SPV or participant under the terms of the applicable option, sale or participation agreement between or among such parties); and (y) no such SPV or holder of any such participation shall be entitled to require such Lender to take or omit to take any action hereunder except actions directly affecting (i) any reduction in the principal amount of, or interest rate or Fees payable with respect to, any Advance in which such holder participates, (ii) any extension of any scheduled payment of the principal amount of any Advance in which such holder participates or the final maturity date thereof, and (iii) any release of all or substantially all of the Borrower Collateral (other than in accordance with the terms of this Agreement or the other Related Documents).  Solely for purposes of Sections 2.08, 2.09, 2.10, and 9.01, Borrower acknowledges and agrees that each such sale or participation shall give rise to a direct obligation of the Borrower to the participant or SPV and each such participant or SPV shall be considered to be a “Lender” for purposes of such sections.  Except as set forth in the preceding sentence, such Lender’s rights and obligations, and the rights and obligations of the other Lenders and the Administrative Agent towards such Lender under any Related Document shall remain unchanged and none of the Borrower, the Administrative Agent or any Lender (other than the Lender selling a participation or assignment to an SPV) shall have any duty to any participant or SPV and may continue to deal solely with the assigning or selling Lender as if no such assignment or sale had occurred.

(d)           Except as expressly provided in this Section 12.02, no Lender shall, as between the Borrower and that Lender, or between the Administrative Agent and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Advances, the Revolving Notes, the Swing Line Note or other Borrower Obligations owed to such Lender.

(e)           The Borrower shall assist any Lender permitted to sell assignments or participations under this Section 12.02 as reasonably required to enable the assigning or selling Lender to effect any such assignment or participation, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be reasonably requested and the participation of management in meetings with potential assignees or participants.  The Borrower shall, if the Administrative Agent so requests in connection with an

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initial syndication of the Commitments hereunder, assist in the preparation of informational materials for such syndication.

(f)            A Lender may furnish any information concerning the Borrower, the Originator, the Servicer and/or the Receivables in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants).  Each Lender shall obtain from all prospective and actual assignees or participants confidentiality covenants substantially equivalent to those contained in Section 12.05.

Section 12.03.  Termination; Survival of Borrower Obligations Upon Commitment Termination Date.

(a)           This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Termination Date.

(b)           Except as otherwise expressly provided herein or in any other Related Document, no termination or cancellation (regardless of cause or procedure) of any commitment made by any Affected Party under this Agreement shall in any way affect or impair the obligations, duties and liabilities of the Borrower or the rights of any Affected Party relating to any unpaid portion of the Borrower Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Commitment Termination Date.  Except as otherwise expressly provided herein or in any other Related Document, all undertakings, agreements, covenants, warranties and representations of or binding upon the Borrower and all rights of any Affected Party hereunder, all as contained in the Related Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the rights and remedies provided for herein with respect to any breach of any representation or warranty made by the Borrower pursuant to Article IV, the indemnification and payment provisions of Article X and Sections 11.05, 12.05, 12.14 and 12.15 shall be continuing and shall survive the Termination Date.

Section 12.04.  Costs, Expenses and Taxes.  (a)  Subject to the terms of Section 7.05(b) hereof, the Borrower shall reimburse the Administrative Agent for all reasonable out of pocket expenses incurred in connection with the negotiation and preparation of this Agreement and the other Related Documents (including the reasonable fees and expenses of all of its special counsel, advisors, consultants and auditors retained in connection with the transactions contemplated thereby and advice in connection therewith).  The Borrower shall reimburse each Lender and the Administrative Agent for all fees, reasonable costs and expenses, including the fees, costs and expenses of counsel or other advisors for advice, assistance, or other representation in connection with:

(i)            the forwarding to the Borrower or any other Person on behalf of the Borrower by any Lender of any proceeds of Advances made by such Lender hereunder;

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(ii)           any amendment, modification or waiver of, consent with respect to, or termination of this Agreement or any of the other Related Documents or advice in connection with the administration hereof or thereof or their respective rights hereunder or thereunder;

(iii)          any Litigation, contest or dispute (whether instituted by the Borrower, any Lender, the Administrative Agent or any other Person as a party, witness, or otherwise) in any way relating to the Borrower Collateral, any of the Related Documents or any other agreement to be executed or delivered in connection herewith or therewith, including any Litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against the Borrower, the Servicer or any other Person that may be obligated to any Lender or the Administrative Agent by virtue of the Related Documents, including any such Litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or restructuring of the transactions contemplated hereby during the pendency of one or more Termination Events;

(iv)          any attempt to enforce any remedies of a Lender or the Administrative Agent against the Borrower, the Servicer or any other Person that may be obligated to them by virtue of any of the Related Documents, including any such attempt to enforce any such remedies in the course of any work-out or restructuring of the transactions contemplated hereby during the pendency of one or more Termination Events;

(v)           any work-out or restructuring of the transactions contemplated hereby during the pendency of one or more Termination Events; and

(vi)          efforts to (A) monitor the Advances or any of the Borrower Obligations, (B) evaluate, observe or assess the Originators, the Parent, the Borrower, the Member or the Servicer or their respective affairs, and (C) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Borrower Collateral;

including all attorneys’ and other professional and service providers’ fees arising from such services, including those in connection with any appellate proceedings, and all expenses, costs, charges and other fees incurred by such counsel and others in connection with or relating to any of the events or actions described in this Section 12.04, all of which shall be payable, on demand, by the Borrower to the applicable Lender or the Administrative Agent, as applicable.  Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: fees, costs and expenses of accountants, appraisers, investment bankers, management and other consultants and paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram or facsimile charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services.

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(b)           In addition, the Borrower shall pay on demand any and all stamp, sales, excise and other taxes (excluding income taxes imposed by the jurisdiction under the laws of which such person is organized), gross receipts or franchise taxes and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement or any other Related Document, and the Borrower agrees to indemnify and save each Indemnified Person harmless from and against any and all liabilities with respect to or resulting from any delay or failure to pay such taxes and fees.

Section 12.05.  Confidentiality.

(a)           Except to the extent otherwise required by applicable law or reasonably believed to be appropriate to be filed publicly with the Securities and Exchange Commission, or unless the Administrative Agent shall otherwise consent in writing, the Borrower agrees to maintain the confidentiality of this Agreement (and all drafts hereof and documents ancillary hereto), in its communications with third parties other than any Affected Party or any Indemnified Person or any financial institution party to the Credit Agreement and otherwise not to disclose, deliver or otherwise make available to any third party (other than its directors, officers, employees, accountants or counsel) the original or any copy of all or any part of this Agreement (or any draft hereof and documents ancillary hereto) except to an Affected Party or an Indemnified Person or any financial institution party to the Credit Agreement.

(b)           The Borrower agrees that it shall not (and shall not permit any of its Subsidiaries to) issue any news release or make any public announcement pertaining to the transactions contemplated by this Agreement and the other Related Documents without the prior written consent of the Requisite Lenders and the Administrative Agent (which consent shall not be unreasonably withheld) unless such news release or public announcement is required by law, in which case the Borrower shall consult with the Administrative Agent and any Lenders specifically referenced therein prior to the issuance of such news release or public announcement.  The Borrower may, however, disclose the general terms of the transactions contemplated by this Agreement and the other Related Documents to trade creditors, suppliers and other similarly-situated Persons so long as such disclosure is not in the form of a news release or public announcement.

(c)           The Administrative Agent and each Lender agrees to maintain the confidentiality of the Information (as defined below), and will not use such confidential Information for any purpose or in any matter except in connection with this Agreement, except that Information may be disclosed (1) to (i) each Affected Party (ii) its and each Affected Party’s and their respective Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential and to not disclose or use such Information in violation of Regulation FD (17 C.F.R. § 243.100-243.103)) and (iii) industry trade organizations for inclusion in league table measurements, (2) any regulatory authority (it being understood that it will to the extent reasonably practicable provide the Borrower with an opportunity to request confidential treatment from such regulatory authority), (3) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (4) to any other party to this Agreement, (5) to the extent required in connection with the exercise of any remedies hereunder or any suit,

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action or proceeding relating to this Agreement or any other Related Document or the enforcement of rights hereunder or thereunder, (6) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of (or participant in), or any prospective assignee of (or participant in), any of its rights or obligations under this Agreement, (7) with the consent of the Borrower or (8) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or any other confidentiality agreement to which it is party with the Borrower or Holdings or any subsidiary thereof or (ii) becomes available to the Administrative Agent, or any Lender on a nonconfidential basis from a source other than Holdings or any subsidiary thereof.  For the purposes of this Section, “Information” means all information received from the Borrower and Servicer relating to the Borrower, the Servicer, Holdings or any subsidiary thereof or their businesses, or any Obligor, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by Borrower or Servicer; provided that in the case of information received from the Borrower or Servicer after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

Section 12.06.  Complete Agreement; Modification of Agreement.  This Agreement and the other Related Documents constitute the complete agreement among the parties hereto with respect to the subject matter hereof and thereof, supersede all prior agreements and understandings relating to the subject matter hereof and thereof, and may not be modified, altered or amended except as set forth in Section 12.07.

Section 12.07.  Amendments and Waivers.

(a)           Except for actions expressly permitted to be taken by the Administrative Agent, no amendment, modification, termination or waiver of any provision of this Agreement or any Note, or any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed (1) by the Borrower, (2) by the Requisite Lenders or, to the extent required under clause (b) below, by all affected Lenders and the Swing Line Lender, as applicable, (3) to the extent required under clause (b) or clause (c) below, by the Administrative Agent and (4) if such amendment, modification or waiver modifies the activities  in which the Borrower is permitted to engage, by the Lenders then holding more than 50% of the Outstanding Principal Amount.  Except as set forth in clause (b) below, all amendments, modifications, terminations or waivers requiring the consent of any Lenders without specifying the required percentage of Lenders shall require the written consent of the Requisite Lenders.

(b)           (i) No amendment, modification, termination or waiver shall, unless in writing and signed by each Lender directly affected thereby, do any of the following: (1) increase the principal amount of any Lender’s Commitment; (2) reduce the principal of, rate of interest on or Fees payable with respect to any Advance made by any affected Lender; (3) extend any scheduled payment date or final maturity date of the principal amount of any Advance of any affected Lender; (4) waive, forgive, defer, extend or postpone any payment of interest or Fees as to any affected Lender; (5) change the percentage of the Aggregate Commitments or of the

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aggregate Outstanding Principal Amount which shall be required for Lenders or any of them to take any action hereunder; (6) release all or substantially all of the Borrower Collateral; or (7) amend or waive this Section 12.07 or the definition of the term “Requisite Lenders”  insofar as such definition affects the substance of this Section 12.07.  Furthermore, no amendment, modification, termination or waiver shall be effective to the extent that it (y) affects the rights or duties of the Administrative Agent under this Agreement or any other Related Document unless in writing and signed by the Administrative Agent or (z) affects the rights or duties of the Swing Line Lender under this Agreement or modifies or amends any other provision of this Agreement or any other Related Document relating the Swing Line Loan, Swing Line Advances or the Swing Line Lender unless in writing and signed by the Swing Line Lender.

(ii)           Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given.  No amendment, modification, termination or waiver shall be required for the Administrative Agent to take additional Borrower Collateral pursuant to any Related Document. No amendment, modification, termination or waiver of any provision of any Note shall be effective without the written concurrence of the holder of such Note.  No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.  Any amendment, modification, termination, waiver or consent effected in accordance with this Section 12.07 shall be binding upon each holder of a Note at the time outstanding and each future holder of a Note.

(c)           If, in connection with any proposed amendment, modification, waiver or termination (a “Proposed Change”):

(i)            requiring the consent of all affected Lenders, the consent of Requisite Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described this clause (i) or in clause (ii) below being referred to as a “Non-Consenting Lender”), or

(ii)           requiring the consent of Requisite Lenders, the consent of Lenders holding 51% or more of the Aggregate Commitments is obtained, but the consent of Requisite Lenders is not obtained, or

then, so long as the Administrative Agent is not a Non-Consenting Lender, at the Borrower’s request the Administrative Agent, or a Person acceptable to the Administrative Agent, shall have the right with the Administrative Agent’s consent and in the Administrative Agent’s sole discretion (but shall have no obligation) to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon the Administrative Agent’s request, sell and assign to the Administrative Agent or such Person, all of the Commitments of such Non-Consenting Lender for an amount equal to the principal balance of all Advances held by the Non-Consenting Lender and all accrued interest and Fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement.

(d)           Upon indefeasible payment in full in cash and performance of all of the Borrower Obligations (other than indemnification obligations under Section 10.01), termination

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of the Aggregate Commitment and a release of all claims against the Administrative Agent and Lenders, and so long as no suits, actions, proceedings or claims are pending or threatened against any Indemnified Person asserting any damages, losses or liabilities that are Indemnified Liabilities, the Administrative Agent shall deliver to the Borrower termination statements and other documents necessary or appropriate to evidence the termination of the Liens securing payment of the Borrower Obligations.

Section 12.08.  No Waiver; Remedies.  The failure by any Lender or the Administrative Agent, at any time or times, to require strict performance by the Borrower or the Servicer of any provision of this Agreement, any Receivables Assignment or any other Related Document shall not waive, affect or diminish any right of any Lender or the Administrative Agent thereafter to demand strict compliance and performance herewith or therewith.  Any suspension or waiver of any breach or default hereunder shall not suspend, waive or affect any other breach or default whether the same is prior or subsequent thereto and whether the same or of a different type.  None of the undertakings, agreements, warranties, covenants and representations of the Borrower or the Servicer contained in this Agreement, any Receivables Assignment or any other Related Document, and no breach or default by the Borrower or the Servicer hereunder or thereunder, shall be deemed to have been suspended or waived by any Lender or the Administrative Agent unless such waiver or suspension is by an instrument in writing signed by an officer of or other duly authorized signatory of the applicable Lenders and the Administrative Agent and directed to the Borrower or the Servicer, as applicable, specifying such suspension or waiver.  The rights and remedies of the Lenders and the Administrative Agent under this Agreement and the other Related Documents shall be cumulative and nonexclusive of any other rights and remedies that the Lenders and the Administrative Agent may have hereunder, thereunder, under any other agreement, by operation of law or otherwise.  Recourse to the Borrower Collateral shall not be required.

Section 12.09.  GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.

(a)           THIS AGREEMENT AND EACH OTHER RELATED DOCUMENT (EXCEPT TO THE EXTENT THAT ANY RELATED DOCUMENT EXPRESSLY PROVIDES TO THE CONTRARY) AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES) EXCEPT TO THE EXTENT THAT THE PERFECTION, EFFECT OF PERFECTION OR PRIORITY OF THE INTERESTS OF THE ADMINISTRATIVE AGENT IN THE RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

(b)           EACH PARTY HERETO HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE BOROUGH OF

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MANHATTAN IN NEW YORK CITY SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THEM PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT; PROVIDED, THAT EACH PARTY HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE BOROUGH OF MANHATTAN IN NEW YORK CITY; PROVIDEDFURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE ANY LENDER OR THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE BORROWER COLLATERAL OR ANY OTHER SECURITY FOR THE BORROWER OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE LENDERS OR THE ADMINISTRATIVE AGENT.  EACH PARTY HERETO SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PARTY HERETO HEREBY WAIVES ANY OBJECTION THAT SUCH PARTY 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 PARTY HERETO HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARTY AT THE ADDRESS PROVIDED FOR IN SECTION 12.01 HEREOF AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH PARTY’S ACTUAL RECEIPT THEREOF OR THREE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL, PROPER POSTAGE PREPAID.  NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

(c)           BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

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Section 12.10.  Counterparts.  This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.

Section 12.11.  Severability.  Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

Section 12.12.  Section Titles.  The section, titles and table of contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

Section 12.13.  Further Assurances.

(a)The Borrower shall, or shall cause the Servicer to, at its sole cost and expense, upon request of any of the Lenders or the Administrative Agent, promptly and duly execute and deliver any and all further instruments and documents and take such further action that may be necessary or desirable or that any of the Lenders or the Administrative Agent may request to (i) perfect, protect, preserve, continue and maintain fully the Liens granted to the Administrative Agent for the benefit of itself and the Lenders under this Agreement, (ii) enable the Lenders or the Administrative Agent to exercise and enforce its rights under this Agreement or any of the other Related Documents or (iii) otherwise carry out more effectively the provisions and purposes of this Agreement or any other Related Document.  Without limiting the generality of the foregoing, the Borrower shall, upon request of any of the Lenders or the Administrative Agent, (A) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices that may be necessary or desirable or that any of the Lenders or the Administrative Agent may request to perfect, protect and preserve the Liens granted pursuant to this Agreement, free and clear of all Adverse Claims, (B) mark, or cause the Servicer to mark, each Contract evidencing which constitutes “chattel paper” under the UCC and evidences a Transferred Receivable with a legend, acceptable to each Lender and the Administrative Agent evidencing that the Borrower has purchased such Transferred Receivables and that the Administrative Agent, for the benefit of the Lenders, has a security interest in and lien thereon, (C) mark, or cause the Servicer to mark, its computer records pertaining to the Transferred Receivables with such a legend and (D) notify or cause the Servicer to notify Obligors of the Liens on the Transferred Receivables granted hereunder.

(b)Without limiting the generality of the foregoing, the Borrower hereby authorizes the Lenders and the Administrative Agent, and each of the Lenders hereby authorizes the Administrative Agent, to file one or more financing or continuation statements, or amendments thereto or assignments thereof, relating to all or any part of the Transferred Receivables, including Collections with respect thereto, or the Borrower Collateral without the signature of the Borrower or, as applicable, the Lenders, as applicable, to the extent permitted by applicable law.  A carbon, photographic or other reproduction of this Agreement or of any notice

62

or financing statement covering the Transferred Receivables, the Borrower Collateral or any part thereof shall be sufficient as a notice or financing statement where permitted by law.

Section 12.14.  No Proceedings.  Each of Administrative Agent and each Lender agrees that, from and after the Closing Date and until the date one year plus one day following the Termination Date, it will not, directly or indirectly, institute or cause to be instituted against the Borrower any proceeding of the type referred to in Sections 8.01(d) and 8.01(e).  This Section 12.14 shall survive the termination of this Agreement.

Section 12.15.  Limitation on Payments.

(a)Notwithstanding any provision in any other section of this Agreement to the contrary, the obligation of the Borrower to pay any amounts payable to Lender or any other Affected Party pursuant to Sections 2.09, 2.10 and 10.01 of this Agreement shall be paid pursuant hereto only if the Borrower has Excess Funds, the excess of the amounts due hereunder over the amounts paid shall not constitute a “claim” under Section 101(5) of the Bankruptcy Code against the Borrower until such time as the Borrower has Excess Funds.  The foregoing shall not operate to limit the rights of the Administrative Agent or any other Affected Party to enforce any claims of Borrower or its assigns against the Originators under the Sale Agreement or any other Related Document.

(b)Without limiting Section 12.15(a), all payments required to be made by the Borrower to the Agent, the Lenders, the Affected Parties and the Indemnified Persons pursuant to this Agreement and the other Related Documents shall be made only from (i) Collections, (ii) proceeds from the repurchase of Transferred Receivables from the Borrower by the Originators pursuant to Section 4.04 of the Sale Agreement, (iii) indemnification and reimbursement payments made by the Originators and the Servicer pursuant the Sale Agreement, including, without limitation Article V thereof and (iv) payments made by the Parent pursuant to the Originator Support Agreement and in no event shall be made from cash contributions made by the Parent.

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

VERTIS RECEIVABLES II, LLC, as the Borrower
By:	/S/ John V. Howard, Jr.
Name:		John V. Howard, Jr.
Title:		Chief Legal Officer and Secretary

S-1

Commitment: $130,000,000	GENERAL ELECTRIC CAPITAL CORPORATION,
	as a Lender and as Swing Line Lender
	By:	/S/ Kelly Stotler
	Name:			Kelly Stotler
	Title:		Duly Authorized Signatory
	GENERAL ELECTRIC CAPITAL CORPORATION,
	as Administrative Agent
	By:	/S/ Kelly Stotler
	Name:			Kelly Stotler
	Title:		Duly Authorized Signatory

S-2

Exhibit 2.01(a)(ii) to Funding Agreement

FORM OF REVOLVING NOTE

$130,000,000 November 25, 2005

FOR VALUE RECEIVED, the undersigned, VERTIS RECEIVABLES II, LLC, a Delaware limited liability company (the “Borrower”), HEREBY PROMISES TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION (the “Lender”), at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as agent for the Lender (the “Administrative Agent”), at its address at 201 Merritt 7, Norwalk, CT 06851, or at such other place as the Administrative Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of ONE HUNDRED THIRTY MILLION DOLLARS AND NO CENTS ($130,000,000) or, if less, the aggregate unpaid amount of all Revolving Credit Advances made to the undersigned under the “Funding Agreement” (as hereinafter defined).  All capitalized terms used but not otherwise defined herein have the meanings given to them in the Funding Agreement or in Annex X thereto.

This Revolving Note is one of the Revolving Notes issued pursuant to that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 by and among the Borrower, the Lender (and any other “Lender” party thereto), and the Administrative Agent (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the “Funding Agreement”), and is entitled to the benefit and security of the Funding Agreement and all of the other Related Documents referred to therein.  Reference is hereby made to the Funding Agreement for a statement of all of the terms and conditions under which the Revolving Credit Advances evidenced hereby are made and are to be repaid.  The date and amount of each Revolving Credit Advance made by the Lender to the Borrower, the rates of interest applicable thereto and each payment made on account of the principal thereof, shall be recorded by the Administrative Agent on its books; provided that the failure of the Administrative Agent to make any such recordation shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Funding Agreement or this Revolving Note in respect of the Revolving Credit Advances actually made by the Lender to the Borrower.

The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Funding Agreement, the terms of which are hereby incorporated herein by reference.  Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Funding Agreement.

If any payment on this Revolving Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.

Upon and after the occurrence of any Termination Event, this Revolving Note may, as provided in the Funding Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable.

Time is of the essence of this Revolving Note.  Demand, presentment, protest and notice of nonpayment and protest are hereby waived by the Borrower.

Except as provided in the Funding Agreement, this Revolving Note may not be assigned by the Lender to any Person.

THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE.

VERTIS RECEIVABLES II, LLC

By:

Name:

Title:

S-2

Exhibit 2.01(b)(ii) to Funding Agreement

FORM OF SWING LINE NOTE

$130,000,000 November 25, 2005

FOR VALUE RECEIVED, the undersigned, VERTIS RECEIVABLES II, LLC, a Delaware limited liability company (the “Borrower”), HEREBY PROMISES TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION (“GE Capital”), a Delaware corporation (the “Swing Line Lender”), at the offices of GE Capital, as agent (in such capacity, the “Administrative Agent”), at the Agent’s address at 201 Merritt 7, Norwalk, CT 06851, or at such other place as the Administrative Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of ONE HUNDRED THIRTY MILLION DOLLARS AND NO CENTS ($130,000,000) or, if less, the aggregate unpaid amount of all Swing Line Advances made to the undersigned under the “Funding Agreement” (as hereinafter defined).  All capitalized terms used but not otherwise defined herein have the meanings given to them in the Funding Agreement or in Annex X thereto.

This Swing Line Note is issued pursuant to that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 by and among the Borrower, the Swing Line Lender, the other “Lenders” party thereto, and the Administrative Agent (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the “Funding Agreement”), and is entitled to the benefit and security of the Funding Agreement and all of the other Related Documents referred to therein.  Reference is hereby made to the Funding Agreement for a statement of all of the terms and conditions under which the Swing Line Advances evidenced hereby are made and are to be repaid.  The date and amount of each Swing Line Advance made by Swing Line Lender to the Borrower, the rate of interest applicable thereto and each payment made on account of the principal thereof, shall be recorded by the Administrative Agent on its books; provided that the failure of the Administrative Agent to make any such recordation shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Funding Agreement or this Swing Line Note in respect of the Swing Line Advances made by Swing Line Lender to the Borrower.

The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Funding Agreement, the terms of which are hereby incorporated herein by reference.  Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Funding Agreement.

If any payment on this Swing Line Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.

Upon and after the occurrence of any Termination Event, this Swing Line Note may, as provided in the Funding Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable.

Time is of the essence of this Swing Line Note.  Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower.

THIS SWING LINE NOTE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE.

VERTIS RECEIVABLES II, LLC

By:

Name:

Title:

P-2

Exhibit 2.02(a) to Funding Agreement

FORM OF COMMITMENT REDUCTION NOTICE

[Insert Date]

General Electric Capital Corporation,
as Administrative Agent
201 Merritt 7
Norwalk, Connecticut 06851
Attention:  Vice President – Portfolio/Underwriting

Re:Receivables Funding and Administration
Agreement dated as of November 25, 2005

Ladies and Gentlemen:

This notice is given pursuant to Section 2.02(a) of that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 (the “Funding Agreement”), by and among Vertis Receivables II, LLC (the “Borrower”), the financial institutions party thereto as lenders (the “Lenders”) and General Electric Capital Corporation, as Lender, Swing Line Lender and as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).  Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Funding Agreement.

Pursuant to Section 2.02(a) of the Funding Agreement, the Borrower hereby irrevocably notifies the Lenders and the Administrative Agent of its election to permanently reduce the Aggregate Commitment to [$       ], effective as of [                      ], [       ].(1) After such reduction, the Aggregate Commitment will not be less than the Outstanding Principal Amount.

Very truly yours,

VERTIS RECEIVABLES II, LLC

By:

Name:

Title:

(1)This day shall be a Business Day at least ten Business Day after the date this notice is given.

Exhibit 2.02(b) to Funding Agreement

FORM OF COMMITMENT TERMINATION NOTICE

[Insert Date]

General Electric Capital Corporation,
as Administrative Agent

201 Merritt 7
Norwalk, Connecticut 06851
Attention:  Vice President – Portfolio/Underwriting

Re:Receivables Funding and Administration
Agreement dated as of November 25, 2005

Ladies and Gentlemen:

This notice is given pursuant to Section 2.02(b) of that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 (the “Funding Agreement”), by and among Vertis Receivables II, LLC (the “Borrower”), the financial institutions party thereto as lenders (the “Lenders”) and General Electric Capital Corporation, as a Lender, Swing Line Lender and as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).  Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Funding Agreement.

Pursuant to Section 2.02(b) of the Funding Agreement, the Borrower hereby irrevocably notifies the Lenders and the Administrative Agent of its election to terminate the Aggregate Commitment effective as of [              ], [      ](2).  In connection therewith, the Borrower shall reduce Outstanding Principal Amount to zero on or prior to such date and make all other payments required by Section 2.03(h) and pay any other fees that are due and payable pursuant to the Fee Letter at the time and in the manner specified therein.

Very truly yours,

VERTIS RECEIVABLES II, LLC

By:

Name:

Title:

(2)Which day shall be a Business Day at least 30 days after the date this notice is given

Exhibit 2.03(a) to Funding Agreement

FORM OF BORROWING REQUEST

[Insert Date]

General Electric Capital Corporation,
as Administrative Agent

201 Merritt 7

Norwalk, Connecticut 06851

Attention:  Vice President – Portfolio/Underwriting

Re:Receivables Funding and Administration
Agreement dated as of November 25, 2005

Ladies and Gentlemen:

This notice is given pursuant to Section 2.03(a) of that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 (the “Funding Agreement”), by and among Vertis Receivables II, LLC (the “Borrower”), the financial institutions party thereto as lenders (the “Lenders”) and General Electric Capital Corporation, as a lender, a Swing Line Lender and as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).  Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Funding Agreement.

Pursuant to Section 2.01 of the Funding Agreement, the Borrower hereby requests that a Borrowing be made to the Borrower on [               ], [         ], in the amount of [$         ] which shall be a Swing Line Advance consisting of [Index Rate Advances](3) [LIBOR Rate Advances], to be disbursed to the Borrower in accordance with Section 2.04(a) of the Funding Agreement.  The Borrower hereby represents and warrants that the conditions set forth in Section 3.02 of the Funding Agreement have been satisfied.  Attached hereto is a certificate setting forth a pro forma calculation of the Borrowing Base after giving effect to the acquisition by the Borrower of new Transferred Receivables and the receipt of Collections since the date of the most recent Borrowing Base Certificate, and the making of such Borrowing.

