10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended

APRIL 1, 2005

or

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

For the transition period from _____ to _____

Commission file number 1-05492

Nashua Corporation

(Exact name of registrant as specified in its charter)

Massachusetts (State or Other Jurisdiction of Incorporation or Organization)	02-0170100 (IRS Employer Identification No.)
11 Trafalgar Square, Suite 201 Nashua, New Hampshire (Address of Principal Executive Offices)	03063 (Zip Code)

Registrant’s telephone number, including area code: (603) 880-2323

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of May 1, 2005, the Company has 6,219,734 shares of Common
Stock, par value $1.00 per share, outstanding.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	CONDENSED CONSOLIDATED BALANCE SHEETS
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS
SIGNATURES
Ex-10.1 Change of Control and Severance Agreement, dated January 5, 2005
Ex-10.2 Separation and General Release Agreement, dated March 9, 2005
Ex-10.3 Management Incentive Plan
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	April 1, 2005			December 31,
	(Unaudited)			2004
	(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents	$	504		$	884
Restricted cash		789			1,202
Accounts receivable		33,523			33,501
Inventories:
Raw materials		14,719			14,124
Work in process		3,918			3,260
Finished goods		8,915			7,841
		27,552			25,225
Other current assets		4,485			4,493
Total current assets		66,853			65,305
Plant and equipment		100,864			99,538
Accumulated depreciation		(61,506	)		(59,693	)
		39,358			39,845
Goodwill		31,516			31,516
Intangibles, net of amortization		1,336			1,451
Loans to related parties		957			957
Other assets		13,263			11,886
Total assets	$	153,283		$	150,960
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	19,427		$	16,751
Accrued expenses		12,391			12,782
Current maturities of long-term debt		3,400			3,400
Current maturities of notes payable		710			710
Total current liabilities		35,928			33,643
Long-term debt		28,350			27,350
Notes payable to related parties		—			250
Other long-term liabilities		24,627			23,769
Total long-term liabilities		52,977			51,369
Commitments and contingencies (see Note 7)
Common stock		6,220			6,209
Additional paid-in capital		15,523			15,484
Retained earnings		55,644			57,264
Accumulated other comprehensive loss:
Minimum pension liability adjustment, net of tax		(13,009	)		(13,009	)
Total shareholders’ equity		64,378			65,948
Total liabilities and shareholders’ equity	$	153,283		$	150,960

See accompanying notes.

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NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
	April 1,			April 2,
	2005			2004
	(In thousands, except per share data)
Net sales	$	73,177		$	71,232
Cost of products sold		61,672			57,287
Gross margin		11,505			13,945
Selling, distribution, general and administrative expenses		11,102			11,416
Research and development expense		562			554
Loss from equity investments		—			139
Interest expense, net		409			314
Special charges		1,685			—
Loss on curtailment of pension benefits		385			—
Income (loss) before income taxes		(2,638	)		1,522
Provision (benefit) for income taxes		(1,018	)		591
Net income (loss)	$	(1,620	)	$	931
Basic earnings per share:
Net income (loss) per common share	$	(0.27	)	$	0.16
Average common shares		6,079			5,957
Diluted earnings per share:
Net income (loss) per common share assuming dilution	$	(0.27	)	$	0.15
Dilutive effect of stock options		—			112
Average common and potential common shares		6,079			6,069

See accompanying notes.

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NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	April 1,			April 2,
	2005			2004
	(In thousands)
Cash flows from operating activities of continuing operations:
Net income (loss)	$	(1,620	)	$	931
Adjustments to reconcile net income (loss) to cash provided by (used in) continuing operating activities:
Depreciation and amortization		2,021			1,957
Loss on sale/disposal of fixed assets		41			—
Equity in loss from unconsolidated joint ventures		—			139
Net loss on curtailment of pension benefits		385			—
Net change in working capital, net of effects from acquisitions		(1,449	)		(7,310	)
Other		888			1,401
Cash provided by (used in) continuing operating activities		266			(2,882	)
Cash flows from investing activities of continuing operations:
Investment in plant and equipment		(1,478	)		(818	)
Proceeds from sale of fixed assets		18			—
Cash used in investing activities of continuing operation		(1,460	)		(818	)
Cash flows from financing activities of continuing operations:
Net proceeds from revolving portion of long-term debt		1,850			4,000
Principal repayments on term portion of long-term debt		(850	)		(850	)
Repayment of notes payable to related parties		(250	)		(250	)
Proceeds from shares exercised under stock option plans		70			444
Cash provided by financing activities of continuing operations		820			3,344
Cash used in activities of discontinued operations		(6	)		(15	)
Decrease in cash and cash equivalents		(380	)		(371	)
Cash and cash equivalents at beginning of period		884			1,183
Cash and cash equivalents at end of period	$	504		$	812
Supplemental disclosures of cash flow information:
Interest paid (net of amount capitalized)	$	417		$	243
Income taxes paid for continuing operations, net	$	5		$	11

See accompanying notes.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments consisting of normal recurring accruals necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The accompanying financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004.

Note 2: Acquired Intangible Assets

Details of acquired intangible assets are as follows:

	As of April 1, 2005
					Weighted
	Gross				Average
	Carrying		Accumulated		Amortization
(In thousands)	Amount		Amortization		Period
Trademarks and tradenames	$	560	$	240	9 years
Licensing agreement		230		138	5 years
Customer relationships and lists		1,062		472	9 years
Customer contracts		620		362	4 years
Non-competition agreements		100		60	5 years
Patented technology		90		54	5 years
	$	2,662	$	1,326
Amortization Expense:
For the three months ended April 1, 2005			$	114
Estimated for the year ending December 31, 2005			$	389
Estimated for the year ending December 31, 2006			$	345
Estimated for the year ending December 31, 2007			$	208
Estimated for the year ending December 31, 2008			$	91
Estimated for the year ending December 31, 2009			$	57
Estimated for the year ending December 31, 2010			$	57
Estimated for the year ending December 31, 2011 and thereafter			$	303

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Note 3: Pension and Postretirement Benefits

Net periodic pension and postretirement benefit costs for the quarters ended April 1, 2005 and April 2, 2004 from continuing operations for the plans include the following components:

	Pension Benefits for three						Postretirement Benefits
	months ended						for three months ended
	April 1,			April 2,			April 1,			April 2,
	2005			2004			2005			2004
	(In thousands)
Components of net periodic cost
Service cost	$	225		$	226		$	15		$	19
Interest cost		1,281			1,208			31			67
Expected return on plan assets		(1,468	)		(1,373	)		¾			¾
Amortization of prior service cost		67			67			(16	)		(16	)
Recognized net actuarial (gain)/loss		308			183			(29	)		(52	)
Net loss on curtailment		385			¾			¾			¾
Net periodic cost	$	798		$	311		$	1		$	18

During the first quarter of 2005, in connection with our decision to exit the toner and developer business which is included in our Imaging Supplies segment, we recognized a loss of $.4 million related to the future curtailment of postretirement benefits for approximately 39 employees included in our hourly pension plan.

We were not required to fund the pension plans in the first quarter of 2005 and do not anticipate payments for the remainder of 2005.

Note 4: Business Changes and Special Charges

On April 1, 2005, we committed to a plan to exit our toner and developer business, which is included in our Imaging Supplies segment, by March 31, 2006. Our toner and developer business employs 71 people located primarily at our facilities in Nashua and Merrimack, New Hampshire. We expect to phase out operations in our toner and developer business by March 31, 2006 in order to fulfill customer commitments. Employees of the toner and developer business will be reduced throughout the closing period. We will retain our resin business which is also part of our Imaging Supplies segment.

Our decision to exit the toner and developer business is the result, in part, of our strategy to exit non-strategic businesses. The decision was also based on our assessment of risk related to new technologies in color and chemical toners where we have limited skill sets, cost of litigation and increases in operating costs.

We have incurred the following charges in connection with exiting the toner and developer business:

(In thousands)
Severance and other employee benefits accrued as of April 1, 2005	$	1,685
Curtailment loss on pension benefits accrued as of April 1, 2005		385

We expect to incur the following charges and gain in connection with exiting the toner and developer business:

(In thousands)
Curtailment gain on other postretirement benefits by March 31, 2006	(322	)
Depreciation of plant and equipment over the next 12 months	3,200

As of April 1, 2005, we had not made any cash payments related to the charges associated with our decision to exit the toner and developer business.

Special charges in our Consolidated Statements of Operations for the three months ended April 1, 2005 of approximately $1.7 million related to a workforce reduction associated with our decision to exit the toner and developer business.

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Details of our reserve related to the workforce reduction is included in “Accrued Expenses” in our Consolidated Balance Sheets and activity recorded during the first quarter of 2005 is as follows:

			Current
	Balance		Period		Balance
(In thousands)	December 31, 2004		Provision		April 1, 2005
Provisions for severance related to workforce reductions	$	¾	$	1,685	$	1,685

Our provision for workforce reductions includes severance and other fringe benefits for 67 employees in our Imaging Supplies segment.

Note 5: Stock-Based Compensation

On May 4, 2004 our Board of Directors adopted the 2004 Value Creation Incentive Plan in which restricted stock awards have been granted to certain key executives that will vest upon achievement of certain target average closing prices of our common stock over the 40-consecutive trading day period which ends on the third anniversary of the date of grant, such that 33 percent of such shares shall vest if the 40-day average closing price of at least $13.00 but less than $14.00 is achieved, 66 percent of such shares shall vest if the 40-day average closing price of at least $14.00 but less than $15.00 is achieved, and 100 percent of such shares shall vest if the 40-day average closing price of $15.00 or greater is achieved. The restricted shares vest upon a change of control if the share price at the date of the change in control exceeds $13.00. Shares of the restricted stock are forfeited if the specified closing prices of our common stock are not met.

In addition to our Value Creation Incentive Plan, at April 1, 2005, we had three stock compensation plans, which are described more fully in Note 9 to the consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2004. We account for those plans under the recognition and measurement principles of APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB No. 25, no stock-based employee compensation cost relating to stock option awards is reflected in our net income, as all options under our plans had an exercise price equal to the market value of our common stock on their date of grant. Stock-based compensation, representing grants to non-employee directors and vesting of performance-based restricted stock awards was $.1 million and $0 for the quarters ended April 1, 2005 and April 2, 2004 respectively. The following table illustrates the effect on net income (loss) and earnings per share if we had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” as amended by Statement of Financial Accounting Standards

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No. 148, “Accounting for Stock-based Compensation — Transition and Disclosure,” to stock-based employee compensation:

	Three Months Ended
	April 1,			April 2,
	2005			2004
	(In thousands, except per share data)
Net income (loss), as reported	$	(1,620	)	$	931
Add: Stock-based employee compensation expense included in the determination of net income (loss) as reported, net of related tax effects		0			0
Deduct: Stock-based employee compensation (expense), including forfeitures, determined under the fair value based method for all awards, net of related tax effects		(35	)		(1	)
Pro forma net income (loss)	$	(1,655	)	$	930
Earnings per share:
Basic – as reported	$	(0.27	)	$	0.16
Basic – pro forma	$	(0.27	)	$	0.16
Diluted – as reported	$	(0.27	)	$	0.15
Diluted – pro forma	$	(0.27	)	$	0.15

Note 6: Segment and Related Information

The following table presents information about our reportable segments.

For the Quarter

	Net Sales						Pretax Income
	Three Months Ended						Three Months Ended
	April 1,			April 2,			April 1,			April 2,
	2005			2004			2005			2004
				(In thousands)
Label Products	$	26,328		$	25,773		$	1,163		$	1,938
Specialty Paper Products		42,226			40,288			239			1,668
Imaging Supplies		5,874			6,451			(1,982	)		146
Reconciling items:
Eliminations		(1,251	)		(1,280	)		116			—
Other		—			—			68			(11	)
Unallocated corporate expenses		—			—			(1,833	)		(1,905	)
Interest expense, net		—			—			(409	)		(314	)
Consolidated	$	73,177		$	71,232		$	(2,638	)	$	1,522

Note 7: Contingencies

In December 1999, the IRS completed an examination of our corporate income tax returns for the years 1995 through 1997 and issued a Notice of Proposed Adjustment which assessed additional taxes of $5.2 million, excluding interest. This assessment represents a total of $14.0 million of adjustments to taxable income for the years under review. The proposed

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adjustments relate to the deductibility of restructuring and other reserves applicable to continuing and discontinued operations as well as the utilization of foreign net operating losses primarily associated with discontinued operations. We disagreed with the position taken by the IRS and filed a formal protest of their proposed adjustments on April 6, 2000.

On October 28, 2003, the IRS completed an examination of our corporate income tax returns for the years 1998 through 2000 and issued a Notice of Proposed Adjustment which assessed additional taxes of $30,021 excluding interest. While the amount assessed is immaterial, we filed a protest of the proposed adjustment since certain adjustments proposed by the IRS for the years 1995 through 1997 could impact the tax liability for the period 1998 through 2000.

On January 26, 2005, we executed a proposed settlement with the appeals office of the IRS for all outstanding years, which is subject to review and final approval by the Joint Committee on Taxation. The proposed settlement proposes final assessments for all outstanding years totaling $1.2 million before interest.

While we believe that we have provided adequately for our tax liabilities through April 1, 2005, including liabilities related to matters in dispute with taxing authorities, we can provide no assurances that we will prevail in our defense against adjustments proposed in these pending or future federal and state examinations. In addition, the ultimate resolution of these open tax matters could be either in excess of or less than current reserves.

In August and September 1996, two individual plaintiffs filed lawsuits in the Circuit Court of Cook County, Illinois against us, Cerion Technologies, Inc., certain directors and officers of Cerion, and our underwriter, on behalf of all persons who purchased the common stock of Cerion between May 24, 1996 and July 9, 1996. These two complaints were consolidated. In March 1997, the same individual plaintiffs joined by a third plaintiff filed an Amended Consolidated Class Action Complaint. The Amended Consolidated Complaint alleged that, in connection with Cerion’s initial public offering, the defendants issued materially false and misleading statements and omitted the disclosure of material facts regarding, in particular, certain significant customer relationships. In October 1997, the Circuit Court on motion by the defendants dismissed the Amended Consolidated Complaint. The plaintiffs filed a Second Amended Consolidated Complaint alleging similar claims as the First Consolidated Complaint seeking damages and injunctive relief. On May 6, 1998, the Circuit Court, on motion by the defendants, dismissed with prejudice the Second Amended Consolidated Complaint. The plaintiffs filed with the Appellate Court an appeal of the Circuit Court’s ruling. On November 19, 1999, the Appellate Court reversed the Circuit Court’s ruling that dismissed the Second Amended Consolidated Complaint. The Appellate Court ruled that the Second Amended Consolidated Complaint represented a valid claim and sent the case back to the Circuit Court for further proceedings. On December 27, 1999, we filed a petition with the Supreme Court of Illinois. In that petition, we asked the Supreme Court of Illinois to determine whether the Circuit Court or the Appellate Court is correct. Our petition was denied and the case was sent to the Circuit Court for trial. Discovery has been completed, but no date has been set for trial and pre-trial motions. On October 8, 2003, the Circuit Court heard motions on a Summary Judgment motion and a class action certification motion. No ruling has been made. We believe that the lawsuit is without merit and will continue to defend ourselves in this matter. We also believe that we will receive the value of our 37.1 percent ownership in the Cerion Liquidating Trust, which our ownership was valued at $.9 million on an after-tax basis at April 1, 2005. Our investment in Cerion is included under other assets in our Consolidated Balance Sheet.

