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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

VERTIS, INC.
(Exact name of registrant as specified in its charter)

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 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 ý    No o

        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. ý

        Indicate by check mark whether the registrant is an accelerated filer as defined in Exchange Act rule 12b-2. Yes o    No ý

        The number of shares outstanding of Registrant's common stock as of February 25, 2005 was 1,000 shares.

        Documents Incorporated By Reference: None

VERTIS, INC.

ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2004

TABLE OF CONTENTS

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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:

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general economic and business conditions in the United States, the United Kingdom and other countries;



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changes in the advertising, marketing and information services markets;



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the financial condition of our customers;



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



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our ability to execute key strategies;



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actions by our competitors;



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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 and foreign currency exchange 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 1    BUSINESS

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 2004 accounted for 32.0% of our net sales, and no customer accounted for more than 7.6% 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 17 years.

        Vertis, Inc. is a Delaware Corporation incorporated in 1993. In 2004, Vertis had approximately $1.6 billion of net sales and 8,000 employees worldwide. 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

        We operate through two business segments based on the way management views and manages the Company, which is based on our geographic presence in the advertising and marketing services industry. These business segments are Vertis North America and Vertis Europe. Vertis North America provides the full array of advertising, media and marketing solutions to clients, primarily in the United States. Vertis Europe provides both production and direct mail services to clients overseas, principally in the United Kingdom. Financial and other information relating to our business segments for each of 2004, 2003 and 2002 can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Note 18, "Segment Information", to our consolidated financial statements included in this Annual Report.

Vertis North America

        General.    Vertis North America provides the full array of targeted advertising, media, and marketing services. We enable advertisers to achieve targeted distribution to large and diverse audiences. These products and services are delivered by means of our nationwide network of digitally connected facilities. Our products and services include:

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Targetable advertising insert programs for retailers and manufacturers

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•

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



•

Consumer research



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Creative services including page layout and design



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Digital advertising workflow design and transmission



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Freight and logistics management



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Digital content management



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Graphic design and animation



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Digital photography, compositing and retouching



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In-store displays, billboards and building wraps



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Consulting services



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Highly customized one-to-one marketing programs



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Automated digital fulfillment services



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Direct mail production with varying levels of personalization



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Data design, collection and management to identify target audiences



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Mailing management services



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Effectiveness measurement



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Newspaper advertising development



•

Media planning and placement and software solutions



•

Response management, warehousing and fulfillment services



•

Interactive marketing



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Fragrance promotions



•

Games and other specialty printing

        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 2004, we produced more than 30 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 2004, we produced approximately 1.6 billion Sunday comics, and approximately 1.0 billion TV listing guides.

        We are also 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

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through on-demand workflow automation. In addition, we employ a broad range of technologies to assist clients with their advertising campaigns including digital media production and content management solutions to retailers, consumer and commercial products companies and advertising agencies. These 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 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.

        Sales and Customers.    Vertis North America employs approximately 140 sales representatives. In late 2004, our sales force was realigned into one, integrated group, reporting functionally to the Senior Vice President of Sales for Vertis North America, to maximize the development of business across all producing platforms. Three specialized sales teams focus on selling marketing solutions to financial services and insurance providers, automotive manufacturers/dealer networks, and non-profit organizations. The Strategic Account Planning group provides market research to assist our customers in effectively designing and implementing targeted advertising and marketing campaigns.

        Our customers include grocery stores, drug stores, other retailers, newspapers, consumer goods manufacturers, financial institutions, Internet advertisers, not-for-profit organizations, government agencies, advertising agencies, consumer packaging customers, and commercial products manufacturers. While a majority of our net sales are made directly to clients, we also sell our products and services through agencies and brokers. 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. Vertis North America's ten largest customers accounted for approximately 35.0% of our 2004 North American net sales, and no single customer represented more than 8.3% of total net sales of Vertis. We have established and maintained long-standing customer relationships with our major customers.

Vertis Europe

        General.    Vertis Europe offers our European customers many of the products and services we offer our North American customers. The products, services and technology offered in Europe include:

•

response fulfillment services



•

extensive inline printing and finishing



•

fully integrated direct marketing services



•

direct mail printing and fulfillment



•

laser imaging and lettershop capabilities



•

transactional printing



•

fragrance promotions



•

phone and loyalty card production



•

data processing



•

consulting

        We believe our European production facilities have unique production capabilities to meet demand for shorter run, highly personalized mailing and for transactional and billing communications.

        Sales and Customers.    Vertis Europe has 34 sales representatives devoted to this segment's specific products and services. Vertis Europe serves advertising agencies and corporate marketers. The main categories of direct marketing clients serviced are financial services, agency, publishing, mail order, non-profit and retail. Vertis Europe's ten largest customers accounted for approximately 35.2% of our 2004 European net sales.

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Raw Materials

        In 2004, we spent approximately $600 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 8 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. We believe this acquisition may provide additional growth opportunities in our direct mail platform, especially with financial services and insurance companies.

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 are R.R. Donnelley & Sons Company, Quebecor World Inc., American Color Graphics, Valassis Communications, Inc., Harte-Hankes, Inc., News America Marketing, ADVO, Inc., Acxiom Corporation, Experian, Applied Graphics Technologies, Inc., Schawk, Inc., and Southern Graphics, a division of Alcoa. In addition, we compete for advertising dollars with television, radio and other forms of print and electronic media. Vertis Europe's major competitors in premedia are Seven Worldwide, a division of Applied Graphics Technologies, Inc., and The Adplates Group. The U.K. direct mail market, while also fragmented, has certain key players, including Communisis, St. Ives, Polestar and Primecom, who collectively dominate the market.

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. Except as described herein, we are not aware of any pending legislation that in our view is likely to affect

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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. These laws and regulations impose significant capital and operating costs on our business and there are significant penalties for violations.

        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, 2004, we had approximately 8,000 employees. Most of the hourly employees at our North Brunswick and Newark, New Jersey facilities (approximately 168 employees) are represented by the Paper, Allied Industrial, Chemical and Energy Workers International Union. In addition, approximately 10 employees of our Chicago facilities are represented by the Graphic Communications International Union or the Chicago Typographical Union. We believe we have satisfactory employee and labor relations.

Certain Factors That May Affect Our Business

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, 2004, our total consolidated debt was $1,024.0 million, 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;

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•

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 substantial additional debt. In addition, as of December 31, 2004, our senior credit facility would permit us to borrow up to an additional $113.8 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:

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borrow money;



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pay dividends or make distributions;



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purchase or redeem stock;



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make investments and extend credit;



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engage in transactions with affiliates;



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engage in sale-leaseback transactions;



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consummate certain asset sales;



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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 9 "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".