Very truly yours,

VERTIS RECEIVABLES II, LLC

By:

Name:

Title:

(3)Unless a LIBOR Rate Disruption Event shall have occurred, all Revolving Credit Advances shall be LIBOR Rate Advances.

Exhibit to Borrowing Request

Pro Forma Calculation of Borrowing Base

[Attached]

2

Exhibit 2.03(h) to Funding Agreement

FORM OF REPAYMENT NOTICE

[Insert Date]

General Electric Capital Corporation,
as Administrative Agent

201 Merritt 7

Norwalk, Connecticut 06851

Attention:  Vice President – Portfolio/Underwriting

Re:Receivables Funding and Administration
Agreement dated as of November 25, 2005

Ladies and Gentlemen:

This notice is given pursuant to Section 2.03(h) of that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 (the “Funding Agreement”), by and among Vertis Receivables II, LLC (the “Borrower”), the financial institutions party thereto as lenders (the “Lenders”), and General Electric Capital Corporation, as a lender (in such capacity, the “Lender”) and as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).  Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Funding Agreement.

Pursuant to Section 2.03(h) of the Funding Agreement, the Borrower hereby notifies the Lenders and the Administrative Agent of its request to repay the principal amount of outstanding Advances in an amount equal to [$        ] on [                    ], [      ] (which is a Business Day), from [Collections/other sources].  In connection therewith, the Borrower will pay to the Administrative Agent (1) all interest accrued on the outstanding principal balance of Advances being repaid through but excluding the date of such repayment and (2) any and all Breakage Costs payable under Section 2.10 of the Funding Agreement by virtue thereof.

Very truly yours,

VERTIS RECEIVABLES II, LLC

By:

Name:

Title:

Exhibit 5.02(b) to Funding Agreement

Form of

BORROWING BASE CERTIFICATE

[Attached]

Exhibit 9.03 to Funding Agreement

Form of

POWER OF ATTORNEY

This Power of Attorney is executed and delivered by Vertis Receivables II, LLC, as Borrower, (“Grantor”) under the Funding Agreement (as defined below), to General Electric Capital Corporation, as Administrative Agent under the Funding Agreement (hereinafter referred to as “Attorney”), pursuant to that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 (the “Funding Agreement”), by and among Grantor, the other parties thereto and Attorney and the other Related Documents.  Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Funding Agreement.  No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocably waives any right to commence any suit or action, in law or equity, against any person or entity that acts in reliance upon or acknowledges the authority granted under this Power of Attorney.  The power of attorney granted hereby is coupled with an interest and may not be revoked or cancelled by Grantor until all Borrower Obligations under the Related Documents have been indefeasibly paid in full and Attorney has provided its written consent thereto.

Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as its true and lawful attorney in fact with full irrevocable power and authority in its place and stead and in its name or in Attorney’s own name, from time to time in Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments that may be necessary or desirable to accomplish the purposes of the Funding Agreement, and, without limiting the generality of the foregoing, hereby grants to Attorney the power and right, on its behalf, without notice to or assent by it, upon the occurrence and during the continuance of any Termination Event, to do the following:  (a) open mail for it, and ask, demand, collect, give acquaintances and receipts for, take possession of, or endorse and receive payment of, any checks, drafts, notes, acceptances, or other instruments for the payment of moneys due in respect of Transferred Receivables, and sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any Borrower Collateral; (b)  pay or discharge any taxes, Liens, or other encumbrances levied or placed on or threatened against any Borrower Collateral; (c) defend any suit, action or proceeding brought against it or any Borrower Collateral if the Grantor does not defend such suit, action or proceeding or if Attorney believes that it is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such

discharges or releases as Attorney may deem appropriate; (d) file or prosecute any claim, Litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due with respect to any Borrower Collateral or otherwise with respect to the Related Documents whenever payable and to enforce any other right in respect of its property; (e) sell, transfer, pledge, make any agreement with respect to, or otherwise deal with, any Borrower Collateral, and execute, in connection with such sale or action, any endorsements, assignments or other instruments of conveyance or transfer in connection therewith; and (f) cause the certified public accountants then engaged by it to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney’s request, any and all financial statements or other reports required to be delivered by or on behalf of Grantor under the Related Documents, all as though Attorney were the absolute owner of its property for all purposes, and to do, at Attorney’s option and its expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon the Borrower Collateral and the Lenders’ Liens thereon, all as fully and effectively as it might do.  Grantor hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor, and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this       day of November, 2005.

Grantor
ATTEST:
By:	(SEAL)
Title:

[Notarization in appropriate form for the state of execution is required.]

2

Exhibit 12.02(b) to Funding Agreement

FORM OF ASSIGNMENT AGREEMENT

This Assignment Agreement (this “Agreement”) is made as of                       ,        by and between                                                                         (“Assignor Lender”) and                                                   (“Assignee Lender”) and acknowledged and consented to by GENERAL ELECTRIC CAPITAL CORPORATION, as administrative agent (“Administrative Agent”).  All capitalized terms used in this Agreement and not otherwise defined herein will have the respective meanings set forth in the Funding Agreement as hereinafter defined.

RECITALS:

WHEREAS, Vertis Receivables II, LLC, a Delaware limited liability company (the “Borrower”), the financial institutions signatory thereto from time to time as lenders (the “Lenders”), and the Administrative Agent have entered into that certain Receivables Funding and Administration Agreement dated as of November 25, 2005 (as amended, restated, supplemented or otherwise modified from time to time, the “Funding Agreement”) pursuant to which the Lenders (including the Assignor Lender) have agreed to make certain Advances to Borrower;

WHEREAS, Assignor Lender desires to assign to Assignee Lender [all/a portion] of its interest in the Advances (as described below) and the Borrower Collateral and to delegate to Assignee Lender [all/a portion] of its Commitment and other duties with respect to such Advances and Borrower Collateral;

WHEREAS, Assignee Lender desires to become a Lender under the Funding Agreement and to accept such assignment and delegation from Assignor Lender; and

WHEREAS, Assignee Lender desires to appoint the Administrative Agent to serve as agent for Assignee Lender under the Funding Agreement;

NOW, THEREFORE, in consideration of the premises and the agreements, provisions, and covenants herein contained, Assignor Lender and Assignee Lender agree as follows:

1.ASSIGNMENT, DELEGATION, AND ACCEPTANCE

1.1Assignment.  Assignor Lender hereby transfers and assigns to Assignee Lender, without recourse and without representations or warranties of any kind (except as set forth in Section 3.2 below), [all/such percentage] of Assignor Lender’s right, title, and interest in the Advances, Related Documents and Borrower Collateral as will result in Assignee Lender having as of the Effective Date (as hereinafter defined) a Pro Rata Share thereof, as follows:

Assignee Lender’s Loans	Principal Amount	Pro Rata Share
Advances	$		%

1.2Delegation.  Assignor Lender hereby irrevocably assigns and delegates to Assignee Lender [all/a portion] of its Commitments and its other duties and obligations as a Lender under the Related Documents equivalent to [100%/      %] of Assignor Lender’s Commitment (such percentage representing a commitment of $                 ).

1.3Acceptance by Assignee Lender.  By its execution of this Agreement, Assignee Lender irrevocably purchases, assumes and accepts such assignment and delegation and agrees to be a Lender with respect to the delegated interest under the Related Documents and to be bound by the terms and conditions thereof.  By its execution of this Agreement, Assignor Lender agrees, to the extent provided herein, to relinquish its rights and be released from its obligations and duties under the Funding Agreement.

1.4Effective Date.  Such assignment and delegation by Assignor Lender and acceptance by Assignee Lender will be effective and Assignee Lender will become a Lender under the Related Documents as of the date of this Agreement (“Effective Date”) and upon payment of the Assigned Amount and the Assignment Fee (as each term is defined below).

2.INITIAL PAYMENT AND DELIVERY OF NOTES

2.1Payment of the Assigned Amount.  Assignee Lender will pay to Assignor Lender, in immediately available funds, not later than 12:00 noon (New York City time) on the Effective Date, an amount equal to its Pro Rata Share of the then outstanding principal amount of the Advances as set forth above in Section 1.1 together with accrued interest, fees and other amounts as set forth on Schedule 2.1 (the “Assigned Amount”).

2.2Payment of Assignment Fee.  [Assignor Lender] [Assignee Lender] will pay to the Administrative Agent, for its own account in immediately available funds, not later than 12:00 noon (New York City time) on the Effective Date, an assignment fee in the amount of $3,500 (the “Assignment Fee”) as required pursuant to Section 12.02(b) of the Funding Agreement.

2.3Execution and Delivery of Notes.  Following payment of the Assigned Amount and the Assignment Fee, Assignor Lender will deliver to the Administrative Agent the Revolving Notes previously delivered to Assignor Lender for redelivery to Borrower and the Administrative Agent will obtain from Borrower for delivery to [Assignor Lender and] Assignee Lender, new executed Revolving Notes evidencing Assignee Lender’s [and Assignor Lender’s respective] Pro Rata Share[s] in the Advances after giving effect to the assignment described in Section 1.  Each new Revolving Note will be issued in the aggregate maximum principal amount of the Commitment of [the Assignee Lender] [and the Assignor Lender].

2

3.REPRESENTATIONS, WARRANTIES AND COVENANTS

3.1Assignee Lender’s Representations, Warranties and Covenants.  Assignee Lender hereby represents, warrants, and covenants the following to Assignor Lender and the Administrative Agent:

(a)This Agreement is a legal, valid, and binding agreement of Assignee Lender, enforceable according to its terms;

(b)The execution and performance by Assignee Lender of its duties and obligations under this Agreement and the Related Documents will not require any registration with, notice to, or consent or approval by any Governmental Authority;

(c)Assignee Lender is familiar with transactions of the kind and scope reflected in the Related Documents and in this Agreement;

(d)Assignee Lender has made its own independent investigation and appraisal of the financial condition and affairs of the Borrower and its Affiliates, has conducted its own evaluation of the Advances, the Related Documents and the Borrower’s and its Affiliates’ creditworthiness, has made its decision to become a Lender to Borrower under the Funding Agreement independently and without reliance upon Assignor Lender, any other Lender or the Administrative Agent, and will continue to do so;

(e)Assignee Lender is entering into this Agreement in the ordinary course of its business, and is acquiring its interest in the Advances for its own account and not with a view to or for sale in connection with any subsequent distribution; provided, however, that at all times the distribution of Assignee Lender’s property shall, subject to the terms of the Funding Agreement, be and remain within its control;

(f)No future assignment or participation granted by Assignee Lender pursuant to Section 12.02 of the Funding Agreement will require Assignor Lender, the Administrative Agent, or Borrower to file any registration statement with the Securities and Exchange Commission or to apply to qualify under the blue sky laws of any state;

(g)Assignee Lender will not enter into any written or oral agreement with, or acquire any equity or other ownership interest in, the Borrower or any of its Affiliates without the prior written consent of the Administrative Agent; and

(h)As of the Effective Date, Assignee Lender is entitled to receive payments of principal and interest under the Funding Agreement without deduction for or on account of any taxes imposed by the United States of America or any political subdivision thereof  and Assignee Lender will indemnify the Administrative Agent from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, or expenses that are not paid by the Borrower pursuant to the terms of the Funding Agreement.

3

3.2Assignor Lender’s Representations, Warranties and Covenants.  Assignor Lender hereby represents, warrants and covenants the following to Assignee Lender:

(a)Assignor Lender is the legal and beneficial owner of the Assigned Amount;

(b)This Agreement is a legal, valid and binding agreement of Assignor Lender, enforceable according to its terms;

(c)The execution and performance by Assignor Lender of its duties and obligations under this Agreement will not require any registration with, notice to or consent or approval by any Governmental Authority;

(d)Assignor Lender has full power and authority, and has taken all action necessary to execute and deliver this Agreement and to fulfill the obligations hereunder and to consummate the transactions contemplated hereby;

(e)Assignor Lender is the legal and beneficial owner of the interests being assigned hereby, free and clear of any adverse claim, lien, encumbrance, security interest, restriction on transfer, purchase option, call or similar right of a third party; and

(f)This Agreement complies, in all material respects, with the terms of the Related Documents.

4.             LIMITATIONS OF LIABILITY

Neither Assignor Lender (except as provided in Section 3.2) nor the Administrative Agent makes any representations or warranties of any kind, nor assumes any responsibility or liability whatsoever, with regard to (a) the Related Documents or any other document or instrument furnished pursuant thereto or the Advances or other Borrower Obligations, (b) the creation, validity, genuineness, enforceability, sufficiency, value or collectibility of any of them, (c) the amount, value or existence of the Borrower Collateral,  (d) the perfection or priority of any Lien upon the Borrower Collateral, or (e) the financial condition of Borrower or any of its Affiliates or other obligor or the performance or observance by Borrower or any of its Affiliates of its obligations under any of the Related Documents.  Neither Assignor Lender nor the Administrative Agent has or will have any duty, either initially or on a continuing basis, to make any investigation, evaluation, appraisal of, or any responsibility or liability with respect to the accuracy or completeness of, any information provided to Assignee Lender which has been provided to Assignor Lender or the Administrative Agent by Borrower or any of its Affiliates.  Nothing in this Agreement or in the Related Documents shall impose upon the Assignor Lender or the Administrative Agent any fiduciary relationship in respect of the Assignee Lender.

5.FAILURE TO ENFORCE

No failure or delay on the part of the Administrative Agent or Assignor Lender in the exercise of any power, right, or privilege hereunder or under any Related Document will impair such power, right, or privilege or be construed to be a waiver of any default or

4

acquiescence therein.  No single or partial exercise of any such power, right, or privilege will preclude further exercise thereof or of any other right, power, or privilege.  All rights and remedies existing under this Agreement are cumulative with, and not exclusive of, any rights or remedies otherwise available.

6.NOTICES

Unless otherwise specifically provided herein, any notice or other communication required or permitted to be given will be in writing and addressed to the respective party as set forth below its signature hereunder, or to such other address as the party may designate in writing to the other.

7.AMENDMENTS AND WAIVERS

No amendment, modification, termination, or waiver of any provision of this Agreement will be effective without the written concurrence of Assignor Lender, the Administrative Agent and Assignee Lender.

8.SEVERABILITY

Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law.  In the event any provision of this Agreement is or is held to be invalid, illegal, or unenforceable under applicable law, such provision will be ineffective only to the extent of such invalidity, illegality, or unenforceability, without invalidating the remainder of such provision or the remaining provisions of the Agreement.  In addition, in the event any provision of or obligation under this Agreement is or is held to be invalid, illegal, or unenforceable in any jurisdiction, the validity, legality, and enforceability of the remaining provisions or obligations in any other jurisdictions will not in any way be affected or impaired thereby.

9.SECTION TITLES

Section and Subsection titles in this Agreement are included for convenience of reference only, do not constitute a part of this Agreement for any other purpose, and have no substantive effect.

10.SUCCESSORS AND ASSIGNS

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

11.APPLICABLE LAW

THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

5

12.COUNTERPARTS

This Agreement and any amendments, waivers, consents, or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when so executed and delivered, will be deemed an original and all of which shall together constitute one and the same instrument.

6

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.

Assignee Lender		Assignor Lender
By:		By:
Name:		Name:
Title:		Title:
Notice Address		Notice Address
Account Information		Account Information
Acknowledged and Consented to:
GENERAL ELECTRIC CAPITAL CORPORATION, as Administrative Agent
By:
	Name:
	Title:
[Acknowledged and Consented to: VERTIS RECEIVABLES II, LLC, as Borrower
By:
	Name:
	Title:(4)

(4)Include if the Borrower has a consent right under the Section 12.02 of the Funding Agreement.

7

SCHEDULE 2.1

Assignor Lender’s Loans

Principal Amount

Advances		$
Accrued Interest		$
Unused Line Fee		$
Other + or -	$
Total	$

All determined as of the Effective Date

Exhibit A to Funding Agreement

CREDIT AND COLLECTION POLICY

[Attached]

SCHEDULE 4.01(b)
to
FUNDING AGREEMENT

JURISDICTION OF ORGANIZATION; EXECUTIVE OFFICES; COLLATERAL
LOCATIONS; CORPORATE, LEGAL AND OTHER NAMES; IDENTIFICATION
NUMBERS

[Attached]

SCHEDULE 4.01(i)
to
FUNDING AGREEMENT

TAXES

[Attached]

SCHEDULE 4.01(q)
to
FUNDING AGREEMENT

DEPOSIT AND DISBURSEMENT ACCOUNTS

[Attached]

SCHEDULE 4.01(v)
to
FUNDING AGREEMENT

SUPPLEMENTARY REPRESENTATIONS

In addition to the representations, warranties and covenants contained in Section 4.01 hereof, the Borrower, hereby makes the following additional representations, warranties and covenants:

1.             Receivables; Accounts.

(a)           Each Eligible Receivable constitutes an “account” or a “general intangible” within the meaning of the applicable UCC.

(b)           Each Account constitutes a “deposit account” or “securities account” within the meaning of the applicable UCC.

(c)           With respect to each Account which constitutes a “securities account” within the meaning of the applicable UCC:

i.              The securities intermediary for each such Account has agreed to treat all assets credited to such Account as “financial assets” within the meaning of the UCC.

ii.             The Borrower has received all consents and approvals required by the terms of the applicable Account Agreement and related Bank to the transfer to the Administrative Agent of its interest and rights in the Account hereunder.

iii.            No such Account is in the name of any Person other than the Borrower or the Administrative Agent.  The Borrower has not consented to the securities intermediary of any Account to comply with entitlement orders of any person other than the Administrative Agent.

2.             Creation of Security Interest.  The Borrower owns and has good and marketable title to the Receivables, Accounts and Lockboxes, free and clear of any Adverse Claim.  The Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Receivables, Accounts and Lockboxes in favor of the Administrative Agent (on behalf of itself and the Lenders), which security interest is prior to all other Adverse Claims and is enforceable as such as against any creditors of and purchasers from the Borrower.

3.             Perfection.

(a)           The Borrower has caused the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law and entered into Account Agreements in order to perfect the sale of the Receivables from the Originators to the Borrower pursuant to the Sale Agreement and the security interest granted by the Borrower to the Administrative Agent (on behalf of itself and the Lenders) in the Receivables hereunder.

(b)           With respect to the Borrower Account, the Borrower has delivered to the Administrative Agent (on behalf of itself and the Lenders), a fully executed Borrower Account Agreement pursuant to which the applicable Borrower Account Bank has agreed, following the occurrence and continuation of a Termination Event, to comply with all instructions given by the Administrative Agent with respect to all funds on deposit in the Borrower Account, without further consent by the Borrower, the Servicer or any Originator.

(c)           With respect to each Account other than the Borrower Account, the Borrower has delivered to the Administrative Agent (on behalf of itself and the Lenders), a fully executed Account Agreement pursuant to which the applicable Bank has agreed to comply with all instructions given by the Administrative Agent with respect to all funds on deposit in the Accounts and the related Lockboxes, without further consent by the Borrower, the Servicer or any Originator.

5.             Priority.

(a)           Other than the transfer of the Receivables by the Originators to the Borrower pursuant to the Sale Agreement and the grant of security interest by the Borrower to the Administrative Agent (on behalf of itself and the Lenders) in the Receivables, the Accounts and the Lockboxes hereunder, the Borrower has not pledged, assigned, sold, conveyed, or otherwise granted a security interest in any of the Receivables, the Accounts and the Lockboxes to any other Person.

(b)           The Borrower has not authorized, or is aware of, any filing of any financing statement against the Borrower that include a description of collateral covering the Receivables or all other collateral pledged to the Administrative Agent (on behalf of the Lenders) pursuant to the Related Documents, other than any financing statement filed pursuant to the Sale Agreement and this Agreement or financing statements that have been validly terminated prior to the date hereof.

(c)           The Borrower is not aware of any judgment, ERISA or tax lien filings against either the Borrower or any Originator.

(d)           None of the Accounts or Lockboxes is in the name of any Person other than the Borrower or the Administrative Agent.  The Borrower has not consented to any Bank complying with instructions of any person other than the Administrative Agent.

6.             Survival of Supplemental Representations.  Notwithstanding any other provision of this Agreement or any other Related Document, the representations contained in this Schedule 4.01(v) shall be continuing, and remain in full force and effect until the Termination Date.

7.             Borrower to Maintain Perfection and Priority.  In order to evidence the interests of the Administrative Agent and the Lenders under this Agreement, the Borrower shall, from time to time take such action, or execute and deliver such instruments (other than filing financing statements) as may be necessary or advisable (including, such actions as are reasonably

2

requested by the Administrative Agent) to maintain and perfect, as a first-priority interest, the Administrative Agent’s (on behalf of itself and the Lenders) security interest in the Receivables and all other collateral pledged to the Administrative Agent (on behalf of itself and the Lenders) pursuant to the Related Documents.  The Borrower shall, from time to time and within the time limits established by law, prepare and present to the Administrative Agent for the Administrative Agent’s authorization and approval all financing statements, amendments, continuations or initial financing statements in lieu of a continuation statement in the, or other filings necessary to continue, maintain and perfect the Administrative Agent’s (on behalf of itself and the Lenders) security interest in the Receivables and all other collateral pledged to the Administrative Agent (on behalf of itself and the Lenders) pursuant to the Related Documents as a first-priority interest. The Administrative Agent’s approval of such filings shall authorize the Borrower to file such financing statements under the UCC without the signature of the Borrower, any Originator or the Administrative Agent where allowed by applicable law.  Notwithstanding anything else in the Related Documents to the contrary, neither the Borrower, the Servicer, nor any Originator, shall have any authority to file a termination, partial termination, release, partial release or any amendment that deletes the name of a debtor or excludes collateral of any such financing statements, without the prior written consent of the Administrative Agent.

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SCHEDULE 5.01(b)
to
FUNDING AGREEMENT

TRADE NAMES/BORROWER

None.

ANNEX 5.02(a)
to
FUNDING AGREEMENT

REPORTING REQUIREMENTS OF THE BORROWER

The Borrower shall furnish, or cause to be furnished, to each Lender and the Administrative Agent:

(a)           Reporting.

(i)            Monthly Report.  As soon as available, and in any event no later than 11:00 a.m. (New York time) on the fifteenth day of each calendar month, a monthly report (a “Monthly Report”) in the form attached hereto prepared by the Borrower as of the last day of the previous calendar month, together with an unaudited monthly balance sheet of the Borrower certified by an officer of the Borrower.  It is hereby understood and agreed that the Borrower shall be required to deliver a Monthly Report pursuant to the terms of this subsection (a)(i) notwithstanding that the Borrower may also be required to deliver Weekly Reports and Daily Reports as hereinafter described.

(ii)           Weekly Report.  No later than 5:00 p.m. (New York time) on each Tuesday, a Weekly Report, prepared by the Borrower as of the last day of the immediately preceding week. It is hereby understood and agreed that the Borrower shall be required to deliver a Weekly Report pursuant to the terms of this subsection (a)(ii) notwithstanding that the Borrower may also be required to deliver Daily Reports as hereinafter described.

(iii)          Daily Report.  In the event of (A) a downgrade in the rating of the long-term unsecured indebtedness of Holdings below B3 by Moody’s or (B) the withdrawal of the rating of Moody’s of the long-term unsecured indebtedness of Holdings, no later than 5:00 p.m. (New York time) on each  subsequent Business Day, a Daily Report, prepared by the Borrower as of the close of business on the immediately preceding Business Day.

(b)           Annual Audited Financials.  As soon as available and in any event within ninety-five (95) days after the end of each fiscal year of Holdings and the Parent, as applicable, (1) the consolidated (accompanied by mutually acceptable supplemental non-consolidated information customarily prepared by management) balance sheets of (A) the Parent and its Subsidiaries as at the end of such year and (B) Holdings and its Subsidiaries as at the end of such year, and, the related consolidated (accompanied by mutually acceptable supplemental non-consolidated information customarily prepared by management) statements of income, stockholders’ equity and cash flow for such fiscal year, (2) a report with respect to the consolidated (together with division-by-division analysis) financial statements described in clauses (1)(A) and (1)(B) above from Deloitte & Touche LLP or another firm of certified public accountants selected by Parent and reasonably acceptable to Administrative Agent, which report shall be prepared in accordance with Statement of Auditing Standards No. 58 (the “Statement”)

“Reports on Audited Financial Statements” and such report shall be “Unqualified” (as such term is defined in such Statement) and (3) the unaudited balance sheet of  the Borrower as at the end of such year, and, the related statement of income for such fiscal year.

(c)           Quarterly Financials. As soon as available and in any event within fifty (50) days after the end of each fiscal quarter (including the last fiscal month of each fiscal quarter) of Holdings and the Parent, as applicable, (1) the consolidated (accompanied by mutually acceptable supplemental non-consolidated information customarily prepared by management) balance sheets of (A) the Parent and its Subsidiaries as at the end of such fiscal quarter and (B) Holdings and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated (accompanied by mutually acceptable supplemental non-consolidated information customarily prepared by management) statements of income, stockholders’ equity and cash flow for such fiscal quarter and for the period from the beginning of the then current fiscal year of Holdings to the end of such fiscal quarter, (2) the unaudited balance sheet of the Borrower as at the end of such fiscal quarter, and, the related statement of income for such fiscal quarter, and (3) a report setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year and the corresponding figures from the most recent Financial Projections for the current fiscal year delivered pursuant to clause (e). In addition, the Borrower shall furnish, or cause to be furnished, to the Administrative Agent and the Lenders, within fifty (50) days after the end of each fiscal quarter, a statement in reasonable detail (each, a “Compliance Certificate”) showing the calculations used in determining compliance with the test set forth on Annex Z to the Sale Agreement.

(d)           Monthly Financials.  As soon as available and in any event within thirty-five (35) days after the end of each fiscal month (or forty-five (45) days for the last fiscal month of each fiscal year) of Holdings and the Parent, as applicable, (1) the consolidated (accompanied by mutually acceptable supplemental non-consolidated information customarily prepared by management) balance sheets of (A) the Parent and its Subsidiaries and (B) Holdings and its Subsidiaries, as at the end of such month, and the related consolidated (accompanied by mutually acceptable supplemental non-consolidated information customarily prepared by management) statements of income, stockholders’ equity and cash flow for such fiscal month and for the period from the beginning of the then current fiscal year of Holdings to the end of such fiscal month, (2) the unaudited balance sheet of the Borrower as at the end of such fiscal month, and, the related statement of income for such fiscal month and (3) a report setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year and the corresponding figures from the most recent Financial Projections for the current fiscal year delivered pursuant to clause (e).

(e)           Financial Projections.  As soon as available and in any event no later than thirty (30) days following the last day of each of Holdings’ fiscal year, Financial Projections of Holdings and its Subsidiaries for the forthcoming three (3) fiscal years, year by year, and for the forthcoming fiscal year, fiscal month by fiscal month.

(f)            Accountants’ Reports.  Promptly upon receipt thereof, copies of all significant reports submitted by Holdings’ or any of its Subsidiaries’ firm of certified public

2

accountants in connection with each annual, interim or special audit or review of any type of the financial statements or related internal control systems of Holdings or any of its Subsidiaries made by such accountants, including any comment letter submitted by such accountants to management in connection with their services.

