-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KBBVzzfTw5SmA7+2nCfZnlzGMkR1YJgGtqYGcBsO+Q3kPwsAD1IhvYYjkj2fO17O eckRUhyMRI6Q4dSzZjK2uw== 0000950135-96-001606.txt : 19960402 0000950135-96-001606.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950135-96-001606 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NASHUA CORP CENTRAL INDEX KEY: 0000069680 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 020170100 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05492 FILM NUMBER: 96543106 BUSINESS ADDRESS: STREET 1: 44 FRANKLIN ST STREET 2: PO BOX 2002 CITY: NASHUA STATE: NH ZIP: 03061-2002 BUSINESS PHONE: 6038802323 MAIL ADDRESS: STREET 1: 44 FRANKLIN STREET STREET 2: P O BOX 2002 CITY: NASHUA STATE: NH ZIP: 03061-2002 10-K405 1 NASHUA CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ---------------- ----------------- Commission File Number 1-5492-1 NASHUA CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its Charter) Delaware 02-0170100 - ---------------------------------- --------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) 44 Franklin Street P.O. Box 2002 Nashua, New Hampshire 03061-2002 - ---------------------------------- --------------------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (603) 880-2323 -------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, par value $1.00 New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.(X) Continued 2 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 X No --- --- The aggregate market value of voting stock held by non-affiliates of the registrant as of March 15, 1996 was approximately $68,464,003. The number of shares outstanding of the registrant's Common Stock as of March 15, 1996 was 6,598,940 (excluding 23,630 shares held in treasury). DOCUMENTS INCORPORATED BY REFERENCE None 3 PART I ITEM 1. BUSINESS GENERAL Nashua Corporation conducts business in three segments: Commercial Products, Photofinishing and Cerion Technologies (formerly Precision Technologies). The consolidated sales for 1995 were $452.2 million. Foreign sales and export sales from the United States totaled $138.8 million and represented 30.7 percent of the Company's total sales in fiscal 1995. Nashua was incorporated in Massachusetts in 1904 and changed its state of incorporation to Delaware in 1957. The Company has its principal executive offices at 44 Franklin Street, P.O. Box 2002, Nashua, New Hampshire 03061-2002 (Telephone: (603) 880-2323). References to the "Company" or to "Nashua" refer to Nashua Corporation and its consolidated subsidiaries, unless the context otherwise requires. On January 13, 1995, the Company acquired certain photofinishing operations from Nexus Photo Ltd. The acquisition includes mail-order photofinishing operations in France, Belgium, the Netherlands and Spain, and a wholesale film-processing business in Northern Ireland. The total purchase price was approximately $27.6 million. Approximately $20.7 million of the purchase price was provided under the $75 million revolving credit agreement dated January 5, 1995. The Company recorded restructuring and other unusual charges of $16.2 million in 1995, which included $14.3 million related to the Commercial Products Group, primarily for business unit and functional realignments, product and channel rationalizations, inventory write-downs related to the remanufactured cartridge operation, and cost reduction initiatives. The remainder of the 1995 charges resulted primarily from changes in the Company's executive management during the year, including severance and other personnel related costs. The 1995 restructuring and other unusual charges include charges of $8.2 million and $8 million in the third and fourth quarters, respectively. On March 21, 1996, Cerion Technologies filed a registration statement on Form S-1 with the Securities and Exchange Commission for a proposed initial public offering of 3,840,000 shares of common stock. Of the total, 1,615,000 shares are being offered by Cerion and 2,225,000 shares are being offered by Nashua as the selling stockholder. Cerion Technologies, based in Champaign, Illinois, is an independent supplier of aluminum substrates for the computer disk drive industry. All or most of the proceeds anticipated to be generated from the sale of shares offered by Nashua will be used to prepay a portion of the Company's debt. The Company's revolving credit facility and senior note agreement require maintenance of certain restrictive financial covenants related to interest and fixed charge coverage, tangible net worth, leverage and additional debt. Since September 29, 1995, the Company has not been in compliance with the interest and fixed charge coverage portions of these agreements. Since the initial date of technical default, the lenders have provided the Company with a forbearance during which time the parties have been negotiating amendments to the lending agreements in order to allow the Company to remain in compliance. As part of the interim agreement with its lenders, interest payable on amounts outstanding under the Revolving Credit Agreement were adjusted to the agent bank's prime rate (Reference Rate) plus .5 percent. On March 27, 1996, the Company reached agreement with its lenders on the terms of amendments to existing lending agreements which will supersede the terms and conditions of the existing $75 million revolving credit facility and the Company's senior note agreement. Under the provisions agreed to with lenders, the revolving credit facility will be replaced with a bank facility (the "Bank Facility"). Advances under the Bank Facility will be made pursuant to both a term loan arrangement and a revolving credit facility with an initial aggregate credit availability of up to $66 million. -2- 4 Of the total revolving credit balance outstanding on the facility closing date, $48 million will initially be designated as outstanding under the term loan portion of the Bank Facility with the remainder designated as outstanding under the revolving credit facility. The revolving credit portion of the Bank Facility will provide for initial credit availability equal to the lesser of $18 million or a defined percentage of eligible accounts receivable and inventory. The agreement also will provide for up to $5 million of the revolving credit facility to be available for the issuance of letters of credit. The revolving credit portion of the Bank Facility will expire on December 31, 1997. The terms of the Bank Facility and revised senior note will require certain mandatory prepayments and, with respect to the Bank Facility, contain provisions for certain facility commitment reductions, tied to the sale or issuance by the Company of equity securities or the sale or disposition of assets. According to the provisions of the term loan and senior note agreements, one-half of the amount outstanding on October 1, 1996 and December 31, 1996, respectively, will become due and payable in four equal quarterly installments commencing in January 1997. All remaining amounts outstanding are due on December 31, 1997. Prepayments will also be required beginning in January 1997, based on Excess Cash Flows, as defined in the agreement. During December 1995, the Company announced its intention to sell its Tape Products Division, due to the continuing realignment of its Commercial Products Group. The Tape Products Division manufactures a variety of masking and duct tapes, and has substantially different customers, markets, distribution channels and cost structure than the remaining Commercial Products businesses. The proceeds to be generated from the sale will be used to prepay a portion of the Company's debt. The Note entitled "Information About Operations" to the Company's Consolidated Financial Statements, which appears on page 38 of this Form 10-K, contains financial information concerning Nashua's business segments. COMMERCIAL PRODUCTS GROUP In the fourth quarter of 1995, the Company announced the realignment of the Commercial Products Group into three distinct divisions: Imaging Supplies, Specialty Coated Products and Label Products. The realignment was designed to better focus Nashua's businesses around traditional core markets and become more responsive to the needs of its customers. The Commercial Products Group manufactures and sells office and industrial imaging supplies. IMAGING SUPPLIES The Imaging Supplies Division manufactures and sells a variety of consumable products used in the process of reproducing and transferring readable images. Nashua's imaging supplies are comprised of toners, developers, remanufactured laser printer cartridges, facsimile paper and copy paper. The Imaging Supplies Division sales were approximately $137 million for 1995, $143 million for 1994 and $153 million for 1993. -3- 5 The Division markets its toners, developers, facsimile paper, copy paper and remanufactured laser printer cartridges to its national and government accounts through a network of approximately 150 dealers located throughout the United States. These dealers also purchase Nashua's imaging supplies for resale directly to end-users. The Company also sells certain of these products through its own sales force to office supply distributors, and to original equipment manufacturers and private label distributors. The Division's competitors for toners and developers include Xerox Corporation, Canon, Inc., Ricoh Corporation and Eastman Kodak Company, which sell supplies for use in machines manufactured by them. The Company also competes with other smaller independent manufacturers of toner and developer products. This market segment is competitive, with more sophisticated toner formulas and shorter copier machine life cycles requiring timely product development and marketing. The Division's primary competitor for its remanufactured laser printer cartridges is Canon, Inc. which manufactures both new and remanufactured laser printer cartridges principally for sale to large original equipment manufacturers, including Hewlett Packard Company, for resale under their brand names. In addition, there are several thousand small laser printer cartridge rechargers who provide low volumes to small customers. In 1995, in order to reduce manufacturing costs and maintain competitive pricing, the Company relocated its remanufactured laser printer cartridge production from Exeter, New Hampshire to Nogales, Mexico. SPECIALTY COATED PRODUCTS The Specialty Coated Products Division manufactures and sells thermal and non-thermal, thermosensitive label, Davac[RegisteredTrademark] dry-gummed label and carbonless papers. Specialty Coated Products Division sales were approximately $54 million for 1995, $62 million for 1994 and $60 million for 1993. Thermal papers develop an image upon contact with either a heated stylus or a thermal print head. A major application for these papers is for use in thermal facsimile machines. This application is expected to be adversely affected in the future by the increased use of plain paper facsimile machines. Thermal papers are also used in point of sale printers, airline and package identification systems, gaming and ticketing systems, medical and industrial recording charts and for conversion to labels. The Division's competitors include major integrated companies such as Appleton Papers, Inc., Kanzaki Paper Mfg. Co., Ltd., Jujo Paper Co., Ltd. and Ricoh Corporation, as well as several other manufacturers in Japan and Europe. The Division's thermosensitive label papers are coated with an adhesive that is activated when heat is applied. These products are usually sold through fine paper merchants who, in turn, resell these products to printers who convert the papers into labels for use primarily in the pharmaceutical industry. The Division's thermosensitive label papers are also used in the bakery industry and the meat packaging industry. Davac[RegisteredTrademark] dry-gummed label paper is a paper which is coated with a moisture-activated adhesive. Davac[RegisteredTrademark] dry-gummed label paper is sold primarily to fine paper merchants and business forms manufacturers. It is ultimately converted into various types of labels and stamps. Competitors in the thermosensitive and dry-gummed label industries include Brown-Bridge Company (a division of Spinnaker Industries, Inc.) and Ivex Corporation. Carbonless paper is a coated paper used in the production of multi-part business forms which produce multiple copies without carbon paper. The product is sold in sheet form through fine paper merchants and -4- 6 in roll form directly to the printing industry, where it is converted into multi-part business forms. Within the carbonless paper market, Nashua generally competes with large integrated manufacturers including Appleton Papers, Inc., The Mead Corporation and 3M. LABEL PRODUCTS The Label Division sells pressure sensitive labels through distributors and directly to end-users. Significant uses of labels include grocery scale marking, inventory control and address labels. The Label Division is a major supplier of labels to the supermarket industry and labels for use in the distribution and manufacture of products. The label industry is price sensitive and competitive, and includes competitors such as Moore, Rittenhouse, Hobart, Avery Dennison Corporation and Uarco, Inc. plus numerous small regional converters. A majority of the pressure-sensitive, thermal and non-thermal roll stock used by the Label Division is manufactured by Nashua's Specialty Coated Products Division. Label Division sales were approximately $54 million for 1995, $54 million for 1994 and $52 million for 1993. DEVELOPMENT OF NEW PRODUCTS Success of the Commercial Products Group depends in part on its continued ability to develop and market new products. There can be no assurance that the Company will be able to develop and introduce new products in a timely manner or that such products, if developed, will achieve market acceptance. In addition, the Group's growth is dependent on its ability to penetrate new markets and sell through alternative channels of distribution. There can be no assurance that the markets being served by the Commercial Products Group will continue to grow; that existing and new products will meet the requirements of such markets; that the Group's products will achieve customer acceptance in such markets; that competitors will not force prices to an unacceptably low level or take market share from the Commercial Products Group; or that the Group can achieve or maintain profits in these markets. SUPPLIES AND MATERIALS The Commercial Products Group depends on outside suppliers for most of the raw materials used to produce toners and developers, labels and label papers, carbonless papers and thermal papers, including paper to be converted and chemicals to be used in producing the various coatings Nashua applies. The Group purchases these materials from several suppliers and believes that adequate supplies are available. Products purchased in finished form (including certain toners, developers and papers) are readily available from a variety of sources. There are no assurances that the Group's operating results will not be adversely affected, however, by future increases in cost of raw materials or sourced products. MANUFACTURING OPERATIONS The Commercial Products Group operates manufacturing facilities in Nashua, New Hampshire; Merrimack, New Hampshire; Omaha, Nebraska; and Nogales, Mexico. All of these sites are union-based, except for the Nogales, Mexico plant. There can be no assurance that future operating results will not be adversely affected by labor, political and regulatory risks in Mexico, or changes in labor wage rates or productivity. PHOTOFINISHING Nashua traditionally has provided mail-order photofinishing services to amateur photographers under the tradenames York Photo Labs in the United States, Truprint and York Photo Labs in the United Kingdom and Scot Foto and York Photo in Canada. Nashua develops and prints films received by mail at its processing facilities in the United States, the United Kingdom and Canada, and also sells film, cameras and associated products to its base of customers. Nashua is the market leader in the mail-order photofinishing business in all three countries. -5- 7 The January 1995 acquisition of certain Continental European and Northern Ireland photofinishing operations has allowed the Company to leverage its existing marketing, processing and system capabilities to expand into the mail-order photofinishing markets in France, Belgium, the Netherlands and Spain, and the wholesale market in Northern Ireland and the Irish Republic. Nashua continues to operate the businesses under the tradenames Maxicolor and Trifica in France, Belgium and the Netherlands, Labopost in Spain and Belmont in Northern Ireland and the Irish Republic. In both the mail-order and wholesale businesses, demand is generally strongest during the third quarter due to increased picture taking by amateur photographers during the summer months. COMPETITORS The Company's major mail-order photofinishing competitors include District Photo, Inc., Mystic Color Labs Inc. and Seattle Film Works, Inc. in the United States, Grunwick Processing Laboratories Limited in the United Kingdom, Chas. Abel Photo Services, Ltd. in Canada, Spector Photo Group N.V. and Fotolabo S.A. in France and Colorado in the Netherlands, as well as numerous other national, regional and local processors in countries in which the Company operates. The proliferation of mini-labs, discount stores and mass merchandisers offering reduced price processing could adversely impact the mail-order segment of the photofinishing market, as well as increasing competitiveness within the mail-order segment which has typically relied on its lower prices as a competitive advantage over retail services. REGULATION The Company's direct mail operations are subject to regulation by the national and local government agencies with jurisdiction over the areas in which they operate. In general, these regulations govern the manner in which orders may be solicited, the form and content of advertisements, information which must be provided to prospective customers, the time within which orders must be filled, obligations to customers if orders are not shipped within a specified period of time and the time within which refunds must be paid if the ordered merchandise is unavailable or if it is returned. From time to time the Photofinishing businesses have modified their methods of doing business and marketing operations in response to inquiries and requests from regulatory authorities. To date, such changes have not had an adverse effect on the businesses. However, there can be no assurance that future regulatory requirements or actions will not have an adverse effect on the Photofinishing businesses' marketing programs or operations. TECHNOLOGICAL ADVANCEMENT Although the Photofinishing businesses are continually developing new marketing programs and developing new production techniques, there can be no assurance that the businesses will be able to anticipate technological advances within the photography industry. For example, the newly announced Advanced Photo System and digital imaging systems are currently being developed within the industry. To the extent the industry was to move toward these new technologies and the Photofinishing business was unable to adapt to these changes, the Photofinishing businesses' results of operations and financial condition could be materially adversely affected. MATERIALS AND SUPPLIERS The principal supplies and materials used by Nashua's Photofinishing business include color print paper, photo developing chemicals and color print films, all of which are available from several manufacturers. Sales of the Photofinishing businesses' products and services on a direct-to-consumer mail-order basis are largely dependent on national postal services for receipt of orders and delivery of processed film or other products. Any significant changes in the operations or rates of these postal services or extended interruptions in postal deliveries could have an adverse effect on the Photofinishing operations. -6- 8 CERION TECHNOLOGIES (FORMERLY PRECISION TECHNOLOGIES) Cerion Technologies, based in Champaign, Illinois, manufactures and markets precision-machined aluminum disk substrates that are used in the production of magnetic thin-film disks for hard disk drives of portable and desktop computers. Cerion Technologies depends on a small number of customers. Cerion Technologies' 1995 aluminum disk substrate sales were to four customers of which two represented approximately 47 percent and 42 percent of its sales. Cerion does not have any long-term purchase commitments from those customers. Cerion Technologies also produces organic photoconductor drum substrates for laser printer cartridges and photocopiers. On March 21, 1996, Cerion Technologies filed a registration statement on Form S-1 with the Securities and Exchange Commission for a proposed initial public offering of 3,840,000 shares of common stock. Of the total, 1,615,000 shares are being offered by Cerion and 2,225,000 shares are being offered by Nashua as the selling stockholder. All or most of the proceeds anticipate to be generated from the sale of shares offered by Nashua will be used to repay a portion of the Company's debt. COMPETITION Cerion's primary competitor is Kobe Precision, Inc., a division of Kobe Steel, Ltd. Also, several of the hard disk drive manufacturers currently produce aluminum disk substrates internally for their own use, and Cerion believes that a majority of its market currently is supplied by such vertically integrated manufacturers. Moreover, these companies could make their products available for distribution into the market as direct competitors of Cerion. Any of these changes would reduce the already small number of current and potential customers for Cerion's products and increase competition for the remaining market. There can be no assurance that Cerion will be able to continue to compete successfully with existing or new competitors. SUPPLIERS Cerion relies on Alcoa Memory Products, Inc., a subsidiary of Aluminum Company of America, Incorporated ("Alcoa"), as its sole supplier of the aluminum blanks used by it for producing aluminum disk substrates. It also relies on a sole supplier for the aluminum drum blanks used for its OPC drum substrates, and on a limited number of suppliers for certain materials used in its aluminum disk and OPC drum substrate manufacturing processes, including etching chemicals and coolants. Cerion does not have any long-term supply contracts with Alcoa or any of its other major suppliers. Changing suppliers for certain materials would be expensive and require long lead times. For certain materials, a change in supplier could result in Cerion being required to re-qualify its products with certain of its customers. Any significant limitations on the supply of raw materials could disrupt, limit or halt Cerion's production of aluminum disk substrates or OPC drum substrates and could have a material adverse effect on Cerion's business, operating results and financial condition. TECHNOLOGICAL ADVANCEMENT Although Cerion is continually developing new products and production techniques, there can be no assurance that Cerion will be able to anticipate technological advances or shifts and compete effectively against competitors' new products. For example, certain glass and ceramic substrates currently are being sold in the 65mm thin-film disk market. If these materials were to become more prevalent, and Cerion were unable to produce glass and ceramic substrates, Cerion's business, results of operations and financial condition could be materially adversely affected. -7- 9 RESEARCH AND DEVELOPMENT Nashua's research and development efforts have been instrumental in the development of many of the products it markets. Nashua's research and development expenditures were $9.2 million in 1995, $9.1 million in 1994 and $7.0 million in 1993. ENVIRONMENTAL MATTERS The Company (and its competitors) are subject to various environmental laws and regulations. These include the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act and other state and local counterparts of these statutes. The Company believes that its operations have been and continue to be operating in compliance in all material respects with the applicable environmental laws and regulations. (Violation of these laws and regulations could result in substantial fines and penalties.) Nevertheless, in the past and potentially in the future, the Company has and could receive notices of alleged environmental violations. The Company has endeavored to promptly remedy any such violations upon notification. For the past three years, the Company has spent approximately $1 million per year for compliance with pertinent environmental laws and regulations. In addition, for those sites which the Company has received notification of the need to remediate, the Company has assessed its liability and has established a reserve for estimated costs associated therewith. At December 31, 1995 the reserve for potential environmental liabilities was $1.5 million. Liability of "potentially responsible parties" (PRP) under CERCLA and RCRA, however, is joint and several, and actual remediation expenses at sites where the Company is a PRP may exceed current estimates. The Company believes that based on the facts currently known, and the environmental reserve recorded, its remediation expense with respect to those sites and on-going costs of compliance are not likely to have a material adverse effect on its liquidity, consolidated financial position or results of operations. EMPLOYEES Nashua and its subsidiaries had approximately 3,234 full-time employees at March 1, 1996. Approximately 550 employees of Nashua's Commercial Products segment are members of one of several unions, principally the United Paperworkers International Union. There are two agreements with the United Paperworkers International Union covering a majority of the Commercial Products hourly employees. These agreements generally have a duration of two years and expiration dates in the first quarter of the year. FOREIGN OPERATIONS During 1995, Nashua had Photofinishing subsidiaries in Canada, the United Kingdom, Ireland, France and the Netherlands. Nashua had export sales of approximately $36.4 million in 1995, $33.1 million in 1994 and $38.6 million in 1993. Nashua includes revenues and other financial data from its foreign operations in its business segment reporting according to the nature of the product sold. The Note to the Company's Consolidated Financial Statements entitled "Information About Operations," which appears on page 38 of this Form 10-K, contains -8- 10 additional information regarding Nashua's foreign operations during the last three years, including identifiable assets, net sales and income (loss) from continuing operations by geographic area. Nashua's international sales are subject to risks that generally do not affect businesses operating wholly within a single country. These include political risks associated with doing business in foreign countries, exchange control and import limitations which may impede the free movement of goods and funds from one country to another and currency exchange rate risks. Nashua's foreign businesses generally are adversely affected as the United States dollar strengthens against the foreign currencies of the countries in which it does business. From time-to-time Nashua enters into various foreign exchange contracts to mitigate the risk of foreign currency fluctuations with respect to foreign currency denominated transactions. ITEM 2. PROPERTIES Nashua's manufacturing facilities are located in the United States, Canada, the United Kingdom, Northern Ireland and Mexico. Nashua considers its properties to be in good operating condition and suitable for the production of its products. The principal manufacturing facilities of the Company are listed by industry segment, location and principal products produced. Except as otherwise noted, each of these facilities is owned by the Company. -9- 11 PRINCIPAL PROPERTIES
SQUARE PRINCIPAL LOCATION FOOTAGE PRODUCTS PRODUCED - -------- ------- ----------------- COMMERCIAL PRODUCTS Merrimack, New Hampshire 435,000 carbonless paper, facsimile paper, thermosensitive and dry-gummed label papers, chemicals Omaha, Nebraska 170,000 pressure-sensitive labels and laminate paper Watervliet, New York 422,000 (3) pressure-sensitive tapes Nashua, New Hampshire 198,000 dry toners and developers, chemicals Chelmsford, Massachusetts 35,000 (1) liquid toners Nogales, Mexico 55,000 (1) laser printer cartridges PHOTOFINISHING Parkersburg, West Virginia 81,000 (1) photofinishing Newton Abbot, United Kingdom 46,000 (1) photofinishing Telford, United Kingdom 38,000 (1) photofinishing Saskatoon, Saskatchewan, Canada 15,000 photofinishing Deal, United Kingdom 12,000 (1) (2) photofinishing Belfast, Northern Ireland 24,000 (1) (2) photofinishing CERION TECHNOLOGIES Champaign, Illinois 32,000 (4) aluminum substrates for computer disks and photoconductor drums (1) Leased facilities. (2) Acquired by the Company on January 13, 1995. (3) The Company has announced its intention to sell the Tape Products Division and its Watervliet, New York facility. (4) The Company has filed a Form S-1 indicating its intention to sell a portion of its shares of Cerion Technologies.
-10- 12 ITEM 3. LEGAL PROCEEDINGS In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh") filed a Complaint with the United States District Court, District of New Hampshire, alleging Nashua's infringement of U.S. patents 4,611,730 and 4,878,603 relating to certain toner cartridges for Ricoh copiers. The Complaint seeks damages and injunctive relief. The products involved constitute an insignificant amount of Nashua's sales. The Company believes it has substantial defenses and intends to defend the action vigorously. During 1994, the Internal Revenue Service (IRS) completed an examination of the Company's corporate income tax returns for the years 1988 through 1991. As a result of the IRS' findings, the Company agreed to and paid additional taxes and interest of $7.8 million in January 1995 in connection with adjustments related mainly to the tax treatment of certain items associated with the 1990 sale of the International Office Systems business. On January 13, 1995, the IRS issued a Notice of Deficiency in the amount of $8.7 million in connection with the tax years 1990 and 1991. The tax deficiency relates to the tax treatment of income recognized in connection with the 1990 sale of the International Office Systems business. The major issues relate to foreign tax credits, foreign earnings and profits computation, and the treatment of the disposition of preferred stock of a foreign subsidiary. The Company disagrees with the position taken by the IRS and filed a formal protest of the deficiency on February 9, 1995. In management's opinion, the ultimate disposition of this matter will not have a material adverse effect on the financial position, results of operations or liquidity of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Reference is made to the Note entitled "Quarterly Operating Results and Common Stock Information (Unaudited)" to the Company's Consolidated Financial Statements, which appears on page 40 of this Form 10-K. -11- 13 ITEM 6. SELECTED FINANCIAL DATA Nashua Corporation and Subsidiaries F I V E Y E A R F I N A N C I A L R E V I E W (In thousands, except per share data, price range, number of employees and percentages)
1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- OPERATIONS Net sales $ 452,196 $ 418,903 $ 427,601 $ 439,540 $ 426,227 Gross margin percentage 25.7% 24.9% 25.6% 26.6% 26.6% Selling, distribution and administrative expenses as a percentage of sales 23.4% 20.7% 20.6% 21.3% 20.6% Income (loss) before interest expense and taxes as a percentage of sales* (3.2)% 1.5% 0.6% 4.1% 5.1% Income (loss) before taxes as a percentage of sales* (4.5)% 1.0% 0.1% 3.5% 4.7% Income (loss) as a percentage of sales* (3.4)% 0.5% 0.1% 2.0% 2.7% Effective tax rate (23.2)% 45.2% 56.0% 42.7% 42.3% Income (loss) before income taxes* $ (20,149) $ 4,031 $ 565 $ 15,275 $ 19,940 Income (loss) after taxes * (15,470) 2,210 250 8,745 11,510 Income (loss) from discontinued operations 739 (63) (19,419) (3,437) (10,958) Cumulative effect of accounting principle changes -- -- -- (10,131) -- Net income (loss) $ (14,731) $ 2,147 $ (19,169) $ (4,823) $ 552 Earnings (loss) per share: Continuing operations* $ (2.43) $ .35 $ .04 $ 1.38 $ 1.82 Discontinued operations .12 (.01) (3.06) (.54) (1.73) Cumulative effect of accounting principle changes -- -- -- (1.60) -- Net income (loss) (2.31) .34 (3.02) (.76) .09 FINANCIAL POSITION Working capital $ 31,787 $ 46,789 $ 23,728 $ 40,630 $ 35,974 Total assets 231,372 227,825 219,065 236,699 243,200 Long-term debt 68,350 49,166 20,342 27,865 25,386 Total debt 68,850 49,816 25,742 31,065 30,386 Total capital employed 143,725 142,512 118,865 148,217 160,098 Total debt as a percentage of capital employed 47.9% 35.0% 21.7% 21.0% 19.0% Shareholders' equity $ 74,875 $ 92,696 $ 93,123 $ 117,152 $ 129,712 Shareholders' equity per common share 11.75 14.55 14.74 18.57 20.64 OTHER SELECTED DATA Investment in plant and equipment $ 13,163 $ 15,937 $ 14,489 $ 11,936 $ 9,967 Depreciation and amortization 17,400 14,146 14,061 12,793 12,437 Dividends per common share .54 .72 .72 .72 .72 Return on average shareholders' equity (17.6)% 2.3% (18.2)% (3.9)% 0.4% Common stock price range: High $ 21 $30-3/4 $31-3/4 $31-1/4 $ 37 Low 12-1/4 19-3/4 25-1/4 21 18-1/8 Year-end closing price 13-5/8 20-1/2 27-1/2 28-3/8 23-1/8 Number of employees 3,447 3,054 4,011 4,145 3,869 Average common and common equivalent shares 6,374 6,360 6,343 6,325 6,332 See Business Changes, Income Taxes and Postretirement Benefits Notes to Consolidated Financial Statements for a description of certain matters relevant to this data. *Income is from continuing operations and before the cumulative effect of accounting principle changes and includes restructuring and other unusual pretax charges of $16.2 million for 1995 (3.6% of sales), $2.6 million for 1994 (.6% of sales) and $11.8 million for 1993 (2.8% of sales).