In December 2002, we eliminated the availability of certain postretirement health benefits to union and non-union employees of Nashua who had at least 10 years of service and chose to retire between age 60 to 65 which provided access to health benefits until age 65. The unions in New Hampshire objected to the action and filed a grievance. The final step of the grievance process is arbitration by the American Arbitration Association. The subject of the Arbitration was the interpretation of the collective bargaining contract language which we believe allows modification of the eligibility of those postretirement health benefits. The unions’ position is that regardless of the contract wording, these benefits cannot be eliminated without bargaining with the unions. The Arbitration hearing occurred on July 28, 2003 and the arbitrator ruled in favor of the unions on October 24, 2003. On November 24, 2003, we filed an appeal of the arbitration decision with the U.S. District Court for the District of New Hampshire. On March 14, 2005, the court ruled on the motions and upheld the arbitrator’s award. On April 11, 2005, we filed an appeal with the Federal Court of Appeals.

On May 30, 2003, Ricoh Company, Ltd. and affiliated companies filed a suit in the U.S. District Court for the District of New Jersey against several defendants, including the largest customer of our Imaging Supplies segment and another company who is a supplier to the Imaging Supplies segment. The Complaint alleged multiple counts of patent infringement, trademark infringement and unfair competition by the defendants. On October 17, 2003, Ricoh amended the Complaint and added us as an additional co-defendant in the suit. The allegations arose from the sale and distribution of Ricoh compatible toner products. We filed an answer to the Complaint in December 2003. The suit is in the discovery phase. The parties have filed various motions, including summary judgment motions, and are awaiting rulings from the District Court. On April 12, 2005, the District Court granted the summary judgment motion dismissing the counts related to trademark infringement and unfair competition. No trial date has been set. We believe we have valid defenses and potential recourse against certain other co-defendants in this matter.

On November 5, 2004, Océ North America Inc. and Océ Printing Systems GmbH filed a Complaint for patent infringement against us in the U.S. District Court for the Northern District of Illinois. Océ did not serve the initial Complaint on us. On March 3, 2005, Océ filed a First Amended Complaint in the U.S. District Court for the Northern District of Illinois. The First Amended Complaint was served on us on March 3, 2005. We filed an Answer and Counterclaims to the First Amended Complaint on April 22, 2005. Our attorneys continue to evaluate the matter and develop our legal defenses. The extent of possible damages, if any, in this action cannot yet be determined.

On November 12, 2004, Sandra Hook, a former employee, filed suit in Chancery Court for Jefferson County, Tennessee claiming discrimination related to the ending of her employment with us in November 2003 and seeking damages in excess of $1.2 million. Prior to filing suit against us on March 4, 2004, Ms. Hook filed a complaint with the Tennessee Human

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Rights Commission claiming discrimination in connection with the termination of her employment with us in November 2005. The Tennessee Human Rights Commission completed an investigation and found no basis to continue with a claim against us. We believe Ms. Hook’s claims to be without merit and intend to defend the case vigorously.

We are involved in certain environmental matters and have been designated by the Environmental Protection Agency, referred to as the EPA, as a potentially responsible party for certain hazardous waste sites. In addition, we have been notified by certain state environmental agencies that some of our sites not addressed by the EPA require remedial action. These sites are in various stages of investigation and remediation. Due to the unique physical characteristics of each site, the technology employed, the extended timeframes of each remediation, the interpretation of applicable laws and regulations and the financial viability of other potential participants, our ultimate cost of remediation is difficult to estimate. Accordingly, estimates could either increase or decrease in the future due to changes in such factors. At April 1, 2005, based on the facts currently known and our prior experience with these matters, we have concluded that it is probable that site assessment, remediation and monitoring costs will be incurred. We have estimated a range for these costs of $0.4 million to $1.0 million for continuing operations. These estimates could increase if other potentially responsible parties or our insurance carriers are unable or unwilling to bear their allocated share and cannot be compelled to do so. At April 1, 2005, our accrual balance relating to environmental matters was $0.4 million. Based on information currently available, we believe that it is probable that the major potentially responsible parties will fully pay the costs apportioned to them. We believe that our remediation expense is not likely to have a material adverse effect on our consolidated financial position or results of operations.

We are involved in various other lawsuits, claims and inquiries, most of which are routine to the nature of our business. In the opinion of our management, the resolution of these matters will not materially affect our Company.

Note 8: Subsequent Event

On April 14, 2005, we entered into a Seventh Amendment to our Credit Agreement with LaSalle Bank National Association and Fleet National Bank, a Bank of America Company, to amend our Credit Agreement dated March 1, 2002, as amended. The Seventh Amendment increases the revolving commitment under the Credit Agreement from $30 million to $35 million.

Note 9: New Accounting Pronouncement

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123, Share-Based Payment (FAS 123R). This standard is a revision of FAS 123, Accounting for Stock-Based Compensation, and requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. In April 2005, the Securities and Exchange Commission delayed the effective date of FAS 123R to annual periods beginning after June 15, 2005. We expect to adopt FAS 123R in fiscal year 2006 using the modified prospective application method, which does not require restating previous periods’ results. No additional compensation expense would be recorded for any vested awards outstanding as of the effective date. We are in the process of evaluating the impact of this pronouncement on our consolidated financial position, operations and cash flows and we do not currently anticipate any material accounting or disclosure requirement under the adoption of this new accounting pronouncement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our net sales increased $2.0 million, or 2.8 percent, to $73.2 million for the first quarter of 2005 compared to $71.2 million for the first quarter of 2004. Our gross margin percentage decreased to 15.7 percent for the first quarter of 2005 compared to 19.6 percent in the first quarter of 2004. Our selling and distribution expenses increased, and our administrative expenses decreased for the first quarter of 2005 compared to the first quarter of 2004. Selling, distribution, general and administrative expenses as a percentage of sales decreased to 15.2 percent for the first quarter of 2005 compared to 16.0 percent in the first quarter of 2004. Our Label Products and our Specialty Paper Products segments operated profitably while our Imaging Supplies segment incurred a $2.0 million pretax loss during the first quarter of 2005.

We believe that overcapacity and intense competition continue to characterize the label and paper converting industry. Thus we will continue to focus on initiatives which increase our profitability and provide our customer base with higher value products and services. We will continue our focus on obtaining price increases that provide us reasonable gross margin, cost containment initiatives, and investments which make our business more efficient. We will also pursue technologies, such as radio frequency identification products (RFID) which are of growing importance to our customer base.

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On April 1, 2005 we committed to a plan to exit our toner and developer business, which is included in our Imaging Supplies segment, by March 31, 2006. Our decision to exit the toner and developer business is the result, in part, of our strategy to exit non-strategic businesses. The decision was also based on our assessment of risk related to new technologies in color and chemical toners where we have limited skill sets, cost of litigation and increases in operating costs. To date, we have recorded severance and other employee benefit expenses of $1.7 million and pension curtailment cost of $0.4 million related to the exit of the toner and developer business. We expect depreciation on plant and equipment to be approximately $3.2 million between April 1, 2005 and March 31, 2006. While expenses have been recorded, we also have the land and buildings located in Nashua, New Hampshire under a purchase and sale agreement subject to the financing of the buyer, Southern New Hampshire Services. The proposed transaction is expected to close in June 2006. We also plan to seek buyers for our land and buildings located in Merrimack, New Hampshire. We have also received indications of interest and are in various phases of discussions with parties regarding the sale of our intellectual assets and equipment utilized in the toner and developer business. In the event of such a sale or sales, the proceeds, when received, would partially offset, and may completely offset, the costs incurred in connection with exiting the toner and developer business. However, there is no assurance that such sale or sales will be consummated or when and if any proceeds will be received.

Results of Operations For the First Quarter of 2005 Compared to the First Quarter of 2004

	First Quarter			First Quarter
	2005			2004
	(in millions)
Net sales	$	73.2		$	71.2
Gross margin %		15.7	%		19.6	%
Selling and distribution expenses	$	6.6		$	6.2
General and administrative expenses	$	4.5		$	5.2
Research and development expenses	$	.6		$	.6
Interest expense, net	$	.4		$	.3
Special charges	$	1.7		$	—
Loss on curtailment of pension benefits	$	.4		$	—
Income (loss) before income taxes	$	(2.6	)	$	1.5
Net income (loss)	$	(1.6	)	$	.9
Depreciation and amortization	$	2.0		$	2.0
Investment in plant and equipment	$	1.5		$	.8

Our net sales increased $2.0 million, or 2.8 percent, to $73.2 million for the first quarter of 2005 compared to $71.2 million for the first quarter of 2004. The increase was due to higher sales in our Label Products and Specialty Paper Products segments, which partially offset lower sales in our Imaging Supplies segment.

Our gross margin percentage decreased to 15.7 percent for the first quarter of 2005 compared to 19.6 percent in the first quarter of 2004 and this was a primary factor of our operating loss in the first quarter of 2005. The decrease was due to decreased margin percentages in each of our segments. Gross margin decreased $2.4 million to $11.5 million for the first quarter of 2005 compared to $13.9 million in the first quarter of 2004 due primarily to the lower margin percentages, which were primarily attributable to increased raw material costs which we have only partially passed on to customers and an unfavorable product mix within our segments.

Selling and distribution expenses increased $0.4 million to $6.6 million for the first quarter of 2005 compared to $6.2 million for the first quarter of 2004. The increase was primarily due to higher distribution costs due to increased sales volume and higher freight costs. As a percent of sales, selling and distribution expenses increased from 8.7 percent for the first quarter of 2004 to 9.0 percent for the first quarter of 2005.

General and administrative expenses decreased $.7 million to $4.5 million for the first quarter of 2005 compared to $5.2 million for the first quarter of 2004. The decrease was primarily due to lower headcount and higher rental income associated with renting excess warehouse space at our Merrimack, New Hampshire facility which more than offset severance expenses related to headcount reductions taken in the first quarter of 2005. As a percent of sales, general and administrative expenses decreased from 7.4 percent for the first quarter of 2004 to 6.1 percent for the first quarter of 2005.

Research and development expenses remained unchanged at $.6 million for both the first quarter of 2005 and the first quarter of 2004.

We had a pretax loss of $2.6 million for the first quarter of 2005 compared to pretax income of $1.5 million in the first quarter of 2004. The $4.1 million decrease is due to our plan to exit the toner and developer business included in the Imaging

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Supplies segment by March 31, 2006 and lower margins in each of our segments. In connection with the exit plan, we incurred special charges of $1.7 million related to severance charges and a loss on curtailment of pension benefits of $0.4 million, both in the first quarter of 2005.

The estimated annual effective income tax rate was 38.6 percent for the first quarter of 2005 and 38.8 percent for the first quarter of 2004. The estimated rates were higher than the U.S. statutory rate principally due to the impact of state income taxes.

Our net loss for the first quarter of 2005 was $1.6 million, or ($0.27) per share, compared to net income of $0.9 million or $0.16 per share for the first quarter of 2004.

Details of our reserve related to the workforce reduction is included in “Accrued Expenses” in our Consolidated Balance Sheets and activity recorded during the first quarter of 2005 is as follows:

	Balance		Current
	December 31,		Period		Balance
(In thousands)	2004		Provision		April 1, 2005
Provisions for severance related to workforce reductions	$	¾	$	1,685	$	1,685

Our provision for workforce reductions includes severance and other fringe benefits for 67 employees in our Imaging Supplies segment.

Results of Operations by Reportable Segment For the First Quarter of 2005 Compared to the First Quarter of 2004

Label Products Segment

	First Quarter			First Quarter
	2005			2004
	(in millions)
Net sales	$	26.3		$	25.8
Gross margin %		14.1	%		17.7	%
Selling and distribution expenses	$	1.6		$	1.5
General and administrative expenses	$	.9		$	1.0
Income before interest and taxes	$	1.2		$	1.9
Depreciation and amortization	$	.7		$	.6
Investment in plant and equipment	$	.5		$	.3

Net sales for our Label Products segment increased $0.5 million, or 1.9 percent, to $26.3 million for the first quarter of 2005 compared to $25.8 million for the first quarter of 2004. The increase primarily resulted from a $2.8 million increase in our automatic identification product line which was partially offset by declines of $1.4 million in our supermarket scale product line, $0.6 million in our EDP product line, and $0.3 million in the inform product line. The increase in automatic identification label sales resulted primarily from incremental business gained from the addition of a major customer. The decreased sales in our supermarket scale product line are primarily a result of lost business which is now produced by the customer itself.

Gross margin for our Label Products segment decreased $0.9 million to $3.7 million for the first quarter of 2005 compared to $4.6 million for the first quarter of 2004. As a percentage of net sales, the gross margin percentage decreased from 17.7 percent for the first quarter of 2004 to 14.1 percent in the first quarter of 2005. The decrease in the gross margin percentage was related to the loss of higher margin business as well as increased raw material costs which we have only partially passed on to customers. A portion of the segment’s inventory is costed on a last in/first out (LIFO) basis which causes material price increases to be expensed sooner than that on a first in/first out (FIFO) basis.

Selling and distribution expenses for our Label Products segment increased $0.1 million to $1.6 million for the first quarter of 2005 compared to $1.5 million for the first quarter of 2004. The increase was primarily due to normalized bad debt expenses in 2005 as we had a bad debt recovery that occurred in the first quarter of 2004. As a percentage of net sales, selling and distribution expenses increased from 5.8 percent for the first quarter of 2004 to 6.1 percent for the first quarter of 2005.

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General and administrative expenses for our Label Products segment decreased $0.1 million in the first quarter of 2005 compared to the first quarter of 2004 primarily due to lower employee incentive expenses. As a percentage of sales, general and administrative expenses decreased from 3.9 percent for the first quarter of 2004 to 3.5 percent for the first quarter of 2005.

The pretax income for our Label Products segment decreased $0.7 million to $1.2 million for the first quarter of 2005 compared to $1.9 million for the first quarter of 2004 due to lower gross margin from increased material costs which have not been passed on to the customers and a less favorable customer and product mix.

Specialty Paper Products Segment

	First Quarter			First Quarter
	2005			2004
	(in millions)
Net sales	$	42.2		$	40.3
Gross margin %		15.8	%		20.0	%
Selling and distribution expenses	$	4.7		$	4.3
General and administrative expenses	$	1.5		$	1.9
Research and development expenses	$	.2		$	.2
Income before interest and taxes	$	.2		$	1.7
Depreciation and amortization	$	.9		$	.9
Investment in plant and equipment	$	1.0		$	.4

Net sales for our Specialty Paper Products segment increased $1.9 million, or 4.8 percent, to $42.2 million for the first quarter of 2005 compared to the first quarter of 2004. The increase in net sales from the first quarter of 2005 was related to increases of $1.5 million of wide-format products, $1.0 million of our thermal face sheet product line, $0.8 million of fraud prevention products, $0.5 million of financial receipt product line, which were partially offset by net sales decreases of $0.7 million of ticket and tag products, $0.6 million of bond, carbonless and fax paper products, $0.2 million of dry gum and a net decrease of $0.4 million of other product lines. The increase in our thermal face sheet products was primarily due to incremental volume received from a major customer. The increase in our wide-format products resulted from new customer business. The continued shift in printing technologies in point-of-sale (POS) equipment from impact to thermal printers resulted in lower sales of bond and carbonless products. The decrease in the thermal ticket and tag product lines results from the loss of airline ticket business.