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        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 and changes in product mix favoring simpler formats, both of which primarily affect the margin on our advertising insert and direct mail products. Simpler product formats generally result in increased competition, thereby increasing capacity for our products and services. The competitive pricing pressures and changes in product mix have resulted in a decline in our 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. In 2002, the advertising industry posted a relatively modest year-over-year growth in spending of approximately 2%, following a year-over-year decline in advertising spending in 2001, which was the first such decline since WWII. Although 2002 and 2003 represented a partial reversal of the decline in 2001, the rate of year-over-year growth was below historical growth rates dating back to 1990. 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. A substantial portion of our revenue is generated from customers in various sectors of the retail industry, which has been particularly impacted by the recent challenging economic environment. There can be 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

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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 marketing services, which represent over 17% of our consolidated revenues for the twelve months ended December 31, 2004, 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. Donald E. Roland and Mr. Dean D. Durbin. Both Mr. Roland and Mr. Durbin have significant years of service in the advertising and marketing industry, including time spent in senior-level positions at our current end-user customer groups. We believe each of Messrs. Roland and Durbin provides us with an in-depth understanding of the needs of our customers and are 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.

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:

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



•

mergers or other business combinations and opportunities involving us;



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further issuance of capital stock or other securities by us;



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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 may choose to take actions that are in its best interests as a debt holder, rather than a shareholder.

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ITEM 2    PROPERTIES

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, 2004, we owned 13 and leased 44 production facilities, 49 of which are located in the United States, with an aggregate area of approximately 3,800,000 square feet. The leased production facilities have lease terms expiring at various times from 2005 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:

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(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 2005 to 2008.

ITEM 3    LEGAL 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 4    SUBMISSION 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, 2004.

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PART II

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

        Not applicable.

ITEM 6    SELECTED 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, 2004, 2003, 2002, 2001 and 2000. The historical data for the three-year period ended December 31, 2004 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, 2001 has been derived from our audited consolidated financial statements not included herein.

        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 net (loss) income, 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, net (loss) income, is set forth in footnote (11) below.

        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

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related historical consolidated financial statements and related notes included elsewhere in this Annual Report.

(1)

Includes $6.9 million of restructuring expenses.

(2)

Includes $15.2 million of restructuring expenses.

(3)

Includes $19.1 million of restructuring expenses.

(4)

Includes $42.2 million of restructuring expenses.

(5)

Includes $21.4 million of restructuring and asset impairment charges.

(6)

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

(7)

Includes a $4.2 million loss on the sale of a subsidiary and a $1.8 million gain on investment sales.

14

(8)

Effective January 1, 2002, we adopted Statement of Financial Accounting Standard ("SFAS") No. 142 "Goodwill and Other Intangible Assets" ("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 performed by an independent third party 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 at Vertis North America and $21.8 million at Vertis Europe to reduce the carrying value of goodwill to its implied fair value. Impairment in both cases was due to a combination of factors including operating performance and acquisition price. In accordance with SFAS 142, the impairment charge was reflected as a cumulative effect of accounting change in the accompanying 2002 consolidated statements of operations.

(9)

In 1996, we entered into a six-year agreement to sell certain trade accounts receivable of certain subsidiaries. In December 2002, this agreement, as amended, expired and we entered into a new three-year agreement terminating in November 2005. 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, 2004, $122.5 million at December 31, 2003, $125.9 million at December 31, 2002, and $130.0 million as of December 31, 2001 and 2000. These amounts are reflected as reductions of Accounts receivable, net on our consolidated balance sheet included in this Annual Report.    See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Off-Balance Sheet Arrangements."

(10)

Includes $36.2 million for new presses to accommodate the marketing needs of new advertising insert customers, $6.2 million for one-time implementation expenditures for software systems and $10.2 million of expenditures to buy out operating leases.

(11)

A full quantitative reconciliation of EBITDA to its most directly comparable GAAP measure, net (loss) income, is provided as follows:

(12)

Earnings were inadequate to cover fixed charges by $76.4 million, $47.8 million, $14.3 million, $76.9 million and $33.7 million for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively. Net loss for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, includes $75.0 million, $83.6 million, $89.2 million, $104.4 million and $97.5 million, respectively, of non-cash depreciation and amortization expense.

15

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

        This section provides a review of the financial condition and results of operation of Vertis during the three years ended December 31, 2004. 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 business segments based on the way management views and manages the Company, which is based on our geographic presence in the advertising and marketing services industry. These business segments are Vertis North America and Vertis Europe. Vertis North America provides the full array of advertising, media and marketing solutions to clients, primarily in the United States. Vertis Europe provides both production and direct mail services to clients overseas, principally in the United Kingdom.

        In 2002, the advertising industry posted a relatively modest year-over-year growth in spending of approximately 2%, following a year-over-year decline in advertising spending in 2001, which was the first such decline since WWII. Although 2002 and 2003 represented a partial reversal of the decline in 2001, the rate of year-over-year growth was below historical growth rates dating back to 1990. 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. This improvement in year-over-year advertising spending in 2004 is reflected in the increase in volume for our inserts and direct mail platforms in 2004 as compared to 2003.

        Our operating results for 2004 were favorably impacted by increased volume for our direct mail and insert products and services in North America, albeit at lower pricing. Pricing includes the impact on revenue and earnings of product, customer, and equipment mix as well as competitive pricing pressures. Product mix includes format changes to simpler products in an effort by retailers and other customers to reduce costs. Additionally, over the three year period ended December 31, 2004, we believe that the introduction of new technologies, continued excess capacity in the 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 have resulted in margin pressures and increased competition in our core businesses. We expect these influences on our operating performance to continue until overall market conditions and capacity utilization stabilize. We expect some of the market conditions we experienced in the fourth quarter will linger into 2005. As such, we continue to lower our overall operating costs in spite of increases in energy costs, freight, repairs and maintenance and contract services. To address the issues facing our customers and the impacts on our operating performance, we consolidated the North America Sales team under the direction of a Senior Vice President of Sales for Vertis North America who joined the Company in the fourth quarter of 2004. We expect the new sales organization will improve our sales efficiency and deliver top-line growth.

16

        As a result of the above, our North America segment posted year-over-year growth, which was partially offset by a decline at Vertis Europe where excess capacity and lower spending by traditional direct mail users and other advertisers negatively impacted our performance.

        Through the first nine months of 2004, our net sales were $1,196.0 million, a $56.5 million or 5.0% increase over net sales of $1,139.5 million through September 30, 2003. Excluding the $44.0 million non-cash loss resulting from the termination of real estate leasehold interests in 2004, as discussed below, and the $10.1 million insurance proceeds in 2003, EBITDA through September 30, 2004 would have been $124.5 million, a $20.8 million or 20.1% over EBITDA of $103.7 million through September 30, 2003. The EBITDA growth through September 30 was due to improved performance in our North America segment, partially offset by a decline in our European segment. In the fourth quarter of 2004, net sales and EBITDA amounted to $449.1 million and $50.9 million, respectively, compared to $446.4 million and $58.9 million, respectively, in the fourth quarter of 2003. The decline in fourth quarter EBITDA of $8.0 million, or 13.6%, was due to continued weak demand in our European business, which negatively impacted EBITDA by $5.7 million, of which virtually the entire amount was experienced in the direct mail business. The balance of the quarter-over-quarter decline was the result of lower pricing, including product, customer, and equipment mix changes and, to a lesser extent, lower volume in our direct mail business partially offset by a modest increase in insert volume and lower costs, including lower restructuring costs.

