-----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, ENbo6WVfcOEL4J+AiOZI/NmrlB/pv/dKQ7xvHKIb1iHuI2Oa/y6UU2ucQU6JBjcs zbHDbAFgE1tRAU8mNb/+hg== 0000950135-98-001822.txt : 19980327 0000950135-98-001822.hdr.sgml : 19980327 ACCESSION NUMBER: 0000950135-98-001822 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 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: SEC FILE NUMBER: 001-05492 FILM NUMBER: 98573528 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 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1997 ----------------- 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) (IRS Employer Identification Number) 44 FRANKLIN STREET PO BOX 2002 NASHUA, NEW HAMPSHIRE 03061-2002 (Address of principal executive offices) (Zip Code) 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 19, 1998 was approximately $96,781,381. The number of shares outstanding of the registrant's Common Stock as of March 19, 1998 was 6,716,931 (excluding 24,064 shares held in treasury). DOCUMENTS INCORPORATED BY REFERENCE Parts I and II - Portions of Registrant's Annual Report to Stockholders for the year ended December 31, 1997. Part III - Portions of the Registrant's Proxy Statement dated March 25, 1998 for the Annual Meeting of Stockholders to be held on April 24, 1998. 3 PART I ITEM 1. BUSINESS GENERAL Nashua Corporation's continuing operations consist of three divisions: Specialty Coated Products, Label Products and Imaging Supplies. For financial reporting, these divisions comprise the Commercial Products Group. Consolidated sales for 1997 for continuing operations were $173.2 million. The Company plans to divest all of its photofinishing operations as described below. The Company also owns a 37.1 percent interest in Cerion Technologies, Inc. ("Cerion") as described below. For financial reporting, this holding is reported as a separate segment. 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, PO 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 March 10, 1998, the Company reached an agreement to sell its photofinishing operations in the U.S., U.K. and Canada for consideration of approximately $52.5 million in cash and the assumption of certain liabilities. Management anticipates that this sale will be consummated in the first half of 1998 and is also continuing discussions for the sale of its photofinishing business in Northern Ireland. As a result, the Company is exiting all of its photofinishing operations and has reported this segment as a discontinued operation in the accompanying consolidated financial statements. During the second quarter of 1996, Cerion completed its initial public offering of common stock, which included the sale of shares of its stock owned by the Company, reducing the Company's ownership of Cerion to 37.1 percent. Accordingly, the Company no longer consolidates the results of Cerion and has accounted for its remaining interest under the equity method of accounting since the completion of the initial public stock offering. The Company recorded net restructuring and other unusual charges of $4.3 million in 1997 which included charges in the fourth quarter of $.6 million related to restructuring the corporate organization, a charge in the third quarter of $.9 million related to the sale of excess real estate in Nashua, NH, and a second quarter charge of $2.8 million for costs associated with restructuring certain distribution channels and aligning the workforce with levels of demand in the Commercial Products Group. The Note entitled "Information About Operations" in the Company's Consolidated Financial Statements, which appears on page 29 of the Company's Annual Report to Stockholders, contains financial information concerning Nashua's business segments. FORWARD LOOKING INFORMATION: This Form 10-K contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. When used in this report, the words "expects," "believes," "can," "will" or similar expressions are intended to identify such forward-looking statements. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, completion of the sales of the Company's photofinishing businesses, the possibility of a final award of material damages in the Ricoh litigation or the Cerion litigation, fluctuations in customer demand, intensity of competition from other vendors, timing and acceptance of new product introductions, and general economic and industry conditions. For additional discussion of factors that may affect the Company's performance, refer to those described from time to time in the Company's other filings with the Securities Exchange Commission, press releases and other communications. -2- 4 COMMERCIAL PRODUCTS GROUP The Commercial Products Group has three divisions: Imaging Supplies, Specialty Coated Products and Label Products. 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 and copy paper. The Imaging Supplies Division sales were approximately $73 million for 1997, $98 million for 1996 and $137 million for 1995. Nashua markets its toners, developers, copy paper and remanufactured laser printer cartridges to national and government accounts through a network of approximately 150 dealers located throughout the United States. Those dealers also purchase Nashua's imaging supplies for resale directly to end-users. The Company also sells certain of those products through its own sales force to office supply distributors and private label machine and supply distributors. Nashua'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 approximately 4,000 small laser printer cartridge rechargers which provide low volumes to small customers. SPECIALTY COATED PRODUCTS The Specialty Coated Products Division manufactures and sells thermal and non-thermal, thermosensitive label, Davac(R) dry-gummed label, and carbonless papers. Specialty Coated Products Division sales, excluding inter-divisional sales to the Company's Label Products Division, were approximately $29 million for 1997, $33 million for 1996 and $35 million for 1995. Thermal papers develop an image upon contact with either a heated stylus or a thermal print head. Thermal papers are 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. Another application for these papers is for use in thermal facsimile machines. 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 the United States, Japan and Europe. The Division's thermosensitive label papers are coated with an adhesive that is activated when heat is applied. Those products are usually sold through fine paper merchants who, in turn, resell them 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(R) dry-gummed label paper is a paper which is coated with a moisture-activated adhesive. Davac(R) 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. -3- 5 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 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 Imation Corporation. LABEL PRODUCTS The Label Products 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 Products Division is a major supplier of labels to the supermarket industry and of labels used in the distribution and manufacture of a wide variety of other products. The label industry is price sensitive and competitive, and includes competitors such as Moore Corporation Ltd., Rittenhouse Paper Company Inc., Hobart Corporation, Avery Dennison Corporation and UARCO, Inc. plus numerous small regional converters. A significant amount of the thermal paper used by the Label Division for thermal, pressure-sensitive labels is manufactured by Nashua's Specialty Coated Products Division. Label Division sales were approximately $71 million for 1997, $68 million for 1996 and $73 million for 1995. 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 its 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 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 unionized, 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. CERION TECHNOLOGIES Cerion, 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. On May 23, 1996, the Company and Cerion completed an initial public offering of common stock of Cerion. As a result of the offering, the Company's ownership of Cerion was reduced to 37.1 percent and, accordingly, the Company no longer consolidates the results of Cerion and accounts for its remaining interest under the equity method of accounting. 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 $7.7 million in 1997, $9.2 million in 1996 and $8.9 million in 1995. -4- 6 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 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, 1997 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 1,811 full-time employees at March 10, 1998, including 750 full-time employees for continuing operations. Approximately 450 employees of Nashua's Commercial Products Group segment are members of one of several unions, principally the United Paperworkers International Union. There are three agreements with the United Paperworkers International Union covering a majority of the Commercial Products Group's hourly employees. These agreements generally have a duration of two years and expiration dates in the first quarter of the respective year. FOREIGN OPERATIONS The Company has decided to sell its Photo business and is therefore in the process of disposing of all of its significant foreign operations as described more fully in the Note to the Company's Consolidated Financial Statements entitled "Business Changes" which has been incorporated by reference into Item 8 of Part 2 of this Report. As such, information regarding identifiable assets by geographic region is reported as discontinued operations in the Note to the Company's Financial Statements entitled "Information About Operations" which appears on page 29 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997. 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. -5- 7 PRINCIPAL PROPERTIES SQUARE PRINCIPAL LOCATION FOOTAGE PRODUCTS PRODUCED - -------- ------- ----------------- COMMERCIAL PRODUCTS - ------------------- Merrimack, New Hampshire 545,000 carbonless paper, facsimile paper, thermosensitive and dry-gummed label papers, chemicals, dry toners Omaha, Nebraska 170,000 pressure-sensitive labels and laminate paper Nashua, New Hampshire 198,000 dry toners and developers, chemicals Nogales, Mexico 55,000(1) laser printer cartridges PHOTO(2) - -------- 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 9,500(1) photofinishing Belfast, Northern Ireland 24,000(1) photofinishing - ---------- (1) Leased facilities. (2) The Company intends to dispose of all the listed "Photo" properties, and related rights and obligations, as part of exiting its photofinishing operations. -6- 8 ITEM 3. LEGAL PROCEEDINGS In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh") brought a lawsuit in the United States District Court, District of New Hampshire, alleging the Company's infringement of the U.S. patents 4,611,730 and 4,878,603 relating to certain toner cartridges for Ricoh copiers. In March 1997, the District Court enjoined Nashua from manufacturing, using or selling its NT-50 and NT-6750 toner cartridges. Sales of these products in 1996 amounted to one percent of Nashua's total sales. The Court left the subject of damages, if any, to subsequent proceedings. The Company disagrees with the Court's decision and has appealed to the United States Court of Appeals for the Federal Circuit. At the trial, Ricoh alleged that its damages would be approximately $10 million as of the date of the trial, and the Company alleged that such damages should be in the range of $.1 million to $.4 million. Ricoh also is seeking treble damages and attorneys' fees for willful infringement, but the Company believes an award for such damages is unlikely. The Company is awaiting the District Court's decision on damages and the Court of Appeals decision. In August and September 1996, two individual plaintiffs initiated lawsuits in the Circuit Court of Cook County, Illinois against the Company, Cerion, certain directors and officers of Cerion, and the Company's underwriter, on behalf of classes consisting of all persons who purchased the common stock of Cerion between May 24, 1996 and July 9, 1996. These two complaints were consolidated. In March 1997, the same individual plaintiffs joined by a third plaintiff filed a Consolidated Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated Complaint alleged that, in connection with Cerion's initial public offering, the defendants issued materially false and misleading statements and omitted the disclosure of material facts regarding, in particular, certain significant customer relationships. In October 1997, the Court on motion by the defendants, dismissed the Consolidated Complaint. The plaintiffs filed a Second Amended Consolidated Complaint alleging substantially similar claims as the Consolidated Complaint seeking damages and injunctive relief. The Company believes this lawsuit is without merit, has substantial defenses and intends to vigorously defend against these allegations. 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, 1997, 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 $1.3 million to $1.5 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 PRPs are unable to bear their allocated share. At December 31, 1997, 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 the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -7- 9 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: NAME AGE POSITION - ---- --- -------- Gerald G. Garbacz 61 Chairman, President and Chief Executive Officer Daniel M. Junius 45 Vice President-Finance, Chief Financial Officer and Treasurer Paul Buffum 53 Vice President, General Counsel and Secretary Joseph I. Gonzalez-Rivas 42 Vice President John J. Ireland 46 Vice President Michael D. Jeans 49 Vice President Eugene P. Pache 47 Vice President Bruce T. Wright 48 Vice President Joseph R. Matson 50 Corporate Controller Mr. Garbacz has been Chairman of the Board of Nashua since June 1996 and President and Chief Executive Officer 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. and Chairman of the Board of Cerion Technologies Inc. Mr. Junius has been the Chief Financial Officer of Nashua since November 1995, Vice President-Finance since September 1995 and Treasurer since June 1985. He is also a director of Cerion Technologies Inc. Mr. Buffum has been Vice President and General Counsel of Nashua since May 1996 and Secretary since April 1987. He was Counsel from November 1983 until May 1996. Mr. Rivas has been Vice President/General Manager of the Imaging Supplies Division of Nashua since March 1996. From October 1994 to February 1996, he was President of the Label Group of Engraph Inc. and from July 1991 to October 1994, he was President of the Patton Division of Engraph Inc. Mr. Ireland has been Vice President/General Manager of the Specialty Coated Products Division of Nashua since November 1995 and General Manager since April 1994. Prior to 1994, Mr. Ireland held various positions with Raychem Corporation. Mr. Jeans has been a Corporate Vice President and President of the Photo Group of Nashua since April 1996. Prior to April 1996, he was President of Wesson-Peter Pan Foods, Inc. (a division of Conagra), a foods processor. From 1990 to 1993 he was a Senior Vice President-Sales and Marketing of H.P. Hood Inc. (a dairy products producer). Mr. Pache has been Vice President/General Manager of the Label Products Division of Nashua since December 1996 and General Manager since December 1995. From April 1994 to December 1995, he was the Vice President/General Manager of Sales and Marketing for the Company's Commercial Products Group. From February 1992 to April 1994, Mr. Pache was the Director of Sales, Electronics Division, of Raychem Corporation Mr. Wright has been Vice President-Human Resources of Nashua since October 1994. Prior to October 1994, he was Vice President of Barry Controls (a division of Applied Power Inc.), a custom manufacturer of vibration and control systems. From 1990 to 1993, he was a Senior Group Personnel Manager at Digital Equipment Corporation. Mr. Matson has been the Corporate Controller of Nashua since July 1988. Executive officers are generally elected to their offices each year by the Board of Directors shortly after the Annual Meeting of Shareholders. -8- 10 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 30 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997 and is incorporated by reference in this Form 10-K. ITEM 6. SELECTED FINANCIAL DATA The information contained under the heading "Five Year Financial Review" on page 9 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997 is incorporated by reference in this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 10 through 13 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997 is incorporated by reference in this Form 10-K. This information should be read in conjunction with the related consolidated financial statements incorporated by reference under Item 8. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information contained in the consolidated financial statements, notes to consolidated financial statements, and report of independent accountants on pages 14 through 31 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997 is incorporated by reference in this Form 10-K. 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 The section entitled "Nominees for Election as Directors", which appears on pages 1 through 3 of the Company's Proxy Statement dated March 25, 1998, is incorporated by reference in this Form 10-K. See also the section entitled "Executive Officers of the Registrant" appearing in Part I hereof. -9- 11 ITEM 11. EXECUTIVE COMPENSATION The sections entitled "Compensation of Directors" and "Compensation of Executive Officers," which appear on pages 4 through 7 of the Company's Proxy Statement dated March 25, 1998, is incorporated by reference in this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The sections entitled "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners," which appear on pages 12 through 15 of the Company's Proxy Statement dated March 25, 1998, are incorporated by reference in this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions and Indebtedness," which appears on page 9 of the Company's Proxy Statement dated March 25, 1998, is incorporated by reference in this Form 10-K. 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) Financial statements: Page Consolidated statements of operations and retained earnings for each of the three years in the period ended December 31, 1997 14* Consolidated balance sheets at December 31, 1997 and December 31, 1996 15* Consolidated statements of cash flows for each of the three years in the period ended December 31, 1997 16* Notes to consolidated financial statements 17-30* Report of independent accountants 31* (2) Financial statement schedule: Report of independent accountants on financial statement schedule 14 Schedule II - Valuation and qualifying accounts for each of the three years in the period ended December 31, 1997 15 The financial statement schedule should be read in conjunction with the financial statements in the 1997 Annual Report to Stockholders. All other schedules have been omitted as they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto. *Page references are to the 1997 Annual Report to Stockholders. The 1997 Annual Report to Stockholders is not to be deemed filed as part of this Report except for those parts thereof specifically incorporated by reference into this Report. -10- 12 (3) EXHIBITS: 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 Loan and Security Agreement dated as of March 28, 1997. Exhibit to the Company's Form 10-Q for the quarterly period ended March 28, 1997 and incorporated herein by reference. 4.02 Revolving Credit Promissory Note dated as of March 28, 1997. Exhibit to the Company's Form 10-Q for the quarterly period ended March 28, 1997 and incorporated herein by reference. 4.03 Rights Agreement, dated as of July 19, 1996, between the Company and The First National Bank of Boston, as Rights Agent, which includes as Exhibit A the Form of Certificate of Designations, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock. Exhibit to the Company's Form 8-K dated August 28, 1996 and incorporated herein by reference. 10.01 1987 Stock Option Plan of the Company. Exhibit to the Company's Proxy Statement dated March 24, 1987, and incorporated herein by reference. 10.02 Amendments to the 1987 Stock Option Plan of the Company 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. 10.03 Amendments to the 1987 Stock Option Plan of the Company effective October 24, 1997. 10.04 1993 Stock Incentive Plan of the Company. Exhibit to the Company's Proxy Statement dated March 19, 1993, and incorporated herein by reference. 10.05 1996 Stock Incentive Plan of the Company. Exhibit to the Company's Proxy Statement dated May 15, 1996, and incorporated herein by reference. 10.06 Retention Agreement dated as of October 24, 1997 between the Company and Gerald G. Garbacz. 10.07 Retention Agreement dated as of October 24, 1997 between the Company and Daniel M. Junius. 10.08 Retention Agreement dated as of October 24, 1997 between the Company and Paul Buffum 10.09 Retention Agreement dated as of October 24, 1997 between the Company and Joseph I. Gonzalez-Rivas. 10.10 Retention Agreement dated as of October 24, 1997 between the Company and John J. Ireland. 10.11 Retention Agreement dated as of October 24, 1997 between the Company and Michael D. Jeans. 10.12 Retention Agreement dated as of October 24, 1997 between the Company and Eugene P. Pache. 10.13 Retention Agreement dated as of October 24, 1997 between the Company and Bruce T. Wright. 10.14 Retention Agreement dated as of October 24, 1997 between the Company and Joseph R. Matson. 10.15 Management Incentive Plan of the Company. 10.16 Master Asset Purchase Agreement dated as of March 10, 1998 between the Company and District Photo Inc. 10.17 U.S. Asset Purchase Agreement dated as of March 10, 1998 between Nashua Photo Inc., Promolink Corporation and District Photo Inc. 10.18 U.K. Asset Purchase Agreement dated as of March 10, 1998 between Nashua Photo Limited and District Photo Inc. 10.19 Canada Asset Purchase Agreement dated as of March 10, 1998 between Nashua Photo Limited and District Photo Inc. -11- 13 11.01 Statement regarding Computation of Earnings Per Share and Common Equivalent Share. 13.01 Nashua Corporation 1997 Annual Report to Shareholders, certain portions of which have been incorporated herein by reference. 21.01 Subsidiaries of the Registrant. 23.01 Consent of Independent Accountants. 24.01 Powers of Attorney. (b) Reports on Form 8-K: On April 9, 1997, the Company filed a report on Form 8-K concerning a ruling in the patent litigation suit brought by Ricoh Company, Ltd. On November 20, 1997, the Company filed a report on Form 8-K regarding the sale of its Specialty Coated Products and International Photofinishing businesses. On March 20, 1998, the Company filed a report on Form 8-K regarding the sale of its photofinishing group and the retention of its Specialty Coated Products business. -12- 14 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: March 25, 1998 By /s/ Daniel M. Junius --------------------------------------- Daniel M. Junius Vice President-Finance, Chief Financial Officer and Treasurer SIGNATURE TITLE DATE - --------- ----- ---- /s/ Gerald G. Garbacz Chairman, President and March 25, 1998 - ------------------------- Chief Executive Officer Gerald G. Garbacz /s/ Daniel M. Junius Vice President-Finance, March 25, 1998 - ------------------------- Chief Financial Officer Daniel M. Junius and Treasurer /s/ Joseph R. Matson Corporate Controller and March 25, 1998 - ------------------------- Chief Accounting Officer Joseph R. Matson Sheldon A. Buckler* Director - ------------------------- Sheldon A. Buckler Charles S. Hoppin* Director March 25, 1998 - ------------------------- Charles S. Hoppin John M. Kucharski* Director - ------------------------- John M. Kucharski David C. Miller, Jr.* Director - ------------------------- David C. Miller, Jr. Peter J. Murphy* Director - ------------------------- Peter J. Murphy James F. Orr III* Director March 25, 1998 - ------------------------- James F. Orr III *By /s/ Daniel M. Junius March 25, 1998 --------------------- Daniel M. Junius Attorney-In-Fact -13- 15 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 4, 1998, except as to the Business Changes Note which is as of March 10, 1998 appearing in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997 (which report and consolidated financial statements are incorporated by reference in this Form 10-K) also included an audit of the Financial Statement Schedule 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 4, 1998, except as to the Business Changes Note which is as of March 10, 1998. -14- 16 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, 1997: Allowance for doubtful accounts $1,884 $ 79(a) $ (770)(b)(f) $1,193 Valuation allowance on deferred tax assets 328 -- -- 328 DECEMBER 31, 1996: Allowance for doubtful accounts $2,397 $ 558(a) $(1,071)(b) $1,884 Valuation allowance on deferred tax assets 3,300 -- (2,972)(e) 328 DECEMBER 31, 1995: Allowance for doubtful accounts $2,628 $1,717(a) $(1,948)(b)(c) $2,397 Valuation allowance on deferred tax assets -- 3,300(d) -- 3,300
(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. (e) Tax assets deemed unrealizable. (f) Includes decreases of $116 due to restatement of discontinued operations. -15- EX-10.03 2 1987 STOCK OPTION PLAN 1 Exhibit 10.03 1987 STOCK OPTION PLAN OF NASHUA CORPORATION 1. PURPOSE. This Plan, which shall be known as the "1987 Stock Option Plan" and is hereinafter referred to as "the Plan", is intended to provide an incentive for certain key employees of Nashua Corporation (the "Corporation") and its subsidiaries, to provide such employees with a proprietary interest or to increase their proprietary interest in the Corporation's success, to encourage them to remain in the employ of the Corporation and to assist in attracting new key employees to the Corporation. The word "Corporation" when used herein with reference to employment shall include subsidiaries of the Corporation. The word "subsidiary" when used herein shall mean any corporation a majority of the voting stock of which is owned or controlled, directly or indirectly, by the Corporation. 2. ADMINISTRATION. The Plan shall be administered by a committee (the "Committee") consisting of at least three Directors of the Corporation appointed by the Board of Directors, provided that the Committee so appointed shall not include any individual who holds or is eligible to receive options under the Plan or has been eligible to receive options under the Plan at any time within the 12-month period immediately preceding the date on which he becomes a member of the Committee. A majority of the members of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved or authorized in writing by all of its members, shall be the acts of the Committee. The Committee shall adopt, amend and rescind such rules, regulations and agreement forms as the Committee deems advisable in the administration of the Plan and as hereinafter provided and construe and interpret the Plan, the rules and regulations adopted hereunder and all agreements made hereunder and make all other determinations deemed necessary or advisable by it for the administration of the Plan. Subject to the provisions of the Plan, the Committee shall have full and final authority in its discretion to determine the employees to be granted options. 