Gross margin for our Specialty Paper Products segment decreased $1.4 million to $6.7 million for the first quarter of 2005 compared to $8.1 million for the first quarter of 2004. As a percentage of net sales, the gross margin percentage decreased from 20.0 percent for the first quarter of 2004 to 15.8 percent for the first quarter of 2005 due primarily to higher raw material costs, sales declines in the higher margin product lines and decrease in margins associated with competitive market pricing conditions related to thermal products used in POS applications and thermal face sheet sold to laminators.

Selling and distribution expenses for our Specialty Paper Products segment increased $0.4 million to $4.7 million for the first quarter of 2005 compared to $4.3 million for the first quarter of 2004. The increase was driven primarily by higher distribution expenses related to the higher sales volume, increased freight charges and severance charges related to headcount reductions in the first quarter of 2005. As a percentage of net sales, selling and distribution expenses increased to 11.1 percent for the first quarter of 2005 from 10.6 percent for the first quarter of 2004.

General and administrative expenses for our Specialty Paper Products segment decreased $0.4 million to $1.5 million in the first quarter of 2005 compared to the first quarter of 2004. The decrease was driven by reduced headcount as well as higher rental income associated with renting excess warehouse space at our Merrimack, NH facility. As a percentage of net sales, general and administrative expenses decreased from 4.8 percent for the first quarter of 2004 to 3.5 percent for the first quarter of 2005.

Research and development expenses remained unchanged at $.2 million for both the first quarter of 2005 and the first quarter of 2004.

The pretax income for our Specialty Paper Products segment decreased $1.5 million from $1.7 million for the first quarter of 2004 compared to to $0.2 million for the first quarter of 2005. The lower income resulted mainly from lower gross margins as explained above.

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Imaging Supplies Segment

	First Quarter			First Quarter
	2005			2004
	(in millions)
Net sales	$	5.9		$	6.5
Gross margin %		17.5	%		20.2	%
Selling and distribution expenses	$	.3		$	.4
General and administrative expenses	$	.3		$	.4
Research and development expenses	$	.3		$	.4
Loss on curtailment of pension benefits	$	(.4	)		¾
Special charges	$	1.7		$	¾
Income (loss) before interest and taxes	$	(2.0	)	$	.1
Depreciation and amortization	$	.3		$	.3
Investment in plant and equipment	$	¾		$	.1

Net sales for our Imaging Supplies segment decreased $0.6 million, or 9.0 percent, from $6.5 million for the first quarter of 2004 compared to $5.9 million for the first quarter of 2005. Lower sales of Xerox and Ricoh compatible toners and resin products were partially offset by higher sales of Océ and IBM compatible toners. The lower sales of Xerox compatible toner were due to the partial loss of a major customer and the sales decline in more mature products. The lower sales of Ricoh compatible toner were driven mainly by lower sales of mature products. The increase in Océ compatible toner sales was due to a new product introduction in 2004.

Gross margin for our Imaging Supplies segment decreased $0.3 million from $1.3 million for the first quarter of 2004 compared to $1.0 million for the first quarter of 2005. As a percentage of net sales, gross margin decreased from 20.2 percent for the first quarter of 2004 to 17.5 percent for the first quarter of 2005. The decrease in gross margin was primarily attributable to the lower sales volume, higher raw material costs and a shift in sales mix to lower margin products.

Selling and distribution expenses for our Imaging Supplies segment decreased $0.1 million to $0.3 million for the first quarter of 2005 compared to $0.4 million for the first quarter of 2004. As a percent of net sales, selling and distribution expenses decreased from 6.0 percent for the first quarter of 2004 to 5.0 percent in the first quarter of 2005. The decrease was primarily driven by lower headcount as well as lower distribution costs.

General and administrative expenses for our Imaging Supplies segment decreased $0.1 million in the first quarter of 2005 compared $0.4 million to the first quarter of 2004. As a percentage of net sales, general and administrative expenses decreased from 6.2 percent for the first quarter of 2004 to 5.0 percent for the first quarter of 2005. The decrease was due to lower legal expenses, headcount reductions and lower incentive cost.

Research and development expenses decreased $0.1 million to $0.3 million for the first quarter of 2005 compared to $.4 million for the first quarter of 2004. The decrease was due primarily to reduced product trials.

The pretax loss was $2.0 million for the first quarter of 2005 compared to pretax income of $146,000 for the first quarter of 2004. The decrease was primarily due to our decision to exit the toner and developer business in addition to lower sales, which was partially offset by lower operating expenses. In connection with the exit plan, we incurred special charges of $1.7 million related to severance charges and a loss on curtailment of pension benefits of $0.4 million.

Liquidity, Capital Resources and Financial Condition

Cash and cash equivalents decreased $.4 million during the first quarter of 2005 to $.5 million at April 1, 2005. Cash provided by continuing operations of $.3 million and cash provided by financing activity of $.8 million were offset by $1.5 million invested in plant and equipment.

Cash flow provided by operations in the first quarter of 2005 included a $1.4 million decrease in net working capital. The $1.4 million decrease in net working capital resulted from a $2.7 million increase in accounts payable offset by a $2.3 million increase in inventory, a $.7 million increase in accounts receivable, a $.7 million increase in other current assets and a $.4 million decrease in accrued expenses. The increased accounts payable and inventory was the result of increases in all segments primarily due to increased raw material prices impacting timing of inventory purchases.

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We are party to a Credit Agreement, dated March 1, 2002, with LaSalle Bank, NA as Agent and Issuing Bank and Fleet National Bank, a Bank of America Company, that, as amended, consists of a term loan of $15 million and, effective April 14, 2005, a revolving loan commitment of $35 million that requires us to maintain certain financial covenants such as total funded debt to adjusted earnings before interest, income taxes, depreciation and amortization, also known as adjusted EBITDA, and a fixed charge coverage ratio. Borrowings under the Credit Agreement are collateralized by a security interest in our accounts receivable, inventories, certain machinery and equipment and real estate located in Merrimack, New Hampshire. We had $1.5 million of additional borrowing capacity at April 1, 2005 under our revolving loan commitment and a $2.7 million obligation under standby letters of credit with the banks. We entered into a first amendment to the Credit Agreement, effective July 15, 2003, to increase the term loan under the Credit Agreement from $10 million to $15 million and to adjust the terms of the quarterly interest payments. We entered into a second amendment to the Credit Agreement, effective July 24, 2003, to waive our non-compliance with the funded debt to EBITDA ratio and the minimum EBITDA financial covenants for the quarter ended June 27, 2003. We entered into a third amendment to the Credit Agreement, effective September 25, 2003, to replace the minimum EBITDA covenant with a minimum adjusted EBITDA covenant, and we entered into a consent and fourth amendment to the Credit Agreement, effective December 30, 2003, adding the provision to the funded debt to EBITDA ratio, for the computation period ended December 31, 2003 only, to be computed as the funded debt to adjusted EBITDA ratio.

We entered into a fifth amendment to the Credit Agreement, effective March 31, 2004, a sixth amendment effective December 1, 2004, and a seventh amendment effective April 14, 2005. Together these amendments:

•   extended the term of the credit facility to February 28, 2007;

•   modified the definition of fixed charge coverage ratio to provide that (1) the ratio is based on our adjusted EBITDA and (2) payments of principal of funded debt, included in the calculation of the fixed charge coverage ratio, are limited to the last four principal payments;

•   replaced the definition and covenant relating to the total debt to EBITDA ratio with a definition and covenant relating to the funded debt to adjusted EBITDA ratio;

•   eliminated the covenant relating to minimum adjusted EBITDA;

•   adjusted the interest rate on loans outstanding under the credit facility to provide that the interest rate is based on the funded debt to adjusted EBITDA ratio and that the interest rate is, at our option, either (1) a range from zero to .25 percent over the base rate (prime) or (2) a range from 1.5 percent to 2.0 percent over LIBOR;

•   modified the definitions of Revolving Outstanding and Stated Amount to include the IRB Letter of Credit;

•   adjusted the letter of credit commitment amount to include the IRB Letter of Credit;

•   adjusted the covenants on the limitations on debt and liens to exclude the debt to the IDB and related liens;

•   adjusted the description of any non-payment of other debt to include debt arising under the Reimbursement Agreement relating to the IRB Letter of Credit; and

•   increased the revolving loan commitment under the Credit Agreement from $30 million to $35 million.

Under the amended Credit Agreement, we are also subject to a non-use fee for any unutilized portion of our revolving loan that ranges from .25 percent to .375 percent based on our funded debt to adjusted EBITDA ratio. For the three months ended April 1, 2005 and April 2, 2004, the weighted average annual interest rate on our long-term debt was 3.5 percent and 3.3 percent, respectively.

Furthermore, without prior consent of our lenders, the Credit Agreement limits, among other things, the payment of dividends to $.6 million, capital expenditures to $8.0 million, the incurrence of additional debt and restricts the sale of certain assets and merger or acquisition activities. We were in compliance with the financial covenants and our compliance at April 1, 2005 under the amended Credit Agreement is as follows:

		April 1, 2005
Covenant	Requirement	Compliance
•     Maintain a fixed charged coverage ratio	Not less than 1.1 to 1.0		1.3 to 1.0
•     Maintain a funded debt to adjusted EBITDA ratio	Less than 2.75 to 1.0		2.57 to 1.0

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Pursuant to our amended Credit Agreement at April 1, 2005, our minimum payment obligations relating to long-term debt are as follows:

							2008 and
(In thousands)	2005		2006		2007		Beyond		Total
Term portion of long-term debt	$	2,550	$	3,400	$	100	$	—	$	6,050
Revolving portion of long-term debt		¾		—		22,900		—		22,900
Industrial revenue bond		¾		¾		¾		2,800		2,800
	$	2,550	$	3,400	$	23,000	$	2,800	$	31,750

At April 1, 2005, we had unused proceeds from the Industrial Development Revenue Bond issued by the Industrial Development Board of the City of Jefferson City, Tennessee. The unused proceeds from the IRB of $.8 million are included in “Restricted Cash” in our Consolidated Balance Sheets.

Our liquidity is affected by many factors, some based on the normal operations of our business and others related to the uncertainties of the industry and global economies. Although our cash requirements will fluctuate based on the timing of these factors, we believe that current cash and cash equivalents, cash flows from operations and amounts available under our credit agreement are sufficient to fund our planned capital expenditures, working capital needs and other operating cash requirements.

New Accounting Pronouncement

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123, Share-Based Payment (FAS 123R). This standard is a revision of FAS 123, Accounting for Stock-Based Compensation, and requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. In April 2005, the Securities and Exchange Commission delayed the effective date of FAS 123R to annual periods beginning after June 15, 2005. We expect to adopt FAS 123R in fiscal year 2006 using the modified prospective application method, which does not require restating previous periods’ results. No additional compensation expense would be recorded for any vested awards outstanding as of the effective date. We are in the process of evaluating the impact of this pronouncement on our consolidated financial position, operations and cash flows and we do not currently anticipate any material accounting or disclosure requirement under the adoption of this new accounting pronouncement.

Critical Accounting Policies

Our critical accounting policies have not changed materially from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004.

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ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of April 1, 2005. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions’ rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of April 1, 2005, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended April 1, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In August and September 1996, two individual plaintiffs filed lawsuits in the Circuit Court of Cook County, Illinois against us, Cerion Technologies, Inc., certain directors and officers of Cerion, and our underwriter, on behalf of all persons who purchased the common stock of Cerion between May 24, 1996 and July 9, 1996. These two complaints were consolidated. In March 1997, the same individual plaintiffs joined by a third plaintiff filed an Amended Consolidated Class Action Complaint. The Amended Consolidated Complaint alleged that, in connection with Cerion’s initial public offering, the defendants issued materially false and misleading statements and omitted the disclosure of material facts regarding, in particular, certain significant customer relationships. In October 1997, the Circuit Court on motion by the defendants, dismissed the Amended Consolidated Complaint. The plaintiffs filed a Second Amended Consolidated Complaint alleging similar claims as the First Consolidated Complaint seeking damages and injunctive relief. On May 6, 1998, the Circuit Court, on motion by the defendants, dismissed with prejudice the Second Amended Consolidated Complaint. The plaintiffs filed with the Appellate Court an appeal of the Circuit Court’s ruling. On November 19, 1999, the Appellate Court reversed the Circuit Court’s ruling that dismissed the Second Amended Consolidated Complaint. The Appellate Court ruled that the Second Amended Consolidated Complaint represented a valid claim and sent the case back to the Circuit Court for further proceedings. On December 27, 1999, we filed a petition with the Supreme Court of Illinois. In that petition, we asked the Supreme Court of Illinois to determine whether the Circuit Court or the Appellate Court is correct. Our petition was denied and the case was sent to the Circuit Court for trial. Discovery has been completed, but no date has been set for trial and pre-trial motions. On October 8, 2003, the Circuit Court heard motions on a Summary Judgment motion and a class action certification motion. No ruling has been made. We believe that the lawsuit is without merit and will continue to defend ourselves in this matter. We also believe that we will receive the value of our 37.1 percent ownership in the Cerion Liquidating Trust, which our ownership was valued at $.9 million on an after-tax basis at April 1, 2005. Our investment in Cerion is included under other assets in our Consolidated Balance Sheet.

On May 30, 2003, Ricoh Company, Ltd. and affiliated companies filed a suit in the U.S. District Court for the District of New Jersey against several defendants, including the largest customer of our Imaging Supplies segment and another company who is a supplier to the Imaging Supplies segment. The Complaint alleged multiple counts of patent infringement, trademark infringement and unfair competition by the defendants. On October 17, 2003, Ricoh amended the Complaint and added us as an additional co-defendant in the suit. The allegations arose from the sale and distribution of Ricoh compatible toner products. We filed an answer to the Complaint in December 2003. The suit is in the discovery phase. The parties have filed various motions, including summary judgment motions, and are awaiting rulings from the District Court. On April 12, 2005, the District Court granted the summary judgment motion dismissing the counts related to trademark infringement and unfair competition. No trial date has been set. We believe we have valid defenses and potential recourse against certain other co-defendants in this matter.

