Exhibit 10.3 PROMISSORY
NOTE MODIFICATION AGREEMENT THIS
PROMISSORY NOTE MODIFICATION AGREEMENT(this Agreement) is made as of this
26th day of May, 2005, between DEPARTMENT OF BUSINESS AND ECONOMIC DEVELOPMENT, a
principal department of the State of Maryland (the Lender), and PHOENIX
COLOR CORP., a Delaware corporation (the Borrower). RECITALS 1.
The Lender made a conditional loan to the Borrower in the original principal amount of
$500,000 (the Loan) pursuant to the terms of a Loan Agreement dated May 3,
2000, between the Lender and the Borrower, as amended by a First Amendment to Loan
Agreement dated July 20, 2000, between the Lender and the Borrower (as amended, the Loan
Agreement). 2.
The Loan is evidenced by a promissory note dated May 3, 2000, made by the Borrower
payable to the order of the Lender in the original principal amount of $500,000 (the
Note). 3.
       The Borrower has requested that the Lender modify the terms of Note and the Loan
Agreement. 4.
       Pursuant to the Borrowers request, the Lender agrees to amend the terms of
the Note pursuant to this Agreement. NOW,
THEREFORE, in consideration of the promises herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Lender hereby agree as follows: 1.
The Borrower and the Lender acknowledge that the above Recitals to this Agreement are
true and correct, and agree that the same are incorporated by reference into the body of
this Agreement. 2.
Unless otherwise specifically defined herein, all terms defined by the provisions of the
Loan Agreement shall have the same meanings ascribed to such terms by the provisions of
the Loan Agreement when used herein. 3.
       The Note is hereby amended by deleting  Sections 3(g) and (h) of the Note and
substituting the following in their place: (g)
December 31, 2005. (i)
If as of December 31, 2005, the Borrower meets the requirements of Sections 3.03(b)(i)
through (viii) of the Loan Agreement, the     Phoenix Color Note Modification
AgreementMay 9, 2005


principal
amount of the Loan, together with all accrued interest, shall be forgiven as provided in
Section 3.03 of the Loan Agreement.(ii)
If as of December 31, 2005, the Borrower fails to meet the requirements of Section
3.03(b)(viii) of the Loan Agreement, but the Borrower meets the requirements for partial
repayment under Section 3.05 of the Loan Agreement, the Borrower shall repay the amount
of principal calculated under Section 3.05 of the Loan Agreement, together with accrued
interest thereon (unless accrued interest is forgiven under Section 3.06(a) of the Loan
Agreement), by April 1, 2006. Any amount of the Loan remaining after repayment under this
subsection is made shall be forgiven by the Lender as provided in Section 3.06 of the
Loan Agreement.(iii)
If as of December 31, 2005, the Borrower fails to meet all of the requirements of Section
3.03(b)(i) through (viii) of the Loan Agreement and is not eligible for partial
repayment under 3.05 of the Loan Agreement, then commencing on April 1, 2006, and
continuing on the same day of each succeeding third month to and including the Maturity
Date, the Borrower shall repay the principal amount of the Loan, together with accrued
interest thereon. Payments shall be in equal, consecutive quarterly installments, which
shall include a payment of principal and a payment of the accrued interest on the
outstanding principal balance, all as set forth in an amortization schedule to be
provided to the Borrower by the Lender and which may be revised from time to time in
accordance with the provisions of this Note.(h)
      The  Borrower  shall pay any  unforgiven  remaining  principal  balance,  accrued
 and unpaid            interest and any other  amounts  outstanding  under the Loan
 Documents on the Maturity Date or April 1, 2006 (if            payment is being made
under Section  3(g)(ii)  above),  on which date this Note shall mature,  and the entire
and            unforgiven unpaid principal balance and accrued and unpaid interest
thereon shall be due and payable.4.
As used in the Note and this Agreement, the term this Note means the Note as
amended by this Agreement, and the term Loan Agreement means the Loan
Agreement as modified by Second Amendment to Loan Agreement dated the same date as this
Agreement, between the Lender and the Borrower, unless the context clearly indicates or
dictates a contrary meaning.



5.
       The  Borrower  will  execute any  confirmatory  instruments  with  respect to the
Note as the Lender may require, including any amendments to the Loan Agreement.



6.
The Borrower ratifies and confirms all of its liabilities and obligations under the Note
and agrees that, except as expressly modified in this Agreement, the Note continues in
full force and effect as if set forth specifically herein. The Borrower and the Lender
agree that this Agreement


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Phoenix Color Note Modification
AgreementMay 9, 2005


shall not be construed as an
agreement to extinguish the original obligations under the Note and shall not constitute
a novation as to the obligations of the Borrower under the Note.



7.
This Agreement may not be amended, changed, modified, altered, or terminated without in
each instance the prior written consent of the Lender. This Agreement shall be construed
in accordance with and governed by the laws of the State of Maryland.