        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 $108.1 million in restructuring charges since 1999.

        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.

        Liquidity continues to be a primary focus for the Company. The Company has approximately $113.8 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, 2004, 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 2005, including results from January, 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.

        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 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.

17

        Capital expenditures amounted to approximately $51.0 million, $44.1 million and $43.9 million in 2004, 2003 and 2002, 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 2005 to be relatively consistent with the 2004 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 2004 net sales, 23.6% were generated in the first quarter, 24.1% in the second, 25.0% in the third and 27.3% in the fourth. Profitability, however, continues to follow a more seasonal pattern due to the higher margins and efficiencies gained from running at full 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 and interest 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.

Restructuring

        In 2002, the Company planned and implemented two restructuring programs (the "2002 Programs"). In the first quarter of 2002, under the 2002 Programs, two Vertis Europe facilities were combined and ten employees were terminated resulting in severance of $0.7 million, facility closure costs of $1.6 million and losses on disposition of assets of $0.2 million. The North America portion of the 2002 Programs resulted in a reduction in work force of approximately 530 employees, which resulted in a severance charge of $8.0 million and the closure of five facilities, which resulted in a charge of $7.0 million including $4.9 million in losses on the disposition of assets at the closed facilities and an offsetting adjustment of $1.3 million to adjust the 2001 estimated restructuring accrual. Additionally, the Company recorded $1.6 million of other charges, which are primarily legal fees and the cost of leased equipment no longer needed due to the North America restructurings.

        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, 2003, 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 Vertis Europe portion of the 2003 Program was complete as of December 31, 2003. The Vertis North America 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 Vertis North America recorded, under the 2003 Program, $4.7 million in severance costs due to headcount reductions of 200 employees, $6.9 million in facility closure costs and $3.0 million in asset write-offs related to the closure of five facilities. Additionally, Vertis Europe recorded $0.6 million in severance costs in 2003, under the 2003 Program, due to headcount reductions of 14 employees related to the closure of one facility and the consolidation of several subsidiaries into one entity.

        Vertis Europe began a new restructuring program in the second quarter of 2004 (the "2004 Program") that included planned staffing reductions totaling approximately 184 employees. The 2004 Program was substantially complete as of December 31, 2004. Additionally, in 2004 the Company announced an amendment of an executive level employment agreement at the Vertis corporate office resulting in an estimated total cost of $1.2 million.

18

        In the twelve months ended December 31, 2004, under the 2003 Program, Vertis North America recorded $0.5 million in severance costs due to headcount reductions of approximately 50 employees, and $3.5 million in facility closure costs. In 2004, Vertis Europe recorded $2.3 million in severance costs under the 2004 Program associated with the termination of 184 employees and $0.1 million in facility closure costs associated with the 2002 Programs. Additionally, in the fourth quarter of 2004, $0.5 million of costs were recorded related to the amendment of an executive level employment agreement at the Vertis Corporate office. The remainder of the costs will be recorded in 2005.

        In connection with these actions, we recorded $6.9 million, $15.2 million, and $19.1 million of restructuring charges in the years ended December 31, 2004, 2003 and 2002, respectively. We expect to pay $4.1 million of the accrued restructuring costs in 2005 and the remainder, approximately $5.0 million, by 2011. For more information about our restructuring charges, see Note 2 of 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 to certain 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.

        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:

•

$44.0 million loss in September 2004 from the termination of our leasehold interest in real estate properties, as previously discussed



•

$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



•

$67.4 million tax valuation allowance recorded in 2003 on deferred tax assets, and



•

$108.4 million charge in 2002 for the cumulative affect of accounting change resulting from the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangibles".

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

19

Results of Operations

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

        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 net (loss) income, 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 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, net (loss) income, is provided as follows:

20

Results of Operations—2004 compared to 2003

Net Sales

        For the year ended December 31, 2004, our consolidated net sales increased $59.2 million, or 3.7%, from $1,585.9 million in 2003 to $1,645.1 million in 2004.

        At Vertis North America, net sales increased $57.8 million, or 4.0%, from $1,448.5 million for the year ended December 31, 2003 to $1,506.3 million for the year ended December 31, 2004. The increase in net sales of our North America segment was due to a number of factors, as follows.

•

$58.7 million primarily due to an increase in the pass-through cost of paper.



•

Volume improvements in our insert and direct mail platforms, aggregated $24.8 million.



•

Lower pricing, which includes product, customer, and equipment mix changes aggregated $19.9 million. Generally, competitive price pressures exist in periods when our customers reduce spending, and change product types to reduce their overall cost of advertising, which will have a downward impact on our net sales. Product mix changes also reflect shifts by our customers from more complex direct mail products, such as highly personalized pieces and pieces that require complex configurations, to less complex products, which lower our customers' advertising costs and, consequentially, our net sales. In the direct mail business, the increased use of simpler products by our customers has also resulted in increased competition.



•

Declines in our premedia platform totaled $11.1 million due to advertisers performing more work in-house and by increased competition in the industry due to advances in technology leading to more entries into the premedia market.



•

$5.4 million resulting from our TNN business unit, which was acquired in June 2003.

        At Vertis Europe, net sales for the year ended December 31, 2004, were $138.7 million, an increase of $1.3 million, or 0.9%, compared to 2003 net sales, which totaled $137.4 million. Excluding the impact of the foreign exchange rate fluctuation, aggregating $14.9 million, Vertis Europe's net sales were down $13.6 million. Approximately 63% of the decline was the result of competitive pressure and lower volume for premedia products and services, with the balance due to a decline in our European direct mail business.

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

Operating Expenses (Income)

        For the year ended December 31, 2004, our consolidated costs of production increased $55.6 million, or 4.5%, from $1,226.4 million in 2003 to $1,282.0 million in 2004. The increase in paper and ink consumed represents $53.0 million, or 95% of the increase in costs of production for the year ended December 31, 2004. The remainder of the increase in costs of production reflects increases in energy costs, freight, repairs and maintenance and contract services offset by 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 $6.9 million. The comparable 2003 period included restructuring charges of $15.2 million. The Vertis North America restructuring charges in 2004 are comprised of $0.5 million in severance costs due to headcount reductions of approximately 50 employees, and $3.5 million in facility closure costs. In 2004, Vertis Europe recorded $2.3 million in severance costs due to headcount reductions of approximately 184 employees and $0.1 million in facility closure costs associated with the restructuring program implemented in 2002. Additionally, in the fourth quarter of 2004, $0.5 million of costs were recorded related to an amendment of an executive level employment agreement at the Vertis Corporate office.

21

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 write-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 9³/4% 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 9 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 "Executive Summary" section above, and the $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 16 to our consolidated financial statements included in this Annual Report.