-12- 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS - 1995 COMPARED TO 1994 Net sales of $452.2 million increased 8 percent from 1994, primarily the result of the Company's acquisition of photofinishing businesses in Europe and Ireland in the first quarter of 1995 and increased volume in Cerion Technologies, partially offset by a decline in sales in the Commercial Products Group. The Company recorded a net loss from continuing operations of $15.5 million, including restructuring and other unusual pretax charges of $16.2 million and a valuation allowance of $3.3 million against tax assets due to the probability that such assets will not be realized. This compared to net income from continuing operations of $2.2 million in 1994, including pretax restructuring and other unusual charges of $2.6 million. The Company's pretax results before restructuring and other unusual charges decreased from income of $6.6 million in 1994 to a loss of $3.9 million in 1995 due to lower operating income in the Photofinishing Group, increased operating losses in the Commercial Products Group, increased spending in Microsharp, and increased interest expense, partially offset by an increase in operating income in Cerion Technologies. During December 1995, the Company announced its intention to sell the Tape Products Division due to the continuing realignment of the Company's Commercial Products Group. The Tape Products Division manufactures a variety of masking and duct tapes, and has substantially different customers, markets, distribution channels and cost structure than the remaining Commercial Products businesses. The results of the Tape Products Division are reported as discontinued operations. The total restructuring and other unusual charges of $16.2 million in 1995 included $14.3 million related to the Commercial Products Group, primarily for business unit and functional realignments, product and channel rationalizations, inventory write-downs related to the remanufactured cartridge operation, and cost reduction initiatives. The remainder of the 1995 charges resulted primarily from changes in the Company's executive management during the year, including severance and other personnel related costs. The 1995 restructuring and other unusual charges include charges of $8.2 million and $8 million in the third and fourth quarters, respectively. Details of the charges related to continuing operations and the activity recorded during 1995 are as follows:
Balance Balance Dec. 31, Current Year Current Year Dec. 31, (In thousands) 1994 Provision Charges 1995 -------- ------------ ------------ -------- Provisions for severance related to workforce reductions $1,550 $ 3,000 $ 1,950 $2,600 Provisions related to other personnel costs 150 850 850 150 Provisions for assets to be sold or discarded 1,250 8,800 10,050 -- Other -- 3,550 1,500 2,050 ------ ------- ------- ------ Total $2,950 $16,200 $14,350 $4,800 ====== ======= ======= ======
The current year provision for workforce reductions includes amounts for salary and benefit continuation for approximately 110 employees as part of the Commercial Products reorganization and product rationalization. The current year provision for assets to be sold or discarded includes approximately $5.6 million related to cartridge inventory write-downs, as well as other asset write-downs resulting from product and channel -13- 15 rationalization within Commercial Products. The cartridge inventory charges relate primarily to excess empty cartridges received in 1995 under rebate programs and contractual obligations, most of which have been terminated. At December 31, 1995, approximately 30 employee terminations provided for had occurred, with the remaining separations scheduled to be completed in 1996. All charges, excluding asset write-downs, are principally cash in nature and are expected to be funded from operations. All restructuring activities provided for in the balance at December 31, 1994 were completed in 1995. Amounts incurred did not change materially from the reserve balance of $3 million. Management anticipates all 1995 actions will be completed by the end of 1996 and estimates annualized savings in personnel and operating costs of approximately $5 million. Net sales for the Commercial Products Group decreased $14 million, or 5 percent, driven by lower volumes across several product lines, somewhat offset by higher selling prices. Volume declines were experienced in facsimile, carbonless and copy papers, label rollstock, toner, diskettes and office catalog supplies. Volumes increased in remanufactured laser printer cartridges and converted label products. Selling price increases across most of the paper-based product lines reduced the unfavorable impact of volume declines. The operating loss before restructuring and other unusual charges increased $4.7 million compared to 1994, primarily due to the lower volumes, partially offset by lower selling and administrative expenses. Selling price increases were offset by higher raw material costs. During the last half of 1995, the Company initiated a number of actions to reverse the sales and operating income declines experienced in the Commercial Products Group in 1995, including changes in executive management, establishing market-oriented business units and streamlining the workforce. Management intends to continue to focus on the tasks of implementing these actions in 1996. Net sales in the Photofinishing Group increased $33.8 million, or 23 percent, from the prior year due to the acquisition of European and Irish photofinishing operations in the first quarter of 1995. To a lesser extent, sales increased from higher selling prices in the U.S. and U.K. as well as from the impact of a weaker U.S. dollar. These favorable impacts were offset by lower volumes in the U.S., U.K. and Canada resulting from continued competitive pressure. Operating income declined $9.2 million from the prior year, resulting from lower volume in the U.S. and Canada, as well as higher marketing costs in the U.S. and U.K. Higher marketing costs in the U.S. resulted from increased postal rates, higher mailer costs and increased circulation volumes. U.K. marketing costs increased due to investments in new and redesigned brand launches as well as an increase in the cost of mailers. Sales for Cerion Technologies increased $13.5 million to $27.5 million in 1995, and operating income increased to $6 million in 1995 from a loss of $.2 million in 1994. The improvements are due to continued strong demand for aluminum substrates, improved product mix and manufacturing efficiencies associated with the increases in volume. Administrative expenses increased 23 percent as the result of the photofinishing businesses acquired in 1995, partially offset by efficiencies resulting from the restructuring actions taken in 1994. Selling and distribution expenses as a percent of sales increased 13 percent due to the 1995 photofinishing acquisition. Research and development expenses were substantially unchanged year to year. The effective tax rate for continuing operations was a benefit of 23.2 percent in 1995 compared to a charge of 45.2 percent in 1994. The tax benefit was less than the U.S. statutory rate primarily due to the establishment of a valuation allowance against long-term tax assets and the unfavorable impact of non-deductible goodwill amortization. -14- 16 On March 21, 1996, Cerion Technologies filed a registration statement on Form S-1 with the Securities and Exchange Commission for a proposed initial public offering of 3,840,000 shares of common stock. Of the total, 1,615,000 shares are being offered by Cerion and 2,225,000 shares are being offered by Nashua as the selling stockholder. Cerion Technologies, based in Champaign, Illinois, is an independent supplier of aluminum substrates for the computer disk drive industry. All or most of the proceeds anticipated to be generated from the sale of shares offered by Nashua will be used to prepay a portion of the Company's debt. RESULTS OF CONTINUING OPERATIONS - 1994 COMPARED TO 1993 Net sales of $418.9 million declined slightly from 1993. The Company generated after-tax income from continuing operations of $2.2 million which included pretax restructuring and other unusual charges of $2.6 million. This compared to after-tax income from continuing operations of $.3 million in 1993 which included pretax restructuring and other unusual charges of $11.8 million. Net sales for the year decreased in the Commercial Products Group and in the Photofinishing Group, and were substantially unchanged for Cerion Technologies. Pretax income from continuing operations, excluding restructuring charges, was $6.6 million compared to $12.4 million in 1993, primarily due to the decline in operating income in the Commercial Products Group and expenses related to the development of the new Microsharp business. In 1994, the Company created the Commercial Products Group by combining the former Office Supplies and Coated Products Groups. The objective of this reorganization was to improve service levels, leverage selling capabilities and reduce costs by offering the full breadth of Nashua products to all customers. In connection with these changes, the Company's office supplies catalog business was merged with existing sales and marketing operations of the new Commercial Products Group. In addition, the Company spent approximately $1 million in 1994 on professional fees associated with the development of customer interface systems. Net sales for the Commercial Products Group decreased $5.3 million, or 2 percent, to $259.5 million, due to reduced diskette and remanufactured laser printer cartridge volume partially offset by volume gains for thermal labels, heat seal and copy paper. Operating income before restructuring and other unusual charges compared unfavorably to 1993 by $3.3 million, primarily due to extremely competitive toner pricing, a shift to lower margin toners, lower remanufactured laser printer cartridge volume, and significantly higher raw material prices across many product lines. Selling price increases only partially offset the impact of higher raw material costs. Net sales in the Photofinishing Group decreased $3.3 million, approximately 2 percent, to $145.4 million. Continued competitive pressure resulted in lower volume in the U.S. compared to the prior year, partially offset by higher volume in the U.K. operation. In addition, U.S. sales in 1994 were depressed by lower prices in the first quarter compared to the comparable period of the prior year, partially offset by improvements in price throughout the year, especially the fourth quarter. While volume and pricing pressures adversely impacted gross margin, operating income, excluding restructuring charges, was substantially unchanged year over year due to lower administrative costs. Cerion Technologies transitioned in 1994 from a captive supplier of substrates to an independent supplier. Net sales were substantially unchanged year to year at $14 million. Operating income declined $.8 million to a loss of $.2 million, primarily due to manufacturing changeover costs and market introduction costs associated with new products being offered to an expanded customer base. Administrative expenses decreased approximately 8 percent, primarily as a result of efficiencies resulting from the restructuring actions taken in 1994. Selling and distribution expenses as a percentage of sales were essentially unchanged. Research and development expenses increased $2.1 million to $9.1 million as a result of the Company's investment in Microsharp display technology and new product development for the Commercial Products Group. -15- 17 In the fourth quarter of 1993, the Company recorded restructuring and other unusual charges totaling $48.5 million. Approximately $36.7 million of this amount related to management's decision to sell or otherwise liquidate the thin-film disk, oxide disk and diskette manufacturing operations of the Computer Products Group. The 1993 charge also included approximately $11.8 million related to the integration and streamlining of the operations of the Commercial Products Group, including workforce reductions, as well as consolidation of facilities and the write-down of certain assets. As part of the restructuring plan, the Company offered certain of its employees an early retirement program and recorded an additional pretax charge in the first quarter of 1994 of $5.7 million, of which $2.6 million related to the Company's continuing operations and $3.1 million related to discontinued operations. During the second quarter of 1994, the Company sold substantially all of its Computer Products businesses for total cash proceeds of $11.1 million, subordinated notes of $4.9 million and future royalty payments based on sales of the oxide disk and head-disk-assembly operations. In addition, the Company received cash proceeds of approximately $2 million based on the 1994 operating results of the thin-film disk operation. The amounts received were not materially different from the estimates included in the 1993 charge. As a result of the sale of these businesses, the related results of operations were reclassified as discontinued operations. The details of the Company's 1993 restructuring and other unusual charges related to continuing operations and the activity recorded during 1994 are as follows:
Balance Balance Dec. 31, 1994 1994 Dec. 31, (In thousands) 1993 Provision Charges 1994 -------- --------- ------- -------- Provisions related to workforce reductions: Severance costs $ 3,850 $ 700 $ 3,000 $1,550 Pension and OPEB costs 900 2,600 3,500 -- Provisions related to other personnel costs 1,100 -- 950 150 Provisions for assets to be sold or discarded 5,100 (1,100) 2,750 1,250 Other 850 400 1,250 -- ------- ------- ------- ------ Total $11,800 $ 2,600 $11,450 $2,950 ======= ======= ======= ======
The 1993 restructuring and other unusual charges included provisions for salary and benefit continuation costs for approximately 170 employees. The 1994 provision represented a revision in the Company's original estimate of severance costs primarily as a result of approximately 20 additional employee terminations from the Company's Commercial Products Group rather than from discontinued operations. As of December 31, 1994, substantially all planned employee reductions had taken place, and the remaining accrual represented payments made to these former employees in the first half of 1995. Pension and OPEB costs recorded in 1993 relate to curtailment charges recognized in connection with the planned workforce reductions. The provision recognized in 1994 was recorded in connection with the Company's early retirement program based upon the actual number of employee acceptances. Provisions for other personnel costs relate primarily to relocation costs. The provisions for assets to be sold or discarded included a charge of approximately $1.8 million to write-down certain corporate and manufacturing facilities to their estimated net realizable value, as well as the costs associated with holding certain vacated portions of these facilities during the period until the property can be sold or otherwise disposed. During 1994, the Company commissioned an appraisal of its corporate and manufacturing facilities, and as a result of the appraisal, revised upward its estimate of proceeds to be realized upon disposal. Other than as described above, there were no material changes during the year to the Company's original estimate of the costs associated with the restructuring actions. -16- 18 The effective tax rate for continuing operations was 45.2 percent compared to 56 percent in 1993. The effective tax rate is higher than the U.S. statutory rate in 1994 primarily due to the impact of non-deductible goodwill. EFFECT OF INFLATION AND CHANGING PRICES The Company believes that results of operations as reported in its historical cost financial statements reasonably match current costs, except for depreciation, with revenues generated in the period. Depreciation expense based on the current costs of plant and equipment would be significantly higher than depreciation expense reported in the historical financial statements; however, such expense would not affect cash provided by operating activities. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION Working capital decreased approximately $15 million in 1995, primarily due to increases in accrued restructuring and other unusual charges, decreased inventories and receivables in the Commercial Products Group and tax payments related to discontinued operations, offset by increased receivables in Cerion Technologies. At year-end, the ratio of total debt to equity increased to 92 percent from 54 percent at December 31, 1994. The Company suspended its quarterly dividend in the fourth quarter and intends to review the decision when the Company's financial performance would make such reconsideration appropriate. The Company relies primarily on cash provided by operating activities to fund its normal additions to plant and equipment. Investments in plant and equipment in 1995 were approximately $13 million. In January 1995, the Company replaced its existing $40 million revolving credit facility with a similar $75 million facility. This new agreement provided $20.7 million of the $27.6 million purchase price for the photofinishing businesses acquired on January 13, 1995. Borrowings of $53 million were outstanding under this facility at December 31, 1995, compared with $33 million outstanding under the previous facility at December 31, 1994. In addition, the Company has $15 million outstanding at December 31, 1995 under a senior note agreement with an insurance company. The Company's revolving credit facility and senior note agreement require maintenance of certain restrictive financial covenants related to interest and fixed charge coverage, tangible net worth, leverage and additional debt. Since September 29, 1995, the Company has not been in compliance with the interest and fixed charge coverage portions of these agreements. Since the initial date of technical default, the lenders have provided the Company with a forbearance during which time the parties have been negotiating amendments to the lending agreements in order to allow the Company to remain in compliance. As part of the interim agreement with its lenders, interest payable on amounts outstanding under the revolving credit facility were adjusted to the agent bank's prime rate (Reference Rate) plus .5 percent. The weighted average rate in effect at December 31, 1995 for borrowings under the revolving credit facility was 8 percent per annum. See additional discussion in the Subsequent Events note. On March 27, 1996, the Company reached agreement with its lenders on the terms of amendments to existing lending agreements which will supersede the terms and conditions of the $75 million revolving credit facility and the Company's senior note agreement. Under the provisions agreed to with the lenders, the revolving credit facility will be replaced with a bank facility (the "Bank Facility"). Advances under the Bank Facility will be made pursuant to both a term loan arrangement and a revolving credit facility with an initial aggregate credit availability of up to $66 million. Interest on amounts outstanding under both the term loan and -17- 19 revolving credit portion of the agreement will be payable at the Reference Rate plus .5 percent. The revised senior note will be at a rate of 11.85 percent per annum. Of the total revolving credit balance outstanding on the facility closing date, $48 million initially will be designated as outstanding under the term loan portion of the Bank Facility with the remainder designated as outstanding under the revolving credit facility. The revolving credit portion of the Bank Facility will provide for initial credit availability equal to the lesser of $18 million or a defined percentage of eligible accounts receivable and inventory. The agreement will also provide for up to $5 million of the revolving credit facility to be available for the issuance of letters of credit. The revolving credit portion of the Bank Facility will expire on December 31, 1997. The terms of the Bank Facility and revised senior note will require certain mandatory prepayments and, with respect to the Bank Facility, contain provisions for certain facility commitment reductions, tied to the sale or issuance by the Company of equity securities or the sale or disposition of assets. According to the provisions of the term loan and the senior note, one-half of the amounts outstanding on October 1, 1996 and December 31, 1996, respectively, will become due and payable in four equal quarterly installments commencing in January 1997. All remaining amounts outstanding will be due on December 31, 1997. Prepayments also will be required beginning in January 1997, based on Excess Cash Flows, as defined in the agreement. All or most of the proceeds to be generated from the sale of the Company's Tape Products Division and the sale of certain equity shares in Cerion Technologies will be used to prepay a portion of the Company's debt. The Bank Facility will require a commitment fee of .5 percent per annum on unused amounts, as well as a 2 percent per annum fee on letters of credit issued under the facility. In addition, the Bank Facility and revised senior note agreement will provide for contingent fees to be paid if the actual level of prepayments made in 1996 are below certain specified levels. Borrowings under the Bank Facility and revised senior note will be collateralized by a security interest in the Company's receivables and inventory, assets of the domestic and certain foreign subsidiaries and the stock of certain foreign subsidiaries. Subject to shareholder approval and certain circumstances, additional collateral may be required. The agreements will contain certain financial covenants with respect to tangible net worth, capital expenditures, cash flows and the ratio of cash flows to fixed charges. In addition, the agreements will not allow the payment of dividends and will restrict, among other things, the incurrence of additional debt, guarantees, lease arrangements or sale of certain assets. The Company had $36.5 million of deferred tax assets, net of a valuation allowance of $3.3 million, and $5.3 million of deferred tax liabilities at December 31, 1995. The deferred tax assets include $21.5 million of loss and tax credit carryforward benefits which expire as follows: $2.8 million in 1996; $.2 million in 1997; $.1 million in 1998; $.5 million in 1999; $3 million in 2000; and $14.9 million thereafter. These carryforwards relate primarily to the U.S. and will require a minimum of approximately $60 million in cumulative U.S. taxable income prior to the carryforwards' expiration in order to be fully utilized. The remainder of the deferred tax assets pertain to net deductible temporary differences between financial and taxable bases of assets and liabilities such as accruals not yet paid or reserves not yet deductible for tax purposes. In the past, taxable income has generally been higher than income for financial reporting purposes. The Company expects this relationship to continue in the future. The Company had $4.2 million of tax receivables at December 31, 1995, generated primarily from the carryback of the 1994 tax loss of approximately $29.5 million. -18- 20 In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh") filed a Complaint with the United States District Court, District of New Hampshire, alleging Nashua's infringement of U.S. patents 4,611,730 and 4,878,603 relating to certain toner cartridges for Ricoh copiers. The Complaint seeks damages and injunctive relief. The products involved constitute an insignificant amount of Nashua's sales. The Company believes it has substantial defenses and intends to defend the action vigorously. During 1994, the Internal Revenue Service (IRS) completed an examination of the Company's corporate income tax returns for the years 1988 through 1991. As a result of the IRS' findings, the Company agreed to and paid additional taxes and interest of $7.8 million in January 1995 in connection with adjustments related mainly to the tax treatment of certain items associated with the 1990 sale of the International Office Systems business. On January 13, 1995, the IRS issued a Notice of Deficiency in the amount of $8.7 million in connection with the tax years 1990 and 1991. The tax deficiency relates to the tax treatment of income recognized in connection with the 1990 sale of the International Office Systems business. The major issues relate to foreign tax credits, foreign earnings and profits computation, and the treatment of the disposition of preferred stock of a foreign subsidiary. The Company disagrees with the position taken by the IRS and filed a formal protest of the deficiency on February 9, 1995. In management's opinion, the ultimate disposition of this matter will not have a material adverse effect on the financial position or results of operations of the Company. The Company (and its competitors) are subject to various environmental laws and regulations. These include the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (CERCLA), the Resource Conservation and Recovery Act (RCRA), the Clean Water Act and other state and local counterparts of these statutes. The Company believes that its operations have been and continue to be operating in compliance in all material respects with the applicable environmental laws and regulations. (Violation of these laws and regulations could result in substantial fines and penalties.) Nevertheless, in the past and potentially in the future, the Company has received and could receive notices of alleged environmental violations. The Company has endeavored to promptly remedy any such violations upon notification. For the past three years, the Company has spent approximately $1 million per year in order to keep its operations in compliance with pertinent environmental laws and regulations. In addition, for those sites which the Company has received notification of the need to remediate, the Company has assessed its liability and accrued what it considers to be the most likely amount within the estimated range of remediation costs. At December 31, 1995, the accrual for potential environmental liability was $1.5 million. Liability of "potentially responsible parties" (PRP) under CERCLA and RCRA, however, is joint and several, and actual remediation expenses at sites where the Company is a PRP may exceed current estimates. The Company believes that, based on the facts currently known and the environmental accrual recorded, its remediation expense with respect to those sites and on-going costs of compliance are not likely to have a material adverse effect on its liquidity, consolidated financial position or results of operations. Based upon projected future cash flows from operating activities, the sale of certain assets, as well as credit availability under the revised lending agreements, the Company believes that it has the liquidity and capital resources needed to meet its future financial commitments. -19- 21 ITEM 8. CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year Ended December 31, 1995 1994 1993 --------- --------- --------- (In thousands, except per share data) Net sales $ 452,196 $ 418,903 $ 427,601 --------- --------- --------- Cost of products sold 336,037 314,559 318,278 Selling, distribution and administrative expenses 105,977 86,719 88,101 Research and development expense 9,238 9,128 6,992 Restructuring and other unusual charges 16,247 2,600 11,800 Interest expense 5,532 2,451 2,179 Interest income (686) (585) (314) --------- --------- --------- Total costs and expenses 472,345 414,872 427,036 Income (loss) from continuing operations before income taxes (20,149) 4,031 565 Income taxes (benefit) (4,679) 1,821 315 --------- --------- --------- Income (loss) from continuing operations (15,470) 2,210 250 --------- --------- --------- Income (loss) from discontinued operations, net of tax 739 (63) (19,419) --------- --------- --------- Net income (loss) (14,731) 2,147 (19,169) --------- --------- --------- Retained earnings, beginning of year 79,744 82,166 105,880 Dividends (3,450) (4,569) (4,545) --------- --------- --------- Retained earnings, end of year $ 61,563 $ 79,744 $ 82,166 ========= ========= ========= Earnings (loss) per common and common equivalent share: Income (loss) from continuing operations $ (2.43) $ .35 $ .04 Income (loss) from discontinued operations .12 (.01) (3.06) --------- --------- --------- Net income (loss) $ (2.31) $ .34 $ (3.02) ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. -20- 22 CONSOLIDATED BALANCE SHEET