3. STOCK OPTION AWARDS. (a) AWARDS. The Committee shall determine the number of shares of Stock (as defined in paragraph 4) subject to each option; the option price of the shares subject to each option, which shall not be less than the minimum specified hereinafter; the time or times when each option will be granted, the time or times when each option will become exercisable and the duration of the exercise period; and shall prescribe the terms and provisions of the instruments ("Stock Option Agreements") evidencing options granted hereunder (which need not be identical). Stock options awarded under the Plan may be either incentive stock options within the meaning of Section 422A of the Internal Revenue Code as it may be amended from time to time ("the Code") or options which are not incentive stock options. Except as otherwise provided at time of grant, the Committee may provide that the options will become immediately exercisable if there is a change in control of the Corporation. For purposes of this Plan, a "change in control of the Corporation" means any of the following events: (i) The acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under 2 - 2 - the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Corporation Voting Securities"), PROVIDED, HOWEVER, that any acquisition by (x) the Corporation or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Corporation 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 Corporation Common Stock and Corporation Voting Securities immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the Outstanding Corporation Common Stock and Corporation Voting Securities, as the case may be, shall not constitute a change in control of the Corporation; or (ii) Individuals who, as of April 28, l989, 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 April 28, l989 whose election or nomination for election by the Corporation'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 Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Approval by the shareholders of the Corporation 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 Corporation Common Stock and Corporation 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 such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Corporation Voting Securities, as the case may be; or (iv) (A) a complete liquidation or dissolution of the Corporation or a (B) sale or other disposition of all or substantially all of the assets of the Corporation other than to a corporation with respect to which, following such sale or 3 - 3 - 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 Corporation Common Stock and Corporation Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Corporation Common Stock and Corporation Voting Securities, as the case may be, immediately prior to such sale or disposition. Notwithstanding any other provision of the Plan, the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options granted after December 31, l986 are exercisable for the first time by any employee during any calendar year (under all stock option plans of the Corporation and its parent and subsidiary corporations) shall not exceed $100,000. The foregoing sentence shall be construed and applied in accordance with Section 422A of the Code and regulations thereunder. (b) PRICE. In the case of each option granted under the Plan, the option price shall be not less than the fair market value of Stock on the date of grant of such option. The fair market value of Stock on such date shall be determined in a manner consistent with such directions as the Committee may from time to time issue. The date of grant of any option shall be the date on which the Committee authorizes such grant or such later date as may be designated by the Committee when such grant is authorized. (c) TERM OF OPTIONS. Each option granted under the Plan shall be exercisable on such date or dates and during such period and for such number of shares as shall be determined pursuant to the provisions of the Stock Option Agreement with respect to such option; provided, however, that in any event no incentive stock option shall be exercised more than ten years from the date of grant of the option, and no other option shall be exercised more than ten years and one day from the date of grant of the option. (d) NON-TRANSFERABILITY OF OPTION RIGHTS. No option shall be transferable by an optionee otherwise than by will or the laws of descent and distribution. During the lifetime of an optionee the option shall be exercisable only by the optionee. (e) EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH. If, prior to the date that any option shall first be exercisable, the optionee's employment with the Corporation shall be terminated by the Corporation, with or without cause, or by the act, death, incapacity or retirement of the optionee, the optionee's right to exercise such option shall terminate and all rights thereunder shall cease. If, on or after the date that any option shall have first become exercisable, an optionee's employment with the Corporation shall be terminated by the Corporation or by the optionee for any reason except death absent a determination by the Committee to the contrary, the optionee shall have the right, within six months after such termination, to exercise such option to the extent that it or any installment thereof shall have accrued at the date of such termination of employment and shall not 4 - 4 - have been exercised, subject to any other limitation on the exercise of such option in effect at the date of exercise. If an optionee shall die within such six month period, or shall die while in the employ of the Corporation on or after the date that the option shall have first become exercisable, the executor or administrator of the estate of the decedent or the person or persons to whom the option shall have been validly transferred pursuant to will or the laws of descent and distribution shall have the right, within one year from the date of the optionee's death, to exercise the optionee's option to the extent that it or any installment thereof shall have accrued at the date of termination of employment by death or otherwise and shall not have been exercised, subject to any other limitation on the exercise of such option in effect at the date of exercise. No transfer of an option by the optionee by will or by the laws of descent and distribution shall be effective to bind the Corporation unless the Corporation shall have been furnished with written notice thereof and a copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of such option. Nothing in the Plan or any Stock Option Agreement shall restrict the Corporation's right to terminate the employment of the optionee at any time with or without cause. (f) PAYMENT FOR SHARES. Payment for shares of Stock purchased upon exercise of an option granted hereunder shall be made in full in cash or certified or bank or other check at the time of such exercise. (g) ELECTION BY COMMITTEE TO SATISFY OPTIONS BY CASH PAYMENTS. At the time an optionee exercises a stock option, the Committee may elect to satisfy such option by making a cash payment to the optionee in an amount equal to the spread between the option price and the fair market value of the shares subject to such option on date of exercise. The Committee may not make this election, however, with respect to an employee who is an officer or director subject to Section 16(b) of the Act except during the period between the third and twelfth day after quarterly or annual earnings are released and unless the option was granted at least six months prior to exercise. If an election is made, the shares subject to the option will not be available for further awards. Notwithstanding the foregoing, during the sixty-day period from and after a change in control of the Corporation, each optionee, shall with respect to stock option agreements which so provide have the right (the "LSAR") with respect to any option other than (x) an incentive stock option within the meaning of Section 422A(b) of the Internal Revenue Code of 1986, as amended, granted prior to April 28, 1989, and (y) an option granted to any officer or director of the Company (within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended) unless such option was granted more than six months prior to the change in control of the Corporation, in lieu of the payment of the full option price for the shares of common stock of the Corporation ("Shares") subject to such option, to elect (within such sixty-day period) to surrender all or a part of the option to the Corporation and to receive in lieu thereof cash in the amount by which the fair market value per Share on the date of such election shall exceed the option price per Share under the option multiplied by the number of Shares granted under the option as to which a LSAR granted hereunder 5 - 5 - shall have been exercised. As used in this Section 3(g), the fair market value of a Share on the date of exercise shall mean with respect to an election by an optionee to receive cash in respect of an option, the higher of (x) the highest reported sales price, regular way, of a Share on the Composite Tape for New York Stock Exchange Listed Stocks (the "Composite Tape") during the sixty-day period prior to the date of the change in control of the Corporation and (y) if the change in control of the Corporation is the result of a transaction or series of transactions described in paragraphs (i) or (iii) of the definition of change in control of the Corporation set forth in Section 3(a), the highest price per Share paid in such transaction or series of transactions. The Committee may, in its discretion, settle LSARs in Shares equal in value to the cash that otherwise would have been paid, if to do otherwise would render a transaction ineligible for pooling of interests accounting. 4. STOCK. The shares to be awarded under the Plan shall be shares of the Corporation's Common Stock of the par value of $1.00 per share ("Stock"), and may be either authorized and unissued shares or shares held in the treasury of the Corporation. The total amount of Stock which may be issued pursuant to awards made under the Plan shall not exceed 600,000 shares. Such number of shares is subject to adjustment in accordance with the provisions of paragraph 6. Stock as to which stock options terminate or expire without being exercised shall be available for further awards. 5. ELIGIBILITY. Awards may be granted hereunder only to persons who are employees of the Corporation or one of its subsidiaries, whether or not officers or members of the Board of Directors of the Corporation or any of its subsidiaries. No member of the Board of Directors of the Corporation who is not an employee of the Corporation or one of its subsidiaries and no member of the Committee shall be eligible to receive an award under the Plan. Any individual may hold more than one award and may at any one time and from time to time be granted incentive stock options and options which are not incentive stock options; provided that the aggregate number of shares of Stock which may be issued under the Plan to any one individual shall not exceed 60,000, subject to adjustment in accordance with the provisions of paragraph 6. 6. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION. In the event of any change in or exchange of outstanding Stock of the Corporation by reason of a stock dividend, recapitalization or exchange of shares, or otherwise, the class and aggregate number of shares as to which awards may be granted under the Plan and available for issue under the Plan, the total number of shares which may be issued to any one individual under the Plan, the class and number of shares subject to each outstanding award and the price per share in each outstanding option shall be appropriately adjusted by the Committee. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an award. 7. RIGHTS AS A STOCKHOLDER. No holder of an award shall have any rights as a stockholder with respect to any share covered by his award until he shall have become the holder of record of such share, and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such share for which the record date is prior to the date on which he shall have become the holder of record thereof. 6 - 6 - 8. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board of Directors at any time may terminate, and at any time and from time to time, and in any respect, may amend or modify, the Plan; provided, however, that no such action of the Board of Directors, without approval of the stockholders, may (a) increase the total amount of shares of Stock which may be issued under the Plan, or the aggregate number of shares of Stock which may be issued under the Plan to any one individual, except as contemplated in paragraph 6, (b) change the manner of determining the option price, (c) withdraw the administration of the Plan from the Committee or (d) permit any person while a member of the Committee to be eligible to receive an award under the Plan; and provided, further, that no amendment, modification or termination of the Plan shall in any manner affect any award theretofore granted under the Plan without the consent of the holder of the award. 9. COMPLIANCE WITH LAWS. At the time of the grant, exercise or payment of any award, the Corporation may, if it shall deem it necessary or desirable for any reason connected with any law or regulation of any governmental authority relating to the regulation of securities, require the holder of the award to make such representations regarding his acquisition of the Stock or agree to comply with such restrictions on the transfer of the Stock as the Committee may specify. If such representations are required, no shares shall be issued to such holder unless and until the Corporation is satisfied as to the correctness of such representations. Every award shall be subject to the condition that no Stock shall be issued or other action taken pursuant to such award if such issue or action would be contrary to any enactment or regulation for the time being in force of the United States of America or of any other country having jurisdiction in relation thereto. The Corporation shall not be bound to take any action to obtain the consent of any governmental authority to such issue or to take any action to ensure that any such issue shall be in accordance with any such enactment or regulation if such action could in the opinion of the Committee be unduly onerous. 10. FINALITY OF DETERMINATIONS. Each determination, interpretation or other action made or taken pursuant to the provisions of the Plan by the Board of Directors or the Committee shall be final and shall be binding and conclusive for all purposes and upon all persons, including, but without limitation thereto, the Corporation, the stockholders, the Committee and each of the members thereof, and the Directors, officers, and employees of the Corporation and its subsidiaries, the holders of awards under the Plan, and their respective successors in interest. 11. WITHHOLDING TAXES. In the case of (a) disqualifying transfers with respect to incentive stock options and (b) exercises of stock options which are not incentive stock options, the employee or other person who received Stock shall be required to pay to the Corporation or a subsidiary of the Corporation the amount of any Federal or state taxes which the Corporation or such subsidiary is required to withhold with respect to such Stock. 12. EFFECTIVE DATE AND DURATION. The Plan shall become effective on February 27, l987, subject to approval of the shareholders of the Corporation. No awards shall be granted under the Plan after February 26, l997. (As Amended 10/97) EX-10.06 3 RETENTION AGREEMENT WITH GERALD G. GARBACZ 1 Exhibit 10.06 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and GERALD G. GARBACZ (the "Executive"), dated as of the 24th day of October, 1997. 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: 2 - 2 - (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 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 3 - 3 - securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 - 4 - 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 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. 5 - 5 - (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 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 14(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: 6 - 6 - (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 13(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 14(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. If during the Employment Period the Executive's employment is terminated by the Executive following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the date such termination or determination occurs, whichever is later, shall constitute the Date of Termination. 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 8 -8- 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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) during the Employment Period the Executive's employment is terminated by the Executive during or following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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. If, before the Employment Period, the Executive's employment is terminated by the Company for reason other than misconduct, the Company shall pay to the Executive one year's salary continuation. In addition, for the remainder of the Employment Period (if the termination took place during the Employment Period under Sections 6(d)(1) or 6(d)(2) above) or for one year following termination of employment before the Employment Period under the immediately preceding sentence, 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. Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount of "parachute payments", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the "Code") payable to the Executive pursuant to all arrangements with the Company shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Code (the "cut back amount"); provided, however, that if Executive would be better off by at least $25,000 on an after-tax basis by receiving the full amount of the parachute payments as opposed to the cut back amount (notwithstanding a 20% excise tax) the Executive shall receive the full amount of the parachute payments. 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of December 18, 1995 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements or 11 - 11 - Restricted Stock Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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 12 -12- 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. 14. 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 26 The Flume Amherst, NH 03031 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. 13 -13- (f) During the Employment Period, the Executive shall have the right to petition the Board to make a good faith determination that he has substantially completed his duties with respect to the restructuring program and that the Company's needs for his services have been substantially diminished. (g) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Paul Buffum /s/ Gerald G. Garbacz ---------------------------------- ------------------------------- Vice President, General Counsel Name: Gerald G. Garbacz and Secretary EX-10.07 4 RETENTION AGREEMENT WITH DANIEL JUNIUS 1 Exhibit 10.07 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and DANIEL M. JUNIUS (the "Executive"), dated as of the 24th day of October, 1997. 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: 2 - 2 - (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If during the Employment Period the Executive's employment is terminated by the Executive following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the date such termination or determination occurs, whichever is later, shall constitute the Date of Termination. 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 8 -8- 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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) during the Employment Period the Executive's employment is terminated by the Executive during or following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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. If, before the Employment Period, the Executive's employment is terminated by the Company for reason other than misconduct, the Company shall pay to the Executive one year's salary continuation. In addition, for the remainder of the Employment Period (if the termination took place during the Employment Period under Sections 6(d)(1) or 6(d)(2) above) or for one year following termination of employment before the Employment Period under the immediately preceding sentence, 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. Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount of "parachute payments", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the "Code") payable to the Executive pursuant to all arrangements with the Company shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Code (the "cut back amount"); provided, however, that if Executive would be better off by at least $25,000 on an after-tax basis by receiving the full amount of the parachute payments as opposed to the cut back amount (notwithstanding a 20% excise tax) the Executive shall receive the full amount of the parachute payments. 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of April 28, 1989 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements or 11 -11- Restricted Stock Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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 12 -12- 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. 14. 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 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. 13 -13- (f) During the Employment Period, the Executive shall have the right to petition the Board to make a good faith determination that he has substantially completed his duties with respect to the restructuring program and that the Company's needs for his services have been substantially diminished. (g) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Gerald G. Garbacz /s/ Daniel M. Junius --------------------------------------- ------------------------------- President and Chief Executive Officer Name: Daniel M. Junius EX-10.08 5 RETENTION AGREEMENT WITH PAUL BUFFUM 1 Exhibit 10.08 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and PAUL BUFFUM (the "Executive"), dated as of the 24th day of October, 1997. 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: 2 -2- (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If during the Employment Period the Executive's employment is terminated by the Executive following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the date such termination or determination occurs, whichever is later, shall constitute the Date of Termination. 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 8 -8- 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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) during the Employment Period the Executive's employment is terminated by the Executive during or following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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. If, before the Employment Period, the Executive's employment is terminated by the Company for reason other than misconduct, the Company shall pay to the Executive one year's salary continuation. In addition, for the remainder of the Employment Period (if the termination took place during the Employment Period under Sections 6(d)(1) or 6(d)(2) above) or for one year following termination of employment before the Employment Period under the immediately preceding sentence, 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. Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount of "parachute payments", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the "Code") payable to the Executive pursuant to all arrangements with the Company shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Code (the "cut back amount"); provided, however, that if Executive would be better off by at least $25,000 on an after-tax basis by receiving the full amount of the parachute payments as opposed to the cut back amount (notwithstanding a 20% excise tax) the Executive shall receive the full amount of the parachute payments. 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of April 28, 1989 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements or 11 -11- Restricted Stock Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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 12 -12- 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. 14. 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: -------------------- Paul Buffum 618 Isaac Frye Highway Wilton, NH 03086 If to the Company: ------------------ Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03060 Attention: President 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. 13 -13- (f) During the Employment Period, the Executive shall have the right to petition the Board to make a good faith determination that he has substantially completed his duties with respect to the restructuring program and that the Company's needs for his services have been substantially diminished. (g) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Gerald G. Garbacz /s/ Paul Buffum ----------------------------------------- ----------------------------- President and Chief Executive Officer Name: Paul Buffum EX-10.09 6 RETENTION AGREEMENT WITH JOSEPH GONZALEZ-RIVAS 1 Exhibit 10.09 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and JOSEPH I. GONZALEZ-RIVAS (the "Executive"), dated as of the 24th day of October, 1997. 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 or the sale of the operations for which the Executive has managing responsibility. 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 or the possibility of such a sale 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 or the possibility of such a sale, and to provide the Executive with compensation and benefits arrangements upon a Change of Control or such a sale 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: 2 -2- (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If before or during the Employment Period the Executive's employment is terminated by the Company due to the sale of the operations for which the Executive had managing responsibility (whether or not the purchaser employs the Executive after the closing of the transaction), the date such termination occurs shall constitute the Date of Termination. For the purposes of this Agreement, the term "the sale of the operations for which the Executive had managing responsibility" does not include a transfer of the operations to a joint venture or entity which is 50% or more controlled by the Company. 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. 8 -8- (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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) before or during the Employment Period the Executive's employment is terminated by the Company due to or in anticipation of the sale of the operations for which the Executive had managing responsibility (whether or not the purchaser employs the Executive after the closing of the transaction): (i) The Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, the aggregate of the following amounts: A. all Accrued Obligations; and B. the product of (x) two and (y) the sum of (i) Annual Base Salary and (ii) the Highest Annual Bonus; and 9 -9- 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 for one year following termination of employment before the Employment Period due to the sale of the operations for which the Executive had managing responsibility, 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of March 4, 1996 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d)(i) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior 11 -11- to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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 -12- 14. 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: -------------------- Joseph I. Gonzalez-Rivas 19 The Flume Amherst, NH 03031 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 or the commencement of the sale of the operation for which the Executive has responsibility, 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 13 -13- Effective Date or the commencement of the sale of the operation for which the Executive has responsibility, 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 EXECUTIVE By /s/ Gerald G. Garbacz /s/ Joseph I. Gonzalez-Rivas -------------------------------------- ------------------------------ President and Chief Executive Officer Name: Joseph I. Gonzalez-Rivas EX-10.10 7 RETENTION AGREEMENT WITH JOHN IRELAND 1 Exhibit 10.10 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and JOHN J. IRELAND (the "Executive"), dated as of the 24th day of October, 1997. 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 or the sale of the operations for which the Executive has managing responsibility. 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 or the possibility of such a sale 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 or the possibility of such a sale, and to provide the Executive with compensation and benefits arrangements upon a Change of Control or such a sale 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: 2 - 2 - (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If before or during the Employment Period the Executive's employment is terminated by the Company due to the sale of the operations for which the Executive had managing responsibility (whether or not the purchaser employs the Executive after the closing of the transaction), the date such termination occurs shall constitute the Date of Termination. For the purposes of this Agreement, the term "the sale of the operations for which the Executive had managing responsibility" does not include a transfer of the operations to a joint venture or entity which is 50% or more controlled by the Company. 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. 8 -8- (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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) before or during the Employment Period the Executive's employment is terminated by the Company due to or in anticipation of the sale of the operations for which the Executive had managing responsibility (whether or not the purchaser employs the Executive after the closing of the transaction): (i) The Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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 for one year following termination of employment before the Employment Period due to the sale of the operations for which the Executive had managing responsibility, 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of February 24, 1995 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d)(i) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the 11 -11- Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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. 14. 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 12 -12- 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 J. Ireland 27 Pine Street Exeter, NH 03833 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 or the commencement of the sale of the operation for which the Executive has responsibility, 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 or the commencement of the sale of the operation for which the Executive has responsibility, the Executive shall have no further rights under this Agreement. 13 -13- IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Gerald G. Garbacz /s/ John J. Ireland ---------------------------------------- ----------------------------- President and Chief Executive Officer Name: John J. Ireland Attached letters of December 15, 1997 and January 29, 1998 are made a part of this agreement and if there are any ambiguities between the Retention Agreement and these letters, the letters control. /s/ John J. Ireland ---------------------------- John J. Ireland /s/ Gerald G. Garbacz ---------------------------- Gerald G. Garbacz EX-10.11 8 RETENTION AGREEMENT WITH MICHAEL JEANS 1 Exhibit 10.11 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and MICHAEL D. JEANS (the "Executive"), dated as of the 24th day of October, 1997. 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: 2 -2- (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If during the Employment Period the Executive's employment is terminated by the Executive following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the date such termination or determination occurs, whichever is later, shall constitute the Date of Termination. 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 8 -8- 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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) during the Employment Period the Executive's employment is terminated by the Executive during or following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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. If, before the Employment Period, the Executive's employment is terminated by the Company for reason other than misconduct, the Company shall pay to the Executive one year's salary continuation. In addition, for the remainder of the Employment Period (if the termination took place during the Employment Period under Sections 6(d)(1) or 6(d)(2) above) or for one year following termination of employment before the Employment Period under the immediately preceding sentence, 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. Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount of "parachute payments", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the "Code") payable to the Executive pursuant to all arrangements with the Company shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Code (the "cut back amount"); provided, however, that if Executive would be better off by at least $25,000 on an after-tax basis by receiving the full amount of the parachute payments as opposed to the cut back amount (notwithstanding a 20% excise tax) the Executive shall receive the full amount of the parachute payments. 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of May 3, 1996 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements or 11 -11- Restricted Stock Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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 12 -12- 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. 14. 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: -------------------- Michael D. Jeans 107 Westford Road Concord, MA 01742 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. 13 -13- (f) During the Employment Period, the Executive shall have the right to petition the Board to make a good faith determination that he has substantially completed his duties with respect to the restructuring program and that the Company's needs for his services have been substantially diminished. (g) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Gerald G. Garbacz /s/ Michael D. Jeans --------------------------------------- ------------------------------ President and Chief Executive Officer Name: Michael D. Jeans EX-10.12 9 RETENTION AGREEMENT WITH EUGENE PACHE 1 Exhibit 10.12 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and EUGENE P. PACHE (the "Executive"), dated as of the 24th day of October, 1997. 