Net Loss

        Net loss for the year ended December 31, 2004 was $11.1 million, a decrease of $84.8 million, or 88.4%, compared to a net loss of $95.9 million for the year ended December 31, 2003. During 2004, we recorded a tax benefit of $65.2 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 before income taxes increased from the comparable prior year period by $28.9 million. This increase is a result of the aforementioned 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, net (loss) income, 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 Vertis North America, EBITDA amounted to $188.8 million for the year ended December 31, 2004, an increase of $24.5 million, or 14.9%, compared to $164.3 million in the comparable 2003 period. The increase reflects the increase in direct mail and insert volume of $15.4 million, partially offset by the decline in pricing, including the impact of product, customer, and equipment mix changes, aggregating $6.9 million. The changes in net sales in our premedia products and services resulted in a decline in EBITDA of $2.7 million. EBITDA growth includes lower operating and restructuring costs of $8.0 million and $10.4 million, respectively.

        At Vertis Europe, an EBITDA loss of $2.0 million for the year ended December 31, 2004, represents a decline in EBITDA of $10.5 million as compared to EBITDA of $8.5 million in the comparable prior year. The decline was the result of lower net sales and an increase in restructuring costs of $1.8 million.

22

Results of Operations—2003 compared to 2002

Net Sales

        For the year ended December 31, 2003, our consolidated net sales declined $89.3 million, or 5.3%, from $1,675.2 million in 2002 to $1,585.9 million in 2003.

        At Vertis North America, net sales declined $88.0 million, or 5.7%, from $1,536.5 million for the year ended December 31, 2002 to $1,448.5 million for the year ended December 31, 2003. The decline in net sales was the result of:

•

A decline in net sales to advertising agency customers of $29.6 million reflecting the weak advertising environment as well as advertising agencies increasingly producing the products and services in-house. We do not expect this trend in our business with advertising agencies to rebound, however, we do anticipate a minimal decline in 2004 if not a leveling off of this portion of our business.



•

A decline in the pass-through cost of paper amounting to $5.5 million.



•

Volume declines for our insert and direct mail platforms, aggregated $21.3 million.



•

A decline in pricing which includes product, customer and equipment mix change for insert and direct mail products of $35.0 million. This decline was the result of competitive pricing pressure, changes in product mix toward simpler formats and declines in other pass-through costs such as ink and contract services.



•

The above declines were partially offset by increases in net sales of $3.4 million arising from our advertising production capabilities and other items.

        At Vertis Europe, net sales for the year ended December 31, 2003, were $137.4 million, a decline of $1.5 million, or 1.1%, compared to 2002 net sales, which totaled $138.9 million. Excluding the positive impact of the foreign exchange rate fluctuation, aggregating $10.9 million, Vertis Europe's net sales were down $12.4 million due to a 12.7% decline in sales from direct mail products and services for the year ended December 31, 2003, which was only partially offset by modest growth in net sales arising from our advertising production capabilities for the same period. The decline in net sales from direct mail products and services reflects subdued business conditions due to industry-wide excess capacity and changes to simpler product formats, both resulting in lower prices.

Operating Expenses (Income)

        For the year ended December 31, 2003, our consolidated costs of production decreased $29.9 million, or 2.4%, from $1,256.3 million in 2002 to $1,226.4 million in 2003. The cost of paper and ink consumed represents $13.7 million and $3.5 million, respectively, of the decline in costs of production for the year ended December 31, 2003. The balance of the decline in costs of production reflects the decline commensurate with the noted declines in net sales, cost management of variable and fixed costs and the ongoing efforts to improve operating efficiencies.

        Selling, general and administrative expenses decreased $9.8 million, or 5.2%, from $187.1 million in 2002 to $177.3 million in 2003. The decline was largely the result of lower staffing-related costs and includes the benefits of the Company's restructuring activities. Selling, general and administrative expenses were 11.2% of net sales in both 2003 and 2002.

        Restructuring charges for the year ended December 31, 2003 totaled $15.2 million. The comparable 2002 period included restructuring charges of $19.1 million. The Vertis North America restructuring charges in 2003 are comprised of $4.7 million in severance costs due to headcount reductions of 200 employees, $6.9 million in facility closure costs and $3.0 million in asset write-offs related to the closure of five facilities. In 2003, Vertis Europe recorded $0.6 million in severance costs due to headcount reductions of 14 employees related to the closure of one facility and the consolidation of several subsidiaries into one entity.

23

        Operating income amounted to $83.3 million for the year ended December 31, 2003, a decline of $40.2 million, or 32.6% compared to operating income of $123.5 million in the comparable 2002 period. The reduction in operating income is attributable to the noted declines in net sales, partially offset by reductions in costs of production, selling, general and administrative costs and restructuring costs as previously discussed. As a percentage of net sales, operating income decreased 2.1 percentage points to 5.3% for the year ended December 31, 2003 as compared to 7.4% in 2002.

Other Expenses (Income)

        Interest expense, net increased $2.2 million in the year ended December 31, 2003 as compared to 2002, due to the interest associated with the issuance of the 9³/4% notes in June 2003 and the issuance of the 10⁷/8% notes in June and November 2002, offset by the decrease in interest expense due to the payments on the revolver and term loans related to those issuances.

        The year-over-year increase in other, net of $9.1 million is primarily due to a $10.1 million recovery in 2003 from a settlement to the legal proceeding arising from a life insurance policy which covered the former Chairman of Vertis Holdings, Inc., offset by a $1.1 million adjustment to record the changes in the interest rate swap agreement (see Note 9 to our consolidated financial statements included in this Annual Report.

Net Loss

        Net loss for the year ended December 31, 2003 was $95.9 million, a decrease of $24.2, or 20.1%, compared to a net loss of $120.1 million for the year ended December 31, 2002. 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). Included in the 2002 net loss is a $108.4 million charge for the cumulative effect of accounting change resulting from our adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangibles" (see "New Accounting Pronouncements" below). Loss before income tax expense and cumulative effect of accounting change for the year ended December 31, 2003 increased from the comparable prior year period by $33.2 million. This increase is a result of the aforementioned 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, net (loss) income, 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 Vertis North America, EBITDA amounted to $164.3 million for the year ended December 31, 2003, an increase of $45.0 million, or 37.7%, compared to $119.3 million in the comparable 2002 period. The increase in 2003 was largely due to the $86.6 million impairment loss recorded in January 2002 to reduce the carrying value of Vertis North America goodwill in accordance with SFAS 142 (see "—New Accounting Pronouncements" below). Excluding the impact of this adjustment, EBITDA in North America would be down $41.6 million, or 20.2%, as compared to 2002. The decline was largely a result of competitive pricing pressures including changes in product mix toward simpler formats, and to a lesser extent reductions in volume, amounting to $27.4 million and $9.2 million, respectively.