December 31, (In thousands, except share data) 1995 1994 --------- --------- ASSETS Current Assets Cash and cash equivalents $ 8,390 $ 10,219 Accounts receivable 29,579 40,811 Inventories Materials and supplies 10,318 15,713 Work in process 2,835 4,942 Finished goods 8,870 13,506 --------- --------- 22,023 34,161 Other current assets 31,785 22,971 Net current assets of discontinued operations 7,415 -- --------- --------- 99,192 108,162 Plant and Equipment Land 1,377 1,441 Buildings and improvements 37,739 36,638 Machinery and equipment 85,305 84,827 Construction in progress 3,237 6,684 --------- --------- 127,658 129,590 Accumulated depreciation (57,601) (58,733) --------- --------- 70,057 70,857 Other Assets 55,481 48,806 Net Non-Current Assets of Discontinued Operations 6,642 -- --------- --------- Total Assets $ 231,372 $ 227,825 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes and loans payable $ -- $ 200 Current maturities of long-term debt 500 450 Accounts payable 26,858 27,374 Accrued expenses 33,385 22,107 Income taxes payable 6,662 11,242 --------- --------- 67,405 61,373 Long-Term Debt Borrowings under revolving credit agreement 53,000 33,000 Senior notes 15,000 15,000 Other long-term debt 350 1,166 --------- --------- 68,350 49,166 Other Long-Term Liabilities 20,742 24,590 --------- --------- Shareholders' Equity Preferred stock, par value $1.00: 2,000,000 shares authorized and unissued -- -- Common stock, par value $1.00: Authorized 40,000,000 shares Issued 6,502,570 shares in 1995 and 6,396,570 shares in 1994 6,503 6,397 Additional capital 12,178 12,270 Retained earnings 61,563 79,744 Cumulative translation adjustment (4,618) (4,928) Treasury stock, at cost (751) (787) --------- --------- 74,875 92,696 Commitments and Contingencies Total Liabilities and Shareholders' Equity $ 231,372 $ 227,825 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. -21- 23 CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, (In thousands) 1995 1994 1993 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Net income (loss) $(14,731) $ 2,147 $(19,169) Adjustments to reconcile net income (loss) to cash provided by (used in) continuing operating activities: Depreciation and amortization 17,400 14,146 14,061 Deferred income taxes (6,387) (1,497) (3,790) Write-down of fixed assets to net realizable value 1,629 -- 2,000 (Income) loss from discontinued operations (739) 63 19,419 Change in operating assets and liabilities, net of effects from acquisition and disposal of businesses: Accounts receivable 9,345 (5,957) 3,769 Inventories 9,602 (5,760) 869 Other assets 5,900 (3,957) 6,192 Accounts payable (3,257) 59 (1,345) Accrued expenses 7,856 (13,446) 11,020 Other long-term liabilities (3,848) 2,144 (1,289) Income taxes payable 1,738 9,029 (149) -------- -------- -------- Cash provided by (used in) operating activities 24,508 (3,029) 31,588 CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS Investment in plant and equipment (13,163) (15,937) (14,489) Acquisition of business (27,596) -- (4,286) -------- -------- -------- Cash used in investing activities (40,759) (15,937) (18,775) CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS Proceeds from borrowings 32,800 52,900 9,900 Repayment of borrowings (13,766) (28,826) (15,223) Dividends paid (3,450) (4,569) (4,545) Proceeds and tax benefits from shares issued under stock option plans 14 1,081 122 Purchase and reissuance of treasury stock 36 (2) 14 -------- -------- -------- Cash provided by (used in) financing activities 15,634 20,584 (9,732) Proceeds from sale of discontinued operations 6,950 11,115 -- Cash applied to activities of discontinued operations (8,173) (8,612) (9,345) Effect of exchange rate changes on cash 11 215 (65) -------- -------- -------- Increase (decrease) in cash and cash equivalents (1,829) 4,336 (6,329) Cash and cash equivalents at beginning of year 10,219 5,883 12,212 -------- -------- -------- Cash and cash equivalents at end of year $ 8,390 $ 10,219 $ 5,883 ======== ======== ======== Interest paid $ 7,565 $ 2,457 $ 2,051 ======== ======== ======== Income taxes paid $ 9,054 $ 1,171 $ 5,355 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. -22- 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of Significant Accounting Policies BASIS OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of Nashua Corporation and its subsidiaries (the Company), all of which are wholly-owned. REVENUE RECOGNITION: Sales are recognized at the time the goods are shipped or when title passes. USE OF ESTIMATES: The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of management estimates relate to allowances for obsolete inventory and uncollectible receivables, environmental obligations, post-employment, post-retirement and other employee benefits, valuation allowances for deferred tax assets, future cash flows associated with assets, and useful lives for depreciation and amortization. Actual results could differ from those estimates. CASH EQUIVALENTS: The Company considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. At December 31, 1995 and 1994, the Company held $4.3 million and $5.9 million, respectively, of various money market instruments carried at cost, which approximated market. ACCOUNTS RECEIVABLE: The consolidated balance is net of allowance for doubtful accounts of $2.4 million at December 31, 1995 and $2.6 million at December 31, 1994, respectively. INVENTORIES: Inventories are carried at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method for approximately 77 percent and 80 percent of the inventories at December 31, 1995 and 1994, respectively, and by the last-in, first-out (LIFO) method for the balance. Had the FIFO method been used to cost all inventories, the inventory balances would have been approximately $3.4 million and $2.7 million higher at December 31, 1995 and 1994, respectively. ADVERTISING COSTS: The Company defers certain costs related to direct-response advertising of its products. Such costs are amortized over periods that correspond to the estimated revenue stream of the individual advertising program which is generally less than one year. Total deferred costs at December 31, 1995 and 1994 were $6.4 million and $4.9 million, respectively. The total amounts charged to expense for 1995, 1994 and 1993 were $41.3 million, $25 million and $25.9 million, respectively. RESEARCH AND DEVELOPMENT: Research and development costs are expensed as incurred. PLANT AND EQUIPMENT: Plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred, while additions, renewals and betterments of plant and equipment are capitalized. Items which are fully depreciated, sold, retired, or otherwise disposed of, together with the related accumulated depreciation, are removed from the accounts and, where applicable, the related gain or loss is recognized. For financial reporting purposes, depreciation is computed using the straight-line method over the following estimated useful lives of the assets: Buildings and improvements 5-40 years Machinery and equipment 3-20 years
-23- 25 During 1993, the Company recorded charges of $21.2 million related to the write-down of fixed assets in connection with discontinued operations. See the Business Changes note. GOODWILL: Included in "Other Assets" is the excess of cost over the fair value of identifiable net assets acquired (goodwill), which is being amortized on a straight-line basis over periods ranging from 5 to 20 years. Goodwill amounted to $32.6 million and $14.5 million at December 31, 1995 and 1994, respectively, which is net of accumulated amortization of $7.9 million and $5.2 million, respectively. See the Business Changes note. The Company periodically reviews the value of its goodwill to determine if an impairment has occurred. The Company measures the potential impairment of recorded goodwill by comparing the undiscounted value of expected future operating cash flows to the related net capital investment. Based on its review, the Company does not believe that an impairment of its goodwill has occurred. INCOME TAXES: Prepaid or deferred income taxes result principally from the use of different methods of depreciation and amortization for income tax and financial reporting purposes, the recognition of expenses for financial reporting purposes in years different from those in which the expenses are deductible for income tax purposes and the recognition of the tax benefit of net operating losses. FOREIGN CURRENCY TRANSLATION: The functional currency of the Company's foreign subsidiaries is the local currency. Accordingly, assets and liabilities of these subsidiaries have been translated using exchange rates prevailing at the appropriate balance sheet date, and income statement items have been translated using average monthly exchange rates. FINANCIAL INSTRUMENTS: The Company enters into foreign exchange contracts as hedges against exposure to fluctuations in exchange rates associated with certain transactions denominated in foreign currencies. Market value gains or losses on these contracts are included in the results of operations and generally offset gains or losses on the related transactions. The Company also utilizes forward sales contracts to hedge market price exposure on anticipated sales of silver alloy, a by-product of its photofinishing process. The terms of the Company's forward contracts are generally less than one year. Gains and losses on these contracts are deferred and recognized as adjustments of carrying amounts when the hedged transaction occurs. Deferred gains or losses at December 31, 1995 are not significant. The Company may selectively enter into interest rate swap agreements to reduce the impact of interest rate changes on its floating rate debt. The notional amounts of such agreements are used to measure carrying value (interest to be paid or received) and do not represent the amount of exposure to loss. In 1995, the Company entered into a three-year $10 million interest rate swap whereby the Company pays interest at a fixed rate of 5.68 percent and receives interest at the three-month LIBOR rate which was 5.94 percent at December 31, 1995. Net interest payable or receivable is determined on a quarterly basis, and the net interest amounts during 1995 were insignificant. The fair value of the interest rate swap agreement, which was not significant, approximated its carrying value at December 31, 1995. The Company does not hold or issue derivative financial instruments for trading purposes. CONCENTRATIONS OF CREDIT RISK: Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments, trade receivables and financial instruments used in hedging activities. -24- 26 The Company places its temporary cash investments with high credit quality financial institutions and, by policy, limits the amount of credit exposure with any one financial institution. Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company's customer base, thus spreading the trade credit risk. The Company performs on-going credit evaluations of its customers' financial condition and maintains allowances for potential credit losses. The Company generally does not require collateral or other security to support customer receivables. The counterparties to the agreements relating to the Company's foreign exchange and interest rate instruments consist of a number of high credit quality financial institutions. The Company does not believe that there is significant risk of nonperformance by these counterparties. ENVIRONMENTAL EXPENDITURES: Environmental expenditures relating to on-going operations are expensed when incurred unless the expenditures extend the life, increase the capacity or improve the safety or efficiency of the property; mitigate or prevent environmental contamination that has yet to occur and improve the property compared with its original condition; or are incurred for property held for sale. Expenditures relating to site assessment, remediation and monitoring are accrued and expensed when the costs are both probable and the amount can be reasonably estimated. Estimates are based on in-house or third-party studies considering current technologies, remediation alternatives and current environmental standards. In addition, if there are other participants and the liability is joint and several, the financial stability of the other participants is considered in determining the Company's accrual. Insurance and other recoveries relating to these expenditures are recorded separately once recovery is probable. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Earnings per common and common equivalent share are computed based on the total of the weighted average number of common shares and, when applicable, the weighted average number of common equivalent shares outstanding during the period presented. OTHER RECENT PRONOUNCEMENTS: In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 121 and 123 are effective for fiscal years beginning after December 15, 1995. The Company will implement these statements as required. The future adoption of SFAS 121 is not expected to have a material effect on the Company's consolidated financial position or results of operations. The Company anticipates adopting SFAS 123 using the pro forma disclosure method described in the pronouncement. BUSINESS CHANGES Acquisitions On January 13, 1995, the Company acquired certain photofinishing operations from Nexus Photo Ltd. The acquisition included mail-order photofinishing operations in France, Belgium, the Netherlands and Spain, and a wholesale film-processing business in Northern Ireland. The total purchase price was $27.6 million. The acquisition was accounted for as a purchase business combination and resulted in the recording of approximately $22 million of related intangible assets. The operating results of this business subsequent to the date of acquisition are included in the Company's Consolidated Statement of Operations. -25- 27 The unaudited combined condensed pro forma results listed below reflect purchase price accounting adjustments assuming the acquisition occurred at the beginning of 1994.
Year Ended Dec. 31, (In thousands, except per share data) 1994 -------- Net sales $462,101 ======== Income from continuing operations $ 3,090 ======== Earnings per common and common equivalent share $ .49 ========
DISCONTINUED OPERATIONS During December 1995, the Company announced its intention to sell the Tape Products Division due to the continuing realignment of the Company's Commercial Products Group. The Tape Products Division manufactures a variety of masking and duct tapes, and has substantially different customers, markets, distribution channels and cost structure than the remaining Commercial Products businesses. The results of the Tape Products Division are reported as discontinued operations in the accompanying Consolidated Statements of Operations. The Company does not expect to incur a loss on the disposal of this division. In the fourth quarter of 1993, the Company recorded restructuring and other unusual charges totaling $48.5 million. Approximately $36.7 million of this amount related to management's decision to sell or otherwise liquidate the thin-film, oxide and diskette manufacturing operations of the Computer Products Group. During the second quarter of 1994, the Company sold substantially all of its Computer Products businesses for total cash proceeds of $11.1 million, subordinated notes of $4.9 million and future royalty payments based on sales of the oxide disk and head-disk-assembly operations. In addition, the Company received cash proceeds of $2 million based on the 1994 operating results of the thin-film disk operation. The amounts received were not materially different from the estimates included in the 1993 charge. As a result of the sale of these businesses, the related results of operations are reported as discontinued operations in the accompanying Consolidated Statements of Operations. During the first quarter of 1994, the Company offered its employees an early retirement program, and recorded an additional pretax charge of $3.1 million to discontinued operations related to the program in the accompanying Consolidated Statements of Operations. The results of operations of the thin-film disk, oxide disk and head-disk-assembly operations, as well as the Tape Products Division are summarized as follows:
Year Ended --------------------------------------- Dec. 31, Dec. 31, Dec. 31, (In thousands) 1995 1994 1993 ------- -------- --------- Net sales $58,444 $ 78,911 $ 140,941 Income (loss) before income taxes 1,239 157 (31,966) Income tax expense (benefit) 500 220 (10,035) ------- -------- --------- Income (loss) from discontinued operations $ 739 $ (63) $ (21,931) ======= ======== =========
-26- 28 In April 1990, the Company sold the international portion of its Office Systems and Supplies Group to Gestetner Holdings PLC (Gestetner). Under the terms of the Purchase Agreement, Gestetner raised certain objections to the purchase price totaling $15.3 million, excluding interest, which were submitted to arbitration. In January 1994, the arbitrator issued a final ruling which resulted in a total payment by Nashua of $1.8 million, including interest, to Gestetner. Resolution of the purchase price allowed the Company to recognize an after-tax gain from discontinued operations of $2.5 million in 1993. RESTRUCTURING AND OTHER UNUSUAL CHARGES The total restructuring and other unusual charges of $16.2 million in 1995 included $14.3 million related to the Commercial Products Group, primarily for business unit and functional realignments, product and channel rationalizations, inventory write-downs related to the remanufactured cartridge operation, and cost reduction initiatives. The remainder of the 1995 charges resulted primarily from changes in the Company's executive management during the year, including severance and other personnel related costs. The 1995 restructuring and other unusual charges include charges of $8.2 million and $8 million in the third and fourth quarters, respectively. Details of the charges related to continuing operations and the activity recorded during 1995 are as follows:
Balance Balance Dec. 31, Current Year Current Year Dec. 31, (In thousands) 1994 Provision Charges 1995 -------- ------------ ------------ -------- 1995 Activity Provisions for severance related to workforce reductions $1,550 $ 3,000 $ 1,950 $2,600 Provisions related to other personnel costs 150 850 850 150 Provisions for assets to be sold or discarded 1,250 8,800 10,050 -- Other -- 3,550 1,500 2,050 ------ ------- ------- ------ Total $2,950 $16,200 $14,350 $4,800 ====== ======= ======= ======
The provision for workforce reductions includes amounts for salary and benefit continuation for approximately 110 employees as part of the Commercial Products reorganization and product rationalization. The provision for assets to be sold or discarded includes approximately $5.6 million related to cartridge inventory write-downs, as well as other asset write-downs resulting from product and channel rationalization within Commercial Products. The cartridge inventory charges relate primarily to excess empty cartridges received in 1995 under rebate programs and contractual obligations, most of which have been terminated. At December 31, 1995, approximately 30 employee terminations provided for had occurred, with the remaining separations scheduled to be completed in 1996. All charges, excluding asset write-downs, are principally cash in nature and are expected to be funded from operations. All restructuring activities provided for in the balance at December 31, 1994 were completed in 1995. Amounts incurred did not change materially from the reserve balance of $3 million. Management anticipates all 1995 actions will be completed by the end of 1996 and result in annualized savings in personnel and operating costs of approximately $5 million. -27- 29 During the fourth quarter of 1993, the Company recorded a charge of approximately $11.8 million related to the integration and streamlining of the operations of the Commercial Products Group, including workforce reductions, consolidation of facilities and the write-down of certain assets. The details of the Company's charge related to continuing operations and the activity recorded in 1994 are as follows:
Balance Balance Dec. 31, Current Year Current Year Dec. 31, (In thousands) 1993 Provision Charges 1994 ------- ------------ ------------ -------- 1994 Activity Provisions related to workforce reductions: Severance $ 3,850 $ 700 $ 3,000 $1,550 Pension and OPEB costs 900 2,600 3,500 -- Provisions related to other personnel costs 1,100 -- 950 150 Provisions for assets to be sold or discarded 5,100 (1,100) 2,750 1,250 Other 850 400 1,250 -- ------- ------- ------- ------ Total $11,800 $ 2,600 $11,450 $2,950 ======= ======= ======= ======
The 1993 restructuring and other unusual charges included provisions for salary and benefit continuation costs for approximately 170 employees. The 1994 provision represented a revision in the Company's original estimate of severance costs primarily as a result of approximately 20 additional terminations from the Company's Commercial Products Group rather than from discontinued operations. As of December 31, 1995, all employee reductions related to these actions had been completed. Pension and OPEB reserves at December 31, 1993 relate to curtailment charges recognized in connection with the planned workforce reductions. The provision recognized in 1994 was recorded in connection with the Company's early retirement program based upon the actual number of employee acceptances. Provisions for other personnel costs relate primarily to relocation costs. The provision for assets to be sold or discarded included a charge of $1.8 million to write-down certain corporate and manufacturing facilities to their estimated net realizable value, as well as the costs associated with holding certain vacated portions of these facilities during the period until the property can be sold, or otherwise disposed. During 1994, the Company commissioned an appraisal of its corporate and manufacturing facilities, and as a result of the appraisal revised upward its estimate of proceeds to be realized upon disposal. Other than as described above, there were no material changes to the Company's original estimate of the costs associated with the restructuring actions. INDEBTEDNESS On January 5, 1995, the Company replaced its existing $40 million revolving credit facility with a similar $75 million revolving credit facility. The facility is scheduled to expire on December 31, 1997, unless otherwise extended. Interest on amounts outstanding is payable at either LIBOR plus .75 percent to 1.125 percent, based on amounts outstanding, or at the Reference Rate at the Company's election, or, if amounts outstanding are borrowed under competitive bid, interest is payable at the quoted rate. The agreement requires the Company to pay an annual commitment fee of .3125 percent on the unused portion of the facility and .25 percent on any loans advanced under competitive bids. Borrowings of $53 million were outstanding under this facility at December 31, 1995, compared with $33 million outstanding under the previous facility at December 31, 1994. -28- 30 On September 13, 1991, the Company entered into a senior note agreement, as amended, with an insurance company under which the Company borrowed $20 million at a fixed rate of 9.17 percent. In connection with the Company's renegotiation of its revolving credit facility, the interest rate applicable to the senior notes was increased to 9.67 percent as of January 1, 1995. Mandatory payments of $2.5 million were made in 1993 and 1994. The remaining balance of the notes will become due beginning in 1997 with the final payment due in 2001. The Company's revolving credit facility and senior note agreement require maintenance of certain restrictive financial covenants related to interest and fixed charge coverage, tangible net worth, leverage and additional debt. Since September 29, 1995, the Company has not been in compliance with the interest and fixed charge coverage portions of these agreements. Since the initial date of technical default, the lenders have provided the Company with a forbearance during which time the parties have been negotiating amendments to the lending agreements in order to allow the Company to remain in compliance. As part of the interim agreement with its lenders, interest payable on amounts outstanding were adjusted to the Reference Rate plus .5 percent. The weighted average rate in effect at December 31, 1995 for borrowings under the revolving credit facility was 8 percent per annum. See additional discussion in the Subsequent Events note. The fair value of the Company's total debt approximated its recorded amount at December 31, 1995 and 1994, respectively. The fair value is based on management's estimate of current rates available to the Company for similar debt with the same remaining maturity. The combined aggregate amount of minimum principal payments due subsequent to December 31, 1995 for all long-term indebtedness is $.5 million in 1996 and $68.4 million in 1997. These minimum principal payments have been adjusted to reflect the terms of the Company's revised lending agreements. See the Subsequent Events note. INCOME TAXES The domestic and foreign components of income (loss) from continuing operations before income taxes and cumulative effect of accounting principle changes are as follows:
(In thousands) 1995 1994 1993 -------- ------- ------- Domestic $(22,766) $(1,775) $(6,015) Foreign 2,617 5,806 6,580 -------- ------- ------- Consolidated $(20,149) $ 4,031 $ 565 ======== ======= =======
Income tax expense (benefit) charged to continuing operations consists of the following:
(In thousands) 1995 1994 1993 ------- ------- ------- Current: United States $ -- $ -- $ 1,608 Foreign 1,708 3,303 2,640 State and local -- 15 82 ------- ------- ------- Total current 1,708 3,318 4,330 Deferred: United States (6,703) (612) (3,873) Foreign 316 (885) 83 ------- ------- ------- Total deferred (6,387) (1,497) (3,790) ------- ------- ------- Changes in statutory rates -- -- (225) Income tax expense $(4,679) $ 1,821 $ 315 ======= ======= =======
-29- 31 Deferred tax liabilities (assets) are comprised of the following:
December 31, (In thousands) 1995 1994 -------- -------- Depreciation $ 3,859 $ 4,393 Other 1,478 -- -------- -------- Gross deferred tax liabilities 5,337 4,393 -------- -------- Restructuring (1,886) (1,033) Pension and postretirement benefits (9,386) (11,505) Loss and credit carryforwards (21,478) (10,675) Workers compensation accrual (1,343) (1,372) Inventory reserve (2,673) (875) Bad debt reserve (1,086) (1,261) Other (1,997) (1,460) -------- -------- Gross deferred tax assets (39,849) (28,181) Deferred tax assets valuation allowance 3,300 -- -------- -------- $(31,212) $(23,788) ======== ========
Reconciliations between income taxes from continuing operations computed using the United States statutory income tax rate and the Company's effective tax rate are as follows:
1995 1994 1993 ---- ---- ---- United States statutory rate (benefit) (35.0)% 35.0% 35.0% Goodwill 1.5 8.2 88.2 Dividend income -- -- 41.2 State and local income taxes, net of federal tax benefit (5.6) .2 (41.4) Tax asset valuation reserve 16.4 -- -- Foreign tax credits (1.6) -- -- Rate revaluation -- -- (52.4) Rate difference-foreign subsidiaries (.3) (3.1) (20.7) Other, net 1.4 4.9 6.1 ----- ----- ----- Effective tax rate (benefit) (23.2)% 45.2% 56.0% ===== ===== =====
At December 31, 1995, $19.3 million and $11.9 million of net tax assets were included in "Other Current Assets" and "Other Assets," respectively. At December 31, 1994, $6.3 million and $17.5 million of tax assets were included in "Other Current Assets" and "Other Assets," respectively. At December 31, 1995, the Company had $14.8 million and $6.7 million of net operating loss carryforward benefits and tax credit carryforwards, respectively, which are primarily limited to offset certain future domestic taxable earnings. The net operating loss carryforward benefits expire as follows: $.5 million in 1999; $2.6 million in 2000; and $11.7 million thereafter. The tax credit carryforwards expire as follows: $2.8 million in 1996; $.2 million in 1997; $.1 million in 1998; $.4 million in 2000; and $3.2 million thereafter. These amounts are reflected gross of a tax asset valuation reserve in the amount of $3.3 million due to the probability that certain of these assets will not be realized. -30- 32 During 1994, the Internal Revenue Service (IRS) completed an examination of the Company's corporate income tax returns for the years 1988 through 1991. As a result of the IRS' findings, the Company agreed to and paid additional taxes and interest of $7.8 million in January 1995 in connection with adjustments related mainly to the tax treatment of certain items associated with the 1990 sale of the International Office Systems business. On January 13, 1995, the IRS issued a Notice of Deficiency in the amount of $8.7 million in connection with the tax years 1990 and 1991. The tax deficiency relates to the tax treatment of income recognized in connection with the 1990 sale of the International Office Systems business. The major issues relate to foreign tax credits, foreign earnings and profits computation, and the treatment of the disposition of preferred stock of a foreign subsidiary. The Company disagrees with the position taken by the IRS and filed a formal protest of the deficiency on February 9, 1995. In management's opinion, the ultimate disposition of this matter will not have a material adverse effect on the financial position or results of operations of the Company. It is management's intention to reinvest undistributed earnings of foreign subsidiaries which aggregate approximately $25 million, based on exchange rates at December 31, 1995. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were lent to the Company or if the Company should sell its stock in the subsidiaries. It is not practicable to estimate the amount of additional tax that might be payable on undistributed foreign earnings. SHAREHOLDERS' EQUITY The Company is authorized to issue up to 200,000 shares of Series A Participating Preferred Stock in connection with its Rights Agreement under which holders of the Company's common stock received a dividend of one preferred stock purchase right for each outstanding share of common stock. Each Right entitles the registered holder to purchase from the Company one one-hundredth share of the Company's Series A Participating Preferred Stock, at a price of $90.00. The Rights do not detach or become exercisable until the tenth business day following the public announcement that a person has acquired, or obtained the right to acquire, 10 percent or more of the outstanding common stock of the Company, or the commencement of a tender or exchange offer which would result in the acquisition of beneficial ownership of 10 percent or more of the Company's common stock. The Rights Agreement provides that if any person or group were to acquire 10 percent or more of the Company's common stock, then shareholders other than the acquiring person would be entitled to purchase, at the Rights' then-current exercise price, a number of additional Company shares having a market value of twice the Rights' exercise price, unless the acquiring person purchases at least 85 percent of Nashua's common stock in a cash tender offer for all shares. The Company's Board of Directors may, at their option, exchange one Company share of common stock for each Right (other than the Rights held by the acquiring person) if the acquiring person has acquired more than 10 percent but less than 50 percent of the Company's common stock. The Rights Agreement further provides that, upon the occurrence of certain events including transactions in which the Company is acquired and certain self-dealing transactions with the Company by an acquirer, each Right entitles the holder thereof (other than the acquirer) to purchase shares of capital stock of either the Company or of the acquirer having a value equal to twice the then-current exercise price of the Rights. At any time prior to a person's acquiring beneficial ownership of 10 percent or more of the Company's common stock, the Continuing Directors, by a two-thirds vote, may authorize the Company to redeem the Rights at any time at a redemption price of five cents per Right. The Rights will expire on September 2, 1996, unless earlier redeemed by the Company. In addition to the Rights attaching to the common stock outstanding, Rights will be issued with each common share that is issued prior to the time the Rights become exercisable or expire. -31- 33 In 1989, the Board of Directors authorized the Company to repurchase up to 1,000,000 shares of its common stock. As of December 31, 1995, the Company had purchased approximately 435,000 shares under this program. The following summarizes the changes in selected shareholders' equity accounts for each of the three years in the period ended December 31, 1995:
Common Stock Cumulative Par Additional Translation Treasury Stock Shares Value Capital Adjustment Shares Cost --------- ------ ---------- ----------- ------ ---- BALANCE, DECEMBER 31, 1992 6,333,690 $6,334 $ 11,130 $(5,393) (25,000) $(799) Stock options exercised and related tax benefit 6,740 6 116 -- -- -- Translation adjustments and gains and losses from certain inter-company balances -- -- -- (451) -- -- Purchase of treasury shares -- -- -- -- (120) (3) Reissuance of treasury shares -- -- -- -- 530 17 --------- ------ -------- ------- ------- ----- BALANCE, DECEMBER 31, 1993 6,340,430 6,340 11,246 (5,844) (24,590) (785) Stock options exercised and related tax benefit 56,140 57 1,024 -- -- -- Translation adjustments and gains and losses from certain inter-company balances -- -- -- 916 -- -- Purchase of treasury shares -- -- -- -- (60) (2) --------- ------ -------- ------- ------- ----- BALANCE, DECEMBER 31, 1994 6,396,570 6,397 12,270 (4,928) (24,650) (787) Stock options exercised and related tax benefit 1,000 1 13 -- -- -- Translation adjustments and gains and losses from certain inter-company balances -- -- -- (310) -- -- Restricted stock issuances 105,000 105 1,299 -- -- -- Deferred compensation -- -- (1,404) -- -- -- Reissuance of treasury shares -- -- -- -- 240 36 --------- ------ -------- ------- ------- ----- BALANCE, DECEMBER 31, 1995 6,502,570 $6,503 $ 12,178 $(4,618) (24,410) $(751) ========= ====== ======== ======= ======= =====
STOCK OPTION AND STOCK AWARD PLANS The Company has three stock compensation plans at December 31, 1995: the 1980 Stock Award Plan (1980 plan), the 1987 Stock Option Plan (1987 plan) and the 1993 Stock Incentive Plan (1993 plan). Awards can no longer be granted under the 1980 plan. Awards under the 1987 plan and the 1993 plan are made at the discretion of the Executive Salary Committee of the Board of Directors. Stock options awarded under the 1980 plan which are outstanding at December 31, 1995, are currently exercisable and expire on the tenth anniversary of the date of grant. -32- 34 Under the 1987 plan, nonqualified stock options and incentive stock options may be awarded. Stock options under the 1987 plan become exercisable either (a) 50 percent on the first anniversary of grant, and the remainder on the second anniversary of grant, (b) 100 percent at six months from the date of grant, (c) 100 percent at one year from the date of grant, or (d) otherwise as determined by the Executive Salary Committee of the Board of Directors. Nonqualified stock options expire 10 years and one day from the date of grant, and incentive stock options expire 10 years from the date of grant. Under the 1993 plan, non-statutory stock options, incentive stock options and shares of restricted stock may be awarded. Stock options under the 1993 plan become exercisable either (a) 50 percent on the first anniversary of grant and the remainder on the second anniversary of grant, (b) 100 percent at one year from the date of grant, or (c) otherwise as determined by the Executive Salary Committee of the Board of Directors. Non-statutory stock options expire 10 years and one day from the date of grant, and incentive stock options expire 10 years from the date of grant. Restricted stock awards under the 1993 plan are granted to certain key executives and are earned only if the closing price of the Company's common stock meets specific target prices for certain defined periods of time. During 1995, the Company granted 105,000 shares of restricted stock. Restrictions on such shares lapse in equal amounts when the average closing price of Nashua's common stock reaches $20, $25 and $30, respectively, for a consecutive 30 trading day period. Shares issued under the plan are initially recorded at their fair market value on the date of grant with a corresponding charge to additional paid in capital representing the unearned portion of the award. Shares of restricted stock are forfeited if the specified average closing prices of the Company's common stock are not met within five years of grant. In the event of a change of control, as defined in the 1987 plan and the 1993 plan, the option holder may, with respect to stock option agreements which so provide, have a limited right with respect to options under the plans to elect to surrender the options and receive cash or shares equal in value to the difference between the option price and the larger of either the highest reported price per share on the New York Stock Exchange during the sixty-day period before the change in control or, if the change in control is the result of certain defined transactions, the highest price per share paid in such defined transactions. Because the exercise price of all stock options awarded under these plans has been equal to the quoted market price of the Company's common stock at date of grant, or because the conditions upon which restrictions on stock awards would lapse have not been met, no compensation expense has been recorded. -33- 35 A summary of the status of the Company's stock options, under incentive plans follows:
Outstanding Option Price Exercisable Options Per Share Options ----------- ------------ ----------- December 31, 1992 395,390 $11.81-38.38 357,990 Options granted 113,800 25.75-30.25 -- Options that became exercisable -- 25.50-34.63 25,350 Options exercised (6,740) 11.81-25.50 (6,740) Options lapsed and cancelled (6,380) 25.75-34.63 (2,900) -------- ------------- -------- December 31, 1993 496,070 $11.81-38.38 373,700 Options granted 103,950 22.63-29.50 -- Options that became exercisable -- 25.75-28.13 62,406 Options exercised (56,140) 11.81-28.13 (56,140) Options lapsed and cancelled (158,046) 25.75-38.38 (151,981) -------- ------------- -------- December 31, 1994 385,834 $13.75-34.63 227,985 Options granted 298,500 12.75-19.75 -- Options that became exercisable -- 22.63-30.25 101,124 Options exercised (1,000) 13.75 (1,000) Options lapsed and cancelled (177,425) 12.75-34.63 (88,650) -------- ------------- -------- December 31, 1995 505,909 $12.75-34.63 239,459 ======== ============= ========
COMMITMENTS AND CONTINGENCIES Rent expense for office equipment, facilities and vehicles was $2.5 million, $2.1 million and $1.8 million for 1995, 1994 and 1993, respectively. At December 31, 1995, the Company was committed, under non-cancelable operating leases, to minimum annual rentals as follows: 1996 - $2.1 million; 1997 - $1.8 million; 1998 - $1.1 million; 1999 - $1.1 million; 2000 - $1.0 million; thereafter - $8.5 million. At December 31, 1995, the Company was obligated under approximately $5.6 million in standby letters of credit. In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh") filed a Complaint with the United States District Court, District of New Hampshire, alleging Nashua's infringement of U.S. patents 4,611,730 and 4,878,603 relating to certain toner cartridges for Ricoh copiers. The Complaint seeks damages and injunctive relief. The products involved constitute an insignificant amount of Nashua's sales. The Company believes it has substantial defenses and intends to defend the action vigorously. The Company is involved in certain environmental matters and has been designated by the Environmental Protection Agency (EPA) as a "potentially responsible party" (PRP) for certain hazardous waste sites. In addition, the Company has been notified by certain state environmental agencies that some of the Company 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, the ultimate cost to the Company of remediation for each site is difficult to determine. At December 31, 1995, based on the facts currently known and the Company's prior experience with these matters, the Company has concluded that there is at least a reasonable possibility that site assessment, remediation and monitoring costs will be incurred by the Company with respect to those sites which can be reasonably estimated in the aggregate range of $1.5 million to $1.7 million. This range is based, in part, on an allocation of certain sites' costs which, due to the joint and several nature of the liability, could increase if the other PRP's are unable to bear their allocated share. At December 31, 1995, the Company has accrued $1.5 million which represents, in management's view, the most likely amount within the range stated above. Based on information currently available to the Company, management believes that it is probable that the major responsible parties will fully pay the costs apportioned to them. Management believes that, based on its financial position and the estimated environmental accrual recorded, its remediation expense with respect to those sites is not likely to have a material adverse effect on its consolidated financial position or results of operations. -34- 36 POSTRETIREMENT BENEFITS Pension Plans: The Company and its subsidiaries have several pension plans which cover substantially all of its regular full-time employees. Benefits under these plans are generally based on years of service and the levels of compensation during those years. The Company's policy is to fund amounts deductible for income tax purposes. Assets of the plans are invested in interest-bearing cash equivalent instruments, fixed-income securities and common stocks. Net periodic pension cost from continuing operations for the plans, exclusive of enhanced early retirement and curtailment pension costs, includes the following components:
(In thousands) 1995 1994 1993 -------- ------- -------- Service cost-benefits earned during the period $ 2,490 $ 2,771 $ 2,884 Interest cost on projected benefit obligation 8,581 7,916 7,196 Actual return on plan assets (23,622) 1,826 (17,554) Net amortization and deferral 15,281 (9,491) 10,839 -------- ------- -------- Net periodic pension cost $ 2,730 $ 3,022 $ 3,365 ======== ======= ========
In February 1994, the Company offered certain of its United States employee groups an enhanced early retirement pension benefit. The cost of the enhanced pension benefit was $4.2 million, $2.2 million of which was attributable to discontinued operations. In 1993, the Company recognized a curtailment expense of $1.2 million, approximately $.6 million of which related to discontinued operations. The following sets forth the funded status of the plans and the amounts recognized in the Company's consolidated balance sheet at December 31, 1995:
Accumulated Benefit Obligation ---------------------- Less Than Exceeds (In thousands) Assets Assets --------- -------- Actuarial present value of: Vested benefit obligation $ 49,661 $ 68,399 -------- -------- Accumulated benefit obligation $ 49,855 $ 68,557 -------- -------- Projected benefit obligation $ 50,284 $ 70,696 -------- -------- Market value of plan assets $ 54,511 $ 62,583 -------- -------- Plan assets in excess of (less than) projected benefit obligation $ 4,227 $ (8,113) Unrecognized transition (asset) obligation (1,929) 2,025 Unrecognized prior service costs 1,322 4,297 Unrecognized net gain (2,140) (7,368) Additional liability -- (617) -------- -------- Prepaid (accrued) pension cost $ 1,480 $ (9,776) ======== ========
-35- 37 The following sets forth the funded status of the plans and the amounts recognized in the Company's consolidated balance sheet at December 31, 1994:
Accumulated Benefit Obligation (In thousands) Less Than Exceeds Assets Assets --------- -------- Actuarial present value of: Vested benefit obligation $41,052 $58,035 ------- ------- Accumulated benefit obligation $41,863 $58,158 ------- ------- Projected benefit obligation $42,189 $62,046 ------- ------- Market value of plan assets $47,117 $53,137 ------- ------- Plan assets in excess of (less than) projected benefit obligation $ 4,928 $(8,909) Unrecognized transition (asset) obligation (2,196) 2,363 Unrecognized prior service costs 1,452 5,568 Unrecognized net gain (1,390) (7,731) Additional liability -- (143) ------- ------- Prepaid (accrued) pension cost $ 2,794 $(8,852) ======= =======
During 1994, the Company updated the definition of average annual compensation, the effect of which increased the unrecognized prior service liability by $1.8 million. Approximately $4.2 million and $7.5 million of the accrued pension cost for 1995 and 1994, respectively, are included in "Other Long-Term Liabilities" in the accompanying consolidated balance sheet. The significant actuarial assumptions used for the plans' valuations were:
1995 1994 ---- ---- Weighted-average discount rate 7.4% 8.2% Expected long-term rate of return on plan assets 9.7% 9.7% Rate of increase in future compensation levels 5.1% 5.0%
RETIREE HEALTH CARE AND OTHER BENEFITS: The Company provides certain health care and other benefits to eligible retired employees and spouses. Salaried participants generally become eligible for retiree health care benefits after reaching age 60 with ten years of service. Benefits, eligibility and cost-sharing provisions for hourly employees vary by location or bargaining unit. Generally, the medical plans pay a stated percentage of most medical expenses, reduced for any deductibles and payments made by government programs and other group coverage. In 1993, the postretirement benefit plan was changed to share the cost of benefits with all retirees, resulting in an unrecognized benefit which is being amortized over the future service period of the active employees. -36- 38 The following table sets forth the funded status of the plans, reconciled to the accrued postretirement benefit cost recognized in the Company's balance sheet:
(In thousands) 1995 1994 -------- -------- Accumulated postretirement benefit obligation: Retirees $ 7,143 $ 7,264 Fully eligible active plan participants 1,483 1,668 Other active participants 1,815 2,453 -------- -------- Market value of plan assets -- -- Accumulated postretirement benefit obligation in excess of plan assets (10,441) (11,385) Unrecognized prior service benefit (4,589) (5,221) Unrecognized net (gain) loss (2,208) (1,232) -------- -------- Accrued postretirement benefit cost $(17,238) $(17,838) ======== ========
Approximately $16.5 million and $17.1 million of accrued postretirement benefits for 1995 and 1994, respectively, are included in "Other Long-Term Liabilities" in the accompanying consolidated balance sheet. Net periodic postretirement benefit cost of continuing operations, exclusive of enhanced early retirement and curtailment costs, included the following components:
(In thousands) 1995 1994 1993 ----- ----- ----- Service cost of benefits earned $ 85 $ 133 $ 162 Interest cost on accumulated postretirement benefit obligation 768 942 791 Amortization of prior service benefit (724) (554) (554) ----- ----- ----- Net periodic postretirement benefit cost $ 129 $ 521 $ 399 ===== ===== =====
As part of the 1994 early retirement program, the Company offered certain of its United States employee groups an enhanced early retirement health care benefit. The cost of the enhanced health care benefit was $1.5 million, $.9 million of which was attributable to discontinued operations. At December 31, 1994, the postretirement benefit plans were amended to transfer the cost of health supplemental benefit payments to the Company's pension plan. In 1993, the Company recognized a curtailment expense of $.8 million, approximately half of which related to discontinued operations, in connection with its decision to dispose of certain operations and reduce personnel in the remaining businesses. For measurement purposes, a 6 percent annual rate of increase in the per capita claims cost of medical benefits was assumed for the various plans in 1995. This rate was assumed to decrease gradually to 5 percent in 1999 and remain at that level thereafter. The discount rate used in determining the accumulated postretirement benefit obligation was 7.25 percent. If the future health care cost trend rate were increased 1 percent, the accumulated postretirement benefit obligation as of December 31, 1995 would have increased by 2 percent. The effect of this assumed change on the aggregate of service and interest cost for 1995 would have been an increase of 3 percent. -37- 39 INFORMATION ABOUT OPERATIONS The Company conducts business in three segments: Commercial Products, Photofinishing and Cerion Technologies. In 1994, the Company combined its Coated Products and Office Supplies business segments to form Commercial Products. Commercial Products produces and sells facsimile and thermal papers, pressure-sensitive labels, specialty papers, and copier and laser printer supplies primarily to domestic resellers, original equipment manufacturers and private label distributors. Photofinishing provides photofinishing services to amateur photographers through mail-order in North America and Western Europe, as well as through retail establishments in Ireland. Cerion Technologies manufactures precision metallic parts primarily for the domestic computer industry. Net sales, operating income and identifiable assets of the Company's three business segments and the geographic areas in which they operate are set forth below:
Net Sales From Income (loss) From Continuing Operations Continuing Operations Identifiable Assets (In millions) 1995 1994 1993 1995(a) 1994(b) 1993(c) 1995 1994 1993 ------ ------ ------ ------ ------ ------ ------ ------ ------ BY BUSINESS Commercial Products $245.5 $259.5 $264.8 $(20.4) $ (4.0) $ (1.6) $ 84.3 $105.2 $ 91.3 Photofinishing 179.2 145.4 148.7 7.2 16.4 15.9 83.5 58.1 47.6 Cerion Technologies 27.5 14.0 14.1 6.0 (.2) .6 12.4 7.4 4.3 Corporate expenses, including interest and assets -- -- -- (12.9) (8.2) (14.3) 37.1 40.8 33.4 Discontinued Operations -- -- -- -- -- -- 14.1 16.3 42.5 ------ ------ ------ ------ ------ ------ ------ ------ ------ Consolidated $452.2 $418.9 $427.6 $(20.1) $ 4.0 $ .6 $231.4 $227.8 $219.1 ====== ====== ====== ====== ====== ====== ====== ====== ====== BY GEOGRAPHIC AREA United States $349.8 $357.5 $366.3 $(11.2) $ 6.3 $ 4.4 $112.6 $133.8 $110.5 Europe 95.5 53.6 52.3 3.0 5.0 8.6 62.5 33.3 26.7 Other 6.9 7.8 9.0 1.0 .9 1.9 5.1 3.6 6.0 Eliminations, corporate expenses, including interest and assets -- -- -- (12.9) (8.2) (14.3) 37.1 40.8 33.4 Discontinued Operations -- -- -- -- -- -- 14.1 16.3 42.5 ------ ------ ------ ------ ------ ------ ------ ------ ------ Consolidated $452.2 $418.9 $427.6 $(20.1) $ 4.0 $ .6 $231.4 $227.8 $219.1 ====== ====== ====== ====== ====== ====== ====== ====== ======
Sales between business segments are insignificant. Intrasegment sales between geographic areas are generally priced at the lowest price offered to unaffiliated customers. (a) Includes restructuring and other unusual charges of $14.3 million and $1.9 million for Commercial Products and Corporate, respectively. (b) Includes restructuring and other unusual charges of $2.6 million for Commercial Products Group. (c) Includes restructuring and other unusual charges of $3.5 million, $.8 million and $7.5 million for Commercial Products, Photofinishing and Corporate, respectively. Capital expenditures and depreciation and amortization by business segment are set forth below:
Depreciation and Capital Expenditures Amortization 1995 1994 1993 1995 1994 1993 ----- ----- ----- ----- ----- ----- Commercial Products $ 8.6 $11.1 $ 9.8 $ 8.3 $ 7.9 $ 7.5 Photofinishing 2.5 3.8 2.9 8.3 5.4 5.9 Cerion Technologies 2.1 1.0 1.8 .8 .8 .7 ----- ----- ----- ----- ----- ----- Consolidated $13.2 $15.9 $14.5 $17.4 $14.1 $14.1 ===== ===== ===== ===== ===== =====
-38- 40 SUBSEQUENT EVENTS On March 21, 1996, Cerion Technologies filed a registration statement on Form S-1 with the Securities and Exchange Commission for a proposed initial public offering of 3,840,000 shares of common stock. Of the total, 1,615,000 shares are being offered by Cerion and 2,225,000 shares are being offered by Nashua as the selling stockholder. Cerion Technologies, based in Champaign, Illinois, is an independent supplier of aluminum substrates for the computer disk drive industry. All or most of the proceeds anticipated to be generated from the sale of shares offered by Nashua will be used to prepay a portion of the Company's debt. On March 27, 1996, the Company reached agreement with its lenders on the terms of amendments to existing lending agreements which will supersede the terms and conditions of the $75 million revolving credit facility and the Company's senior note agreement. Under the provisions agreed to with the lenders, the revolving credit facility will be replaced with a bank facility (the "Bank Facility"). Advances under the Bank Facility will be made pursuant to both a term loan arrangement and a revolving credit facility with an initial aggregate credit availability of up to $66 million. Interest on amounts outstanding under both the term loan and revolving credit portion of the agreement will be payable at the prime rate plus .5 percent. The revised senior note will be at a rate of 11.85 percent per annum. Of the total revolving credit balance outstanding on the facility closing date, $48 million initially will be designated as outstanding under the term loan portion of the Bank Facility with the remainder designated as outstanding under the revolving credit facility. The revolving credit portion of the Bank Facility will provide for initial credit availability equal to the lesser of $18 million or a defined percentage of eligible accounts receivable and inventory. The agreement also will provide for up to $5 million of the revolving credit facility to be available for the issuance of letters of credit. The revolving credit portion of the Bank Facility will expire on December 31, 1997. The terms of the Bank Facility and revised senior note will require certain mandatory prepayments and, with respect to the Bank Facility, contain provisions for certain facility commitment reductions, tied to the sale or issuance by the Company of equity securities or the sale or disposition of assets. According to the provisions of the term loan and the senior note, one-half of the amount outstanding on October 1, 1996 and December 31, 1996, respectively, will become due and payable in four equal quarterly installments commencing in January 1997. All remaining amounts outstanding will be due on December 31, 1997. Prepayments also will be required beginning in January 1997, based on Excess Cash Flows, as defined in the agreement. The Bank Facility will require a commitment fee of .5 percent per annum on unused amounts, as well as a 2 percent per annum fee on letters of credit issued under the facility. In addition, the Bank Facility and revised senior note agreement will provide for contingent fees to be paid if the actual level of prepayments made in 1996 are below certain specified levels. Borrowings under the Bank Facility and revised senior note will be collateralized by a security interest in the Company's receivables and inventory, assets of the domestic and certain foreign subsidiaries and the stock of certain foreign subsidiaries. Subject to shareholder approval and certain circumstances, additional collateral may be required. The agreements will contain certain financial covenants with respect to tangible net worth, capital expenditures, cash flows and the ratio of cash flows to fixed charges. In addition, the agreements will not allow the payment of dividends and will restrict, among other things, the incurrence of additional debt, guarantees, lease arrangements or sale of certain assets. -39- 41 QUARTERLY OPERATING RESULTS AND COMMON STOCK INFORMATION (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA) 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ---- 1995 Net sales $ 109.6 $ 122.2 $ 121.7 $ 98.7 $ 452.2 Gross profit 26.9 33.3 33.3 22.7 116.2 Income (loss) from continuing operations(1) .1 1.5 (7.3) (9.7) (15.4) Income from discontinued operations -- .4 -- .3 .7 Net income (loss)(1) .1 1.9 (7.3) (9.4) (14.7) Earnings (loss) per common and common equivalent share: Continuing operations(1) .01 .23 (1.14) (1.53) (2.43) Discontinued operations -- .06 -- .06 .12 Net income (loss)(1) .01 .29 (1.14) (1.47) (2.31) Dividends .18 .18 .18 -- .54 Market price: High 21 20 19-1/4 16-7/8 21 Low 18-1/2 18-5/8 14-3/4 12-1/4 12-1/4 1994 Net sales $ 98.0 $ 107.0 $ 113.3 $ 100.6 $ 418.9 Gross profit 22.8 28.5 30.5 22.5 104.3 Income (loss) from continuing operations(2) (1.8) 2.1 1.9 -- 2.2 Income (loss) from discontinued operations (1.7) .8 .5 .3 (.1) Net income (loss)(2) (3.5) 2.9 2.4 .3 2.1 Earnings (loss) per common and common equivalent share: Continuing operations(2) (.27) .34 .29 (.01) .35 Discontinued operations (.27) .12 .08 .06 (.01) Net income (loss)(2) (.54) .46 .37 .05 .34 Dividends .18 .18 .18 .18 .72 Market price: High 30 3/4 27 3/8 29 1/4 23 1/8 30 3/4 Low 26 1/4 24 3/8 22 7/8 19 3/4 19 3/4 (1) The third quarter includes restructuring and other unusual charges of $8.2 million and a valuation allowance of $3.3 million against tax assets due to the probability that such assets will not be realized. The fourth quarter includes restructuring and other unusual charges of $8 million. (2) The first quarter includes restructuring and other unusual charges of $2.6 million.
The Company's stock is traded on the New York Stock Exchange. At December 31, 1995, there were 1,542 record holders of Nashua's common stock. -40- 42 Report of Independent Accountants To the Board of Directors and Shareholders of Nashua Corporation In our opinion, the accompanying financial statements listed in the index appearing under Item 14 (a) (1) present fairly, in all material respects, the financial position of Nashua Corporation and its subsidiaries at December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts February 5, 1996, except as to the Subsequent Events note, which is as of March 27, 1996 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS OF THE REGISTRANT The directors are elected annually by the stockholders and hold office until successors are elected and qualified or until death, resignation or removal. The business experience for each director of Nashua for the last five years and the year he first became a director of Nashua and their ages are as follows:
DIRECTOR NAME AGE SINCE BUSINESS EXPERIENCE ---- --- ----- ------------------- Joseph A. Baute 68 1984 Mr. Baute has been the Chairman of Nashua Corporation since April 28, 1995 and was President and Chief Executive Officer from November 10, 1995 to January 2, 1996. He was Chairman and Chief Executive Officer of Markem Corporation (information application systems) from prior to 1991 until his retirement in 1993. He is also a Director of Houghton-Mifflin Company, State Street Bank & Trust Company and Infosoft International. Sheldon A. Buckler(a)(c) 64 1994 Dr. Buckler has been Chairman of the Board of Commonwealth Energy System since May 1995. He was Vice Chairman of the Board of Polaroid Corporation from prior to 1991 until his retirement in 1994. He is also a Director of ASECO Corporation, PARLEX Corporation and Spectrum Information Technologies, Inc. Richard E. Carter(b) 67 1978 Private investor. Thomas W. Eagar(d) 46 1993 Professor Eagar has been Professor of Materials Engineering at the Massachusetts Institute of Technology (MIT) since prior to 1991 and POSCO Professor of Materials Engineering since 1993. He has also been Head of the Department of Materials Science and Engineering at MIT since January 1995. Gerald G. Garbacz 59 1996 Mr. Garbacz has been President and Chief Executive Officer of Nashua Corporation since January 2, 1996. He was a private investor from 1994 through 1995. He was Chairman and Chief Executive Officer of Baker & Taylor Inc. (information distribution) from 1992 to 1994 and Executive Vice President of W.R. Grace & Co. from prior to 1991 to 1992. He is also a Director of Handy & Harman Inc. Charles S. Hoppin(a)(c)(d) 64 l979 Mr. Hoppin has been a partner in the law firm of Davis Polk & Wardwell since prior to l991. John M. Kucharski(a)(b) 60 1988 Mr. Kucharski has been the Chairman, Chief Executive Officer and President of EG&G, Inc. (technical and scientific products and services) since prior to l991. He is also a Director of New England Electric System, Eagle Industry Co., Ltd. and State Street Boston Corporation. James F. Orr III (b)(d) 53 l989 Mr. Orr has been the Chairman, Chief Executive Officer and President of UNUM Corporation (insurance) since prior to l991.