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 or the sale of the operations for which the Executive has managing responsibility. 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 or the possibility of such a sale 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 or the possibility of such a sale, and to provide the Executive with compensation and benefits arrangements upon a Change of Control or such a sale 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: 2 -2- (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If before or during the Employment Period the Executive's employment is terminated by the Company due to the sale of the operations for which the Executive had managing responsibility (whether or not the purchaser employs the Executive after the closing of the transaction), the date such termination occurs shall constitute the Date of Termination. For the purposes of this Agreement, the term "the sale of the operations for which the Executive had managing responsibility" does not include a transfer of the operations to a joint venture or entity which is 50% or more controlled by the Company. 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. 8 -8- (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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) before or during the Employment Period the Executive's employment is terminated by the Company due to or in anticipation of the sale of the operations for which the Executive had managing responsibility (whether or not the purchaser employs the Executive after the closing of the transaction): (i) The Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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 for one year following termination of employment before the Employment Period due to the sale of the operations for which the Executive had managing responsibility, 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of February 24, 1995 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d)(i) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the 11 -11- Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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. 14. 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 12 -12- 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: -------------------- Eugene P. Pache 9729 Fieldcrest Drive Omaha, NE 68114 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 or the commencement of the sale of the operation for which the Executive has responsibility, 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 or the commencement of the sale of the operation for which the Executive has responsibility, the Executive shall have no further rights under this Agreement. 13 -13- IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Gerald G. Garbacz /s/ Eugene P. Pache --------------------------------------- --------------------------- President and Chief Executive Officer Name: Eugene P. Pache EX-10.13 10 RETENTION AGREEMENT WITH BRUCE WRIGHT 1 Exhibit 10.13 RETENTION 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 October, 1997. 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: 2 -2- (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If during the Employment Period the Executive's employment is terminated by the Executive following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the date such termination or determination occurs, whichever is later, shall constitute the Date of Termination. 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 8 -8- 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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) during the Employment Period the Executive's employment is terminated by the Executive during or following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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. If, before the Employment Period, the Executive's employment is terminated by the Company for reason other than misconduct, the Company shall pay to the Executive one year's salary continuation. In addition, for the remainder of the Employment Period (if the termination took place during the Employment Period under Sections 6(d)(1) or 6(d)(2) above) or for one year following termination of employment before the Employment Period under the immediately preceding sentence, 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. Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount of "parachute payments", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the "Code") payable to the Executive pursuant to all arrangements with the Company shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Code (the "cut back amount"); provided, however, that if Executive would be better off by at least $25,000 on an after-tax basis by receiving the full amount of the parachute payments as opposed to the cut back amount (notwithstanding a 20% excise tax) the Executive shall receive the full amount of the parachute payments. 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of February 24, 1995 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements or 11 - 11 - Restricted Stock Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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 12 -12- 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. 14. 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 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. 13 -13- (f) During the Employment Period, the Executive shall have the right to petition the Board to make a good faith determination that he has substantially completed his duties with respect to the restructuring program and that the Company's needs for his services have been substantially diminished. (g) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Gerald G. Garbacz /s/ Bruce T. Wright --------------------------------------- ---------------------------- President and Chief Executive Officer Name: Bruce T. Wright EX-10.14 11 RETENTION AGREEMENT WITH JOSEPH MATSON 1 Exhibit 10.14 RETENTION AGREEMENT AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and JOSEPH R. MATSON (the "Executive"), dated as of the 24th day of October, 1997. 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: 2 -2- (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 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 3 -3- securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the 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 4 -4- 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 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. 5 -5- (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 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 14(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: 6 -6- (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 13(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 14(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. If during the Employment Period the Executive's employment is terminated by the Executive following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the date such termination or determination occurs, whichever is later, shall constitute the Date of Termination. 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 8 -8- 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 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, (1) during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason or (2) during the Employment Period the Executive's employment is terminated by the Executive during or following a restructuring program and the Board determines that Executive has substantially completed his duties with respect to the restructuring program and the Company's needs for the Executive's services have been substantially diminished, the Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 10, 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 9 -9- 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. If, before the Employment Period, the Executive's employment is terminated by the Company for reason other than misconduct, the Company shall pay to the Executive one year's salary continuation. In addition, for the remainder of the Employment Period (if the termination took place during the Employment Period under Sections 6(d)(1) or 6(d)(2) above) or for one year following termination of employment before the Employment Period under the immediately preceding sentence, 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. Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount of "parachute payments", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the "Code") payable to the Executive pursuant to all arrangements with the Company shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Code (the "cut back amount"); provided, however, that if Executive would be better off by at least $25,000 on an after-tax basis by receiving the full amount of the parachute payments as opposed to the cut back amount (notwithstanding a 20% excise tax) the Executive shall receive the full amount of the parachute payments. 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 10 -10- 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. OTHER AGREEMENTS, SUPERSESSION AND CREDITING. The parties agree that this Agreement supersedes the Employment Agreement between the parties dated as of April 28, 1989 which is null and void. Any payments made to Executive by the Company relating to the Executive's termination of employment under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies) shall be credited toward payments made under this Agreement. Any payments made to Executive by the Company relating to the Executive's termination of employment under this Agreement shall be credited toward payments made under any other agreement, policy, understanding or letter (including but not limited to employment agreements, severance agreements and job abolishment policies). 10. RELEASE. Prior to receipt of the payment described in Section 6(d) the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements or 11 -11- Restricted Stock Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 11. 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 13. 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 12 -12- 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. 14. 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: -------------------- Joseph R. Matson 4 Pulpit Run Amherst, NH 03031 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. 13 -13- (f) During the Employment Period, the Executive shall have the right to petition the Board to make a good faith determination that he has substantially completed his duties with respect to the restructuring program and that the Company's needs for his services have been substantially diminished. (g) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By /s/ Gerald G. Garbacz /s/ Joseph R. Matson -------------------------------------- -------------------------------- President and Chief Executive Officer Name: Joseph R. Matson EX-10.15 12 MANAGEMENT ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.15 - -------------------------------------------------------------------------------- NASHUA MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT FEBRUARY 1998 2 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT PURPOSE The purpose of Nashua Corporation's Management Incentive Plan ("Plan") is: 1. To link senior management cash compensation to the financial performance of the organization. 2. To motivate and reinforce the following behaviors among senior managers: - Effective goal-setting tied to key strategic priorities, - Accountability for goal achievement. 3. To provide a means for making awards that qualify for the performance-based compensation exception described at Section 162(m) of the Internal Revenue Code (the "Code"). PLAN OPERATION The Management Incentive Plan provides cash incentive payments based upon achievement of corporate and/or divisional financial performance goals and achievement of personal goals by Plan Participants, as described below. 1. Salary Administration For positions covered by the Management Incentive Plan, salary levels are established such that, when combined with target incentive opportunities (expressed as a percent of base salary), target total cash compensation is both competitive with comparable companies and equitable within the internal organization. The following definitions apply: BASE SALARY The annualized regular cash compensation of a Participant, excluding incentive payments, company contributions to employee benefit plans, relocation, or other compensation not designated as salary. The base salary is the basis for regular paychecks. Page 1 3 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT 1. Salary Administration (continued) TARGET INCENTIVE That amount (described as a percentage of a Participant's base salary) that will be paid as an incentive if the target financial performance goals and personal goals are fully (100%) achieved. TARGET TOTAL CASH COMPENSATION The assigned compensation level for each Participant, based on market data and internal equity considerations. Comprised of base salary and target incentive amount. Target Incentive opportunities range from 10% to 50% of base salary for Participants depending, in part, upon the management level and unit size of the participants. 2. Weighting of Goals Depending on the Participant's position, individual incentive payments will be based upon the following weighting:
----------------------------------------------------------------------------------------- Corporate Financial Division Financial Strategic/ Personal Position Performance Performance Goals -------- ------------------- ------------------ ------------------- CEO 100% NA NA Executive Staff* 80% NA 20% Corporate Staff** 60-80% NA 20-40% Division General Mgmt NA 100% NA Division Management NA 60-80% 20-40% ------------------------------------------------------------------------------------------
* Direct reports to the CEO, except for Division General Managers. ** Other corporate officers and key function heads. Page 2 4 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT 3. Financial Performance Goals Prior to the beginning of the Plan Year, financial performance goals are developed by Senior Management and reviewed by the Compensation and Leadership Committee of the Board of Directors. Financial performance may be defined using any of the standard financial metrics (e.g., Sales, Income, Cash Flow), and will be determined each year. Two levels of financial performance are defined each year, as follows: TARGET The budgeted financial goal which represents a realistically attainable level of corporate or divisional financial performance for the year. THRESHOLD A level of achievement against the budgeted financial goal, set below target and representing the minimum level of performance which is required in order to pay the financial-based portion of an employee's incentive. 4. Plan Funding The budgeted incentive pool equals the sum of the Target Incentives of all eligible Participants company-wide. The pool is funded each year depending upon the financial and personal goal performance of the Plan participants, and upon the threshold levels set for that year. 5. Personal Goals Each Plan participant is assigned a limited number (i.e., 2 - 3) of objective pre-established Personal Goals which are typically based upon the strategic plans for the business. These personal goals are compensable under the Plan. As with financial performance goals, a threshold level of personal goal achievement is established each year, below which no payout for each personal objective will be made. For example, if the threshold for a manager's personal objective achievement is 80%, the manager will receive no payout related to that goal if she achieves only 50% of that objective. Page 3 5 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT 6. Distributions to Participants The component of incentive payment tied to financial goals is paid out in direct relationship to the financial performance if the business unit achieves its threshold. Payout for above-target financial performance is not capped. The personal goals payout component is paid in relation to the proportion of personal goal achievement if the Participant's actual results for the plan year meet the personal goal threshold. The payout for the personal goals component of the incentive is capped at 100%. Incentive payout examples: -------------------------------------------------------------------------- DIVISION MANAGEMENT INCENTIVE PAYMENT: -------------------------- Target Incentive = $20,000 -------------------------- Financial Goal Component 60% Strategic/Personal Goal Component 40% ------------------------------------------ | | --------------------- -------------------- 20,000 x 60% = 12,000 20,000 x 40% = 8,000 --------------------- -------------------- Division financial results Strategic/Personal Goal were 105% of Target Archievement was 95% ---------------------- -------------------- 12,000 x 105% = 12,600 8,000 x 95% = 7,,600 ---------------------- -------------------- | | ------------------------------------------ | --------------------------- Total Incentive Payout $12,000 + $7,600 = $20,000 --------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- CORPORATE STAFF INCENTIVE PAYMENT: -------------------------- Target Incentive = $20,000 -------------------------- Financial Goal Component 80% Strategic/Personal Goal Component 20% ------------------------------------------------ | This example assumes | --------------------- corporate financial -------------------- 20,000 x 80% = 16,000 performance is below 20,000 x 20% = 4,000 --------------------- threshold, but the -------------------- manager archieves Division financial results above-threshold Strategic/Personal Goal were 87% of Target personal goal Archievement was 90% performance. ---------------------------- ------------------- No payout for this component 4,000 x 90% = 3,600 ---------------------------- ------------------- | | ------------------------------------------------- | --------------------------- Total Incentive Payout $0 + $3,600 = $3,600 --------------------------- -------------------------------------------------------------------------- Page 4 6 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT 7. Timing Payments from the Plan will be made as soon as practicable after the end of the Plan Year, but no later than April 1 of the following year. Incentive payments are made in a single lump-sum payment and are subject to applicable withholding and other taxes as prescribed by local law. PARTICIPATION Plan Participants are senior managers and other key employees whose responsibilities and accomplishments can be directly tied to significant short-term business goals. In order to be eligible for an incentive payment, a participant must have been employed in a Plan-eligible position(s) for at least six consecutive months of the Plan Year. For a participant who serves in a Plan-eligible position(s) for less than a full year, the incentive payment may be pro-rated based on the number of months, including partial months, the individual was a participant during the Plan Year. In all cases, the Incentive Compensation Committee (the CEO, the Chief Financial Officer, and the Vice President of Human Resources) reserves the authority to exercise its discretion in determining incentive payments. However, the following guidelines have been provided as a starting point for making decisions regarding incentive eligibility in cases of new hires, employment terminations, periods of disability or leave, and transfers into, out of, and between Plan-eligible positions during the Plan Year. 1. New Hires and Transfers into Eligible Positions when Employee Serves at Least Six Consecutive Months in the Position A non-participant hired, transferred, promoted, or re-assigned into an eligible position during the Plan Year will be considered for an Incentive Payment on a pro-rated basis, provided that the employee is employed for at least six consecutive months of the Plan Year. 2. New Hires into Eligible Positions when Employee Serves Less Than Six Consecutive Months in the Position When offers are made to candidates for Plan-eligible positions, and the employee will serve in the position for less than six consecutive months in the current Plan Year, the offer may include a guaranteed cash compensation Page 5 7 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT amount in addition to the base salary, to compensate for the missed opportunity in the first (partial) year. This amount should be no more than the target incentive for which the employee would have been eligible in that year, pro-rated by the number of months employed; and is to be paid at the same time incentives are paid in the following year. The employee will be integrated into the Plan in the full Plan Year following his/her hire date. 3. Transfers into Ineligible Positions An employee transferred from an eligible position into a non-eligible position may be considered for a pro-rated incentive payment, provided that the employee has served at least six months in an eligible position(s) during the Plan Year. Any incentive payment will be based on the base salary while the employee was a Plan participant. In these cases, an adjustment to base salary may be required in order to achieve the appropriate salary level for the new (non-Plan) position. (For example, the base salary may be increased to reach a reasonable market-based pay rate if there is no longer the possibility of an incentive payment.) When the adjustment required is a positive one, it may be made retroactively in cases where the transfer occurs before the employee reaches the six-month minimum service required for an incentive payment. 4. Transfers from One Plan-Eligible Position to Another In the event that a participant transfers from one incentive eligible position to another before the completion of the Plan Year, an assessment will be made to determine the relative impact of goal achievement in each position on the final incentive payment. Typically, the participant will be paid a pro-rated share of the incentive payment amount for each position. However, the Incentive Compensation Committee has discretion to determine otherwise if the duration of service in either of the Plan-eligible positions is considered too short a period in which to achieve results against the stated goals. In either event, the participant's incentive payment will reflect the full twelve months of participation. In the case of a current Participant moving from one Target Incentive level to another, an adjustment to base salary may be required in order to achieve the appropriate Target Total Cash Compensation level. Page 6 8 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT 5. Terminations All Incentive Payments under the Plan will be forfeited for participants whose employment is terminated for any reason other than normal or early retirement under the provisions of the Company's retirement plan, death or disability during the Plan Year, unless determined otherwise by the Incentive Compensation Committee. If a Plan participant is employed on the last day of the Plan Year, but terminates employment prior to the date of the incentive payment, the Incentive Compensation Committee shall retain discretion over whether a payment is made to that participant. 6. Disability, Leaves of Absence, and Sabbaticals Even if an employee meets the requirement of six or more consecutive months in a Plan-eligible position, the employee must have rendered services for a minimum of three consecutive months in any Plan Year when attendance is interrupted by a period of disability, a leave of absence, or a sabbatical in order for any incentive to be paid (including that amount based on corporate and division/geography results). If the employee meets the requirement of three consecutive months of rendering services, the incentive payment would typically be pro-rated based on the number of months in the Plan Year that the employee was present and fully performing the job. Assessment of performance against personal goals will be based on the amount of time the employee was actually rendering services. 7. Pro-rating For a participant who serves in a Plan-eligible position(s) for less than a full year, the pro rata share of the incentive payment shall equal the number of months, including partial months, the individual was rendering services in a Plan-eligible position during the Plan Year divided by twelve, times the Incentive Payment amount (based on results achieved). EFFECT ON TAXES Payments made under this Plan will be included in total wages in the year paid, and are thus considered taxable income in that year. Page 7 9 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT EFFECT ON BENEFITS Regular Management Incentive Plan payments are included in covered wages for purposes of the 401(k) and pension plans. TERMS AND CONDITIONS 1. The Plan shall be approved by the Board of Directors and administered by the Incentive Compensation Committee (the "Committee"). The Committee shall have authority, consistent with the Plan, to establish Plan periods during which awards may be established and earned under the Plan, to determine the size and terms of the awards to be made to each Plan Participant, to determine the time when awards will be made, to prescribe the form of payment for awards under the Plan, to adopt, amend and rescind rules and regulations for the administration of the Plan and for its own acts and proceedings, and to decide all questions and settle all controversies and disputes which may arise in connection with the Plan. All decisions, determinations and interpretations of the Committee shall be binding upon all parties concerned. The terms of an award, once fixed, shall preclude future Committee discretion with respect to the amount or timing of payments of the award, except that (i) no payment of an award shall be made unless and until the Committee certifies in writing that the performance goals specified in the award have been satisfied; (ii) the Committee may retain the discretion to reduce payments; (iii) the Committee may permit the deferral of payments that have been earned under an award provided such deferral is consistent with Section 162 of the Code and (iv) the Committee may retain such other discretion as is consistent with the qualification of the award under Section 162(m). 2. Corporate Performance results are determined at the end of the fiscal year when audited data is available. Adjustments may be made in order to minimize the potential distortion of performance measurements resulting from major unplanned/uncontrollable events, such as a major unbudgeted acquisition, non-operating gains or losses or extraordinary operating items, or other events or conditions during the year affecting financial performance, so long as such adjustments are made without the involvement of the CEO, and are in conformity with Section 162(m) of the Internal Revenue Code. Such adjustments may be made when it is judged that the Corporation would have been unable to anticipate said event(s) during the corporate goal setting process. 3. The Management Incentive Plan does not, directly or indirectly, create in any employee or class of employees any right with respect to continuation of employment Page 8 10 MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time. No employee shall have a right to be selected as a Participant for any year nor, having been selected a Participant in the Plan for one year, to be a Participant in any other year. Neither the Plan nor any award thereunder shall be an element of damages in any claim based upon discharge in violation of a contract unless the contract in question shall be in writing and shall make specific reference to this section and this sentence, overriding the same; nor shall this Plan or any rights thereto be regarded as an element of damages for wrongful discharge in any other context except to the extent that rights shall have accrued hereunder as of the date of discharge. 4. The provisions of the Plan and the grant of any incentive payment shall inure to the benefit of all successors of each Participant, including without limitation such Participant's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant. 5. The Plan may be amended or terminated at any time, and shall continue in effect until so terminated; provided however that no amendment or termination of the Plan shall adversely affect any right of any Plan Participant with respect to any incentive payment theretofore made without such Plan Participant's written consent. 6. The Plan shall be effective with respect to the Plan Year beginning January 1, 1998. 7. This Plan and all determinations made and actions taken hereunder shall be construed in accordance with the laws of the State of New Hampshire. Page 9 EX-10.16 13 MASTER AGREEMENT 1 EXHIBIT 10.16 EXECUTION COPY MASTER ASSET PURCHASE AGREEMENT FOR THE PHOTOFINISHING BUSINESS OF NASHUA CORPORATION BETWEEN DISTRICT PHOTO INC. AND NASHUA CORPORATION Dated as of March 10, 1998 2 TABLE OF CONTENTS Page 1. GENERAL...............................................................1 1.1 Definitions..................................................1 1.2 U.S. Dollars.................................................2 1.3 Schedules and Exhibits.......................................2 2. PURCHASE AND SALE.....................................................3 2.1 Agreement to Sell and to Purchase; Purchase Price............3 2.2 Payment of Purchase Price....................................3 2.3 Brokers......................................................3 3. [INTENTIONALLY OMITTED.]