(g)           Default Notices.  As soon as practicable, and in any event within five Business Days after an Authorized Officer of the Borrower has actual knowledge of the existence thereof, telephonic or telecopied notice of each of the following events, in each case specifying the nature and anticipated effect thereof and what action, if any, the Borrower proposes to take with respect thereto, which notice, if given telephonically, shall be promptly confirmed in writing on the next Business Day:

(i)            any Incipient Termination Event or Termination Event;

(ii)           any Adverse Claim made or asserted against any of the Borrower Collateral of which it becomes aware;

(iii)          the occurrence of any event that would have a material adverse effect on the aggregate value of the Borrower Collateral or on the assignments and Liens granted by the Borrower pursuant to the Funding Agreement;

(iv)          the occurrence of any event of the type described in Sections 4.02(h)(i), (ii) or (iii) of the Sale Agreement involving any Obligor obligated under Transferred Receivables with an aggregate Outstanding Balance at such time of $500,000 or more;

(v)           the commencement of a case or proceeding by or against the Borrower, the Parent, the Servicer, any Originator or any other Subsidiary of Holdings seeking a decree or order in respect of the Borrower, the Parent, the Servicer, any Originator or any other Subsidiary of Holdings (A) under the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, (B) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for the Borrower, the Parent, the Servicer, any Originator or any other Subsidiary of Holdings or for any substantial part of its respective assets, or (C) ordering the winding up or liquidation of the affairs of the Borrower, the Parent, the Servicer, any Originator or any other Subsidiary of Holdings;

(vi)          the receipt of notice that (A) the Borrower, the Parent, the Servicer, any Originator, any other Subsidiary of Holdings is being placed under regulatory supervision, (B) any license, permit, charter, registration or approval necessary for the conduct of the business of the Borrower, the Parent, the Servicer or any Originator is to be, or may be, suspended or revoked, or (C) the Borrower, the Parent, the Servicer, any Originator or any other Subsidiary of Holdings is to cease and desist any practice, procedure or policy employed by it in the conduct

3

of its business if such cessation could reasonably be expected to have a Material Adverse Effect; or

(vii)         any other event, circumstance or condition that has had or could reasonably be expected to have a Material Adverse Effect.

(h)           SEC Filings and Press Releases.  Promptly upon their becoming available, copies of:  (i) all financial statements, reports, notices and proxy statements made publicly available by Holdings, the Borrower, the Parent or any Originator to its security holders; (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by Holdings, the Borrower, the Parent or any Originator with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority; and (iii) all press releases and other statements made available by Holdings, the Borrower, the Parent or any Originator to the public concerning material adverse changes or developments in the business of any such Person.

(i)            ERISA Notices.  Promptly after the filing or receiving thereof, copies of all reports and notices that the Borrower, any Transaction Party or any of their ERISA Affiliates files under ERISA with the Internal Revenue Services or the PBGC or the U.S. Department of Labor or that the Borrower, any Transaction Party or any of their ERISA Affiliates receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Borrower, any Transaction Party or any of their ERISA Affiliates is or was, within the preceding five years, a contributing employer, in each case in respect of any accumulated funding deficiency under ERISA, any “Reportable Event” under ERISA, or any assessment of withdrawal liability under ERISA or ay other event or condition which could, in the aggregate, result in the imposition of liability on the Borrower, any Transaction Party or any of their ERISA Affiliates in excess of $500,000.

(j)            Litigation.  Promptly upon learning thereof, written notice of any Litigation affecting the Borrower, the Transferred Receivables or the Borrower Collateral, whether or not fully covered by insurance, and regardless of the subject matter thereof that (i) seeks damages in excess of $100,000, (ii) seeks injunctive relief, (iii) that seeks damages in excess of $500,000 and is asserted or instituted against any Plan, its fiduciaries (in their capacity as a fiduciary of any such Plan) or its assets or against the Borrower or any ERISA Affiliate of the Borrower in connection with any Plan, (iv) alleges criminal misconduct by the Borrower or (v) would, if determined adversely, have a Material Adverse Effect.

(k)           Other Documents.  With reasonable promptness, such other financial and other information respecting the Transferred Receivables, the Contracts therefor or the condition or operations, financial or otherwise, of the Borrower, any Originator, Holdings or any of its other Subsidiaries as any Lender or Administrative Agent shall, from time to time, reasonably request.

(l)            Good Standing Certificates.  As soon as available, and in any event within 30 days after the end of each fiscal quarter of each Originator and the Borrower, the Borrower

4

shall deliver to the Administrative Agent or make available to the Administrative Agent via “Powerbrief” or a similar website, good standing certificates for each Originator and the Borrower certified as of a recent date by the Secretary of State of the State of organization or incorporation for each Originator and the Borrower.

5

Form of Monthly Report

[Attached]

ANNEX W
ADMINISTRATIVE AGENT’S ACCOUNT/
LENDERS’ ACCOUNTS

Deutsche Bank Trust Company Americas

90 Hudson Street, 5^th Floor

Jersey City, NJ 07302

ABA#   021-001-033

Account Name:   GECC CAF Depository

Account #   50-232-854

Reference:   Vertis

ANNEX X

DEFINITIONS

[Attached]

ANNEX Y

SCHEDULE OF DOCUMENTS

[Attached]

ANNEX Z

SPECIAL CONCENTRATION PERCENTAGES

OBLIGOR PERCENTAGE

Obligor	Special Concentration Percentage
The Kroger Company	So long as the short term debt of this Obligor is rated A-2 or better by S&P and P-2 or better by Moody’s, 8%

EX-10.8

Exhibit 10.8

ANNEX X

to

RECEIVABLES SALE AND SERVICING AGREEMENT

and

RECEIVABLES FUNDING AND ADMINISTRATION AGREEMENT

dated as of

November 25, 2005

Definitions and Interpretation

Annex X

SECTION 1.  Definitions and Conventions.  Capitalized terms used in the Sale Agreement (as defined below) and the Funding Agreement (as defined below) shall have (unless otherwise provided elsewhere therein) the following respective meanings:

“Account” shall mean any of the Concentration Account, the Borrower Account or the Collection Accounts.

“Account Agreement” shall mean any of  the Borrower Account Agreement, the Concentration Account Agreement or the Collection Account Agreements.

“Accounting Changes” shall mean, with respect to any Person, (a) changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion of the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or any successor thereto or any agency with similar functions); (b) changes in accounting principles concurred in by such Person’s certified public accountants; (c) purchase accounting adjustments under A.P.B. 16 or 17 and EITF 88-16, and the application of the accounting principles set forth in FASB 109, including the establishment of reserves pursuant thereto and any subsequent reversal (in whole or in part) of such reserves; and (d) the reversal of any reserves established as a result of purchase accounting adjustments.

“Additional Amounts” shall mean any amounts payable to any Affected Party under Sections 2.09 or 2.10 of the Funding Agreement.

“Additional Costs” shall have the meaning assigned to it in Section 2.09(a) of the Funding Agreement.

“Administrative Agent” shall have the meaning set forth in the Preamble of the Funding Agreement.

“Administrative Services Agreement” shall mean that certain Administrative Services Agreement dated as of the date hereof between the Borrower and the Parent.

“Advance” shall mean any Revolving Credit Advance or Swing Line Advance, as the context may require.

“Advance Date” shall mean each day on which any Advance is made.

“Adverse Claim” shall mean any claim of ownership or any Lien, other than any ownership interest or Lien created under the Sale Agreement or the Funding Agreement.

“Affected Party” shall mean each of the following Persons: each Lender, the Administrative Agent, the Depositary, each Affiliate of the foregoing Persons, and any SPV or participant with the rights of a Lender under Section 12.02(c) of the Funding Agreement and their respective successors, transferees and permitted assigns.

“Affiliate” shall mean, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock having ordinary voting power in the election of directors of

such Person, (b) each Person that controls, is controlled by or is under common control with such Person, or (c) each of such Person’s officers, directors, joint venturers and partners.  For the purposes of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

“Agent Account” shall mean account number 50232854 with the Depositary in the name of the Administrative Agent.

“Aggregate Commitment” shall mean as to all Lenders, the aggregate commitment of all Lenders to make Advances, which aggregate commitment shall be One Hundred Thirty Million Dollars ($130,000,000) on the Closing Date, as such amount may be adjusted, if at all, from time to time in accordance with the Funding Agreement.

“Appendices” shall mean, with respect to any Related Document, all exhibits, schedules, annexes and other attachments thereto, or expressly identified thereto.

“Assignment Agreement” shall mean an assignment agreement in the form of Exhibit 12.02 attached to the Funding Agreement.

“Authorized Officer” shall mean, with respect to any corporation or limited liability company, the Chairman or Vice-Chairman of the Board, the President, any Vice President, the General Counsel, the Secretary, the Treasurer, the Controller, any Assistant Secretary, any Assistant Treasurer, any manager or managing member and each other officer of such corporation or limited liability company specifically authorized to sign agreements, instruments or other documents on behalf of such corporation or limited liability company in connection with the transactions contemplated by the Sale Agreement, the Funding Agreement and the other Related Documents.

 “Bank” shall mean any of the Collection Account Banks, the Concentration Account Bank or the Borrower Account Bank.

“Bankruptcy Code” shall mean the provisions of title 11 of the United States Code, 11 U.S.C. § § 101 et seq.

“Billed Amount” shall mean, with respect to any Receivable, the amount billed on the Billing Date to the Obligor thereunder.

“Billing Date” shall mean, with respect to any Receivable, the date on which the invoice with respect thereto was generated.

“BK Obligor” means an Obligor that (i) to the actual knowledge of an Authorized Officer of the Borrower or the Servicer, has admitted in writing its inability to pay its debts as they become due, (ii) is a debtor in a voluntary or involuntary bankruptcy proceeding, or (iii) is subject of a comparable receivership or insolvency proceeding, unless, in the case of a bankruptcy proceeding in clause (ii) or (iii), the applicable Originator has been designated as a “critical vendor” and the Obligor thereunder has obtained (x) in the case of any Receivable

2

originated pre-petition, a final court order approving the payment of the pre-petition claims of such Originator on an administrative priority basis or (y) in the case of any Receivable originated post-petition, (A) requisite court approval to pay the post-petition claims of such Originator on an administrative priority basis and (B) a debtor-in-possession financing facility and management of the applicable Originator reasonably believes that such financing will be available to pay the Receivables owing by such Obligor, and, in any such case, such Obligor has agreed post-petition to pay the Receivables owing by such Obligor on a current basis in accordance with its terms.

“Borrower” shall have the meaning assigned to it in the preamble to the Funding Agreement.

“Borrower Account” shall mean account number 3756599574 maintained by the Borrower at the Borrower Account Bank, which account shall be subject to a Borrower Account Agreement.

“Borrower Account Agreement” shall mean any agreement among an Originator, the Borrower, the Administrative Agent, and the Borrower Account Bank with respect to the Borrower Account that provides, among other things, that (a) all items of payment deposited in the Borrower Account are held by the Borrower Account Bank as custodian for the Administrative Agent, (b) the Borrower Account Bank has no rights of setoff or recoupment or any other claim against the Borrower Account, as the case may be, other than for payment of its service fees and other charges directly related to the administration of the Borrower Account and for returned checks or other items of payment and (c) after notice from the Administrative Agent to the Borrower Account Bank, the Borrower Account Bank agrees to forward all Collections received in the Borrower Account to the Agent Account within one Business Day of receipt, and is otherwise in form and substance acceptable to the Administrative Agent.  For purposes of clarification, as of the Closing Date, each reference to the Borrower Account Agreement shall mean a reference to that certain Blocked Account Agreement (with Activation) dated as of the Closing Date by and among the Parent, the Borrower, the Administrative Agent and the Borrower Account Bank.

“Borrower Account Bank” shall mean the bank or other financial institution at which the Borrower Account is maintained, which shall initially be Bank of America, N.A.

“Borrower Account Collateral” shall have the meaning assigned to it in Section 7.01(c) of the Funding Agreement.

“Borrower Assigned Agreements” shall have the meaning assigned to it in Section 7.01(b) of the Funding Agreement.

“Borrower Collateral” shall have the meaning assigned to it in Section 7.01 of the Funding Agreement.

“Borrower Obligations” shall mean all loans, advances, debts, liabilities, indemnities and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such

3

amounts are liquidated or determinable) owing by the Borrower to any Affected Party under the Funding Agreement, any other Related Document and any document or instrument delivered pursuant thereto, and all amendments, extensions or renewals thereof, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising thereunder, including the Outstanding Principal Amount, interest, Unused Commitment Fees, amounts payable in respect of Funding Excess, Successor Servicing Fees and Expenses, Additional Amounts, Additional Costs and Indemnified Amounts.  This term includes all principal, interest (including all interest that accrues after the commencement of any case or proceeding by or against the Borrower in bankruptcy, whether or not allowed in such case or proceeding), fees, charges, expenses, attorneys’ fees and any other sum chargeable to the Borrower under any of the foregoing, whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations that are paid to the extent all or any portion of such payment is avoided or recovered directly or indirectly from any Lender or the Administrative Agent or any assignee of any Lender or the Administrative Agent as a preference, fraudulent transfer or otherwise.

“Borrowing” shall mean (i) the Revolving Credit Advances of the Lenders (other than the Swing Line Lender) made pursuant to Section 2.01(b)(iii) or (iv)of the Funding Agreement, and (ii) each Swing Line Advance made by the Swing Line Lender pursuant to Section 2.01(b)(i) of the Funding Agreement.

“Borrowing Base” shall mean, as of any date of determination, the amount equal to the lesser of:

(a) the Aggregate Commitment,

and

(b) an amount equal to the positive difference, if any, of:

(i) the product of (1) the Dynamic Advance Rate multiplied by (2) the Net Receivables Balance,

minus

(ii) the sum of (W) the Interest Reserve, (X) the Servicing Fee Reserve, plus (y) if the EBITDA Shortfall Event shall have occurred, such other reserves as the Administrative Agent may determine from time to time based upon its reasonable credit judgment;

in each case as disclosed in the most recently submitted Borrowing Base Certificate or Borrowing Request or as otherwise determined by the Administrative Agent based on Borrower Collateral information available to it, including any information obtained from any audit or from

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any other reports with respect to the Borrower Collateral, which determination shall be final, binding and conclusive on all parties to the Funding Agreement (absent manifest error).

“Borrowing Base Certificate” shall have the meaning assigned to it in Section 5.02(b) of the Funding Agreement.

“Borrowing Request” shall have the meaning assigned to it in Section 2.03(a) of the Funding Agreement.

“Breakage Costs” shall have the meaning assigned to it in Section 2.10 of the Funding Agreement.

“Business Day” shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Maryland, the State of New York or, with respect to any remittances to be made by any Collection Account Bank or the Concentration Account Bank to any related Account, in the jurisdiction(s) in which the Accounts maintained by such Bank are located.

“Buyer” shall have the meaning assigned to it in the preamble to the Sale Agreement.

 “Buyer Indemnified Person” shall have the meaning assigned to it in Section 5.01 of the Sale Agreement.

“Capital Lease” shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person.

“Capital Lease Obligation” shall mean, with respect to any Capital Lease of any Person, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease.

 “Change of Control” means (I) at any time prior to the consummation of a Qualified IPO, (i) a “Change of Control” under, and as defined in, the Existing Credit Agreement as in effect on the Closing Date, shall have occurred; (ii) the ratio of (x) either (A) the percentage of the voting interest in Holdings’ outstanding Stock on a fully diluted basis or (B) the percentage of the economic interest in Holdings’ outstanding Stock, in each case owned by the THL Group at any time, to (y) (A) the percentage of the voting interest in Holdings’ outstanding Stock on a fully diluted basis or (B) the percentage of the economic interest in Holdings’ outstanding Stock, as the case may be, in each case held by the THL Group on the Closing Date, shall at any time be less than ..51:1.0 or (iii) THL Group and the Evercore Group shall cease collectively to own on a fully diluted basis in the aggregate at least 51% of the economic and voting interest in Holdings’ outstanding Stock; (II) at any time after the consummation of a Qualified IPO, (i) a “Change of Control” under, and as defined in, the Existing Credit Agreement as in effect on the Closing Date, shall have occurred; (ii) any “Person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act) is or becomes the

5

“beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Securities Exchange Act), directly or indirectly, of 20% or more of the economic and voting interest in Holdings’ outstanding Stock unless the THL Group and The Evercore Group shall collectively own a greater percentage of the economic and voting interest in Holdings’ outstanding Stock than such “Person” or “Group” that holds 20% or more of such Stock; (iii) the ratio of (x) either (A) the percentage of the voting interest in Holdings’ outstanding Stock on a fully diluted basis or (B) the percentage of the economic interest in Holdings’ outstanding Stock, in each case owned by the THL Group at any time, to (y) (A) the percentage of the voting interest in Holdings’ outstanding Stock on a fully diluted basis or (B) the percentage of the economic interest in Holdings’ outstanding Stock, as the case may be, in each case held by the THL Group on the Closing Date, shall at any time be less than .30:1.0; (iv) THL Group and the Evercore Group shall cease collectively to own on a fully diluted basis in the aggregate at least 30% of the economic and voting interest in Holdings’ outstanding Stock; and (III) at any time (i) the board of directors of Holdings shall cease to consist of a majority of Continuing Directors; (ii) Holdings shall cease to own 100% on a fully diluted basis of the shares of outstanding Stock of the Parent and the each Originator; (iii) the Parent shall at any time cease to own, directly or indirectly, 100% of the outstanding Stock of the Borrower or (viii) any Originator ceases to own and control all of the economic and voting rights associated with all of the outstanding Stock of any of its Subsidiaries.

“Charges” shall mean (i) all federal, state, provincial, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to the PBGC at the time due and payable); (ii) all levies, assessments, charges, or claims of any governmental entity or any claims of statutory lienholders, the nonpayment of which could give rise by operation of law to a Lien on Borrower Collateral or any other property of the Borrower or any Originator and (iii) any such taxes, levies, assessment, charges or claims which constitute a lien or encumbrance on any property of the Borrower or any Originator.

“Closing Date” shall mean November 25, 2005.

“Collection Account” shall mean any deposit account established by or assigned to the Borrower for the deposit of Collections pursuant to and in accordance with Section 6.01(a) of the Funding Agreement.

“Collection Account Agreement” shall mean any agreement among an Originator, the Borrower, the Administrative Agent, and a Collection Account Bank with respect to a Lockbox and Collection Account that provides, among other things, that (a) all items of payment deposited in such Lockbox and Collection Account are held by such Collection Account Bank as custodian for the Administrative Agent, (b) such Collection Account Bank has no rights of setoff or recoupment or any other claim against such Collection Account, as the case may be, other than for payment of its service fees and other charges directly related to the administration of such Collection Account and for returned checks or other items of payment and (c) such Collection Account Bank agrees to forward all Collections received in such Collection Account to the Concentration Account within one Business Day of receipt, and is otherwise in form and substance acceptable to the Administrative Agent.  For purposes of clarification, as of the Closing Date, each reference to Collection Account Agreement and Concentration Account Agreement shall mean a reference to that certain Multiparty Blocked Account Agreement dated

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as of the Closing Date by and among the Parent, the Borrower, the Administrative Agent, the Concentration Account Bank and Bank of America, N.A., as Collection Account Bank.

“Collection Account Bank” shall mean any bank or other financial institution at which one or more Collection Accounts are maintained.

“Collections” shall mean, with respect to any Receivable, all cash collections and other proceeds of such Receivable (including late charges, fees and interest arising thereon, and all recoveries with respect thereto that have been written off as uncollectible).

“Commitment” shall mean as to any Lender, the aggregate commitment of such Lender to make Revolving Credit Advances as set forth in the signature page to the Funding Agreement or in the most recent Assignment Agreement executed by such Lender, as such amount may be adjusted, if at all, from time to time in accordance with the Funding Agreement.

“Commitment Reduction Notice” shall have the meaning assigned to it in Section 2.02(a) of the Funding Agreement.

“Commitment Termination Date” shall mean the earliest of (a) the date so designated pursuant to Section 9.01 of the Funding Agreement, (b) the Final Advance Date, and (c) the date of termination of the Aggregate Commitment specified in a notice from the Borrower to the Lenders delivered pursuant to and in accordance with Section 2.02(b) of the Funding Agreement.

“Commitment Termination Notice” shall have the meaning assigned to it in Section 2.02(b) of the Funding Agreement.

“Concentration Account” shall mean account number 3756294549 maintained by the Borrower at Concentration Account Bank, which account shall be subject to a Concentration Account Agreement.

“Concentration Account Agreement” shall mean any agreement among an Originator, the Borrower, the Administrative Agent, and the Concentration Account Bank with respect to the Concentration Account that provides, among other things, that (a) all items of payment deposited in the Concentration Account are held by the Concentration Account Bank as custodian for the Administrative Agent, (b) the Concentration Account Bank has no rights of setoff or recoupment or any other claim against the Concentration Account, as the case may be, other than for payment of its service fees and other charges directly related to the administration of the Concentration Account and for returned checks or other items of payment and (c) the Concentration Account Bank agrees to forward all Collections received in the Concentration Account to the Borrower Account within one Business Day of receipt, and is otherwise in form and substance acceptable to the Administrative Agent.  For purposes of clarification, as of the Closing Date, each reference to Collection Account Agreement and Concentration Account Agreement shall mean a reference to that certain Multiparty Blocked Account Agreement dated as of the Closing Date by and among the Parent, the Borrower, the Administrative Agent, the Concentration Account Bank and Bank of America, N.A., as Collection Account Bank.

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“Concentration Account Bank” shall mean the bank or other financial institution at which the Concentration Account is maintained, which shall initially be Bank of America, N.A.

“Concentration Percentage” shall mean, with respect to an Obligor as of any date of determination, the General Concentration Percentage or, if applicable, the Special Concentration Percentage for such Obligor at such date of determination.

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability of that Person:  (i) with respect to Guaranteed Indebtedness and with respect to any Indebtedness, lease, dividend or other obligation of another Person if the purpose or intent of the Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (iii) under any foreign exchange contract, currency swap agreement, interest rate swap agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, (iv) any agreement, contract or transaction involving commodity options or future contracts, (v) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, or (vi) pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another.  The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.

“Continuing Directors” shall mean the directors of Holdings on the Closing Date and each other director, if such director’s nomination for election to the board of directors of Holdings who later joins the board of directors approved by the affirmative vote of a majority of the then Continuing Directors at the time of such nomination.

“Contract” shall mean any agreement or invoice pursuant to, or under which, an Obligor shall be obligated to make payments with respect to any Receivable.

“Contractual Obligation” means, as applied to any Person, any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject including the Related Documents.

“Contributed Receivables” shall have the meaning assigned to it in Section 2.01(d) of the Sale Agreement.

“Credit Agreement” shall mean the Existing Credit Agreement and any refinancings, replacements or refundings thereof that (a) are agreed to by (i) the Administrative Agent and Requisite Lenders or (b) (i) have terms and conditions no less favorable (as

8

determined by the Administrative Agent, in the exercise of its reasonable credit judgment) to the Administrative Agent or any Lender than the terms and conditions of the Existing Credit Agreement and (ii) with respect to which an intercreditor agreement having terms and conditions acceptable to the Administrative Agent and the Lenders.

“Credit and Collection Policies” shall mean the written credit, collection, customer relations and service policies of the Originators in effect on the Closing Date and attached as Exhibit A to the Funding Agreement, as the same may from time to time be amended, restated, supplemented or otherwise modified with the prior written consent of the Administrative Agent.

“Daily Report” shall mean a Borrowing Base Certificate.

“Debt” means, with respect to any Person, without duplication (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property payment for which is deferred six (6) months or more, but excluding obligations to trade creditors incurred in the ordinary course of business that are unsecured and not overdue by more than six (6) months unless being contested in good faith, (b) all reimbursement and other obligations with respect to letters of credit, bankers’ acceptances and surety bonds, whether or not matured (excluding ordinary trade credit), (c) all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations and the present value (discounted at the Index Rate as in effect on the Closing Date) of future rental payments under all synthetic leases, (f) all net settlement obligations of such Person under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured, (g) all net payment obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (h) all indebtedness referred to above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness, (i) the “Obligations” of such Person as defined in the Existing Credit Agreement and (k) in the case of the Borrower, the Borrower Obligations

“Default Rate” shall have the meaning assigned to it in Section 2.06(b) of the Funding Agreement.

“Default Ratio” shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

(a)the sum of (without duplication) (i) the aggregate Outstanding Balance of all Receivables which became Defaulted Receivables during the Settlement Period immediately preceding such date and (ii) with respect to any Obligor that, during the Settlement Period

9

immediately preceding such date, became (A) a debtor in a voluntary or involuntary bankruptcy proceeding, or (B) the subject of a comparable receivership or insolvency proceeding, the aggregate Outstanding Balance of Receivables owing by such Obligor that were owing by such Obligor before such Obligor became (x) a debtor in a voluntary or involuntary bankruptcy proceeding, or (y) the subject of a comparable receivership or insolvency;

to

(b)the aggregate Outstanding Balance of all Receivables originated during the Settlement Period which ended five (5) months prior to the last day of the Settlement Period immediately preceding such date.

“Default Trigger Ratio” shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

(a)the average aggregate Outstanding Balance of all Receivables as of the last day of the three Settlement Periods immediately preceding such date (a) with respect to which any payment, or part thereof, remains unpaid for more than 120 days after its Billing Date, or (b) that otherwise has been or should be written off in accordance with the Credit and Collection Policies;

to

(b)the average aggregate Outstanding Balance of all Transferred Receivables as of the last day of the three Settlement Periods immediately preceding such date.

“Defaulted Receivable” shall mean any Receivable (a) with respect to which any payment, or part thereof, remains unpaid for more than 150 days after its Billing Date, (b) with respect to which the Obligor thereunder is a BK Obligor or (c) that otherwise has been or should be written off in accordance with the Credit and Collection Policies.

“Delinquency Ratio” shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

(a)the average aggregate Outstanding Balance of all Receivables as of the last day of the three Settlement Periods immediately preceding such date with respect to which any payment, or part thereof, remains unpaid for a period between 91 and 120 days after the respective Billing Dates therefor as of the last day of the Settlement Period immediately preceding such date

to

(b)the average aggregate Outstanding Balance of all Transferred Receivables as of the last day of the three Settlement Periods immediately preceding such date.

“Depositary” shall have the meaning assigned to it in Section 6.01(c)(i) of the Funding Agreement.

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“Dilution Factors” shall mean, with respect to any Receivable, any portion of which (a) was reduced, canceled or written-off as a result of (i) any credits, rebates, freight charges, cash discounts, volume discounts, cooperative advertising expenses, royalty payments, warranties, cost of parts required to be maintained by agreement (either express or implied), allowances for early payment, warehouse and other allowances, defective, rejected, returned or repossessed merchandise or services, or any failure by any Originator to deliver any merchandise or services or otherwise perform under the underlying Contract or invoice, (ii) any change in or cancellation of any of the terms of the underlying Contract or invoice or any cash discount, rebate, retroactive price adjustment or any other adjustment by the applicable Originator which reduces the amount payable by the Obligor on the related Receivable except to the extent based on credit related reasons, (iii) any setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (iv) or any check issued by any Transaction Party to an Obligor on account of discounts, incorrect billings, incentive payments, credits, volume rebates or other rebates, allowances, chargebacks, returned or repossessed goods to an Obligor or (b) is subject to any specific dispute, offset, counterclaim or defense whatsoever (except discharge in bankruptcy of the Obligor thereof).

“Dilution Ratio” shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

(a)the aggregate Dilution Factors for all Transferred Receivables during the Settlement Period immediately preceding such date

to

(b)the aggregate Billed Amount of all Transferred Receivables originated during the Settlement Period immediately preceding such date.

“Dilution Reserve Ratio” shall mean, as of any date of determination, the ratio (expressed as a percentage) calculated in accordance with the following formula:

DRR	=	[(2.0 *ADR) + [(HDR-ADR) x (HDR/ADR)]] x DHF];
		where
DRR	=	the Dilution Reserve Ratio;
ADR	=	the average of the Dilution Ratios occurring during the twelve most recent calendar Settlement Periods preceding such date;
HDR	=	the highest Dilution Ratio occurring during the twelve most recent Settlement Periods preceding such date; and
DHF	=	a Dilution Horizon Factor equal to (x) the aggregate principal amount of Receivables originated during the most recent Settlement Period preceding such date divided by (y) the

11

aggregate Outstanding Balance of all Eligible Receivables as of the end of the Settlement Period immediately preceding such date.

“Dilution Trigger Ratio” shall mean, as of any date of determination, the average of the Dilution Ratios for the three most recently ended Settlement Periods.

“Dollars” or “$”  shall mean lawful currency of the United States of America.

“Dynamic Advance Rate” shall mean, as of any date of determination, a percentage equal to the lesser of (i) 85% and (ii) 100% minus the sum of the Loss Reserve Ratio and the Dilution Reserve Ratio as of such date.