-41- 43 - ------------------- (a) Member of the Audit Committee of Nashua's Board of Directors. (b) Member of the Executive Salary Committee of Nashua's Board of Directors. (c) Member of the Nominating Committee of Nashua's Board of Directors. (d) Member of the Pension Plan Review Committee of Nashua's Board of Directors. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the present executive officers of the Company for Section 16 of the Securities and Exchange Act purposes, their ages and their positions held with the Company: -42- 44
NAME AGE POSITION - ---- --- -------- Gerald G. Garbacz 59 President and Chief Executive Officer Daniel M. Junius 43 Vice President-Finance, Chief Financial Officer and Treasurer Robin J.T. Clabburn 59 Vice President and Chief Technical Officer Bruce T. Wright 46 Vice President Charles E. Turnbull 43 Vice President John R. Mapley 64 Vice President David A. Peterson 56 Vice President
Mr. Garbacz has been President and Chief Executive Officer of Nashua since January 1996. He was a Private Investor from 1994 through 1995. He was Chairman and Chief Executive Officer of Baker & Taylor Inc. (information distribution) from 1992 to 1994 and Executive Vice President of W.R. Grace & Co. from prior to 1991 to 1992. He is also a Director of Handy & Harman Inc. Mr. Junius has been Vice President-Finance, Chief Financial Officer and Treasurer since November 1995. He was Vice President-Finance and Treasurer from September 1995 to November 1995. Prior to September 1995 he was Treasurer. Mr. Clabburn has been Vice President and Chief Technical Officer since October 1995. He worked as a consultant for Nashua from March 1994 to October 1995. Prior to March 1994 he was Chief Executive Officer for several development stage companies at Cookson Group PLC. Mr. Wright has been Vice President since October 1994. Prior to October 1994 he was Vice President of Barry Controls. Mr. Turnbull has been Vice President since August 1995. Prior to August 1995 he was President of Polyken Technologies. Mr. Mapley has been Vice President since March 1996. From 1990 to March 1996 he was Chief Executive Officer of the Company's Photofinishing Group. Mr. Peterson has been Vice President since November 1995. He was General Manager of Cerion Technologies (Precision Technologies) from April 1992 to January 1996. Prior to April 1992 he held various operating positions within the former Nashua Computer Products Division. Executive officers are generally elected to their offices each year by the Board of Directors shortly after the Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Directors of Nashua, except employees and officers of the Company, receive $15,000 annual cash compensation and $750 plus expenses for each Board meeting and Board committee meeting attended and are each year awarded options to purchase 1,000 shares of common stock having an exercise price equal to the fair market value for such shares on the date of award under the provisions of Nashua's l993 Stock Incentive Plan. Under the 1996 Stock Incentive Plan, it is proposed that Nashua's non-employee Directors receive shares of Nashua's common stock each year in the amount of and in lieu of annual retainer cash compensation. Mr. Joseph A. Baute, as the non-employee Chairman of Nashua for the period April 28, 1995 through January 2, 1996 was paid approximately $75,000 plus expenses with the understanding that he would purchase $25,000 of Nashua stock on the open market. The Company reimbursed Mr. Baute for brokerage commissions on such stock purchase. This compensation was in lieu of all other compensation including non-employee director stock options and compensation for attending Board and Board Committee meetings. -43- 45 COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the annual and long-term compensation paid to persons who served as Nashua's Chief Executive Officer during 1995 and Nashua's six other highest paid executive officers in 1995:
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Awards ----------------------------------------- -------------------------- Shares Fiscal Other Annual Restricted Underlying All Other Name and Principal Position Year Salary Bonus Compensation Stock Awards Options/SARs Compensation(1) - --------------------------- ---- ------ ----- ------------ ------------ ------------ --------------- Joseph A. Baute 1995 $124,625 (2) $ 0 -- -- -- -- Chairman and Former President and Chief Executive Officer Francis J. Lunger 1995 $276,694 (3) $ 0 -- -- 28,000 $7,229 Former President and Chief 1994 $212,308 $ 0 $214,053 (7) -- 23,000 $4,211 Executive Officer William E. Mitchell 1995 $286,578 (4) $ 0 $248,344 (7) -- 15,000 $9,027 Former President and Chief 1994 $400,000 $ 0 $ 33,599 (8) -- 15,000 $5,033 Executive Officer 1993 $127,692 $ 0 $ 1,942 (9) -- 45,000 $3,528 Robin J. T. Clabburn 1995 $217,607 (5)(6) $ 0 $ 277 (10) $334,375 (12) 20,000 -- Vice President and Chief Technical Officer Robert A. Geiger 1995 $171,655 (6) $ 0 -- -- 13,500 $4,708 Vice President Tape Products Division John J. Ireland 1995 $168,997 (6) $ 0 $ 97,304 (7) -- 13,500 $9,447 Vice President Specialty Coated Products David A. Peterson 1995 $148,874 (6) $83,567 -- -- 11,500 $5,443 Vice President Cerion Technologies Daniel M. Junius 1995 $146,374 (6) $ 0 $ 561 (11) $334,375 (12) 11,500 $5,653 Vice President-Finance, Chief Financial Officer and Treasurer Bruce T. Wright 1995 $134,240 (6) $ 0 -- $334,375 (12) 14,000 $5,440 Vice President Human Resources - --------------------- (1) Includes amounts set aside under the Company's Supplemental Compensation Plan, Company contributions to the Employees' Savings Plan, life insurance income and premiums, financial consulting services, imputed auto income and imputed income on an interest free loan. In 1995, these amounts were: (i) as to the Employees' Savings Plan - Mr. Lunger, $2,229; Mr. Mitchell, $2,226; Mr. Geiger, $2,600; Mr. Ireland, $2,229; Mr. Peterson, $2,228; Mr. Junius, $2,600; and Mr. Wright, $2,229; (ii) as to life insurance income - Mr. Geiger, $2,108; Mr. Ireland, $560; Mr. Peterson, $2,057; Mr. Junius, $553; and Mr. Wright, $711;
-44- 46 (iii) as to financial consulting services - Mr. Lunger, $5,000; Mr. Mitchell, $5,000; Mr. Ireland, $6,000; Mr. Junius, $2,500; and Mr. Wright, $2,500; (iv) as to imputed auto income - Mr. Mitchell, $1,801; and Mr. Peterson, $1,158; and (v) as to imputed income on an interest free loan - Mr. Ireland, $658. (2) Mr. Baute has served as Chairman since April 28, 1995. He has also served as President and Chief Executive Officer from November 10, 1995 until January 2, 1996 when Mr. Garbacz became President and Chief Executive Officer. (3) Mr. Lunger left the Company in November 1995. (4) Mr. Mitchell left the Company in September l995. (5) Mr. Clabburn received an additional $31,674 for consulting services performed in 1995 prior to becoming an employee of Nashua. (6) Messrs. Clabburn, Geiger, Ireland, Peterson, Junius and Wright each first became executive officers in 1995. (7) Includes moving expense reimbursement and tax equalization payments. (8) Includes tax equalization payments on moving expense reimbursement, executive life insurance premiums and California state disability insurance payments. (9) Includes tax equalization payments for executive life insurance and California state disability insurance. (10) Tax equalization payments. (11) Includes tax equalization payments on executive medical reimbursement income and executive life insurance premiums. (12) Includes 25,000 shares of Restricted Stock (granted when the price of Nashua shares was $13.375), 8,333 shares of which will vest when the average closing price over a 30 trading day period of Nashua shares ("the average closing price") reaches $20.00; 8,333 shares of which will vest when the average closing price of Nashua shares reaches $25.00; and 8,334 shares of which will vest when the average closing price of Nashua shares reaches $30.00. However, any shares which have not vested upon the earlier of (i) by December 15, 2000 or (ii) termination of employment, will be forfeited. Dividends, if any, will accumulate on such Restricted Stock and be paid to the recipient when and if the underlying shares vest.
-45- 47 STOCK OPTIONS/STOCK APPRECIATION RIGHTS The following table sets forth certain information as to options/SARs granted during fiscal l995 to the individuals listed in the Summary Compensation Table. In accordance with SEC rules, also shown are the hypothetical gains or "option spreads", on a pre-tax basis, that would exist for the respective options/SARs. These gains are based on assumed rates of annual compound stock price appreciation of 5% and 10% from the date the options/SARs were granted over the full option term. To put this data into perspective, the resulting Nashua stock prices for the grants expiring on February 24, 2005 would be $32.17 at a 5% rate of appreciation and $51.23 at a 10% rate of appreciation, for the grant expiring on September 1, 2005, $29.12 at 5% and $46.38 at 10%, and for the grants expiring on November 4, 2005, $20.77 at 5% and $33.07 at 10%.
OPTION/SAR GRANTS IN FISCAL 1995 Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation % of Total Options/ Exercise or for Option/SAR Term Options/SARs SARs Granted to Base Price Expiration --------------------------- Name Granted (#) Employees in l995 ($/Share) Date 0% 5% 10% - ---- ------------ ----------------- --------- ---------- -- -- -- Joseph A. Baute . . . . . . 0 -- -- -- -- -- -- Francis J. Lunger . . . . . 8,000 2.7% $19.75 (1) -- -- -- 20,000 6.9% $17.88 (1) -- -- -- William E. Mitchell . . . . 15,000 5.1% $19.75 (2) -- -- -- Robin J. T. Clabburn . . . 20,000 (3) 6.9% $12.75 11/4/2005 $0 $160,368 $406,404 Robert A. Geiger . . . . . 3,500 (4) 1.2% $19.75 2/24/2005 $0 $ 43,472 $110,167 10,000 (5) 3.4% $17.88 9/1/2005 $0 $112,446 $284,961 John J. Ireland . . . . . 3,500 (4) 1.2% $19.75 2/24/2005 $0 $ 43,472 $110,167 10,000 (5) 3.4% $17.88 9/1/2005 $0 $112,446 $284,961 David A. Peterson . . . . . 1,500 (4) 0.5% $19.75 2/24/2005 $0 $ 18,631 $ 47,215 10,000 (5) 3.4% $17.88 9/1/2005 $0 $112,446 $284,961 Daniel M. Junius . . . . . 1,500 (4) 0.5% $19.75 2/24/2005 $0 $ 18,631 $ 47,215 10,000 (5) 3.4% $17.88 9/1/2005 $0 $112,446 $284,961 Bruce T. Wright 4,000 (4) 1.4% $19.75 2/24/2005 $0 $ 49,683 $125,906 10,000 (5) 3.4% $17.88 9/1/2005 $0 $112,446 $284,961 - ------------- (1) These options expired on November 10, 1995 due to the termination of Mr. Lunger's employment on that date. (2) These options expired on September 8, 1995 due to the termination of Mr. Mitchell's employment on that date. (3) These options will become exercisable on November 3, 1996. (4) 50% of these options became exercisable on February 23, 1996; 50% will become exercisable on February 23, 1997. (5) 50% of these options will become exercisable on August 31, 1996 and 50% on August 31, 1997.
-46- 48 The following table sets forth information as to options/SARs exercised in 1995 and unexercisable options/SARs held at the end of fiscal 1995, by the individuals listed in the Summary Compensation Table:
OPTION EXERCISES IN FISCAL YEAR 1995 AND VALUE OF OPTIONS/SARS AT END OF FISCAL 1995 Number of Unexercised Value of Unexercised, Options/SARs Held at In-The-Money, Options/SARs Fiscal Year End at Fiscal Year End (1) Shares Acquired Value -------------------------- ---------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- -------- ----------- ------------- ----------- ------------- Joseph A. Baute 0 $0 2,000 0 $0 $0 Francis J. Lunger 0 $0 23,000 0 $0 $0 William E. Mitchell 0 $0 30,000 0 $0 $0 Robin J. T. Clabburn 0 $0 0 20,000 $0 $17,600 Robert A. Geiger 0 $0 12,350 14,750 $0 $0 John J. Ireland 0 $0 2,500 16,000 $0 $0 David A. Peterson 0 $0 3,750 12,250 $0 $0 Daniel M. Junius 0 $0 12,250 12,250 $0 $0 Bruce T. Wright 0 $0 500 14,500 $0 $0 - ------------------- (1) Represents the difference between the closing price on the New York Stock Exchange of Nashua's common stock on December 29, l995 ($13.63) and the exercise price of the options/SARs.
PENSION PLAN The following table shows estimated annual benefits payable upon retirement under the Nashua Corporation Retirement Plan for Salaried Employees, which includes the individuals listed in the Summary Compensation table:
ESTIMATED PENSION BENEFITS Average Annual Years of Service Compensation from ------------------------------------------------------------------------ January 1, l990 25 or to Retirement 5 years 10 years 15 years 20 years more years - ---------------------- ------- -------- -------- -------- ---------- $ 125,000 $ 13,750 $ 27,500 $ 41,250 $ 55,000 $ 68,750 250,000 27,500 55,000 82,500 110,000 137,500 375,000 41,250 82,500 123,750 165,000 206,250 500,000 55,000 110,000 165,000 220,000 275,000 625,000 68,750 137,500 206,250 275,000 343,750 750,000 82,500 165,000 247,500 330,000 412,500 875,000 96,250 192,500 288,750 385,000 481,250 1,000,000 110,000 220,000 330,000 440,000 550,000
Compensation covered by this plan generally refers to total annual cash compensation, including salary and bonus, but excluding certain items such as the value of stock option awards and employer allocations to the Supplemental Compensation Plan and Employees' Savings Plan. As of December 31, l995, the individuals named in the Summary Compensation Table had the following years of service credited under the plan: Messrs. Baute, Lunger, Mitchell and Clabburn are not eligible; Mr. Geiger, 8 years; Mr. Ireland, 1.5 years; Mr. Peterson, 4.5 years; Mr. Junius, 11 years; and Mr. Wright, 1 year. -47- 49 The estimated annual benefits shown above are subject to an offset for 50% of a participant's primary Social Security benefit. Benefits as shown above, minus the 50% offset for Social Security benefit, are available for participants whose pensions start after reaching age 65. Participants who have five or more years of service are eligible to receive pensions after reaching age 60 and participants who have ten or more years of service are eligible to receive pensions after reaching age 55, but payments are reduced 4.2% per year for each year that they start receiving benefits earlier than at age 65. Payments are further reduced for participants whose credited service began before age 40 and terminate employment with Nashua prior to reaching age 55. The Employee Retirement Income Security Act of l974 places limitations on pensions which may be paid under plans qualified under the Internal Revenue Code. Amounts exceeding such limitations may be paid outside of qualified plans. Nashua has a Supplemental Unfunded Excess Retirement Benefit Plan providing for such amounts for its employees including Messrs. Geiger, Ireland, Peterson, Junius and Wright. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with Messrs. Clabburn, Geiger, Ireland, Junius and Wright in order to ensure their continued service to Nashua in the event of an attempt by a person or group of persons to gain control of Nashua. Such employment agreements provide that upon termination of employment under certain circumstances within three years of a "change in control" as defined in these agreements, the employee would receive severance pay equal to three times the sum of his annual salary and bonus for Messrs. Junius and Wright and one times the sum of his annual salary and bonus for Mr. Clabburn, Mr. Geiger and Mr. Ireland. In addition, if after one year following the "change in control" Messrs. Junius or Wright elect to terminate employment, he would receive the above described severance pay; Mr. Clabburn may make such an election immediately following the change in control and receive his severance pay. Additional payments are required with respect to Messrs. Junius and Wright in amounts such that after the payment of all taxes, the executive will be in the same after tax position as if no excise tax under Section 4999 of the Internal Revenue Code had been imposed. In addition, the agreements provide for the continuation for specified periods of certain other benefits. -48- 50 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table shows the number of shares and percentage of Nashua's common stock beneficially owned by all persons known to Nashua to be the beneficial owners of more than 5% of its common stock, as of March 15, l996:
AMOUNT AND NATURE PERCENT OF OF BENEFICIAL COMMON STOCK NAME OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING ------------------------ ------------- ----------- GAMCO Investors, Inc./Gabelli Funds, Inc./Gabelli 633,400(b) 9.6% Performance Partnership L.P./Gabelli International Limited/ Gabelli International II Limited(a) One Corporate Center, Rye, NY 10580 GeoCapital Corporation(c) 454,700(d) 6.9% 767 Fifth Avenue, New York, NY 10153 Gouws Capital Management, Inc.(e) 396,065(f) 6.0% 511 Congress Street, Portland, ME 04101 The TCW Group, Inc./Robert Day(g) 393,800(h) 6.0% 865 South Figueroa Street Los Angeles, CA 90017 President and Fellows of Harvard College/Harvard 357,900(j) 5.4% Yenching Institute(i) 600 Atlantic Avenue, Boston, MA 02210 - --------------------- (a) Information is based on a joint Schedule 13D (Amendment No. 6) dated July 26, l995, furnished by such beneficial owners, which are affiliated with one another. (b) GAMCO Investors, Inc. owns 310,400 shares, for which it has sole dispositive power. It has sole voting power with respect to 260,000 of these shares. Gabelli Funds, Inc. owns 292,000 shares for which it has sole dispositive power and sole voting power. Gabelli Performance Partnership L.P. owns 15,000 shares for which it has sole dispositive power and sole voting power. Gabelli International Limited owns 9,000 shares for which it has sole voting and sole dispositive power. Gabelli International II Limited owns 7,000 shares for which it has sole voting and sole dispositive power. (c) Information is based on Schedule 13G, dated February 15, 1996, furnished by such beneficial owner. (d) Sole dispositive power. (e) Information is based on Schedule 13G, dated February 13, 1996, furnished by such beneficial owner. (f) Sole voting power as to 53,160 shares and sole dispositive power as to 396,065 shares. (g) Information is based on Schedule 13G, dated February 12, 1996, furnished by such beneficial owner.
-49- 51 (h) Sole voting and sole dispositive power. (i) Information is based on Amendment No. 2 to Schedule 13G dated February 13, l996, furnished by such beneficial owners, which are affiliated with one another. (j) President and Fellows of Harvard College owns 351,300 shares, for which it has sole voting and sole dispositive power. Harvard Yenching Institute owns 6,600 shares, for which it has sole voting and sole dispositive power.
SECURITY OWNERSHIP OF MANAGEMENT The following table shows the number of shares and percentage of Nashua's common stock deemed to be beneficially owned by each director, each executive officer named in the Summary Compensation Table above and by all directors and officers of Nashua as a group, as of March 15, l996:
AMOUNT AND NATURE OF PERCENT OF SHARES NAME BENEFICIAL OWNERSHIP (A) OUTSTANDING Joseph A. Baute.................................. 5,640 (a) * Sheldon A. Buckler .............................. 4,000 (a) * Richard E. Carter................................ 51,341 (a) * Robin J. T. Clabburn ............................ 28,814 (b) * Thomas W. Eagar.................................. 4,300 (a) * Gerald G. Garbacz ............................... 127,500 (c) 1.9 Robert A. Geiger ................................ 15,923 (d)(k) * Charles S. Hoppin................................ 5,000 (a) * John J. Ireland ................................. 7,393 (e)(k) * Daniel M. Junius ................................ 41,065 (b)(f)(k) * John M. Kucharski................................ 5,500 (a) * Francis J. Lunger ............................... 23,000 (g) * William E. Mitchell ............................. 100 * James F. Orr III................................. 7,000 (a) * David A. Peterson ............................... 5,897 (h)(k) * Bruce T. Wright ................................. 28,306 (b)(i) * Directors and Officers as a group (20 persons)... 411,461 (j)(k)(l) 6.2 - --------------------- * Less than 1% (a) Includes shares each non-employee Director has a right to acquire through the exercise of stock options prior to May 31, l996 - Mr. Baute, 2000 shares; Mr. Buckler, 1,000 shares; Mr. Carter, 3,000 shares; Mr. Eagar, 3,000 shares; Mr. Hoppin, 3,000 shares; Mr. Kucharski, 3,000 shares; and Mr. Orr, 3,000 shares. (b) Includes 25,000 shares of Restricted Stock, 8,333 shares of which will vest when the average closing price over a 30 trading day period of Nashua shares (the "average closing price") reaches $20.00; 8,333 shares of which will vest when the average closing price of Nashua shares reaches $25.00; and 8,334 shares of which will vest when the average closing price of Nashua shares reaches $30.00. However, any shares which have not vested by December 15, 2000 or his termination of employment will be forfeited. (c) Includes 120,000 shares of Restricted Stock, 40,000 shares of which will vest when the average closing price over a 30 trading day period of Nashua shares (the "average closing price") reaches $20.00; 40,000 shares of which will vest when the average closing price of Nashua shares reaches $25.00; and 40,000 shares of which will vest when the average closing price of Nashua shares reaches $30.00. However, any shares which have not vested by December 18, 2000 or his termination of employment will be forfeited. (d) Includes 15,350 shares Mr. Geiger has a right to acquire through the exercise of stock options prior to May 31, 1996. (e) Includes 6,750 shares Mr. Ireland has a right to acquire through the exercise of stock options prior to May 31, 1996.
-50- 52 (f) Includes 12,250 shares Mr. Junius has a right to acquire through the exercise of stock options prior to May 31, 1996. (g) Shares Mr. Lunger has a right to acquire through the exercise of stock options prior to May 10, 1996. (h) Includes 5,250 shares Mr. Peterson has a right to acquire through the exercise of stock options prior to May 31, 1996. (i) Includes 2,500 shares Mr. Wright has a right to acquire through the exercise of stock options prior to May 31, 1996. (j) Includes 94,284 shares which the directors and officers of Nashua have the right to acquire through exercises of stock options prior to May 31, l996. (k) Includes shares held in trust under the Employees' Savings Plan under which the participating employee has voting power as to the shares in his account. As of December 31, l995, 573 shares are held in trust for Mr. Geiger's account, 643 shares are held in trust for Mr. Ireland's account, 647 shares are held in trust for Mr. Peterson's account, 3,578 shares are held in trust for Mr. Junius' account, and 10,035 shares are held in trust for the accounts of all directors and officers as a group. No director other than Mr. Garbacz participates in the Plan. (l) Includes 225,000 shares of Restricted Stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In conjunction with Mr. Mitchell's relocation from California to New England, the Company granted to Mr. Mitchell an interest-free residential bridge loan in the amount of $500,000 pending the sale of Mr. Mitchell's California home. Mr. Mitchell has repaid the loan. The Company also guaranteed repayment of a home mortgage loan acquired by Mr. Mitchell in the sum of $1.1 million. The guaranty has expired. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Consolidated Financial Statements Consolidated Statement of Operations and Retained Earnings for each of the three years in the period ended December 31, 1995 (See page 20) Consolidated Balance Sheet at December 31, 1995 and 1994 (See page 21) Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1995 (See page 22). Notes to Consolidated Financial Statements (See pages 23 through 40) Report of Independent Accountants (See page 41) (2) Financial Statement Schedules: Report of Independent Accountants on Financial Statement Schedule (See page 56). For the three years ended December 31, 1995: Schedule II - Valuation and Qualifying Accounts. The other schedule is omitted because it is not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto. -51- 53
(3) Exhibits: --------- 2.01 Purchase and Sale Agreement, by and among Nashua Corporation and subsidiaries and Nexus Photo Limited and subsidiaries. Exhibit to the Company's Form 8-K dated January 13, 1995, and incorporated herein by reference. 3.01 Composite Certificate of Incorporation of the Company, as amended. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 3.02 By-laws of the Company, as amended. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 4.01 Note Agreement dated as of September 13, 1991. Exhibit to the Company's Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 4.02 Amendment No. 1 dated as of December 31, 1991 to the Note Agreement dated September 13, 1991. Exhibit to the Company's Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 4.03 Amendment No. 2 dated as of January 27, 1994 to the Note Agreement dated September 13, 1991. Exhibit to the Company's Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 4.04 Amendment No. 3 dated as of May 12, 1994 to the Note Agreement dated September 13, 1991. Exhibit to the Company's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 4.05 Amendment No. 4 dated as of December 31, 1994 to the Note Agreement dated September 13, 1991. Exhibit to the Company's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 4.06 Term Sheet dated March 27, 1996 regarding amendments to Note Agreement dated September 13, 1991. 4.07 Allonge dated December 31, 1994 to the Note Agreement dated September 13, 1991. Exhibit to the Company's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 4.08 Credit Agreement dated as of January 5, 1995. Exhibit to the Company's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 4.09 Term Sheet dated March 27, 1996 amending and restating the Credit Agreement dated January 5, 1995.
-52- 54 4.10 Rights Agreement dated as of August 22, 1986 between the Company and The First National Bank of Boston. Exhibit to the Company's Form 8-K dated August 22, 1986, and incorporated herein by reference. 4.11 Amendment No. 1 dated April 22, 1988 to the Rights Agreement dated as of August 22, 1986 between the Company and The First National Bank of Boston. Exhibit to the Company's Form 8-K dated May 3, 1988, and incorporated herein by reference. 4.12 Amendment No. 2 dated May 17, 1989 to the Rights Agreement dated as of August 22, 1986 between the Company and the First National Bank of Boston. Exhibit to the Company's Form 8-K dated May 17, 1989 and incorporated herein by reference. 4.13 Amendment No. 3 dated October 27, 1989 to the Rights Agreement dated as of August 22, 1986 between the Company and the First National Bank of Boston. Exhibit to the Company's Form 8-K dated October 31, 1989 and incorporated herein by reference. 4.14 Amendment No. 4 dated March 22, 1993 to the Rights Agreement dated as of August 22, 1986 between the Company and the First National Bank of Boston. Exhibit to the Company's Form 8-K dated March 22, 1993 and incorporated herein by reference. 10.01 Management Incentive Compensation Program of the Company, as amended 1993. Exhibit to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference.(1) 10.02 1980 Stock Award Plan of the Company, as amended. Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1981, and incorporated herein by reference.(1) 10.03 1987 Stock Option Plan of the Company. Exhibit to the Company's Proxy Statement dated March 24, 1987, and incorporated herein by reference.(1) 10.04 Amendments to Nashua Corporation 1987 Stock Option Plan effective as of April 28, 1989. Exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 1989, and incorporated herein by reference.(1) 10.05 1993 Stock Option Plan of the Company. Exhibit to the Company's Proxy Statement dated March 19, 1993, and incorporated herein by reference.(1) 10.06 Employment Agreement dated December 18, 1995 between the Company and Gerald G. Garbacz. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.(1) 10.07 Employment Agreement dated April 28, 1989 between the Company and Daniel M. Junius. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.(1)
-53- 55 10.08 Employment Agreement dated November 3, 1995 between the Company and Robin J.T. Clabburn. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.(1) 10.09 Employment Agreement dated February 24, 1995 between the Company and Bruce T. Wright. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.(1) 10.10 Employment Agreement dated September 22, 1995 between the Company and Charles E. Turnbull. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.(1) 10.11 Incentive Agreement dated July 5, 1989 between the Company and John R. Mapley. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.(1) 10.12 Incentive Agreement dated March 21, 1996 between the Company and David A. Peterson. Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.(1) 11.01 Statement regarding Computation of Earnings Per Share and Common Equivalent Share. 21.01 Subsidiaries of the Registrant. 23.01 Consent of Independent Accountants. 24.01 Powers of Attorney.