..............................................3 4. REPRESENTATIONS AND WARRANTIES OF SELLER..............................3 4.1 Organization, Good Standing and Qualification................3 4.2 Authority of Seller..........................................4 4.3 Governmental Approvals.......................................4 4.4 Litigation...................................................4 4.5 Fairness Opinion.............................................4 5. REPRESENTATIONS AND WARRANTIES OF BUYER...............................5 5.1 Organization and Good Standing...............................5 5.2 Authority of Buyer...........................................5 5.3 Governmental Approvals.......................................5 5.4 Litigation...................................................6 6. OTHER AGREEMENTS......................................................6 6.1 Conduct of the Business......................................6 6.2 Access to Records and Information............................6 6.3 Filings and Authorizations...................................6 6.4 Bulk Sales...................................................7 6.5 Maintenance of, and Access to Records........................7 6.6 Notice of Breaches; Updates..................................7 6.7 No Solicitation of Offers....................................8 6.8 Consummation of Agreement....................................9 6.9 Non-Competition..............................................9 6.10 Non-Solicitation............................................11 i 3 Page 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE....................................................11 7.1 Fulfillment of Covenants....................................11 7.2 Accuracy of Representations and Warranties..................11 7.3 Authorizations and Consents.................................11 7.4 No Litigation...............................................12 7.5 Seller's Certificate........................................12 7.6 Opinion of Counsel..........................................12 7.7 HSR Act and Similar Matters.................................12 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.............................................................12 8.1 Fulfillment of Covenants....................................12 8.2 Accuracy of Representations and Warranties. ................12 8.3 Authorizations and Consents. ..............................13 8.4 No Litigation. .............................................13 8.5 Buyer's Certificate. .......................................13 8.6 Opinion of Counsel..........................................13 8.7 HSR Act and Similar Matters.................................13 9. CLOSING..............................................................13 9.1 General.....................................................13 9.2 At the Closing..............................................14 9.3. Canada......................................................14 10. INDEMNIFICATION......................................................15 10.1 Indemnification by Buyer....................................15 10.2 Indemnification by Seller...................................15 10.3 Time Limitation.............................................16 10.4 Third Party Claims..........................................16 10.5 Limitation..................................................17 10.6 Payment of Claims; Arbitration..............................18 10.7 Limitation on Remedies......................................18 11. GUARANTEES...........................................................18 12. TERMINATION..........................................................19 12.1 Termination Events..........................................19 12.2 Effect of Termination. .....................................20 ii 4 Page 13. MISCELLANEOUS........................................................20 13.1 Survival of Representations and Warranties..................20 13.2 Amendments..................................................20 13.3 Notices.....................................................20 13.4 Expenses....................................................22 13.5 Waiver......................................................22 13.6 Headings....................................................22 13.7 Entire Agreement............................................22 13.8 Assignment..................................................22 13.9 Governing Law; Time of the Essence..........................23 13.10 Counterparts................................................23 13.11 Publicity...................................................23 13.12 Specific Performance........................................23 13.13 Jurisdiction................................................23 13.14 Legal Fees..................................................23 13.15 Actions.....................................................23 13.16 Terms.......................................................24 13.17 Construction................................................24 SCHEDULES [Not Included in Filing] Schedule 1.1 - Asset Purchasers and Asset Sellers Schedule 4.2 - Authority of Seller Schedule 4.3 - Governmental Approvals Schedule 4.4 - Litigation Schedule 5.2 - Authority of Buyer Schedule 5.3 - Governmental Approvals Schedule 5.4 - Litigation EXHIBITS [Not Included in Filing] Exhibit A- Asset Purchase Agreement (U.S.) Exhibit B- Asset Purchase Agreement (CANADA) Exhibit C- Asset Purchase Agreement (UK) iii 5 MASTER ASSET PURCHASE AGREEMENT This MASTER ASSET PURCHASE AGREEMENT (this "Agreement") dated as of March 10, 1998 between Nashua Corporation, a corporation organized under the laws of the State of Delaware ("Seller"), and District Photo Inc., a corporation organized under the laws of the District of Columbia ("Buyer"). W I T N E S S E T H: WHEREAS, Seller desires to sell or cause to be sold, and Buyer desires to acquire, the Business, as hereinafter defined; and WHEREAS, the Business will be transferred to Buyer pursuant hereto by means of a sale and purchase of the Acquired Assets, as hereinafter defined, and the assumption of the Assumed Liabilities, as hereinafter defined. NOW, THEREFORE, the parties hereto agree as follows: 1. GENERAL. 1.1 Definitions. The terms defined in this Section 1.1, whenever used in this Agreement, shall have the following meanings for all purposes of this Agreement: "Acquired Assets" means the Assets purchased by Buyer or the Asset Purchasers pursuant to the Asset Purchase Agreements. "Acquisition Proposal" shall have the meaning given such term in Section 6.7(a). "Affiliate" means any entity that directly, or indirectly through one or more entities, controls or is controlled by, or is under common control with, the person specified. As used herein, "control", "controls" and "controlled" means the ownership of 50% or more of the voting interests of the entity in question. "Assets" means substantially all of the assets, properties, rights, privileges, claims, contracts and interests of every kind and description, real, personal or mixed, tangible or intangible, absolute or contingent, wherever situated, whether or not carried or reflected on the books and records of the Asset Sellers, owned or held by the Asset Sellers and used in the conduct of the Business. 1 6 "Asset Purchaser" and "Asset Purchasers" means, respectively, each and all of the entities designated in Schedule 1.1 or to be designated within seven (7) days prior to the Closing in accordance with this Agreement. "Asset Purchase Agreement" and "Asset Purchase Agreements" means, respectively, each and all of those agreements attached hereto as Exhibits A, B and C. "Asset Seller" and "Asset Sellers" means, respectively, each and all of the entities designated as such in Schedule 1.1. "Business" means the business and operations conducted by the Asset Sellers, consisting primarily of photofinishing, and marketing and sale of photo-related products, in the United States, Canada, and the United Kingdom. "Buyer's Knowledge" means the actual knowledge or conscious awareness, without independent investigation, of any executive officer of Buyer. "Closing" shall have the meaning given such term in Section 9.1. "Closing Date" shall have the meaning given such term in Section 9.1. "Disclosure Schedule or Disclosure Schedules" means any disclosure schedule attached to this Agreement or to any Asset Purchase Agreement. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Purchase Price" shall have the meaning given such term in Section 2.1. "Seller's Knowledge" means the actual knowledge or conscious awareness, without independent investigation, of any executive officer of Seller. "U.S." means the United States of America. 1.2 U.S. Dollars. Unless otherwise indicated herein, in the Asset Purchase Agreements, or on the Schedules hereto or thereto, all references to amounts in dollars ($) shall mean U.S. dollars. For purposes of determining the application of the terms of this Agreement to items denominated in a currency other than U.S. dollars, the relevant currency shall be converted to U.S. dollars at the applicable spot exchange rate published in the currency crossrate table of The Wall Street Journal (New York edition) on the date of this Agreement (or, if applicable, on the date as of which such calculation is made). 2 7 1.3 Schedules and Exhibits. A "Schedule" which is identified in this Agreement or any Asset Purchase Agreement means part of the Disclosure Schedule prepared by Seller or any Asset Seller and delivered to Buyer or any Asset Purchaser pursuant to this Agreement or any Asset Purchase Agreement to disclose factual matters concerning the Business. An "Exhibit" is an agreement or other document attached to this Agreement or any Asset Purchase Agreement and made a part hereof or thereof. 2. PURCHASE AND SALE. 2.1 Agreement to Sell and to Purchase; Purchase Price. Subject to the terms and conditions set forth herein, Seller agrees to cause to be sold, conveyed, assigned, transferred and delivered the Acquired Assets by the Asset Sellers to Buyer or the Asset Purchasers pursuant to the Asset Purchase Agreements. Subject to the terms and conditions herein set forth, Buyer agrees to purchase, or cause to be purchased by the Asset Purchasers, the Acquired Assets and to assume, or cause to be assumed by the Asset Purchasers, those liabilities of the Asset Sellers specified in the Asset Purchase Agreements (the "Assumed Liabilities"). The aggregate purchase price for the Acquired Assets (the "Purchase Price") shall be Fifty-two Million, Five Hundred Thousand Dollars ($52,500,000), subject to adjustment as provided in the Asset Purchase Agreements (but not subject to adjustment for Buyer's and the Asset Purchasers' assumption of the Assumed Liabilities) and shall be allocated as reflected in the Asset Purchase Agreements. 2.2 Payment of Purchase Price. Subject to the terms and conditions set forth herein, in full consideration for the sale, conveyance, assignment, transfer and delivery of the Acquired Assets, Buyer shall deliver or cause to be delivered by the Asset Purchasers to Seller the Purchase Price payable at the Closing by wire transfer of immediately available funds to an account or accounts designated in writing by Seller for the benefit of each Asset Seller (with Seller acting as agent for each Asset Seller). 2.3 Brokers. Except for BT Alex. Brown Incorporated, whose fees and expenses shall be the sole responsibility of Seller, Seller represents and warrants that it has not employed or incurred any liability to any broker, agent or finder in connection with any transaction contemplated by this Agreement, nor has it employed or retained any other person whose compensation is directly contingent on the closing of the transactions contemplated by this Agreement. Buyer represents and warrants that it has not employed or incurred any liability to any broker, agent or finder in connection with any transaction contemplated by this Agreement. 3. [INTENTIONALLY OMITTED.] 4. REPRESENTATIONS AND WARRANTIES OF SELLER. 3 8 Seller represents and warrants to Buyer that the statements contained in this Article 4 are on the date hereof, and on the Closing Date will be, true and correct: 4.1 Organization, Good Standing and Qualification. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Seller has full corporate power and authority to own or lease its properties and carry on its business as presently conducted. 4.2 Authority of Seller. Seller has all necessary authority and power to enter into this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action of Seller and no other action on the part of Seller is required in connection therewith. This Agreement constitutes, or when executed and delivered will constitute, the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. The execution, delivery and performance by Seller of this Agreement does not, and the performance by Seller of the transactions contemplated hereby will not: (a) violate any provision of the Certificate of Incorporation or By-Laws of Seller; or (b) subject to the requirements of the HSR Act, violate any laws of the United States or other jurisdiction applicable to Seller or, except as expressly contemplated by this Agreement, require Seller to obtain any approval, consent or waiver of any person or entity (governmental or otherwise) that has not been obtained or made; or (c) except as disclosed in Schedule 4.2, result in a violation or any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Seller is a party, except for any such violations, breaches, defaults or other occurrences which would not in any respect prevent or delay Seller from performing its obligations under this Agreement. 4.3 Governmental Approvals. Except for applicable requirements of the HSR Act, or as disclosed in Schedule 4.3, neither Seller nor any Asset Seller is required to submit any notice, report or other filing with or to any governmental body in connection with the execution, delivery or performance of this Agreement by Seller and the consummation of the transactions contemplated hereby. 4 9 4.4 Litigation. Except as disclosed in Schedule 4.4, no litigation, claim, administrative proceeding or other proceeding or governmental investigation is pending or, to Seller's Knowledge, threatened, which would prevent or delay the execution, delivery or performance of this Agreement or any agreement, instrument or document contemplated hereby by Seller or the consummation by Seller of the transactions contemplated hereby. 4.5 Fairness Opinion. Seller has received the opinion from BT Alex. Brown Incorporated to Seller, dated March 8, 1998, that the consideration to be received by Seller for the Business pursuant to this Agreement and the Asset Purchase Agreements is fair to Seller from a financial point of view. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that the statements contained in this Article 5 are on the date hereof, and as of the Closing Date will be, true and correct: 5.1 Organization and Good Standing. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the District of Columbia. Buyer has full corporate power and authority to own or lease its properties and carry on its business as presently conducted. 5.2 Authority of Buyer. Buyer has all necessary authority and power to enter into this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby have been duly authorized by all necessary corporate action of Buyer and no other action on the part of Buyer is required in connection therewith. This Agreement constitutes, or when executed and delivered will constitute the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. The execution, delivery and performance by Buyer of this Agreement does not, and the performance by Buyer of the transactions contemplated hereby, will not: (a) violate any provision of the Articles of Incorporation or By-Laws of Buyer; or (b) subject to the requirements of the HSR Act, violate any laws of the United States or other jurisdiction applicable to Buyer or, except as expressly contemplated by this Agreement, require Buyer to obtain any approval, consent or waiver of any person or entity (governmental or otherwise) that has not been obtained or made; or 5 10 (c) except as disclosed in Schedule 5.2, result in violation or any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Buyer is a party, except for any such violations, breaches, defaults or other occurrences which would not in any respect prevent or delay Buyer from performing its obligations under this Agreement. 5.3 Governmental Approvals. Except for applicable requirements of the HSR Act, or as disclosed in Schedule 5.3, neither Buyer nor any Asset Purchaser is required to submit any notice, report or other filing with or to any governmental body in connection with the execution, delivery or performance of this Agreement by Buyer and the consummation of the transactions contemplated hereby. 5.4 Litigation. Except as disclosed in Schedule 5.4, no litigation, claim, administrative proceeding or other proceeding or governmental investigation is pending or, to Buyer's Knowledge, threatened, which would prevent or delay the execution, delivery or performance of this Agreement or any agreement, instrument or document contemplated hereby by Buyer or the consummation by Seller of the transactions contemplated hereby. 6. OTHER AGREEMENTS. 6.1 Conduct of the Business. During the period from the date of this Agreement to the Closing, Seller shall, and shall cause each Asset Seller to, conduct the Business substantially in the same manner as conducted prior to the date hereof, shall maintain the Acquired Assets in a normal business manner consistent with past practice and shall pay its debts (including without limitation accounts payable) as they come due consistent with past practice. 6.2 Access to Records and Information. Buyer shall have such access as is provided for in Section 6.6 of the Asset Purchase Agreements. 6.3 Filings and Authorizations. Each of Buyer and Seller shall make an HSR Act filing (the "HSR Act Filing") no later than March 13, 1998 (the "HSR Filing Date"), and shall coordinate their filing dates to enable contemporaneous filing. Buyer shall pay the filing fee required to be paid to the Federal Trade Commission in connection with the HSR Act Filing. Each of Buyer and Seller shall pay all other fees and expenses incurred by 6 11 Buyer or Seller, respectively, in connection with the HSR Act Filing. Buyer and Seller shall cooperate with each other and promptly take or cause to be taken all actions and do or cause to be done all things necessary, proper or advisable to obtain favorable review of the proposed transaction under the HSR Act. Buyer and Seller each agrees to use commercially reasonable efforts to resolve any objections that may be asserted with respect to the transactions contemplated hereunder by the Department of Justice, the Federal Trade Commission, any State Attorney General or any other governmental entity (including, without limitation, objections under any antitrust laws); provided, however, that neither party shall be required to accept any condition or restriction, including, without limitation, the disposition of assets, which would materially adversely impact the economic or business benefits of the transactions contemplated hereby. Buyer and Seller agree to use reasonable efforts to take such action as may be required by any federal or state court of the United States, in any suit brought by a private party or governmental entity challenging the transaction hereunder as violative of the antitrust laws, in order to avoid the entry of, or to cause the withdrawal or voiding of, any injunction, temporary restraining order or other order which has the effect of preventing the consummation of the transactions contemplated by this Agreement. 6.4 Bulk Sales. It may not be practicable to comply or attempt to comply with the procedures of the bulk sales or bulk transfers acts or laws of any or all of the states or other jurisdictions in which the Acquired Assets are situated (or of any state or jurisdiction) which may be asserted to be applicable to the transactions contemplated hereby. Buyer and Seller therefore waive any requirements for compliance with any or all of such laws. 6.5 Maintenance of, and Access to Records. Buyer shall, and shall cause each Asset Purchaser to, permit Seller and the Asset Sellers to have reasonable access to all business records turned over to Buyer or the Asset Purchasers in accordance with this Agreement or the Asset Purchase Agreements; provided, however, that such access shall be allowed only during normal business hours, with reasonable advance notice and in such manner as not to interfere unreasonably with the normal business operations of the Business. Buyer shall preserve and maintain the records relating to the Business which are part of the Acquired Assets for at least seven (7) years after the Closing Date or longer if required by the Internal Revenue Service or any other government agency, domestic or foreign. 6.6 Notice of Breaches; Updates. (a) Seller shall promptly deliver or cause any Asset Seller to deliver promptly to Buyer written notice of any event or development that would (i) render any statement, representation or warranty of Seller in this Agreement or of any Asset Seller in 7 12 any Asset Purchase Agreement (including exceptions set forth in any Schedule) inaccurate or incomplete, or (ii) constitute or result in a breach by Seller or any Asset Seller of, or a failure by Seller or any Asset Seller to comply with, any agreement or covenant in this Agreement or any Asset Purchase Agreement or related to the Business applicable to Seller or any Asset Seller, as the case may be. No such disclosure shall be deemed to avoid or cure any such misrepresentation or breach. (b) Buyer shall promptly deliver to Seller written notice of any event or development that would (i) render any statement, representation or warranty of Buyer in this Agreement or any Asset Purchase Agreement inaccurate or incomplete, or (ii) constitute or result in a breach by Buyer of, or a failure by Buyer to comply with, any agreement or covenant in this Agreement or any Asset Purchase Agreement or related to the Business applicable to Buyer or any Asset Purchasers, as the case may be. No such disclosure shall be deemed to avoid or cure any such misrepresentation or breach. 8 13 6.7 No Solicitation of Offers. (a) Unless and until this Agreement shall have been terminated by either party pursuant to Article 12 hereof, Seller covenants that following the date hereof it and the Asset Sellers will not (and shall use its and their best efforts to ensure that none of its officers, directors, agents, representatives or Affiliates) take or cause, directly or indirectly, any of the following actions with any party other than Buyer or its designees: (i) solicit, initiate, or participate in any negotiations, inquiries or discussions with respect to any offer or proposal to acquire all or a significant part of the Business or the Acquired Assets whether by merger, consolidation, other business combination, purchase of assets, tender or exchange offer or otherwise (each of the foregoing, an "Acquisition Proposal"); (ii) disclose, in connection with an Acquisition Proposal, any information with respect to, or otherwise cooperate in any way with, or assist or participate in, any effort or attempt by any other person to do or seek any of the foregoing; (iii) enter into or execute any agreement relating to an Acquisition Proposal; or (iv) make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal other than with respect to the transactions contemplated by this Agreement; provided, however, that nothing contained herein shall prohibit Seller or any Asset Seller from taking any of the actions specified above or in connection with an unsolicited Acquisition Proposal that involves consideration that is economically superior to the consideration to be paid hereunder and does not contemplate any condition relating to the obtaining of funds for such Acquisition Proposal, provided, that in each case, its Board of Directors determines in good faith, after consultation with outside legal counsel, that such action is required by the fiduciary duties of such directors under applicable state law. Seller shall immediately cease and terminate, and cause any of the Asset Sellers to cease and terminate immediately all existing discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. (b) In the event a Seller or an Asset Seller shall receive any Acquisition Proposal, directly or indirectly, or any request for disclosure with respect to information of the type referred to in clause (a)(ii) above, it shall, prior to taking any action in response thereto, inform Buyer of such fact and shall, in any such notice to Buyer, indicate in reasonable detail the identity of the person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or contact. Subject to the fiduciary obligations of the directors and officers under applicable law, Seller agrees not to release any third party from, or waive any provision of, and shall cause any Asset Seller not to release any third party from, or waive, any confidentiality or standstill agreement relating to the Business and to which such Seller or Asset Seller is a party. Notwithstanding the foregoing, Seller shall not enter into and shall cause any Asset Seller not to enter into a definitive agreement to transfer the Acquired Assets or any portion of 9 14 Seller's Business to any third party until and unless this Agreement has been terminated pursuant to Section 12 hereof. 6.8 Consummation of Agreement. Seller will use its reasonable best efforts to cause all of the conditions set forth in Article 7 to be satisfied. Buyer will use its reasonable best efforts to cause all of the conditions set forth in Article 8 to be satisfied. 6.9 Non-Competition. (a) Period and Conduct. As further consideration for the purchase and sale of the Acquired Assets and the transactions contemplated by this Agreement and the Asset Purchase Agreements, during the period commencing on the Closing Date through and until the date five (5) years following the Closing Date (the "Restricted Period"), Seller covenants and agrees that it shall not and shall cause each of its Affiliates not to, for any reason whatsoever, directly or indirectly, either individually or as owner, partner, stockholder, consultant, lender or otherwise: (i) in the Prescribed Territory (as defined in Section 6.9(c)), compete with Buyer in the provision of photo-finishing services or the manufacture, production, design, engineering, importation, purchase, marketing, sale, distribution, research or development of photo-related products (excluding paper, toner, printer cartridges and other products used, intended to be used or capable of being used for the reproduction of images by means other than silver halide-based processes) the same as, similar to, or having a similar purpose or use to those services provided by Buyer or those products manufactured, produced, designed, engineered, imported, purchased, marketed, sold distributed or developed (or being developed) by Seller on or prior to the Closing or by Buyer after the Closing (collectively, the "Products"); or (ii) in the Prescribed Territory, solicit, or accept or purchase orders or business of any kind relating to the provision of photo-finishing services or the manufacture, production, design, engineering, importation, purchase, marketing, sale, distribution, research or development of any Products from any customer or supplier of Seller on or prior to the Closing or of Buyer after the Closing. (b) Confidential Information. Seller acknowledges and agrees that the use, disclosure or publication by it, or by any of its Affiliates, of any Confidential Information (defined below) after the Closing could cause the Business substantial loss and damages that could not be readily calculated and for which no remedy at law would be adequate. Accordingly, Seller covenants and agrees with Buyer that Seller will not and will cause its Affiliates not to at any time, except with the prior written consent of Buyer, directly or indirectly, use, disclose, or publish, or permit others not so authorized to use, 10 15 disclose, or publish any Confidential Information. Notwithstanding the foregoing, Seller and its Affiliates may disclose such information, only if and to the extent: (i) Seller or its Affiliates in good faith believes on the advice of counsel that it or they are required by law, (ii) required by court order or subpoena (a copy of which shall be provided to Buyer ten (10) days prior to disclosure), or (iii) available in the public domain. As used in this Agreement, the terms "Confidential Information" includes, without limitation, information Seller or its Affiliates have not previously disclosed to the public with respect to Seller's or its Affiliates' past, present or future operations, services, products, research, inventions, discoveries, drawings, designs, plans, processes, models, technical information, facilities, methods, trade secrets, copyrights, software, source code, systems, patents, procedures, manuals, specifications, any other intellectual property, confidential reports, price lists, pricing formulas, customer lists, financial information (including the revenues, costs, or profits associated with any products or services of the Business), business plans, lease structure, projections, prospects, opportunities or strategies, acquisitions or mergers, advertising or promotions, personnel matters, legal matters of the Business, any other confidential and proprietary information, and any other information not generally known outside the Business that may be of value to the Business but excludes any information already properly in the public domain. "Confidential Information" also includes confidential and proprietary information and trade secrets that third parties entrust to Seller or its Affiliates in confidence. Seller acknowledges and agrees that the rights and obligations set forth in this Section 6.9(b) will continue indefinitely. (c) Prescribed Territory. Seller and its Affiliates shall refrain from engaging in the activities described in this Section 6.9 during the period specified in Section 6.9(a) in the United States, the United Kingdom and Canada (the "Prescribed Territory"). (d) Remedies. Inasmuch as any breach, or failure to comply with, Section 6.9 of this Agreement will cause serious, substantial and irreparable damage to Buyer, if Seller or any of its Affiliates should in any way breach, or fail to comply with, the terms of Section 6.9 of this Agreement, Buyer shall be entitled to an injunction restraining Seller and its Affiliates from such breach or failure. All remedies expressly provided for herein are cumulative of any and all other remedies now existing at law or in equity. Buyer shall, in addition to the remedies herein provided, be entitled to avail itself of all such other remedies as may now or hereafter exist at law or in equity for compensation, and for the specific enforcement of the covenants contained herein. Resort to any remedy provided for hereunder or provided for by law shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies, or preclude the recovery by Buyer of monetary damages and compensation. 11 16 (e) Severability. Each subsection of this Section 6.9 constitutes a separate and distinct provision hereof. In the event that any provision of this Section 6.9 shall finally be determined to be invalid, ineffective or unenforceable, every other provision of this Section 6.9 shall remain in full force and effect. The invalid, ineffective or unenforceable provision shall, without further action by the parties, be automatically amended to effect the original purpose and intent of the invalid, ineffective or unenforceable provision to the maximum extent enforceable under applicable law; provided, however, that such amendment shall apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 6.10 Non-Solicitation. During the period commencing on the Closing Date and through and until the date five (5) years after the Closing Date, Seller and its Affiliates shall not, for any reason whatsoever, directly or indirectly, call upon or solicit any Covered Employee for the purpose or with the intent of enticing such employee away from or out of the employ of Buyer. As used herein, "Covered Employee" means an employee of Seller or any Affiliate on the Closing Date who accepts employment with Buyer or any Asset Purchaser on or promptly after the Closing Date. 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE. The obligation of Buyer to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole discretion of Buyer, by a written instrument signed by Buyer. 