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Vertis moves to reduce its overall debt and interest costs

Wednesday, November 03, 2010

Press release from the issuing company

Vertis Holdings, Inc. today announced that it has amended the terms of its previously announced exchange offers and taken additional steps to complete the comprehensive refinancing of substantially all of its outstanding secured and unsecured debt. Upon completion of the refinancing, the Company will substantially reduce its overall debt and interest costs as well as increase liquidity and further strengthen its capital structure.

The refinancing will better position the Company for long-term growth by giving it the financial flexibility to make additional investments and to continue aligning the business with evolving marketplace trends and clients' needs.

Under the terms outlined in the Confidential Offering Memorandum, Consent Solicitation, Private Placement and Disclosure Statement Soliciting Acceptances of a Prepackaged Plan of Reorganization dated November 1, 2010 (the "Offering Memorandum and Disclosure Statement") released to note holders today, holders of Vertis' Senior Pay-in-Kind Notes due 2014 (the "Senior PIK Notes") and Senior Secured Second Lien Notes due 2012 (the "Second Lien Notes") are being offered (the "Exchange Offers") the opportunity to exchange their existing debt for equity only, as compared to previous offers of cash, new senior secured notes and equity. Assuming successful completion of the refinancing, Vertis will reduce its total debt by more than $700 million, or approximately 60 percent, and allow it to compete more effectively in the industry.

Vertis also announced that it has secured commitments for $600 million of debt and expects to have approximately $500 million of debt outstanding upon completion of the refinancing. GE Capital has committed to provide a $175 million Revolving Credit Facility and Morgan Stanley Senior Funding, Inc. has committed to provide a $425 million Term Loan. Additionally, eligible Second Lien Note holders will have the opportunity to acquire up to $100 million in additional Vertis equity, the proceeds of which would be used to further reduce the Company's debt (the "Private Placement"). Certain of such holders have agreed to purchase their allocated share of the equity, plus any such equity not purchased by other holders.

Holders of approximately 80% of the Second Lien Note and approximately 68% of the Senior PIK Notes have signed a restructuring support agreement under which they agree to the terms of the Exchange Offers.

Lastly, Vertis has developed an alternate path to ensure the refinancing is completed on a timely basis. Concurrent with the solicitation of the Exchange Offers, Vertis is soliciting acceptances of a pre-packaged Chapter 11 reorganization plan (the "Plan of Reorganization"). If Vertis does not obtain acceptable participation in the Exchange Offers from its Senior PIK Note holders and Second Lien Note holders, but does obtain the necessary acceptances for the Plan of Reorganization -- a lower voting threshold -- Vertis intends to begin Chapter 11 proceedings to complete the refinancing. Holders of approximately 80% of the Second Lien Notes and approximately 68% of the Senior PIK Notes have already signed a restructuring support agreement under which they agree to vote in favor of the Plan of Reorganization. These holders of Second Lien Notes include Vertis' largest stockholder, Avenue Capital, plus 75.9% of the non-Avenue Capital holders of Second Lien Notes.

Vertis would file a voluntary pre-packaged Chapter 11 petition only if it concludes that a court-supervised process is the most efficient means to successfully complete the recapitalization while protecting its stakeholders' long-term interests. The GE Capital and Morgan Stanley Senior Funding, Inc. commitments will allow the Company to enter the process with funding in place to complete the reorganization within 45 to 60 days of filing and emerge as a well-capitalized company. The plan of reorganization contemplates that the Company will honor in full all commitments to employees, clients, suppliers and other business partners, without disruption.

The Exchange Offers

Under the terms of the Exchange Offers, for each $1,000 principal amount of Second Lien Notes validly tendered, and not validly withdrawn, by eligible holders in the exchange offer relating to the Second Lien Notes (the "Second Lien Notes Offer") at or prior to 12:00 a.m. on December 1, 2010, unless extended by Vertis (the "Expiration Time"), such holders will receive 8.49 shares of Holdings' common stock (the "New Common Stock") per $1,000 principal amount of Series A Second Lien Notes, 8.49 shares of New Common Stock per $1,000 principal amount of Series B Second Lien Notes and 8.065 shares of New Common Stock per $1,000 principal amount of Series C Second Lien Notes. For each $1,000 principal amount of Senior PIK Notes validly tendered, and not validly withdrawn, by eligible holders in the exchange offer relating to the Senior PIK Notes (the "Senior PIK Notes Offer") at or prior to the Expiration Time, such holders will receive 2.46 shares of New Common Stock. The issuance of New Common Stock according to the above referenced exchange ratios give effect to a contemplated 60,111 to 1 reverse stock split.