(1) Management contract or compensation plan identified pursuant to Item 14(a)(3). (b) Reports on Form 8-K: On November 28, 1995, the Company filed a report on Form 8-K regarding its non-compliance with certain financial covenants in its revolving credit facility and senior note agreement. On December 11, 1995, the Company filed a report on Form 8-K regarding its non-compliance with certain financial covenants in its revolving credit facility and senior note agreement. On December 13, 1995, the Company filed a report on Form 8-K regarding its intention to sell its Tape Products Division. On December 27, 1995, the Company filed a report on Form 8-K regarding the appointment of Gerald G. Garbacz as its President and Chief Executive Officer. -54- 56 SIGNATURES Pursuant to the requirements of Section 13 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 Date: April 1, 1996 By /s/ Daniel M. Junius --------------------------------- Daniel M. Junius Vice President-Finance, Chief Financial Officer and Treasurer
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Gerald G. Garbacz President and April 1, 1996 - ---------------------- Chief Executive Officer Gerald G. Garbacz /s/ Daniel M. Junius Vice President-Finance, April 1, 1996 - ---------------------- Chief Financial Officer Daniel M. Junius and Treasurer /s/ Joseph R. Matson Corporate Controller and April 1, 1996 - ---------------------- Chief Accounting Officer Joseph R. Matson Sheldon A. Buckler* Director - ---------------------- Sheldon A. Buckler Richard E. Carter* Director - ---------------------- Richard E. Carter Thomas W. Eagar* Director - ---------------------- Thomas W. Eagar John M. Kucharski* Director - ---------------------- John M. Kucharski James F. Orr III* Director - ---------------------- James F. Orr III *By /s/ Daniel M. Junius April 1, 1996 --------------------- Daniel M. Junius Attorney-In-Fact
-55- 57 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE TO THE BOARD OF DIRECTORS OF NASHUA CORPORATION Our audits of the consolidated financial statements referred to in our report dated February 5, 1996, except as to the Subsequent Events note, which is as of March 27, 1996, appearing on page 41 of this Annual Report on Form 10-K also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Boston, Massachusetts February 5, 1996, except as to the Subsequent Events note, which is as of March 27, 1996 -56- 58 SCHEDULE II NASHUA CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
Balance at Previous Balance at Description End of Year Additions Deductions End of Year - ----------- ----------- --------- ---------- ----------- DECEMBER 31, 1995: Allowance for doubtful accounts $2,628 $1,717(a) $(1,948)(b)(c) $2,397 Valuation allowance on deferred tax asset -- 3,300(d) -- 3,300 DECEMBER 31, 1994: Allowance for doubtful accounts 1,883 1,374(a) (629)(b) 2,628 DECEMBER 31, 1993: Allowance for doubtful accounts 2,433 836(a) (1,386)(b) 1,883 (a) Charged to costs and expenses. (b) Accounts deemed uncollectible. (c) Includes decrease of $270 due to restatement of discontinued operations. (d) Charged to income tax expense.
EX-4.06 2 TERM SHEET RE AMENDS TO NOTE AGREEMENT 1 EXHIBIT 4.06 NASHUA CORPORATION SUMMARY OF TERMS AND CONDITIONS MARCH 27, 1996 The following is a summary of the changes to the Note Agreement dated September 13, 1991 (as amended, the "EXISTING NOTE AGREEMENT") between Nashua Corporation (the "COMPANY") and The Prudential Insurance Company of America ("PRUDENTIAL"). This summary sets forth the agreement in principle of the Company and Prudential in respect of the Existing Note Agreement subject to the conditions precedent set forth herein. Except as specified herein, all other terms shall remain as set forth in the Existing Note Agreement. MATURITY: December 31, 1997. AMORTIZATION: One half of the outstanding principal amount of the Notes on October 1, 1996 shall be payable in four quarterly principal payments on the first business day of each calendar quarter ("MINIMUM PREPAYMENTS") plus accrued interest and Yield-Maintenance Amount commencing on January 2, 1997, with the balance due and payable on the maturity date plus accrued interest and Yield-Maintenance Amount (as the same may be deferred and subordinated in accordance with the terms set forth herein). INTEREST RATE: 11.85% [increase to be commensurate with bank facility] per annum payable quarterly. YIELD-MAINTENANCE AMOUNT: The Yield-Maintenance Amount shall be: (a) calculated from the original maturity date of March 20, 2001 using the coupon rate of 9.67% and a reinvestment yield of 50 basis points over U.S. Treasury securities; and 2 2 (b) computed as if prepayments were applied to scheduled principal prepayments required under the Existing Note Agreement on a pro rata basis. Yield Maintenance Amount due in connection with any optional or mandatory prepayment, including Minimum Prepayments, made prior to the earliest of (i) a Bankruptcy Event, (ii) an Acceleration Event (in each case as defined in Exhibit A) and (iii) the maturity of the Note shall be evidenced by a promissory note ("YMA NOTE") bearing the same interest rate per annum as the Note (payment of all principal and interest on such YMA Note being deferred until payment in full of all Bank Obligations (as defined below)) with such YMA Note being due and payable on the maturity date of the Note. Each YMA Note shall be a secured obligation subordinated to the Obligations (as defined below). MANDATORY PREPAYMENTS: The following amounts shall be applied as prepayments in accordance with the following section entitled "APPLICATION OF FUNDS": (a) 100% of the net proceeds of any incurrence of indebtedness (not otherwise permitted by the Note Agreement Documentation) after the Closing Date (as defined below) by the Company or any of its subsidiaries; (b) 100% (or 75% after mandatory prepayments of principal (including amounts paid to the Collateral Agent (as defined below) as cash collateral in respect of outstanding letters of credit) of the Credit Facilities and the Notes have been paid to the Lenders (as defined below) in an aggregate amount equal to $50,000,000 less the Holdback Amount (as defined below)) of the net proceeds from the sale or issuance of equity (other than the 3 3 issuance of equity to senior employees in amounts to be agreed on in connection with management incentive programs) after the Closing Date by the Company or any of its subsidiaries shall be paid to Chemical Bank, as collateral agent (the "Collateral Agent") for the Banks and each holder of a Note (collectively, the "SENIOR NOTE HOLDERS"; the Senior Note Holders and the Banks collectively referred to as the "LENDERS") for application as provided below under "APPLICATION OF FUNDS"; provided, that in the case of the issuance or sale of equity of Cerion Technologies, Inc. ("CERION") on terms and conditions satisfactory to the Lenders, only the net proceeds from the sale of such equity by Nashua Precision Technologies, Inc. ("NPT") (and not the net proceeds from the issuance of equity by Cerion) shall be paid to the Collateral Agent as a mandatory prepayment as provided above; (c) 100% (or 75% after mandatory prepayments of principal (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding letters of credit) of the Credit Facilities and the Notes have been paid to the Lenders in an aggregate amount equal to $50,000,000 less the Holdback Amount of the net proceeds in excess of $500,000 on an individual basis and $1,000,000 on a cumulative basis of any sale or other disposition by the Company or any of its subsidiaries of any assets (except for the sale of inventory and obsolete assets in the ordinary course of business and for the sale of assets in amounts to be agreed when the net proceeds are used for reinvestments in similar assets) shall be paid to the Collateral Agent for 4 4 application as provided below under "APPLICATION OF FUNDS"; and (d) On February 15, 1997, the Company shall pay to the Collateral Agent 100% (or 75% after mandatory prepayments of principal (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding letters of credit) of the Credit Facilities and the Notes have been paid to the Lenders in an aggregate amount equal to $50,000,000 less the Holdback Amount) of Excess Cash Flow (as defined in the Note Agreement Documentation) as provided below under "APPLICATION OF FUNDS". At any time before the Revolving Credit Facility (as defined below) has been permanently reduced to an amount less than or equal to $10,000,000, with respect to any mandatory prepayment relating to either any asset sale or equity issuance or sale described under "MANDATORY PREPAYMENTS" above with net cash proceeds in excess of $15,000,000, the Company shall be entitled to retain an amount (the "HOLDBACK AMOUNT") equal to the excess, if any, of (i) $3,000,000 over (ii) the amount of revolving loans outstanding under the LIFO Revolver and Old Money Revolver on the date of such mandatory prepayment in excess of $5,000,000. APPLICATION OF FUNDS: Application of prepayments described under "MANDATORY PREPAYMENTS" above shall be made in accordance with the Agreement in Principle, dated March 27, 1996, between the Company and the Banks, attached hereto as Exhibit A, as in effect on the date thereof. For purposes of this Summary of Terms and Conditions, the following terms have the following meanings: 5 5 "ADJUSTED NOTE OBLIGATIONS" means principal of the Notes plus accrued interest. "BANK OBLIGATIONS" means (i) the obligations under the new credit facility among Chemical Bank, as agent and certain banks (the "BANKS") parties thereto and (ii) Hedge Obligations. "HEDGE OBLIGATIONS" has the meaning assigned to such term in Exhibit A hereto. "NOTE OBLIGATIONS" means the Adjusted Note Obligations plus Yield Maintenance Amount. "OBLIGATIONS" means, collectively, the Note Obligations and the Bank Obligations. All amounts required to be prepaid to the Senior Note Holders in accordance with the section "MANDATORY PREPAYMENTS" shall be applied to installments of principal of the Notes in inverse order of maturity. If any change shall be made to the Bank's current amortization that would have the effect of accelerating principal installments paid to the Lenders, the Company shall prepay the Notes (with Yield-Maintenance Amount, subject to the subordination and deferral thereof as set forth herein) in a proportional amount. COLLATERAL: The Obligations and any YMA Notes shall be secured by a perfected first priority security interest in all receivables and inventory of the Company and all of the assets of each of the Company's domestic subsidiaries. All stock of the foreign subsidiaries shall be pledged to the Collateral Agent, except in the case where the Lenders determine that only 65% may be pledged due to adverse tax consequences. All of the foregoing, including any additional collateral which 6 6 may be pledged by the Company as described under "AFFIRMATIVE COVENANTS" below, collectively, the "COLLATERAL". The security agreements shall create two separate and distinct liens. A prior lien will secure principal of loans (including unreimbursed draws under New Money L/Cs) outstanding under the Credit Facilities in excess of $56,018,000 (including interest thereon) and a second lien shall secure all remaining secured Obligations. CREDIT FACILITIES: The aggregate amount of the Credit Facilities will be $66,000,000, of which $48,000,000 will be designated term loans and $18,000,000 will be revolving loans. The revolving loans (the "REVOLVING CREDIT FACILITY") will be structured as follows: - $5,000,000 of existing indebtedness owed to the Banks will be deemed outstanding under the Revolving Credit Facility (the "OLD MONEY REVOLVER"). - $5,000,000 will be a Letter of Credit sub-limit that can be used exclusively for letters of credit issued for insurance coverage purposes only (except for a $250,000 sublimit for letters of credit issued for purposes other than insurance coverage). The Bank of Montreal L/C's in the face amount of $3,018,000 will be replaced by L/C's issued under the L/C subfacility. Therefore, approximately $1,982,000 will be available for new money L/C's (the "NEW MONEY L/C'S"). - $8,000,000 will be available as new money revolving credit (the "LIFO REVOLVER"). Other than the Hedge Obligations existing on the date hereof, the Company shall not enter into any other 7 7 hedge agreements other than spot and forward foreign exchange contracts (not to exceed 6 months in duration) in the aggregate notional amount not to exceed $4,000,000 in the following currencies: Belgian Francs, Canadian Dollars, British Pounds and Dutch Gilders. The mandatory prepayments shall be on the same basis as set forth in Exhibit A. The contingent fees shall be on the same basis as set forth herein. INITIAL CONDITIONS: The closing shall be conditioned upon satisfaction of, among other things, the following conditions precedent (the date upon which all such conditions precedent shall be satisfied, the "CLOSING DATE"): (a) The Company and its subsidiaries shall have executed and delivered definitive financing and security documentation and intercreditor agreement (the "NOTE AGREEMENT DOCUMENTATION") in each case in form and substance satisfactory to Prudential. (b) Prudential shall have received the results of a recent lien search in each of the jurisdictions and offices where the collateral is located or recorded, and such search shall reveal no liens on any of the Collateral except for liens permitted by the Note Agreement Documentation. (c) No material adverse change shall have occurred to the business, operations or prospects of the Company or any of its subsidiaries. (d) The Company shall have received all necessary approvals from its Board of Directors. 8 8 (e) Prudential shall have received any necessary consents from the Banks. (f) The Banks shall have entered into a credit agreement and related documentation on terms and conditions acceptable to Prudential and in conformity with the terms specified under the heading "Credit Facilities". (g) Prudential and the Banks shall have executed an intercreditor agreement satisfactory in form and substance to Prudential and shall include, without limitation, the following: - Sharing of any proceeds received by the Company in a manner contemplated by the above section entitled "APPLICATION OF FUNDS"; - Sharing of any funds received by setoff as provided in the "APPLICATION OF FUNDS" section above; - Consent of a majority in principal amount of Notes shall be required in order for the Banks to make advances under the Credit Facilities in excess of $66,000,000; and once permanent reductions to the Credit Facilities are made, such amounts cannot be readvanced without the consent of a majority in principal amount of the Notes. To the extent not already provided for in the 2/29/96 draft of the Collateral Agency and Intercreditor Agreement, the Collateral Agency and Intercreditor Agreement shall contain provisions that ensure that the Required Secured Parties (as defined therein) may not (i) impair the rights of 9 9 the Senior Noteholders under the Existing Note Agreement, and (ii) materially impair the rights of the Senior Noteholders in the Collateral subject to the lien of the Collateral Agent, in each case without the prior consent of a majority in principal amount of the Notes; provided however that nothing contained in this sentence shall be construed as requiring any provisions in the Collateral Agency and Intercreditor Agreement that could limit the rights of the Required Secured Parties to direct the exercise or non-exercise of rights under the Collateral Agency and Intercreditor Agreement (including foreclosure on collateral and the filing of a petition in bankruptcy against the Company or any of its subsidiaries) or limit any rights of the Required Secured Parties to direct actions with respect to preserving or protecting the Collateral. - The Agent on behalf of the Banks will give prior notice of any material amendments in its documentation; and h) Prudential shall have received such legal opinions (including opinions (i) from counsel to the Company and its subsidiaries and (ii) from such special and local counsel as may be required by Prudential), documents and other instruments as are customary for transactions of this type or as Prudential may reasonably request. AFFIRMATIVE COVENANTS: The Company will provide the Senior Note Holders with copies of the unaudited monthly management 10 10 report within a number of days to be determined after the end of each calendar month and such other financial information as the Senior Note Holders may reasonably request, including a revised business plan for fiscal year 1996. The Company and its Subsidiaries shall maintain their lockboxes and accounts with their current banks but shall enter into such agreements with the Collateral Agent and such banks (in form and substance satisfactory to the Collateral Agent and the Lenders) to ensure that the Collateral Agent has a perfected security interest and the receipts in cash in such lockboxes and accounts. At its next shareholders' meeting the Company will use its best efforts to obtain all necessary consents to pledge all of its assets to the Collateral Agent and if it obtains such consents will pledge such remaining assets to the Collateral Agent within 10 Business Days after being so requested by the Senior Note Holders. FINANCIAL COVENANTS: (a) EBITDA (to be defined in the Note Agreement Documentation), measured on a cumulative basis, for any test period set forth below, will not, as at the last day of such test period, be less than the number set forth below opposite such test period: 11 11 QUARTER AMOUNT January 1, 1996 - $ 1,640,000 March 31, 1996 January 1, 1996 - $ 7,800,000 June 30, 1996 January 1, 1996 - $19,150,000 September 30, 1996 January 1, 1996 - $27,300,000 December 31, 1996
(b) The ratio of EBITDA to Fixed Charges (each to be defined in the Note Agreement Documentation), measured on a cumulative basis for any test period set forth below, will not, as at the last day of such test period, be less than the ratio set forth below opposite such test period: QUARTER RATIO January 1, 1996 - .67:1 March 31, 1996 January 1, 1996 - 1.59:1 June 30, 1996 January 1, 1996 - 2.60:1 September 30, 1996 January 1, 1996 - 2.78:1 December 31, 1996 and thereafter on a rolling four-quarter basis
(c) Consolidated Tangible Net Worth (to be defined in the Note Agreement Documentation) will not at any time during 12 12 any quarter set forth below be less than the number opposite such quarter: QUARTER AMOUNT Fourth Quarter 1995 $39,100,000 First Quarter 1996 $36,500,000 Second Quarter 1996 $37,100,000 Third Quarter 1996 $40,800,000 Fourth Quarter 1996 $42,700,000 and thereafter
(d) Capital Expenditures of the Company and its Subsidiaries will not for each fiscal year set forth below exceed the amount set forth opposite such fiscal year: FISCAL YEAR 1995 $17,200,000 1996 $17,000,000 1997 $17,500,000
NEGATIVE COVENANTS: Customary limitations including, without limitation, limitations on: indebtedness (including preferred stock); liens; guarantee obligations; mergers; consolidations; sales of assets; leases; dividends and other payments in respect of capital stock; investments, loans and advances; modifications of debt instruments; transactions with affiliates; sale and leasebacks; negative pledge clauses; changes in lines of business. CONTINGENT FEES AND COVENANTS: If the Obligations are not prepaid (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding letters of credit) by an aggregate amount equal to at least $20,000,000 less 13 13 the Holdback Amount, on or prior to June 30, 1996, the Company shall pay to the Senior Note Holders on July 1, 1996, a facility fee equal to 1% of the average outstanding principal amount of the Notes during the period commencing on the Closing Date and ending on June 30, 1996. If the Obligations are not prepaid (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding letters of credit) by the aggregate amount equal to at least $50,000,000 less the Holdback Amount, on or prior to September 30, 1996, then on October 1, 1996, the Company shall pay to the Senior Note Holders a facility fee equal to 1% of the average outstanding principal amount under the Notes during the period commencing on the Closing Date and ending on September 30, 1996. AMENDMENT FEE: 3/8 of 1%, payable in immediately available funds on the Closing Date. Once paid, such fee shall be fully earned and nonrefundable. EXPENSES AND INDEMNIFICATION: The Company will pay the out-of-pocket expenses of Prudential and the fees and disbursements of counsel to the Senior Note Holders in connection with the Note Agreement Documentation whether or not a closing shall occur. The Note Agreement Documentation will provide that the Company will pay the costs and expenses (including counsel fees and disbursements) of any modification or waiver of the Note Agreement Documentation (whether or not effective) and the costs of enforcing or defending rights under the Note Agreement Documentation. The Note Agreement Documentation will also provide that the Company will pay the costs of any bankruptcy proceeding or restructuring and the costs of responding to any subpoena or investigation in connection with the Note Agreement Documentation. 14 14 If an event of default shall occur, the Senior Note Holders shall have the right to engage an independent financial consultant acceptable to the Senior Note Holders, at the Company's expense, to assist in the analysis regarding the performance and operations of the Company. The Company shall indemnify, pay and hold harmless each Senior Note Holder (and its respective directors, officers, employees and agents) against any loss, liability, cost or expense incurred in respect of the financing contemplated hereby or the use or the proposed use of proceeds thereof (except to the extent resulting from the gross negligence or willful misconduct of the indemnified party). ASSIGNMENT: The consent of the Company shall not be required for any assignments. MISCELLANEOUS: If the Credit Facilities are hereafter amended such that any material terms thereof (including, without limitation, pricing, covenants, amortization, events of default and mandatory prepayments) are more favorable to the Banks than the terms hereof are to the Senior Note Holders (as determined by the Senior Note Holders in their sole discretion), the Company shall enter into an amendment of the Note Agreement Documentation in order to include such favorable terms therein. By January 1, 1997 (the "AMENDMENT DATE"), the Company shall negotiate in good faith with the Senior Note Holders in order to enter into an amendment to the Note Agreement Documentation for the purpose of continuing the financial covenants described above through the maturity date of the Notes. If after thirty days after the Amendment Date, the Company and the Note Holders have not agreed on appropriate levels for such financial covenants through the maturity date of the Notes, the Senior Note Holders in their reasonable judgment shall set such levels and the 15 15 Company and the Note Holders shall execute an amendment to the Note Agreement Documentation on the thirty-first day after the Amendment Date for the purposes of including the levels with respect to such financial covenants set by the Senior Note Holders as part of the Note Agreement Documentation for the period through the maturity date of the Notes. During the 10 Business Day period after any material asset sale, the Company shall negotiate in good faith with the Senior Note Holders in order to enter into an amendment to the Note Agreement Documentation for the purpose of resetting the financial covenant levels described above. If the Company and the Senior Note Holders have not agreed on appropriate levels for such financial covenants by the end of such 10 Business Day period, the Senior Note Holders in their reasonable judgment shall set such levels and the Company and the Senior Note Holders shall execute an amendment to the Note Agreement Documentation on the first Business Day after such 10 Business Day period for the purposes of including the new levels set by the Senior Note Holders as part of the Note Agreement Documentation. The closing shall occur on April 3, 1996. JURISDICTION AND LAW: State of New York. [Signatures on Next Page.] 16 16 IN WITNESS WHEREOF, the parties hereto have caused this Summary of Terms and Conditions to be duly executed by their proper and duly authorized officers as of the day and year first written above. NASHUA CORPORATION By /s/ Daniel M. Junius -------------------- Name: Daniel M. Junius Title: Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By /s/ Joe Alouf --------------------- Name: Joe Alouf Title: Senior Vice President EX-4.09 3 TERM SHEET, AMEND & RESTATING CREDIT AGREEMENT 1 EXHIBIT 4.09 NASHUA CORPORATION $66,000,000 CREDIT FACILITIES Agreement in Principle March 27, 1996 ---------------------------------- The following is a summary of the changes to the existing Credit Agreement, dated as of January 5, 1995 (the "EXISTING CREDIT AGREEMENT") among Nashua Corporation (the "BORROWER"), the lenders parties thereto (the "LENDERS") and Chemical Bank as agent (the "AGENT") to be incorporated in the Amended and Restated Credit Agreement. This summary sets forth the agreement in principle of the Borrower, the Lenders and the Agent in respect of the Amended and Restated Credit Agreement subject to the conditions precedent set forth herein. I. Types and Amounts of Credit Facilities -------------------------------------- Credit Facilities: The loans outstanding and commitments under the Existing Credit Agreement will be restructured as a term loan facility (the "TERM LOAN FACILITY") and a revolving credit and letter of credit facility (the "REVOLVING CREDIT FACILITY"; together with the Term Loan Facility, the "CREDIT FACILITIES"). The aggregate amount of the Credit Facilities will be $66,000,000. Term Loan Facility ------------------ Amount of Facility: The portion of outstanding loans under the Existing Credit Agreement to be designated as outstanding Term Loans will be $48,000,000. Amortization: Fifty percent of the Term Loans outstanding on October 1, 1996 shall be amortized in four equal quarterly installments commencing on January 2, 1997. All remaining Term Loans shall be due and payable December 31, 1997. 2 2 Revolving Credit Facility ------------------------- Borrowing Base: The amount from time to time available under the Revolving Credit Facility (which when added to a portion to be determined of outstanding Term Loans) shall not exceed a percentage, to be determined by the Agent and the Lenders, of the eligible accounts receivable and eligible inventory (each of which terms shall be defined in the Credit Documentation (as defined below)) of the Borrower and its subsidiaries. Amount of Facility: The Revolving Credit Facility shall be in an amount equal to $18,000,000 of which $5,000,000 (the "LETTER OF CREDIT SUB-FACILITY") will be available exclusively for letters of credit issued for insurance coverage purposes only; PROVIDED that there shall be a $250,000 sublimit for letters of credit issued for purposes other than insurance coverage. The portion of the outstanding loans under the Existing Credit Agreement to be designated as outstanding Revolving Credit Loans shall equal $5,000,000. Letter of Credit Sub-Facility: The letters of credit heretofore issued by the Bank of Montreal in the face amount of $3,018,000 shall be replaced by letters of credit issued under the Letter of Credit Sub-facility. All letters of credit shall expire on or before the Termination Date. Maturity: December 31, 1997 (the "TERMINATION DATE"). Mandatory Prepayments and Commitment Reductions: The following amounts shall be applied to prepay the Term Loans and reduce the Revolving Credit Facility: (a) 100% of the net proceeds of any incurrence of indebtedness after the Closing Date not permitted under the Credit Documentation by the Borrower or any of its subsidiaries; (b) 100% (or, provided no Event of Default shall have occurred and is continuing, 75% after mandatory prepayments of principal (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding Letters of Credit) of the Credit Facilities and the Senior Notes have been paid to the Lenders and the 3 3 Senior Noteholders in an aggregate amount equal to $50,000,000 less the Holdback Amount (as defined in clause (h) below)) of the net proceeds of the sale or issuance of equity (other than the issuance of equity to senior employees in amounts to be agreed on in connection with management incentive programs) after the Closing Date by the Borrower or any of its subsidiaries shall be paid to the Collateral Agent for application as provided in paragraphs (e) and (f) below; PROVIDED that in the case of the issuance or sale of equity of Cerion Technologies, Inc. ("Cerion") on terms and conditions satisfactory to the Lenders, only the net proceeds from the sale of such equity by Nashua Precision Technologies, Inc. ("NPT") (and not the net proceeds from the issuance of equity by Cerion) shall be paid to the Agent as a mandatory prepayment as provided above; (c) 100% (or, provided no Event of Default shall have occurred and is continuing, 75% after mandatory prepayments of principal (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding Letters of Credit) of the Credit Facilities and the Senior Notes have been paid to the Lenders and the Senior Noteholders in an aggregate amount equal to $50,000,000 less the Holdback Amount) of the net proceeds in excess of $500,000 on an individual basis and $1,000,000 on a cumulative basis of any sale or other disposition by the Borrower or any of its subsidiaries of any assets (except for the sale of inventory and obsolete assets in the ordinary course of business and for the sale of assets in amounts to be agreed when the net proceeds are used for reinvestment in similar assets) shall be paid to the Collateral Agent for application as provided in paragraphs (e) and (f) below; (d) On February 15, 1997, the Borrower shall pay to the Collateral Agent 100% (or, provided no Event of Default shall have occurred and is continuing, 75% after mandatory prepayments of principal (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding Letters of Credit) of the Credit Facilities and the Senior Notes have been paid to the Lenders and the Senior Noteholders in an aggregate amount equal to $50,000,000 less the Holdback Amount) of Excess Cash Flow (to be defined in the Credit Documentation referred 4 4 to below) for application as provided in the paragraphs (e) and (f) below; (e) Except in the case of a Triggering Event (as defined below), all proceeds of mandatory prepayments described in paragraphs (a), (b), (c) and (d) above shall be paid by the Collateral Agent (as hereafter defined) FIRST to the Agent for the PRO RATA account of the Lenders until all Revolving Credit Loans outstanding in excess of $5,000,000 (including, unreimbursed draws under any Letters of Credit issued under the Letter of Credit Sub-facility in excess of $3,018,000) are paid in full (including, in each case, interest thereon) (and with any such mandatory prepayment there shall be a simultaneous permanent reduction of the Revolving Credit Facility to an amount equal to $5,000,000 (not including the Letter of Credit Sub-facility) irrespective of the amount outstanding under the Revolving Credit Facility), SECOND, to the Agent for the PRO RATA account of the Lenders until all remaining outstanding Revolving Credit Loans are paid in full WITHOUT a permanent reduction of the Revolving Credit Facility for such remaining loans, THIRD 78.88% of such remaining proceeds to the Agent for the pro rata account of the Lenders and 21.12% to Prudential Insurance Company of America ("PRU") for the PRO RATA account of the holders (the "NOTEHOLDERS") of the Borrower's 9.17% Senior Notes (the "SENIOR NOTES") until all amounts outstanding under the Credit Facilities and the Senior Notes (other than Yield Maintenance Premium) are paid in full (and the Revolving Credit Commitment is terminated) and all letters of credit issued under the Letter of Credit Sub-facility are fully cash collateralized, and FOURTH, to the Agent for the PRO RATA account of the Lenders until all Hedge Obligations (as hereafter defined) are paid in full, and 5 5 FIFTH, to Pru for the PRO RATA account of the Noteholders until the Deferred Yield Maintenance Obligations (as defined below) (including interest thereon) are paid in full. (f) All amounts paid to the Agent as per clause "THIRD" in paragraph (e) above shall be applied, FIRST, to the prepayment of the Term Loans, SECOND, to the cash collateralization of outstanding Letters of Credit and THIRD, to the payment of Revolving Credit Loans and the permanent reduction of the Revolving Credit Facility in the amount of such payment. Each such prepayment of the Term Loans shall be applied to the scheduled installments thereof in inverse order of maturity, and any such prepayment of the Term Loans may not be reborrowed. (g) In addition, the Borrower shall from time to time immediately prepay outstanding Revolving Credit Loans to the extent they exceed the Borrowing Base then in effect. (h) At any time before the Revolving Credit Facility has been permanently reduced to an amount less than or equal to $10,000,000, with respect to any mandatory prepayment relating to either any asset sale or equity issuance described in clauses (b) or (c) above with net cash proceeds in excess of $15,000,000, the Borrower shall be entitled to retain an amount (the "HOLDBACK AMOUNT") equal to the excess, if any, of (i) $3,000,000 OVER (ii) the amount of Revolving Credit Loans outstanding on the date of such mandatory prepayment in excess of $5,000,000. Optional Prepayments: Optional prepayments and commitment reductions permitted on one Business Day's notice. Collateral: The obligations of the Borrower in respect of the Credit Facilities shall be secured initially by a perfected first priority security interest in all receivables and inventory 6 6 of the Borrower and all of the assets of the Borrower's domestic subsidiaries (all stock of the foreign subsidiaries shall be pledged to the Agent, except in the case where the Lenders determine that only 65% be pledged due to adverse tax consequences). At its next shareholders' meeting the Borrower will use its best efforts to obtain all necessary consents to pledge all of its assets to the Collateral Agent and if it obtains such consents will pledge such remaining assets to the Collateral Agent within 10 Business Days after being so requested by the Majority Lenders. All collateral will be shared with the Senior Noteholders and the Lenders (subject to the priorities set forth herein) (and in addition to securing the Credit Facilities and the Senior Notes, will secure certain obligations ("HEDGE OBLIGATIONS") under existing and future foreign exchange transactions entered into with certain of the Lenders described in the section below entitled "Foreign Exchange Agreements" and subject to the limits therein described). Chemical Bank shall act as collateral agent for the Lenders and the Senior Noteholders (in such capacity, the "COLLATERAL AGENT"). The Security Agreements shall create two separate and distinct liens. A prior lien will secure principal of loans (including unreimbursed draws of Letters of Credit in excess of $3,018,000) outstanding under the Credit Facilities in excess of $56,018,000 (including interest thereon) and a second lien shall secure all remaining secured obligations. II. Certain Conditions ------------------ Initial Conditions: The availability of the Credit Facilities shall be conditioned upon satisfaction of, among other things, the following conditions precedent (the date upon which all such conditions precedent shall be satisfied, the "CLOSING DATE"): (a) The Borrower and its subsidiaries shall have executed and delivered satisfactory definitive financing and security documentation with respect to the Credit Facilities (the "CREDIT DOCUMENTATION"). (b) The Lenders shall have received evidence that the Borrower has obtained the results of a recent lien search in each of the jurisdictions and offices where the collateral is located or recorded, and such search shall 7 7 reveal no liens on any of the collateral except for liens permitted by the Credit Documentation. (c) The Lenders shall have received any necessary consents from the Senior Noteholders. (d) The Lenders and the Senior Noteholders shall have executed an intercreditor agreement satisfactory to the Lenders. (e) The Lenders shall have received such legal opinions (including opinions (i) from counsel to the Borrower and its subsidiaries and (ii) from such special and local counsel as may be required by the Agent), documents and other instruments as are customary for transactions of this type or as they may reasonably request. (f) Any amendment to the Note Purchase Agreement shall be in form and substance satisfactory to the Agent and the Lenders. (g) No material adverse change to the business, operations or prospects of the Borrower or any of its subsidiaries shall have occurred. (h) The Borrower shall have received all necessary approvals from its Board of Directors. Affirmative Covenants: The Borrower will provide the Lenders with (i) copies of the unaudited monthly management report within a number of days to be determined after the end of each calendar month, (ii) such borrowing base certification as may be required by the Lenders, and (iii) such other financial information as the Lenders may reasonably request, including a revised business plan for fiscal year 1996. The Borrower and its subsidiaries shall maintain their lock-boxes and accounts with their current banks but shall enter into such agreements on the Closing Date with the Collateral Agent and such banks (in form and substance satisfactory to the Collateral Agent) to ensure that the Collateral Agent has a perfected security interest in the receipts and cash in such lock-boxes and accounts. 8 8 The Lenders shall have the right to continue the engagement of an independent financial consultant acceptable to the Lenders, at the Borrower's expense, to assist in the analysis regarding the performance and operations of the Borrower. Financial Covenants: (a) EBITDA (to be defined in the Credit Documentation), measured on a cumulative basis, for any test period set forth below, will not, as at the last day of such test period, be less than the number set forth below opposite such test period:
Quarter Amount ------- ------ January 1, 1996 - March 31, 1996 $ 1,640,000 January 1, 1996 - June 30, 1996 $ 7,800,000 January 1, 1996 - September 30, 1996 $19,150,000 January 1, 1996 - December 31, 1996 $27,300,000