7.1 Fulfillment of Covenants. Seller and the Asset Sellers shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by them prior to the Closing Date under this Agreement and the Asset Purchase Agreements. 7.2 Accuracy of Representations and Warranties. The representations and warranties of Seller and of the Asset Sellers contained in this Agreement and in the Asset Purchase Agreements shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Seller has provided Buyer with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Seller in this Agreement not to be true and correct on the Closing Date (a "Seller's Notice"), then Buyer shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 7.2 to be satisfied, or (ii) elect to close the transactions 12 17 contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 7.2 to be satisfied, in which event Buyer shall be deemed to have waived the condition to Closing specified in this Section 7.2 with respect to the matters specified in Seller's Notice and shall not seek or be entitled to indemnification under Article 10 with respect to only the matters specified in Seller's Notice. 7.3 Authorizations and Consents. Seller and each Asset Seller shall have obtained and made all governmental or other authorizations, approvals, consents, permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Seller and each Asset Seller of the transactions contemplated by this Agreement and the Asset Purchase Agreements. 7.4 No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement and the Asset Purchase Agreements. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing from occurring shall be in effect (each party agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). 7.5 Seller's Certificate. Seller shall have delivered to Buyer a certificate dated the Closing Date and executed by an executive officer of Seller to the effect that each of the conditions specified in Sections 7.1 through 7.4 is satisfied. 7.6 Opinion of Counsel. Buyer shall have received from Hale and Dorr LLP a legal opinion addressed to Buyer, dated as of the Closing Date, in a form reasonable and customary for transactions of this nature. 7.7 HSR Act and Similar Matters. All applicable waiting periods (and any extensions thereof) under the HSR Act shall have expired or otherwise been terminated, and all necessary authorizations, approvals, consents, permits or waivers under any similar foreign laws shall have been obtained. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. The obligation of Seller to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole discretion of Seller, by a written instrument signed by Seller. 13 18 8.1 Fulfillment of Covenants. Buyer and the Asset Purchasers shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by them prior to the Closing Date under this Agreement and the Asset Purchase Agreements. 8.2 Accuracy of Representations and Warranties. The representations and warranties of Buyer contained in this Agreement and in the Asset Purchase Agreements shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Buyer has provided Seller with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Buyer in this Agreement not to be true and correct on the Closing Date (a "Buyer's Notice"), then Seller shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 8.2 to be satisfied, or (ii) elect to close the transactions contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 8.2 to be satisfied, in which event Seller shall be deemed to have waived the condition to Closing specified in this Section 8.2 with respect to the matters specified in Buyer's Notice and shall not seek or be entitled to indemnification under Article 10 with respect to only the matters specified in Buyer's Notice. 8.3 Authorizations and Consents. Buyer and each Asset Purchaser shall have obtained and made all governmental or other authorizations, approvals, consents, permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Buyer and each Asset Purchaser of the transactions contemplated by this Agreement and the Asset Purchase Agreements. 8.4 No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement or the Asset Purchase Agreements. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing from occurring shall be in effect (each party agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). 8.5 Buyer's Certificate. Buyer shall have delivered to Seller a certificate dated the Closing Date and executed by an executive officer of Buyer to the effect that each of the conditions specified in Sections 8.1 through 8.4 is satisfied. 14 19 8.6 Opinion of Counsel. Seller shall have received from Wilmer, Culter & Pickering a legal opinion addressed to Seller, dated as of the Closing Date, in a form reasonable and customary for transactions of this nature. 8.7 HSR Act and Similar Matters. All applicable waiting periods (and any extensions thereof) under the HSR Act shall have expired or otherwise been terminated, and all necessary authorizations, approvals, consents, permits or waivers under any similar foreign laws shall have been obtained. 9. CLOSING. 9.1 General. Subject to the conditions set forth in Articles 7 and 8, the consummation of the transactions contemplated by this Agreement and the Asset Purchase Agreements (the "Closing") shall take place at the offices of Hale and Dorr LLP, Boston, Massachusetts at 10:00 AM (Eastern Time), on the later of (i) April 1, 1998 or (ii) the third business day following satisfaction or waiver of each of the conditions contained in this Agreement and the Asset Purchase Agreements, or on such other date as Buyer and Seller may mutually agree (such date being herein referred to as the "Closing Date"). Failure to close on such date shall not relieve either party hereto of its obligations under this Agreement. All transactions at the Closing shall be deemed to take place simultaneously at 12:01 a.m. Eastern Time on the Closing Date, and no transaction shall be deemed to have been completed and no document or certificate shall be deemed to have been delivered until all transactions are completed and all documents are delivered. 9.2 At the Closing. (a) Seller shall deliver to Buyer, subject to satisfaction of the conditions precedent to the obligations of Seller stated herein, the various certificates, instruments and documents referred to in Sections 7.5 and 7.6; (b) Buyer shall deliver to Seller, subject to satisfaction of the conditions precedent to the obligations of Buyer stated herein, the various certificates, instruments and documents referred to in Sections 8.5 and 8.6; (c) Seller shall cause each Asset Seller to perform, pursuant to its respective Asset Purchase Agreement, all obligations to be performed by it thereunder at the Closing; (d) Buyer shall cause each Asset Purchaser to perform, pursuant to its respective Asset Purchase Agreement, all obligations to be performed by it thereunder at the Closing; and 15 20 (e) Buyer shall pay to Seller the Purchase Price in the manner and the amount set forth in Sections 2.1 and 2.2. 9.3. Canada. Notwithstanding any other provision in this Agreement or any Asset Purchase Agreement to the contrary: (a) Seller shall use its reasonable best efforts to obtain any consents and approvals required to assign or transfer fully all rights of its Affiliate, Nashua Photo Limited, under the Canadian postal contract (the "Canadian Postal Contract") to Buyer, from the date hereof until such assignment or transfer has been obtained. (b) Neither Buyer nor any Asset Purchaser shall be obligated to purchase the Acquired Assets or assume the Assumed Liabilities under the Asset Purchase Agreement by and between Buyer and Nashua Photo Limited, a Canadian Corporation (the "Canadian Asset Purchase Agreement"), or consummate the transactions contemplated thereunder unless and until such time as the Canadian Postal Contract shall have been fully assigned and transferred to Buyer; provided, that, such assignment and transfer be obtained no later than ninety (90) days following the Closing Date. (c) If the transactions contemplated under the Canadian Asset Purchase Agreement are not consummated on the Closing Date because the Canadian Postal Contract has not been fully assigned and transferred to Buyer, the Purchase Price payable to Seller pursuant to this Agreement shall be reduced by $2,000,000. (d) If the Canadian Postal Contract has been fully assigned to Buyer within ninety (90) days of the Closing Date, Buyer and Seller shall be obligated to consummate the transactions contemplated by the Canadian Asset Purchase Agreement; provided, that, all other terms and conditions thereunder or hereunder have been fully satisfied, and the Purchase Price for the Acquired Assets under the Canadian Asset Purchase Agreement shall be $2,000,000. 10. INDEMNIFICATION. 10.1 Indemnification by Buyer. From and after the Closing Date, Buyer shall indemnify, defend and hold Seller and the Asset Sellers, and their directors, officers and Affiliates (collectively, the "Seller Group") harmless from and against any and all claims, losses, liabilities, damages, costs and expenses (including reasonable attorney's fees to the extent permitted by law), net of any benefits received by the Seller Group including tax benefits, insurance proceeds or warranty reimbursements (collectively, "Losses") that may be incurred by, or asserted against, Seller Group, arising from or related to, directly or indirectly: 16 21 (a) the failure of Buyer or any Asset Purchaser to assume, pay, perform and discharge the Assumed Liabilities; (b) any claim arising out of the operation of the Business or Buyer's or any Asset Purchaser's conduct after the Closing; (c) any breach of any representation or warranty of Buyer contained herein (unless waived in writing by Seller prior to the Closing); or (d) any breach of any covenant, obligation or agreement of Buyer or the Asset Purchasers contained herein or in any Asset Purchase Agreement (unless waived in writing by Seller prior to the Closing). 10.2 Indemnification by Seller. From and after the Closing Date, Seller shall indemnify, defend and hold Buyer and the Asset Purchasers, and their directors, officers and Affiliates (collectively, the "Buyer Group") harmless from and against any and all Losses that may be incurred by, or asserted against, Buyer Group, arising from or related to, directly or indirectly: (a) the failure of Seller or any Asset Seller to assume, pay, perform and discharge all liabilities other than the Assumed Liabilities; (b) any claim arising out of the operation of the Business or Seller's or any Assets Seller's conduct prior to or on the Closing, other than those claims specifically disclosed on the Disclosure Schedules, Assumed Liabilities or any other obligations or any liabilities to be paid or discharged by Buyer as provided in this Agreement or any Asset Purchase Agreement; (c) any breach of any representation or warranty of Seller or the Asset Sellers contained herein or in any Asset Purchase Agreement (unless waived in writing by Buyer prior to the Closing); (d) any breach of any covenant, obligation or agreement of Seller or the Asset Sellers contained herein or in any Asset Purchase Agreement (unless waived in writing by Buyer prior to the Closing); (e) any claims made by creditors, with respect to non-compliance with any bulk transfer law, except to the extent that such claims result from Buyer's failure to pay when due the Assumed Liabilities; or 17 22 (f) litigation matters disclosed on Schedule 5.1(m) to the Asset Purchase Agreements (except with respect to any action taken by Buyer after the Closing in breach of the Kaplan matter as disclosed and except for the U.S. Postal Rate litigation referred to in Schedule 5.1(m) of the U.S. Asset Purchase Agreement which Buyer acknowledges Seller makes no indemnification). 10.3 Time Limitation. The right of Seller Group or Buyer Group, as applicable, to indemnification under Section 10.1 or Section 10.2, respectively, shall apply only to those claims for indemnification which are delivered pursuant hereto during the applicable period set forth in Section 13.1. Notwithstanding anything in this Agreement to the contrary, there shall be no time limitation for claims for indemnification under Sections 10.1(a), 10.1(b), 10.2(a) and 10.2(b). 10.4 Third Party Claims. (a) Notification. If any third party shall notify any party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against the other party (the "Indemnifying Party") under this Section 10.4, then the Indemnified Party shall promptly (but no later than fifteen (15) days after notice is received by the Indemnified Party of any Third Party Claim) notify the Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. (b) Right of Indemnitor To Defend. The Indemnifying Party shall have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing, within thirty (30) days after notice to the Indemnifying Party pursuant to Section 10.4(a) of such Third Party Claim, that the Indemnifying Party shall indemnify the Indemnified Party from and against the entirety of any Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party with reasonable evidence that the Indemnifying Party has the financial resources to defend against the Third Party Claim and perform its obligations hereunder, (C) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. 18 23 (c) No Settlement without Consent of Indemnitor. So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 10.4(b) above, the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in (but not control) the defense of the Third Party Claim. The Indemnified Party shall not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. (d) Rights of Indemnitee if Indemnitor Does Not Defend. In the event any of the conditions in Section 10.4(b) above is unsatisfied, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it may deem appropriate and the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action with its counsel at its own expense, (B) the Indemnifying Party shall reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys' fees and expenses), and (C) the Indemnifying Party shall remain responsible for any Losses (including any amounts paid in settlement) the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 10.4. 10.5 Limitation. There shall be no liability for indemnification under Sections 10.1 or 10.2 unless, and solely to the extent that, the aggregate amount of Losses exceeds $325,000 (the "Indemnification Threshold"), provided, however, that the Indemnification Threshold shall not apply to adjustments to the Purchase Price pursuant to Section 2.1 and the Asset Purchase Agreements or liability for Losses described in Section 10.2(e) or (f). Notwithstanding the foregoing, the right of any indemnified party to indemnification under Section 10.1 or 10.2 shall be subject to the following provisions: (a) No indemnification shall be payable to an indemnified party with respect to any matters disclosed in any Disclosure Schedule (except as provided in Section 10.2(f)). (b) The aggregate amount of liability of either the Buyer Group or the Seller Group under Section 10.1 or 10.2 shall not exceed 75% of the Purchase Price, as adjusted pursuant to Section 2.1 or 9.3(c), and the Asset Purchase Agreements. (c) No indemnification shall be payable by an indemnifying party to the extent that the claim would have been reduced by the indemnified party properly performing its common law duty to mitigate any loss incurred by it. 19 24 10.6 Payment of Claims; Arbitration. All claims asserted under Section 10.1 or 10.2 of this Agreement shall be paid or otherwise satisfied by the indemnifying party within sixty days after notice thereof is given by the indemnified party; provided, however, that if within such 60-day period, the indemnifying party indicates in a writing delivered to the indemnified party that it disputes the nature or amount of the claim or that the indemnified party is entitled to indemnification hereunder, the dispute upon the election of any party hereto after such 60-day period shall be settled by arbitration by a single arbitrator in New York City in accordance with the commercial arbitration rules of the American Arbitration Association. The fees and expenses of the arbitrator shall be borne by the indemnifying party and the indemnified party in such proportions as shall be determined by the arbitration, or if there is no such determination then such fees and expenses shall be borne equally by the indemnifying party and the indemnified party. The determination of the arbitrator as to the amount, if any, of the indemnification claim which is properly allowable shall be conclusive and binding upon the parties hereto and judgment may be entered thereon in any court having jurisdiction thereof. 10.7 Limitation on Remedies. It is specifically understood and agreed that in the event a misrepresentation or breach of warranty or covenant is discovered by Buyer or Asset Purchaser after the Closing, Buyer's remedies shall be limited solely to the indemnification set forth in this Article 10 of this Agreement. 11. GUARANTEES. (a) Seller hereby guarantees to Buyer the full and faithful performance by each Asset Seller of its obligations under the Asset Purchase Agreement to which it is a party. (b) Buyer hereby guarantees to Seller the full and faithful performance by each Asset Purchaser or any permitted assignee of its obligations under the Asset Purchase Agreement to which it is a party. 12. TERMINATION. 12.1 Termination Events. Subject to the other provisions of this Article 12, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned: (a) By Buyer upon five (5) days written notice to Seller, in the event that any of the conditions precedent to Buyer's obligations set forth in Article 7 with respect to Seller are not satisfied at or during the respective times therein indicated (other than by reason of the material breach by such terminating party of any of its representations, warranties, covenants, or agreements set forth herein) and such conditions are not either 20 25 (i) cured by Seller within five (5) days after Buyer gives Seller such notice, or (ii) waived by Buyer at or prior to the Closing Date. (b) By Seller upon five (5) days written notice to Buyer, in the event that any of the conditions precedent to Seller's obligations set forth in Article 8 with respect to Buyer are not satisfied at or during the respective times therein indicated (other than by reason of the material breach by such terminating party of any of its representations, warranties, covenants, or agreements set forth herein) and such conditions are not either (i) cured by Buyer within five (5) days after Seller gives Buyer such notice, or (ii) waived by Seller at or prior to the Closing Date. (c) By either Seller or Buyer if any applicable domestic law, rule, or regulation makes consummation of this Agreement illegal or if any judgment, injunction, order or decree of a court or governmental agency or authority of competent jurisdiction restrains or prohibits the consummation of this Agreement, and such judgment, injunction, order, or decree has become final and nonappealable; (d) By mutual written consent of Seller and Buyer; (e) By Seller upon five (5) days written notice to Buyer, if pursuant to receipt of an Acquisition Proposal that involves consideration that is economically superior to the consideration to be paid hereunder and does not contemplate any condition relating to the obtaining of funds for such Acquisition Proposal (as determined in each case in good faith by Seller's board of directors after consultation with outside legal counsel), Seller's board of directors determines to consummate a transaction based on such Acquisition Proposal. Pursuant to exercising its termination rights under this Section 12.1(e), Seller shall pay Buyer a break-up fee of $2,250,000 in cash by wire transfer within five (5) business days of such termination; or (f) By either Seller or Buyer if the Closing shall not have occurred on or prior to July 1, 1998; provided, however, that no party may exercise its rights under this Section 12.1(f) if such party is in material breach or default under this Agreement. 12.2 Effect of Termination. In the event this Agreement is terminated pursuant to Section 12.1, all further obligations of the parties hereunder shall terminate except Seller's payment obligation under Section 12.1(e) if this Agreement is terminated pursuant to Section 12.1(e); provided, however, that if this Agreement is so terminated by one party pursuant to Section 12.1(a) or 12.1(b) because one or more of the conditions to such party's obligations hereunder is not satisfied as a result of the other party's failure to comply with its obligations under any provision of this Agreement, it is expressly agreed and understood that such party's right to pursue all legal remedies for breach of contract or 21 26 otherwise, including, without limitation, damages relating thereto, shall also survive such termination unimpaired. No termination of this Agreement shall act to terminate or otherwise impair the obligations set forth in Sections 13.4 (Expenses) and 13.12 (Specific Performance). 13. MISCELLANEOUS. 13.1 Survival of Representations and Warranties. All covenants and obligations to be performed after the Closing Date contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing and expire in accordance with their respective terms. All representations and warranties contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing for a period of eighteen (18) months. The indemnification obligation under Section 10.2(e) shall survive the Closing for a period of six (6) months beyond the applicable federal or state statute of limitations (including extensions thereof). The waiver of any condition, based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, reimbursement, or other remedy based upon such representations, warranties, covenants or obligations. 13.2 Amendments. This Agreement may be amended only by a written agreement signed by Seller and Buyer. 13.3 Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given (a) upon receipt if personally delivered or by overnight courier, or (b) on the date sent if made by facsimile transmission to the party to whom such notice or communication is directed to the facsimile number of such person stated below and if followed by a telephone call to such person at the same time to the telephone number stated below (or otherwise provided to or obtained by the sending party) advising such person (or leaving a voice mail for such person) that the facsimile transmission has been sent, to the parties at their respective addresses set forth below. (a) To Buyer: District Photo Inc. 10501 Rhode Island Avenue Beltsville, MD 20705 Attn: Neil D. Cohen, President and Chief Executive Officer Facsimile: 301-937-2532 Phone: 301-937-5300 22 27 with a copy to: Wilmer, Cutler & Pickering 2445 M Street, N.W. Washington, D.C. 20037-1420 Attn: George P. Stamas, Esq. Facsimile: 202-663-6363 Phone: 202-663-6000 (b) To Seller: Nashua Corporation 44 Franklin Street Nashua, NH 03062 Attn: Paul Buffum, Vice President and General Counsel Facsimile: 603-880-2747 Phone: 603-880-2323 with a copy to: Hale and Dorr LLP 60 State Street Boston, MA 02109 Attn: John K. P. Stone III, Esq. Facsimile: 617-526-5000 Phone: 617-526-6000 Such addresses or persons may be changed, from time to time, by means of a notice given in the manner provided in this Section 13.3. 13.4 Expenses. (a) Each of Seller, Asset Seller and Buyer will bear its own expenses in connection with the negotiation and the consummation of this Agreement and the Asset Purchase Agreements. (b) Buyer and Seller shall share equally the first $200,000 of costs incurred, whether at or subsequent to the Closing, in connection with the transfer of the Acquired Assets to Buyer as contemplated by this Agreement or the Asset Purchase Agreements, including without limitation, all use, excise, sales, real property, stamp duty and other transfer taxes and charges applicable to such transfer; all recording charges and 23 28 fees applicable to the registration and recordation of deeds and mortgages and other instruments of transfer; and all costs of obtaining or transferring permits, registrations, applications and other tangible and intangible properties, and Buyer shall pay all such costs incurred in excess of $200,000. 13.5 Waiver. Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement. 13.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13.7 Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, constitutes the entire agreement, and supersedes all other prior agreements (except that certain Confidentiality and Non-Disclosure Agreement by and between Buyer and BT Alex. Brown Incorporated on behalf of Seller, dated December 11, 1997 as modified by letter dated February 5, 1998 from Buyer to Seller so as to make Seller's U.S. photofinishing operations subject thereto, which documents the parties agree remain in full force and effect) and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter thereof; provided, however, that the identity of Buyer shall not be deemed confidential. 13.8 Assignment. This Agreement shall not be assigned by either Buyer or Seller or by operation of law or otherwise, except with the written consent of the other party; provided, however, that Buyer shall be permitted to assign this Agreement and each of the Asset Purchase Agreements to an Affiliate or an otherwise related entity without Seller's consent, but any such assignment shall not relieve Buyer of its obligations hereunder specifically including but not limited to its obligations under Section 11 or under any Asset Purchase Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 13.9 Governing Law; Time of the Essence. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (excluding the conflict of laws provisions thereof). Time is of the essence in the performance of this Agreement. 13.10 Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement. 24 29 13.11 Publicity. Until the business day after the Closing Date and except for any public disclosure which Buyer or Seller in good faith believes, upon the advice of its legal counsel, is required by law or applicable stock exchange rules, neither party shall issue any press release regarding the transactions contemplated hereby, without the prior written approval of the other party, which shall not be unreasonably withheld. The parties hereto shall issue a mutually acceptable press release as soon as practicable after the execution of this Agreement and as soon as practicable after the Closing. 13.12 Specific Performance. Each party acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each party agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of any foreign country, the United States or any state thereof having jurisdiction over the parties and the matter, in addition to any other remedy to which it may be entitled, at law or in equity. 13.13 Jurisdiction. In the event that any dispute should arise between Buyer and Seller with respect to any matter covered by this Agreement (other than disputes described in Section 10.6), the parties hereto consent to the sole and exclusive jurisdiction of the state and federal courts of the United States and the State of Delaware located in Dover, Delaware in connection with the adjudication of any such dispute. 13.14 Legal Fees. In the event of any litigation between Seller and Buyer arising out of this Agreement, the party prevailing in such litigation shall be entitled to have its reasonable attorneys' fees and expenses reimbursed by the other party. 13.15 Actions. The parties will execute and deliver to the other, from time to time at or after the Closing, for no additional consideration and at no additional cost to the requesting party, such further assignments, certificates, instruments, records, or other documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement. 13.16 Terms. Terms used with initial capital letters will have the meanings specified, applicable to both singular and plural forms, for all purposes of this Agreement. The word "include" and derivatives of that word are used in this Agreement in an illustrative sense rather than limiting sense. 25 30 13.17 Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against either party. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. [Signature Page Following] 26 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. NASHUA CORPORATION By: __________________________ Name:_________________________ Title:________________________ DISTRICT PHOTO INC. By: __________________________ Name:_________________________ Title:________________________ 27 EX-10.17 14 US ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.17 EXECUTION COPY U.S. ASSET PURCHASE AGREEMENT By and Between DISTRICT PHOTO INC. as Buyer and NASHUA PHOTO INC. and PROMOLINK CORPORATION as Sellers Dated as of March 10, 1998 2 TABLE OF CONTENTS Page ARTICLE I - PURCHASE AND SALE OF ASSETS........................................1 1.1 Purchase and Sale of Assets..................................1 1.2 Retained Assets..............................................4 ARTICLE II - ASSUMPTION OF LIABILITIES.........................................4 2.1 Assumed Liabilities..........................................4 2.2 Retained Liabilities.........................................5 2.3 Prorations...................................................5 ARTICLE III - U.S. PURCHASE PRICE..............................................6 3.1 Payment......................................................6 3.2 Allocation of U.S. Purchase Price............................6 3.3 Preparation of Closing Date Net Current Asset Disclosure.....6 ARTICLE IV - CLOSING AND CONDITIONS TO CLOSING.................................8 4.1 General......................................................8 4.2 Documents Delivered by Seller................................8 4.3 Documents Delivered by Buyer.................................9 4.4 Conditions to Closing.......................................10 ARTICLE V - REPRESENTATIONS AND WARRANTIES....................................12 5.1 Representations and Warranties of Seller....................12 5.2 Representations and Warranties of Buyer.....................24 ARTICLE VI - COVENANTS OF SELLER..............................................26 i 3 Page 6.1 Notice of Claims............................................26 6.2 Maintenance of, and Access to, Records......................26 6.3 Non-Solicitation............................................26 6.4 Limitations on Assignability................................27 6.5 Pre-Closing Operations of Seller............................27 6.6 Access to Records and Information...........................28 6.7 No Solicitation of Offers...................................28 6.8 Notices of Certain Events...................................28 6.9 Commercially Reasonable Efforts.............................29 6.10 Risk of Loss................................................29 6.11 Bulk Sales..................................................29 6.12 Employment of Employees; Benefits...........................30 6.13 Employee Benefits Plans.....................................30 ARTICLE VII - COVENANTS OF BUYER..............................................31 7.1 Maintenance of, and Access to, Records......................31 7.2 Commercially Reasonable Efforts.............................31 ARTICLE VIII - INDEMNIFICATION................................................32 ARTICLE IX - TERMINATION......................................................32 9.1 Termination Events..........................................32 9.2 Effect of Termination.......................................32 ARTICLE X - MISCELLANEOUS.....................................................32 10.1 Survival of Representations and Warranties..................32 10.2 Amendments..................................................33 10.3 Notices.....................................................33 10.4 [INTENTIONALLY OMITTED].....................................33 10.5 Waiver......................................................33 10.6 Headings....................................................33 10.7 Entire Agreement............................................33 10.8 Assignment..................................................33 ii 4 Page 10.9 Governing Law; Time of the Essence..........................33 10.10 Counterparts................................................33 10.11 Publicity...................................................34 10.12 Jurisdiction................................................34 10.13 Legal Fees..................................................34 10.14 Actions.....................................................34 10.15 Terms.......................................................34 10.16 Construction................................................34 10.17 Third Parties...............................................34 iii 5 SCHEDULES [Not Included in Filing] Schedule 1.1(a) -- Prepaid Items Schedule 1.1(b) -- Inventory Schedule 1.1(c) -- Accounts Receivable Schedule 1.1(d) -- Tangible Personal Property Schedule 1.1(g) -- Intellectual Property Schedule 1.1(h) -- Listed Contracts Schedule 1.1(i) -- Licenses and Permits Schedule 1.1(j) -- Leases Schedule 1.2 -- Retained Assets Schedule 3.2 -- Allocation of U.S. Purchase Price Schedule 4.4(a)(v)-- Material Adverse Changes Schedule 5.1(d) -- Permitted Encumbrances Schedule 5.1(f) -- Environmental and Safety Compliance Schedule 5.1(g) -- Material Defects Schedule 5.1(i) -- Financial Statements Schedule 5.1(m) -- Litigation Schedule 5.1(n) -- Customers and Suppliers Schedule 5.1(s) -- Labor Matters Schedule 5.1(t) -- Employee Plans Schedule 5.1(u) -- Taxes Schedule 5.1(w) -- Required Consents Schedule 5.1(v) -- Absence of Certain Changes Schedule 5.2(f) -- Pending Litigation Schedule 6.12 -- Transferred Employees EXHIBITS [Not Included in Filing] Exhibit 2.1 -- Form of Instrument of Assumption of Liabilities Exhibit 3.3 -- Net Current Asset Disclosure Exhibit 4.2(d) -- Form of Bill of Sale Exhibit 4.2(f) -- Form of Assignment and Assumption of Lease Exhibit 4.2(k) -- Form of Patent and Trademark Assignment iv 6 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of March 10, 1998, is entered into by and between District Photo Inc., a District of Columbia corporation ("Buyer"), on the one hand, and Nashua Photo Inc., a Delaware corporation and Promolink Corporation, a Delaware corporation (collectively referred to as "Seller"), on the other hand, both of which are wholly-owned subsidiaries of Nashua Corporation. W I T N E S S E T H WHEREAS, Seller is engaged in the United States in the photofinishing business, including the marketing and sale of photo-related products (the "Business"); WHEREAS, Seller desires to sell the Acquired Assets (as defined in Section 1.1) to Buyer; WHEREAS, this Agreement is entered into between Buyer and Seller pursuant to that certain Master Asset Purchase Agreement of even date herewith entered into by and between Nashua Corporation and Buyer (the "Master Agreement"); WHEREAS, Buyer desires to purchase and acquire from Seller, upon the terms and subject to the conditions hereinafter set forth, the Acquired Assets, in consideration of the payment of the U.S. Purchase Price (as defined in Section 3.1) and the assumption by Buyer of the Assumed Liabilities (as defined in Section 2.1); NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, on the basis of, and in reliance upon, the representations, warranties, covenants, obligations and agreements set forth herein, and upon the terms and subject to the conditions contained herein, hereby agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Purchase and Sale of Assets. Subject to the provisions of this Agreement, at the Closing (as defined in the Master Agreement), Seller shall convey, sell, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from Seller, the Business as a going concern comprising all of the assets, properties, rights, privileges, claims, contracts and interests of Seller on the Closing Date (as defined in the Master Agreement), of every 7 kind and description, real, personal or mixed, tangible or intangible, absolute or contingent, wherever situated, whether or not carried or reflected on the books and records of Seller (other than the Retained Assets (as defined in Section 1.2)), free and clear of any and all liens, equities, claims, prior assignments, mortgages, charges, security interests, pledges, restrictions or encumbrances whatsoever (collectively, "Liens"), other than the Permitted Encumbrances (as defined in Section 5.1(d)) (such assets, properties, rights, privileges, claims, contracts and interests collectively referred to as the "Acquired Assets"). Without limiting the generality of the foregoing, the Acquired Assets shall include the following: (a) Prepaid Items. All of Seller's prepaid expenses, advance payments, deposits and prepaid items, including deposits with lessors, suppliers or utilities (collectively, "Prepaid Items"), as described on Schedule 1.1(a); (b) Inventory. All of Seller's inventories, including all inventories of products, work-in-process, finished goods, raw materials, supplies, equipment, parts, labels and packaging (including all of Seller's rights and interests in goods in transit, consigned inventory, inventory sold on approval and rental inventory) and all returned products, samples and obsolete and nonsalable inventory (collectively, "Inventory"), as described on Schedule 1.1(b); (c) Accounts Receivable. All of Seller's accounts receivable, notes receivable and royalties receivable, any payments received by Seller with respect thereto after the Closing Date, unpaid interest accrued thereon, and any security or collateral relating thereto, including all past due, reserved and written off accounts receivable (collectively, "Accounts Receivable"), as described on Schedule 1.1(c) (including aging information with respect to the Accounts Receivable); (d) Tangible Personal Property. All of Seller's motor vehicles, machinery, equipment, office furniture, furnishings, tools, fixtures, office equipment, computer hardware and software, leasehold and other improvements and other tangible personal property (collectively, "Tangible Personal Property"), as described on Schedule 1.1(d); (e) Books, Records and Written Materials. All of Seller's business records, including all financial books and records, sales order files, purchase order files, engineering order files, warranty and repair files, supplier lists, customer lists, dealer, representative and distributor lists, studies, surveys, analyses, strategies, plans, forms, designs, diagrams, drawings, specifications, technical data, production and quality control records, formulations, and any other information which has been reduced to writing (collectively, "Books and Records") (but excluding those books and records described in Section 1.2(a)); 2 8 (f) Catalogs and Advertising Materials. All of Seller's promotional and advertising materials, including all catalogs, brochures, videos, plans, manuals and handbooks; (g) Intellectual Property Rights. All of Seller's trademarks, service marks, trade names, logos, copyrights or patents (and any applications for any of the foregoing and rights therein), together with all claims for damages against Persons by reason of past infringement and the right to sue for and collect such damages, licenses, shop rights, know-how, developments, research data, designs, specifications, drawings, blueprints, technology, ideas, compositions, manufacturing and production principles and techniques, test procedures, processes, formulas, know-how, file reports, certifications, customer and supplier lists, pricing and cost information, confidential information, inventions (whether or not patentable), discoveries, business methods, confidential or proprietary business information and trade secrets and all other intellectual and intangible property rights owned by Seller or to, or in, which Seller has any right or interest whatsoever (where there are multiple copies of such material in Seller's possession or control, all copies of such material) (collectively, the "Intellectual Property"), as described on Schedule 1.1(g) (as used herein, "Person" means a corporation, limited liability company, association, partnership, organization, trust, joint venture or other legal entity, an individual or a Governmental Authority); (h) Contracts. All of Seller's licenses, contracts, agreements, commitments and undertakings, whether oral or written, (including unfilled customer orders) relating to the Acquired Assets or Business to which Seller is a party or by which any of the Acquired Assets are bound (collectively, "Contracts"), of which, only those Contracts that are reflected in Seller's Financial Statements that constitute obligations involving more than $10,000 annually or that are not cancelable by Buyer within thirty (30) days without incurring liability for such cancellation, are described on Schedule 1.1(h) ("Listed Contracts"); (i) Licenses and Permits. All licenses, permits, approvals, franchises, consents and other authorizations held by Seller or related to or used in connection with the Business or the Acquired Assets (collectively, "Licenses and Permits") issued to Seller by any foreign, United States, state or local governmental entity or municipality or subdivision thereof or any authority, department, commission, board, bureau, agency, court or instrumentality (collectively, "Governmental Authorities"), to the extent transferable to Buyer, which Licenses and Permits are described on Schedule 1.1(i); (j) Leases. All of Seller's leases as described on Schedule 1.1(j) (the "Leases"); and 3 9 (k) Other Assets. Excluding the Retained Assets described in Section 1.2, all of the other assets, properties, rights, privileges, claims, contracts and interests of every kind and description, real, personal or mixed, tangible or intangible, absolute or contingent, wherever situated, whether or not carried or reflected on the books and records of Seller, of Seller including such assets, properties, rights, privileges, claims, contracts and interests as are reflected on the Closing Date Net Current Asset Disclosure (as defined in Section 3.3(b)) or which are owned by Seller on the Closing Date, including those customer orders received (whether before, on or after Closing) relating to the Business, which customer orders have not been opened for processing. 1.2 Retained Assets. Notwithstanding anything in this Agreement to the contrary, Seller shall retain, and the Acquired Assets shall not include, any of the assets described on Schedule 1.2, assets disposed of since the date hereof in the ordinary course of business, such other assets as have been or are disposed of pursuant to this Agreement, and the following assets of Seller (collectively, the "Retained Assets"): (a) Corporate Records. Seller's corporate books and records, including stock certificates, treasury stock, stock transfer records, corporate seals and minute books, and Seller's tax returns and tax supporting information, records constituting privileged and confidential attorney-client communications or work product related to the transactions contemplated hereby; (b) Seller Rights under this Agreement. All rights of Seller under this Agreement; and (c) Prepaid Taxes and Tax Refunds. Prepaid foreign, federal, state or local taxes and any rights of Seller to any tax refunds or carry backs. ARTICLE II ASSUMPTION OF LIABILITIES 2.1 Assumed Liabilities. On the terms and subject to the conditions set forth in the Assignment and Assumption Agreement attached hereto as Exhibit 2.1, at the Closing, Buyer shall assume the following liabilities and obligations of Seller (collectively, the "Assumed Liabilities"): (a) Accounts Payable. All of Seller's trade and other accounts payable reflected on the Closing Date Net Current Asset Disclosure; 4 10 (b) Accrued Liabilities. All of Seller's accrued liabilities reflected on the Closing Date Net Current Asset Disclosure. (c) Contracts. All liabilities and obligations of Seller arising under the Contracts which accrue after the Closing; provided, however, that Buyer shall not assume or be responsible for any such liabilities or obligations which arise from defaults thereunder or breaches thereof by Seller prior to or on the Closing Date (whether a claim for any such default or breach is made before or after the Closing). (d) Leases. All contractual liabilities and obligations of Seller under the Leases for time periods after the Closing Date; provided, however, that Buyer shall not assume or be responsible for any such liabilities or obligations which arise from defaults thereunder or breaches thereof by Seller prior to or on the Closing Date or for any Environmental Matters (as defined in Section 2.2) related in any way to the Leases prior to or on the Closing Date (whether a claim for any such default or breach is made before or after the Closing); (e) Taxes. All real and personal property taxes, sales and use taxes attributable to the sale of inventory, payroll taxes and employee withholding tax obligations and other taxes, relating to Buyer's operation of the Business after the Closing. 2.2 Retained Liabilities. Except for the Assumed Liabilities, Seller shall retain all, and Buyer shall have no responsibility for any, of Seller's liabilities and obligations, whether or not relating to the Business or Acquired Assets, whether fixed, contingent or otherwise, and whether known or unknown (collectively, the "Retained Liabilities"). Without limiting the foregoing, Buyer shall not assume or be liable for and Seller shall indemnify Buyer against and hold Buyer harmless from any of the following liabilities for (i) environmental matters ("Environmental Matters") arising under Environmental Laws (as defined in Section 5.1(f)) in connection with violations, disposal, events, occurrences or releases that occurred or are attributable to the period on or prior to the Closing Date; (ii) liabilities incurred by Seller in connection with this Agreement, the transactions provided for herein and any other agreements contemplated hereby, including, without limitation, attorneys' and accountants' fees, and expenses pertaining to the performance by Seller of its obligations hereunder; (iii) liabilities that relate to the Retained Assets; (iv) except for Assumed Liabilities, liabilities arising out of the operation of the Business on or before the Closing; (v) payments, if any, to be made as a result of the purchase and sale of the Business of Seller to certain management personnel of Seller under certain retention and other similar agreements solely in respect to those obligations resulting from the transactions contemplated by this Agreement; (vi) all Federal, state and local franchise and income taxes of Seller, whether relating to periods before or after the transactions contemplated in this Agreement or incurred by Seller in connection with this Agreement 5 11 and the transactions provided for herein, including any liability for such taxes arising out of the inclusion of Seller in any group filing consolidated, combined or unitary tax returns or arising out of any transferee liability; (vii) liabilities with respect to workers' compensation or other employee related claims, including, without limitation, with respect to discrimination, wrongful termination and employee benefits of any kind arising from any facts or circumstances occurring prior to or on the Closing Date; (viii) the employment contracts of Richard Kennedy, Stanley Vaughan and Michael Jeans including, but not limited to, any and all of the employer's responsibilities under such contracts; and (ix) any other liabilities of Seller not specifically assumed by Buyer hereunder. 2.3 Prorations. Except as otherwise provided in Section 2.1, general utility charges, personal property taxes and assessments, and similar proratable items which are attributable to the Acquired Assets, shall be apportioned between Buyer and Seller as follows: any item which relates to the period prior to or on the Closing Date shall, to the extent not accrued on the Closing Date Net Current Asset Disclosure, be apportioned to and paid by Seller, and any such item which relates to the period on or after the Closing Date, whether or not accrued on the Closing Date Net Current Asset Disclosure, shall be apportioned to and paid by Buyer; provided, however, that any special assessments or similar charges in effect or payable prior to the Closing Date shall be paid by Seller prior to the Closing. ARTICLE III U.S. PURCHASE PRICE 3.1 Payment. In full consideration for the conveyance, sale, transfer and assignment of the Acquired Assets, but subject to adjustment as provided in Section 3.3 and satisfaction of all of the conditions contained herein, Buyer shall deliver or cause to be delivered to Nashua Corporation for the account of Seller a cash purchase price of Thirty-Million, Five-Hundred Thousand Dollars ($30,500,000) (the "U.S. Purchase Price"), payable at the Closing by wire transfer of immediately available funds to an account or accounts designated in writing by Seller. 3.2 Allocation of U.S. Purchase Price. Within sixty days after the Closing, the U.S. Purchase Price shall be allocated among the Acquired Assets in the manner required by Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code") and regulations thereunder. Schedule 3.2 shall set forth the amount of the U.S. Purchase Price allocable to the various Acquired Assets. Buyer and Seller agree to each prepare and file on a timely basis with the Internal Revenue Service substantially identical initial and supplemental Internal Revenue Service Forms 8594 "Asset Acquisition Statements Under Section 1060" consistent with Schedule 3.2. 6 12 3.3 Preparation of Closing Date Net Current Asset Disclosure. (a) Seller has delivered to Buyer an unaudited summary of the Accounts Receivable, Inventories and other current assets of the Business as of February 6, 1998 less accounts payable and accrued expenses and other Assumed Liabilities as of February 6, 1998 (the "Net Current Asset Disclosure") which are reflected on the books and records of Seller and are prepared consistently with U.S. generally accepted accounting principles. A copy of the Net Current Asset Disclosure is attached hereto as Exhibit 3.3. The total net amount as set forth on the Net Current Asset Disclosure is referred to herein as the "February 6th Assets." (b) (i) Within thirty (30) business days following the Closing, Seller shall prepare and deliver to Buyer an unaudited summary of those assets and liabilities specified in Section 3.3(a) as of the Closing (the "Closing Date Net Current Asset Disclosure"). The Closing Date Net Current Asset Disclosure shall accurately reflect all Inventories, Accounts Receivable, other current assets, accounts payable and accrued expenses and other Assumed Liabilities which are reflected on the books and records of Seller and shall in all respects be prepared consistently with and utilizing the same accounting policies and valuation procedures as set forth in the Net Current Asset Disclosure. The total net amount as set forth on the Closing Date Net Current Asset Disclosure is referred to herein as the "Closing Date Assets." In the event that the Closing Date Assets have either increased or decreased by any amount from the February 6th Assets, the amount of the increase or decrease (the "U.S. Purchase Price Adjustment") shall be paid by Buyer to Seller (if the Closing Date Assets exceed the February 6th Assets) or by Seller to Buyer (if the February 6th Assets exceed the Closing Date Assets). (ii) The U.S. Purchase Price Adjustment shall be made by wire transfer not later than the close of business on the fifth business day immediately following the date on which the U.S. Purchase Price Adjustment is finally determined, and shall include simple interest on such amount at the rate of 3% plus the prime rate of interest publicly quoted by the Chase Manhattan Bank in New York as of and commencing on the Closing and continuing until the date of full payment hereunder. The Closing Date Net Current Asset Disclosure delivered by Seller and the calculation of the U.S. Purchase Price Adjustment shall be final and binding on the parties hereto, unless within forty-five (45) business days following Seller's delivery of the Closing Date Net Current Asset Disclosure to Buyer, Seller receives from Buyer a report setting forth in detail Buyer's objections to such calculation and any adjustments required. Buyer and Seller shall use reasonable efforts to resolve any dispute, and such resolution shall be in writing and shall be final and binding on the parties hereto. Until the earlier to occur of (i) the mutual agreement of Seller and Buyer as to the appropriate amount of the U.S. Purchase Price Adjustment, or 7 13 (ii) the final determination of the U.S. Purchase Price Adjustment by the Accounting Firm as set forth below, Buyer and Seller shall allow each other reasonable access to each other's books, records and employees pertaining to the Business and cooperate with each other during normal business hours for purposes of computing and/or verifying the information set forth in the Closing Date Net Current Asset Disclosure. (c) If Seller and Buyer have not reached a final resolution with respect to any U.S. Purchase Price Adjustment within thirty (30) business days following Seller's receipt of Buyer's objections, such dispute shall be resolved by the New York City office of Ernst & Young LLP (the "Accounting Firm"). (d) The Accounting Firm shall be instructed to render its decision resolving all matters presented to it within sixty (60) calendar days of receipt by it of Seller's Closing Date Net Current Asset Disclosure or Buyer's objections, whichever is the later. (e) Each party shall bear its own expenses. The determination of the U.S. Purchase Price Adjustment by Accounting Firm shall be final and binding upon the parties. ARTICLE IV CLOSING AND CONDITIONS TO CLOSING 4.1 General. Subject to the conditions set forth in Sections 4.2, 4.3 and 4.4, the Closing as defined in the Master Agreement shall take place at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 at 10:00 AM (Eastern Time) on the Closing Date as defined in the Master Agreement. Failure to close on such date shall not relieve either party hereto of its obligations under this Agreement. All transactions at the Closing shall be deemed to take place simultaneously at 12:01 a.m. Eastern Time on the Closing Date, and no transaction shall be deemed to have been completed and no document or certificate shall be deemed to have been delivered until all transactions are completed and all documents are delivered. 4.2 Documents Delivered by Seller. At the Closing, Seller shall deliver to Buyer the following, duly executed by the appropriate parties, subject to satisfaction of the conditions precedent to the obligations of Seller stated herein: (a) Secretary's Certificate. A certificate executed by the Secretary of Seller confirming the existence, incorporation and good standing of Seller on the Closing Date, attaching copies of the certificate of incorporation and by-laws of Seller, and resolutions 8 14 authorizing and approving the execution, delivery and performance of this Agreement and all other documents and the taking of all action required thereunder or in connection therewith on behalf of Seller, together with an incumbency certificate for Seller; (b) Opinion of Seller's Counsel. An opinion, dated as of the Closing Date, from Hale and Dorr LLP in a form reasonable and customary for similar transactions; (c) Assignment and Assumption of Contracts and Liabilities. An Assignment and Assumption Agreement in the form of Exhibit 2.1; (d) Bill of Sale. A bill of sale and assignment conveying, selling, transferring and assigning the Acquired Assets to Buyer, free and clear of any and all Liens, in the form of Exhibit 4.2(d); (e) Required Consents. All of the Required Consents (as defined in Section 5.1(w)) which are identified on Schedule 5.1(w) as being necessary for consummating the sale of the Acquired Assets and the transactions relating thereto; (f) Assignment and Assumption of Leases. An Assignment and Assumption of each of the Leases in form and substance substantially similar to the attached Exhibit 4.2(f) (which shall include landlords' consents, if required, and confirmation that all rent that is due and owing has been paid and that the landlord knows of no default under such lease); (g) Other Documents. Such other deeds, bills of sale, endorsements, assignments, affidavits, and other instruments of sale, assignment, conveyance and transfer, in form and substance reasonably satisfactory to Buyer and its counsel, as are required to effectively vest in Buyer all of Seller's right, title and interest in and to all of the Acquired Assets, free and clear of any and all Liens; (h) Lien Releases. Such releases and termination statements as are necessary for the termination and release of any and all Liens (other than the Permitted Encumbrances (as defined in Section 5.1(d)) on the Acquired Assets; (i) Releases of Seller Employees from Confidentiality Agreements. Such releases from Seller as are necessary to permit employees of Seller who have signed confidentiality or secrecy agreements with Seller to disclose information to Buyer; (j) Officer's Certificate. A certificate dated the Closing Date and executed by an executive officer of Seller to the effect that each of the conditions specified in Section 4.4(a) is satisfied; and 9 15 (k) Patent and Trademarks. Patent and trademark assignments in form and substance substantially similar to the attached Exhibit 4.2(k). 4.3 Documents Delivered by Buyer. At the Closing, Buyer shall deliver to Seller the following, duly executed by the appropriate parties, subject to satisfaction of the conditions precedent to the obligations of Buyer stated herein: (a) Secretary's Certificate. A certificate executed by the Secretary of Buyer, confirming the existence, incorporation and good standing of Buyer on the Closing Date, attaching copies of the articles of incorporation and by-laws of Buyer, and resolutions authorizing and approving the execution, delivery and performance of this Agreement and all other documents and the taking of all action required thereunder or in connection therewith on behalf of Buyer, together with an incumbency certificate for Buyer; (b) Assignment and Assumption of Contracts and Liabilities. An Instrument of Assumption of Liabilities in the form of Exhibit 2.1; (c) Assignment and Assumption of Leases. An Assignment and Assumption of each of the Leases in form and substance substantially similar to the attached Exhibit 4.2(f); (d) Officer's Certificate. A certificate dated the Closing Date and executed by an executive officer of Buyer to the effect that each of the conditions specified in Section 4.4(b) is satisfied; (e) Payment of U.S. Purchase Price. Payment of the U.S. Purchase Price in the manner and the amount set forth in Article III; and (f) Opinion of Buyer's Counsel. An opinion, dated as of the Closing Date, from Wilmer, Cutler & Pickering in a form reasonable and customary for similar transactions. 4.4 Conditions to Closing. (a) Conditions to Obligations of Buyer. The obligation of Buyer to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole discretion of Buyer, by a written instrument signed by Buyer. 10 16 (i) Fulfillment of Seller's Covenants. Each of Nashua Corporation, Seller and the Asset Sellers shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by it prior to the Closing Date under this Agreement, the Master Agreement and the Asset Purchase Agreements. (ii) Accuracy of Seller's Representations. The representations and warranties of Seller contained in this Agreement shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Seller has provided Buyer with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Seller in this Agreement not to be true and correct on the Closing Date (a "Seller's Notice"), then Buyer shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 4.4(a)(ii) to be satisfied, or (ii) elect to close the transactions contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 4.4(a)(ii) to be satisfied, in which event Buyer shall be deemed to have waived the condition to Closing specified in this Section 4.4(a)(ii) with respect to the matters specified in Seller's Notice and shall not seek or be entitled to indemnification under Article VIII with respect to only the matters specified in Seller's Notice. (iii) Authorizations and Consents. Seller shall have obtained and made all governmental or other authorizations, approvals, consents, permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Seller of the transactions contemplated by this Agreement. (iv) No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing from occurring shall be in effect (each party agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). (v) No Material Adverse Changes. Since December 31, 1997, there shall have been no material adverse changes in Seller's business operations, affairs, prospects, properties, assets existing and potential liabilities, obligations, profits or condition (financial or otherwise) of the Business ("Material Adverse Change") or an adverse change in Seller which would have a material adverse effect on Seller's ability to perform its obligations under this Agreement except as set forth on Schedule 4.4(a)(v). 11 17 (b) Conditions to Obligations of Seller. The obligation of Seller to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole discretion of Seller, by a written instrument signed by Seller. (i) Fulfillment of Buyer's Covenants. Buyer shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by it prior to the Closing Date under this Agreement. (ii) Accuracy of Buyer's Representations. The representations and warranties of Buyer contained in this Agreement shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Buyer has provided Seller with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Buyer in this Agreement not to be true and correct on the Closing Date (a "Buyer's Notice"), then Seller shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 4.4(b)(ii) to be satisfied, or (ii) elect to close the transactions contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 4.4(b)(ii) to be satisfied, in which event Seller shall be deemed to have waived the condition to Closing specified in this Section 4.4(b)(ii) with respect to the matters specified in Buyer's Notice and shall not seek or be entitled to indemnification under Article VIII with respect to only the matters specified in Buyer's Notice. (iii) Authorizations and Consents. Buyer shall have obtained and made all governmental or other authorizations, approvals, consents, permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Buyer of the transactions contemplated by this Agreement. (iv) No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing is in effect (each party agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). 