“EBITDA” has the meaning assigned to it in Annex Z of the Sale Agreement.

“EBITDA Shortfall Event” shall mean any time after which Holdings and its consolidated Subsidiaries shall have failed to maintain a consolidated EBITDA of $180,000,000 or greater for any rolling four fiscal quarter period.

“Effective Date” shall have the meaning assigned to it in Section 3.01 of the Funding Agreement.

“Election Notice” shall have the meaning assigned to it in Section 2.01(d) of the Sale Agreement.

“Eligible Receivable” shall mean, as of any date of determination, a Transferred Receivable:

(a)(i) that is due and payable in full within 60 days of its Billing Date therefor; provided, that a Transferred Receivable otherwise satisfying the requirements of “Eligible Receivable” but for this clause (a)(i) may constitute an “Eligible Receivable” if (x) such Receivable is due and payable more than 60 but within 90 days of the Billing Date thereof and (y) the Outstanding Balance of such Transferred Receivable, when added to the Outstanding Balance of all other Transferred Receivables then constituting “Eligible Receivables” by reason of this proviso, does not exceed an amount equal to 5% of the Outstanding Balance of all Eligible Receivables (a “Permitted 90 Day Receivable”) and (ii) no payment or part thereof of such Transferred Receivable remains unpaid for more than 90 days after its Billing Date; provided, that a Permitted 90 Day Receivable may constitute an “Eligible Receivable” if no payment or part thereof of such Transferred Receivable remains unpaid for more than 120 days after its billing date;

(b)that is not a liability of an Excluded Obligor or an Obligor with respect to which more than 50% of the aggregate Outstanding Balance of all Receivables owing by such Obligor are outstanding more than 90 days after the Billing Date thereof;

(c)that is not a liability of an Obligor organized under the laws of any jurisdiction outside of the United States of America (including the District of Columbia but otherwise excluding its territories and possessions); provided, that a Receivable otherwise

12

satisfying the requirements of “Eligible Receivable” but for this clause (c) may constitute an Eligible Receivable if (i) (x) the Obligor is organized under the laws of Puerto Rico or the U.S. Virgin Islands and (y) the Outstanding Balance of such Receivable, when added to the Outstanding Balance of all other Receivables then constituting Eligible Receivables by reason of clause (i) of this proviso, does not exceed an amount equal to $1,000,000 or (ii) (x) the Obligor is organized under the laws of Canada and (y) if S&P’s rating of the foreign currency of Canada is not A or higher, the Outstanding Balance of such Receivable, when added to the Outstanding Balance of all other Receivables then constituting Eligible Receivables by reason of clause (ii) of this proviso, does not exceed an amount equal to $2,000,000;

(d)that is denominated and payable in Dollars in the United States of America and is not represented by a note or other negotiable instrument or by chattel paper;

(e)that is not subject to any right of rescission, dispute, offset (including, without limitation, as a result of customer promotional allowances, discounts, rebates, or claims for damages), hold back defense, adverse claim or other claim (with only the portion of any such Receivable subject to any such right of rescission, dispute, offset (including, without limitation, as a result of customer promotional allowances, discounts, rebates, or claims for damages), hold back defense, adverse claim or other claim being considered an Ineligible Receivable by virtue of this clause (e)), whether arising out of transactions concerning the Contract therefor or otherwise;

(f)with respect to which the Obligor thereunder is not a BK Obligor;

(g)that is not an Unapproved Receivable;

(h)that does not represent “billed but not yet shipped” goods or merchandise, partially performed or unperformed services, consigned goods or “sale or return” goods and does not arise from a transaction for which any additional performance by the Originator thereof, or acceptance by or other act of the Obligor thereunder, including any required submission of documentation, remains to be performed as a condition to any payments on such Receivable or the enforceability of such Receivable under applicable law;

(i)as to which the representations and warranties of Sections 4.01(x)(ii) through (iv) of the Sale Agreement are true and correct in all respects as of the Transfer Date therefor;

(j)that is not the liability of an Obligor that has any claim against or affecting the Originator thereof or the property of such Originator which gives rise to a right of set-off against such Receivable (with only that portion of Receivables owing by such Obligor equal to the amount of such claim being an Ineligible Receivable);

(k)that was originated in accordance with and satisfies in all material respects all applicable requirements of the Credit and Collection Policies;

(l)that represents the genuine, legal, valid and binding obligation of the Obligor thereunder enforceable by the holder thereof in accordance with its terms;

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(m)that is entitled to be paid pursuant to the terms of the Contract therefor and has not been paid in full or been compromised, adjusted, extended, reduced, satisfied, subordinated, rescinded or modified (except for adjustments to the Outstanding Balance thereof to reflect Dilution Factors made in accordance with the Credit and Collection Policies);

(n)that does not contravene any laws, rules or regulations applicable thereto (including laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract therefor is in violation of any such law, rule or regulation;

(o)with respect to which no proceedings or investigations are pending or threatened before any Governmental Authority (i) asserting the invalidity of such Receivable or the Contract therefor, (ii) asserting the bankruptcy or insolvency of the Obligor thereunder; unless, in the case of a bankruptcy proceeding, the applicable Originator has been designated as a “critical vendor” and the Obligor thereunder has obtained (A) in the case of any Receivable originated pre-petition, a final court order approving the payment of the pre-petition claims of such Originator on an administrative priority basis or (B) in the case of any Receivable originated post-petition, (1) a requisite court order approving the payment of the post-petition claims of such Originator on an administrative priority basis and (2) a debtor-in-possession financing facility and management of the applicable Originator reasonably believes that such financing will be available to pay the Receivables owing by such Obligor, and, in any such case, such Obligor has agreed post-petition to pay the Receivables owing by such Obligor on a current basis in accordance with its terms, (iii) seeking payment of such Receivable or payment and performance of such Contract or (iv) seeking any determination or ruling that could affect the validity or enforceability of such Receivable or such Contract;

(p)(i) that is an “account” or a “general intangible” within the meaning of the UCC (or any other applicable legislation) of the jurisdictions in which the each of the Originators, the Parent and the Borrower are organized and in which chief executive offices of each of the Originators, the Parent and the Borrower are located and (ii) under the terms of the related Contract, the right to payment thereof may be freely assigned, including as a result of compliance with applicable law (or with respect to which, the prohibition on the assignment of rights to payment are made fully ineffective under applicable law);

(q)that is payable solely and directly to an Originator and not to any other Person (including any shipper of the merchandise or goods that gave rise to such Receivable), except to the extent that payment thereof may be made to a Lockbox or otherwise as directed pursuant to Article VI of the Funding Agreement;

(r)with respect to which all material consents, licenses, approvals or authorizations of, or registrations with, any Governmental Authority required to be obtained, effected or given in connection with the creation of such Receivable or the Contract therefor have been duly obtained, effected or given and are in full force and effect;

(s)that is created through the provision of merchandise, goods or services by the Originator thereof in the ordinary course of its business;

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(t)that is not the liability of an Obligor that, under the terms of the Credit and Collection Policies, is receiving or should receive merchandise, goods or services on a “cash on delivery” basis;

(u)that does not constitute a rebilled amount arising from a deduction taken by an Obligor with respect to a previously arising Receivable;

(v)as to which the Borrower has a first priority perfected ownership interest and in which the Administrative Agent has a first priority perfected security interest, in each case not subject to any Lien, right, claim, security interest or other interest of any other Person (other than, in the case of the Borrower, the Lien of the Administrative Agent for the benefit of the Lenders);

(w)to the extent such Transferred Receivable represents postage or sales tax, such portions of such Receivable shall not be an Eligible Receivable;

(x)that does not represent the balance owed by an Obligor on a Receivable in respect of which the Obligor has made partial payment;

(y)with respect to which no check, draft or other item of payment was previously received that was returned unpaid or otherwise;

(z)with respect to which no Authorized Officer of the Borrower, the Servicer or any Originator thereof has any actual knowledge of any fact (including any defaults by the Obligor thereunder on any other Receivable) that would cause such Person to expect that any payments on such Receivable will not be paid in full within (i) 60 days of its Billing Date therefor in the case of any Transferred Receivable other than a Permitted 90 Day Receivable or (ii) 90 days of its Billing Date therefor in the case of any Transferred Receivable that is a Permitted 90 Day Receivable;

(aa)if the EBITDA Shortfall Event has occurred, that complies with such other reasonable criteria and reasonable requirements beginning on the day after receipt by the Borrower of written notice from the Administrative Agent setting forth such additional reasonable criteria and reasonable requirements following a detailed analysis of the receivables and discussion with the Borrower; and

(bb)if additional criteria are required or recommended by S&P or Moody’s, that complies with such other criteria required or recommended by S&P or Moody’s from and after the date the Borrower receives written notice of such criteria from the Administrative Agent.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974 and any regulations promulgated thereunder.

“ERISA Affiliate” shall mean, with respect to any Originator, any trade or business (whether or not incorporated) that, together with such Originator, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC.

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“ERISA Event” shall mean, with respect to any Originator or any ERISA Affiliate, the occurrence of one or more of the following events:  (a) any event described in Section 4043(c) of ERISA with respect to a Title IV Plan unless the 30-day notice requirement with respect thereto has been waived pursuant to the regulations under Section 4043 of ERISA; (b) the withdrawal of any Originator or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a “substantial employer,” as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any Originator or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Originator or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 of ERISA; or (i) the loss of a Qualified Plan’s qualification or tax exempt status, in each case of clauses (a) through (i), that individually or in the aggregate could reasonably be expected to result in liabilities to an Originator or any of its ERISA Affiliates in excess of $500,000.

“ESOP” means a Plan that is intended to satisfy the requirements of Section 4975(e)(7) of the IRC.

“Event of Servicer Termination” shall have the meaning assigned to it in Section 8.01 of the Sale Agreement.

“Evercore” means Evercore Capital Partners L.P.

“Evercore Affiliates” means Evercore and any Person that directly or indirectly through one or more intermediaries, controls or is in common control with Evercore.

“Evercore Group” means Evercore and any Evercore Affiliates who act as a partnership, syndicate, limited partnership or other group for the purpose of acquiring, holding or disposing of securities of Holdings.

“Excess Concentration Amount” shall mean, with respect to any Obligor of a Receivable and as of any date of determination after giving effect to all Eligible Receivables transferred on such date, the amount by which the Outstanding Balance of Eligible Receivables owing by such Obligor exceeds (i) the Concentration Percentage for such Obligor multiplied by (ii) the Outstanding Balance of all Eligible Receivables on such date; provided, however, that in the case of an Obligor which is an Affiliate of other Obligors, the Excess Concentration Amount for such Obligor shall be calculated as if such Obligor and such one or more affiliated Obligors were one Obligor.

“Excess Funds” means the excess of (a) the aggregate projected value of the Buyer’s assets and other property (including cash and cash equivalents), over (b) the sum of (i)

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the sum of all scheduled payments of principal, interest and other amounts payable on all indebtedness of the Buyer for borrowed money, plus (ii) the sum of all other liabilities, indebtedness and other obligations of Buyer for borrowed money, together with all unpaid interest then accrued thereon, plus (iii) any taxes payable by the Buyer to the IRS, plus (iv) all other indebtedness, liabilities and obligations of the Buyer then due and payable, but the amount of any liability, indebtedness or obligation of the Buyer shall not exceed the projected value of the assets to which recourse for such liability, indebtedness or obligation is limited.  Excess Funds shall be calculated once each Business Day.

 “Excluded Obligor” shall mean any Obligor (a) that is an Affiliate of any Originator, the Parent, Holdings or the Borrower, or (b) that is a Governmental Authority (unless approved by the Administrative Agent as a result of satisfactory compliance with all assignment of claims statutes and regulations applicable to such Governmental Authority’s Receivables or such other agreements have been entered into which are satisfactory to the Administrative Agent in its sole discretion, which shall include a waiver of such Obligor’s setoff rights), or (c) if the EBITDA Shortfall Event has occurred, that is designated as an Excluded Obligor upon ten (10) Business Days’ prior written notice from the Administrative Agent to the Borrower, the Servicer and the Parent.

“Excluded Receivable” means indebtedness of any Person (whether constituting an account, chattel paper, document, instrument or general intangible (under which such Person’s principal obligation is a monetary obligation) and whether or not earned by performance) arising from the provision of merchandise, goods or services by an Originator to such Person, including the right to payment of any interest or finance charges and other obligations of such Person with respect thereto that was originated by the (A) response management facility located in Rochester, New York, (B) sheet fed printing facility located in Chicago, Illinois and (C)  media placement business formerly known as The Newspaper Network located in Atlanta, Georgia, Greenville, South Carolina and Sacramento, California.

“Existing Credit Agreement” means that certain Credit Agreement dated as of December        , 2004 by and among the Parent, Vertis Limited and Vertis Digital Services Limited, as borrowers, the persons party thereto as credit parties, GE Capital, as agent, L/C issuer, swing line lender and a lender, the other lenders from time to time party thereto, GECC Capital Markets Group, Inc., as lead arranger, and Bank of America, N.A., as documentation agent and joint-lead arranger, together with all amendments, restatements, supplements or modifications thereto that are in effect on the Closing Date or adopted from time to time thereafter to the extent not prohibited under the Related Documents.

“Existing Securitization Program” means that certain trade receivables securitization program evidenced by, among other documents, that certain Amended and Restated Indenture and Servicing Agreement, dated as of December 9, 2002, among Vertis Receivables, LLC, as issuer, the Parent, as servicer and Manufacturers and Traders Trust Company, as trustee and that certain Amended and Restated Receivables Purchase Agreement, dated as of December 9, 2002, among Vertis Receivables, LLC, the Parent, as servicer, and various Affiliates of the Parent, as sellers.

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“Federal Funds Rate” means, for any day, a floating rate equal to the weighted average of the rates on overnight federal funds transactions among members of the Federal Reserve System, as determined by the Administrative Agent.

“Federal Reserve Board” shall mean the Board of Governors of the Federal Reserve System.

“Fee Letter” shall mean that certain letter agreement dated the Closing Date between the Parent and the Administrative Agent.

“Fees” shall mean any and all fees payable to the Administrative Agent or any Lender pursuant to the Funding Agreement or any other Related Document, including, without limitation, the Unused Commitment Fee.

“Final Advance Date” shall mean (i) December 22, 2008 or (ii) if the Existing Credit Agreement is extended by GE Capital or refinanced by GE Capital with a termination date no earlier than November 25, 2010, November 25, 2010, as such date may be further extended with the consent of the Borrower, the Lenders and the Administrative Agent.

“Financial Projections” means Holdings, Originators’ and their Subsidiaries’ forecasted consolidated  (accompanied by mutually acceptable supplemental non-consolidated information customarily prepared by management): (a) balance sheets; (b) profit and loss statements; and (c) cash flow statements, all prepared on a basis substantially consistent with the historical financial statements of Holdings and the Originators, together with appropriate supporting details and a statement of underlying assumptions and in the form and in detail substantially consistent with the financial budgets and projections (as appropriate).

“Funding Agreement” shall mean that certain Receivables Funding and Administration Agreement dated as of the Closing Date, by and among the Borrower, the Lenders, the Swing Line Lender and the Administrative Agent.

“Funding Availability” shall mean, as of any date of determination, the amount, if any, by which the Borrowing Base exceeds the Outstanding Principal Amount, in each case as of the end of the immediately preceding day.

“Funding Excess” shall mean, as of any date of determination, the extent to which the Outstanding Principal Amount exceeds the Borrowing Base, in each case as disclosed in the most recently submitted Borrowing Base Certificate or Borrowing Request or as otherwise determined by the Administrative Agent based on Borrower Collateral information available to it, including any information obtained from any audit or from any other reports with respect to the Borrower Collateral, which determination shall be final, binding and conclusive on all parties to the Funding Agreement (absent manifest error).

“GAAP” shall mean generally accepted accounting principles in the United States of America as in effect from time to time, consistently applied as such term is further defined in Section 2(a) of this Annex X.

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“GE Capital” shall mean General Electric Capital Corporation, a Delaware corporation.

“General Concentration Percentage” shall mean at any time of determination with respect to any Obligor having an unsecured long-term debt rating and equivalent short-term rating from each of S&P and Moody’s as described below, an amount equal to the highest applicable percentage listed opposite such Obligor times the aggregate Outstanding Balance of Eligible Receivables as of such time of determination:

Long-Term Rating of Obligor	Equivalent Short-Term Rating	Applicable Percentage
A+ or better and A1 or better	A-1 or better and P-1 or better	15%
BBB or better and Baa2 or better	A-2 and P-2	5%
BBB- or better and Baa3 or better	A-3 and P-3	4.5%
Lower than BBB- or Baa3 or Not Rated	Lower than A-3 or P-3 or Not Rated	3%

For purposes of calculating the foregoing, (i) if an Obligor’s unsecured long–term debt rating (or equivalent short-term rating) results in two different General Concentration Percentages (because of differences in the long-term unsecured debt ratings assigned by each of S&P and Moody’s, the General Concentration Percentage for such Obligor shall be based upon the lower of the long-term unsecured debt ratings and the short-term ratings; (ii) an Obligor which does not have a long-term debt rating from S&P and/or Moody’s but which has the equivalent short-term rating from such Rating Agency as described above shall be deemed to have the related long-term rating and (iii) an Obligor which does not have a short-term rating from S&P and/or Moody’s but which has the equivalent long-term debt rating from such Rating Agency as described above shall be deemed to have the related short-term rating.

“General Trial Balance” shall mean, with respect to any Originator and as of any date of determination, such Originator’s accounts receivable trial balance (whether in the form of a computer printout, magnetic tape or diskette) as of such date, listing Obligors and the Receivables owing by such Obligors as of such date together with the aged Outstanding Balances of such Receivables, in form and substance satisfactory to the Borrower and the Administrative Agent.

“Governmental Authority” shall mean any nation or government, any state, province or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guaranteed Indebtedness” shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation (“primary obligation”)

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of any other Person (the “primary obligor”) in any manner, including any obligation or arrangement of such Person to (a) purchase or repurchase any such primary obligation, (b) advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) indemnify the owner of such primary obligation against loss in respect thereof.  The amount of any Guaranteed Indebtedness at any time shall be deemed to be the amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is incurred and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness; or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof.

“Holdings” means Vertis Holdings, Inc., a Delaware corporation.

“Immaterial Misstatement” means (i) any untrue or incorrect information set forth in any Borrowing Base Certificate which does not cause the calculation of the Borrowing Base reflected on such Borrowing Base Certificate to be greater than what the calculation of the Borrowing Base would have been if such information were not untrue or incorrect or (ii) any untrue or incorrect information inadvertently set forth in any Borrowing Base Certificate which does not cause the calculation of the Borrowing Base reflected on such Borrowing Base Certificate to be more than $500,000 greater than what the calculation of the Borrowing Base would have been if such information were not untrue or incorrect; provided, that in the case of clause (ii), such information is corrected within two Business Days.

“Incipient Servicer Termination Event” shall mean any event that, with the passage of time or notice or both, would, unless cured or waived, become an Event of Servicer Termination.

“Incipient Termination Event” shall mean any event that, with the passage of time or notice or both, would, unless cured or waived, become a Termination Event.

“Indemnified Amounts” shall mean, with respect to any Person, any and all suits, actions, proceedings, claims, damages, losses, liabilities and reasonable expenses (including, but not limited to, reasonable attorneys’ fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal).

“Indemnified Person” shall have the meaning assigned to it in Section 10.01(a) of the Funding Agreement.

“Indemnified Taxes” shall have the meaning assigned to it in Section 2.08(h) of the Funding Agreement.

“Index Rate” shall mean, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the “base rate on corporate

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loans at large U.S. money center commercial banks” (or, if The Wall Street Journal ceases quoting a base rate of the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled “Selected Interest Rates” as the Bank prime loan rate or its equivalent), and (ii) the sum of the Federal Funds Rate plus fifty (50) basis points per annum.   Each change in any interest rate provided for in the Funding Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate.

“Index Rate Advance” shall mean an Advance or portion thereof bearing interest by reference to the Index Rate.  Unless an event of the type described in the proviso to the definition of “LIBOR Rate” set forth in this Annex X shall have occurred, no Advance shall be an Index Rate Advance.

“Ineligible Receivable” shall mean any Receivable (or portion thereof) which fails to satisfy all of the requirements of an “Eligible Receivable” set forth in the definition thereof.

 “Interest Payment Date” shall mean, with respect to any Advance, the first Business Day of each month; provided, that, in addition to the foregoing, each of (x) the date upon which all of the Commitments have been terminated and the aggregate Outstanding Principal Amount has been paid in full and (y) the Commitment Termination Date shall be deemed to be an “Interest Payment Date” with respect to any interest which is then accrued under the Funding Agreement.

“Interest Reserve” shall mean, as of any date of determination, an amount equal to the product of (i) 1.5, (ii) the Index Rate, (iii) the Outstanding Principal Amount and (iv) a fraction, the numerator of which is the higher of (a) 30 and (b) the Receivables Collection Turnover as of the end of the Settlement Period immediately preceding such date multiplied by 2, and the denominator of which is 360.

“Investment Company Act” shall mean the provisions of the Investment Company Act of 1940, 15 U.S.C. § § 80a et seq., and any regulations promulgated thereunder.

“Investments” shall mean, with respect to any Borrower Account Collateral, the certificates, instruments, investment property or other investments in which amounts constituting such collateral are invested from time to time.

“IRC” shall mean the Internal Revenue Code of 1986 and any regulations promulgated thereunder.

“IRS” shall mean the Internal Revenue Service.

“Lender” shall have the meaning assigned to it in the preamble of the Funding Agreement. For the avoidance of doubt, unless the context otherwise requires, the term “Lenders” includes the Swing Line Lender.

“LIBOR Business Day” shall mean a Business Day on which banks in the city of London are generally open for interbank or foreign exchange transactions.

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“LIBOR Rate” shall mean, for each calendar month, a per annum rate of interest determined by the Administrative Agent equal to the sum of 0.50% plus:

(a)the offered rate for deposits in United States Dollars for the applicable calendar month which appears on Telerate Page 3750 as of 11:00 a.m., London time, on the second full LIBOR Business Day next preceding the first day of each calendar month (unless the first day of such calendar month is not a LIBOR Business Day, in which event the next succeeding LIBOR Business Day will be used); divided by

(b)a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day which is two (2) LIBOR Business Days prior to the beginning of such calendar month (including basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve system or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D of such Board) which are required to be maintained by a member bank of the Federal Reserve System;

provided, that if a LIBOR Rate Disruption Event shall occur, the LIBOR Rate shall in all such cases be equal to the Index Rate.  For the avoidance of doubt, except as provided in the immediately preceding proviso, the LIBOR Rate determined for any calendar month shall remain fixed for such calendar month.

If such interest rates shall cease to be available from Telerate News Service, the LIBOR Rate shall be determined from such financial reporting service or other information as shall be mutually acceptable to the Administrative Agent and the Borrower.

“LIBOR Rate Advance” shall mean an Advance or portion thereof bearing interest by reference to the LIBOR Rate. Unless a LIBOR Rate Disruption Event shall have occurred, each Advance shall be a LIBOR Rate Advance.

“LIBOR Rate Disruption Event” means, for any Lender, notification by such Lender to the Borrower and the Administrative Agent of any of the following:  (i) determination by such Lender that it would be contrary to law or the directive of any central bank or other governmental authority to obtain United States dollars in the London interbank market to fund or maintain its Advances, (ii) the inability of such Lender, by reason of circumstances affecting the London interbank market generally, to obtain United States dollars in such market to fund its Advances or (iii) a determination by such Lender that the maintenance of its Advances will not adequately and fairly reflect the cost to such Lender of funding such investment at such rate.

“Lien” shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or

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agreement to give, any financing statement perfecting a security interest under the UCC or comparable law of any jurisdiction).

“Litigation” shall mean, with respect to any Person, any action, claim, lawsuit, demand, investigation or proceeding pending or threatened against such Person before any court, board, commission, agency or instrumentality of any federal, state, local or foreign government or of any agency or subdivision thereof or before any arbitrator or panel of arbitrators.

“Lockbox” has the meaning assigned to such term in Section 6.01 of the Funding Agreement.

 “Loss Reserve Ratio” shall mean, as of any date of determination, the ratio (expressed as a percentage) calculated in accordance with the following formula:

LRR	=	(LHF * ARR)] * 2
		where
LRR	=	the Loss Reserve Ratio;
LHF	=	a Loss Horizon Factor equal to (x) the aggregate principal amount of Receivables originated during the three (3) most recent Settlement Periods preceding such date divided by (y) the Outstanding Balance of Eligible Receivables as of the end of the Settlement Period immediately preceding such date;
ARR	=	the highest three-month rolling average of the Default Ratios occurring during the twelve most recent Settlement Periods.

 “Material Adverse Effect” shall mean a material adverse effect on (a) the business, assets, operations or financial or other condition of (i) any Originator or the Originators considered as a whole, (ii) the Borrower or (iii) the Servicer, (b) the ability of any Originator, the Borrower, the Parent or the Servicer to perform any of its obligations under the Related Documents in accordance with the terms thereof, (c) the validity or enforceability of any Related Document or the rights and remedies of the Borrower, the Lenders or the Administrative Agent under any Related Document, (d) the federal income tax attributes of the sale, contribution or pledge of the Transferred Receivables pursuant to any Related Document or (e) the Transferred Receivables (or collectibility thereof), the Contracts therefor, the Borrower Collateral (in each case, taken as a whole) or the ownership interests or Liens of the Borrower or the Lenders or the Administrative Agent thereon or the priority of such interests or Liens.

“Member” shall mean the Parent in its capacity as the member of the Borrower.

“Monthly Report” shall have the meaning assigned to it in paragraph (a) of Annex 5.02(a) to the Funding Agreement.

“Moody’s” shall mean Moody’s Investors Service, Inc. or any successor thereto.

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“Multiemployer Plan” shall mean a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA with respect to which any Originator or ERISA Affiliate is making, is obligated to make, or has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them.

“Net Receivables Balance” means, as of any date of determination, the amount equal to:

(a)the Outstanding Balance of Eligible Receivables,

minus

(b)the Excess Concentration Amount;

in each case as disclosed in the most recently submitted Borrowing Base Certificate or Borrowing Request or as otherwise determined by the Administrative Agent based on Borrower Collateral information available to it, including any information obtained from any audit or from any other reports with respect to the Borrower Collateral, which determination shall be final, binding and conclusive on all parties to the Funding Agreement (absent manifest error).

“Net Worth” means as of any date of determination, the excess, if any, of (a) the aggregate Outstanding Balance of the Receivables at such time, over (b) the sum of (i) the Outstanding Principal Amount at such time, plus (ii) the aggregate outstanding principal balance of the Subordinated Loans (including any Subordinated Loan proposed to be made on the date of determination).

“Non-Consenting Lender” shall have the meaning assigned to it in Section 12.07(c) of the Funding Agreement.

“Non-Funding Lender” shall have the meaning assigned to it in Section 2.03(e) of the Funding Agreement.

“Notes” shall mean, collectively, the Revolving Notes and the Swing Line Note.

“Obligor” shall mean, with respect to any Receivable, the Person primarily obligated to make payments in respect thereof.

“Officer’s Certificate” shall mean, with respect to any Person, a certificate signed by an Authorized Officer of such Person.

“Originator” shall have the meaning assigned to it in the preamble to the Sale Agreement.

“Originator Support Agreement” shall mean an agreement substantially in the form of Section 2.03 to the Sale Agreement made by Parent in favor of the Borrower.

“Other Lender” shall have the meaning assigned to it in Section 2.03(e) of the Funding Agreement.

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“Outstanding Balance” shall mean, with respect to any Receivable, as of any date of determination, the amount (which amount shall not be less than zero) equal to (a) the Billed Amount thereof, minus (b) all Collections received from the Obligor thereunder, minus (c) all discounts to, or any other modifications by, the Originator, the Borrower or the Servicer that reduce such Billed Amount; provided, that if the Administrative Agent or the Servicer makes a good faith determination that all payments by such Obligor with respect to such Billed Amount have been made, the Outstanding Balance shall be zero.