(b) The ratio of EBITDA to Fixed Charges (each to be defined in the Credit Documentation), measured on a cumulative basis for any test period set forth below, will not, as at the last day of such test period, be less than the ratio set forth below opposite such test period:
Quarter Ratio ------- ----- January 1, 1996 - March 31, 1996 .67:1 January 1, 1996 - June 30, 1996 1.59:1 January 1, 1996 - September 30, 1996 2.60:1 January 1, 1996 - December 31, 1996 2.78:1
(c) Consolidated Tangible Net Worth (to be defined in the Credit Documentation) will not at any time during any quarter set forth below be less than the number opposite such quarter:
Quarter Amount ------- ------ Fourth Quarter 1995 $39,100,000 First Quarter 1996 $36,500,000 Second Quarter 1996 $37,100,000 Third Quarter 1996 $40,800,000 Fourth Quarter 1996 and thereafter $42,700,000
9 9 (d) Capital Expenditures of the Borrower and its subsidiaries will not for each fiscal year set forth below exceed the amount set forth opposite such fiscal year: Fiscal Year 1995 $17,200,000 1996 $17,000,000 1997 $17,000,000
Negative Covenants: Limitations customary to this kind of financing, including, without limitation, on: indebtedness (including preferred stock); liens; guarantee obligations; mergers, consolidations; sales of assets; leases; dividends and other payments in respect of capital stock; investments, loans and advances; modifications of debt instruments; transactions with affiliates; sale and leasebacks; negative pledge clauses; changes in lines of business. Interest Rate: The Applicable Margin will be .50%. All Loans shall be Reference Rate Loans (as defined in the Existing Credit Agreement). Amendment Fee: $247,500 payable to the Agent, for the ratable benefit of the Lenders, on the Closing Date. Commitment Fee: .50% per annum on the unused portion. Letter of Credit Fees: 2% per annum on amount available to be drawn payable quarterly in advance (.25% for the account of the Issuing Bank and the remaining 1.75% for the PRO RATA account of the Lenders). Contingent Fees and Covenants: If the Borrower has not paid to the Lenders and the Senior Noteholders mandatory prepayments of principal (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding Letters of Credit) of the Credit Facilities and the Senior Notes in an aggregate amount equal to $20,000,000 less the Holdback Amount on or prior to June 30, 1996, (i) the Borrower shall pay to the Agent on July 1, 1996, for the pro rata account of the Lenders, a facility fee equal to 1% of the average daily principal amount outstanding under the Credit Facilities (including the average daily amount available to 10 10 be drawn under all outstanding Letters of Credit) during the period commencing on the Closing Date and ending on June 30, 1996. If the Borrower has not paid to the Lenders and the Senior Noteholders mandatory prepayments of principal (including amounts paid to the Collateral Agent as cash collateral in respect of outstanding Letters of Credit) of the Credit Facilities and the Senior Notes in an aggregate amount equal to $50,000,000 less the Holdback Amount on or before September 30, 1996, then on October 1, 1996 the Borrower shall pay to the Agent, for the pro rata account of the Lenders, a facility fee equal to 1% of the average daily principal amount outstanding under the Credit Facilities (including the average daily amount available to be drawn under all outstanding Letters of Credit) during the period commencing on the Closing Date and ending on September 30, 1996. Expenses and Indemnification: The Borrower shall pay (a) all reasonable out-of-pocket expenses of the Agent associated with the preparation, execution, delivery and administration of the Credit Documentation and any amendment or waiver with respect thereto (including, without limitation, expenses relating to collateral examination and monitoring, environmental audits, real estate or other asset appraisals, consulting fees, filing fees and the reasonable fees and disbursements and other charges of counsel) and (b) all out-of-pocket expenses of the Agent and the Lenders in connection with the enforcement of the Credit Documentation (including the fees and disbursements and other charges of counsel). The Borrower shall indemnify, pay and hold harmless the Agent and the Lenders (and their respective directors, officers, employees and agents) against any loss, liability, cost or expense incurred in respect of the financing contemplated hereby or the use or the proposed use of proceeds thereof (except to the extent resulting from the gross negligence or willful misconduct of the indemnified party). Intercreditor Agreement: The Intercreditor Agreement will provide that upon a bankruptcy event relating to the Borrower (a "BANKRUPTCY EVENT"), an acceleration of all amounts outstanding under 11 11 the Credit Facilities or the Senior Notes (an "ACCELERATION EVENT") or a termination of the Revolving Credit Commitment (or a refusal by the Lenders to lend thereunder for a six-month period) (a "COMMITMENT TERMINATION EVENT"); a Bankruptcy Event, an Acceleration Event and a Commitment Termination Event, each "TRIGGERING EVENT"), proceeds from mandatory prepayments or from collateral realization will be paid FIRST to the Agent for the PRO RATA account of the Lenders until all Revolving Credit Loans in excess of $5,000,000 (including, unreimbursed draws under any Letters of Credit issued under the Letter of Credit Sub-facility in excess of $3,018,000 (including, in each case, interest thereon)) are paid in full and all outstanding Letters of Credit under the Letter of Credit Sub-facility in excess of $3,018,000 are fully cash collateralized, SECOND if the amount outstanding under the Revolving Credit Facility is less than $5,000,000 on the date of such Triggering Event, to Pru for the PRO RATA account of the Noteholders in an amount equal to the product of (x) $1,056,000 times (y) an amount equal to the difference between (i) one MINUS (ii) the percentage derived by dividing the amount outstanding under such Revolving Credit Facility on such date by $5,000,000, THIRD PRO RATA to the Lenders and the Senior Noteholders based on the remaining secured obligations outstanding on such date (including Hedge Obligations, contingent obligations in respect of outstanding Letters of Credit that are not cash collateralized and Yield Maintenance Obligations accruing on the date of such Triggering Event but excluding the Deferred Yield Maintenance Obligations (as defined below)) until all such obligations are paid in full and FOURTH to the Noteholders PRO RATA until all Deferred Yield Maintenance Obligations are paid in full. The Intercreditor Agreement shall further provide that all Yield Maintenance Obligations accruing under the Note Purchase Agreement prior to a Bankruptcy Event relating 12 12 to the Borrower or an Acceleration Event relating to the Senior Notes (the "DEFERRED YIELD MAINTENANCE OBLIGATIONS") shall be deferred (including any interest accruing on such Deferred Yield Maintenance Obligations) and shall not be payable until all amounts outstanding under the Credit Facilities are paid in full. In addition, "Required Secured Parties" under the Intercreditor Agreement shall be defined as defined in the 2/29/96 draft of the Intercreditor Agreement. The consent of a majority in principal amount of Senior Notes shall be required in order for the Lenders to make advances under the Credit Facilities in excess of $66,000,000; and once permanent reductions to the Credit Facilities are made, such amounts cannot be readvanced without the consent of a majority in principal amount of the Senior Notes. To the extent not already provided for in the 2/29/96 draft of the Intercreditor Agreement, the Intercreditor Agreement shall contain provisions that ensure that the Required Secured Parties may not (i) impair the rights of the Senior Noteholders under the Note Purchase Agreement, and (ii) materially impair the rights of the Senior Noteholders in the collateral subject to the lien of the Collateral Agent, in each case without the prior consent of a majority in principal amount of the Senior Notes; PROVIDED however that nothing contained in this sentence shall be construed as requiring any provisions in the Intercreditor Agreement that could limit the rights of the Required Secured Parties to direct the exercise or non-exercise of rights under the Intercreditor Agreement (including foreclosure on collateral and the filing of a petition in bankruptcy against the Borrower or any of its subsidiaries) or limit any rights of the Required Secured Parties to direct actions with respect to preserving or protecting the collateral. Assignment: The consent of the Borrower shall not be required for any assignments after the occurrence of an Event of Default. Foreign Exchange Other than the Hedge Agreements existing on the date Agreements: hereof, the Borrower shall not enter into any other Hedge Agreements other than spot and forward foreign exchange contracts (not to exceed 6 months in duration) with any Lender in the aggregate notional amount not to exceed $4,000,000 in the following currencies: Belgian Francs, Canadian Dollars, British Pounds and Dutch Gilders. 13 13 Miscellaneous: If the Note Purchase Agreement (as defined in the Existing Credit Agreement) is hereafter amended such that any material terms thereof (including, without limitation, pricing, covenants, amortization, events of default and mandatory prepayments) are more favorable to the Noteholders than the terms hereof are to the Lenders (as determined by the Agent and the Lenders in their sole discretion), the Borrower shall enter into an amendment of the Amended and Restated Credit Agreement in order to include such favorable terms therein if the Agent and the Majority Lenders so desire. By January 1, 1997 (the "AMENDMENT DATE"), the Borrower shall negotiate in good faith with the Agent and the Lenders in order to enter into an amendment to the Amended and Restated Credit Agreement for the purpose of continuing the financial covenants described above through the Termination Date. If after 30 days after the Amendment Date, the Borrower, the Lenders and the Agent have not agreed on appropriate levels for such financial covenants through the Termination Date, the Agent in its reasonable judgment shall set such levels and the Borrower, the Agent and the Lenders shall execute an amendment to the Amended and Restated Credit Agreement on the thirty-first day after the Amendment Date for the purposes of including the levels with respect to such financial covenants set by the Agent as part of the Amended and Restated Credit Agreement for the period through the Termination Date. During the 10 Business Day period after any material asset sale, the Borrower shall negotiate in good faith with the Agent and the Lenders in order to enter into an amendment to the Amended and Restated Credit Agreement for the purpose of resetting the financial covenant levels described above. If the Borrower, the Agent and the Lenders have not agreed on appropriate levels for such financial covenants by the end of such 10 Business Day period, the Agent in its reasonable judgment shall set such levels and the Borrower, the Agent and the Lenders shall execute an amendment to the Amended and Restated Credit Agreement on the first Business Day after such 10 Business Day period for the purposes of including the new levels set by the Agent as part of the Amended and Restated Credit Agreement. 14 [COPY NOT SUBMITTED BY CLIENT] The closing shall occur on April 3, 1996 at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017. This Term Sheet may be executed in any number of separate counterparts and shall be effective upon receipt by the Agent of such counterparts executed by the parties hereto (including facsimile signatures). IN WITNESS WHEREOF, 9the parties hereto have caused this Term Sheet to be duly executed by their proper and duly authorized officers as of the day and year first above written. NASHUA CORPORATION /s/ Daniel M. Junius By: ____________________________ Daniel M. Junius Vice President -- Finance, Chief Financial Officer and Treasurer CHEMICAL BANK, as Agent and as a Lender /s/ John J. Huber III By: ____________________________ John J. Huber III Managing Director THE FIRST NATIONAL BANK OF BOSTON /s/ Linda A. Sternfelt By: ____________________________ Linda A. Sternfelt Vice President BANK OF MONTREAL /s/ Thomas E. McGraw By: ____________________________ Thomas E. McGraw Manager EX-10.06 4 EMPLOYMENT AGREEMENT/GERALD G. GARBACZ 1 EXHIBIT 10.06 EMPLOYMENT AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and GERALD G. GARBACZ (the "Executive"), dated as of the 18th day of December, 1995. 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, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. 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 to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused 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 ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, 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 three years 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. 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 2 - 2 - promulgated under the Exchange Act) (a "Person") of 20% 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, 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) Approval by the shareholders of 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 - 3 - 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 third 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 (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of 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, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time 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 reasonable 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 corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly 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 highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. 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 shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full months or 4 - 4 - with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (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, but in no event shall such plans, practices, policies and programs provide the Executive with incentive, savings and retirement benefit opportunities, in each case, less favorable, in the aggregate, than (x) the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date 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, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than (x) the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date generally to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time 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. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time 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. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time 5 - 5 - during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time 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 incentives of the Company and its affiliated companies. 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 11(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 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 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent 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) an action taken by the Executive involving willful and wanton malfeasance involving specifically a wholly wrongful and unlawful act, or (ii) the Executive being convicted of a felony. (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 respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; 6 - 6 - (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 10(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes 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 11(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 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). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (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 7 - 7 - Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) payment of the product of (x) the greater of (A) 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 the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (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 Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) 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, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any survivor benefits paid to the Executive's estate or designated beneficiary under the Retirement Plan. Anything in this Agreement to the contrary notwithstanding, the Executive's estate and family shall be entitled to receive benefits at least equal to the most favorable benefits provided generally by the Company and any of its affiliated companies to the estates and surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect generally with respect to other peer executives and their estates and families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death generally with respect to other peer executives of the Company and its affiliated companies and their families. (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, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any benefits paid to the Executive under the Retirement Plan by reason of Disability. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (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 8 - 8 - 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 if the Executive shall terminate employment under this Agreement for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination 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 Highest Annual Bonus; and C. 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 the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested, and (b) the actuarial equivalent of the 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 6(d)(i)C 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 Effective Date; and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, 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. 9 - 9 - (iii) Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount payable under this paragraph (d) shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time. 7. 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. 8. 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 (regardless of the outcome thereof) 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"). 10 - 10 - 9. 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 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. 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. 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, 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: ------------------- Gerald G. Garbacz 301 Sturges Wilton, CT 06879 11 - 11 - If to the Company: ----------------- Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03060 Attention: Counsel 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, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by either the Company or the Executive at any time. If the Executive's employment is terminated prior to the Effective Date, the Executive shall have no further rights under 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. /s/Gerald G. Garbacz ---------------------------------- GERALD G. GARBACZ NASHUA CORPORATION By /s/Bruce T. Wright ------------------------------- Bruce T. Wright Vice President, Human Resources EX-10.07 5 EMPLOYMENT AGREEMENT/DANIEL M. JUNIUS 1 EXHIBIT 10.07 EMPLOYMENT AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and DANIEL M. JUNIUS (the "Executive"), dated as of the 28th day of April, l989. 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, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. 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 to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused 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 ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, 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 three years 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. 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 2 - 2 - amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (a "Person") of 20% 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, 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) Approval by the shareholders of 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 3 - 3 - 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 third 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 (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of 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, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time 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 reasonable 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 corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly 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 highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. 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. 4 - 4 - (ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (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, but in no event shall such plans, practices, policies and programs provide the Executive with incentive, savings and retirement benefit opportunities, in each case, less favorable, in the aggregate, than (x) the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date 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, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than (x) the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date generally to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time 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. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 5 - 5 - 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. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time 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 incentives of the Company and its affiliated companies. 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 12(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 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 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent 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) an action taken by the Executive involving willful and wanton malfeasance involving specifically a wholly wrongful and unlawful act, or (ii) the Executive being convicted of a felony. (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 respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the 6 - 6 - Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (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 11(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes 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 12(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 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). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. 7 - 7 - (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 theretofore paid, (ii) payment of the product of (x) the greater of (A) 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 the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (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 Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) 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, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any survivor benefits paid to the Executive's estate or designated beneficiary under the Retirement Plan. Anything in this Agreement to the contrary notwithstanding, the Executive's estate and family shall be entitled to receive benefits at least equal to the most favorable benefits provided generally by the Company and any of its affiliated companies to the estates and surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect generally with respect to other peer executives and their estates and families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death generally with respect to other peer executives of the Company and its affiliated companies and their families. (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, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any benefits paid to the Executive under the Retirement Plan by reason of Disability. Anything in this Agreement to the contrary notwithstanding, the Executive shall 8 - 8 - be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (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 if the Executive shall terminate employment under this Agreement for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination 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 Highest Annual Bonus; and C. 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 the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested, and (b) the actuarial equivalent of the 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 6(d)(i)C 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 Effective Date; and 9 - 9 - (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, 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. 7. 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. 8. 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 (regardless of the outcome thereof) 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 (including as a result of any contest by the Executive about the amount of any payment pursuant to Section 9 of this Agreement), 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"). 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 10 - 10 - 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determinations, shall be made by Price Waterhouse (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen business days of the Date of Termination, if applicable, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b), shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, 11 - 11 - accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12 - 12 - 10. 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 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. 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. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, 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: ------------------- Daniel M. Junius 12 Crestwood Court Amherst, NH 03031 13 - 13 - If to the Company: ----------------- Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03060 Attention: General Counsel 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, except as may otherwise be provided under any other written agreement between the Executive and the Company, 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. If the Executive's employment or this Agreement is terminated prior to the Effective Date, the Executive shall have no further rights under 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. /s/ Daniel M. Junius ------------------------------------- Daniel M. Junius NASHUA CORPORATION By /s/Charles E. Clough ---------------------------------- Charles E. Clough President and Chief Executive Officer EX-10.08 6 EMPLOYMENT AGREEMENT/ROBIN J.T. CLABBURN 1 EXHIBIT 10.08 EMPLOYMENT AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and ROBIN J. T. CLABBURN (the "Executive"), dated as of the 3rd day of November, 1995. 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, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. 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 to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused 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 ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, 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 three years 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. 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 2 - 2 - promulgated under the Exchange Act) (a "Person") of 20% 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, 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) Approval by the shareholders of 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 - 3 - 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 or an affiliated company, for the period commencing on the Effective Date and ending in accordance with the 12 month notice described in the letter agreement with the Executive dated August 24, 1995 (the "Employment Period"). 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of 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, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time 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 reasonable 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 corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly 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 highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. 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 shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three 4 - 4 - fiscal years immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time 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. (iv) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (v) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time 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 incentives of the Company and its affiliated companies. 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 11(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 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 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent 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) an action taken by the Executive involving willful and wanton malfeasance involving specifically a wholly 5 - 5 - wrongful and unlawful act, or (ii) the Executive being convicted of a felony. (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 respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (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 10(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement or the letter agreement with the Executive dated August 24, 1995 to the contrary notwithstanding, the Executive may terminate his employment for any reason during the 30-day period immediately following the 30th day after the Effective Date on notice and such termination by the Executive shall be deemed to be a termination for Good Reason for all purposes 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 11(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 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). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire 6 - 6 - membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (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 or an affiliated company other than for Cause or Disability, the Date of Termination shall be the date on which the Company or affiliated 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 theretofore paid, (ii) payment of the product of (x) the greater of (A) 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 the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (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 Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) 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, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period. (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, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period. (c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be 7 - 7 - 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 or an affiliated company shall terminate the Executive's employment other than for Cause or Disability, or if the Executive shall terminate employment under this Agreement for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. all Accrued Obligations; and B. the product of (x) the sum of (i) Annual Base Salary and (ii) the Highest Annual Bonus (y) multiplied by either (i) a fraction having the numerator being the number of months remaining in the two year period referred to in the August 24, 1995 letter agreement with Executive and the denominator being twelve, or (ii) one, whichever results in the larger amount. 7. 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. 8. 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 (regardless of the outcome thereof) 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 8 - 8 - provided for in Section 7872(f)(2) of the Internal Revenue Code of l986, as amended (the "Code"). 9. 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 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. 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. 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, 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: 9 -9- If to the Executive: Robin J. T. Clabburn ------------------- Buckthorn House Sevenhampton Wilts, U.K. SN6 7QA If to the Company: Nashua Corporation ----------------- 44 Franklin Street Nashua, New Hampshire 03060 Attention: Counsel 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, except as may otherwise be provided under any other written agreement between the Executive and the Company, 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. If the Executive's employment or this Agreement is terminated prior to the Effective Date, the Executive shall have no further rights under 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 /s/ Robin J. T. Clabburn By: /s/ Bruce T. Wright - ------------------------------ ----------------------------------- Robin J. T. Clabburn Bruce T. Wright Vice President, Human Resources