12 18 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties of Seller. Except as set forth on an appropriate Disclosure Schedule, Seller represents and warrants to Buyer that the statements contained in this Section 5.1 are on the date hereof true and correct and on the Closing Date will be, repeated true and correct as so made again: (a) Organization and Standing; Power and Authority. (i) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full corporate power and authority to operate the Business, to own or lease the Acquired Assets, to carry on the Business as now being conducted, and to make and perform this Agreement, and the transactions and other agreements and instruments contemplated by this Agreement. Seller is qualified to do business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect upon the Business or the Acquired Assets. (ii) This Agreement has been, and all other agreements and instruments to be executed and delivered by Seller in connection herewith have been, or as of the Closing Date will have been, duly executed and delivered by Seller. This Agreement constitutes, and the other agreements and instruments all executed or to be executed by Seller in connection with the transactions contemplated hereby constitute, or when executed and delivered by Seller will constitute, the valid and binding obligations of Seller, enforceable in accordance with their respective terms, except to the extent that enforceability may be limited by bankruptcy, receivership, moratorium, conservatorship, reorganization or other laws of general application affecting the rights of creditors generally or by general principles of equity ("Debtor Relief Laws"). (iii) The execution, delivery and performance of this Agreement and all other agreements and instruments to be executed and delivered by Seller have been approved by all necessary corporate action by Seller. (b) Certificates of Incorporation and By-Laws. The copies of the Certificate of Incorporation and By-Laws of Seller, certified by its Secretary and delivered by Seller to Buyer, are true, correct and complete as of the date of this Agreement and have not been amended or modified in any respect. (c) Conflicts; Defaults. 13 19 (i) Neither the execution and delivery of this Agreement and the other agreements and instruments executed in connection herewith by Seller, nor the performance by Seller of the transactions contemplated hereby or thereby, will (A) violate, conflict with, or constitute a default under, any of the terms of Seller's Certificate of Incorporation or By-Laws, or any provisions thereof, or, subject to obtaining the Required Consents (as defined in Section 5.1(w)), result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to the Business or the Acquired Assets, or by which Seller or the Acquired Assets are bound, including the Contracts, (B) result in the creation or imposition of any Liens in favor of any third person or entity upon any of the Acquired Assets, (C) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority, or (D) constitute an event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration, or creation or imposition of Liens. (ii) Seller is not, as of the date of this Agreement, in violation of or in default under its Certificate of Incorporation or By-Laws, or any provision of any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to the Business or the Acquired Assets, or by which Seller or the Acquired Assets is bound, including the Contracts, or in the payment of any of Seller's monetary obligations or debts, and there exists no condition or event which, after notice or lapse of time or both, would result in any such violation or default. (d) Acquired Assets; Title; Required Consents. (i) The Acquired Assets and the Retained Assets are the only properties and assets owned by Seller. The Acquired Assets being conveyed to Buyer under this Agreement constitute all of the assets used in or necessary to conduct the Business in substantially the same manner as currently conducted by Seller. The Acquired Assets set forth in the Net Current Asset Disclosure are not stated in amounts in excess of their respective realizable values. (ii) Seller has good and indefeasible right, title and interest in and to all of the Acquired Assets, and Seller has the right to use and, subject to obtaining the Required Consents, to transfer to Buyer all of the Acquired Assets. All of the Acquired Assets are free and clear of all Liens and claims of any kind or nature whatsoever, except for the Liens set forth on Schedule 5.1(d) (the "Permitted Encumbrances"). Except as disclosed on Schedule 5.1(d), all of the Acquired Assets are in the sole possession and under the sole control of Seller. The delivery to Buyer of the instruments of transfer of 14 20 ownership contemplated by this Agreement will vest good and indefeasible title to the Acquired Assets in Buyer, free and clear of all Liens and claims of any kind or nature whatsoever, except the Permitted Encumbrances. (iii) Each leasehold interest in any personal property ("Leased Personal Property") or any real property ("Leased Real Property"), which leasehold interest is part of the Acquired Assets, is in full force and effect and enforceable against Seller and the other parties thereto, in accordance with its terms, and there does not exist any material violation, breach or default by Seller or to Seller's knowledge by any other party thereto, thereof or thereunder. (iv) The Tangible Personal Property and the Leased Personal Property are in reasonably good operating condition and repair, reasonable wear and tear excepted, and adequate for the intended purposes thereof and no material maintenance, replacement or repair has been deferred or neglected. The Leased Personal Property is in a condition suitable for return to the lessor of such equipment, as required under the applicable lease therefor. (v) The conveyance, sale, transfer and assignment of the Acquired Assets does not require any consents or approvals of any entity, individual or Governmental Authority other than the Required Consents (as defined in Section 5.1(w)); (e) Real Property. Seller owns no real property that is used in the Business. (f) Environmental and Safety Compliance. Except as disclosed on Schedule 5.1(f): (i) Neither (A) the operation of the Business by Seller or agents under the direction and control of Seller, (B) the ownership, use or operation of the Acquired Assets by Seller or agents under the direction and control of Seller, nor (C) the manufacture or sale by Seller or agents under the direction and control of Seller of the processes, results or products of Seller, has violated or violates any foreign, federal, state or local statute, law, common law, rule, regulation, ordinance or order relating to air, water or noise pollution, employee health and safety, or the production, storage, labeling, transportation or disposition of waste or hazardous or toxic substances, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Toxic Substances Control Act of 1976, as amended, the Resource Conservation Recovery Act of 1976, as amended, the Clean Air Act, as amended, the Federal Water Pollution Control Act, as amended, or the Occupational Safety and Health Act of 1970 ("OSHA") (collectively, the "Environmental Laws"). Notwithstanding 15 21 the foregoing, Seller's operation of the Business complies only in all material respects with OSHA. Seller has not received notice of any violation of any of the Environmental Laws, which has not been or is not being corrected, provided that Seller makes no representation hereunder with respect to Buyer's operation of the Business or the Acquired Assets after the Closing. (ii) Seller has timely obtained all licenses and permits and timely filed all reports required to be filed under the Environmental Laws. (iii) Seller has not, and no other person has, stored any chemical substances, including any "Hazardous Substances", "Pollutants" or "Contaminants" (as such terms are defined in CERCLA), or petroleum (including crude oil or any fraction thereof), all of which are collectively referred to as "Chemical Substances", on, beneath or about any of the properties to be transferred to Buyer in connection with Seller's operations of the Business, except for inventories of such Chemical Substances to be used, and wastes generated therefrom, in the ordinary course of the business of Seller (which inventories and wastes, if any, were stored and disposed of in compliance with the Environmental Laws, including storage so that there was no release of any Chemical Substance to the environment which violated, or created any liability or obligation under, the Environmental Laws). (iv) Seller has not, and no other person has, buried, dumped or otherwise disposed of, or permitted the intentional or accidental release of, any Chemical Substances, including any Hazardous Substances, Pollutants or Contaminants on, beneath or about the properties to be transferred to Buyer in connection with Seller's operation of the Business. (v) Seller has not received any notice from any Governmental Authority or private or public entity advising Seller that it is potentially responsible for response costs with respect to a release or threatened release of Hazardous Substances, Pollutants or Contaminants in respect to the properties to be transferred to Buyer. (vi) Seller has not, and no other person has installed, used, owned or operated any underground storage tank on or beneath the properties to be transferred to Buyer in connection with Seller's operation of the Business. (vii) There are no polychlorinated biphenyls, asbestos-containing materials or radioactive substances on, beneath or about the properties to be transferred to Buyer in connection with Seller's operation of the Business. (viii) To Seller's knowledge, no environmental approvals, clearances or consents are required under applicable law from any entity or authority in order for the 16 22 parties to consummate the transactions contemplated by this Agreement (other than such as correspond to Licenses and Permits) or for Buyer to transact the Business after the Closing Date. (ix) Seller has disclosed, prior to the date of this Agreement, its waste practices, its use of Chemical Substances and all potentially material environmental matters and has disclosed all material reports, assessments, remedial action plans or other similar documents relating to the environmental condition of Seller's properties to be transferred to Buyer and operations. (g) Leases. Schedule 1.1(j) contains a description of all real and personal property leased by Seller in the conduct of the Business and all Leases thereto. (i) True, complete and accurate copies of all Leases, together with all amendments thereto, have previously been provided to Buyer. With respect to any Lease to which Seller is a party, Seller warrants that: (a) each such Lease has been duly authorized and executed by Seller, has not been modified, altered, terminated or revoked and is in full force and effect; and (b) Seller, as the present tenant under the Leases, is not in default under or in breach of any of such Leases. Seller knows of no existing fact or condition which could give rise to any such breach or default, or any claim against Seller, under the Leases. To the best of Seller's knowledge, the present lessors under the Leases are not in default thereunder, or in breach thereof, and Seller knows of no existing fact or condition which could give rise to any such breach or default, or any claim against such lessors under such leases. (ii) Taxes. To Seller's knowledge, there are no taxes or betterment assessments other than ordinary real estate taxes, business and occupation tax or franchise tax (reimbursed to the landlords pursuant to the applicable Leases) pending or payable against the Leased Real Property. (iii) Utilities. All water, sewer, gas, electric, telephone, drainage and other utility equipment required by law or necessary for the current operation of the Leased Real Property are installed and connected to the Leased Real Property and such utilities are available in sufficient quantities and such connections are adequate to service the Leased Real Property as it is currently used and operated. (iv) Conditions. Except as set forth on Schedule 5.1(g), to Seller's knowledge, there are no material defects in the physical condition of any improvements constituting a part of the Leased Real Property. 17 23 (v) Compliance with Law; Government Approvals. Seller has received no notice from any governmental authority of any violation of any law, ordinance, regulation, license, permit or authorization issued with respect to any of the Leased Real Property that has not been corrected heretofore and no such violation exists which could have a material adverse effect. (h) Contracts. Each of the Listed Contracts as set forth on Schedule 1.1(h) is in full force and effect, and is a legal, binding and enforceable obligation of Seller and, to Seller's knowledge, of the other parties thereto or against the parties thereto, subject to the Debtor Relief Laws. Neither Seller nor, to Seller's knowledge, any other party to any Contract is currently in breach or has improperly terminated any such Contract, or is in default under any Contract by which it is bound, and there exists no condition or event which, after notice or lapse of time or both, would constitute any such breach, termination or default. Except where third party consent to disclose has not been obtained, Seller has delivered to Buyer true, correct and complete copies of such Contracts, an accurate and complete description of such oral Contracts, if any, and all modifications and amendments thereto. (i) Financial Statements of Seller. (i) In respect to the Business, Seller has delivered to Buyer its unaudited financial statements including: (i) Balance Sheets, (ii) Statements of Income and (iii) Statements of Cash Flow for the fiscal years ended 1995, 1996 and 1997 (collectively, the "Financial Statements", copies of which are attached hereto as Schedule 5.1(i)). The Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles consistently followed throughout the periods covered by such statements, and, at the statement dates and for the periods of the income statements, present fairly, in all material respects, the assets, liabilities, financial position and results of operations of the Business. (ii) The Net Current Asset Disclosure has been prepared in accordance with U.S. generally accepted accounting principles. (j) Liabilities. Seller has no liabilities or obligations (in excess of $50,000 individually or $100,000 in the aggregate) of any nature whatsoever, whether absolute, accrued, contingent or otherwise, except for those (i) reflected or reserved on the Net Current Asset Disclosure or Closing Date Net Current Asset Disclosure (ii) incurred or accrued since February 6, 1998 in transactions involving the purchase or sale of goods and services in the ordinary course of business, and consistent with the representations, warranties, covenants, obligations and agreements contained herein, or (iii) under the Contracts (exclusive of any liabilities or obligations which arise from defaults thereunder 18 24 or breaches thereof prior to the Closing). There exists no event or circumstance which, after notice or lapse of time or both, might create any other obligations or liabilities of Seller with respect to the Business. (k) Accounts Receivable. All Accounts Receivable reflected on the Net Current Asset Disclosure have arisen in the ordinary course of the Business and are collectible in accordance with their terms net of any respective reserves shown on the Seller's books and records as of the date hereof. All Accounts Receivable represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. There is no contest, claim or right of set-off, other than rebates and returns or exchanges in kind arisen in the ordinary course of business, under any contract with any obligor of an Account Receivable relating to the contract or validity of such Account Receivable. (l) Inventories. All of Seller's Inventory reflected on the Net Current Asset Disclosure or Closing Date Net Current Asset Disclosure are usable or salable in the ordinary and normal course of business, of which the value is carried at the lower of cost or market and reflects write-offs, write-downs or reserves for damaged, excess or obsolete items in accordance with the historical inventory policy and practices of Seller. (m) Pending Litigation. Except as set forth on Schedule 5.1(m), there is no litigation, claim, action, suit, proceeding, governmental investigation or inquiry pending or, to Seller's knowledge, threatened, against or in any manner involving Seller, relating to the Business, the Acquired Assets, the Assumed Liabilities or the transactions contemplated hereby. Seller is not subject to any judgment, decree, injunction, award or order outstanding relating to the Business or the Acquired Assets or the transactions contemplated hereby. (n) Customers and Suppliers. Except for employees of Seller, no parties or individuals other than those listed on Schedule 5.1(n) have had access to its customer lists, and Seller has maintained reasonably adequate measures to maintain the confidentiality of its customer lists. Since September 30, 1997, no substantial supplier has: (i) stopped, or indicated an intention to stop, trading with or supplying Seller, (ii) reduced, or indicated an intention to reduce, substantially its trading with or provision of goods or services to Seller, or (iii) changed, or indicated an intention to change, materially the terms and conditions on which it is prepared to trade with or supply Seller. No substantial supplier has informed Seller that, as a result of the transactions contemplated by this Agreement, that it intends to (i) not trade with or supply Buyer, (ii) reduce substantially its trading with or provision of goods or services to Buyer, or (iii) change the terms and conditions on which it is prepared to trade with or supply Buyer, as compared to Seller. Seller has no knowledge of any facts, conditions or events which might give rise to a claim 19 25 by Seller against any of its suppliers or any claim by a supplier against Seller. Seller has not entered into any agreement or commitment with suppliers, except in the ordinary course, consistent with past practice. Except as set forth on Schedule 5.1(n), none of Seller's suppliers of materials to the Business is the sole source of such supply. (o) Regulatory Compliance. The Business has been conducted, and the Acquired Assets have been owned, used, operated and maintained, in full compliance with all applicable laws, regulations and other requirements of Governmental Authorities. Seller is not now in violation of any applicable laws, regulations or orders of any Governmental Authority, and no material expenditures are or will be required in order for the conduct of the Business or the ownership, use, operation or maintenance of the Acquired Assets to comply with any applicable laws, regulations or orders of any Governmental Authorities. (p) Brokers, Finders and Agents. Except for BT Alex. Brown Incorporated, whose fees and expenses shall be the sole responsibility of Seller or its Affiliates, Seller is not directly or indirectly obligated to anyone acting as a broker, finder or in any other similar capacity in connection with this Agreement or the transactions contemplated hereby. (q) Intellectual Property. Except as set forth on Schedule 1.1(g), Seller owns or has the exclusive right to use, free and clear of any payment, restriction or encumbrance, all Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted. There is no claim or demand of any person pertaining to, or any proceedings which are pending or, to the best of Seller's knowledge, threatened, which relate to any Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted. No Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any Governmental Authority or infringes, violates or constitutes a misappropriation of the rights of others, or is being infringed, violated or misappropriated by others or used by others (whether or not such use constitutes infringement). The Business does not involve employment of any person in a manner which violates any non-competition or non-disclosure agreement which such person entered into in connection with any former employment. All statements of fact contained in any application for patents in any country, for trademark registration in any country or copyright registration in any country, that were filed by or on behalf of Seller are true, accurate, and complete in every material respect, and are in material compliance with applicable patent laws, and all pending patent applications, issued patents, pending trademark registration applications and copyright registration applications, and issued trademark and copyright registrations have been duly and properly filed. 20 26 (r) Licenses and Permits. Set forth on Schedule 1.1(i) is a true and complete list of all Licenses and Permits. The Licenses and Permits include all licenses, permits and other authorizations from all Governmental Authorities (i) currently used by Seller in connection with the Business, or (ii) required to permit Seller to operate the Business in the manner in which it presently is conducted. (s) Labor Matters. Except as set forth on Schedule 5.1(s), with respect to employees of and service providers to Seller: (i) Seller is and has been in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such laws respecting employment discrimination, workers' compensation, family and medical leave, the Immigration Reform and Control Act and occupational safety and health requirements, and has not and is not engaged in any unfair labor practice; and no sex, age, disability, gender, race or religious discrimination claim has been made against Seller; (ii) there is not now, nor within the past three years has there been any unfair labor practice complaint against Seller pending or threatened before the National Labor Relations Board or any other comparable authority; there is not now, nor within the past three years has there been any labor strike, lock-out, slowdown or work stoppage actually pending or threatened against or directly affecting the Business; no labor representation organization effort exists nor has there been any such activity within the past three years; and no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims therefor exist or have been threatened; (iii) with respect to employees of the Business in the United States, the employees of Seller are not represented by any labor union and no collective bargaining agreement is binding and in force against Seller or currently being negotiated by Seller; (iv) all employees of Seller who are transferred pursuant to Section 6.12 are employed on an at-will basis and may be terminated without cause and without penalty or liability to Seller; and (v) All individuals who are or were performing services and are or were classified as "independent contractors" for tax purposes qualify or qualified for such classification, and Seller has fully and accurately reported their compensation on IRS Forms 1099 when required to do so. 21 27 (t) Employee Plans. (i) As used in this Section 5.1(t), the following terms have the meanings set forth below. (I) "Benefit Arrangement" means any benefit arrangement, obligation, custom, or practice, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, agents, or independent contractors, other than any obligation, arrangement, custom or practice that is a Plan, including, without limitation, employment agreements, severance agreements, executive compensation arrangements, incentive programs or arrangements, sick leave, vacation pay, severance pay policies, plant closing benefits, salary continuation for disability, consulting, or other compensation arrangements, workers' compensation, retirement, deferred compensation, bonus, stock option or purchase, hospitalization, medical insurance, life insurance, tuition reimbursement or scholarship programs, any plans subject to Section 125 of the Internal Revenue Code of 1986, as amended (the "Code"), and any plans providing benefits or payments in the event of a change of control, change in ownership, or sale of a substantial portion (including all or substantially all) of the assets of any business or portion thereof, in each case with respect to any present or former employees, directors, or agents. (II) "ERISA Affiliate" means any person that, together with Seller, would be or was at any time treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and any general partnership of which Seller is or has been a general partner. (III) "Multiemployer Plan" means any plan described in Section 3(37) of ERISA. (IV) "Qualified Plan" means any Seller Plan that meets, purports to meet, or is intended to meet the requirements of Section 401(a) of the Code. (V) "Pension Plan" means any plan described in Section 3(2)(A) of ERISA and any comparable plan that is not subject to ERISA because it applies to non-U.S. employees. (VI) "Seller Benefit Arrangement" means any Benefit Arrangement sponsored or maintained by Seller or with respect to which Seller has or may have any liability (whether actual, contingent, with respect to any of its assets or 22 28 otherwise), in each case with respect to any present or former directors, employees, or agents of Seller. (VII) "Seller Plan" means any Plan for which Seller is or has been the "plan sponsor" (as defined in Section 3(16)(B) of ERISA) or any Plan maintained by Seller or to which Seller is obligated to make payments, in each case with respect to any present or former employees of Seller. (ii) Schedule 5.1(t) contains a complete and accurate list of all Seller Plans and Seller Benefit Arrangements. Schedule 5.1(t) identifies all Seller Plans that (i) are Qualified Plans, or (ii) provide for continuing benefits or coverage for any participant or any beneficiary of a participant after such participant's termination of employment, other than coverage or benefits that meet only the requirements of Part 6 of Title I of ERISA or Section 4980B(f) of the Code where the cost of such coverage or benefits is paid 100% by the participant or beneficiary. (iii) With respect to Plans and Benefit Arrangements, (I) true, correct and complete copies all of the following documents with respect to all Seller Plans and Seller Benefit Arrangements have been delivered to Buyer: (A) all plan documents, including but not limited to trust agreements, insurance policies, service agreements and formal and informal amendments thereto, (B) summary plan descriptions and summaries of material modifications, (C) the written descriptions of all non-written agreements relating to any such plan or arrangement, and (D) employee manuals or handbooks containing personnel or employee relations policies; (II) all group health plans of Seller and its ERISA Affiliate have been operated in material compliance with the requirements of Sections 4980B (and its predecessor) and 5000 of the Code, and Seller has provided, or will have provided before the Closing Date, to individuals entitled thereto all required notices and coverage pursuant to Section 4980B with respect to any "qualifying event" (as defined therein) occurring before or on the Closing Date; and (III) no Transferred Employee has been promised or provided, and no Seller Plan or Seller Benefit Arrangement provides, with respect to Transferred Employees, medical or other welfare benefit coverage beyond the termination of employment except as required by COBRA or comparable state law. (iv) With respect to Plans and Benefit Arrangements, Seller has not declared or paid any bonus or incentive compensation in contemplation of the transactions contemplated by this Agreement in respect to which Buyer shall be obligated. 23 29 (u) Taxes. Seller has timely filed or received an appropriate time extension for the filing of all Federal, state, local and foreign income, personal property, FICA, withholding, excise, unemployment, sales and franchise tax returns and reports relating to Seller and the Business due as of the date hereof, and has fully paid and discharged all taxes due as indicated on such returns. Except as set forth in Schedule 5.1(u), no deficiencies for any taxes, assessment or other governmental charges have been asserted in writing or assessed against Seller which remain unpaid. Seller is not under audit with respect to any sales taxes related to the Business. (v) [INTENTIONALLY OMITTED] (w) Required Consents. Except for those consents or approvals which may be required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and described on Schedule 5.1(w), no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with any individual, entity or Governmental Authority (collectively, "Required Consents") is required in connection with the execution, delivery or performance of this Agreement by Seller or the consummation by Seller of the transactions contemplated herein. (x) Absence of Certain Changes. Since December 31, 1997, except as set forth on Schedule 5.1(v) and Schedule 4.4(a)(v), there has not been: (i) any Material Adverse Change; (ii) any acquisition or disposition of any asset or property, or any agreement to do the same other than in the ordinary and regular course of business; (iii) created, incurred or permitted to exist any Lien on any of the Acquired Assets, except for Permitted Encumbrances; (iv) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting, either in any case or in the aggregate, the financial condition, results of operations or properties of the Business; (v) any increase in salary, bonuses or other compensation of any officers, employees, agents or independent contracts employed by Seller, except in the ordinary course of business, consistent with past practice, or any increase in executive compensation nor has Seller entered into any employment, severance or other agreements, nor amended any Seller Plan or Seller Benefit Arrangement in a manner that increases liabilities; 24 30 (vi) any individual capital expenditures in excess of $50,000 related to the Business; (vii) any non-cash dividend or non-cash distribution out of the Business; (viii) any change in accounting methods or practices, credit practices or collection policies used by Seller that would affect the Financial Statements; or (ix) any other event or condition experienced by Seller of any character which has materially adversely affected or could so materially adversely affect the assets, liabilities, financial position, results or operations, net worth or prospects of Seller. (y) Books and Records. The Books and Records are complete and correct in all material respects. Seller has made available to Buyer for examination the original or true and correct copies of all the Books and Records. (z) Affiliate Transactions. No director, officer or employee of any Affiliate of Seller, or member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is a party to any transaction with Seller. (aa) Accuracy of Representations. None of the representations, warranties or statements of Seller contained in this Agreement, in the Schedules and Exhibits hereto or in any other agreement or instrument executed or delivered by or on behalf of Seller at the Closing in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the representations, warranties or statements made, in the context in which made, not false or misleading. 