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In December 2002, we eliminated the availability of certain postretirement health benefits to union and non-union employees of Nashua who had at least 10 years of service and chose to retire between age 60 to 65 which provided access to health benefits until age 65. The unions in New Hampshire objected to the action and filed a grievance. The final step of the grievance process is arbitration by the American Arbitration Association. The subject of the Arbitration was the interpretation of the collective bargaining contract language which we believe allows modification of the eligibility of those postretirement health benefits. The unions’ position is that regardless of the contract wording, these benefits cannot be eliminated without bargaining with the unions. The Arbitration hearing occurred on July 28, 2003 and the arbitrator ruled in favor of the unions on October 24, 2003. On November 24, 2003, we filed an appeal of the arbitration decision with the U.S. District Court for the District of New Hampshire. On March 14, 2005, the court ruled on the motions and upheld the arbitrator’s award. On April 11, 2005, we filed an appeal with the Federal Court of Appeals.

On November 5, 2004, Océ North America Inc. and Océ Printing Systems GmbH filed a Complaint for patent infringement against us in the U.S. District Court for the Northern District of Illinois. Océ did not serve the initial Complaint on us. On March 3, 2005, Océ filed a First Amended Complaint in the U.S. District Court for the Northern District of Illinois. The First Amended Complaint was served on us on March 3, 2005. We filed an Answer and Counterclaim to the First Amended Complaint on April 22, 2005. Our attorneys continue to evaluate the matter and develop our legal defenses.

On November 12, 2004, Sandra Hook, a former employee, filed suit in Chancery Court for Jefferson County, Tennessee claiming discrimination related to the ending of her employment with us in November 2003 and seeking damages in excess of $1.2 million. Prior to filing suit against us on March 4, 2004, Ms. Hook filed a complaint with the Tennessee Human Rights Commission claiming discrimination in connection with the termination of her employment with us in November 2005. The Tennessee Human Rights Commission completed an investigation and found no basis to continue with a claim against us. We believe Ms. Hook’s claims to be without merit and intend to defend the case vigorously.

ITEM 5. OTHER INFORMATION

Matters Affecting Future Results

Information we provide in this Form 10-Q may contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. We may also make forward-looking statements in other reports we file with the Securities and Exchange Commission, in materials we deliver to stockholders and in our press releases. In addition, our representatives may, from time to time, make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that is not directly related to historical or current fact. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” “can,” “may” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, our future capital needs, stock market conditions, the price of our stock, fluctuations in customer demand, intensity of competition from other vendors, timing and acceptance of our new product introductions, general economic and industry conditions, delays or difficulties in programs designed to increase sales and improve profitability, the settlement of tax issues, the possibility of a final award of material damages in our pending litigation, goodwill impairment, and other risks detailed in this Form 10-Q in our filings with the Securities Exchange Commission. The information set forth in this Form 10-Q should be read in light of such risks. We assume no obligation to update the information contained in this Form 10-Q or to revise our forward-looking statements.

Risk Factors

The following important factors, among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time to time.

We face significant competition.

The markets for our products are highly competitive, and our ability to effectively compete in those markets is critical to our future success. Our future performance and market position depend on a number of factors, including our ability to react to competitive pricing pressures, our ability to lower manufacturing costs and consolidate production facilities, our ability to introduce new value added products and services to the market and our ability to react to the commoditization of products. Our performance could also be impacted by external factors, such as:

•   increasing pricing pressures from competitors in the markets for our products;

•   a faster decline than anticipated in the more mature, higher margin product lines, such as heat seal and dry gum products, due to changing technologies;

•   our ability to pass on raw material price increases to customers; and

•   our ability to capture market share in the radio frequency identification label market.

Our Imaging Supplies and Specialty Paper Products segments operate in New Hampshire, which has relatively higher labor and utility costs compared to other parts of the United States where some of our competitors are located or operate. Some of our competitors may be larger in size or scope than we are, which may allow them to achieve greater economies of scale on a global basis or allow them to better withstand periods of declining prices and adverse operating conditions.

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In addition, there has been an increasing trend among our customers towards consolidation. With fewer customers in the market for our products, the strength of our negotiating position with these customers could be weakened, which could have an adverse effect on our pricing, margins and profitability.

Increases in raw material costs or the unavailability of raw materials may adversely affect our profitability.

We depend on outside suppliers for most of the raw materials used in our business. Although we believe that adequate supplies of the raw materials we use are available, any significant decrease in supplies, or any increase in costs or a greater increase in delivery costs for these materials could result in a decrease in our margins, which would harm our financial condition. For example, our Specialty Paper Products and Label Products segments are impacted by the economic conditions and the plant capacity dynamics within the paper industry. In general, the availability and pricing of commodity paper such as uncoated face sheet is affected by the capacity of the paper mills producing the products. Increases in the level at which paper manufacturers, or other producers of the raw materials we use in our business, operate could cause increases in the costs of raw materials, which could harm our financial condition. Conversely, an excess supply of materials could reduce our cost resulting in lower selling prices and the risk of eroded margins.

We have historically been able to pass on significant raw material cost increases through price increases to our customers. Nonetheless, our results of operations for individual quarters can and have been negatively impacted by delays between the time of raw material cost increases and price increases in our products. Additionally, we may be unable to increase our prices to offset higher raw material costs due to the failure of competitors to increase prices and customer resistance to price increases. Additionally, we rely on our suppliers for sources of raw materials. If any of our suppliers were unable to deliver raw materials to us for an extended period of time for any reason, there is no assurance that our raw material requirements would be met by other suppliers on acceptable terms, or at all, which would have a material adverse effect on our results of operation.

Declining returns in the investment portfolio of our defined benefit plans will require us to increase cash contributions to the plans.

Funding for the defined benefit pension plans we sponsor is determined based upon the funded status of the plans and a number of actuarial assumptions, including an expected long-term rate of return on plan assets and the discount rate utilized to compute pension liabilities. As of December 31, 2002, we froze benefits under two of these pension plans: the Nashua Corporation Retirement Plan for Salaried Employees and the Supplemental Executive Retirement Plan. Due to declining returns in the investment portfolio and the discount rate of our defined benefit pension plans in recent years, the defined benefit plans were underfunded as of December 31, 2004 by approximately $17.9 million, based on the actuarial methods and assumptions utilized for purposes of FAS 87 and after giving effect to the planned curtailment of benefits. As a result, we expect to experience an increase in our future cash contributions to our defined benefit pension plans. We do not expect to make a contribution in 2005. In the event that actual results differ from the actuarial assumptions, the funded status of our defined benefit plans may change and any such resulting deficiency could result in additional charges to equity and against earnings and increase our required cash contributions. Additionally, legislative changes were recently proposed in the U.S. Congress that, if enacted into law, would impact our defined benefit pension plans by altering the manner in which liabilities are determined for the purpose of calculating required pension contributions and the timing and manner in which required contributions to underfunded pension plans would be made. The proposals are still in the early stages and many details will need to be specified, and then approved by Congress. However, we believe that the funding requirements for our defined benefit pension plans could be significantly increased by these proposed changes, if they are adopted.

Our future results may be adversely affected by receiving fewer savings from our corporate initiatives than expected.

During the past five years, we have pursued a strategy to reduce costs, streamline operations and resolve legacy issues that in the past have affected our profitability. However, there can be no assurance that all of the estimated savings from these initiatives will be realized. Although we currently expect to achieve our goals, we may encounter unanticipated difficulties in implementing our initiatives.

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We are dependent on key personnel and on the retention and recruiting of key personnel for our future success.

Our future success depends to a significant extent on the continued service of our key administrative manufacturing, sales and senior management personnel. However, our strategy to reduce costs, streamline operations and resolve legacy issues may adversely impact our workforce. We do not have employment agreements with our executives and do not maintain key person life insurance on any of these executives. The loss of the services of one or more of our key employees could significantly delay or prevent the achievement of our product development and other business objectives and could harm our business. While we have entered into executive severance agreements with many of our key employees, there can be no assurance that the severance agreements will provide adequate incentives to retain these employees. Our future success also depends on our continuing ability to attract, retain and motivate highly skilled employees for key positions. There is competition for qualified employees in our industry. We may not be able to retain our key employees or attract, assimilate or retain other highly qualified employees in the future.

We have from time to time in the past experienced, and we expect to continue to experience from time to time in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications for certain positions.

New technologies or changes in consumer preferences may affect our ability to compete successfully.

We believe that new technologies or novel processes may emerge and that existing technologies may be further developed in the fields in which we operate. These technologies or processes could have an impact on production methods or on product quality in these fields. For example, we believe that a trend in the label business is the transition of barcode labels used in warehousing and distribution into radio frequency identification (RFID) labels. Accordingly, we installed inlet insertion equipment for RFID labels in the first quarter of 2005 and we continue to invest in technology and equipment that should allow us to print and convert RFID labels. However, the widespread use and acceptance of RFID labels cannot be assured nor can the success of our RFID market entry.

Unexpected rapid changes in employed technologies or the development of novel processes that affect our operations and product range could render the technologies we utilize, or the products we produce, obsolete or less competitive in the future. Difficulties in assessing new technologies may impede us from implementing them and competitive pressures may force us to implement these new technologies at a substantial cost. Any such development could materially and adversely impact our revenues or profitability, or both.

Additionally, the preferences of our customers may change as the result of the availability of alternative products or services, which could impact consumption of our products.

Our strategy to acquire complementary businesses and to divest non-strategic businesses could cause our financial results to fluctuate and could expose us to significant business risks.

An important aspect of our business strategy is to make strategic acquisitions of businesses that complement our Label and Converting businesses and will expand our customer base and markets, improve distribution efficiencies and enhance our technological capabilities. Acquisitions could result in the consolidation of manufacturing plants. As recently announced with the exit of the toner and developer business included in our Imaging Supplies segment, we also intend to divest businesses that are not core to our future growth and profitability. These acquisitions, potential plant consolidations and divestitures could cause our financial results and cash flows to fluctuate. Financial risks from potential acquisitions include the use of our cash resources and incurring debt and liabilities. Further, there are possible operational risks including difficulties in assimilating and integrating the operations, products, technology, information systems and personnel of acquired businesses; the loss of key personnel of acquired businesses; and difficulties honoring commitments made to customers of the acquired businesses prior to the acquisition. There also exists a potential risk of increased direct and indirect costs associated with labor discontent relative to a plant consolidation strategy. Such costs could impact our financial results and our ability to successfully implement plant consolidations. The failure to adequately address these risks could adversely affect our business.

We may be involved in litigation relating to our intellectual property rights, which may have an adverse impact on our business.

We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, nondisclosure and confidentiality agreements and other contractual restrictions to protect our proprietary technology. Litigation may be necessary to enforce these rights, which could result in substantial costs to us and a substantial diversion of management attention. If we do not adequately protect our intellectual property, our competitors or other parties could use the intellectual property that we have developed to enhance their products or make products similar to ours and compete more efficiently with us, which could result in a decrease in our market share.

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While we have attempted to ensure that our products and the operations of our business do not infringe on other parties’ patents and proprietary rights, our competitors and other parties may assert that our products and operations may be covered by patents held by them. In addition, because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which may later result in issued patents upon which our products may infringe. If any of our products infringe a valid patent, we could be prevented from selling them unless we obtain a license or redesign the products to avoid infringement. A license may not always be available or may require us to pay substantial royalties. We also may not be successful in any attempt to redesign any of our products to avoid infringement. Infringement and other intellectual property claims, regardless of merit or ultimate outcome, can be expensive and time-consuming and can divert management’s attention from our core business.

Our information systems are critical to our business, and a failure of those systems could materially harm us.

We depend on our ability to store, retrieve, process and manage a significant amount of information. If our information systems fail to perform as expected, or if we suffer an interruption, malfunction or loss of information processing capabilities, it could have a material adverse effect on our business.

Compliance with changing regulation of corporate governance and public disclosure may result in additional risks and expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and New York Stock Exchange rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and management time and attention. In particular, our efforts to comply with Section 404 of Sarbanes-Oxley and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors’ audit of that assessment has required the commitment of significant financial and managerial resources. While the SEC has recently announced a one-year extension for non-accelerated filers for compliance with Section 404 of Sarbanes-Oxley, which will require us to begin to comply with the Section 404 requirements for our fiscal year ending December 31, 2006 instead of our fiscal year ending December 31, 2005, we still expect our compliance efforts to require the continued commitment of significant resources. Additionally, if our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, our reputation may be harmed and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our business and the market price of our stock.

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ITEM 6. EXHIBITS

10.1*	Change of Control and Severance Agreement, dated January 5, 2005 between Nashua Corporation and Donna J. DiGiovine.
10.2*	Separation and General Release Agreement, dated March 9, 2005 between Nashua Corporation and Robert S. Amrein.
10.3*	Management Incentive Plan.
31.1*	Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 16, 2005.
31.2*	Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 16, 2005.
32.1*	Certificate of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 16, 2005.
32.2*	Certificate of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 16, 2005.
* -	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NASHUA CORPORATION
	(Registrant)
Date: May 16, 2005	By:	/s/ John L. Patenaude
		John L. Patenaude
		Vice President-Finance and Chief Financial Officer (principal financial and duly authorized officer)

-23-

EX-10.1

                                                                    Exhibit 10.1

                    CHANGE OF CONTROL AND SEVERANCE AGREEMENT

AGREEMENT by and between NASHUA CORPORATION, a Massachusetts corporation (the
"Company") and Donna J. DiGiovine (the "Executive"), dated as of the 5th day of
January, 2005.

RECITALS:

WHEREAS, the Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive as
President of the Company's Toner Products ("Toner") and Coated Paper ("Coated")
divisions, notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined below) of the Company or other reasons of uncertainty;

WHEREAS, the Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and business concerns and
to encourage the Executive's full attention and dedication to the Company;

WHEREAS, the Board is implementing a value creation incentive plan to provide
the Executive and other members of management of the Company with additional
equity incentives;

WHEREAS, the Company and the Executive are parties to a Change of Control and
Severance Agreement dated as of February 25, 2000 (the "Prior Severance
Agreement");

WHEREAS, the parties wish to terminate the Prior Severance Agreement and replace
it with this Agreement; and

WHEREAS, in order to accomplish these objectives, the Board believes it is in
the best interests of the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. CERTAIN DEFINITIONS.

      (a)   The "Effective Date" shall be the first date during the "Change of
            Control Period" (as defined in Section 1(b)) on which a Change of
            Control occurs. Anything in this Agreement to the contrary
            notwithstanding, if the Executive's employment with the Company is
            terminated or the Executive ceases to be an officer of the Company
            prior to the date on which a Change of Control occurs, and it is
            reasonably demonstrated that such termination of employment (1) was
            at the request of a third party who has taken steps reasonably
            calculated to effect the Change of Control or (2) otherwise arose in
            connection with or anticipation of the Change of Control, then for
            all purposes of this Agreement the "Effective Date" shall mean the
            date immediately prior to the date of such termination of
            employment.

      (b)   The "Change of Control Period" is the period commencing on the date
            hereof and

                                     - 1 -


            ending on the third anniversary of such date; provided, however,
            that commencing on such third anniversary, and on each annual
            anniversary of such date (such date and each annual anniversary
            thereof is hereinafter referred to as the "Renewal Date"), the
            Change of Control Period shall be automatically extended so as to
            terminate one year from such Renewal Date, unless at least 60 days
            prior to the Renewal Date the Company shall give notice to the
            Executive that the Change of Control Period shall not be so
            extended.