“Outstanding Principal Amount” shall mean, as of any date of determination, the amount equal to (a) the aggregate Advances made by the Lenders under the Funding Agreement on or before such date, minus (b) the aggregate amounts disbursed to any Lender in reduction of the principal of such Advances pursuant to the Funding Agreement on or before such date and not required to be returned as preference payments or otherwise; provided, that references to the Outstanding Principal Amount of any Lender shall mean an amount equal to (x) the aggregate Advances made by such Lender pursuant to the Funding Agreement on or before such date, minus (y) the aggregate amounts disbursed to such Lender in reduction of the principal of such Advances pursuant to the Funding Agreement on or before such date and not required to be returned as preference payments or otherwise.

“Parent” shall have the meaning assigned to it in the preamble to the Sale Agreement.

“Parent Group” shall mean the Parent, Holdings and each of their respective Affiliates other than the Borrower.

“PBGC” shall mean the Pension Benefit Guaranty Corporation.

“Pension Plan” shall mean a Plan described in Section 3(2) of ERISA.

“Permitted Encumbrances” shall mean the following encumbrances: (a) Liens for taxes or assessments or other governmental charges or levies not yet due and payable; (b) pledges or deposits securing obligations under workmen’s compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) pledges or deposits securing bids, tenders, government contracts, contracts (other than contracts for the payment of money) or leases to which any Originator, the Borrower or the Servicer is a party as lessee made in the ordinary course of business; (d) deposits securing statutory obligations of any Originator, the Borrower or the Servicer; (e) inchoate and unperfected workers’, mechanics’, suppliers’ or similar Liens arising in the ordinary course of business; (f) carriers’, warehousemen’s or other similar possessory Liens arising in the ordinary course of business; (g) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Originator, the Borrower or the Servicer is a party; (h) any judgment Lien not constituting a Termination Event under Section 8.01(g) of the Funding Agreement; (i) Liens existing on the Closing Date and listed on Schedule 5.03(b) of the Funding Agreement; and (j) presently existing or hereinafter created Liens in favor of the Buyer, the Borrower, the Lenders or the Administrative Agent under the Funding Agreement and the Related Documents.

“Permitted Investments” shall mean any of the following:

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(a)obligations of, or guaranteed as to the full and timely payment of principal and interest by, the United States of America or obligations of any agency or instrumentality thereof if such obligations are backed by the full faith and credit of the United States of America, in each case with maturities of not more than 90 days from the date acquired;

(b)repurchase agreements on obligations of the type specified in clause (a) of this definition; provided, that the short-term debt obligations of the party agreeing to repurchase are rated at least A-1 or the equivalent by S&P and P-1 or the equivalent by Moody’s;

(c)federal funds, certificates of deposit, time deposits and bankers’ acceptances of any depository institution or trust company incorporated under the laws of the United States of America or any state, in each case with original maturities of not more than 90 days or, in the case of bankers’ acceptances, original maturities of not more than 365 days; provided, that the short-term obligations of such depository institution or trust company are rated at least A-1 or the equivalent by S&P and P-1 or the equivalent by Moody’s;

(d)commercial paper of any corporation incorporated under the laws of the United States of America or any state thereof with original maturities of not more than 180 days that on the date of acquisition are rated at least A-1 or the equivalent by S&P and P-1 or the equivalent by Moody’s; and

(e)securities of money market funds rated at least A-1 or the equivalent by S&P and P-1 or the equivalent by Moody’s;

and, in any such case, the applicable investment shall mature by not later than one Business Day prior to the next succeeding Settlement Date.

 “Person” shall mean any individual, sole proprietorship, partnership, joint venture, unincorporated organization, trust, association, corporation (including a business trust), limited liability company, institution, public benefit corporation, joint stock company, Governmental Authority or any other entity of whatever nature.

“Plan” shall mean, at any time during the preceding five years, an “employee benefit plan,” as defined in Section 3(3) of ERISA, that any Originator or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any Originator or ERISA Affiliate.

“Power of Attorney” shall have the meaning assigned to it in Section 9.05 of the Sale Agreement or Section 9.03 of the Funding Agreement, as applicable.

“Pro Rata Share” shall mean with respect to all matters relating to any Lender (other than the Swing Line Lender), the percentage obtained by dividing (i) the Commitment of that Lender by (ii) the Aggregate Commitment, as such percentage may be adjusted by assignments permitted pursuant to Section 12.02 of the Funding Agreement; provided, however, if all of the Commitments are terminated pursuant to the terms of the Funding Agreement, then “Pro Rata Share” shall mean with respect to all matters relating to any Lender, the percentage obtained by dividing (x) the sum of (A) such Lender’s Revolving Credit Advances, plus (B) such

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Lender’s share of the obligations to purchase participations in Swing Line Loans or refinance Swing Line Loans pursuant to Section 2.01(b)(iii) and (iv) of the Funding Agreement, by (y) the Outstanding Principal Amount.

“Proposed Change” shall have the meaning assigned to it in Section 12.07(c) of the Funding Agreement.

“Qualified IPO” means an underwritten public offering of Holdings Stock which generates net cash proceeds to Holdings of at least $200,000,000.

“Qualified Plan” shall mean a Pension Plan that is intended to be tax-qualified under Section 401(a) of the IRC.

“Rating Agency” shall mean Moody’s or S&P.

“Ratios” shall mean, collectively, the Default Ratio, the Default Trigger Ratio, the Delinquency Ratio, the Dilution Ratio, the Dilution Reserve Ratio, the Dilution Trigger Ratio and the Receivables Collection Turnover.

“Receivable” shall mean, with respect to any Obligor:

(a)indebtedness of such Obligor (whether constituting an account, chattel paper, document, instrument or general intangible (under which the Obligor’s principal obligation is a monetary obligation) and whether or not earned by performance) arising from the provision of merchandise, goods or services by an Originator to such Obligor, including the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto; but excluding Excluded Receivables.

(b)all Liens and property subject thereto from time to time securing or purporting to secure any such indebtedness of such Obligor;

(c)all guaranties, indemnities and warranties, insurance policies, financing statements, supporting obligations and other agreements or arrangements of whatever character from time to time supporting or securing payment of any such indebtedness;

(d)all right, title and interest of any Originator, the Parent or the Borrower in and to any goods (including returned, repossessed or foreclosed goods) the sale of which gave rise to a Receivable;

(e)all Collections with respect to any of the foregoing;

(f)all Records with respect to any of the foregoing; and

(g)all proceeds with respect to any of the foregoing.

“Receivables Assignment” shall have the meaning assigned to it in Section 2.01(a) of the Sale Agreement.

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“Receivables Collection Turnover” shall mean, as of any date of determination, the amount (expressed in days) equal to:

(a)a fraction, (i) the numerator of which is equal to the aggregate Outstanding Balance of Transferred Receivables on the first day of the three (3) Settlement Periods immediately preceding such date and (ii) the denominator of which is equal to aggregate Collections received during such three (3) Settlement Periods with respect to all Transferred Receivables,

multiplied by

(b)the average number of days per period contained in such three (3) Settlement Periods.

“Records” shall mean all Contracts and other documents, books, records and other information (including customer lists, credit files, computer programs, tapes, disks, data processing software and related property and rights) prepared and maintained by any Originator, the Servicer, any Sub-Servicer or the Borrower with respect to the Receivables and the Obligors thereunder and the Borrower Collateral.

“Refunded Swing Line Loan” shall have the meaning assigned to it in Section 2.01(b)(iii) of the Funding Agreement.

“Regulatory Change” shall mean any change after the Closing Date in any federal, state or foreign law, regulation (including Regulation D of the Federal Reserve Board), pronouncement by the Financial Accounting Standards Board or the adoption or making after such date of any interpretation, directive or request under any federal, state or foreign law or regulation (whether or not having the force of law) by any Governmental Authority, the Financial Accounting Standards Board or any central bank or comparable agency, charged with the interpretation or administration thereof that, in each case, is applicable to any Affected Party.

 “Rejected Amount” shall have the meaning assigned to it in Section 4.04 of the Sale Agreement.

“Related Documents” shall mean each Collection Account Agreement, the Concentration Account Agreement, the Borrower Account Agreement, the Sale Agreement, the Funding Agreement, the Revolving Notes, the Swing Line Note, each Receivables Assignment, the Subordinated Notes, each Originator Support Agreement and all other agreements, instruments, documents and certificates identified in the Schedule of Documents and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Person, or any employee of any Person, and delivered in connection with the Sale Agreement, the Funding Agreement or the transactions contemplated thereby.  Any reference in the Sale Agreement, the Funding Agreement or any other Related Document to a Related Document shall include all Appendices thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to such Related Document as the same may be in effect at any and all times such reference becomes operative.

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“Repayment Notice”  shall have the meaning assigned to it in Section 2.03(h) of the Funding Agreement.

“Reportable Event” shall mean any of the events set forth in Section 4043(c) of ERISA.

“Required Capital Amount” means $20,000,000.

“Requisite Lenders” shall mean (a) two or more Lenders having in the aggregate more than fifty percent (50%) of the Aggregate Commitment, or (b) if the Commitments have been terminated, two or more Lenders having in the aggregate more than fifty percent (50%) aggregate Outstanding Principal Amount; provided that if at any time there is only one Lender party to the Funding Agreement, “Requisite Lenders” shall mean such Lender.

“Retiree Welfare Plan” means, at any time, a Welfare Plan that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant’s termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant.

“Revolving Credit Advance” shall have the meaning assigned to it in Section 2.01 of the Funding Agreement.  Unless a LIBOR Rate Disruption Event shall have occurred, each Revolving Credit Advance shall be a LIBOR Rate Advance.

“Revolving Note” shall have the meaning assigned to it in Section 2.01(b) of the Funding Agreement.

“Revolving Period” shall mean the period from and including the Closing Date through and including the day immediately preceding the Commitment Termination Date.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

“Sale” shall mean with respect to a sale of receivables under the Sale Agreement, a sale of Receivables by an Originator to the Borrower in accordance with the terms of the Sale Agreement.

“Sale Agreement” shall mean that certain Receivables Sale and Servicing Agreement dated as of the Closing Date, by and among each Originator, Servicer and the Borrower, as the Buyer thereunder.

“Sale Price” shall mean, with respect to any Sale of any Sold Receivable, a price calculated by the Borrower and approved from time to time by the Administrative Agent equal to:

(a)the Outstanding Balance of such Sold Receivable, minus

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(b)a discount reflecting the expected costs to be incurred by the Borrower in financing the purchase of the Sold Receivables until the Outstanding Balance of such Sold Receivables is paid in full, minus

(c)a discount reflecting the portion of the Sold Receivables that is reasonably expected by such Originator on the Transfer Date to become Defaulted Receivables by reason of clause (b) of the definition thereof, minus

(d)a discount reflecting the portion of the Sold Receivables that is reasonably expected by such Originator on the Transfer Date to be reduced on account of Dilution Factors, minus

(e)amounts expected to be paid to the Servicer with respect to the servicing, administration and collection of the Sold Receivables;

provided, that such calculations shall be determined based on the historical experience of (y) such Originator, with respect to the calculations required in each of clauses (c) and (d) above, and (z) the Borrower, with respect to the calculations required in clauses (b) and (f) above.

 “Schedule of Documents” shall mean the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Sale Agreement, the Funding Agreement and the other Related Documents and the transactions contemplated thereunder, substantially in the form attached as Annex  Y to the Funding Agreement and the Sale Agreement.

“Securities Act” shall mean the provisions of the Securities Act of 1933, 15 U.S.C. Sections 77a et seq., and any regulations promulgated thereunder.

“Securities Exchange Act” shall mean the provisions of the Securities Exchange Act of 1934, 15 U.S.C. Sections 78a et seq., and any regulations promulgated thereunder.

“Servicer” shall have the meaning assigned to it in the Preamble to the Sale Agreement.

“Servicer Termination Notice” shall mean any notice by the Administrative Agent to the Servicer that (a) an Event of Servicer Termination has occurred and (b) the Servicer’s appointment under the Funding Agreement has been terminated.

“Servicing Fee” shall mean, for any day within a Settlement Period, the amount equal to (a) (i) the Servicing Fee Rate divided by (ii) 360, multiplied by (b) the Outstanding Principal Amount on such day.

“Servicing Fee Rate” shall mean 1.00%.

“Servicing Fee Reserve” shall mean, as of any date of determination, an amount equal to the product of (i) the Servicing Fee Rate, (ii) the Outstanding Principal Amount and (iii) a fraction, the numerator of which is the higher of (a) 30 and (b) the Receivables Collection

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Turnover as of the end of the Settlement Period immediately preceding such date multiplied by 2, and the denominator of which is 360.

“Servicing Officer” shall mean any officer of the Servicer involved in, or responsible for, the administration and servicing of the Transferred Receivables and whose name appears on any Officer’s Certificate listing servicing officers furnished to the Administrative Agent by the Servicer, as such certificate may be amended from time to time.

“Servicing Records” shall mean all Records prepared and maintained by the Servicer with respect to the Transferred Receivables and the Obligors thereunder.

“Settlement Date” shall mean (i) the first Business Day of each calendar month and (ii) from and after the occurrence of a Termination Event, any other Business Day designated as such by the Administrative Agent in its sole discretion.

“Settlement Period” shall mean (a) solely for purposes of determining the Ratios, (i) with respect to all Settlement Periods other than the final Settlement Period, each calendar month, whether occurring before or after the Closing Date, and (ii) with respect to the final Settlement Period, the period ending on the Termination Date and beginning with the first day of the calendar month in which the Termination Date occurs, and (b) for all other purposes, (i) with respect to the initial Settlement Period, the period from and including the Closing Date through and including the last day of the calendar month in which the Closing Date occurs, (ii) with respect to the final Settlement Period, the period ending on the Termination Date and beginning with the first day of the calendar month in which the Termination Date occurs, and (iii) with respect to all other Settlement Periods, each calendar month.

“Significant Subsidiary” means, as of any date of determination, any Subsidiary of Holdings with total assets or total liabilities in excess of $1,000,000 as of such date of determination.

“Sold Receivable” shall have the meaning assigned to it in Section 2.01(b) of the Sale Agreement.

“Solvent” shall mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its Debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur Debts or liabilities beyond such Person’s ability to pay as such Debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person’s property would constitute an unreasonably small capital.  The amount of contingent liabilities (such as Litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can reasonably be expected to become an actual or matured liability.

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“Special Concentration Percentage” shall mean, with respect to any Obligor, that percentage, if any, set forth in Annex Z to the Funding Agreement with respect to such Obligor, or, with respect to any such Obligor or any other Obligor, such other percentage as the Administrative Agent may at any time and from time to time designate in its sole discretion with respect to such Obligor in a written notification to the Borrower and the Servicer.

“SPV” shall mean any special purpose funding vehicle which acquires any interest in a Lender’s Advances under the Funding Agreement.

“Stock” shall mean all shares, options, warrants, member interests, general or limited partnership interests or other equivalents (regardless of how designated) of or in a corporation, limited liability company, partnership or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act).

“Stockholder” shall mean, with respect to any Person, each holder of Stock of such Person.

“Subordinated Loan” shall have the meaning given such term in Section 2.01(c) of the Sale Agreement.

“Subordinated Note” shall have the meaning given such term in Section 2.01(c) of the Sale Agreement.

“Sub-Servicer” shall mean any Person with whom the Servicer enters into a Sub-Servicing Agreement.

“Sub-Servicing Agreement” shall mean any written contract entered into between the Servicer and any Sub-Servicer pursuant to and in accordance with Section 7.01 of the Sale Agreement relating to the servicing, administration or collection of the Transferred Receivables.

“Subsidiary” shall mean, with respect to any Person, any corporation or other entity (a) of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person or (b) that is directly or indirectly controlled by such Person within the meaning of control under Section 15 of the Securities Act.

“Substantial Contract” shall mean a Contract that has forecasted revenue (computed based on the aggregate level of services or goods to required to be provided during the entire term of such contract) in an amount greater than (i) $1,250,000 for inserts, or (ii) $600,000 for any other goods or services.

“Successor Servicer” shall have the meaning assigned to it in Section 9.02 of the Sale Agreement.

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“Successor Servicing Fees and Expenses” shall mean the fees and expenses payable to the Successor Servicer as agreed to by the Borrower, the Lenders and the Administrative Agent.

“Swing Line Advance” shall have the meaning assigned to it in Section 2.01(b)(i) of the Funding Agreement.

“Swing Line Commitment” shall mean, as to the Swing Line Lender, the commitment of the Swing Line Lender to make Swing Line Advances pursuant to the terms of the Funding Agreement.  As of the Closing Date, the Swing Line Commitment is equal to the Aggregate Commitment.

“Swing Line Lender” shall have the meaning set forth in the Preamble of the Funding Agreement.

“Swing Line Loan” shall mean at any time, the aggregate amount of Swing Line Advances outstanding to the Borrower.

“Swing Line Note” shall have the meaning assigned to it in Section 2.01(b)(ii) of the Funding Agreement.

“Tax Returns” means all reports, returns, information returns, claims for refund, elections, estimated tax filings or payments, requests for extension, documents, statements, declarations and certifications and other information required to be filed with respect to taxes, including attachments thereto and amendments thereof.

“Termination Date” shall mean the date on which (a) the Outstanding Principal Amount has been permanently reduced to zero, (b) all other Borrower Obligations under the Funding Agreement and the other Related Documents have been indefeasibly repaid in full and completely discharged (other than contingent indemnification obligations as to which no unsatisfied claim has been asserted) and (c) the Aggregate Commitment has been irrevocably terminated in accordance with the provisions of Section 2.02(b) of the Funding Agreement.

“Termination Event” shall have the meaning assigned to it in Section 8.01 of the Funding Agreement.

“THL” shall mean Thomas H. Lee Partners L.P., a Delaware limited partnership.

“THL Affiliates” means THL and any person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, THL.

“THL Group” means THL and any THL Affiliate who act as a partnership, syndicate, limited partnership or group for the purpose of acquiring, holding or disposing of securities of Holdings.

“Title IV Plan” shall mean a Pension Plan (other than a Multiemployer Plan) that is covered by Title IV of ERISA and that any Originator or ERISA Affiliate maintains,

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contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them.

“Transaction Parties” means the Originators, the Servicer and, if the Parent is not the Servicer, the Parent.

“Transfer” shall mean any Sale or contribution (or purported Sale or contribution) of Transferred Receivables by any Originator to the Borrower pursuant to the terms of the Sale Agreement.

“Transfer Date” shall have the meaning assigned to it in Section 2.01(a) of the Sale Agreement.

“Transferred Receivable” shall mean any Sold Receivable or Contributed Receivable; provided, that any Receivable repurchased by an Originator thereof pursuant to Section 4.04 of the Sale Agreement shall not be deemed to be a Transferred Receivable from and after the date of such repurchase unless such Receivable has subsequently been repurchased by or contributed to the Borrower.

“UCC” shall mean, with respect to any jurisdiction, the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in such jurisdiction.

“Unapproved Receivable” shall mean any receivable (a) with respect to which the Originator’s customer relationship with the Obligor thereof arises as a result of the acquisition by such Originator of another Person or (b) that was originated in accordance with standards established by another Person acquired by an Originator, in each case, solely with respect to any such acquisitions that have not been approved in writing by the Administrative Agent and then only for the period prior to any such approval.

“Underfunded Plan” shall mean any Plan that has an Underfunding.

“Underfunding” shall mean, with respect to any Title IV Plan, the excess, if any, of (a) the present value of all benefits under the Title IV Plan (based on the assumptions used to fund the Title IV Plan pursuant to Section 412 of the IRC) as of the most recent valuation date over (b) the fair market value of the assets of such Title IV Plan as of such valuation date.

“Unfunded Pension Liability” shall mean, at any time, the aggregate amount, if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of five years following a transaction that might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by any Originator or any ERISA Affiliate as a result of such transaction.

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“Unrelated Amounts” shall have the meaning assigned to it in Section 7.03 of the Sale Agreement.

“Unused Commitment Fee” shall mean a fee equal to the product of (i) the amount by which the Aggregate Commitment exceeds the Outstanding Principal Amount (in each case, as of any date of determination) and (ii) a per annum margin equal to 0.375%.

“Weekly Report” shall mean a Borrowing Base Certificate.

“Welfare Plan” means a Plan described in Section 3(i) of ERISA.

SECTION 2. Other Terms and Rules of Construction.

(a)  Accounting Terms.  Unless otherwise specifically provided therein, any accounting term used in any Related Document shall have the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed in accordance with GAAP consistently applied.  That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing.

(b)  Other Terms.  All other undefined terms contained in any of the Related Documents shall, unless the context indicates otherwise, have the meanings provided for by the UCC as in effect in the State of New York to the extent the same are used or defined therein.

(c)  Rules of Construction.  Unless otherwise specified, references in any Related Document or any of the Appendices thereto to a Section, subsection or clause refer to such Section, subsection or clause as contained in such Related Document.  The words “herein,” “hereof” and “hereunder” and other words of similar import used in any Related Document refer to such Related Document as a whole, including all annexes, exhibits and schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular section, subsection or clause contained in such Related Document or any such annex, exhibit or schedule.  Any reference to any amount on any date of determination means such amount as of the close of business on such date of determination.  Any reference to or definition of any document, instrument or agreement shall, unless expressly noted otherwise, include the same as amended, restated, supplemented or otherwise modified from time to time.  Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders.  The words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; the word “or” is not exclusive; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Related Documents) or, in the case of Governmental Authorities, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations.

(d)  Rules of Construction for Determination of Ratios.  The Ratios as of the last day of the Settlement Period immediately preceding the Closing Date shall be established by the

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Administrative Agent on or prior to the Closing Date and the underlying calculations for periods immediately preceding the Closing Date to be used in future calculations of the Ratios shall be established by the Administrative Agent on or prior to the Closing Date in accordance with the form of Monthly Report.  For purposes of calculating the Ratios, (i) averages shall be computed by rounding to the second decimal place and (ii) the Settlement Period in which the date of determination thereof occurs shall not be included in the computation thereof and the first Settlement Period immediately preceding such date of determination shall be deemed to be the Settlement Period immediately preceding the Settlement Period in which such date of determination occurs.

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EX-10.43

Exhibit 10.43

March 3, 2005

Ms. Ann M. Raider

46 Ivy Road

Wellesley, MA  02482

Dear Ann,

We all are excited about the possibility of your joining Vertis, Inc. (“Vertis” or “Company”).  Clearly you bring to us an enormous amount of experience, expertise, energy, drive and proven results.  As such, I am extending to you an offer to join our team.  I am confident that you will help us to position, build value and grow our company.

Following are the summarized terms of our offer:

1.Specifically, you would join Vertis Inc. in the position of Chief Strategy Officer.  In that capacity, you would report to me.  In brief, the position’s responsibilities include but are not limited to:

•Leading the overall development of Vertis’ strategies and objectives to meet the company’s revenue and profit goals;

•Overseeing, strengthening and building all aspects of the Vertis brand;

•Building programs to enable Vertis to capitalize on existing relationships;

•Ensuring that marketing and sales plans keep pace with changes the marketplace and our overall business mission;

•Effectuating timely responses and feedback to our Marketing and Sales teams maximizing an integrated approach to customers and the marketplace;

•Challenging the sales and marketing processes ensuring maximum execution and continuous improved program effectiveness;

•Charting new and innovative directions for products and markets in order to support the overall business growth

2.It is our understanding that you will resign from your current position promptly and this offer is contingent on your being able to begin work with Vertis three weeks from the date you resign from your current position.

3.Your office will be located at 250 W. Pratt Street, Baltimore, MD  21201.

4.Your starting base salary will be $300,000 annualized.  This will be distributed in an amount of $11,538 bi-weekly on Fridays.

5.Upon joining Vertis, you will be paid a signing bonus of $50,000.  Payment of this bonus is contingent upon your starting work with us three weeks from the date you resign from your current position.  Should you choose to end your association with Vertis prior to completing the first sixty days of your employment, you agree to repay this amount in full to the Company and agree Vertis may set off such an amount against amounts owing to you at the end of your employment.   Should Vertis terminate you for Cause as defined below prior to you completing one full year of employment you also agree to repay this amount in full to the Company and agree Vertis may set off such an amount against amounts owing to you at the end of your employment.

6.You will receive an automobile allowance of $990 per month or $11,880 annually.

7.You will participate in the Executive Incentive Plan. The details of this Plan will be discussed and refined after you have accepted this offer and upon further discussion with me.

8.As an element of your compensation, the Company intends to grant to you 5,000 shares of the Company’s restricted common stock under the Vertis Holdings, Inc. equity plan, subject to approval by the Company’s Board of Directors at it’s next meeting.  These shares of restricted stock would be subject to the Company’s standard vesting provisions and restrictions on transfer.  These provisions would be more fully set forth in a Restricted Stock Agreement, to be entered into upon the award of the shares.

9.You will be eligible to participate in the company’s Deferred Compensation Plan.  Upon acceptance of this offer, the details of this Plan will be provided to you by TBG Financial.

10.In lieu of extending you benefits under the terms of our Executive Relocation Policy, you will be afforded an allowance to help pay for the costs you will incur to rent an apartment in the Baltimore area and to commute to your home in Massachusetts. The amount of this allowance will be based on a reasonable projection of what the cost of your relocation to the Baltimore area would have been if such benefits were extended to you.  Individuals from our Human Resources and Finance Departments will work with you to determine the amount of this allowance.  It is our expectation that this allowance is not likely to exceed $60,000, but regardless of the amount it will be grossed up for taxes.  If this is not the case, you and I will need to mutually agree on the amount of the allowance.

11.Your job performance will be reviewed annually. Merit increases are based on performance and in accordance with the company’s current policy and procedures.

12.You will be eligible for coverage under our group health, life insurance and disability plans on the first day of the month following or coinciding with your start date providing you have submitted a HIPAA certificate from your previous employer.  Our health insurance plans provide coverage for most medical, dental and vision expenses.  Several coverage options are available allowing you to select the program that best meets your needs.  Again, upon acceptance of this offer our benefit brochures and more detailed and specific information would be provided to you under separate cover.

13.You will be eligible to participate in our 401K Plan within 15 days of your hire date.  This program is administered by Mercer, and you will have an array of investment options from which to choose.

14.You will be immediately eligible for all Vertis holidays, which are:

•Thanksgiving Day

•Day After Thanksgiving

•Christmas Eve Day

•Christmas Day

•New Year’s Day

•Memorial Day

•Independence Day

•Labor Day

15.As a senior member of management, your personal time off will be covered under our Executive Leave policy, which provides you up to 4 weeks of compensated leave yearly (leaves cannot be accumulated from year to year).  Your leaves will need to be approved by me and coordinated with our company operations.

16.Vertis requires that all employees take and pass a pre-employment controlled substance screening prior to the beginning of employment. Therefore, this offer is contingent upon the laboratory results of that test. Details containing our testing procedures will be provided under separate cover.

17.As appropriate for your position in senior management, this offer is contingent upon the successful completion and results of comprehensive reference and background checks.

Due to the highly sensitive nature of our business, we require all professional and or management personnel to sign a Business Responsibility Agreement.

Additionally, federal requirements state that, at the time of your employment, you must provide documentation establishing your identity and legal right to work in the United States. Therefore, this offer is contingent on this validation.

We understand that you are not a party to any employment contract or agreement which restricts your ability to devote the full range of your skills and knowledge to Vertis Inc., or your right to engage in competition with your present employer after the termination of your employment. If this understanding is incorrect, please notify us immediately.  Accordingly, our offer is contingent upon our receipt and review of any such agreement.

Furthermore, should you accept this offer; there is no expressed or implied contract of employment between you and Vertis Inc. You will be employed for no particular period of time; you have the right to terminate your employment at any time for any reason, and the company has a similar right. If the Company terminates your employment for any reason other than for Cause, then you will receive severance pay, in the form of payroll continuation of your annual base salary as of your date of separation, for a period of twelve (12) months, less all legally required deductions.  “Cause” shall mean (i) gross negligence or willful misconduct by you in connection with the performance of your duties that is materially injurious to the Company, monetarily or otherwise, (ii) the conviction of you by a court of competent jurisdiction for felony criminal conduct or (iii) material violation by you of the non-disclosure of confidential information or non-solicitation provisions of your Business Responsibility Agreement. The Company’s obligations to make payment hereunder shall be unaffected by any change of control and a new controlling party may not use a change of control as a means or subterfuge to avoid the obligations hereunder.