If the Exchange Offers are consummated, eligible holders of Second Lien Notes will receive a consent payment of $2.50 for each $1,000 principal amount of Second Lien Notes validly tendered in the Second Lien Notes Offer, and not validly withdrawn, at or prior to 5 p.m., New York City time, on November 15, 2010 (the "Consent Time"). Eligible holders of Senior PIK Notes will receive an additional 0.82 shares of New Common Stock for each $1,000 principal amount of Senior PIK Notes validly tendered in the Senior PIK Notes Offer, and not validly withdrawn, at or prior to the Consent Time. Assuming successful completion of the Exchange Offers, we will issue to participating eligible holders of Senior PIK Notes New Common Stock representing approximately 5% of Vertis's equity in the aggregate (assuming at least 98% of the aggregate principal amount of Senior PIK Notes are validly tendered at or prior to the Consent Time).

Vertis is also soliciting consents (the "Consents" and each, a "Consent") from eligible holders for certain amendments to the indentures governing the Notes to eliminate substantially all of the restrictive covenants and certain events of default and related provisions contained therein and, with respect to the indenture governing the Second Lien Notes (the "Second Lien Indenture"), provide for the release of all of the liens on the collateral securing the Second Lien Notes and the related guarantees, including by amending the Second Lien Indenture and by terminating or amending, as applicable, the related security documents. Eligible holders who validly tender their Notes for exchange pursuant to the Exchange Offers will be deemed to have delivered a Consent with respect to such tendered Notes. Tendered Notes may not be withdrawn after the Consent Time.

In connection with the Exchange Offers and the Private Placement, Vertis has secured new financing arrangements, including a new asset-based revolving credit facility of up to $175.0 million aggregate principal amount (the "New Revolving Credit Facility") and a new senior secured term loan of up to $425.0 million in aggregate principal amount (the "New Term Loan" and, together with the New Revolving Credit Facility, the "New Credit Facilities" and, together with the Exchange Offers, the Consent Solicitation and the Private Placement, the "Restructuring Transactions"). The proceeds of the New Credit Facilities will be used, among other things, to repay all of our obligations under Vertis' existing revolving credit facility and term loan.

The consummation of the Exchange Offers is conditioned upon, among other things, (i) eligible holders of at least 98% of the aggregate principal amount of Senior PIK Notes validly tendering their Senior PIK Notes in the Senior PIK Notes Offer at or prior to the Expiration Time (the "Senior PIK Minimum Condition"), (ii) eligible holders of at least 98% of the aggregate principal amount of Second Lien Notes validly tendering their Second Lien Notes in the Second Lien Notes Offer at or prior to the Expiration Time (the "Second Lien Minimum Condition" and, together with the Senior PIK Minimum Condition, the "Minimum Conditions"), (iii) Vertis' entry into new bank loans and the extinguishment of its existing term loan and credit facility and the consummation of the Private Placement, including the Backstop (each as hereinafter defined), (iv) the adoption and effectiveness of proposed amendments to Holdings' Second Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") to effect a 60,111 to 1 reverse stock split (the "Reverse Stock Split") substantially concurrent with the Expiration Time; (v) the adoption and effectiveness of proposed amendments to the Certificate of Incorporation to increase Holdings' authorized common stock to 40,000,000 shares substantially concurrent with the Expiration Time, (vi) the termination of the existing stockholders' agreement among Vertis and certain of its stockholders thereto and (vii) the issuance of New Common Stock in the Exchange Offers and the Private Placement to eligible holders not resulting in the record number of holders of Holdings' common stock exceeding 450, a violation of Holdings' Certificate of Incorporation. Vertis may waive or amend any of these conditions in its sole discretion, including the Minimum Conditions, and under certain circumstances may do so without providing additional withdrawal rights. If Vertis does not satisfy the conditions noted above, it may allow the Exchange Offers to expire or terminate the Exchange Offers prior to the Expiration Time and seek to effectuate the Plan of Reorganization.

The Private Placement

Concurrently with the Exchange Offers and Consent Solicitation, Vertis is also offering eligible holders who tender Second Lien Notes in the Second Lien Notes Offer the opportunity (the "Private Placement") to purchase up to an aggregate of 10,000,000 shares of New Common Stock (the "Offered Amount"), which Offered Amount may be reduced by up to 20 percent prior to the Expiration Time in Vertis' sole discretion. Each eligible holder shall be permitted to subscribe for 20.245 shares of New Common Stock per $1,000 principal amount of its Series A Second Lien Notes, 20.245 shares of New Common Stock per $1,000 principal amount of its Series B Second Lien Notes and 19.233 shares of New Common Stock per $1,000 principal amount of its Series C Second Lien Notes, in each case at a subscription price per share of $10.00 (the "Subscription Price").