      (c)   "Net Sale Price" shall mean the aggregate consideration paid for the
            Coated or Toner divisions, as the case may be. In the case of an
            asset sale, Net Sale Price means the aggregate consideration paid
            for the Coated or Toner divisions, as the case may be, plus assumed
            bank debt, but shall exclude assumed payables or other liabilities
            incurred in the ordinary course. In the case of a stock sale, merger
            or other business combination, Net Sale Price means the aggregate
            consideration paid. If any portion of the Net Sale Price is subject
            to contingencies or will be paid in an earn-out payment (other than
            amounts held in escrow to secure indemnification obligations
            relating to the transaction), the bonus with respect to such portion
            of the Net Sale Price shall be earned and paid upon the distribution
            of the payment subject to such contingencies or the earn-out
            payment, as the case may be, to the Company. The bonus shall not be
            adjusted for, nor shall payment of any portion of the bonus be
            delayed for, any portion of the Net Sale Price that is held in
            escrow to secure indemnification obligations relating to the
            transaction. Regardless of the form of transaction, value of real
            estate shall not be included in Net Sale Price, except in the event
            of liquidation.

      2.    CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
            Control" shall mean:

      (a)   The acquisition, other than from the Company, by any individual,
            entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
            of the Securities Exchange Act of l934, as amended (the "Exchange
            Act")) of beneficial ownership (within the meaning of Rule 13d-3
            promulgated under the Exchange Act) (a "Person") of 50% or more of
            either (i) the then outstanding shares of common stock of the
            Company (the "Outstanding Company Common Stock") or (ii) the
            combined voting power of the then outstanding voting securities of
            the Company entitled to vote generally in the election of directors
            (the "Company Voting Securities"), provided, however, that any
            acquisition by (x) the Company or any of its subsidiaries, or any
            employee benefit plan (or related trust) sponsored or maintained by
            the Company or any of its subsidiaries, or (y) any corporation with
            respect to which, following such acquisition, more than 60% of,
            respectively, the then outstanding shares of common stock of such
            corporation and the combined voting power of the then outstanding
            voting securities of such corporation entitled to vote generally in
            the election of directors is then beneficially owned, directly or
            indirectly, by all or substantially all of the individuals and
            entities who were the beneficial owners, respectively, of the
            Outstanding Company Common Stock and Company Voting Securities
            immediately prior to such acquisition in substantially the same
            proportion as their ownership, immediately prior to such
            acquisition, of the Outstanding Company Common Stock and Company
            Voting Securities, as the case may be, or (z) Gabelli Funds, LLC,
            GAMCO Investors, Inc., Gabelli Advisers, Inc., MJG Associates, Inc.,
            Gabelli Group Capital Partners, Inc., Gabelli Asset Management Inc.,
            Marc J. Gabelli

                                     - 2 -


            and/or Mario J. Gabelli and/or any affiliate of any of the
            foregoing, in the case of each of such clauses (x), (y) and (z),
            shall not constitute a Change of Control; or

      (b)   Individuals who, as of the date hereof, constitute the Board (the
            "Incumbent Board") cease for any reason to constitute at least a
            majority of the Board, provided that any individual becoming a
            director subsequent to the date hereof whose election or nomination
            for election by the Company's shareholders, was approved by a vote
            of at least a majority of the directors then comprising the
            Incumbent Board shall be considered as though such individual were a
            member of the Incumbent Board, but excluding, for this purpose, any
            such individual whose initial assumption of office is in connection
            with an actual or threatened election contest relating to the
            election of the Directors of the Company (as such terms are used in
            Rule 14a-11 of Regulation 14A promulgated under the Exchange Act);
            or

      (c)   Consummation by the Company of a reorganization, merger or
            consolidation (a "Business Combination"), in each case, with respect
            to which all or substantially all of the individuals and entities
            who were the respective beneficial owners of the Outstanding Company
            Common Stock and Company Voting Securities immediately prior to such
            Business Combination do not, following such Business Combination,
            beneficially own, directly or indirectly, more than 60% of,
            respectively, the then outstanding shares of common stock and the
            combined voting power of the then outstanding voting securities
            entitled to vote generally in the election of directors, as the case
            may be, of the corporation resulting from Business Combination in
            substantially the same proportion as their ownership immediately
            prior to such Business Combination of the Outstanding Company Common
            Stock and Company Voting Securities, as the case may be; or

      (d)   (i) a complete liquidation or dissolution of the Company or of (ii)
            sale or other disposition of all or substantially all of the assets
            of the Company other than to a corporation with respect to which,
            following such sale or disposition, more than 60% of, respectively,
            the then outstanding shares of common stock and the combined voting
            power of the then outstanding voting securities entitled to vote
            generally in the election of directors is then owned beneficially,
            directly or indirectly, by all or substantially all of the
            individuals and entities who were the beneficial owners,
            respectively, of the Outstanding Company Common Stock and Company
            Voting Securities immediately prior to such sale or disposition in
            substantially the same proportion as their ownership of the
            Outstanding Company Common Stock and Company Voting Securities, as
            the case may be, immediately prior to such sale or disposition.

3.    EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in
      its employ, and the Executive hereby agrees to remain in the employ of the
      Company, for the period commencing on the Effective Date and ending on the
      first anniversary of such date (the "Employment Period").

4.    TERMS OF EMPLOYMENT.

      (a)   Position and Duties.

            (i)   During the Employment Period, (A) the Executive's position

                                     - 3 -


                  (including status, offices, titles and reporting
                  requirements), authority, duties and responsibilities shall be
                  at least commensurate in all material respects with those
                  held, exercised and assigned at any time during the 90-day
                  period immediately preceding the Effective Date and (B) the
                  Executive's services shall be performed at the location where
                  the Executive was employed immediately preceding the Effective
                  Date or any office or location less than 35 miles from such
                  location.

            (ii)  During the Employment Period, the Executive agrees to devote
                  her reasonable full time and attention during normal business
                  hours to the business and affairs of the Company and, to the
                  extent necessary to discharge the responsibilities assigned to
                  the Executive hereunder, to use the Executive's best efforts
                  to perform faithfully and efficiently such responsibilities.
                  During the Employment Period it shall not be a violation of
                  this Agreement for the Executive to (A) serve on civic or
                  charitable boards or committees, (B) serve on corporate boards
                  or committees other than the Company's to the extent approved
                  by the Company's Board, (C) deliver lectures, fulfill speaking
                  engagements or teach at educational institutions and (D)
                  manage personal investments, so long as such activities do not
                  interfere with the performance of the Executive's
                  responsibilities as an employee of the Company in accordance
                  with this Agreement. It is expressly understood and agreed
                  that to the extent that any such activities have been
                  conducted by the Executive prior to the Effective Date, the
                  continued conduct of such activities (or the conduct of
                  activities similar in nature and scope thereto) subsequent to
                  the Effective Date shall not thereafter be deemed to interfere
                  with the performance of the Executive's responsibilities to
                  the Company.

      (b)   Compensation.

            (i)   Base Salary. During the Employment Period, the Executive shall
                  receive an annual base salary ("Annual Base Salary"), which
                  shall be paid at a monthly rate, at least equal to twelve
                  times the current monthly base salary being paid to the
                  Executive by the Company and its affiliated companies as of
                  the date of this Agreement. During the Employment Period, the
                  Annual Base Salary shall be reviewed at least annually and may
                  be increased at any time and from time to time in the sole
                  discretion of the Board. Any increase in Annual Base Salary
                  shall not serve to limit or reduce any other obligation to the
                  Executive under this Agreement. Annual Base Salary shall not
                  be reduced after any such increase and the term Annual Base
                  Salary as utilized in this Agreement shall refer to Annual
                  Base Salary as so increased. As used in this Agreement, the
                  term "affiliated companies" includes any company controlled
                  by, controlling or under common control with the Company.

            (ii)  Annual Bonus. In addition to Annual Base Salary, the Executive
                  may be awarded, for each fiscal year beginning or ending
                  during the

                                     - 4 -


                  Employment Period, an annual bonus (the "Annual Bonus") in
                  cash as determined by the Board of Directors, in its sole
                  discretion.

            (iii) Incentive, Savings and Retirement Plans. In addition to Annual
                  Base Salary and Annual Bonus payable as hereinabove provided,
                  the Executive shall be entitled to participate during the
                  Employment Period in all incentive, savings and retirement
                  plans, practices, policies and programs applicable generally
                  to other peer executives of the Company and its affiliated
                  companies.

            (iv)  Welfare Benefit Plans. During the Employment Period, the
                  Executive and/or the Executive's family, as the case may be,
                  shall be eligible for participation in and shall receive all
                  benefits under welfare benefit plans, practices, policies and
                  programs provided by the Company and its affiliated companies
                  (including, without limitation, medical, prescription, dental,
                  disability, salary continuance, employee life, group life,
                  accidental death and travel accident insurance plans and
                  programs) to the extent generally applicable to other peer
                  executives of the Company and its affiliated companies.

            (v)   Expenses. During the Employment Period, the Executive shall be
                  entitled to receive reimbursement for all reasonable
                  documented expenses incurred by the Executive in accordance
                  with the policies, practices and procedures of the Company and
                  its affiliated companies.

            (vi)  Fringe Benefits. During the Employment Period, the Executive
                  shall be entitled to fringe benefits in accordance with the
                  plans, practices, programs and policies of the Company and its
                  affiliated companies in effect.

            (vii) Vacation. During the Employment Period, the Executive shall be
                  entitled to paid vacation in accordance with the plans,
                  policies, programs and practices of the Company and its
                  affiliated companies as in effect.

5.    TERMINATION OF EMPLOYMENT.

      (a)   Death or Disability. The Executive's employment shall terminate
            automatically upon the Executive's death during the Employment
            Period. If the Company determines in good faith that the Disability
            of the Executive has occurred during the Employment Period (pursuant
            to the definition of Disability set forth below), it may give to the
            Executive written notice in accordance with Section 16(b) of this
            Agreement of its intention to terminate the Executive's employment.
            In such event, the Executive's employment with the Company shall
            terminate effective on the 30th day after receipt of such notice by
            the Executive (the "Disability Effective Date"), provided that,
            within the 30 days after such receipt, the Executive shall not have

                                     - 5 -


            returned to full-time performance of the Executive's duties. For
            purposes of this Agreement, "Disability" means the absence of the
            Executive from the Executive's duties with the Company on a
            full-time basis for 120 consecutive business days as a result of
            incapacity due to mental or physical illness determined by a
            physician selected by the Company or its insurers and acceptable to
            the Executive or Executive's legal representative (such agreement as
            to acceptability not to be withheld unreasonably).

      (b)   Cause. The Company may terminate the Executive's employment during
            the Employment Period for Cause. For purposes of this Agreement,
            "Cause" means (i) the Executive's continued documented failure to
            perform her reasonably assigned duties (other than any such failure
            resulting from incapacity due to physical or mental illness or any
            failure after the Executive gives notice of termination for Good
            Reason), which failure is not cured within 60 days after written
            notice for substantial performance is received by the Executive from
            the Board which identifies the manner in which the Board believes
            the Executive has not substantially performed the Executive's
            duties, (ii) the Executive being convicted of a felony, or (iii) the
            Executive's engagement in illegal conduct or gross misconduct
            injurious to the Company.

      (c)   Good Reason. The Executive's employment may be terminated during the
            Employment Period by the Executive for Good Reason. For purposes of
            this Agreement, "Good Reason" means:

            (i)   the assignment to the Executive of any duties inconsistent in
                  any material respect with the Executive's position (including
                  offices, titles and reporting requirements), authority or
                  responsibilities as contemplated by Section 4(a) of this
                  Agreement, or any other action by the Company which results in
                  a material diminution in such position, authority or
                  responsibilities;

            (ii)  a reduction in the Executive's Annual Base Salary as in effect
                  on the date of this Agreement or as the same was or may be
                  increased thereafter from time to time;

            (iii) the Company's requiring the Executive to be based at any
                  office or location other than that described in Section
                  4(a)(i)(B) hereof;

            (iv)  any purported termination by the Company of the Executive's
                  employment otherwise than as expressly permitted by this
                  Agreement; or

            (v)   any failure by the Company to comply with and satisfy Section
                  15(c) of this Agreement.

      (d)   Notice of Termination. Any termination by the Company for Cause or
            by the Executive for Good Reason shall be communicated by Notice of
            Termination to the other party hereto given in accordance with
            Section 16(b) of this Agreement. For purposes of this Agreement, a
            "Notice of Termination" means a written notice which (i) indicates
            the specific termination provision in this Agreement relied upon,
            (ii) to

                                     - 6 -


            the extent applicable sets forth in reasonable detail the facts and
            circumstances claimed to provide a basis for termination of the
            Executive's employment under the provision so indicated and (iii) if
            the Date of Termination (as defined below) is other than the date of
            receipt of such notice, specifies the termination date (which date
            shall be not more than fifteen days after the giving of such
            notice).

      (e)   Date of Termination. "Date of Termination" means the date of receipt
            of the Notice of Termination or any later date specified therein, as
            the case may be; provided, however, that (i) if the Executive's
            employment is terminated by the Company other than for Cause or
            Disability, the Date of Termination shall be the date on which the
            Company notifies the Executive of such termination and (ii) if the
            Executive's employment is terminated by reason of death or
            Disability, the Date of Termination shall be the date of death of
            the Executive or the Disability Effective Date, as the case may be.

6.    OBLIGATIONS OF THE COMPANY UPON TERMINATION.

      (a)   Death. If the Executive's employment is terminated by reason of the
            Executive's death during the Employment Period, this Agreement shall
            terminate without further obligations to the Executive's legal
            representatives under this Agreement, other than the following
            obligations: (i) payment of the Executive's Annual Base Salary
            through the Date of Termination to the extent not theretofor paid,
            and (ii) payment of any accrued vacation pay not yet paid by the
            Company (the amounts described in paragraphs (i) and (ii) are
            hereafter referred to as "Accrued Obligations"). All Accrued
            Obligations shall be paid to the Executive's estate or beneficiary,
            as applicable, in a lump sum in cash within 30 days of the Date of
            Termination. In addition to the Accrued Obligations, in the event
            (A) the Board subsequently approves the payment of an annual bonus
            to members of management for the fiscal year in which the Date of
            Termination occurred and (B) the Executive was employed at least one
            quarter of such fiscal year, then the Executive's estate or
            beneficiary shall be entitled to receive an additional payment equal
            to the bonus that such Executive would have received for such fiscal
            year (as determined by the Board) multiplied by a fraction, the
            numerator of which is the number of days in such fiscal year for
            which the Executive was actually employed and the denominator is 365
            days.

      (b)   Disability. If the Executive's employment is terminated by reason of
            the Executive's Disability during the Employment Period, this
            Agreement shall terminate without further obligations to the
            Executive, other than for Accrued Obligations. All Accrued
            Obligations shall be paid to the Executive in a lump sum in cash
            within 30 days of the Date of Termination. In addition to the
            Accrued Obligations, in the event (A) the Board subsequently
            approves the payment of an annual bonus to members of management for
            the fiscal year in which the Date of Termination occurred and (B)
            the Executive was employed at least one quarter of such fiscal year,
            then the Executive shall be entitled to receive an additional
            payment equal to the bonus that such Executive would have received
            for such fiscal year (as determined by the Board) multiplied by a
            fraction, the numerator of which is the number of days in such
            fiscal year for which the Executive was actually employed and the
            denominator is 365 days.