The terms of this offer of employment extended to you are outlined in this letter and any additions or other changes must also be in writing.

Please acknowledge your receipt of this offer, acceptance of it and agreement with the terms outlined above by signing the attached copy of this letter and returning it to me.

I am sure you realize that this position provides you the opportunity to enhance your already considerable skills. I am certain you will find your new role challenging, rewarding and satisfying. We look forward to having you on the Vertis, Inc. team.

Sincerely,

/S/ Dean D. Durbin

Dean D. Durbin

President & Chief Operating Officer

Acknowledged:

/S/ Ann M. Raider

Date:

EX-10.44

Exhibit 10.44

Termination Agreement

Vertis Digital Services Limited

and

Adriaan Roosen

9 November 2005

THIS AGREEMENT is made on 9 November 2005

BETWEEN:

(1)VERTIS DIGITAL SERVICES LIMITED whose registered office is at The Green Building, 50-54 Beak Street, London W1F 9RN (the “Company”); and

(2)ADRIAAN ROOSEN whose address is Stationsweg 26, 6861 EH Oosterbeek, The Netherlands (the “Executive”).

RECITALS

(A)The Executive has been employed by the Company under the terms of a service agreement dated 31 August 2003 made between the Executive and Vertis Digital Services Limited (the “Service Agreement”).

(B)The Company is entering into this termination agreement for itself and as agent for all its Group Companies and is duly authorised on their behalf.

(C)The Executive has received independent legal advice from a qualified lawyer as to the terms and effect of this termination agreement.

THE PARTIES AGREE AS FOLLOWS:

1.In this agreement the following terms shall have the meanings set out below:

“Group Company” means the Company, its holding company (as defined in section 736 of the Companies Act 1985) or any subsidiary undertaking (as defined in section 258 of the Companies Act 1985) or associated company (as defined in sections 416 et seq. of the Income and Corporation Taxes Act 1988) of the Company’s holding company;

“HMRC” means Her Majesty’s Revenue & Customs and, where relevant, any predecessor body which carried out part of its functions; and

“Termination Date” means 1 November 2005.

2.The Executive and the Company:

(a)accepts and confirms the termination of his employment with the Company and any Group Companies with effect from the Termination Date save for clauses 6 and 7  of the Service Agreement which, subject to clause 7 below, is intended to, and which the Executive agrees does, survive termination;

(b)shall, subject to clause 2.3, be entitled to receive his salary and contractual benefits up to and including the Termination Date in the normal way (subject to the normal PAYE deductions);

(c)shall not be entitled to receive any payments in respect of bonus or commission for the period up to the Termination Date; and

(d)shall, until the Termination Date, remain on garden leave as agreed with the Company on 6 July 2005.

3.The Executive warrants:

(a)that he has resigned from any directorships he holds in the Company and from all other offices which he holds with any other Group Companies;

(b)that he does not hold any trusteeships; and

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(c)that he does not hold any qualifying or nominee shareholdings as a result of his employment by the Company.

4.The Executive will be separately notified of any rights and/or options that may be available to him under the Executive’s pension scheme and any Company or Group Company shares, share incentive plan or stock option plan as at the Termination Date by the trustees or administrators of the scheme in accordance with the rules of the relevant Plan/Scheme.

5.By way of compensation for loss of office and the early termination of the Executive’s employment (and provided he has returned to the Company a copy of this agreement signed by him and his adviser and satisfies the provisions of this agreement), the Company shall:

(a)pay to the Executive the sum of £185,000 (less such United Kingdom tax and other statutory deductions that it is obliged to deduct from such payment). This sum shall be paid following receipt by the Executive of a form P45 and within 14 days following the later of the Termination Date and the date on which the Company receives a copy of this agreement executed by the Executive. Provided a form P45 has been issued before the payment is made, income tax at 22 per cent. will be deducted from the payment remainder. National insurance contributions will also be deducted;

(b)(subject to the rules of the scheme as amended from time to time HMRC limits in force and as amended from time to time) procure that a special contribution of £9,250 is made into the Vertis Group pension plan with Norwich Union prior to the Termination Date to augment the Executive’s benefits under the scheme. If the Company cannot make the special contribution in whole or in part because of such rules or HMRC limits, then the Company will pay into the scheme the maximum amount that can be paid into the scheme and will pay the remainder of the special contribution to the Executive (less such United Kingdom tax and other statutory deductions that it is obliged to deduct from such payments);

(c)contribute up to £500 (including any disbursements but excluding VAT) towards the legal fees incurred by the Executive in reaching this agreement. This payment shall be made directly to the legal advisers following receipt of appropriate invoices addressed to the Executive in accordance with the appropriate HMRC extra-statutory concession;

(d)will be subject to tax and national insurance contributions in the normal way; and

(e)respond to any written requests for a reference that are addressed to Chief Legal Officer, Vertis, Inc., 18^th Floor, 250 West Pratt Street, Baltimore, Maryland 21201, USA in accordance with the pro forma reference in schedule 1 provided that the Company may make amendments or deviations from the pro forma reference that (acting reasonably) it considers necessary as a result of information concerning the Executive’s employment with the Company or its termination that comes to the attention of the Company only after the date of signing of this agreement. Whilst any such reference will be given in confidence and good faith, neither the Company nor its officers or employees will be responsible or liable to the Executive, the recipient of the reference or any third party for any errors, omissions or inaccuracies in the information it contains or for any loss or damage that may result from it. The Company reserves the right to make such disclosures as required by law or to comply with regulatory requirements, even if this means straying from the reference within schedule 1.

6.The payments and benefits referred to in clause 5 above (the “Settlement”) shall be subject to the following conditions:

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(a)the Executive agrees that he has carefully considered all the facts and circumstances relating to his office and employment and its their termination and accepts the Settlement in full and final settlement of:

(i)the following particular claims:

all claims for damages for breach of contract;

unfair dismissal claims;

claims in relation to redundancy;

equal pay claims;

claims for discrimination on the grounds of sex, race, disability, religion or belief, sexual orientation or part-time or fixed-term status;

claims for victimisation;

claims for unlawful deductions from wages;

claims that he has been dismissed or has otherwise suffered a detriment for making a qualifying and protected disclosure for the purposes of part IVA of the Employment Rights Act 1996; and

claims in relation to the right to be accompanied under the a claim for compensation under section 13 of the Data Protection Act 1998.

(ii)the following additional claims:

(A)claims under the Working Time Regulations 1998;

claims under the National Minimum Wage Act 1998;

claims under the Trade Union and Labour Relations (Consolidation) Act 1992;

claims arising under the Information and Consultation of Employees Regulations 2004;

claims in relation to European works councils;

claims in relation to requests for flexible working;

claims under the Protection from Harassment Act 1997;

claims in relation to the failure to provide written particulars of employment under section 1 of the Employment Rights Act 1996 (as amended);

a claim for compensation under section 13 of the Data Protection Act 1998; and

any claims under the Group Company’s executive compensation or equity plans.

(iii)any other rights of action whatsoever and howsoever arising (whether under common law, statute, European Community law or otherwise) whether in the United Kingdom or any other country or jurisdiction and whether

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contemplated or not which he has or may have against any Group Company or its or their employees or officers arising out of his employment or its termination or his directorships or past directorships or their termination and he irrevocably waives any such claims or rights of action which he now has or may become aware of hereafter;

(b)the Executive warrants that he has no claims against any Group Company or their employees or officers other than those mentioned in clause 6(a)(i)(ii) and (iii);

(c)the Executive hereby agrees to be responsible for the payment of any further tax and other statutory deductions (whether the same are payable in the United Kingdom or elsewhere) in respect of all and any part of the Settlement and to indemnify each and every Group Company (and to keep each and every Group Company indemnified on a continuing basis) against all and any liabilities to taxation or statutory deductions (including any interest, fines, penalties, surcharges, costs and expenses) which they may incur in respect of or by reason of all and any part of the Settlement and to the extent that any Group Company incurs any liability to tax in respect of any payment under this indemnity, the Executive shall pay such additional amounts to the Group Company as are required to ensure that the net amount received and retained by the Group Company (after tax) is equal to the full amount which would have been received and retained had no such liability to tax been incurred provided that this undertaking shall not confer any right on any Group Company to recover secondary class 1 or class 1A or primary class 1 national insurance contributions to the extent that recovery of the same is prohibited by law. Before making any further payment of tax or other statutory deductions in relation to the Settlement or requiring any payment from the Executive under this indemnity, the Company will inform the Executive of the body claiming that the payment is due, provide the Executive with all documentation relating to the claim, consult with the Executive regarding any response to such claim and providing it does not mean that the payment is made out of time give the Executive (or his advisers) an opportunity to write to the relevant body disputing the claim;

(d)the Executive warrants that he has returned to the Company all documents (including copies), software, credit or charge cards and any other property belonging to any of the Group Companies, that he has not downloaded any information or software belonging to any Group Company, that he has disclosed any passwords or computer access codes relevant to the business of any Group Company and he undertakes to return to the Company forthwith any such property which may come into his possession or control in the future and that all correspondence or e-mails belonging to the Company and held on the Executive’s personal computer are transferred to compact disc or similar media and returned to the Company and that any copies held on the personal computer are permanently deleted;

(e)without prejudice to the Executive’s common law and contractual obligations, he hereby undertakes that he will not at any time use or disclose to any person, company, firm, individual or organisation (except with the agreement of the Company or as required by law) any trade secret or confidential information belonging or relating to any Group Company which he obtained during his employment with any such companies including but not limited to details of actual and potential customers, suppliers, trade agents, arrangements, discounts or terms of business and the terms of this agreement. This shall not apply to any such information which comes into the public domain as a result of a disclosure required by law or a protected disclosure under the Public Interest Disclosure Act 1998 or by some means other than an unauthorised disclosure by the Executive or the disclosure of the terms of this agreement to the Executive’s professional advisers

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provided always that disclosure to the Executive’s professional advisers shall be on terms that they agree to keep the same confidential;

(f)the Executive warrants that he has made a full and frank disclosure to John Howard of all matters which might reasonably affect the willingness of the Company to enter into this agreement;

(g)the Executive hereby warrants that:

(i)having received independent legal advice from Caroline Omare of Colman Coyle Solicitors, a qualified lawyer, he has raised all and any claims, complaints or potential proceedings that he may have arising out of the termination of his employment on the Termination Date, namely those claims listed in clause 6(a)(i)(ii) and (iii);

(ii)he has received independent legal advice from Caroline Omare as to the terms and effect of this agreement and the fact that he will be precluded from bringing a claim against any Group Company relating to his employment or his directorships or their termination including (but not limited to) any claim for breach of contract, unfair dismissal, redundancy, equal pay, discrimination on the grounds of race, sex, disability, religion or belief, sexual orientation or part-time or fixed-term status, victimisation, unlawful deductions from wages, claims in relation to the Working Time Regulations 1998, the national minimum wage, the Trade Union and Labour Relations (Consolidation) Act 1992, European works councils, requests for flexible working, the Protection from Harassment Act 1997, or claims that he has been dismissed or has otherwise suffered a detriment for making a qualifying and protected disclosure for the purposes of part IVA of the Employment Rights Act 1996,the Information and Consultation of Employees Regulations 2004 and the Data Protection Act 1998;

(iii)the solicitor who advised him holds (and held at the time the advice was given) a current practising certificate issued by The Law Society;

(iv)there is (and was at the time the advice was given) a contract of insurance or an indemnity provided for members of a profession or professional body covering the risk of a claim by the Executive in respect of any loss arising in consequence of the advice;

(v)he has received satisfactory evidence of the above facts;

(vi)neither Caroline Omare nor Colman Coyle Solicitors acted for any Group Company in relation to the termination of the Executive’s employment with the Company or this agreement; and

(vii)Caroline Omare shall sign this agreement to confirm the facts in this clause 6(h) are correct.

The conditions regulating compromise agreements contained in section 77 of the Sex Discrimination Act 1975, section 72 of the Race Relations Act 1976, section 288(2B) of the Trade Union and Labour Relations (Consolidation) Act 1992, schedule 3A of the Disability Discrimination Act 1995, section 203 of the Employment Rights Act 1996, Regulation 35(2) of the Working Time Regulations 1998, section 49 of the National Minimum Wage Act 1998, Regulation 41(3) of the Transnational Information and Consultation of Employees Regulations 1999, Regulation 9 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 and Regulation 10 of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, Schedule 4 of the Employment

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Equality (Religion or Belief) Regulations 2003 and Schedule 4 of the Employment Equality (Sexual Orientation) Regulations 2003 and the Information and Consultation of Employees Regulations 2004 have therefore been satisfied;

(h)If the Executive (i) breaches any material term of this agreement; or (ii) raises any grievance in writing with any Group Company within four months of the Termination Date or (iii) commences proceedings against the Company or any Group Company in breach of this agreement then he will pay to the Company on demand by way of liquidated damages an amount equivalent to, in the case of (i) above, the damages suffered by the Company as a result of the breach or, in the case of (ii) or (iii) above, the value of any damages, amount of profits or other compensation sought by the Executive, or the amount which could be awarded in such proceedings, and in both cases the Company’s costs in connection with such breach or proceedings and any such payment shall be recoverable as a debt; and

(i)the Executive warrants that he will not hold himself out as representing the Company or make to any third party any misleading, untrue or derogatory statements (whether orally or in writing) about any Group Company or their officers or employees.

7.The Executive undertakes and agrees to abide by the terms of clause 6 of the Service Agreement as a separate and distinct obligation of this agreement and as if the terms of such clause were set out herein save that for the purposes of clause 6(g)(i) of the Service Agreement the Company consents to the Executive undertaking work for Bezier Limited. For the avoidance of doubt the Executive may not be engaged, assist or be interested in any other undertaking which may contravene clause 6(g)(i) without the Company’s prior written consent and the other terms of clause 6 remain in full force and effect whether the Executive is working for Bezier Limited or otherwise.

8.Once executed by both parties this agreement will form an open and binding agreement notwithstanding the fact that the front sheet is marked “without prejudice” and “subject to contract”.

9.The Contracts (Rights of Third Parties) Act 1999 shall only apply to this agreement in relation to any Group Company. No person other than the parties to this agreement and any Group Company and the directors of any Group Company shall have any rights under it and it will not be enforceable by any person other than those parties.

10.If any provision or part of a provision of this agreement shall be or become void or unenforceable for any reason, this shall not affect the validity of that provision or any remaining provisions of this agreement in this or any other jurisdiction and the provision may be severable and if any provision would be treated as valid and effective if part of the wording was deleted, it shall apply with such modifications as necessary to make it valid and effective.

11.This agreement may be executed by counterparts which together shall constitute one agreement. Either party may enter into this agreement by executing a counterpart and this agreement shall not take effect until it has been executed by both parties. Delivery of an executed counterpart or a signature page by facsimile shall take effect as delivery of an executed counterpart of this agreement provided that the relevant party shall give the other the original of such page as soon as reasonably practicable thereafter.

12.This agreement (and any dispute, controversy, proceedings or claim of whatever nature arising out of or in any way relating to this agreement or its formation) shall be governed by and construed in accordance with English law. Each of the parties to this agreement irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to hear and decide any suit, action or proceedings, and/or to settle any disputes which

6

may arise out of or in connection with this agreement and, for these purposes, each party irrevocably submits to the jurisdiction of the courts of England and Wales.

IN WITNESS whereof this agreement has been executed as a deed and delivered on the date first above written.

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Signed as a deed by	)	/S/ Adriaan Roosen
Adriaan Roosen	)
in the presence of:	)
Witness signature:		/S/ Danielle Garkov
Witness name:		Danielle Garkov
Witness address:		Coleman Coyle (Solicitors)
		Wells House, 80 Upper Street
		Islington, London N1 0NU
		DX 147080 Islington 5
Witness occupation:		Solicitor (Trainee)
Signed by George Moore for and on	)	/S/ George Moore
behalf of Vertis Digital Services	)
Limited	)

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Signature of the Executive’s adviser as referred to

in clause 6

Signed by the Executive’s
adviser Caroline Omare of
Colman Coyle Solicitors	/S/ Caroline Omare
Date:

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SCHEDULE 1

Pro Forma Reference

[to be typed on the headed notepaper of the employer]

[Name]

[Address]

• 200•

PRIVATE & CONFIDENTIAL

Dear [insert name]

Re: Adriaan Roosen

I write further to your letter of • 200• in which you requested a reference for Adriaan Rossen.

Adriaan joined Vertis Digital Services Limited (the “Company”) on • 200• as Managing Director of Vertis Europe.

Adriaanleft the Company’s employment on • 200•.

This reference is given in confidence and only for the purposes for which it was requested. Whilst it is given in good faith, it is on the strict understanding that neither the Company nor any of its officers or employees has any responsibility or liability to you, the subject of this reference, or any third party for any errors, omissions or inaccuracies in the information it contains or for any loss or damage that may result from reliance being placed upon this reference.

Yours sincerely

For and on behalf of Vertis, Inc.

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EX-10.45

Exhibit 10.45

March 9, 2006

Mr. Dean D. Durbin

Vertis, Inc.

250 West Pratt Street

18^th Floor

Baltimore, Maryland 21201

Dear Dean:

In recognition of your progress in restructuring the company and your strategic innovations, the Board has acted to appoint you as Chief Executive Officer and President of Vertis, Inc. and Vertis Holdings, Inc. (the “Companies”), effective as of February 9, 2006. In conjunction with this action, the Board also determined to adjust your compensation to reflect your new responsibilities.

Accordingly, we hereby amend your current employment agreement, by and among you and the Companies, dated and effective as of August 31, 2003, as amended (the “Employment Agreement”), to reflect your new position and title as Chief Executive Officer and President of Vertis, Inc. effective as of February 9, 2006. In addition, we hereby amend the Employment Agreement to reflect your new Annual Base Salary (as defined in the Employment Agreement) of $570,000, effective as of January 29, 2006. All references in the Employment Agreement to your position, authority, duties or responsibilities shall be read as references to your position as Chief Executive Officer and President of Vertis, Inc. and the authority, duties or responsibilities associated with such position.

We look forward to continuing to work with you to further Vertis’ growth and innovation. Please indicate your understanding and acceptance of these terms by executing this letter in the space indicated below and returning the executed letter to me at your earliest convenience. As always, if you have any questions, please do not hesitate to contact me.

Sincerely,

/S/ Soren Oberg

Director,

On behalf of Vertis, Inc. and Vertis Holdings, Inc.

* * *

I have read and understood this letter and agree to its terms.

/S/ Dean D. Durbin

Dean D. Durbin

Date:

EX-10.46

Exhibit 10.46

Plan Document

Executive Incentive Plan – FY 2005

Purpose

The Executive Incentive Plan (“EIP” or the “Plan”) is designed to reward executives of Vertis, Inc. and any subsidiary corporation (the “Company”) for achieving corporate and business unit performance objectives. The Plan is intended to provide an incentive for superior work and to motivate participating executives toward an even higher achievement of business results. The Plan encourages participants to align their goals and interests more closely with those of the Company and its shareholders and enables the Company to continue to attract and retain highly qualified executives. This Plan Overview, as it is written, is intended to serve as a reference guide and planning tool with which the Company can further administer the Plan.

Eligibility and Participation

1.1	All members of management designated as directors (or equivalent) and above are eligible to participate in the Plan, subject to selection and approval as set forth in paragraph 1.2.
1.2	The Administrative Committee, as defined below, for the Plan shall have the authority, with the approval of the President & COO to identify those eligible employees (“Participants”) who will participate in the Plan for each Performance Period. Participants are generally defined as director level and above.
1.3	The Administrative Committee also has authority, in its sole discretion; to select non-director-level employees to participate in the EIP who it feels can significantly impact business results.

Plan Year, Performance Period and Performance Goals

2.1 The fiscal year of the Plan shall be the calendar year (the “Plan Year”). The performance period in which incentives may be payable under the Plan shall normally be the Plan Year; provided however, that the Chairman & CEO, President

& COO and the Administrative Committee shall have the authority to designate alternative performance periods under the Plan (“Performance Period”).

2.2 The Administrative Committee shall establish in writing, with respect to each Performance Period, Vertis-wide performance goals and specific target objectives for each (“Vertis Performance Goals”). To the extent that Vertis Performance Goals are attained, a method or formula for computing the amount of incentive compensation payable to each participant under the Plan shall be communicated at the beginning of each Performance Period or as soon as administratively possible after the beginning of the Performance Period.

2.3 Vertis Performance Goals specific to the current Plan Year are attached as Attachment A. In addition, other performance goals may be established and may be based upon a particular business unit or participant’s attainment of specific objectives set for the Performance Period (“Other Performance Goals”) (the Vertis Performance Goals and the Other Performance Goals are collectively referred to as “Performance Goals”).

Determination of Incentive Awards

3.1 As soon as practicable following the end of the applicable Performance Period, the Chair of the Administrative Committee shall certify in writing to what extent the Company, its subsidiaries, operating divisions or other operating units and the Participants have achieved any established Performance Goal(s) for the Performance Period(s), including the satisfaction of material terms of the Performance Goals. The Committee Chair shall calculate the amount of incentive for each Participant based upon the formula or method as set out for the applicable Performance Period.

Payment of Incentive Awards

4.1 Approved incentive awards shall be payable by the Company by direct deposit, unless other arrangements are agreed to, to each Participant, or to his/her estate in the event of his/her death, as soon as practicable after the end of each Performance Period and after the Committee Chair has certified in writing pursuant to Section 3.1 that the relevant Performance Goals were achieved.

4.2 Except as otherwise provided (a) by the Administrative Committee and the Chairman & CEO or (b) in any employment agreement, scheduled retirement, severance agreement or other agreement between the Company and a Participant, there shall be no pro rata payment of any incentive award to any Participant who is not actively employed or on an approved leave of absence by the Company as of the date of payment of the incentive award. In the event of a scheduled retirement, a minimum of two months notice of the planned retirement is required, and the

2

actual timing and amount of the payout will be prorated upon the reconciliation of the Plan results for the Plan Year

.

4.3 To be eligible to receive a payout under this policy, the participant must be an employee in good standing with the company. “Good standing” for purposes of this document shall mean that they shall have received a performance rating of at least Proficient as of the date of their most recent performance review or if the review is more than 3 months old, must be currently performing at least in a Proficient manner as of the end of the Plan Year.

4.4 Except as otherwise provided (a) by the Administrative Committee or (b) in any employment or other agreement between the Company and a Participant, eligible participants hired during the Plan Year shall be eligible to receive a pro rata payment of the incentive award based on the Participant’s date of hire. Eligible participants hired during the 4^th quarter of the Plan Year are not eligible to participate in the Plan and will not receive an incentive award for that Plan Year. Any agreements as outlined in 4.3(b) must first be approved by the Administrative Committee before execution.

4.5 Calculation of payouts, if any, will be based on the participant’s base salary as of the end of the Plan Year (December 31).

4.6 The Company will deduct from any incentive award any applicable withholding taxes or any amounts owed by the Participant to the Company or any of its subsidiaries.

2005 Executive Incentive Plan Payment Schedule

5.1 In order to provide additional motivation to participants during the 2005 Plan year progress payments will be made available, based on achievement of prescribed goals for each quarter. Based on achievement of quarterly EBITDA goals, 75% of the EBITDA earned incentive will be paid to participants following the end of each quarter per the schedule below. The balance of the earned incentive will be withheld until year-end performance is known and certified.

•40% of the annualized payout will be based on achieving first half EBITDA (before EIP) – 75% of this number will be paid out in Q3.

•30% of the annualized payout will be based on achieving Q3 EBITDA (before EIP) – 75% of this number will be paid out in Q4.

•30% of the annualized payout will be based on achieving Q4 EBITDA (before EIP) – 75% of this number will be paid out in Q1, 2006.

•If the full year EBITDA goals are achieved, the remaining 25% of bonus payout held back will be awarded in Q1, 2006.

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Other Terms and Conditions

6.1 Except as may be otherwise required by law, incentive awards under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Incentives awarded under the Plan shall be payable from the general assets of the Company, and no participant shall have any claim with respect to any specific assets of the Company.

6.2 Neither the Plan nor any action taken under the Plan shall be construed as giving any employee the right to be retained in the employment of the Company or any parent, subsidiary or affiliate of the Company or to maintain any Participant’s compensation at any level. Nothing in this Plan shall in any way diminish or limit either party’s right to terminate the employment relationship at any time and for any lawful reason, in its sole discretion.

Administration

7.1 The Administrative Committee is comprised of the President & Chief Operating Officer, SVP & CFO, VP Human Resources, Chief Legal Officer, and the Manager, Corporate Compensation & Benefits. The VP, Human Resources is the chair of the Committee.

7.2 The Administrative Committee shall have full power, authority and discretion to administer and interpret the provisions of the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable.

7.3 The Administrative Committee shall have full power to delegate to any officer or employee of the Company the authority to administer and interpret procedural and administrative issues, and unless the Committee otherwise delegates this authority, the Manager, Corporate Compensation & Benefits fulfils this role.

7.4 The Administrative Committee may rely on opinions, reports or statements of officers or employees of the Company or any subsidiary thereof and of Company counsel (inside or retained counsel), public accountants and other professional or expert persons.

7.5 The Vertis, Inc. Board reserves the right to amend or terminate the Plan in whole or in part at any time without advance notice to the Participants.

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7.6 To the extent permitted by applicable law, (a) no member of the Administrative Committee shall be liable for any action taken or omitted to be taken or for any determination made in good faith with respect to the Plan, and (b) the Company shall indemnify and hold harmless each member of the Administrative Committee against any reasonable cost or expense (including reasonable counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Administrator) arising out of any act or omission in connection with the administration or interpretation of the Plan, unless arising out of fraud or bad faith.

7.7 The place of administration of the Plan shall be in the State of Maryland, and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Maryland.

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EX-10.47

Exhibit 10.47

Plan Document

Employee Incentive Plan – FY 2006

Purpose

The Employee Incentive Plan (“EIP” or the “Plan”) is designed to reward select key employees of Vertis, Inc. and any subsidiary corporation (the “Company”) for achieving and exceeding performance objectives. The Plan is intended to provide an incentive for superior work and to motivate participating employees to achieve high levels of performance that drive business results. The Plan is also intended to align participant goals with those of the Company and its shareholders and enables the Company to continue to attract and retain highly qualified employees. This Plan Overview, as it is written, is intended to serve as a reference guide and planning tool with which the Company can further administer the Plan.

Eligibility and Participation

1.1	Members of management designated as managers (or equivalent) and above are eligible to be considered for participation in the Plan, subject to selection and approval as set forth in paragraph 1.2.
1.2	The Administrative Committee, as defined below, for the Plan shall have the authority to identify those eligible employees (“Participants”) who will participate in the Plan for each Performance Period. Participants are generally defined as manager level and above who directly impact the top or bottom line financials of the Company. However, job title alone will not guarantee participation in the Plan.
1.3	The Administrative Committee, in its sole discretion, may also select certain non-manager-level employees to participate in the EIP when those non manager-level employees are able to significantly impact business results.
1.4	Participants who are hired between January 1 and October 1 of the Plan Year are eligible to participate for that Plan Year. Participants hired after October1st are not eligible to participate for that Plan Year. Any payout for a Participant hired after

January 1st will be prorated based on the number of months worked, including any months on a Company approved leave of absence, during the Plan Year. Participants hired between the 1st and the 15th of any month will be deemed to have been hired on the 1st of that month. Participants hired between the 16th and the 31st of any month will be deemed to have been hired on the 1st of the following month.