        At Vertis Europe, EBITDA of $8.5 million for the year ended December 31, 2003, represents an increase of $17.1 million as compared to an EBITDA loss of $8.6 million in the comparable prior year. The majority of the increase in 2003, $21.8 million, reflects the impairment loss recorded in

24

January 2002 to reduce the carrying value of the Vertis Europe goodwill in accordance with SFAS 142 (see" -New Accounting Pronouncements" below). Excluding the impact of this adjustment, EBITDA in Europe would be down $4.7 million, or 35.6%, as compared to 2002 due to the poor direct mail conditions. In addition, costs were higher in 2003, largely due to increased selling costs to develop and expand our product offering in response to the sluggish direct mail market, offset by the $1.5 million positive impact of the change in foreign currency exchange rates.

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, 2004, we had approximately $113.8 million available to borrow under our revolving credit facility. 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 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.

        During 2002, Vertis received payments from a customer under an order of the bankruptcy court classified as critical vendor payments (the "Payments"). These Payments totaled approximately $7 million. On February 24, 2004, the United States Court of Appeals for the Seventh Circuit affirmed a lower court ruling reversing the order authorizing these Payments. The Seventh Circuit did not; however, issue an order for the repayment of these Payments. Rather, and more narrowly, the decision of the Seventh Circuit affirmed the lower court ruling that a proper factual record proving the need for the Payments had not been established, which may or may not provide a basis for the customer to recover any, some or all of the Payments. Additionally, the Company believes it has legitimate counterclaims and rights of set-off and currently intends to vigorously resist any such recovery proceedings. However, because of the uncertainties explained above management is unable to determine at this stage of the litigation the size of any such repayments, if any, or when they would be required to be made.

        We are currently under examination by the Internal Revenue Service in the United States. We believe we have adequate provisions for all open years.

        Items that could impact our liquidity are described below.

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Contractual Obligations

        The following table discloses aggregate information about our contractual obligations as of December 31, 2004 and the periods in which payments are due:

(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 9 to the consolidated financial statements included in this Annual Report. The balance of the revolving credit facility at December 31, 2004 was $48.8 million and the weighted-average interest rate was 7.56%.

        The Company has contracts covering the purchases of paper, ink and press supplies, i.e. plates, blankets solutions. These contracts, which range from 1 to 8 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 multicurrency revolving credit facility of up to $200 million that provides for issuances of up to $45 million in letters of credit and borrowings of up to $150 million in alternate currencies. The Credit Facility matures December 22, 2008 with no repayment of principal until maturity. 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 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.

        In June 2003, we issued $350.0 million of senior secured second lien notes with an interest rate of 9³/4% (the "9³/4% notes") and maturity date of April 1, 2009. After deducting the initial purchasers discount and transaction expenses, the net proceeds received by us from the sale of these notes were $330.3 million. We used these net proceeds to pay off $267.9 million remaining on the term loans outstanding under our senior credit facility and $62.4 million of our revolving credit facility.

        Our Credit Facility, the 9³/4% notes, the outstanding 10⁷/8% notes due June 15, 2009, and the outstanding 13¹/2% senior subordinated notes due December 7, 2009 all contain customary high-yield debt covenants imposing limitations on the payment of dividends or other distributions on or in respect of us or the capital stock of our restricted subsidiaries. Substantially all of our assets are pledged as collateral for the outstanding debt under our senior 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 the Company to maintain EBITDA of $160 million. The EBITDA amount used in this covenant calculation is not equivalent to the amount included in this Annual Report on Form 10-K, but rather is net of adjustments to exclude certain items as defined in the credit agreement.

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For the year ended December 31, 2004, our EBITDA as calculated under the credit agreement is $186.0 million. If we are unable to maintain this minimum EBITDA amount, the bank lenders could require us to repay any amounts owing under the Credit Facility. At December 31, 2004, we were in compliance with its debt covenants.

        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 2005, including actual results for January, we believe we will be in compliance in the upcoming year. For further information on our long-term debt, see Note 9 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, expiring in November 2005, to sell substantially all trade accounts receivable generated by our subsidiaries in the U.S. (the "A/R Facility") through the issuance of $130.0 million variable rate trade receivable backed notes. This agreement replaced a similar previous agreement that expired in December 2002, whereby the proceeds from the A/R Facility were used to retire the certificates issued under the previous agreement.

        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. Under the A/R Facility, we sell our 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 $3.2 million in both 2004 and 2003. These proceeds are fully offset by servicing costs.

        At December 31, 2004 and 2003, accounts receivable of $130.0 million and $122.5 million, respectively, had been sold under the facilities and, as such, are reflected as reductions of accounts receivable. At December 31, 2004 and 2003, we retained an interest in the pool of receivables in the form of overcollateralization and cash reserve accounts of $58.0 million and $53.2 million, respectively, which is included in Accounts receivable, net on the balance sheet at allocated cost, which approximates fair value. The proceeds from collections reinvested in securitizations amounted to $1,558.4 million and $1,476.5 million in 2004 and 2003, respectively.

        Fees for the program under the A/R Facility vary based on the amount of interests sold and the London Inter Bank Offered Rate ("LIBOR") plus an average margin of 90 basis points. The loss on sale, which approximated fees, totaled $3.1 million in 2004, $2.6 million in 2003 and $2.8 million in 2002, 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 $72.7 million at December 31, 2004 and by $60.6 million at December 31, 2003. This represents a decrease in working capital of $12.1 million for the year ended December 31, 2004. 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 those 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 and $122.5 million sold under the A/R Facility as of December 31, 2004 and 2003, respectively, and reflect the offsetting increase in long-term debt as if the A/R Facility were not in place, our working capital at December 31, 2004 and December 31, 2003 would have been $57.3 million and $61.9 million, respectively. The ratio of current assets to current liabilities as of December 31, 2004 was 0.78 to 1 (1.17 to 1, excluding the

27

impact of the A/R Facility) compared to 0.81 to 1 as of December 31, 2003 (1.19 to 1, excluding the impact of the A/R Facility).

        The decrease in working capital 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 operating activities in 2004 decreased by $41.5 million from the 2003 level. Adjusted for the increase (decrease) in outstanding checks drawn on controlled disbursement accounts, which are classified as a financing activity, net cash provided by operating activities decreased $38.4 million in 2004. This is principally the result of a use of cash in accounts payable of $19.7 million versus a source of cash of $11.8 million in 2003.

        Net cash provided by operating activities in 2003 decreased by $7.7 million from the 2002 level. Adjusted for the increase (decrease) in outstanding checks drawn on controlled disbursement accounts, which are classified as a financing activity, net cash provided by operating activities decreased $5.1 million in 2003. This is a result of improved results of operations offset by the timing of payments and collection of receivables.

Cash Flows from Investing Activities

        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 $6.9 million increase in capital expenditures in 2004 and a $2.4 million decrease in proceeds from the sale of property, plant and equipment.

        Net cash used for investing activities in 2003 remained relatively consistent when compared with 2002. Capital expenditures increased a modest $0.3 million, offset by an increase in proceeds from sale of property, plant and equipment of $0.9 million.