                                     - 7 -


      (c)   Cause; Other than for Good Reason. If the Executive's employment
            shall be terminated for Cause during the Employment Period, this
            Agreement shall terminate without further obligations to the
            Executive other than the obligation to pay to the Executive Annual
            Base Salary through the Date of Termination plus the amount of any
            compensation previously deferred by the Executive, in each case to
            the extent theretofore unpaid. If the Executive terminates
            employment during the Employment Period other than for Good Reason,
            this Agreement shall terminate without further obligations to the
            Executive, other than for Accrued Obligations. In such case, all
            Accrued Obligations shall be paid to the Executive in a lump sum in
            cash within 30 days of the Date of Termination.

      (d)   Good Reason; Other Than for Cause or Disability. If, during the
            Employment Period, the Company shall terminate the Executive's
            employment other than for Cause or Disability, or the Executive
            shall terminate employment during the Employment Period for Good
            Reason, the Company shall pay to the Executive in a lump sum in cash
            within 60 days after the Date of Termination, and subject to
            receiving an executed irrevocable Release as described in Section
            12, the aggregate of the following amounts:

            A.    all Accrued Obligations; and

            B.    the product of (x) three and (y) the sum of (i) Annual Base
                  Salary and (ii) the Annual Bonus paid or payable (including
                  any bonus or portion thereof which has been earned but
                  deferred) for the most recently completed fiscal year (the
                  "Severance Payments");

            provided, however, that the calculation of such Severance Payments
            shall be reduced from three to 1.5 in equal monthly amounts (i.e.,
            .125 per month) over the twelve-month period following the date
            hereof until the product is reduced from three to 1.5 such that on
            and after twelve months from the date of this Agreement the number
            "three" in clause (x) of Section 6(d)(B) above shall read "1.5."

            In addition, for the remainder of the Employment Period (if the
            termination took place during the Employment Period under this
            Section 6), the Company shall continue benefits to the Executive
            and/or the Executive's family at least equal to those which would
            have been provided to them in accordance with the plans, programs,
            practices and policies described in Section 4(b)(iv) of this
            Agreement if the Executive's employment had not been terminated in
            accordance with the most favorable plans, practices, programs or
            policies of the Company and its affiliated companies applicable
            generally to other peer executives and their families during the
            90-day period immediately preceding the Effective Date or, if more
            favorable to the Executive, as in effect generally at any time
            thereafter with respect to other peer executives of the Company and
            its affiliated companies and their families. For purposes of
            determining eligibility of the Executive for retiree benefits
            pursuant to such plans, practices, programs and policies, the
            Executive shall be considered to have remained employed until the
            end of the Employment Period and to have retired on the last day of
            such period.

            Notwithstanding the foregoing, if a Change of Control or other event
            shall have

                                     - 8 -


            occurred before the Date of Termination that would result in the
            Executive becoming entitled to receive payments under this Agreement
            or any other arrangement that would be "parachute payments", as
            defined in Section 280G of the Internal Revenue Code of 1986, as
            amended from time to time (the "Code"), the Company shall not be
            obligated to make such payments to the Executive to the extent
            necessary to eliminate any "excess parachute payments" as defined in
            said Section 280G; provided, however, that if the Executive would be
            better off by at least $25,000 on an after-tax basis by receiving
            the full amount of the parachute payments as opposed to the cut back
            amount (notwithstanding a 20% excise tax) the Executive shall
            receive the full amount of the parachute payments.

      (e)   Other Benefits. To the extent not previously paid or provided, the
            Company shall timely pay or provide to the Executive any other
            amounts or benefits required to be paid or provided or which the
            Executive is eligible to receive following the Executive's
            termination of employment under any plan, program, policy, practice,
            contract or agreement of the Company and its affiliated companies
            (the "Other Benefits"). The Other Benefits shall be payable in
            accordance with the terms of the plan, program, policy, practice,
            contract or agreement under which such benefits have accrued.

7.    DIVISIONAL SALE AND CHANGE IN CONTROL BONUSES.

      (a)   Division Sale Bonus. Upon the consummation of the sale or
            liquidation of the Toner or Coated divisions, the Executive shall
            receive a bonus payment equal to 1% of the Net Sale Price of Coated
            or 3% of the Net Sale Price of Toner, as applicable, provided that
            the maximum bonus that shall be payable upon the sale of Toner shall
            be $400,000 and the maximum bonus payable upon the sale of Coated
            shall be $400,000. The bonus will be earned and payable only upon
            the consummation of the sale or liquidation of the applicable
            division.

      (b)   Appraisal. Any controversy or claim arising out of the determination
            of the Net Sale Price shall be settled by a qualified appraisal
            firm. The Company and the Executive shall each select one appraisal
            firm to handle the controversy or claim. In the event that the
            Company and the Executive are unable to agree on an appraisal firm,
            the Company and the Executive shall each select an appraisal firm,
            and the two appraisal firms shall together select a third appraisal
            firm to conduct the appraisal. The appraisal shall be conducted
            within ten days after the appointment of the appraisal firm. The
            Company shall bear the costs and expenses of the appraisal firm
            incurred in connection with such appraisal. The appraisal shall be
            final and binding on the parties.

      (c)   Change of Control Bonus. If there is a Change of Control of the
            Company prior to the consummation of the sale of either Toner or
            Coated, the Executive will be paid a change of control bonus as set
            forth below. The amount of the bonus to be paid upon a Change of
            Control shall be based on the fair market value, per share, of the
            consideration received by the Company's stockholders in connection
            with the Change in Control. If the fair market value, per share, of
            the consideration received by the Company's stockholders in
            connection with the Change in Control is:

            A.    at least $13.00, but less than $14.00, the bonus shall be
                  $410,000;

                                     - 9 -


            B.    at least $14.00, but less than $15.00, the bonus shall be
                  $451,000; or

            C.    $15.00 or greater, the bonus shall be $496,000.

            No bonus shall be paid under this clause (c) if the fair market
      value, per share, of the consideration received by the Company's
      stockholders in connection with the Change in Control is less than $13.00.
      If only Toner or only Coated is sold prior to a Change of Control of the
      Company, the amount of the bonus payable under this clause (c) upon a
      Change of Control would be reduced by the amount of any bonus previously
      paid pursuant to clause (a) above with respect to such prior sale. The per
      share amounts set forth herein are subject to adjustment for stock splits,
      stock dividends, recapitalizations and similar events.

8.    SEVERANCE BENEFITS. Notwithstanding anything contained in this Agreement
      to the contrary, if, before or after the Employment Period, the
      Executive's employment is terminated by the Company for reason other than
      for Cause, the Company shall pay to the Executive one year's salary
      continuation and continue medical and dental benefits during such
      continuation period. In the event the Executive's employment is terminated
      prior to the consummation of the sale of both Coated and Toner, the
      Executive will continue to be eligible for the division sale bonus amount
      pursuant to Section 7(a) if the consummation of the sale of either Toner
      or Coated is closed within six months of the date of the last day of her
      actual employment with the Company.

9.    NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
      limit the Executive's continuing or future participation in any benefit,
      bonus, incentive or other plans, programs, policies or practices, provided
      by the Company or any of its affiliated companies and for which the
      Executive may qualify, nor shall anything herein limit or otherwise affect
      such rights as the Executive may have under any other agreements with the
      Company or any of its affiliated companies. Amounts which are vested
      benefits or which the Executive is otherwise entitled to receive under any
      plan, policy, practice or program of the Company or any of its affiliated
      companies at or subsequent to the Date of Termination shall be payable in
      accordance with such plan, policy, practice or program except as
      explicitly modified by this Agreement.

10.   FULL SETTLEMENT. The Company's obligation to make the payments provided
      for in this Agreement and otherwise to perform its obligations hereunder
      shall not be affected by any set-off, counterclaim, recoupment, defense or
      other claim, right or action which the Company may have against the
      Executive or others. In no event shall the Executive be obligated to seek
      other employment or take any other action by way of mitigation of the
      amounts payable to the Executive under any of the provisions of this
      Agreement. The Company agrees to pay, to the full extent permitted by law,
      all legal fees and expenses which the Executive may reasonably incur as a
      result of any contest (but only in the event the Executive is successful
      on the merits of such contest) by the Company, the Executive or others of
      the validity or enforceability of, or liability under, any provision of
      this Agreement or any guarantee of performance thereof, plus in each case
      interest at the applicable Federal rate provided for in Section 7872(f)(2)
      of the Internal Revenue Code of l986, as amended (the "Code").

11.   OTHER AGREEMENTS. The parties agree that this Agreement supersedes and
      replaces the Prior Severance Agreement and any and all other agreements,
      policies, understandings or letters (including but not limited to
      employment agreements, severance agreements and job abolishment policies)
      between the parties related to the subject matter hereof.

                                     - 10 -


12.   RELEASE. Prior to receipt of the payment described in Sections 6(d), 7 or
      8, the Executive shall execute and deliver a Release to the Company as
      follows:

                  The Executive hereby fully, forever, irrevocably and
                  unconditionally releases, remises and discharges the Company,
                  its officers, directors, stockholders, corporate affiliates,
                  agents and employees from any and all claims, charges,
                  complaints, demands, actions, causes of action, suits, rights,
                  debts, sums of money, costs, accounts, reckonings, covenants,
                  contracts, agreements, promises, doings, omissions, damages,
                  executions, obligations, liabilities and expenses (including
                  attorneys' fees and costs), of every kind and nature which he
                  ever had or now has against the Company, its officers,
                  directors, stockholders, corporate affiliates, agents and
                  employees, including, but not limited to, all claims arising
                  out of his employment, all employment discrimination claims
                  under Title VII of the Civil Rights Act of 1964, 42 U.S.C.
                  Section 2000e et seq., the Age Discrimination in Employment
                  Act, 29 U.S.C., Section 621 et seq., the Americans With
                  Disabilities Act, 42 U.S.C., Section 12101 et seq., the New
                  Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann.
                  Section 354-A:1 et seq. and similar state antidiscrimination
                  laws, damages arising out of all employment discrimination
                  claims, wrongful discharge claims or other common law claims
                  and damages, provided, however, that nothing herein shall
                  release the Company from Executive's Stock Option Agreements
                  or Restricted Stock Agreements.

      The Release shall also contain, at a minimum, the following language:

                  The Executive acknowledges that he has been given twenty-one
                  (21) days to consider the terms of this Release and that the
                  Company advised him to consult with an attorney of his own
                  choosing prior to signing this Release. The Executive may
                  revoke this Release for a period of seven (7) days after the
                  execution of the Release and the Release shall not be
                  effective or enforceable until the expiration of this seven
                  (7) day revocation period.

      At the same time, the Company shall execute and deliver a Release to the
      Executive as follows:

            The Company hereby fully, forever, irrevocably and unconditionally
            releases, remises and discharges the Executive from any and all
            claims which it ever had or now has against the Executive, other
            than for intentional harmful acts.

13.   CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity
      for the benefit of the Company all secret or confidential information,
      knowledge or data relating to the Company or any of its affiliated
      companies, and their respective businesses, which shall have been obtained
      by the Executive during the Executive's employment by the Company or any
      of its affiliated companies and which shall not be or become public
      knowledge (other than by acts by the Executive or representatives of the
      Executive in violation of this Agreement). After termination of the
      Executive's employment with the Company, the Executive shall not, without
      the prior written consent of the Company, communicate or divulge any such
      information, knowledge or data to anyone other than the Company and those
      designated by it. In no event shall an asserted violation of the
      provisions of this Section 13 constitute a basis for deferring or
      withholding any amounts otherwise payable to the Executive under this
      Agreement.

                                     - 11 -


14.   ARBITRATION. Any controversy or claim arising out of this Agreement shall
      be settled by binding arbitration in accordance with the commercial rules,
      policies and procedures of the American Arbitration Association. Judgment
      upon any award rendered by the arbitrator may be entered in any court of
      law having jurisdiction thereof. Arbitration shall take place in Nashua,
      New Hampshire at a mutually convenient location.

15.   SUCCESSORS.

      (a)   This Agreement is personal to the Executive and without the prior
            written consent of the Company shall not be assignable by the
            Executive otherwise than by will or the laws of descent and
            distribution. This Agreement shall inure to the benefit of and be
            enforceable by the Executive's legal representatives.

      (b)   This Agreement shall inure to the benefit of and be binding upon the
            Company and its successors and assigns.

      (c)   The Company will require any successor (whether direct or indirect,
            by purchase, merger, consolidation or otherwise) to all or
            substantially all of the business and/or assets of the Company to
            assume expressly and agree to perform this Agreement in the same
            manner and to the same extent that the Company would be required to
            perform it if no such succession had taken place. As used in this
            Agreement, "Company" shall mean the Company as hereinbefore defined
            and any successor to its business and/or assets as aforesaid which
            assumes and agrees to perform this Agreement by operation of law or
            otherwise.

16.   MISCELLANEOUS.

      (a)   This Agreement shall be governed by and construed in accordance with
            the laws of the Commonwealth of Massachusetts, without reference to
            principles of conflict of laws. The captions of this Agreement are
            not part of the provisions hereof and shall have no force or effect.
            This Agreement may not be amended or modified otherwise than by a
            written agreement executed by the parties hereto or their respective
            successors and legal representatives.

      (b)   All notices and other communications hereunder shall be in writing
            and shall be given by hand delivery to the other party or by
            registered or certified mail, return receipt requested, postage
            prepaid, addressed as follows:

                  If to the Executive:

                      Donna J. DiGiovine
                      6 Lakeside Terrace
                      Westford, MA  01886

                  If to the Company:

                      Nashua Corporation
                      11 Trafalgar Square
                      Nashua, New Hampshire 03063
                      Attention: President

                                     - 12 -


            or to such other address as either party shall have furnished to the
            other in writing in accordance herewith. Notice and communications
            shall be effective when actually received by the addressee.

      (c)   The invalidity or unenforceability of any provision of this
            Agreement shall not affect the validity or enforceability of any
            other provision of this Agreement.

      (d)   The Company may withhold from any amounts payable under this
            Agreement such Federal, state or local taxes as shall be required to
            be withheld pursuant to any applicable law or regulation.

      (e)   The Executive's failure to insist upon strict compliance with any
            provision hereof or the failure to assert any right the Executive
            may have hereunder, including, without limitation, the right to
            terminate employment for Good Reason pursuant to Section
            5(c)(i)-(v), shall not be deemed to be a waiver of such provision or
            right or any other provision or right thereof.

      (f)   This Agreement contains the entire understanding of the Company and
            the Executive with respect to the subject matter hereof. The
            Executive and the Company acknowledge that the employment of the
            Executive by the Company is "at will" and, prior to the Effective
            Date, both the Executive's employment and this Agreement may be
            terminated by either the Company or the Executive at any time. In
            the event that this Agreement is terminated by the Company prior to
            the Effective Date and the Executive remains employed by the
            Company, the Executive would be entitled to the same severance
            benefits as set forth in Section 8 of this Agreement.

