Subordinated Installment Promissory Note

Exhibit 10.12

SUBORDINATED INSTALLMENT PROMISSORY NOTE

Cranford, New Jersey

Dated: August 10, 2005


FOR VALUE RECEIVED, THE NEWARK GROUP, INC. (" Maker" ) promises to pay to the order of FREDERICK G. VON ZUBEN (" Payee" ) the sum of Seven Million Eighty Seven Thousand Five Hundred Dollars ($7,087,500) with the principal balance being due in forty (40) equal principal and consecutive quarterly installments, together with interest as calculated pursuant to Section 1 below, commencing on October 1, 2005 and continuing thereafter on the first day of the months of January, April, July and October, subject to the following additional terms and conditions:


1. Interest .- Maker promises to pay interest to Payee at the per annum rate of the prime rate of interest as in effect from time to time as published in the " Money Rates" column of The Wall Street Journal on the unpaid balance of the principal sum of each quarterly principal installment payment date.


2. Place of Payment .- All payment of principal and interest owing hereon shall be payable at the principal office of Maker, 20 Jackson Drive, Cranford, New Jersey, or by check mailed to the address designated by Payee by written notice to Maker or, if so requested by Payee, by wire transfer to an account designated by Payee to Maker in writing from time to time.


3. Optional Prepayment .- Maker shall have the right to prepay one or more of the installment payments in the inverse order of their maturities with interest to the date of prepayment, without penalty and without liability for interest after the date of prepayment with respect to the amount prepaid, except that no such prepayment shall be made without the Payee' s consent during the taxable year of the Payee within which this Note is delivered to the Payee.

4. Subordination .- Payee agrees, by his acceptance of this Note, that the payment of principal and interest hereon is subject to the prior payment of all indebtedness or obligations now owing or hereafter incurred by Maker or any of its present or future subsidiaries to banking institutions, life insurance companies, similar financial institutions, and subsidiaries or affiliates

of the foregoing, and to Robert B. Lewis and Margaret McEwan Lewis (hereinafter called " Senior Indebtedness" ), as follows:


4.1 No amount shall be paid by Maker, and Payee shall not receive or accept any amount in respect of the principal of, or interest on, this Note unless and until such Senior Indebtedness shall have been paid i ...