Cash Flows from Financing Activities

        In December 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. In connection with the transaction, we wrote-off $1.8 million in unamortized deferred financing fees associated with the Prior Credit Facility. Net cash used in financing activities decreased in 2004 by $23.6 million as compared to 2003, which included the debt transactions as discussed below.

        In 2003, we issued $350 million of senior secured second lien notes, which after deducting the initial purchasers discount and transaction expenses, netted proceeds of approximately $330.3 million. In 2002, we issued $350 million of senior unsecured notes, which netted proceeds of approximately $338.0 million after deducting the debt discount and fees. The proceeds from both issuances were used to repay existing debt. These two transactions, which are the primary financing activities in each respective period, are the primary reasons for the decline in cash used in financing activities from $68.4 million in 2002 to $53.2 million in 2003.

Other Factors

        During 2004, we recorded a tax benefit of $65.2 million of which $66.7 million was the result of the termination of the Company's leasehold interest in the real estate properties as mentioned above. The activities undertaken in 2004, including this transaction, reduced our federal net operating loss carryforwards by $117.6 million from $277.3 million to $159.7 million. The remaining carryforwards expire beginning in 2007 through 2025.

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        Our valuation allowance was also reduced as a part of the transaction discussed above. The valuation allowance, which was $74.4 million at the beginning of 2004, was reduced by $33.9 million to $40.5 million at the end of 2004. The valuation allowance reserves the portion of the net operating losses and tax credit carryforwards that will not be offset by reversing taxable temporary differences. These carryforwards may still be used to offset taxable income in future years, thereby lowering our cash tax obligations. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

New Accounting Pronouncements

        In November 2004, the FASB issued SFAS No.151, "Inventory Costs—an amendment of ARB No. 43, Chapter 4". SFAS No. 151 amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, "Inventory Pricing," to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this Statement is not expected to have a material impact on our consolidated financial position or results of operations.

        In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29". The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this Statement shall be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date this Statement is issued. The provisions of this Statement shall be applied prospectively. The adoption of this Statement is not expected to have a material impact on our consolidated financial position or results of operations.

        In December 2004, the FASB issued SFAS No. 123 (revised), "Share-Based Payments" ("SFAS 123R") which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123R 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 third quarter of 2005. We are currently evaluating the provisions of this Statement and have not yet determined the impact that this Statement will have on our results of operations or financial position.

Application of Critical Accounting Policies

        Our significant accounting policies are described in Note 3 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

29

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. 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.

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, 2004.

Long-lived Assets

        We evaluate the recoverability of our long-lived assets, including property, plant and equipment and intangible assets, periodically or 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 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.

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        We determined the discount rate using a measurement date of December 31, 2004. The weighted average discount rate assumed in 2004 was 5.75%. 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%-10.2% 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 both the US Prime rate and the Britain Prime rate. Generally, our exposure to foreign currency exchange rate fluctuations is immaterial as foreign operations are a small proportion of the total company and foreign currency borrowings act as a natural hedge against fluctuations in net asset values.

        The objective of our risk management program is to seek a reduction in the potential negative earnings effects from changes in interest and foreign exchange 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. Except for those used to meet hedging requirements in our credit facility, we generally do not use derivative financial instruments in our risk management program. This practice may change in the future as market conditions change. We do not use any derivatives for trading purposes.

Quantitative Information

        At December 31, 2004, 15.4% 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, 2004 by approximately $1.2 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, 2004 and does not provide for changes in borrowings that may occur in the future.

ITEM 8    FINANCIAL 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.

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

        None.

ITEM 9A    CONTROLS 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 Rule 15d-14(c) 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, 2004. No changes were

31

made in our internal controls or in other factors during the fourth quarter of 2004 that could significantly affect these controls.

ITEM 9B    OTHER INFORMATION

        None.

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PART III

ITEM 10    DIRECTORS AND EXECUTIVE OFFICERS OF VERTIS

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

        Donald E. Roland has been Chief Executive Officer of Vertis and a Director of Vertis since June 2000 and has been Chairman since April 2, 2001. Prior to June 2000, Mr. Roland was the President since October 1994 and, in addition since June 1995, Chief Executive Officer of TC Advertising. Mr. Roland joined Treasure Chest Advertising Company, Inc. ("TC Advertising"), one of our former operating units, 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 Education, Center for Graphic Communications & Technology at New York University.

        Dean D. Durbin was named President of Vertis in November of 2004 and has been Chief Financial Officer of Vertis since March 2000. Mr. Durbin has also been Senior Vice President and Chief Financial Officer of TC Advertising 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, beginning as Accounting Supervisor in 1974 and completing his tenure at McGraw-Hill as Vice President and Group Controller, Construction Information Group. He is on the Board of Directors of the Baltimore Museum of Industry.

        Herbert W. Moloney III was named Chief Operating Officer—Vertis North America in June 2000. Formerly, Mr. Moloney was Executive Vice President, Marketing and Sales of TC Advertising. Prior to joining TC Advertising in 1994, he held numerous positions from 1973 to 1994 with Knight Ridder, Inc., including Senior Vice President of Advertising for The Philadelphia Inquirer / Daily News, Sales Manager for WPRI-TV in Providence, Rhode Island and Retail Advertising Manager for The Miami Herald. Mr. Moloney is also on the Board of Directors of Lee Enterprises Incorporated. On November 6, 2004, the Company modified Mr. Moloney's employment agreement to provide that Mr. Moloney's employment with Vertis will terminate on March 31, 2005. See "Moloney Employment Agreement" below for further discussion.

        David P. Colatriano was named Group President of Vertis North America East in 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 Operations and

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

        Thomas R. Zimmer was named Group President of Vertis North America West in September 2003. From June 2000 to September 2003, Mr. Zimmer served as Group President of the western region of the former Retail and Newspaper Services segment of Vertis. Prior to June 2000, he was Senior Vice President and General Manager of TC Advertising, where he was employed since 1970.

        Adriaan Roosen has been Managing Director—Vertis Europe in London since November 2000. Prior to joining Vertis, Mr. Roosen served as a Senior Vice President and Managing Director Europe at Modus Media International, Inc., providing fulfillment and supply chain management solutions to computer hardware and software companies. From 1995 through 1999, Mr. Roosen was the Director of European Operations at Denver-based Quark, Inc. Prior to that, he was the Managing Director of R.R. Donnelley Netherlands, BV and held a number of sales and marketing positions at the Netherlands Foreign Investment Agency while based in New York and San Francisco. Mr. Roosen is a Dutch national and a lawyer by training.

        John V. Howard, Jr. was named Chief Legal Officer and Secretary in February 2005. In July 2000, Mr. Howard was named Senior Vice President—General Counsel and Secretary 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.