EX-10.09 7 EMPLOYMENT AGREEMENT/BRUCE T. WRIGHT 1 EXHIBIT 10.09 ------------- EMPLOYMENT AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and BRUCE T. WRIGHT (the "Executive"), dated as of the 24th day of February, l995. 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, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. 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 to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused 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 ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, 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 three years 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. 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 2 - 2 - amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (a "Person") of 20% 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, 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) Approval by the shareholders of 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 3 - 3 - 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 third 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 (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of 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, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time 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 reasonable 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 corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly 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 highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. 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. 4 - 4 - (ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (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, but in no event shall such plans, practices, policies and programs provide the Executive with incentive, savings and retirement benefit opportunities, in each case, less favorable, in the aggregate, than (x) the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date 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, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than (x) the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date generally to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time 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. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 5 - 5 - 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. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time 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 incentives of the Company and its affiliated companies. 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 12(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 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 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent 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) an action taken by the Executive involving willful and wanton malfeasance involving specifically a wholly wrongful and unlawful act, or (ii) the Executive being convicted of a felony. (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 respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the 6 - 6 - Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (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 11(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes 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 12(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 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). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. 7 - 7 - (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 theretofore paid, (ii) payment of the product of (x) the greater of (A) 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 the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (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 Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) 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, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any survivor benefits paid to the Executive's estate or designated beneficiary under the Retirement Plan. Anything in this Agreement to the contrary notwithstanding, the Executive's estate and family shall be entitled to receive benefits at least equal to the most favorable benefits provided generally by the Company and any of its affiliated companies to the estates and surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect generally with respect to other peer executives and their estates and families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death generally with respect to other peer executives of the Company and its affiliated companies and their families. (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, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any benefits paid to the Executive under the Retirement Plan by reason of Disability. Anything in this Agreement to the contrary notwithstanding, the Executive shall 8 - 8 - be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (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 if the Executive shall terminate employment under this Agreement for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination 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 Highest Annual Bonus; and C. 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 the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested, and (b) the actuarial equivalent of the 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 6(d)(i)C 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 Effective Date; and 9 - 9 - (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, 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. 7. 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. 8. 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 (regardless of the outcome thereof) 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 (including as a result of any contest by the Executive about the amount of any payment pursuant to Section 9 of this Agreement), 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"). 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 10 - 10 - 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determinations, shall be made by Price Waterhouse (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen business days of the Date of Termination, if applicable, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b), shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, 11 - 11 - accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12 - 12 - 10. 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 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. 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. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, 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: ------------------- Bruce T. Wright 110 Pokonoket Avenue Sudbury, MA 01776 13 - 13 - If to the Company: ----------------- Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03060 Attention: General Counsel 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, except as may otherwise be provided under any other written agreement between the Executive and the Company, 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. If the Executive's employment or this Agreement is terminated prior to the Effective Date, the Executive shall have no further rights under 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. /s/Bruce T. Wright ------------------------------------ Bruce T. Wright NASHUA CORPORATION By /s/William E. Mitchell -------------------------------- William E. Mitchell President and Chief Executive Officer EX-10.10 8 EMPLOYMENT AGREEMENT/CHARLES E. TURNBALL 1 EXHIBIT 10.10 ------------- EMPLOYMENT AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and CHARLES E. TURNBULL (the "Executive"), dated as of the 22nd day of September, l995. 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, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. 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 to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused 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 ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, 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 three years 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. 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 2 - 2 - (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 20% 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, 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) Approval by the shareholders of 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 3 - 3 - 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 third 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 (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of 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, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time 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 reasonable 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 corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly 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 highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. 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. 4 - 4 - (ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (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, but in no event shall such plans, practices, policies and programs provide the Executive with incentive, savings and retirement benefit opportunities, in each case, less favorable, in the aggregate, than (x) the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date 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, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than (x) the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date generally to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time 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. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 5 - 5 - 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. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time 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 incentives of the Company and its affiliated companies. 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 12(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 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 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent 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) an action taken by the Executive involving willful and wanton malfeasance involving specifically a wholly wrongful and unlawful act, or (ii) the Executive being convicted of a felony. (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 respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the 6 - 6 - Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (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 11(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes 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 12(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 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). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. 7 - 7 - (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 theretofore paid, (ii) payment of the product of (x) the greater of (A) 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 the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (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 Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) 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, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any survivor benefits paid to the Executive's estate or designated beneficiary under the Retirement Plan. Anything in this Agreement to the contrary notwithstanding, the Executive's estate and family shall be entitled to receive benefits at least equal to the most favorable benefits provided generally by the Company and any of its affiliated companies to the estates and surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect generally with respect to other peer executives and their estates and families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death generally with respect to other peer executives of the Company and its affiliated companies and their families. (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, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any benefits paid to the Executive under the Retirement Plan by reason of Disability. Anything in this Agreement to the contrary notwithstanding, the Executive shall 8 - 8 - be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (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 if the Executive shall terminate employment under this Agreement for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination 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 Highest Annual Bonus; and C. 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 the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested, and (b) the actuarial equivalent of the 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 6(d)(i)C 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 Effective Date; and 9 - 9 - (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, 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. 7. 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. 8. 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 (regardless of the outcome thereof) 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 (including as a result of any contest by the Executive about the amount of any payment pursuant to Section 9 of this Agreement), 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"). 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 10 - 10 - 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determinations, shall be made by Price Waterhouse (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen business days of the Date of Termination, if applicable, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b), shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, 11 - 11 - accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12 - 12 - 10. 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 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. 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. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, 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: ------------------- Charles E. Turnbull 44 Franklin Street Nashua, NH 03060 13 - 13 - If to the Company: ----------------- Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03060 Attention: Counsel 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, except as may otherwise be provided under any other written agreement between the Executive and the Company, 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. If the Executive's employment or this Agreement is terminated prior to the Effective Date, the Executive shall have no further rights under 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. /s/Charles E. Turnbull ---------------------------------- Charles E. Turnbull NASHUA CORPORATION By /s/Francis J. Lunger -------------------------------- Francis J. Lunger President and Chief Executive Officer EX-10.11 9 EMPLOYMENT AGREEMENT/JOHN R. MAPLEY 1 EXHIBIT 10.11 ------------- EMPLOYMENT AGREEMENT -------------------- AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and John R. Mapley (the "Executive"), dated as of the 5th day of July, 1989. 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, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. 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 to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused 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 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 ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, 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 three years 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. 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 20% or more of either (i) the then 2 - 2 - 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, 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) Approval by the shareholders of 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 3 - 3 - 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 third 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 (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of 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, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time 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 reasonable 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 corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly 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 highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. 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 shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the 4 - 4 - "Annual Bonus") in cash at least equal to the average bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (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, but in no event shall such plans, practices, policies and programs provide the Executive with incentive, savings and retirement benefit opportunities, in each case, less favorable, in the aggregate, than (x) the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date 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, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than (x) the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date generally to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time 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. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time 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 5 - 5 - and its affiliated companies. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time 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 incentives of the Company and its affiliated companies. 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 11(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 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 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent 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) an action taken by the Executive involving willful and wanton malfeasance involving specifically a wholly wrongful and unlawful act, or (ii) the Executive being convicted of a felony. (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 respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith 6 - 6 - and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (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 10(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. (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 11(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 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). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (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 7 - 7 - 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 theretofore paid, (ii) payment of the product of (x) the greater of (A) 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 the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (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 Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) 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, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for 12 months; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any survivor benefits paid to the Executive's estate or designated beneficiary under the Retirement Plan. Anything in this Agreement to the contrary notwithstanding, the Executive's estate and family shall be entitled to receive benefits at least equal to the most favorable benefits provided generally by the Company and any of its affiliated companies to the estates and surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect generally with respect to other peer executives and their estates and families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death generally with respect to other peer executives of the Company and its affiliated companies and their families. (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, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any benefits paid to the Executive under the Retirement Plan by reason of Disability. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date 8 - 8 - or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (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 if the Executive shall terminate employment under this Agreement for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. all Accrued Obligations; and B. the sum of (i) Annual Base Salary and (ii) the Highest Annual Bonus; and C. 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 the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested, and (b) the actuarial equivalent of the 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 6(d)(i)C 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 Effective Date; and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, 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 9 - 9 - 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. 7. 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. 8. 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 (regardless of the outcome thereof) 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"). 9. 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 9 constitute a basis for deferring or 10 - 10 - withholding any amounts otherwise payable to the Executive under this Agreement. 10. 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. 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, 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: ------------------- John R. Mapley 16 Jeremy Place Nashua, NH 03060 If to the Company: ----------------- Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03060 Attention: General Counsel 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. 11 - 11 - (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, except as may otherwise be provided under any other written agreement between the Executive and the Company, 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. If the Executive's employment or this Agreement is terminated prior to the Effective Date, the Executive shall have no further rights under 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. /s/John R. Mapley --------------------------- John R. Mapley NASHUA CORPORATION By/s/Charles E. Clough ------------------------- Charles E. Clough President EX-10.12 10 INCENTIVE AGREEMENT/DAVID A. PETERSON 1 EXHIBIT 10.12 INCENTIVE AGREEMENT This INCENTIVE AGREEMENT (this "AGREEMENT"), dated as of March 21, 1996, is made by and between Nashua Corporation, a Delaware corporation, with its principal place of business located in Nashua, New Hampshire ("NASHUA") and David A. Peterson, an individual residing at 45 Glenn Drive, Rt #1, White Heath, IL 61884 (the "EXECUTIVE"). WHEREAS, the Executive is employed on the date hereof as Chief Executive Officer and President of Cerion Technologies Inc., a Delaware corporation with its principal place of business located in Champaign, Illinois ("CERION"); WHEREAS, Cerion was established on December 31, 1995 as a wholly-owned subsidiary of Nashua, to assume the operations of Nashua's Precision Technologies division; WHEREAS, Nashua and Cerion intend to sell shares of Common Stock of Cerion in an underwritten public offering (the "OFFERING"); WHEREAS, in the event that Nashua and Cerion are unable or unwilling to complete the Offering for any reason, Nashua may pursue the private sale of Cerion as a going concern to a third party; WHEREAS, Nashua believes that the Executive's participation in the management of Cerion is important to the success of any such proposed private sale, and is accordingly prepared to offer the Executive certain incentives to encourage the Executive to retain his current position with Cerion until the time of any such private sale; and WHEREAS, in consideration of the promises and covenants set forth below Nashua and the Executive desire to enter into an Incentive Agreement, on the terms and subject to the conditions set forth below; NOW, THEREFORE, it is hereby agreed as follows: Section 1. DEFINITIONS. For the purposes of this Agreement: (a) the term "AFFILIATE" shall mean, with respect to a specified Person, any Person that directly or indirectly controls, is controlled by or is under common control with, the specified Person; (b) the term "DISK BUSINESS" shall mean the manufacture, processing or sale of substrates for disks used in the hard disk drives of computers, network servers or storage devices and substrates for organic photoconductor drums; 2 -2- (c) the term "PERSON" shall mean any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, or other legal entity or organization, and any government or subdivision thereof or any governmental or regulatory agency; (d) the term "RESTRICTED PERIOD" shall mean the period from the date hereof until the first to occur of (i) the date two years after the termination or expiration of the Executive's employment with Cerion, and (ii) the date of completion of an Offering; and (e) the term "SALE" shall mean, with respect to Cerion, the sale, disposal or other transfer of all or substantially all of the assets or capital stock of Cerion to, or the merger of Cerion with, any Person which at the time of such sale, disposal, other transfer or merger is not an Affiliate of Nashua. In no event shall the term "Sale" include the sale of Cerion Common Stock in any Offering. Section 2. INCENTIVE PAYMENT. If the Executive shall continue to be employed by Cerion in the capacity he has as of the date of this Agreement, or in any capacity with similar duties, responsibilities and compensation in the management of Cerion, and such employment continues through and including the date of completion of any Sale of Cerion, then Nashua agrees to pay to the Executive an incentive payment in an aggregate amount calculated by multiplying the Executive's base salary for 1996 ($160,000) by 3 (the "Incentive Payment"). The Incentive Payment shall be payable 50% immediately following the date of completion of any Sale of Cerion, with the balance due and payable twelve months after the date of completion of such a Sale. In any case of a conditional Sale or a Sale for which any portion of the consideration or purchase price is deferred or is to be delivered at a later date than the "closing" of such Sale, then the actual date of completion of such a Sale of Cerion shall, for the purposes of this Agreement, be as reasonably determined by Nashua under the circumstances, taking into consideration the time at which substantially all of the bargained-for consideration in such Sale shall have been received by Nashua, and Nashua may, in such circumstances, elect to make the foregoing Incentive Payment in such installments as Nashua may deem appropriate. Section 3. EXECUTIVE'S EMPLOYMENT PROTECTION. In the event that, within twelve (12) months after any Sale of Cerion, the employment of the Executive with Cerion (or its successor) is involuntarily terminated by the employer (other than for cause), and Nashua shall not, within a reasonable period of time thereafter, have offered employment to the Executive in a position with Nashua or any Affiliate of Nashua with similar duties, responsibilities and compensation to that held by the Executive immediately prior to such termination, then Nashua agrees promptly to pay to the Executive an additional payment in an amount equal to the Executive's base salary for 1996; PROVIDED, however, that Nashua shall make no payment, which, when aggregated with other payments hereunder, would constitute 3 -3- an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986 or any successor provision. Section 4. TERMINATION OF OBLIGATIONS. Upon the first to occur of (i) the completion of an Offering and (ii) December 31, 1996, all obligations of Nashua to pay any amount to the Executive under this Agreement shall immediately terminate and be of no further effect. All obligations of the Executive pursuant to section 5 below shall terminate upon the completion of an Offering, and this Agreement shall thereupon be canceled in its entirety without any requirement of notice to or consent of any party. Section 5. NON-COMPETITION, NON-SOLICITATION, INVENTIONS AND CONFIDENTIALITY. Section 5.1. NON-COMPETITION. The parties hereto recognize and agree that the services of the Executive are special and unique and that he has special fiduciary duties to Cerion as its Chief Executive Officer and President, and that for these reasons a covenant on the part of the Executive not to compete during his employment by Cerion, and for a reasonable period after the termination or expiration of such employment, is essential to protect the value of Cerion to Nashua. Accordingly, and in consideration for $1.00 and Nashua's covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive agrees that for the Restricted Period, neither the Executive nor any person or entity controlled, directly or indirectly, by the Executive, whether individually or as an officer, director, employee, consultant, partner or owner of more than one percent of the equity interest in any corporation or other entity, shall, directly or indirectly (i) in the United States, Canada, United Kingdom, Western Europe, Eastern Europe, or the Far East, engage in, or render any services in connection with, any business that is competitive, directly or indirectly, with the businesses (including without limitation the Disk Business) carried on by Cerion at or prior to the termination or expiration of the Executive's employment by Cerion, or (ii) interfere with the business relationships (whether formed heretofore or hereafter) between Cerion and any of its customers and suppliers. Section 5.2 NON-SOLICITATION. During the Restricted Period, neither the Executive nor any person or entity controlled, directly or indirectly, by the Executive shall, directly or indirectly, hire, retain (including as a consultant), solicit or encourage to leave the employment of Cerion, any employee of Cerion, or hire or retain any former employee of Cerion (including, for the purposes of this section 5.2, any former employee of the Precision Technologies division of Nashua) who has left such employment within one year prior to such hiring or retention. Section 5.3 INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions, improvements and innovations (including all data and records pertaining thereto) which relate to the business of Cerion whether or not patentable, copyrightable or reduced to writing which 4 -4- the Executive may discover, invent or originate during the Restricted Period either alone or with others and whether or not during working hours or by the use of the facilities of Cerion ("INVENTIONS"), shall be the exclusive property of Cerion. The Executive shall promptly disclose all Inventions to Cerion. Whether during the term of this Agreement or thereafter, the Executive shall execute at the request of Cerion any assignments or other documents Cerion may deem necessary to protect or perfect its rights in any Inventions, and shall assist Cerion, at Cerion's expense, in obtaining, defending and enforcing Cerion's rights therein. The Executive hereby appoints Cerion as his attorney-in-fact to execute on his behalf any assignments or other documents deemed necessary by Cerion to protect or perfect its rights to any Inventions. Section 5.4 CONFIDENTIAL INFORMATION. (a) During and after the period of his employment by Cerion, the Executive and any person or entity controlled directly or indirectly by the Executive shall maintain in confidence and shall not directly or indirectly, disclose, sell, use, publish, make copies of, or communicate to any person, firm, or corporation any confidential information, trade secrets or proprietary data of Cerion of which he leams or learned or to which he has or had access during the course of the Executive's employment by Cerion (which, for the purpose of this section 5.4, shall be deemed to include the Precision Technology division of Nashua prior to the establishment of Cerion). (b) For purposes of this section 5.4, "confidential information, trade secrets or proprietary data" means any information concerning any matters affecting or relating to the business of Cerion, including but without limiting the generality of the foregoing, any inventions, improvements, and enhancements (whether patentable or not); patents or patent applications; any protectable technology, know-how and copyrightable material; trade secrets, including any formulas, patterns, devices, machines, processes, compilations of information, or expenditures of time or money; product designs and development; research reports, market studies and plans; customer lists; the prices Cerion obtains or has obtained from the sale of, or at which it sells or has sold, its products or services; estimates, bids, and projections; or any other information concerning the business of Cerion, its manner of operation, its plans, policies, processes, strategies, or other data, and including any information as to the existence or terms and provisions of this Agreement, without regard to whether any or all of the foregoing are or would be deemed confidential, material, or important, the parties hereto stipulating that, as between them, the same are confidential, material and important, and gravely affect the effective and successful conduct of Cerion's business and Cerion's goodwill, and that any breach of the terms of this section 5.4 shall be a material breach of this Agreement and will result in immediate and irreparable harm to Cerion; provided that nothing shall be considered "confidential information, trade secrets or proprietary data" which is or becomes known to the public by acts of others (other than other signatories to this type of agreement with Cerion) or through the normal or other authorized course of operation of Cerion. (c) All memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by the Executive or any person or entity controlled, directly or indirectly, by the Executive or made available to the Executive or any person or entity 5 -5- controlled, directly or indirectly, by the Executive concerning the business of Cerion or any of its Affiliates shall be Cerion's property and shall be delivered to Cerion promptly upon the termination of the Executive's employment by Cerion. Section 5.5. ASSIGNMENT. The benefits of the Executive's agreements and covenants in this section 5 may be assigned without notice to or consent of the Executive to any acquiror of Cerion or all or substantially all of the assets in a Sale, and the Executive hereby unconditionally and irrevocably consents to any such assignment and furthermore agrees to be bound by the provisions of this section 5 notwithstanding any Sale of Cerion, or any assignment of the benefits of this section 5 in connection with any such sale. Section 6. GENERAL. (a) NOTICES. All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if mailed by certified or registered first-class mail, postage prepaid and return receipt requested, sent by facsimile or delivered by established overnight courier service to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this section 6(a): If to Nashua, to: Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03061-2002 Attention: President Fax: 603-880-2747 If to the Executive, to: David A. Peterson 45 Glenn Drive, Rt #1 White Heath, IL61884 Any such notice will be deemed to have been duly given or made and to have become effective (i) if delivered by hand or facsimile to the party to which it is directed, at the time of the receipt thereof or the sending of such facsimile, (ii) if sent by overnight courier, on the business day next following dispatch thereof, and (iii) if sent by certified or registered mail, on the fifth business day following the mailing thereof. (b) EQUITABLE REMEDIES. it is recognized by the parties hereto that damages for breaches of covenants of the nature contained in this Agreement are difficult if not 6 -6- impossible to prove precisely; therefore, it is agreed that of this Agreement shall be enforceable by injunction. If any of the restrictions contained in this Agreement hereof shall be deemed to be unenforceable by reason of the extent, duration or geographical scope or other provisions hereof, then the parties hereto contemplate that the court or other body having jurisdiction over the matter shall reduce such extent, duration, geographical scope or other provision hereof and enforce the affected provisions of this Agreement in reduced form for all purposes in the manner contemplated hereby, and the parties hereto agree that such provisions of this Agreement, as so modified, shall be valid and binding as though any unenforceable provision had not been included therein. (c) SEVERABILITY. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. (d) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. (e) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) ASSIGNS. The rights and obligations of the parties hereto shall inure to the benefit of, and shall be binding upon, the successors and assigns of each of them; provided, however, that the Executive acknowledges that the services to be rendered in connection with this Agreement by him are unique and personal. Accordingly, the Executive shall not, during the continuance of this Agreement, assign this Agreement without the prior written consent of Nashua. (g) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof, and shall not be amended except by a written instrument hereafter signed by each of the parties hereto. (h) SURVIVAL. The termination of this Agreement shall not affect the obligations of any party hereunder which by their terms are to be continued for any period after the termination of this Agreement. (i) GOVERNING LAW. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of New Hampshire. 7 -7- (j) JURISDICTION. The parties hereby agree that any action for the enforcement or interpretation of any provision of this Agreement will be brought in the courts of the State of New Hampshire or any Federal court sitting therein, and each party hereby consents to the exclusive jurisdiction of such court and waives any objections that it may now or hereafter have to the venue of any such action or any such court or that such action is brought in an inconvenient forum. Each of the parties hereby consents to the service of process being made upon such party at its address specified in section 6(a) above. (k) WAIVER OF JURY. TRIAL, ETC. The Executive hereby waives his right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Agreement, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. Except as prohibited by law, the Executive hereby waives any right he may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Executive (i) certifies that no representative, agent or attorney of Nashua has represented, expressly or otherwise, that Nashua would not, in the event of litigation, seek to enforce the foregoing waivers, and (ii) acknowledges that the Nashua has been induced to enter into this Agreement, and to provide the benefits to the Executive provided for in this Agreement, by, among other things, the waivers and certifications contained in this section 6(k). IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed as an instrument under seal as of the date and year first above written. NASHUA CORPORATION By: /s/ Bruce Wright ------------------- Bruce Wright Vice President, Human Resources /s/ David A. Peterson --------------------- David A. Peterson EX-11.01 11 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.01 NASHUA CORPORATION COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except per share data)
Year Ended December 31, ----------------------------------------- 1995 1994 1993 -------- ------- -------- Income (loss) from continuing operations $(15,470) $ 2,210 $ 250 -------- ------- -------- Income (loss) from discontinued operations 739 (63) (19,419) -------- ------- -------- Net income (loss) $(14,731) $ 2,147 $(19,169) -------- ------- -------- Shares: Weighted average common shares outstanding during the period 6,374 6,343 6,312 Common equivalent shares -- 17 31 -------- ------- -------- 6,374 6,360 6,343 ======== ======= ======== Earnings (loss) per common share(1): Income (loss) from continuing operations $ (2.43) $ .35 $ .04 -------- ------- -------- Income (loss) from discontinued operations .12 (.01) (3.06) -------- ------- -------- Net income (loss) $ (2.31) $ .34 $ (3.02) ======== ======= ======== (1) The computation of earnings (loss) per common share on a fully diluted basis results in no change to the earnings per common share amounts indicated above.
EX-21.01 12 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.01 SUBSIDIARIES OF THE REGISTRANT Nashua Corporation, or one of its wholly-owned subsidiaries, owns beneficially, directly or indirectly, all of the capital stock in the following subsidiaries:
Jurisdiction of Domestic Incorporation - -------- ------------- Cerion Holdings Inc. (1) Delaware Cerion Technologies Inc.(1)(4) Delaware Nashua Belmont Limited (2) Delaware Nashua Photo European Investments, Inc.(2) Delaware Nashua Photo Inc.(1) Delaware Nashua Photo International Investments, Inc.(2) Delaware Nashua Photo Licensing Inc.(2) Delaware Promolink Corporation(1) Delaware Jurisdiction of Foreign Incorporation - ------- ------------- Nashua Europe B.V. (1) Netherlands Nashua FSC Limited (1) Jamaica Nashua Photo B.V. (2) Netherlands Nashua Photo Limited (2) Canada Nashua Photo Limited (2) England Nashua Photo S.N.C.(3) France - ---------- (1) Stock held by Nashua Corporation (2) Stock held by Nashua Photo Inc. (3) Stock held 50% by Nashua Photo European Investments, Inc. and 50% by Nashua Photo International Investments, Inc. (4) Stock held by Cerion Holdings Inc. The Company has filed a Form S-1 indicating its intention to sell a portion of its shares of Cerion Technologies.
All of the above listed subsidiaries are included in Nashua's consolidated financial statements. EX-23.01 13 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-88669, No. 33-13995, No. 33-67940 and No. 33-72438) of Nashua Corporation of our report dated February 5, 1996, except as to the Subsequent Events note, which is as of March 27, 1996, appearing on page 41 of this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 56 of this Form 10-K. Price Waterhouse LLP Boston, Massachusetts April 1, 1996 EX-24.01 14 POWER OF ATTORNEY 1 EXHIBIT 24.01 Commission File No. 1-5492-1 POWER OF ATTORNEY Know All Men By These Presents, that each person whose signature appears below constitutes and appoints Daniel M. Junius and Paul Buffum and each of them, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign Nashua Corporation's Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date - --------- ----- ---- James F. Orr III Director April 1, 1996 - ------------------------ --------------- James F. Orr III Sheldon A. Buckler Director April 1, 1996 - ------------------------ --------------- Sheldon A. Buckler Richard E. Carter Director April 1, 1996 - ------------------------ --------------- Richard E. Carter Thomas W. Eagar Director April 1, 1996 - ------------------------ --------------- Thomas W. Eagar John M. Kucharski Director April 1, 1996 - ------------------------ --------------- John M. Kucharski
EX-27 15 FINANCIAL DATA SCHEDULE
5 1000 U.S. DOLLARS YEAR DEC-31-1995 JAN-1-1995 DEC-31-1995 1 8,390 0 29,579 0 22,023 99,192 127,658 57,601 231,372 67,405 0 0 0 6,503 68,372 231,372 452,196 452,196 336,037 136,308 0 0 5,532 (20,149) (4,679) (20,149) 739 0 0 (14,731) (2.31) 0
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