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

NASHUA CORPORATION                             EXECUTIVE

By /s/ Andrew B. Albert                        By  /s/ Donna J. DiGiovine
  -------------------------------------            -----------------------------
  President and Chief Executive Officer             Name: Donna J. DiGiovine

                                     - 13 -

EX-10.2

                                                                    Exhibit 10.2

                    SEPARATION AND GENERAL RELEASE AGREEMENT

      THIS SEPARATION AND GENERAL RELEASE AGREEMENT (the "Agreement") is made as
of March 9, 2005 by and between Nashua Corporation ("Nashua"), and Robert S.
Amrein ("Executive"). Executive and Nashua are sometimes referred to herein as
the "Parties."

                                    RECITALS

      WHEREAS, the Parties wish to memorialize terms relating to Executive's
separation from Nashua, including extending certain consideration to Executive
after his separation;

      WHEREAS, Nashua and Executive are parties to a Change of Control and
Severance Agreement dated as of December 15, 2000 (the "Prior Agreement");

      WHEREAS, the Parties wish to terminate the Prior Agreement and supersede
it with this Agreement; and

      WHEREAS, Executive acknowledges that the consideration offered to him
under this Agreement is greater than he otherwise would have been entitled to
receive from Nashua.

      NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Parties hereby agree as follows:

      1.    Severance.

            (a) Executive acknowledges and agrees that effective as of July 1,
2005 (the "Effective Date") (i) his employment with Nashua shall terminate, and
(ii) he shall cease to have any power or authority to act either as an employee
or an officer on behalf of Nashua, or any of its affiliates.

            (b) Except as provided below in Section 2, Executive shall not have
any rights or interests in or with respect to Nashua and will not be entitled to
any further compensation or benefits from Nashua, except as expressly provided
in this Agreement.

            (c) If Executive works from the date of this Agreement through July
1, 2005 and is not sooner terminated by the Company for Cause, timely signs and
does not revoke this Agreement as provided below, and executes a reaffirmation
of the release of claims in Section 6 below on his final date of employment with
Nashua, Nashua will pay Executive:

                  (i) his base salary accrued through the last day of his
employment with the Company;

                  (ii) twelve (12) monthly payments each equal in amount to
one-twelfth (1/12th) of Executive's base salary as of the last day of his
employment with the Company, less applicable state and federal taxes and
withholdings; and

                  (iii) should Executive be eligible for and elect continuation
of group health insurance under the federal COBRA law, reimbursement for the
total costs of monthly



medical and dental insurance premium payments and administrative fees for a
period of twelve (12) months after the Effective Date upon his submission of
documentation of such expenses to Nashua. For purposes of this section, "Cause"
means (x) an action taken by Executive involving willful and wanton malfeasance
involving specifically a wholly wrongful and unlawful act, or (y) Executive
being convicted of a felony.

      2. Change of Control.

      If (A) there is a Change of Control prior to the Effective Date and
Executive is not sooner terminated by the Company for Cause or (B) there is a
Change of Control between the Effective Date and December 31, 2005, and subject
to Executive executing a reaffirmation of the release of claims set forth in
Section 6 below, the Company shall pay to Executive in a lump sum in cash within
60 days of the later of (x) the Effective Date and (y) the date of such Change
of Control, the aggregate of the following amounts (in lieu of any payments and
less any amounts paid (including benefits) pursuant to Section 1(c) above):

                  (i) all Accrued Obligations; and

                  (ii) the sum of (A) annual base salary and (B) the Highest
Annual Bonus; and

                  (iii) a lump-sum retirement benefit equal to the difference
between (a) the actuarial equivalent of the benefit under the Nashua Corporation
Retirement Plan for Salaried Employees (the "Retirement Plan") and any
supplemental and/or excess retirement plan providing benefits for Executive (the
"SERP") which Executive would receive if Executive's employment continued at the
compensation level as of the date of this Agreement for a period of three years
from the date of such Change of Control (the "Change of Control Period"),
assuming for this purpose that all accrued benefits are fully vested, and (b)
the actuarial equivalent of Executive's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP; for purposes of determining the
amount payable pursuant to this Section 2(a)(iii) the accrual formulas and
actuarial assumptions utilized shall be no less favorable than those in effect
with respect to the Retirement Plan and the SERP during the 90-day period
immediately prior to the date of such Change of Control.

            In addition, for the remainder of the Change of Control Period,
Nashua shall continue benefits to Executive and/or Executive's family at least
equal to those which would have been provided to them in accordance with the
welfare benefit plans, programs, practices and policies provided by Nashua and
its affiliated companies (including without limitation medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent generally
applicable to other peer executives of Nashua and its affiliated companies, if
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of Nashua and its affiliated
companies applicable generally to other peer executives and their families
during the 90-day period immediately preceding the date of such Change of
Control or, if more favorable to Executive, as in effect generally at any time
thereafter with respect to other peer executives of Nashua and its affiliated
companies and their families. For purposes of determining eligibility of
Executive for retiree benefits pursuant to such plans, practices,

                                       2


programs and policies, Executive shall be considered to have remained employed
until the end of the Change of Control Period and to have retired on the last
day of such period.

            (b) Definitions

                  For purposes of this Agreement:

                  (i) "Accrued Obligations" shall mean (a) payment of
Executive's annual base salary through the Effective Date to the extent not
theretofore paid, (b) payment of the product of (x) the greater of the annual
bonus paid or payable, including by reason of deferral, (and annualized for any
fiscal year consisting of less than twelve full months or for which Executive
has been employed for less than twelve full months) for the three fiscal years
immediately preceding fiscal year 2005, if any, (such greater amount hereafter
referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Effective
Date, and the denominator of which is 365 and (c) payment of any compensation
previously deferred by Executive (together with any accrued interest thereon)
and not yet paid by Nashua and any accrued vacation pay not yet paid by Nashua.

                  (ii) "Change of Control" shall mean:

                        (a) The acquisition, other than from Nashua, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of l934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) (a "Person") of more than 50% of either (i) the then outstanding
shares of common stock of Nashua (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding voting securities of
Nashua entitled to vote generally in the election of directors (the "Company
Voting Securities"), provided, however, that any acquisition by (x) Nashua or
any of its subsidiaries, or any employee benefit plan (or related trust)
sponsored or maintained by Nashua or any of its subsidiaries or (y) any
corporation with respect to which, following such acquisition, more than 60% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Company Voting Securities immediately prior
to such acquisition in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the Outstanding Company Common Stock
and Company Voting Securities, as the case may be, shall not constitute a Change
of Control; or

                        (b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for election by
Nashua's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened

                                       3


election contest relating to the election of the directors of Nashua (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act); or

                        (c) Approval by the stockholders of Nashua of a
reorganization, merger or consolidation (a "Business Combination"), in each
case, with respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of the Outstanding Company
Common Stock and Company Voting Securities immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from Business Combination in
substantially the same proportion as their ownership immediately prior to such
Business Combination of the Outstanding Company Common Stock and Company Voting
Securities, as the case may be; or

                        (d) (i) a complete liquidation or dissolution of Nashua
or of (ii) sale or other disposition of all or substantially all of the assets
of Nashua other than to a corporation with respect to which, following such sale
or disposition, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Company Voting Securities immediately prior
to such sale or disposition in substantially the same proportion as their
ownership of the Outstanding Company Common Stock and Company Voting Securities,
as the case may be, immediately prior to such sale or disposition.

      3. Confidentiality.

            (a) Executive agrees that he will not under any circumstances retain
or use in any way any proprietary or confidential information of Nashua or any
of its affiliates. Proprietary or confidential information (collectively,
"Confidential Information") means information the unauthorized disclosure or use
of which reduces the value of Nashua or which Nashua would not ordinarily
furnish to the public voluntarily, except for information which at the time of
disclosure was in the public domain not in violation of any non-disclosure
obligation. Such information includes, without limitation, the identity of, or
any confidential information about (or provided by), any client of Nashua or any
of its affiliates, information concerning the business, financial or personnel
affairs of Nashua or any of its affiliates, including their respective books and
records, commitments, procedures, current, former and prospective clients' plans
and prospects, securities positions, trading strategies, or current or
prospective transactions or business of Nashua or any of its affiliates.
Confidential Information also includes the terms, conditions, and existence of
this Agreement. In the event that Executive is required by applicable law, rule,
regulation or legal process to disclose any Confidential Information, Executive
agrees to provide Nashua with immediate written notice thereof so that Nashua,
if it so chooses, may seek to obtain a protective order with respect thereto.

            (b) Executive agrees to and confirms that prior to the Effective
Date he will deliver to Nashua all Confidential Information and will not retain
copies of any written materials

                                       4


or electronic disks, tapes or other documents made by him or coming into his
possession during the course of his association with Nashua which contain or
refer to any such Confidential Information.

            (c) Executive agrees that, except as directed by Nashua, he will not
at any time disclose to any person or use, directly or indirectly, for his own
benefit or the benefit of others, any Confidential Information, or permit any
person to examine or make copies of any documents which may contain or is
derived from Confidential Information, whether prepared by Executive or
otherwise coming into Executive's possession or control.

            (d) Executive agrees he will not at any time disparage, criticize or
ridicule any of the Nashua Released Parties (as defined in Section 6(a) below)
or make any negative public comments either by way of news interviews or the
expression of his personal views, opinions or judgments to the media, to current
or former officers, directors or employees of Nashua or its affiliates or to any
individuals or entities with whom Nashua or its affiliates have or may have a
business relationship. Nashua agrees that it will not at any time disparage,
criticize or ridicule Executive or make any negative public comments either by
way of news interviews or the expression of personal views, opinions or
judgments to the media or to current or former officers, directors or employees
of Nashua or to any individuals or entities with whom Nashua or its affiliates
have or may have a business relationship.

            (e) Executive and Nashua acknowledge that irreparable damage would
result to Nashua if the provisions of Section 3 of this Agreement are not
specifically enforced, and Executive agrees that Nashua shall be entitled to any
appropriate legal, equitable or further relief, including injunctive relief,
damages and attorneys fees and costs to enforce its rights hereunder, in respect
of any failure to comply with the provisions of Section 3 of this Agreement.

      4. Outplacement Services. Commencing on the date of this Agreement, Nashua
will provide Executive with outplacement benefits in accordance with existing
Nashua policies.

      5. Stock Options. It is understood and agreed that Executive's outstanding
options to purchase Nashua common stock shall remain subject to the terms of the
applicable stock option agreement and plan, unmodified and unchanged by virtue
of this Agreement, and no additional rights or vesting with respect to such
options are conferred by this Agreement.

      6. Release.

            (a) In exchange for the payment and other consideration provided for
in this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Executive hereby forever
unconditionally and irrevocably releases and discharges Nashua, and its direct
and indirect affiliates, subsidiaries (wholly-owned or not), branches,
divisions, business units or groups, agencies, predecessors, successors and
assigns, and each and all of their current and former officers, directors,
employees, trustees, agents, attorneys, representatives, partners, members,
advisors and shareholders (collectively and individually, the "Nashua Released
Parties"), from any and all claims, causes of action, complaints, agreements,
promises, contracts, undertakings, covenants, guarantees, grievances,
liabilities, damages, rights, obligations, expenses, debts and demands
whatsoever, in law or equity, known or unknown,

                                       5


whether present or future, and of whatsoever kind or nature, which Executive,
his heirs, executors, administrators, representatives and assigns ever had or
now has, for, upon, or by reason of any alleged or actual matter, cause or thing
from the beginning of time until the date he signs this Agreement, including but
not limited to those arising out of, in connection with or relating in any way
to Executive's employment or the termination of his employment or status as a
stockholder or optionholder.

            (b) Executive understands and acknowledges that by signing this
Agreement he is waiving and releasing any and all claims he may have concerning
the terms and conditions of his employment and the termination of his employment
under any federal law or the laws of any state, city, locality, county or
commonwealth, including those prohibiting discrimination or harassment on the
basis of sex, age, race, color, disability, religion, creed, national origin,
ancestry, sexual orientation, handicap, marital status, citizenship or any other
protected factor or characteristic, prohibiting discrimination with regard to
benefits or any other terms and conditions of employment, or prohibiting
retaliation in connection with any complaint or claim of alleged discrimination
or harassment and that he intends to do so. As such, this release includes, but
is not limited to, any claims arising under the Age Discrimination in Employment
Act of 1967 ("ADEA"), as amended, the Older Workers Benefit Protection Act, the
Americans with Disabilities Act, the Civil Rights Act of 1991, Title VII of the
Civil Rights Act of 1964, as amended, the Civil Rights Act of 1866, as amended,
the Family Medical Leave Act of 1993, the Employee Retirement Income Security
Act, the Worker Adjustment and Retraining Notification Act, all as amended, any
public policy, contract or common law, and any alleged entitlement to costs,
fees or expenses, including attorneys' fees, under federal, state or local laws,
rules, regulations or ordinances or under common law, tort or contract theories.

            (c) Executive hereby intends to expressly waive and relinquish, to
the fullest extent permitted by law, all claims he may have whether or not known
or suspected to exist in his favor at the time of the execution of this
Agreement. Executive further acknowledges that he is aware that he may hereafter
discover facts in addition to or different from those which he now knows or
believes to be true with respect to the subject matter of this Agreement, but it
is his intention to, and he does fully, finally and forever settle and release
any and all claims against the Nashua Released Parties in any forum whatsoever,
relating in any way to the claims being released herein, whether known or
unknown, suspected or unsuspected, which now exist, may hereafter exist, or
heretofore have existed, and without regard to the subsequent discovery or
existence of such different additional facts.

            (d) Executive acknowledges that he has been paid and has received
all, compensation, wages, and/or benefits to which he may be entitled and that
no other, compensation, wages, and/or benefits are due to him, except as
provided in this Agreement. Executive further affirms that he has no known
occupational diseases and that he has been provided and/or has not been denied
any leave requested under the federal and state Family and Medical Leave Act.

            (e) Executive represents that he has not filed a lawsuit, complaint
or proceeding of any kind against any of the Nashua Released Parties.

                                       6


            (f) Notwithstanding anything in the foregoing paragraphs or
otherwise in this Agreement to the contrary, nothing in this Agreement prevents
Executive from filing, cooperating with, or participating in any proceeding
before the Equal Employment Opportunity Commission or a state fair employment
practices agency, except that Executive acknowledges that he may not be able to
recover any monetary benefits in connection with any such claim, charge or
proceeding. In addition, notwithstanding anything in the foregoing paragraphs or
otherwise in this Agreement to the contrary, no penalty, condition precedent
(including any requirement that Executive tender back the consideration being
paid under this Agreement) or other limitation shall be imposed if Executive
challenges the waiver of his rights or covenant not to sue under the ADEA on the
grounds that the waiver or covenant not to sue was not made knowingly and
voluntarily. However, nothing herein shall affect Nashua's rights to seek
restitution, recoupment or setoff or any other remedy in connection with any
such challenge.