        Catherine S. Leggett was named Senior Vice President—Human Resources of Vertis in June 2000. She joined TC Advertising as Senior Vice President—Human Resources in April 2000. Prior to joining us, Ms. Leggett was Senior Vice President of Human Resources at PG&E Generating Company, a subsidiary of Pacific Gas & Electric, Vice President of Human Resources for Federal Home Loan Mortgage Corporation in McLean, Virginia, and Senior Vice President of Human Resources for Hechinger Company in Landover, Maryland. She is a professor at the Johns Hopkins University Graduate School and is a member of the Bars for the District of Columbia and Iowa, as well as the U.S. District Court for the District of Columbia.

        Joe M. Scott was named Senior Vice President- Sales, North America at Vertis on November 1, 2004. Mr. Scott was previously employed by the IBM Corporation in positions as Director of Sales, Industrial Section, IBM Global Services; and Director, Global Strategic Outsourcing Sales Competency for fifteen years. Mr. Scott has served in the Vice President of Sales capacity at Mellon Bank NA and Genix Corporation. He has served as National Sales Director at Litton Computer Services and in senior sales positions at EDS, McDonnell Douglas Automation Company and Martin Marietta Data Systems.

        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.

        Austin M. Beutner has been a director of Vertis since May 2001 and Vertis Holdings since December 1999. Mr. Beutner is President of Evercore, which he co-founded in 1996, Chairman of Evercore Capital Partners and Chairman and CEO of Evercore Ventures. Mr. Beutner serves on the Board of Directors of American Media, Inc. and Continental Energy Services, Inc. He also serves as a Trustee of the California Institute of the Arts and is a member of the Council on Foreign Relations.

        Ciara A. Burnham has been a director of Vertis since April 2004. Ms. Burnham is Senior Managing Director of Evercore Group Holdings, an affiliate or Evercore Partners, Ltd., which she originally joined in 1997 and rejoined in 2003. Prior to joining Evercore, Ms. Burnham was a founding partner of Five Mile Capital Partners and an equity analyst with Sanford C. Bernstein & Co., Inc. Ms. Burnham spent six years in

34

consulting, most recently as an engagement manager at McKinsey & Co., Inc. Ms. Burnham serves on the Board of Directors of Specialty Products & Insulation Co.

        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., National Waterworks, Inc., US LEC Corporation, Nortek, Inc. 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., Miller Import Corporation, Warner Music Group, New Refco Group Ltd., LLC and Wyndham International, Inc. 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., National Waterworks, Inc. and several other private companies.

        Michael S. Rawlings has been a director of Vertis 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 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.

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ITEM 11    EXECUTIVE COMPENSATION

        The following table sets forth the compensation paid in respect of the years ended December 31, 2004, 2003 and 2002 to Donald E. Roland, Chairman, President and Chief Executive Officer of Vertis, and to each of the five other most highly paid executive officers of Vertis (collectively, the "Named Executive Officers").

Summary Compensation Table

(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. See "Employment Arrangements with Executive Officers" for further discussion. In total, there were 201,239 restricted shares issued in 2004 with an aggregate value of $4.1 million. Restricted stock awards are valued using an estimate of $20.48 which is based on a range of values determined by an independent valuation.

(2)

Nil cost options were granted in July 2004 pursuant to an offer made to eligible employees to exchange outstanding eligible stock options for nil cost options on a 4 for 1 basis. See "Employment Arrangements with Executive Officers" for further discussion.

(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 2003 or 2004.

(4)

Represents an auto allowance.

(5)

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

(6)

In connection with the Management Loans, hereinafter defined (see "Item 13—Certain Relationships and Related Transactions"), interest of $66,785 and $36,103 was forgiven for Messrs. Durbin and Roosen, respectively.

(7)

Mr. Roosen received additional healthcare coverage and an accommodation allowance in connection with his expatriate assignment.

(8)

Represents amounts contributed by Vertis to a pension plan on behalf of Adriaan Roosen.

Option Values at End of Fiscal 2004

        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. Additionally, on June 14, 2004, the Company extended an offer to all eligible U.K.-

36

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, 2004. 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. Roland, Durbin, Moloney and Zimmer upon their retirement under Vertis Holdings and Subsidiaries Supplemental Executive Retirement Plan (the "SERP").

Pension Plan Table

        The compensation covered by the SERP includes each of the participants entire annual base salary. Messrs. Roland, Durbin, Moloney, and Zimmer currently have 21, 7, 10, and 35 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.

Compensation of Directors

        Donald E. Roland, the only director of Vertis who is also an executive officer of Vertis, does not receive any additional compensation for service as a member of the Board of Directors of Vertis (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 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 $414,000, $586,000 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.

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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. 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 2004, 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 the Company.

        Durbin Employment Agreement.    The Company has entered into an employment agreement with Dean D. Durbin, effective August 30, 2003 (the "Durbin Agreement"), pursuant to which Mr. Durbin currently serves as President and Chief Financial Officer. 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 2004, Mr. Durbin received a base salary of $421,587. The Durbin Agreement also provides that Mr. Durbin 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. 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 the Company.

        Moloney Employment Agreement.    The Company has entered into an employment agreement with Herbert W. Moloney III, effective August 30, 2003 (the "Moloney Agreement"), pursuant to which Mr. Moloney currently serves as Chief Operating Officer of Vertis North America. The Moloney Agreement may be terminated by either Mr. Moloney or the Company at any time for any reason. Under the Moloney Agreement, Mr. Moloney receives an annual base salary, as adjusted by the board of directors, and various employment benefits. In 2004, Mr. Moloney received a base salary of $480,180. The Company has entered into a Restricted Stock Agreement with Mr. Moloney, effective May 20, 2004, pursuant to which Mr. Moloney exchanged certain options to purchase shares of the common stock of the Company for 19,896 restricted shares of common stock of the Company.

        On November 6, 2004, the Company modified the Moloney Agreement to provide that Mr. Moloney's employment will terminate on March 31, 2005 and that he will receive compensation as set forth in the Moloney Agreement as if his leaving was a termination without cause. Also on November 6, 2004, in a separate amendment, the Company amended the Moloney Agreement to provide that Mr. Moloney 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 ("Moloney Special Bonus"). The Moloney Special Bonus shall not be includable in any change of control or other severance calculations within the Moloney Agreement.

        Roosen Employment Agreement.    Vertis Digital Services Limited (formerly Big Flower Digital Services Limited), a United Kingdom company and the subsidiary of the Company ("VDSL"), has entered into an executive service agreement with Adriaan Roosen, effective August 30, 2003 (as amended to date, the "Roosen Agreement"), pursuant to which Mr. Roosen currently serves as the Managing Director of Vertis Europe and the director of VDSL. The Roosen Agreement may be terminated by either Mr. Roosen or VDSL with not less than 18 months prior written notice, or as otherwise provided in the Roosen Agreement.

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VDSL, however, may at its sole and absolute discretion terminate the Roosen Agreement at any time and with immediate effect by making Mr. Roosen a payment in lieu of the required 18-month notice period (or, the remainder of such notice period) equal to Mr. Roosen's salary as of the date of termination and the cost to VDSL of providing Mr. Roosen with the contractual benefits for the applicable notice period.