8.
       In connection with this Agreement, the Borrower represents and warrants as follows:



(a)
      Except as provided in Section 9 below,  there is no default on the part of the
Borrower  under the Note or the other Loan Documents, as amended, and no event has
occurred or is continuing which, with notice, or the passage of time, or both, would
constitute a default under the Agreement or the other Loan Documents, as amended.


(b)
      The  Note  and the  other  Loan  Documents,  as  amended,  constitute  the  legal,
 valid  and  binding obligations of the Borrower enforceable in accordance with their
terms.


(c)
      If any of the foregoing  representations  and warranties prove to be false,
 incorrect or misleading in any material respect, the Lender may, in its absolute and
sole discretion, declare (i) that event of default has occurred and exists under the
provisions of the Agreement, and/or (ii) any of the provisions of this Agreement to be
void and of no force.


9.
The Department understands that the Borrower has failed to complete the Additional
Facilities (as defined in the Loan Agreement) by the Completion Date (as defined in the
Loan Agreement) and has ceased to use the Manufacturing Facilit (as defined in the Loan
Agreement). These failures were defaults under Section 5.01(h) and (f) of the Loan
Agreement, respectively. A default under the Loan Agreement also constitutes Default
under Section 8(b) of the Note. The Department has waived these two defaults under the
Loan Agreement and hereby waives the corresponding cross-defaults under the Note.



IN
WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement to be signed,
sealed and delivered as of the date first above written.


WITNESS:
      __________________ WITNESS:/s/ Diane C. Leland
    DEPARTMENT OF BUSINESS
      AND 
        ECONOMIC DEVELOPMENT
      By: Aris Melissaratos
      Name: Aris Melissaratos 
      Title: Secretary PHOENIX COLOR CORP.
      By: /s/ Edward Lieberman
      Name: Edward Lieberman 
      Title: Chief Financial Officer3
Phoenix Color Note Modification
AgreementMay 9, 2005




STATE OF
MARYLAND, CITY/COUNTY OF BALTIMORE, TO WIT:


I
HEREBY CERTIFY that on this 26th day of May, 2005, before me, a Notary Public
of the State of Maryland, in and for the State and City/County aforesaid, personally
appeared Aris Melissaratos, who acknowledged himself to be the Secretary of Business and
Economic Development of the State of Maryland, a principal department of the State of
Maryland, known or satisfactorily proven to me to be the person whose name is subscribed
to the within instrument, and acknowledged that he executed the foregoing Agreement on
behalf of the Department of Business and Economic Development for the purposes therein
contained as the duly authorized Secretary of Business and Economic Development of the
State of Maryland.


AS
WITNESS my hand and Notarial Seal.

/s/ Robin G. Whitfield
      Notary PublicMy Commission expires: 3/1/08


STATE OF
MARYLAND, CITY/COUNTY OF WASHINGTON, TO WIT:


I
HEREBY CERTIFY that on this 9th day of May, 2005, before me, a Notary Public
in and for the State of Maryland, personally appeared Edward Lieberman, who acknowledged
himself/herself to be the CFO of Phoenix Color Corp., known or satisfactorily
proven to me to be the person whose name is subscribed to the within instrument, and
acknowledged that she/he executed the foregoing Agreement on behalf of Phoenix Color
Corp., for the purposes therein contained as its duly authorized _____________.


AS
WITNESS my hand and Notarial Seal.

/s/ Rachel A. Grimm
      Notary PublicMy Commission expires: 5/1/2008


Acknowledgement of
the Board of County Commissioners of Washington County


The
undersigned, the Board of County Commissioners of Washington County, guaranteed a portion
of the Loan pursuant to the terms of a Guaranty Agreement dated May 3, 2000, made for the
benefit of the Lender. The undersigned acknowledges and consents to the terms of this
Amendment and the Note Modification, and reaffirms its obligations under the terms
of the Guaranty Agreement.


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Phoenix Color Note Modification
AgreementMay 9, 2005



WITNESS:/s/ Joni L. Bittner 
      Joni L. Bittner, Clerk
    BOARD
      OF COUNTY COMMISSIONERS 
        OF WASHINGTON COUNTY
      By: /s/ Gregory I. Snook 
      Name: Gregory I. Snook
      Title: PresidentSTATE OF MARYLAND,
CITY/COUNTY OF WASHINGTON, TO WIT:


I
HEREBY CERTIFY that on this 17th day of May, 2005, before me, a Notary Public
in and for the State of Maryland, personally appeared Gregory I. Snook, who
acknowledged himself to be the President of the Board of County Commissioners of
Washington County, known or satisfactorily proven to me to be the person whose name is
subscribed to the within instrument, and acknowledged that she/he executed the foregoing
Agreement on behalf of the Board of County Commissioners of Washington County for the
purposes therein contained as its duly authorized President.


AS
WITNESS my hand and Notarial Seal.

/s/ Gregory I. Snook
      Notary PublicMy Commission expires: 11-1-08


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