Plan Year, Performance Period and Performance Goals

2.1	The fiscal year of the Plan shall be the calendar year (the “Plan Year”). The performance period in which incentives may be payable under the Plan shall normally be the Plan Year; provided however, that the Administrative Committee shall have the authority to designate alternative performance periods under the Plan (“Performance Period”).
2.2	The Administrative Committee shall establish in writing, with respect to each Performance Period, Vertis-wide performance goals and specific target objectives for each (“Vertis Performance Goals”). To the extent that Vertis Performance Goals are attained, a method or formula for computing the amount of incentive compensation payable to each participant under the Plan shall be communicated at the beginning of each Performance Period or as soon as administratively possible after the beginning of the Performance Period.
2.3	Vertis Performance Goals specific to the current Plan Year are attached as Attachment A. In addition, other performance goals may be established and may be based upon a particular business unit or participant’s attainment of specific objectives set for the Performance Period (“Individual Objectives”) (the Vertis Performance Goals and the Individual Objectives are collectively referred to as “Performance Goals”).
2.4	Individual Objectives shall be developed for each Participant by the Participant’s supervisor. Individual Objectives will be documented on the appropriate Plan form at the beginning of the Performance Period, or as soon as possible thereafter, copies of which will be given to the Participant and the Administrative Committee. Individual Objectives will be subject to approval by the Administrative Committee or its designee. Individual Objectives may be changed during a performance period to reflect changes in the business or in Company initiatives. To the extent Individual Objectives are changed during a year, the changes will be reviewed with the Participant, and a new form will be completed and sent to the Administrative Committee for approval.

Determination of Incentive Awards

3.1 As soon as practicable following the end of the applicable Performance Period, each Participant will review their performance against their stated Individual Objectives with their supervisor. The Supervisor will provide a report to their

2

	appropriate Group Human Resources Director and Business Unit General Manager indicating the Participant’s level of achievement with respect to their Individual Objectives. Following the approval of the Group Human Resources Director and General Manager, each Participant’s Individual Objectives attainment level will be reported to the Corporate Human Resources Department.
3.2	The Chief Financial Officer shall certify in writing to what extent the Company, its subsidiaries, operating divisions or other operating units and the Participants have achieved any established Vertis Performance Goal(s) for the Performance Period(s), including the satisfaction of material terms of the Performance Goals. The Chief Financial Officer shall then provide this information to the Corporate Human Resources Department.
3.3	The Corporate Human Resources Department shall then calculate the amount of incentive for each Participant based upon the formula or method as set out for the applicable Performance Period. Calculated awards shall be presented to the Administrative Committee for final review and approval.

Payment of Incentive Awards

4.1	Approved incentive awards shall be payable by the Company by direct deposit, unless other arrangements are agreed to, to each Participant, or to his/her estate in the event of his/her death. Payments shall be made as soon as possible after the Administrative Committee has approved the awards pursuant to Section 3.3, but no later than two and one-half months following the end of the calendar year in which the applicable Performance Period ended.
4.2	Except as otherwise provided (a) by the Administrative Committee or (b) in any written employment agreement, scheduled retirement, written severance agreement or other written agreement between the Company and a Participant, there shall be no payment of any incentive award to any Participant who is not actively employed or on a Company approved leave of absence as of the end of the Plan Year.
4.3	To be eligible to receive a payout under this policy, the participant must be an employee in good standing with the company. “Good standing” for purposes of this document shall mean that they shall have received a performance rating of at least Proficient as of the date of their most recent performance review or if the review is more than 3 months old, must be currently performing at least in a Proficient manner as of the end of the Plan Year.
4.4	Calculation of payouts, if any, will be based on the Participant’s base salary as of the end of the Plan Year (December 31).

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4.5 The Company will deduct from any incentive award any applicable withholding taxes or any amounts owed by the Participant to the Company or any of its subsidiaries.

Other Terms and Conditions

5.1

Except as may be otherwise required by law, incentive awards under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Incentives awarded under the Plan shall be payable from the general assets of the Company, and no participant shall have any claim with respect to any specific assets of the Company.

5.2

Neither the Plan nor any action taken under the Plan shall be construed as giving any employee the right to be retained in the employment of the Company or any parent, subsidiary or affiliate of the Company or to maintain any Participant’s compensation at any level. Nothing in this Plan shall in any way diminish or limit either party’s right to terminate the employment relationship at any time and for any lawful reason, in its sole discretion.

Administration

6.1	The Administrative Committee is comprised of the President & Chief Operating Officer, Chief Financial Officer, VP Human Resources, Chief Legal Officer, and the Director, Corporate Compensation & Benefits. The CFO is the chair of the Committee.
6.2	The Administrative Committee shall have full power, authority and discretion to administer and interpret the provisions of the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable.
6.3	The Administrative Committee shall have full power to delegate to any officer or employee of the Company the authority to administer and interpret procedural and administrative issues, and unless the Committee otherwise delegates this authority, the Director, Corporate Compensation & Benefits fulfills this role.
6.4	The Administrative Committee may rely on opinions, reports or statements of officers or employees of the Company or any subsidiary thereof and of Company counsel (inside or retained counsel), public accountants and other professional or expert persons.

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6.5	The Administrative Committee reserves the right to amend or terminate the Plan in whole or in part at any time without advance notice to the Participants.
6.6	To the extent permitted by applicable law, (a) no member of the Administrative Committee shall be liable for any action taken or omitted to be taken or for any determination made in good faith with respect to the Plan, and (b) the Company shall indemnify and hold harmless each member of the Administrative Committee against any reasonable cost or expense (including reasonable counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Administrator) arising out of any act or omission in connection with the administration or interpretation of the Plan, unless arising out of fraud or bad faith.
6.7	The place of administration of the Plan shall be in the State of Maryland, and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Maryland.

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EX-10.48

Exhibit 10.48

BIG FLOWER HOLDINGS, INC.

1999 EQUITY AWARD PLAN

ARTICLE I

PURPOSE

The purpose of this Big Flower Holdings, Inc. 1999 Equity Award Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer employees, consultants and non-employee directors of the Company and its Affiliates who are in a position to contribute materially to the long-term success of the Company, stock-based incentives and other equity interests in the Company, in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders. The Plan is effective as of the date set forth in Article XVI.

ARTICLE II

DEFINITIONS

For purposes of this Plan, the following terms shall have the following meanings:

2.1   “Affiliate” shall mean each of the following: (i) any Subsidiary; (ii) any Parent; (iii) any other corporation, trade or business (including, without limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company or one of its Affiliates; and (iv) any other entity in which the Company or any of its Affiliates has a material equity interest and which is designated as an “Affiliate” by resolution of the Committee.

2.2   “Award” shall mean any award under this Plan of any (i) Stock Option, (ii) Stock Appreciation Right, (iii) Restricted Stock, (iv) Performance Share, (v) Performance Unit or (vi) Other Stock-Based Award.

2.3   “Award Agreement” shall mean the written agreement, as approved by the Committee, entered into between a Participant and the Company setting forth the terms and conditions of an Award hereunder.

2.4   “Board” shall mean the Board of Directors of the Company.

2.5   “Cause” shall mean, with respect to a Participant’s Termination of Employment or Termination of Consultancy, termination due to a Participant’s insubordination, dishonesty, incompetence, moral turpitude, other misconduct of any kind or the refusal to perform his or her duties or responsibilities for any reason other than illness or incapacity, in each case, as determined by the Committee in good faith. Notwithstanding the foregoing, in the event there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time in question that defines “cause” (or words of like import), Cause shall have the meaning ascribed to it under such agreement, as such agreement shall provide at the time in question; provided, however, that with regard to any agreement that conditions “cause” on occurrence of a change in control, such definition of “cause” shall not apply until a change in control actually takes place and then only with regard to a termination thereafter. With respect to a Non-Employee Director’s Termination of Directorship, “cause” shall mean an act or failure to act that constitutes cause for removal of a director under applicable Delaware law, as in effect at the time in question, as determined by the Board in good faith.

2.6   “Code” shall mean the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision.

2.7   “Committee” shall mean: (i) with respect to the application of this Plan to Eligible Employees and Consultants, a committee or subcommittee of the Board appointed from time to time by the Board; and (ii) with respect to the application of this Plan to Non-Employee Directors, the Board. If and to the extent that no Committee exists that has the authority to administer this Plan, the functions of the Committee shall be exercised by the Board and all references herein to the Committee shall be deemed to be references to the Board.

2.8   “Common Stock” shall mean the common stock, $.01 par value per share, of the Company.

2.9   “Company” shall mean Big Flower Holdings, Inc., a Delaware corporation, and its successors and assigns.

2.10   “Consultant” shall mean any individual who is engaged to perform services for the Company and/or its Affiliates other than as an employee or director of the Company or any Affiliate.

2.11   “Disability” shall mean the inability of a Participant to perform substantially the Participant’s duties and responsibilities to the Company or any Affiliate by reason of a physical or mental disability or infirmity for a continuous period of three months. The date of such Disability shall be the earlier of (i) last day of such three-month period or (ii) the day on which the Participant

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submits, or causes to be submitted, to the Committee any medical evidence of such Disability reasonably satisfactory to the Committee. Notwithstanding the foregoing, with respect to an Incentive Stock Option, Disability shall mean a permanent and total disability as defined in Section 22(e)(3) of the Code.

2.12   “Effective Date” shall mean the effective date of this Plan as defined in Article XVI.

2.13   “Eligible Employee” shall mean an employee of the Company or an Affiliate who is eligible for Awards under the Plan, which eligibility shall be conclusively determined by the Committee.

2.14   “Fair Market Value” shall mean as of any given date, unless otherwise required by any provision of the Code or regulations issued thereunder, fair market value as determined in good faith by the Committee.

2.15   “Incentive Stock Option” shall mean any Stock Option awarded under the Plan intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code.

2.16   “Limited Stock Appreciation Right” shall mean an Award of a limited Tandem Stock Appreciation Right or a limited Non-Tandem Stock Appreciation Right made pursuant to Section 7.5 of this Plan.

2.17   “Management Subscription Agreement” shall mean the Management Subscription Agreement, dated as of November            , 1999, by and among the Company, Thomas H. Lee Equity Fund IV, L.P. and an Eligible Employee, if any.

2.18 “Non-Employee Director” shall mean a director of the Company who is not an active employee of the Company or an Affiliate.

2.19   “Non-Qualified Stock Option” shall mean any Stock Option awarded under this Plan that is not an Incentive Stock Option.

2.20   “Non-Tandem Stock Appreciation Right” shall mean a Stock Appreciation Right entitling a Participant to receive an amount in cash or Common Stock (as determined by the Committee in its sole discretion) equal to the excess of (i) the Fair Market Value of a share of Common Stock as of the date such right is exercised, over (ii) the aggregate exercise price of such right.

2.21   “Other Stock-Based Award” shall mean an Award of Common Stock and other Awards made pursuant to Article XI that are valued in whole or in part by reference to, or are payable in or otherwise based on, Common Stock, including, without limitation, an Award valued by reference to performance of an Affiliate.

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2.22   “Parent” shall mean any parent corporation of the Company within the meaning of Section 424(e) of the Code.

2.23   “Participant” shall mean any Eligible Employee, Consultant or Non-Employee Director to whom an Award has been made under this Plan; provided, however, that a Non-Employee Director shall be a Participant for purposes of the Plan solely with respect to awards of Stock Options pursuant to Section 6.2(b) hereof.

2.24   “Performance Cycle” shall have the meaning set forth in Section 10.1.

2.25   “Performance Period” Shall have meaning set forth in Section 9.1.

2.26   “Performance Share” shall mean an Award made pursuant to Article IX of this Plan of the right to receive shares of Common Stock or, as determined by the Committee in its sole discretion, cash of an equivalent value at the end of the Performance Period or thereafter.

2.27   “Performance Unit” shall mean an Award made pursuant to Article X of this Plan of the right to receive a fixed dollar amount, payable in cash or Common Stock (or a combination of both) as determined by the Committee in its sole discretion, at the end of a specified Performance Cycle or thereafter.

2.28   “Plan” shall mean this Big Flower Holdings, Inc. 1999 Equity Award Plan, as amended from time to time.

2.29   “Reference Stock Option” shall have the meaning set forth in Section 7.1 hereof.

2.30   “Restricted Stock” shall mean shares of Common Stock issued pursuant to Article VIII hereof.

2.31   “Restriction Period” shall mean the period set forth in Section 8.3(a) with respect to Restricted Stock.

2.32   “Retained Share Agreement” shall mean the Retained Share Agreement, dated as of November            , 1999, by and among the Company, Thomas H. Lee Equity Fund IV, L.P. and an Eligible Employee, if any.

2.33   “Retirement” shall mean a Termination of Employment or Termination of Consultancy without Cause by a Participant at or after age 65 or such earlier date after age fifty-five (55) as may be approved by the Committee without regard to whether the termination is treated as a “retirement” for any other purposes. With respect to a Participant’s Termination of Directorship, Retirement shall mean the failure to stand for reelection or the failure to be reelected at or after a Participant has attained age 65 or, with the consent of the Board, before age 65 but after age 50.

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2.34   “Securities Act” shall mean the Securities Act of 1933, as amended. Any reference to any section of the Securities Act shall also be a reference to any successor provision.

2.35   “Stock Appreciation Right” or “SAR” shall mean the right pursuant to an Award granted under Article VII hereof.

2.36   “Stock Option” shall mean any option to purchase shares of Common Stock granted to a Participant under Article VI hereof.

2.37   “Subsidiary” shall mean any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code.

2.38   “Tandem Stock Appreciation Right” shall mean a Stock Appreciation Right entitling the holder to surrender to the Company all (or a portion) of a Stock Option in exchange for an amount in cash or Common Stock (as determined by the Committee in its sole discretion) equal to the excess of (i) the Fair Market Value, on the date such Stock Option (or such portion thereof) is surrendered, of the Common Stock subject to such Stock Option (or such portion thereof), over (ii) the aggregate exercise price of such Stock Option (or such portion thereof).

2.39   “Ten Percent Stockholder” shall mean a person owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, its Subsidiaries or its Parent.

2.40   “Termination of Consultancy” shall mean the termination of a Consultant’s consultancy assignment with the Company and all Affiliates. In the event an entity shall cease to be an Affiliate, there shall be deemed a Termination of Consultancy of any individual who is not otherwise a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate.

2.41   “Termination of Directorship” shall mean the termination of a Non-Employee Director’s term as director of the Company.

2.42   “Termination of Employment,” except as provided in the next sentence, shall mean (i) a termination of a Participant’s employment with the Company and all Affiliates for any reason (including death, Disability or Retirement) other than a military or personal leave of absence granted by the Company or any Affiliate) or (ii) when an entity that is employing a Participant ceases to be an Affiliate, unless the Participant thereupon is or becomes employed by the Company or another Affiliate. The Committee may otherwise define Termination of Employment in an Award Agreement or, if no rights of the Participant are reduced, may otherwise define Termination of Employment thereafter, including, but not limited to, defining Termination of Employment with regard to entities controlling, under common control with or controlled by the Company rather than just the Company and its Affiliates and/or entities that provide substantial services to the Company or its Affiliates to which the Participant has transferred directly from the Company or its Affiliates at the request of the Company.

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2.43   “Transfer” or “Transferred” shall mean anticipate, alienate, attach, sell, assign, pledge, encumber, charge, hypothecate or otherwise transfer.

ARTICLE III

ADMINISTRATION

3.1   The Committee. The Plan shall be administered and interpreted by the Committee.

3.2   Grants of Awards. The Committee shall have full authority to grant pursuant to the terms of this Plan, Awards to Eligible Employees, Consultants and Non-Employee Directors and to otherwise administer the Plan. All Awards shall be granted by, confirmed by, and subject to the terms of an Award Agreement. The Committee’s authority shall include the ability:

(a)   to determine the eligibility of any individual for participation in the Plan and to select the Eligible Employees, Consultants and Non-Employee Directors to whom Awards may from time to time be granted hereunder;

(b)   to determine whether and to what extent Awards, including any combination of two or more Awards, are to be granted hereunder to one or more Eligible Employees, Consultants or Non-Employee Directors;

(c)   to determine, in accordance with the terms of this Plan, the number of shares of Common Stock to be covered by each Award granted hereunder;

(d)   to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof and any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion);

(e)   to determine whether and under what circumstances a Stock Option may be settled in cash, Common Stock and/or Restricted Stock under Section 6.3(d);

(f)   to determine whether, to what extent and under what circumstances to provide loans (that shall bear interest at the rate the Committee shall provide) to Eligible Employees. Consultants and Non-Employee Directors in order to exercise Stock Options or to purchase Awards under this Plan (including shares of Common Stock);

(g)   to determine whether a Stock Option is an Incentive Stock Option or Non-Qualified Stock Option or whether a Stock Appreciation Right is a Tandem Stock Appreciation Right or a Non-Tandem Stock Appreciation Right;

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(h)   to prohibit an Eligible Employee or Consultant, as a condition of the granting of any Award, from selling or otherwise disposing of shares of Common Stock acquired pursuant to the exercise of an Stock Option or any other Award for a period of time as determined by the Committee, in its sole discretion, following the date of the acquisition of such Stock Option or Award;

(i)   to modify, extend or renew an Award, subject to Article XIII herein, provided, however, that if an Award is modified, extended or renewed and thereby deemed to be the issuance of a new Award under the Code or the applicable accounting rules, the exercise price of an Award may continue to be the original exercise price even if less than the Fair Market Value of the Common Stock at the time of such modification, extension or renewal; and

(j)   to offerto buy out, cancel or otherwise redeem a Stock Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time such offer is made.

3.3   Guidelines. Subject to Article XIII hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan and perform all acts, including the delegation of its administrative responsibilities, as it shall, from time to time, deem advisable; to construe and interpret the terms and provisions of this Plan and any Award issued under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of this Plan. The Committee may adopt special guidelines and provisions for persons who are residing in, or subject to, the taxes of, countries other than the United States of America to comply with applicable tax and securities laws.

3.4   Decisions Final. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board or the Committee (or any of its members) arising out of or in connection with this Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns.

3.5   Reliance on Counsel. The Company, the Board or the Committee may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations or duties hereunder, or with respect to any action or proceeding or any question of law, and shall not be liable with respect to any action taken or omitted by it in good faith pursuant to the advice of such counsel.

3.6   Procedures. If the Committee is appointed, the Board may designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws of the Company, at such times and places, including, without limitation, by telephone conference or by written consent, as the Committee shall deem advisable. A majority of the Committee members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its

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members. Any decision or determination reduced to writing and signed by all the Committee members in accordance with the
By-Laws of the Company, shall be fully as effective as if it had been made by a vote at a meeting duly called and held. The Committee may keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

3.7   Designation of Consultants/Liability.

(a)   The Committee may designate employees of the Company and professional advisors to assist the Committee in the administration of this Plan and may grant authority to officers to execute agreements or other documents on behalf of the Committee.

(b)   The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of this Plan and may rely upon any opinion received from any such counsel or consultant and any computation received fromany such consultant or agent. Expenses incurred by the Committee or the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any person designated pursuant to paragraph (a) above shall not be liable for any action or determination made in good faith with respect to this Plan. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Award granted under it. To the maximum extent permitted by applicable law, the Certificate of Incorporation and By-Laws of the Company and to the extent not covered by insurance, each officer and member or former member of the Committee or the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with this Plan, except to the extent arising out of such officer’s, member’s or former member’s own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, directors or members or former officers, directors or members may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company or any Affiliate. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Awards granted to him or her under this Plan.

ARTICLE IV

SHARE AND OTHER LIMITATIONS

4.1   Share Limitation.

General Limitation. The aggregate number of shares of Common Stock that may be issued or used for reference purposes under this Plan or with respect to which Awards may

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be granted shall not exceed 10,000,000 shares of Common Stock (subject to adjustment pursuant to Section 4.2), which may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company. To the extent that an Incentive Stock Option is disqualified and no longer an Incentive Stock Option, the number of shares of Common Stock underlying the Stock Option shall continue to count against the aggregate limit of 10,000,000 shares of Common Stock set forth herein. If any Stock Option or Stock Appreciation Right granted under this Plan expires, terminates or is canceled for any reason without having been exercised in full or, the Company repurchases any Stock Option, the number of shares of Common Stock underlying such unexercised or repurchased Stock Option or any unexercised Stock Appreciation Right shall again be available for the purposes of Awards under this Plan. If any shares of Restricted Stock, Performance Shares. Performance Units or Other Stock-Based Awards awarded under this Plan are forfeited or repurchased by the Company for any reason, the number of forfeited or repurchased shares of Restricted Stock, Performance Shares, Performance Units or Other Stock-Based Awards shall again be available for the purposes of Awards under this Plan. A Tandem Stock Appreciation Right or a Limited Stock Appreciation Right that is granted in tandem with a Stock Option, shall only apply once against the maximum number of shares of Common Stock which may be issued under this Plan. In determining the number of shares of Common Stock available for Awards other than Awards of Incentive Stock Options, if Common Stock has been exchanged by a Participant as full or partial payment to the Company, or for withholding, in connection with the exercise of a Stock Option or the number shares of Common Stock otherwise deliverable has been reduced for withholding, the number of shares of Common Stock exchanged as payment in connection with the exercise or for withholding or reduced shall again be available for purposes of Awards under this Plan.

4.2   Changes.

(a)   The existence of this Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company or any Affiliate, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting Common Stock, the authorization or issuance of additional shares of Common Stock, the dissolution or liquidation of the Company or any Affiliate, any sale or transfer of all or part of the assets or business of the Company or any Affiliate or any other corporate act or proceeding.

(b)   In the event of any change in the capital structure or business of the Company by reason of any stock dividend or extraordinary dividend, stock split or reverse stock split, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, non-cash distributions with respect to its outstanding Common Stock or capital stock other than Common Stock, reclassification of its capital stock, any sale or transfer of all or part of the Company’s assets or business, or any similar change affecting the Company’s capital structure or business or the capital structure of any business of any Affiliate or a change in control of the Company, as determined by the Committee, and the Committee

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determines in good faith that an adjustment is necessary or appropriate under the Plan to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under the Plan or as otherwise necessary to reflect the change, then the aggregate number and kind of shares which may be issued under Section 4.1 of the Plan, the number and kind of shares or other property (including cash) subject to outstanding Awards under the Plan and the purchase or exercise price thereof shall be appropriately adjusted consistent with such change in such manner as the Committee may deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under the Plan or as otherwise necessary to reflect the change, and any such adjustment determined by the Committee in good faith shall be binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. In connection with any event described in this paragraph, the Committee may provide, in its sole discretion, for the cancellation of any outstanding Awards and payment in cash or other property in exchange therefor.

(c)   Fractional shares of Common Stock resulting from any adjustment to Awards pursuant to this Section 4 shall be aggregated until, and eliminated at, the time of exercise by rounding-down for fractions lees than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding. Notice of any adjustment shall be given by the Committee to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of this Plan.

4.3   Minimum Purchase Price. Notwithstanding any provision of this Plan to the contrary, if authorized but previously unissued shares of Common Stock are issued under this Plan, such shares shall not be issued for a consideration which is less than as permitted under applicable law.

ARTICLE V

ELIGIBILITY

5.1   Eligible Employees and Consultants. All Eligible Employees and Consultants and prospective employees of and consultants to the Company and its Affiliates shall be eligible to be granted Awards under this Plan; provided, however, that only Eligible Employees of the Company, its Subsidiaries and its Parent (if any) shall be eligible for the grant of Incentive Stock Options. The vesting and exercise of Awards granted to a prospective employee or consultant shall be conditioned upon such individual actually becoming an Eligible Employee or Consultant.

5.2   Non-employee Directors. Non-employee Directors are only eligible to receive Non-Qualified Stock Options in accordance with Section 6.2(b) of the Plan.

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5.3   Committee Determination. Eligibility for the giant of an Award and actual participation in this Plan shall be determined by the Committee, in its sole discretion.

ARTICLE VI

STOCK OPTIONS

6.1   Stock Options. Stock Options granted hereunder shall be either (i) an Incentive Stock Option intended to satisfy the requirements of Section 422 of the Code or (ii) a Non-Qualified Stock Option.

6.2   Grants. (a) The Committee shall have the authority to grant to any Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights). To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof which does not qualify, shall constitute a separate Non-Qualified Stock Option. The Committee shall have the authority to grant any Consultant one or more Non-Qualified Stock Options (with or without Stock Appreciation Rights). Notwithstanding any other provision of this Plan or any provision in an Award Agreement to the contrary, any Stock Option granted to an Eligible Employee of an Affiliate that is not a Parent or a Subsidiary shall be a Non-Qualified Stock Option.

(b)   The Committee shall have the authority to grant any Non-employee Director one or more Non-Qualified Stock Options.

6.3   Terms of Options. Stock Options granted under this Article VI, shall be subject to the following terms and conditions, and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable:

(a)Exercise Price. The exercise price per share of Common Stock subject to a Stock Option shall be determined by the Committee at the time of grant, but shall not be less than 100% of the Fair Market Value of a share of Common Stock at the time of grant; provided, however, that if an Incentive Stock Option is granted to a Ten Percent Stockholder, the exercise price shall be no less than 110% of the Fair Market Value of the Common Stock at the time of grant.

(b)Stock Option Term. The term of each Stock Option shall be fixed by the Committee; provided, however, that no Stock Option shall be exercisable more than ten (10) years after the date such Stock Option is granted; and further provided that the term of an Incentive Stock Option granted to a Ten Percent Stockholder shall not exceed five (5) years.

(c)Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant. If the Committee provides, in its sole discretion, that any Stock Option is exercisable

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subject to certain limitations (including, without limitation, that such Stock Option is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such Stock Options may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion.

(d)   Method of Exercise. Subject to any limitations on the exercisability of a Stock Option under subsection (c) above, Stock Options may be exercised in whole or in part at any time and from time to time during the Stock Option term by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price in cash or by check, bank draft or money order payable to the order of the Company or in such other form as may be acceptable to the Committee (including, without limitation, the relinquishment of Stock Options or by payment in full or in part in the form of Common Stock owned by the Participant for a period of at least 6 months, and for which the Participant has good title free and clear of any liens and encumbrances) based on the Fair Market Value of the Common Stock on the payment date. No shares of Common Stock shall be issued until payment therefor, as provided herein, has been made or provided for.

(e)   Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Eligible Employee during any calendar year under this Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000, such Stock Options shall be treated as Stock Options that are not Incentive Stock Options. Should any provision of this Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend this Plan accordingly, without the necessity of obtaining the approval of the stockholders of the Company.

(f)   Buy Out and Settlement Provisions. The Committee may at any time on behalf of the Company offer to buy a Stock Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made.

(g)   Form, Modification, Extension and Renewal of Stock Options, Subject to the terms and conditions and within the limitations of this Plan, Stock Options shall be evidenced by an Award Agreement and the Committee may (i) modify, extend or renew outstanding Stock Options granted under this Plan (provided that the rights of a Participant are not reduced without his consent), and (ii) accept the surrender of outstanding Stock Options (up to the extent not theretofore exercised) and authorize the granting of new Stock Options in substitution therefor (to the extent not theretofore exercised).

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(h)   Other Terms and Conditions.  Stock Options may contain such other provisions. which shall not be inconsistent with any of the terms of this Plan, as the Committee shall deem appropriate.

ARTICLE VII

STOCK APPRECIATION RIGHTS

7.1   Tandem Stock Appreciation Rights.   Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option (a “Reference Stock Option”) granted to an Eligible Employee or Consultant under this Plan (“Tandem Stock Appreciation Rights”). In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Reference Stock Option.

7.2   Terms and Conditions of Tandem Stock Appreciation Rights.   Tandem Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including, without limitation, Article XII hereof and the following:

(a)   Term. A Tandem Stock Appreciation Right or applicable portion thereof granted with respect to a Reference Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the Reference Stock Option, except mat, unless otherwise determined by the Committee, in its sole discretion, at the time of grant, a Tandem Stock Appreciation Right granted with respect to less than the full number of shares covered by the Reference Stock Option shall not be terminated until and then only to the extent the exercise or termination of the Reference Stock Option causes the number of shares covered by the Tandem Stock Appreciation Right to exceed the number of shares remaining available and unexercised under the Reference Stock Option.

(b)   Exercisability. Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Reference Stock Options to which they relate shall be exercisable in accordance with the provisions of Article VI and this Article VII.