        After the termination of his service at VDSL and the Company, Mr. Roosen will be subject to certain "garden leave" restrictions as provided in the Roosen Agreement. Under the Roosen Agreement, Mr. Roosen receives an annual base salary, as adjusted by the board of directors, and various employment benefits. In 2004, Mr. Roosen received a base salary of $339,063, as well as certain expatriate benefits including car allowance. The Roosen Agreement also provides that Mr. Roosen is eligible to participate in the EIP. The Company has entered into a Nil Cost Option Agreement with Mr. Roosen, effective July 27, 2004, pursuant to which Mr. Roosen received 5,497 nil cost options to purchase shares of the common stock of the Company.

        Zimmer Employment Agreement.    The Company has entered into an employment agreement with Thomas R. Zimmer, effective August 17, 2003 (the "Zimmer Agreement"), pursuant to which Mr. Zimmer currently serves as Group President—Vertis North America West. The Zimmer Agreement may be terminated by either Mr. Zimmer or the Company at any time for any reason. Under the Zimmer Agreement, Mr. Zimmer receives a base salary, as adjusted by the board of directors, and various employment benefits. In 2004, Mr. Zimmer received a base salary of $390,500. The Zimmer Agreement also provides that Mr. Zimmer receive an annual bonus targeted at not less than 60% of base salary (assuming bonus targets under the Company's 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. Zimmer, effective May 20, 2004, pursuant to which Mr. Zimmer exchanged certain options to purchase shares of the common stock of the Company for 7,337 restricted shares of common stock of the Company.

        Severance Arrangements with Certain Executive Officers.    The employment agreements of Donald E. Roland, Dean D. Durbin, Herbert W. Moloney III and Adriaan Roosen, 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 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 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 more limited 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 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");

39

•

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 earned annual base salary and earned annual bonus for completed fiscal years; 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. Roland, Durbin and Moloney, 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. Roosen, 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 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.

        On November 6, 2004, the Company modified Mr. Moloney's employment agreement to provide that Mr. Moloney's employment will terminate on March 31, 2005 and that he will receive compensation pursuant to the severance arrangements described above as if his termination was without cause.

        Zimmer Severance Arrangements.    The employment agreement of Thomas R. Zimmer described above also contains provisions regarding executive severance arrangements (the "Zimmer Severance Arrangements"). Pursuant to the Zimmer Severance Arrangements, if Mr. Zimmer's employment is terminated by the Company for any reason other than for "cause", disability or death, or by Mr. Zimmer if the Company requires him to be based at a location more than 50 miles from the office at which he is then based, he will be entitled to receive severance payment in the form of payroll continuation at his base salary for 12 months, with up to an additional six months severance pay if he remains unemployed after the initial 12 months.

        In addition, pursuant to the Zimmer Severance Arrangements, if Mr. Zimmer's employment is terminated by the Company for death, disability or without "cause" or by Mr. Zimmer if the Company requires him to be based at a location more than 50 miles from the office at which he is then based, the Company will:

•

provide Mr. Zimmer and his eligible dependents six months of the Continued Coverage and he will then be eligible for COBRA coverage;



•

provide a pro-rated annual bonus for the fiscal year in which his employment is terminated; and



•

pay the cost of providing Mr. Zimmer with outplacement services up to a maximum of five percent of the sum of his annual base salary plus bonus.

        If Mr. Zimmer's employment is terminated for cause, upon his death or disability, or if Mr. Zimmer voluntarily terminates employment, the Company will pay to Mr. Zimmer or his estate a lump sum equal to earned annual base salary and earned annual bonus for completed fiscal years.

Compensation Committee Interlocks and Insider Participation

        The Company does not have a compensation committee. Donald Ronald, the Company's Chairman and Chief Executive Officer, is also a member of the Company's Board of Directors and participates in deliberations with the Board of Directors regarding compensation of executive officers.

ITEM 12    SECURITY 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 January 31, 2005 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.

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*

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

41

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 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 52,003 shares of common stock, rights 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.

(5)

Includes rights entitling Mr. Durbin to 6,002 shares of common stock upon the occurrence of certain sales or liquidation of Vertis Holdings and 14,406 shares of restricted stock that vest immediately prior to a Liquidity Event.

(6)

Includes 15,550 shares of common stock; rights entitling Mr. Moloney to 7,813 shares of common stock upon the occurrence of certain sales or liquidation of Vertis Holdings and 19,896 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; 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 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.

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(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. Mr. Beutner disclaims beneficial ownership of the shares held by Evercore Capital, Evercore Capital NQ and EBF except to the extent of his 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. 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.

(13)

Director of Vertis Holding and Vertis; includes 2,500 shares of restricted stock that vest immediately prior to a Liquidity Event.

(14)

Includes 233,164 shares of common stock; rights to 36,616 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 129,626 shares of restricted stock that vest immediately prior to a Liquidity event.

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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 $414,000, $586,000 and $250,000. Unless otherwise agreed, the consulting agreements with Thomas H. Lee Capital, LLC and THL Equity Advisors IV, LLC expire when certain 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 Mr. Beutner and Ms. Burnham 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 to certain of the equity investors at the time of Vertis Holdings' recapitalization. From August 2001 to June 24, 2002, the entire 12% interest on Vertis Holdings Mezzanine debt was payable in-kind. Previously 10% of the interest was payable in cash. Effective June 25, 2002 the interest rate was changed to 13% payable in-kind through December 31, 2005. Effective May 30, 2003, such 13% interest was further changed to payable in kind through December 7, 2005. Effective with the closing of the Credit Facility in December 2004, interest will continue to be 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 the year ended December 31, 2001, we paid dividends to Vertis Holdings of $7.7 million to pay interest on the mezzanine notes and Vertis Holdings' former convertible preferred securities.

        In connection with the recapitalization of Vertis Holdings in 1999 and 2000, 44 of our employees, including Messrs. Durbin, Howard, Roosen and Ms. Leggett 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 are 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.

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ITEM 14    PRINCIPAL ACCOUNTING 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, 2004 and 2003, and fees billed for other services rendered by Deloitte Entities.

(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.

(2)

Audit-related fees consist mainly of employee benefit plan audits 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 (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 2004 were pre-approved by the audit committee or its designee.

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PART IV

ITEM 15    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(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-35 hereof.

3.

Exhibits

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47

48

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*

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.

†

This exhibit is a management contract or a compensatory plan or arrangement.

(b)

Reports on Form 8-K:

        On October 26, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting its earnings for the three and nine months ended September 31, 2004.

        On November 12, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting that the Company had amended the employment agreement of Herbert W. Moloney, Chief Operating Officer.

        On November 12, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting that the Board of Directors elected Dean D. Durbin President of Vertis, Inc. and subsequently amended Mr. Durbin's employment agreement.

        On December 28, 2004, Vertis, Inc. filed a Current Report on Form 8-K reporting that the Company had entered into a new revolving credit agreement and terminated the existing credit agreement.

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