Each eligible holder participating in the Private Placement may subscribe for some, all or none of the New Common Stock it is eligible to purchase in the Private Placement. Any subscription by an eligible holder for New Common Stock in the Private Placement is subject to and conditioned upon, among other things, the valid tender by such holder of its Second Lien Notes in the Second Lien Notes Offer at or prior to the Expiration Time and the acceptance by Vertis of such tendered Second Lien Notes or, if the Exchange Offers are not consummated, the confirmation of the Plan of Reorganization. Pursuant to an agreement among Vertis and certain holders of Second Lien Notes (the "Backstop Investors"), the Backstop Investors have agreed to fully participate in the Private Placement as well as purchase any shares of New Common Stock not purchased by holders of Notes who are not Backstop Investors (the "Backstop") at the Subscription Price. The Backstop Investors will receive an aggregate fee of 1,661,518 shares (1,800,000 shares under the Plan of Reorganization) of New Common Stock in connection with the Backstop. The consummation of the Private Placement is conditioned upon the substantially concurrent consummation of the Exchange Offers or the confirmation of the Plan of Reorganization, as applicable.

The Reverse Stock Split is a condition of the Exchange Offers and any shares of the New Common Stock issued in the Exchange Offers and Private Placement will be issued following the Reverse Stock Split. In addition, following the consummation of the Exchange Offers or the Plan of Reorganization, Vertis expects to implement a management incentive plan providing for the issuance of up to 10% of the outstanding New Common Stock on a fully diluted basis.

Each eligible holder of Notes receiving New Common Stock in the Exchange Offers and the Private Placement and any subsequent transferee of such New Common Stock will be deemed to be a party to the new stockholders' agreement among Vertis and its stockholders.

Timetable

The Exchange Offers will expire at 12:00 a.m., New York City time, on December 1, 2010, unless extended by Vertis. The Exchange Offers are subject to the terms and conditions set forth in the Offering Memorandum and Disclosure Statement and the related letter of transmittal (the "Letter of Transmittal"), each dated November 1, 2010.

Solicitation for Potential Voluntary Pre-Packaged Chapter 11 Reorganization

Concurrently with the Exchange Offers, Vertis is soliciting votes on its Plan of Reorganization. Vertis has made no decision at this time to commence chapter 11 proceedings. However, if it does not obtain acceptable levels of participation in the Exchange Offers, but does receive sufficient acceptances of its Plan of Reorganization, Vertis will pursue its restructuring in chapter 11. A chapter 11 plan of reorganization can be confirmed if either the holders of the Second Lien Notes or the Senior PIK Notes vote to accept the plan, not including the votes of affiliates. A class of creditors is deemed to accept a chapter 11 plan if at least one-half in number of the creditors within the class, who hold at least two-thirds in dollar amount of claims in the class, vote to accept the plan, counting only those who actually vote. Dissenting and abstaining creditors will be bound by the terms of the plan if this voting threshold is met.

The proposed economic terms of the Plan of Reorganization are substantially similar to the proposed economic terms of the Exchange Offers. In particular, holders of Second Lien Notes will be entitled to their pro rata share of 96.25% of the equity in reorganized Vertis, subject to dilution on account of equity distributed by reorganized Vertis in exchange for the investment of up to $100 million described above. Holders of Senior PIK Notes will be entitled to their pro rata share of 3.75% of the equity in reorganized Vertis, subject to the same dilution. Existing equity interests in Vertis will be cancelled. All other creditors will be left unimpaired under the plan. Accordingly, under the plan, all obligations to suppliers, vendors, clients, and employees will be paid in full in the ordinary course of business. If Vertis files chapter 11 pursuant to the plan, it will request immediate authority to honor such obligations without delay or disruption.

As noted above, the Expiration Time for the Exchange Offers is 12:00 a.m. on December 1, 2010. The deadline for casting votes on the Plan of Reorganization is the same date. However, Vertis will assess voting results as of the Consent Time. Based on that assessment, it is possible that Vertis could choose to commence chapter 11 proceedings prior to the Expiration Time in order to pursue confirmation of the Plan of Reorganization. If it does so, the voting deadline would stay open until the Expiration Time, and Vertis would utilize votes cast both pre-filing and post-filing in calculating whether the plan has been accepted.

 

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