            (g) Executive hereby acknowledges that:

                  (i) the payments he will receive under this Agreement are more
than the benefits he would have been entitled to had he not signed this
Agreement;

                  (ii) he has been advised by Nashua that he should consult with
an attorney concerning the terms of this Agreement and its effect on him before
signing it;

                  (iii) he has in fact read this Agreement, he has had an
adequate opportunity to review the terms of this Agreement, he understands its
terms and consequences and is executing it freely and voluntarily;

                  (iv) he was advised that he has a period of at least
twenty-one (21) calendar days from the date he received this Agreement in which
to decide whether to sign it; and

                  (v) no promises or agreements of any kind, other than those
set forth herein, have been made to or with him by any person or entity
whatsoever to cause him to sign this Agreement.

            (h) Executive understands that for a period of seven (7) calendar
days following his execution and delivery of a signed copy of this Agreement to
Nashua, he may revoke this Agreement by delivering written notice revoking the
same within that time period to the Human Resources Department of Nashua. If the
Agreement is not revoked during that seven (7) day period, it shall become
final. Should Executive revoke this Agreement, he understands that Nashua shall
have no obligation to provide him with any of the consideration set forth above
and that he shall have the same rights with respect to Nashua that he had prior
to signing this Agreement.

            (i) The parties agree that the existence and terms of this Agreement
are confidential and may not be disclosed except to their respective attorneys
and tax advisors or on compulsion of law, or in the case of Executive, to his
family members.

            (j) Executive represents that prior to the Effective Date he will
return to Nashua all company property and equipment of any kind in his
possession or control. This

                                       7


includes computer equipment (hardware and software), facsimile machines,
printers, telephones, palm pilots and other communications devices, credit
cards, office keys, security access cards, badges, identification cards and all
copies (including drafts) of any documentation or information (however stored),
relating to the business of the Nashua Released Parties, their clients or
prospective clients. In addition, Executive represents that he will download
onto disks all company property, if any, from any computer he has used
(excluding those at Nashua's offices) and deliver those disks (and all copies)
to Nashua, and take all steps necessary to purge all company property
permanently from any such computer.

      7. Miscellaneous.

            (a) This Agreement shall be construed without regard to the party or
parties responsible for its preparation and shall be deemed as prepared jointly
by the Parties. Any ambiguity or uncertainty existing herein shall not be
interpreted or construed against any party solely because of its role in
preparing this Agreement.

            (b) This Agreement amicably resolves any issues between the Parties,
and Executive agrees that this Agreement shall neither be interpreted nor
construed as an admission of any wrongdoing or liability on the part of any of
the Nashua Released Parties.

            (c) This Agreement and any claims arising hereunder shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to principles of conflicts of laws. Executive
hereby submits to the jurisdiction of the courts of the Commonwealth of
Massachusetts, or if appropriate, a federal court located in Massachusetts, over
any suit, action or other proceeding arising out of, under, or in connection
with this Agreement or its subject matter.

            (d) This Agreement contains the entire agreement between Executive
and Nashua and supersedes and terminates any prior agreement or understanding
between the Parties on the subjects covered herein including without limitation
the Prior Agreement and any other employment agreement or arrangement. No
agreements, representations or statements of either party not contained in this
Agreement shall bind that party. This Agreement can be modified only in writing
signed by both Parties.

            (e) In the event that any provision or term of this Agreement is
held to be invalid, void or unenforceable for any reason, the validity of the
remaining parts, terms or provisions shall not be affected thereby and said
illegal or invalid part, term or provision shall be deemed not to be a part of
this letter agreement, and Nashua may elect to enforce the remainder of the
Agreement, or cancel it and get back from Executive any consideration paid.

            (f) No delay or omission by Nashua in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver or
consent given by Nashua on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.

            (g) Any notice that may be given in respect of this Agreement shall
be delivered by hand or by mail to the Parties as follows:

                                       8


                    To Nashua Corporation:

                    Nashua Corporation
                    11 Trafalgar Square, 2nd Floor
                    Nashua, NH  03063
                    Attention:  Chief Executive Officer
                    Fax No.: (603) 880-5671

                    To Executive:

                    Robert S. Amrein
                    12 Queensway Circle
                    Nashua, NH  03062
                    Fax No.: ________

Any notice or other communication hereunder shall be deemed duly delivered five
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent for next
business day delivery via a reputable nationwide overnight courier service. Any
notice or communication made by hand shall be effective upon delivery. Any
notice or communication made by fax shall be effective upon delivery if during
normal business hours, otherwise it will be effective the next business day. The
persons to whom notice is to be given may be changed by giving notice to the
other Party.

            (h) This Agreement may be executed in counterparts each of which
counterpart shall be deemed an original and all of which counterparts, taken
together, shall constitute one and the same Agreement.

                           [Signature page to follow]

                                       9


      IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.

                                         NASHUA CORPORATION:

                                         By: /s/ Andrew B. Albert
                                             -----------------------------
                                         Name: Andrew B. Albert
                                         Title: Chief Executive Officer

                                         EXECUTIVE:

                                              /s/ Robert S. Amrein
                                           -----------------------------
                                           Robert S. Amrein

                                      10

EX-10.3

                                                                    Exhibit 10.3

                               NASHUA CORPORATION

                            MANAGEMENT INCENTIVE PLAN

1.     PURPOSE

       The purposes of the Management Incentive Plan ("MIP" or the "Plan") for
       Nashua Corporation (the "Company") are as follows:

       (a)      to attract and retain the best possible management talent;

       (b)      to permit management of the Company to share in its profits;

       (c)      to promote the success of the Company; and

       (d)      to link management rewards closely to individual and Company
                performance.


2.     DEFINITIONS

       (a)      "Code" means the Internal Revenue Code of 1986, as amended.


       (b)      "Committee" means the Leadership and Compensation Committee of
                the Company's Board of Directors.


       (c)      "Company" means Nashua Corporation.


       (d)      "Division Budgeted Performance" means the budgeted financial
                performance of each division of Nashua Corporation as approved
                by the Board of Directors.

       (e)      "MIP" means the Management Incentive Plan of the Company.

       (f)      "Participant" means any employee of the Company or any of its
                subsidiaries who has been designated as a Participant in the
                Plan in accordance with Article 3.

       (g)      "Performance Objectives" means one or more pre-established
                performance objectives.

       (h)      "Plan" means the Management Incentive Plan for Nashua
                Corporation.

       (i)      "Plan Year" means the fiscal year of the Company.

       (j)      "Total Company Budgeted Performance" means the budgeted
                financial performance of all of Nashua Corporation and its
                divisions during the Company's fiscal year as approved by the
                Board of Directors.

                            MANAGEMENT INCENTIVE PLAN
- --------------------------------------------------------------------------------


3.     PARTICIPATION

       Participation in the Plan is limited to key managers of the Company who
       have been recommended as Participants by the Officers of the Company and
       approved by the Committee. Participants may include, but are not limited
       to: Corporate Staff and Division Officers of the Company, non-officer
       General Managers and key functional Directors and Managers. The
       recommendation list is reviewed and approved by the Committee at the
       beginning of each Plan Year. Any changes to the list of Participants
       during any Plan Year will be recommended by the Chief Executive Officer
       and approved by the Committee.

4.     ANNUAL BONUS OPPORTUNITY

       Participants may have the opportunity to earn an annual variable bonus.

       (a)      Target Bonus

                The Target Bonus for each Participant is established each Plan
                Year. Bonuses will be capped based on award level at a maximum
                of 190% of target bonus at 150% of annual pre-tax budgeted
                income before Management Incentive Plan expense.

       (b)      Bonus Payout

                (i)   A Participant's annual bonus payout is based on the
                      overall Company's performance and the business unit
                      performance where appropriate.

                (ii)  Bonus payouts will be determined based on the following
                      schedule:

                      -    BONUS AT TARGET. The bonus award of an individual
                           will meet the "target" level ranging from 30% to 50%
                           of base salary, if the Division Budget Performance is
                           achieved for his/her division and/or if Total Company
                           Budget Performance is achieved.

                      -    BONUS BELOW TARGET. In the event of below budget
                           performance, the threshold for a payout is 80% of the
                           Total Company Budget Performance. In the event that
                           corporate performance is 79% or lower than budgeted
                           pretax income before management incentive plan
                           expense, no employee of either the corporate office
                           or of any division will receive an income based
                           bonus. For pretax income before Management Incentive
                           Plan expense performance between 80% and 100%,
                           bonuses will be paid at 50% and 100%, respectively,
                           with interpolation in between.


                                     Page 2

                            MANAGEMENT INCENTIVE PLAN
- --------------------------------------------------------------------------------

                      -    BONUS ABOVE TARGET. In the event of performance
                           above the Total Company Budgeted Performance or above
                           Divisional Budgeted Performance, a higher percentage
                           of incremental pretax income before Management
                           Incentive Plan expense will fund the bonus award pool
                           based on award level. Bonus will not exceed 190% of
                           the bonus at target and maximum bonus is achieved for
                           150% of budgeted pre-tax income.

                (iii) The Committee may, in its sole discretion, make required
                      adjustments to the Plan.

                (iv)  No bonuses for a Plan Year shall be paid to Participant
                      unless the Minimum Thresholds set by the Committee for
                      such Plan Year is met.

       (c)      Bonus Determination in Cases of Leave of Absence

                (i)   If a Participant is on a Company approved leave of absence
                      (including, without limitation, leaves of absence covered
                      by the Family and Medical Leave Act) for less than three
                      months during the Plan Year, then the employee will
                      continue to participate in this Plan for that Plan Year;
                      provided that the Committee may, in its sole discretion,
                      decrease the potential bonus under this Plan on a prorated
                      basis.

                (ii)  If a Participant is on a non-Company approved leave of
                      absence or is on a Company approved leave of absence for
                      more than three months, then the Participant is not
                      eligible to receive awards under this Plan, unless
                      approved by the Committee.

       (d)      Bonus Determination in Cases of Termination

                (i)   Participants whose employment terminated prior to the end
                      of the Plan Year for any reasons other than death,
                      disability, or retirement are not eligible to receive
                      awards under this Plan, unless approved by the Committee.

                (ii)  Participants whose employment terminates after the end of
                      the Plan Year, but before payment of the award, are not
                      eligible to receive the awards under this Plan unless
                      approved by the Committee.

5.     TIMING OF PAYMENT OF BONUSES

       (a)      Current Payment

                Except as provided in Section 5(b), the bonus allocated by the
                Committee for each Participant shall be paid in cash and in full
                as soon as may be conveniently possible after such allocation by
                the Board and certification by the Committee of the Company's
                achievement of the relevant Performance Objectives, but not
                later than two and one-half months from the last day of the Plan
                Year to which such bonus relates.


                                     Page 3

                            MANAGEMENT INCENTIVE PLAN
- --------------------------------------------------------------------------------

6.     PLAN ADMINISTRATION

       (a)      General Administration

                The Committee will administer the Plan, and will interpret the
                provisions of the Plan. The interpretation and application of
                these terms by the Committee shall be binding and conclusive.
                The Committee's authority will include, but is not limited to:

                (i)   Selecting of Participants

                (ii)  Establishing and modifying Performance Objectives.

                (iii) The determination of performance results and bonus awards.

                (iv)  Exceptions to the provisions of the Plan made in good
                      faith and for the benefit of the Company.

       (b)      Adjustments for Extraordinary Events

                If an event occurs during a Plan Year that materially influences
                the performance measures of the Company and is deemed by the
                Committee to be extraordinary and out of the control of
                management, the Committee may, in its sole discretion, increase
                or decrease the Performance Objectives used to determine the
                annual bonus payout. Events warranting such action may include,
                but are not limited to, changes in accounting, tax or regulatory
                rulings and significant changes in economic conditions resulting
                in windfall gains or losses.

       (c)      Amendment, Suspension, or Termination of the Plan

                The Committee may amend, suspend or terminate the Plan, in whole
                or in part, at any time, if, in the sole judgment of the
                Committee, such action is in the best interests of the Company.
                Notwithstanding the above, any such amendment, suspension or
                termination must be prospective in that it may not deprive
                Participants of that which they otherwise would have received
                under the Plan for the Plan Year had the Plan not been amended,
                suspended or terminated. The Company reserves the right to
                amend, modify, or repeal the Plan at any time without prior
                written notice to Participants.

7.     MISCELLANEOUS PROVISIONS

       (a)      Effective Date

                The effective date of the Plan is January 1, 2005.


                                     Page 4

                            MANAGEMENT INCENTIVE PLAN
- --------------------------------------------------------------------------------

       (b)      Titles

                Section and Article titles are provided herein for convenience
                only and are not to serve as a basis for interpretation or
                construction of the Plan.

       (c)      Employment Not Guaranteed

                Nothing contained in the Plan nor any action taken in the
                administration of the Plan shall be construed as a contract of
                employment or as giving a Participant any right to be retained
                in the service of the Company.

       (d)      Validity

                In the event that any provision of the Plan is held to be
                invalid, void or unenforceable, the same shall not effect, in
                any respect whatsoever, the validity of any other provision of
                the Plan.

       (e)      Withholding Tax

                The Company shall withhold from all benefits due under the Plan
                an amount sufficient to satisfy any federal, state and local tax
                withholding requirements.

       (f)      Applicable Law

                The Plan shall be governed in accordance with the laws of the
                State of New Hampshire.


                                     Page 5

EX-31.1

                                                                   EXHIBIT 31.01

                                 CERTIFICATIONS

I, Andrew B. Albert, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Nashua Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            a)    Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b)    Not applicable;

            c)    Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation;

            d)    Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting.

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent functions):

            a)    All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: May 16, 2005                          /s/ Andrew B. Albert
                                            --------------------------
                                            Andrew B. Albert
                                            Chairman, President and
                                            Chief Executive Officer

EX-31.2

                                                                   EXHIBIT 31.02

                                 CERTIFICATIONS

I, John L. Patenaude, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Nashua Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            a)    Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b)    Not applicable;

            c)    Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation;

            d)    Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting.

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent functions):

            a)    All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: May 16, 2005                             /s/ John L. Patenaude
                                               ---------------------------------
                                               John L. Patenaude
                                               Vice President - Finance and
                                               Chief Financial Officer

EX-32.1

                                                                   EXHIBIT 32.01

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report on Form 10-Q of Nashua Corporation
(the "Company") for the period ended April 1, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned,
Andrew B. Albert, Chairman, President and Chief Executive Officer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

            (1) the Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

            (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

                                                     /s/ Andrew B. Albert
                                                     ---------------------------
Dated: May 16, 2005                                  Andrew B. Albert
                                                     Chairman, President and
                                                     Chief Executive Officer

EX-32.2

                                                                   EXHIBIT 32.02

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report on Form 10-Q of Nashua Corporation
(the "Company") for the period ended April 1, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned, John
L. Patenaude, Vice President-Finance and Chief Financial Officer of the Company,
hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

            (1) the Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

            (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

                                                 /s/ John L. Patenaude
                                                 ------------------------------
            Dated: May 16, 2005                  John L. Patenaude
                                                 Vice President-Finance and
                                                 Chief Financial Officer