(c)   Method of Exercise. A Tandem Stock Appreciation Right may be exercised by a Participant by surrendering the applicable portion of the Reference Stock Option. Upon such exercise and surrender, the Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 7.2. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Tandem Stock Appreciation Rights have been exercised.

(d)   Payment. Upon the exercise of a Tandem Stock Appreciation Right, a Participant shall be entitled to receive up to, but no more than, an amount in cash and/or Common Stock (as determined by the Committee in its sole discretion at the time of grant, or thereafter if no rights of a Participant are reduced) equal in value to the excess of the Fair Market Value of

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one share of Common Stock over the option price per share specified in the Reference Stock Option, multiplied by the number of shares in respect of which the Tandem Stock Appreciation Right shall have been exercised.

(e)   Deemed Exercise of Reference Stock Option. Upon the exercise of a Tandem Stock Appreciation Right, the Reference Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Article IV of this Plan on the number of shares of Common Stock to be issued under this Plan.

7.3   Non-Tandem Stock Appreciation Rights. Grants of Non-Tandem Stock Appreciation Rights shall be made without reference to any Stock Option granted under this Plan.

7.4   Terms and Conditions of Non-Tandem Stock Appreciation Rights. Non-Tandem Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including Article XII hereof and the following:

(a)   Term. The term of each Non-Tandem Stock Appreciation Right shall be fixed by the Committee, but shall not be greater than ten (10) years after the date the right is granted.

(b)   Exercisability. Non-Tandem Stock Appreciation Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant. If the Committee provides, in its sole discretion, that any such right is exercisable subject to certain limitations (including, without limitation, that it is exercisable only in installments or within certain time periods), the Committee may waive such limitation on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which rights may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion.

(c)   Method of Exercise. Subject to whatever installment exercise and waiting period provisions apply under subsection (b) above, Non-Tandem Stock Appreciation Rights may be exercised in whole or in part at any time and from time to time during its term, by giving written notice of exercise to the Company specifying the number of Non-Tandem Stock Appreciation Rights to be exercised.

(d)   Payment. Upon the exercise of a Non-Tandem Stock Appreciation Right a Participant shall be entitled to receive, for each right exercised, up to, but no more than, an amount in cash and/or Common Stock (as chosen by the Committee in its sole discretion at the time of grant, or thereafter if no rights of a Participant are reduced) equal in value to the excess of the Fair Market Value of one share of Common Stock on the date the right is exercised over the Fair Market Value of one share of Common Stock on the date the right was awarded to the Participant.

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7.5   Limited Stock Appreciation Rights. The Committee may, in its sole discretion, grant a Tandem Stock Appreciation Right or a Non-Tandem Stock Appreciation Right as a Limited Stock Appreciation Right. Limited Stock Appreciation Rights may be exercised only upon the occurrence of an event or events as the Committee may, in its sole discretion, designate at the time of grant or thereafter. Upon the exercise of Limited Stock Appreciation Rights, except as otherwise provided in an Award Agreement, the Participant shall receive in cash or Common Stock, (as determined by the Committee at the time of grant, or thereafter if no rights of a Participant are reduced) an amount equal to the amount (i) set forth in Section 7.2(d) with respect to Tandem Stock Appreciation Rights, or (ii) set forth in Section 7.4(d) with respect to Non-Tandem Stock Appreciation Rights, as applicable.

ARTICLE VIII

RESTRICTED STOCK

8.1   Awards of Restricted Stock. Shares of Restricted Stock may be issued to Eligible Employees or Consultants either alone or in addition to other Awards granted under this Plan. The Committee shall determine the Eligible Employees and Consultants to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, subject to Section 8.2, the price (if any) to be paid by the recipient, the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the Awards. The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance goals or such other factors as the Committee may determine, in its sole discretion.

8.2   Awards and Certificates. An Eligible Employee or Consultant selected to receive Restricted Stock shall not have any rights with respect to such Award, unless and until such Participant has delivered to the Company a fully executed copy of the applicable Award Agreement relating thereto and has otherwise complied with the applicable terms and conditions of such Award. Further, such Award shall be subject to the following conditions:

(a)   Purchase Price. The purchase price of Restricted Stock shall be fixed by the Committee, provided that any such purchase price may be zero to the extent permitted by applicable law, and, to the extent not so permitted, such purchase price may not be less than par value.

(b)   Acceptance. Awards of Restricted Stock must be accepted within a period of 90 days (or such shorter period as the Committee may specify at grant) after the Award date by executing a Restricted Stock Award Agreement and by paying whatever price (if any) the Committee has designated thereunder.

(c)   Legend. Each Participant receiving shares of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, unless the Committee elects to use another system, such as book entries by the transfer agent, as evidencing ownership

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of shares of Restricted Stock. Such certificate shall be registered in the name of such Participant, and shall bear (i) the legend set forth in Section 4.5(a) of the Management Subscription Agreement and/or Section 4.4 of the Retained Share Agreement, to the extent that the Participant is a party to either such agreement and (ii) an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:

“The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Big Flower Holdings Inc. (the “Company”) 1999 Stock Equity Award Plan (the “Plan”) and an Agreement entered into between the registered owner and the Company dated     .. Copies of such Plan and Agreement are on file at the principal office of the Company.”

(d) Custody. The Committee may require that any stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition to the grant of such Award of Restricted Stock, the Participant shall have delivered a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Award.

8.3   Restrictions and Conditions on Restricted Stock Awards. Shares of Restricted Stock awarded pursuant to this Plan shall be subject to Article XII hereto and the following restrictions and conditions:

(a)   Restriction Period; Vesting and Acceleration of Vesting. (i) Shares of Restricted Stock awarded under this Plan (x) shall vest in accordance with the terms and conditions determined by the Committee in is sole discretion (including, without limitation, any service or performance goal criteria) and (y) may not be Transferred during the period or periods set by the Committee (the “Restriction Period”). The Committee may, in its sole discretion, (x) provide for the lapse of any restrictions under this Plan or an Award Agreement in installments (in whole or in part), (y) accelerate the vesting of all or any part of any Restricted Stock Award and/or (z) waive the deferral limitations for all or any part of any Restricted Stock Award.

(ii)   Objective Performance Goals, Formulae or Standards. If the grant of shares of Restricted Stock or the lapse of restrictions is based on the attainment of performance goals, the Committee shall establish the performance goals and the applicable vesting percentage of the Restricted Stock Award applicable to each Participant or class of Participants in writing prior to the beginning of the applicable fiscal year or at such later date as otherwise determined by the Committee. Such performance goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances.

(b)   Rights as Stockholder. Except as provided in this subsection (b) and subsection (a) above and as otherwise determined by the Committee, the Participant shall have, with

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respect to the shares of Restricted Stock, all of the rights of a holder of shares of Common Stock of the Company including, without limitation, the right to receive any dividends, the right to vote such shares and, subject to and conditioned upon the full vesting of shares of Restricted Stock, the right to tender such shares. The Committee may, in its sole discretion, determine at the time of grant that the payment of dividends shall be deferred until, and conditioned upon, the expiration of the applicable Restriction Period.

(c)   Lapse of Restrictions, Any stock certificates representing shares of Restricted Stock awarded hereunder that (i) have not been forfeited and (ii) have not previously been delivered to a Participant shall be delivered to the Participant upon the expiration of any applicable Restriction Period. All legends shall be removed from said certificates at the expiration of the Restriction Period except as may otherwise be required under an applicable Management Subscription Agreement and/ or Retained Share Agreement or by applicable law.

ARTICLE IX

PERFORMANCE SHARES

9.1   Award of Performance Shares. Performance Shares may be awarded either alone or in addition to other Awards granted under this Plan. The Committee shall, in its sole discretion, determine the Eligible Employees and Consultants to whom and the time or times at which such Performance Shares shall be awarded, the duration of the period (the “Performance Period”) during which, and the conditions under which, a Participant’s right to Performance Shares will be vested and the other terms and conditions of the Award in addition to those set forth in Section 9.2.

Each Performance Share awarded shall be referenced to one share of Common Stock. Except as otherwise provided herein, the Committee shall condition the right to payment of any Performance Share Award upon the attainment of objective performance goals established pursuant to Section 9.2(c) below and such other non-performance based factors or criteria as the Committee may determine in its sole discretion.

9.2   Terms and Conditions. A Participant selected to receive Performance Shares shall not have any rights with respect to such shares, unless and until such Participant has delivered a fully executed copy of a Performance Share Award Agreement evidencing the Award to the Company and has otherwise complied with the following terms and conditions:

(a)   Earning of Performance Share Award. At the expiration of the applicable Performance Period, the Committee shall determine the extent to which the performance goals established pursuant to Section 9.2(c) are achieved and the percentage of each Performance Share Award that has been earned.

(b)   Payment.  Following the Committee’s determination in accordance with subsection (a) above, shares of Common Stock or, as determined by the Committee in its

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sole discretion, the cash equivalent of such shares shall be delivered to the Participant, in an amount equal to such Participant’s earned Performance Share Award. Notwithstanding the foregoing, except as may be set forth in the Award Agreement covering the Award, the Committee may, in its sole discretion, award an amount less than the earned Performance Share Award and/or subject the payment of all or part of any Performance Share Award to additional vesting and forfeiture conditions as it deems appropriate.

(c)   Objective Performance Goals. Formulae or Standards. The Committee shall establish the objective performance goals for the earning of Performance Shares based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as determined by the Committee. Such performance goals may incorporate, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances.

(d)   Dividends and Other Distributions. At the time of any award of Performance Shares, the Committee may, in its sole discretion, award an Eligible Employee or Consultant the right to receive the cash value of any dividends and other distributions that would have been received had the Eligible Employee or Consultant held each share of Common Stock referenced by the earned Performance Share Award from the last day of the first year of the Performance Period until the actual distribution to such Participant of the related share of Common Stock or cash value thereof. Such amounts, if awarded, shall be paid to the Participant as and when the shares of Common Stock or cash value thereof are distributed to such Participant and, at the discretion of the Committee, may be paid with interest from the first day of the second year of the Performance Period until such amounts and any earnings thereon are distributed. The applicable rate of interest shall be determined by the Committee in its sole discretion; provided, however, that for each fiscal year or pan thereof, the applicable interest rate shall not be greater than a rate equal to the four-year U.S. Government Treasury rate on the first day of each applicable fiscal year.

ARTICLE X

PERFORMANCE UNITS

10.1   Awards of Performance Units. Performance Units may be awarded either alone or in addition to other Awards granted under this Plan, The Committee shall, in its sole discretion, determine the Eligible Employees and Consultants to whom and the time or times at which such Performance Units shall be awarded, the duration of the period (the “Performance Cycle”) during which, and the conditions under which, a Participant’s right to Performance Units will be vested and the other terms and conditions of the Award in addition to those set forth in Section 10.2.

Performance Units shall be awarded in a dollar amount determined by the Committee and shall be converted for purposes of calculating growth in value to a referenced number of shares of Common Stock based on the Fair Market Value of shares of Common Stock on the date of grant.

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Each Performance Unit shall be referenced to one share of Common Stock. Except as otherwise provided herein, the Committee shall condition the right to payment of any Performance Unit Award upon the attainment of objective performance goals established pursuant to Section 10.2(a) and such other non-performance based factors or criteria as the Committee may determine in its sole discretion. The cash value of any fractional Performance Unit Award subsequent to conversion to shares of Common Stock shall be treated as a dividend or other distribution under Section 10.2(e) to the extent any portion of the Performance Unit Award is earned.

10.2   Terms and Conditions. The Performance Units awarded pursuant to this Article 10 shall be subject to the following terms and conditions:

(a)   Performance Goals. The Committee shall establish the objective performance goals for the earnings of Performance Units based on a Performance Cycle applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Cycle or at such later date as determined by the Committee. Such performance goals may incorporate, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances.

(b)   Vesting. At the expiration of the Performance Cycle, the Committee shall determine and certify in writing the extent to which the performance goals have been achieved, and the percentage of the Performance Units of each Participant that have vested.

(c)   Payment. Subject to the applicable provisions of the Award Agreement and this Plan, at the expiration of the Performance Cycle, cash and/or shares of Common Stock (as the Committee may determine in its sole discretion at grant, or thereafter if no rights of a Participant are reduced) shall be delivered to the Participant in payment of the vested Performance Units covered by the Performance Unit Award. Notwithstanding the foregoing, except as may be set forth in the Award Agreement covering the Award, the Committee may, in its sole discretion, award an amount less than the earned Performance Unit Award and/or subject the payment of all or part of any Performance Unit Award to additional vesting and forfeiture conditions as it deems appropriate.

(d)   Accelerated Vesting. Based on service, performance and/or such other factors or criteria, if any, as the Committee may determine, the Committee may, at or after grant, accelerate the vesting of all or any part of any Performance Unit Award and/or waive the deferral limitations for all or any part of such Award.

(e)   Dividends and Other Distributions, At the time of any Award of Performance Units, the Committee may, in its sole discretion, award an Eligible Employee or Consultant the right to receive the cash value of any dividends and other distributions that would have been received as though the Eligible Employee or Consultant had held each share of Common Stock referenced by the earned Performance Unit Award from the last day of the first year of the Performance Cycle until the actual distribution to such Participant of the related share of Common Stock or cash value thereof. Such amounts, if awarded, shall be

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paid to the Participant as and when the shares of Common Stock or cash value thereof are distributed to such Participant and, at the discretion of the Committee, may be paid with interest from the first day of the second year of the Performance Cycle until such amounts and any earnings thereon are distributed. The applicable rate of interest shall be determined by the Committee in its sole discretion; provided, however, that for each fiscal year or part thereof, the applicable interest rate shall not begreater than a rate equal to the four-year U.S. Government Treasury rate on the first day of each applicable fiscal year.

ARTICLE XI

OTHER STOCK-BASED AWARDS

11.1   Other Awards. Other Stock-Based Awards may be granted either alone or in addition to or in tandem with Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or Performance Units.

Subject to the provisions of this Plan, the Committee shall have authority to determine the persons to whom and the time or times at which such Awards shall be made, the number of shares of Common Stock to be awarded pursuant to such Awards, and all other conditions of the Awards. The Committee may also provide for the grant of Common Stock under such Awards upon the completion of a specified performance period.

11.2   Terms and Conditions. Other Stock-Based Awards made pursuant to this Article XI shall be subject to the following terms and conditions:

(a)   Non-Transferability. Subject to the applicable provisions of the Award agreement and this Plan, shares of Common Stock subject to Awards made under this Article XI may not be Transferred prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses.

(b)   Dividends. Unless otherwise determined by the Committee at the time of Award, subject to the provisions of the Award agreement and this Plan, the recipient of an Award under this Article XI shall be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion.

(c)   Vesting. Any Award under this Article XI and any Common Stock covered by any such Award shall vest or be forfeited to the extent so provided in the Award agreement, as determined by the Committee, in its sole discretion.

(d)   Waiver of Limitation. The Committee may, in its sole discretion, waive in whole or in part any or all of the limitations imposed hereunder (if any) with respect to any or all of an Award under this Article XI.

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(e)   Price. Common Stock or Other Stock-Based Awards issued on a bonus basis under this Article XI may be issued for no cash consideration; Common Stock or Other Stock-Based Awards purchased pursuant to a purchase right awarded under this Article XI shall be priced as determined by the Committee. Subject to Section 4.3, the purchase price of shares of Common Stock or Other Stock-Based Awards may be zero and, to the extent not so permitted, such purchase price may not be less than par value. The purchase of shares of Common Stock or Other Stock-Based Awards may be made on either an after-tax or pre-tax basis, as determined by the Committee; provided, however, that if the purchase is made on a pre-tax basis, such purchase shall be made pursuant to a deferred compensation program established by the Committee, which will be deemed a part of this Plan.

ARTICLE XII

NON-TRANSFERABILITY AND TERMINATION OF

EMPLOYMENT/CONSULTANCY

12.1   Non-Transferability. No Stock Option, Stock Appreciation Right, Performance Unit, Performance Share or Other Stock-Based Award shall be Transferable by a Participant otherwise than by will or by the laws of descent and distribution. All Stock Options and all Stock Appreciation Rights shall be exercisable, during the Participant’s lifetime, only by the Participant. Tandem Stock Appreciation Rights shall be Transferable, to the extent permitted above, only with the underlying Stock Option. Shares of Restricted Stock under Article VIII may not be Transferred prior to the date on which shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses. No Award shall, except as otherwise specifically provided by law or herein, be Transferable in any manner, and any attempt to Transfer any such Award shall be void, and no such Award shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such Award, nor shall it be subject to attachment or legal process for or against such person. Notwithstanding the foregoing, the Committee may determine at the time of grant or thereafter, that a Non-Qualified Stock Option granted pursuant to Article VI(other than a Non-Qualified Stock Option granted to a Non-Employee Director) that is otherwise not transferable pursuant to this Article XII is transferable in whole or part and in such circumstances, and under such conditions, as specified by the Committee.

12.2   Termination of Employment or Termination of Consultancy. The following rules apply with respect to a Participant’s Termination of Employment or Termination of Consultancy unless otherwise determined by the Committee at grant or, so long as no rights of the Participant or Consultant are reduced, thereafter:

(a)   Rules Applicable to Stock Options and Stock Appreciation Rights.

(i)  Termination by Reason of Death. Disability or Retirement or Otherwise Other Than for Cause. If a Participant’s Termination of Employment or Termination of Consultancy is for any reason other than as described in section 12.2(a)(ii) below, all Stock Options and Stock Appreciation Rights held by such Participant may be exercised, to the

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extent exercisable at the Participant’s Termination of Employment or Termination of Consultancy, by the Participant (or, in the case of death, by the legal representative of the Participant’s estate) at any time within a ninety (90) day period from the date of such Termination of Employment or Termination of Consultancy, but in no event beyond the expiration of the stated respective terms of such Stock Options and Stock Appreciation Rights. Any Stock Options and Stock Appreciation Rights that are not exercisable as of the date of any Termination of Employment or Termination of Consultancy shall terminate and become null and void upon any such termination.

(ii)  Termination for Cause. If a Participant’s Termination of Employment or Termination of Consultancy (A) is for Cause or (B) is a voluntary termination at any time after an event which would be grounds for a Termination of Employment or Termination of Consultancy for Cause, all Stock Options and Stock Appreciation Rights held by such Participant shall thereupon terminate and expire as of the date of such Termination of Employment or Termination of Consultancy.

(b)   Rules Applicable to Restricted Stock, Performance Shares and Performance Units. Subject to the applicable provisions of the applicable Award Agreement and this Plan, upon a Participant’s Termination of Employment or Termination of Consultancy for any reason during a Restriction Period, Performance Period, Performance Cycle or other period of restriction as may be applicable for a given Award, all Restricted Stock Performance Shares and Performance Units still subject to restriction or which have not yet been earned will vest or be forfeited in accordance with the terms and conditions established by the Committee at the time of grant or thereafter.

(c)   Rules Applicable to Other Stock-Based Awards. Subject to the Award Agreement and this Plan, upon a Participant’s Termination of Employment or Termination of Consultancy for any reason during any period or restriction as may be applicable for a given Award, the Other Stock-Based Awards in question will vest or be forfeited in accordance with the terms and conditions established by the Committee at the time of grant or thereafter.

12.3   Termination of Directorship. Upon a Non-Employee Director’s Termination of Directorship for any reason, including, without limitation, resignation, failure to stand for reelection or failure to be reelected, all outstanding Stock Options exercisable and not exercised shall remain exercisable by the Participant or, in the case of death, by the Participant’s estate or by the person given authority to exercise such Stock Options by his or her will or by operation of law, at any time within a period of ninety (90) days from the date of such Termination of Directorship, but in no event beyond the expiration of the stated term of such Stock Option. Stock Options that were not exercisable as of the date of Termination of Directorship shall terminate and become null and void upon a Termination of Directorship.

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ARTICLE XIII

TERMINATION OR AMENDMENT OF PLAN

Notwithstanding any other provision of this Plan, the Board or the Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of this Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XV), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant and, provided further, the Board shall obtain shareholder approval for any amendment to the extent required by law.

The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV above or as otherwise specifically provided herein, no such amendment or other action by the Committee shall impair the rights of any holder without the holder’s consent.

ARTICLE XIV

UNFUNDED PLAN

14.1   Unfunded Status of Plan. This Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.

ARTICLE XV

GENERAL PROVISIONS

15.1   Legend. The Committee may require each person receiving shares pursuant to an Award under this Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by this Plan, the certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on Transfer including, without limitation, the restrictions under a Management Subscription Agreement and/or the Retained Share Agreement.

All certificates for shares of Common Stock delivered under this Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange

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upon which the Stock is then listed or any national securities association system upon whose system the Stock is then quoted, any applicable Federal or state securities law, any applicable corporate law, and the applicable Management Subscription Agreement and/or Retained Share Agreement and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

15.2   Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

15.3   No Right to Employment/Consultancy/Directorship. Neither this Plan nor the grant of any Award hereunder shall give any Participant or other employee or consultant any right with respect to continuance of employment, consultancy or directorship by the Company or any Affiliate, nor shall they be a limitation in any way on the right of the Company or any Affiliate to terminate any such employment, consultancy or directorship at any time.

15.4   Withholding of Taxes. The Company shall have the right to deduct from any payment to be made to a Participant, or to otherwise require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash hereunder, payment by the Participant of, any Federal, state or local taxes required by law to be withheld.

Any such withholding obligation with regard to any Participant may be satisfied, subject to the consent of the Committee, by reducing the number of shares of Common Stock otherwise deliverable or by delivering shares of Common Stock already owned. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant.

15.5   Listing and Other Conditions.

(a)   Notwithstanding anything in this Plan to the contrary, shares of Common Stock awarded under this Plan shall be subject to the terms of an applicable Management Subscription Agreement and/or Retained Share Agreement.

(b)   If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Award is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise with respect to shares of Common Stock or Awards, and the right to exercise any Stock Option shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company.

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(c)   Upon termination of any period of suspension under this Section 15.5, any Award affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Stock Option.

15.6   Governing Law. This Plan shall be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws).

15.7   Construction. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.

15.8   Other Benefits. No Award payment under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its subsidiaries nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.

15.9   Costs. The Company shall bear all expenses included in administering this Plan, including expenses of issuing Common Stock pursuant to any Awards hereunder.

15.10   No Right to Same Benefits. The provisions of Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years.

15.11   Death/Disability. The Committee may in its discretion require the transferee of a Participant to supply it with written notice of the Participant’s death or Disability and to supply it with a copy of the will (in the case of the Participant’s death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Award. The Committee may also require that the agreement of the transferee to be bound by all of the terms and conditions of this Plan.

15.12   Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included.

15.13   Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Plan, and shall not be employed in the construction of this Plan.

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ARTICLE XVI

EFFECTIVE DATE OF PLAN

The Plan shall become effective upon adoption by the Board, subject to the approval of this Plan by the stockholders of the Company in accordance with the requirements of the laws of the State of Delaware or such later date as provided in the adopting resolution.

ARTICLE XVII

TERM OF PLAN

No Award shall be granted pursuant to this Plan on or after the tenth anniversary of the earlier of the date this Plan is adopted or the date of stockholder approval, but Awards granted prior to such tenth anniversary may extend beyond that date.

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EX-10.49

Exhibit 10.49

ACTION BY UNANIMOUS WRITTEN CONSENT

OF THE

BOARD OF DIRECTORS OF
VERTIS HOLDINGS, INC.

WHEREAS, the undersigned, being all of the members of the Board of Directors (the “Board”) of Vertis Holdings, Inc., a Delaware corporation (the “Corporation”), hereby consent to the adoption of the following resolutions in lieu of a meeting of the Board, and approve and adopt such resolutions with the same force and effect as if they had been approved and adopted at a duly convened meeting of the Board of the Corporation and direct that this written consent of the Board (the “Consent”) be filed with the minutes of the proceedings of the Board:

RESOLVED, that effective as of June 30, 2000, the Big Flower Holdings, Inc. 1999 Equity Award Plan will be changed to be the “Vertis Holdings, Inc. 1999 Equity Award Plan” (the “Award Plan”); and further

RESOLVED, that all definitions, terms and conditions of the Award Plan shall continue in full force and effect, without change or revision; and further

RESOLVED, that this consent may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to constitute one and the same consent.

IN WITNESS WHEREOF, the undersigned, being all of the members of the Board of Directors, have hereunto executed this consent this 25th day of November, 2002.

/s/ Donald E. Roland

Donald E. Roland

/s/ Anthony J. DiNovi

Anthony J. DiNovi

/s/ Thomas H. Lee

Thomas H. Lee

/s/ Soren L. Oberg

Soren L. Oberg

/s/ Scott M. Sperling

Scott M. Sperling

/s/ Roger C. Altman

Roger C. Altman

/s/ Austin M. Beutner

Austin M. Beutner

EX-12.1

Exhibit 12.1

Vertis, Inc.

Computation of Ratio of Earnings to Fixed Charges and

Deficiency of Earnings Available to Cover Fixed Charges

(Dollars in thousands)

	Years Ended December 31,
	2005			2004			2003			2002			2001
Net Earnings	$	(173,230	)	$	(11,133	)	$	(95,925	)	$	(120,146	)	$	(54,863	)
Add:
Income tax (benefit) provision	(8,007		)	(65,934		)	48,554			(1,988		)	(23,552		)
Loss (gain) from discontinued operations, net	148,790			10,217			(1,287		)	15,565			(4,072		)
Cumulative effect of accounting change	1600									86,600
Amortization of previously capitalized interest	717			764			571			545			481
Fixed charges per (B) below	138,383			140,149			135,245			133,072			144,447
Deduct:
Interest capitalized during period	835			798			832			555			913
Earnings, as adjusted (A)	$	107,418		$	73,265		$	86,326		$	113,093		$	61,528
Fixed charges:
Portion of rents representative of an interest factor	$	8,726		$	8,805		$	9,369		$	9,923		$	11,095
Interest expense on all indebtedness, including amortization of debt expense	129,657			131,344			125,876			123,149			133,352
Fixed charges for computation purposes (B)	$	138,383		$	140,149		$	135,245		$	133,072		$	144,447
Ratio of earnings to fixed charges  (A) / (B)
Deficiency of earnings available to cover fixed charges	$	(30,965	)	$	(66,884	)	$	(48,919	)	$	(19,979	)	$	(82,919	)

EX-21.1

Exhibit 21.1

List of Subsidiaries of Vertis, Inc.

As of December 31, 2005

Vertis Receivables, LLC

Vertis Receivables II, LLC

Enteron Group, LLC

Laser Color Tech Mexico, S.A. de C.V.

Webcraft, LLC

Webcraft Chemicals, LLC

Vertis Digital Services Limited

Vertis Mailing, LLC

Vertis Fragrance SARL (France)

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Dean D. Durbin, certify that:

1. I have reviewed this annual report on Form 10-K of Vertis, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Omitted in accordance with the guidance of SEC Release No. 33-8238]

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ DEAN D. DURBIN

Name: Dean D. Durbin

Title: President and Chief Executive Officer

Date: March 27, 2006

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Stephen E. Tremblay, certify that:

1. I have reviewed this annual report on Form 10-K of Vertis, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Omitted in accordance with the guidance of SEC Release No. 33-8238]

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ STEPHEN E. TREMBLAY

Name: Stephen E. Tremblay

Title: President and Chief Financial Officer

Date: March 27, 2006

EX-32.1

Exhibit 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Vertis, Inc., a Delaware corporation (the “Company”), hereby certifies, to such officer’s knowledge, that:

The Annual Report on Form 10-K for the year ended December 31, 2005(the “Report”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  March 27, 2006	/s/ DEAN D. DURBIN
		Name:	Dean D. Durbin
		Title:	President and Chief Executive Officer

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

Exhibit 32.2

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Vertis, Inc., a Delaware corporation (the “Company”), hereby certifies, to such officer’s knowledge, that:

The Annual Report on Form 10-K for the year ended December 31, 2005(the “Report”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  March 27, 2006	/s/ STEPHEN E. TREMBLAY
		Name:	Stephen E. Tremblay
		Title:	Chief Financial Officer

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.