5.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller that the statements contained in this Section 5.2 are on the date hereof true and correct and on the Closing Date will be repeated true and correct as so made again: (a) Organization and Standing; Power and Authority. 25 31 (i) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia, and has full corporate power and authority to make and perform this Agreement, and to perform the transactions contemplated by this Agreement. (ii) This Agreement has been, and all other agreements and instruments to be executed and delivered by Buyer in connection herewith have been, or as of the Closing Date will have been, duly executed and delivered by Buyer. This Agreement constitutes, and the other agreements and instruments all executed or to be executed by Buyer in connection with the transactions contemplated hereby constitute, or when executed and delivered by Buyer will constitute, the valid and binding obligations of Buyer, enforceable in accordance with their respective terms, except to the extent that enforceability may be limited by Debtor Relief Laws. (iii) The execution, delivery and performance of this Agreement and all other agreements and instruments to be executed and delivered by Buyer have been approved by all necessary corporate action by Buyer. (b) Articles of Incorporation and By-Laws. The copies of the Articles of Incorporation and By-Laws of Buyer, certified by its Secretary and delivered by Buyer to Seller, are true, correct and complete as of the date of this Agreement and have not been amended or modified in any respect. (c) Conflicts; Defaults. (i) Neither the execution and delivery of this Agreement and the other agreements and instruments executed in connection herewith by Buyer, nor the performance by Buyer of the transactions contemplated hereby or thereby, will (A) violate, conflict with, or constitute a default under, any of the terms of Buyer's Articles of Incorporation or By-Laws, or any provisions of, or result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree to which Buyer is party or subject, (B) result in the creation or imposition of any Liens in favor of any third person or entity upon any of the assets of Buyer, (C) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority, or (D) constitute an event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration, or creation or imposition of Liens. (ii) Buyer is not, as of the date of this Agreement, in violation of or in default under its Articles of Incorporation or By-Laws, or any provision of any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, 26 32 lease, agreement, instrument, order, judgment or decree relating to its business, or by which Buyer is bound or in the payment of any of Buyer's monetary obligations or debts. (d) Brokers, Finders and Agents. Buyer is not directly or indirectly obligated to anyone as a broker, finder or in any other similar capacity in connection with this Agreement or the transactions contemplated hereby. (e) Required Consents. To the knowledge of Buyer, all Required Consents, which must be obtained or satisfied by Buyer for the consummation of the transactions contemplated by this Agreement have been obtained and satisfied. (f) Pending Litigation. Except as set forth on Schedule 5.2(f), no action, suit, or proceeding is pending or, to Buyer's knowledge, threatened against it before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge which would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (iii) affect adversely the right of Buyer to own the Acquired Assets and to operate the Business and no written notice of the initiation of any such action, suit or proceeding has been received. (g) Accuracy of Representations. None of the representations, warranties or statements of Buyer contained in this Agreement or in any other agreement or instrument executed or delivered by or on behalf of Buyer at the Closing in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the representations, warranties or statements made, in the context in which made, not false or misleading. ARTICLE VI COVENANTS OF SELLER 6.1 Notice of Claims. Seller covenants and agrees with Buyer that for the first twelve (12) months after the Closing Date, it shall give Buyer ten (10) days' prior written notice of its intent to assert any claim against any former supplier of Seller which, at the time of the assertion, is a supplier of Buyer. 6.2 Maintenance of, and Access to, Records. After the Closing Date, Seller shall provide Buyer with reasonable access (with an opportunity to make copies at Buyer's expense), during normal business hours, and upon reasonable advance notice, to all books 27 33 records relating to the Business which are retained by it in accordance with this Agreement. Seller shall preserve and maintain the books and records relating to the Business retained by Seller for at least seven (7) years after the Closing Date or longer if required by any governmental agency. 6.3 Non-Solicitation. During the period commencing on the Closing Date and through and until the date five (5) years after the Closing Date, Seller and its Affiliates shall not, for any reason whatsoever, directly or indirectly, call upon or solicit any Covered Employee for the purpose or with the intent of enticing such employee away from or out of the employ of Buyer. As used herein, "Covered Employee" means an employee of Seller on the Closing Date who accepts employment with Buyer on or promptly after the Closing Date. 6.4 Limitations on Assignability. To the extent that any of the contract rights of Seller to be sold, transferred or assigned hereunder are not assignable without the consent of a third party, neither this Agreement, nor any of the instruments or documents executed and delivered in connection herewith or contemplated hereby, shall constitute an assignment or assumption thereof, or attempted assignment or attempted assumption thereof, if such assignment or attempted assignment, or assumption or attempted assumption, would constitute a breach thereof. If Seller has not obtained a consent or approval necessary for the assignment of any contract right to be assigned hereunder, then Seller shall use commercially reasonable efforts where required by Buyer to obtain such consents and approvals after the Closing, or, at Buyer's request, shall cooperate in any reasonable and mutually acceptable arrangement to provide to Buyer the benefits thereof subject to the performance by Buyer of Seller's obligations arising or to be performed after the Closing thereunder. Nothing contained in this Section 6.4 shall require Buyer to enter into, or to accept as a substitute for performance by Seller hereunder, any arrangement that would impose any additional cost, expense or liability on Buyer, or that would deprive Buyer of any benefits contemplated by this Agreement. In respect to any Contract that is not a Listed Contract nor is required to be a Listed Contract under Schedule 1.1(h), and provided Seller provides a list of such Contracts prior to Closing, Buyer shall have the option to assume or reject any such Contracts. In the event Buyer elects to assume such a Contract, Buyer shall assume its liabilities and obligations pursuant to Section 2.1(c). In the event Buyer elects to reject such a Contract, Seller shall retain all rights, obligations and liabilities associated therewith. In respect to any Contract that is not a Listed Contract nor is required to be a Listed Contract under Schedule 1.1(h) and of which Seller does not provide notice prior to Closing, Buyer shall assume any such Contracts, provided that if Buyer incurs any net loss by reason of any such assumption, Seller shall reimburse Buyer for Buyer's losses with respect to all such Contracts in excess of $25,000 in the aggregate. 28 34 6.5 Pre-Closing Operations of Seller. Except as contemplated by this Agreement or as otherwise approved in writing by Buyer, from the date hereof until the Closing Date, Seller will conduct the Business in the ordinary course consistent with past practice (including, but not limited to, payment of all accounts payable as they come due consistent with past practice). Buyer shall have no access to Seller's employees or facilities except pursuant to Section 6.6. Subject to the foregoing exceptions, from the date hereof until the Closing Date: (a) Mergers and Sales. Seller will not merge, consolidate, or enter into a share exchange with any other corporation or other business entity, acquire any material stock or any material amount of assets of any other corporation or business entity, sell, lease, license, mortgage, pledge, or otherwise dispose of any material assets; (b) New Commitments; Non-Disclosure. Seller will not make any commitment or enter into any contract or agreement that is not in the ordinary course of business consistent with past practice, and neither Seller, nor any officer, employee, agent or representative of Seller shall sell or disclose Seller's customer lists to any third party except in the ordinary course of business consistent with past practice and to third parties as disclosed in Schedule 5.1(n); and (c) Compensation Increase. Seller will not increase in any manner the compensation or fringe benefits of any of its directors or officers, pay any pension or retirement allowance to any directors or officers, or become a party to, amend, or commit itself to any pension, retirement, profit-sharing, welfare benefit plan, or employment agreement with or for the benefit of any director or officer or amend any Seller Plan or Seller Benefit Arrangement, other than general increases in the compensation of, and the payment of bonuses to, officers in the ordinary course of business consistent with past practice. 6.6 Access to Records and Information. From the date hereof until the Closing Date, Seller will, upon reasonable advance notice, give Buyer's authorized representatives reasonable access during regular business hours to the offices, properties, books, and records of Seller, and will furnish to its authorized representatives such financial and operating data and other information as such persons may reasonably request, for the purpose of evaluating changes in the financial condition, results of operations, or business of Seller after the date of this Agreement except any information in respect to prices or other competitive practices of Seller and will instruct Seller's employees having custody of such data, counsel, and financial advisors to cooperate with Buyer in its evaluation. Buyer shall communicate with respect to obtaining such data only with such employees of Seller as Seller has designated to Buyer in advance. 29 35 6.7 No Solicitation of Offers. Except as permitted in the Master Agreement, Seller shall use its best efforts to ensure that it does not take, directly or indirectly, any of the following actions with any party other than Buyer or its designees: (i) solicit, initiate, or participate in any negotiations, inquiries or discussions with respect to any Acquisition Proposal (as defined in the Master Agreement); (ii) disclose, in connection with an Acquisition Proposal, any information with respect to, or otherwise cooperate in any way with, or assist or participate in, any effort or attempt by any other person to do or seek any of the foregoing; (iii) enter into or execute any agreement relating to an Acquisition Proposal; or (iv) make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal other than with respect to the transactions contemplated by this Agreement. 6.8 Notices of Certain Events. In addition to any notices required under the Master Agreement, Seller shall promptly notify Buyer of the following: (a) Notice of Third Party that Consent is Required. Any notice or other communication from any person alleging that the consent of any third party is or may be required in connection with the transactions contemplated by this Agreement; (b) Notice from Governmental Authority. Any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) Legal Proceedings. Any actions, suits, claims, investigations, or proceedings commenced or threatened against, relating to, or involving or otherwise affecting Seller that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant hereto or that relate to the consummation of the transactions contemplated by this Agreement; and (d) Agreement Default. Any notice of, or other communication relating to, a default, or an event with notice or lapse of time or both would become a default, under any material agreement that is received by Seller subsequent to the date of this Agreement. 6.9 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, Seller will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable under applicable laws or regulations to consummate the transactions contemplated by this Agreement, and will use commercially reasonable efforts to obtain such approvals and take such actions as are necessary, including without limitation using its best efforts to obtain all consents of any Person, whether private or governmental, so that the transactions 30 36 contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby. 6.10 Risk of Loss. Seller will bear the risk of loss or damage to the Acquired Assets resulting from fire, theft, or other casualty at all times prior to and on the Closing. If any such loss or damage is so substantial as to prevent normal operation of any material portion of Seller's Business or the replacement or restoration of the lost or damaged material Asset within thirty (30) days after the occurrence of the event resulting in such loss or damage, Seller will immediately notify Buyer and Buyer, at any time within ten (10) days after receipt of such notice, may elect by written notice to Seller either (a) to waive such defect and proceed toward consummation of the acquisition of the Acquired Assets in accordance with the terms hereof, or (b) terminate this Agreement. If Buyer elects to consummate the transactions contemplated by this Agreement, there will be no separate adjustment in the U.S. Purchase Price related to such loss or damage but all insurance proceeds payable as a result of the occurrence of the event resulting in such loss or damage will be delivered by Seller to Buyer, or the rights to such proceeds will be assigned by Seller to Buyer and Seller will pay to Buyer (or Buyer may withhold from the U.S. Purchase Price) an amount equal to any deductible amount charged to Seller against the proceeds due for such loss. 6.11 Bulk Sales. It may not be practicable to comply or attempt to comply with the procedures of the bulk sales or bulk transfers acts or laws of any or all of the states or other jurisdictions in which the Assets are situated (or of any state or jurisdiction) which may be asserted to be applicable to the transactions contemplated hereby. Buyer and Seller therefore waive any requirements for compliance with any or all of such laws. 6.12 Employment of Employees; Benefits. At or prior to the Closing, Buyer shall offer employment as of the Closing Date to all employees of Seller employed by Seller in the conduct of the Business to whom it would be legal for Buyer to offer employment at Seller's facility located in Parkersburg, West Virginia, except to the President of Nashua Photo Inc. and those Shift B employees of Seller who were laid off or suspended effective February 17, 1998 (the "Transferred Employees"). The Transferred Employees are listed on Schedule 6.12 to be provided at Closing. Schedule 6.12 shall also set forth each Transferred Employee's salary level, years of uninterrupted employment and years of service for benefit plan purposes. Buyer shall offer employment to each Transferred Employee at the same or substantially equivalent cash compensation as that provided by Seller to Transferred Employee immediately prior to the Closing Date. For purposes of severance benefits solely, Buyer shall, to the extent applicable, recognize with respect solely to each salaried employee who is a Transferred Employee, such salaried employee's years of service and level of seniority with Seller or any of its subsidiaries and such severance benefits shall be (i) provided during the first year after Closing and (ii) be equivalent to the greater of Seller's severance benefits or that required under the Warn Act, 31 37 as defined in Section 6.13(c). At or prior to the Closing, at Buyer's sole discretion, Buyer may offer employment as of the Closing Date to those employees of Seller located at Seller's facility located in Nashua, New Hampshire. 6.13 Employee Benefits Plans. (a) The rights of all Sellers' employees, participating under the Nashua Corporation's qualified defined benefit plans, to wit: Nashua Corporation's Retirement Plan for Salaried Employees and Nashua Corporation's Hourly Retirement Plan ("Defined Benefit Plan" and collectively the "Defined Benefit Plans") who become employees of Buyer shall be governed by the provisions of the Defined Benefit Plans as amended to the date of such employees' termination of employment with Seller. If it is determined that the sale of the Business and the termination of the employment of the employees of Seller as a result thereof did not constitute a "partial termination" of the Defined Benefit Plans, or either of them, within the meaning of Section 411(d)(3) of the Code, then Seller shall take such steps as are necessary to amend such Defined Benefit Plan or Plans so that service with Buyer shall constitute service under such Defined Benefit Plan or Plans but only for purposes of and only to the extent that such service with Buyer would have constituted vesting service under such Defined Benefit Plan or Plans if such service had been rendered to the Seller rather than Buyer. (b) Seller will retain and discharge all of the rights and duties and obligations of Seller relating to and arising under Seller's Plans and Seller Benefit Arrangements with respect to employees of the Business for and with respect to the period on or before the Closing Date without regard to whether Buyer hires such employees. Seller will retain and discharge any obligations to the employees of the Business with respect to vacation, sick leave and severance benefits relating to the period on or before the Closing Date. (c) If Buyer terminates the employment of any employee of the Business after Closing, Buyer shall be responsible for all obligations in connection with such termination, including, without limitation, obligations under the Worker Adjustment and Retraining Notification Act of 1988 ("Warn Act") or COBRA. Seller will be responsible for providing coverage under ERISA Section 601 et seq. and all notices under the Warn Act for persons employed or formerly employed by the Business (and their beneficiaries) relating to any terminations or other qualifying events occurring on or before the Closing Date. (d) The parties agree that no provision in this Agreement requires Buyer to retain any employee or to establish or maintain any Benefit Arrangement or Plan other 32 38 than, for one year after the Closing Date, the severance arrangement for salaried Transferred Employees described in Section 6.12. ARTICLE VII COVENANTS OF BUYER 7.1 Maintenance of, and Access to, Records. Buyer shall provide Seller with reasonable access (with an opportunity to make copies at Seller's expense) during normal business hours, and upon reasonable advance notice, to all books and records turned over to Buyer in accordance with this Agreement. Buyer shall preserve and maintain such books and records for at least seven (7) years after the Closing Date or longer if required by guidelines of the Internal Revenue Service. 7.2 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, Buyer will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement, and will use commercially reasonable efforts to obtain such approvals and take such actions as are necessary, including without limitation using its best efforts to obtain all consents of any Person, whether private or governmental, so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby. ARTICLE VIII INDEMNIFICATION The indemnification provisions of the Master Agreement shall apply to Buyer and Seller. ARTICLE IX TERMINATION 9.1 Termination Events. Subject to the other provisions of this Article IX, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned: (a) By Buyer or Seller upon termination of the Master Agreement; 33 39 (b) By mutual written consent of Seller and Buyer; (c) By Buyer pursuant to Section 4.4(a); (d) By Seller pursuant to Section 4.4(b); (e) As otherwise provided in Article 12 of the Master Agreement; or (f) By Buyer pursuant to Section 6.10. 9.2 Effect of Termination. In the event this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties hereunder shall terminate, except as provided in Section 12.2 of the Master Agreement. No termination of this Agreement shall act to terminate or otherwise impair the obligations set forth in Section 13.4 of the Master Agreement (Expenses). ARTICLE X MISCELLANEOUS 10.1 Survival of Representations and Warranties. All covenants and obligations to be performed after the Closing Date contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing and expire in accordance with their respective terms. All representations and warranties contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing for a period of eighteen (18) months; provided, however, that any representations and warranties contained herein related to tax, benefits and environmental matters and the covenants under Section 6.13 of this Agreement shall survive the Closing for a period of six (6) months beyond the applicable federal or state statute of limitations (including extensions thereto). The waiver of any condition, based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, reimbursement, or other remedy based upon such representations, warranties, covenants or obligations. 10.2 Amendments. This Agreement may be amended only by a written agreement signed by Seller and Buyer. 10.3 Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or sent in accordance with Section 13.3 of the Master Agreement. 34 40 10.4 [INTENTIONALLY OMITTED] 10.5 Waiver. Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement. 10.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 10.7 Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, constitutes the entire agreement, and supersedes all other prior agreements (except as identified in the Master Agreement) and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter thereof. 10.8 Assignment. This Agreement shall not be assigned by either Buyer or Seller or by operation of law or otherwise, except with the written consent of the other party; provided, however, that Buyer shall be permitted to assign this Agreement as set forth in Section 13.8 of the Master Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 10.9 Governing Law; Time of the Essence. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (excluding the conflict of laws provisions thereof). Time is of the essence in the performance of this Agreement. 10.10 Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement. 10.11 Publicity. No press releases or public disclosure, written or oral, of the transactions contemplated by this Agreement shall be made by Buyer or Seller except in accordance with Section 13.11 of the Master Agreement. 10.12 Jurisdiction. In the event that any dispute should arise between Buyer and Seller with respect to any matter covered by this Agreement (other than disputes described in Section 3.3(c)), the parties hereto consent to the sole and exclusive jurisdiction of the state and federal courts of the United States and the State of Delaware located in Dover, Delaware in connection with the adjudication of any such dispute. 35 41 10.13 Legal Fees. In the event of any litigation between Seller and Buyer arising out of this Agreement, the party prevailing in such litigation shall be entitled to have its reasonable attorneys' fees and expenses reimbursed by the other party. 10.14 Actions. The parties will execute and deliver to the other, from time to time at or after the Closing, for no additional consideration and at no additional cost to the requesting party, such further assignments, certificates, instruments, records, or other documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement. 10.15 Terms. All capitalized terms used herein shall have the meanings specified in this Agreement, or, if not so specified, the meanings specified in the Master Agreement. The word "include" and derivatives of that word are used in this Agreement in an illustrative sense rather than limiting sense. The term "Buyer's knowledge" or "Seller's knowledge" or words of similar import or limitation means the actual knowledge or conscious awareness, without independent investigation, of any executive officer of Buyer or Seller, as the case may be. 10.16 Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against either party. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. 10.17 Third Parties. Nothing expressed or implied herein is intended, or shall be construed, to confer upon or give any person or entity, including any employee of Seller, other than Seller and Buyer any rights or remedies under or by reason of this Agreement. [Signature Page Following] 36 42 IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this Agreement as of the date first above written. BUYER DISTRICT PHOTO INC. By:________________________________ Name: Title: SELLER NASHUA PHOTO INC. By:________________________________ Name: Title: PROMOLINK CORPORATION By:________________________________ Name: Title: 37 EX-10.18 15 UK ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.18 EXECUTION COPY U.K. ASSET PURCHASE AGREEMENT By and Between DISTRICT PHOTO INC. as Buyer and NASHUA PHOTO LIMITED as Seller Dated as of March 10, 1998 2 TABLE OF CONTENTS ARTICLE I - PURCHASE AND SALE OF ASSETS........................................1 1.1 Purchase and Sale of Assets..................................1 1.2 Retained Assets..............................................4 ARTICLE II - ASSUMPTION OF LIABILITIES.........................................4 2.1 Assumed Liabilities..........................................4 2.2 Retained Liabilities.........................................5 2.3 Prorations...................................................5 ARTICLE III - PURCHASE PRICE...................................................6 3.1 Payment......................................................6 3.2 Allocation of U.K. Purchase Price............................6 3.3 Preparation of Closing Date Net Current Asset Disclosure.....6 ARTICLE IV - CLOSING AND CONDITIONS TO CLOSING.................................7 4.1 General......................................................7 4.2 Documents Delivered by Seller................................7 4.3 Documents Delivered by Buyer.................................9 4.4 Conditions to Closing........................................9 ARTICLE V - REPRESENTATIONS AND WARRANTIES....................................11 5.1 Representations and Warranties of Seller....................11 5.2 Representations and Warranties of Buyer.....................23 ARTICLE VI - COVENANTS OF SELLER..............................................25 6.1 Notice of Claims............................................25 6.2 Maintenance of, and Access to, Records......................25 6.3 Non-Solicitation............................................25 6.4 Limitations on Assignability................................26 6.5 Pre-Closing Operations of Seller............................26 6.6 Access to Records and Information...........................27 6.7 No Solicitation of Offers...................................27 6.8 Notices of Certain Events...................................27 6.9 Commercially Reasonable Efforts.............................28 6.10 Risk of Loss................................................28 6.11 Transfer of Undertakings Regulations........................28 ARTICLE VII - COVENANTS OF BUYER..............................................28 7.1 Maintenance of, and Access to, Records......................28 7.2 Commerically Reasonable Efforts.............................29 7.3 Pension Plan................................................29 ARTICLE VIII - REAL PROPERTY..................................................29 ii 3 8.1 General.....................................................29 8.2 Conditions of Sale..........................................30 8.3 Assignment of Leased Real Property.........................31 ARTICLE IX - INDEMNIFICATION..................................................35 ARTICLE X - TERMINATION.......................................................35 10.1 Termination Events..........................................35 10.2 Effect of Termination.......................................35 ARTICLE XI - MISCELLANEOUS....................................................36 11.1 Survival of Representations and Warranties..................36 11.2 Amendments..................................................36 11.3 Notices.....................................................36 11.4 [Intentionally Omitted].....................................36 11.5 Waiver......................................................36 11.6 Headings....................................................36 11.7 Entire Agreement............................................36 11.8 Assignment..................................................36 11.9 Governing Law; Time of the Essence..........................37 11.10 Counterparts................................................37 11.11 Publicity...................................................37 11.12 Jurisdiction................................................37 11.13 Legal Fees..................................................37 11.14 Actions.....................................................37 11.15 Terms.......................................................37 11.16 Construction................................................37 11.17 Third Parties...............................................37 11.18 Value Added Tax.............................................38 11.19 Phase II Environmental Report...............................38 11.20 U.K. Statutes...............................................39 11.21 Transfer of Employees.......................................39 11.22 Restrictive Trade Practices Act.............................39 11.23 Temporary Services Agreement................................39 iii 4 SCHEDULES [Not Included in Filing] Schedule 1.1(a) -- Prepaid Items Schedule 1.1(b) -- Inventory Schedule 1.1(c) -- Accounts Receivable Schedule 1.1(d) -- Tangible Assets Schedule 1.1(g) -- Intellectual Property Schedule 1.1(h) -- Listed Contracts Schedule 1.1(i) -- Licenses and Permits Schedule 1.1(k) -- Leases Schedule 1.2 -- Retained Assets Schedule 3.2 -- Allocation of Purchase Price Schedule 4.4(a)(v) -- Material Adverse Change Schedule 5.1(d) -- Permitted Encumbrances Schedule 5.1(e) -- Leased Real Property Schedule 5.1(f) -- Environmental and Safety Compliance Schedule 5.1(g) -- Leases Schedule 5.1(i) -- Financial Statements Schedule 5.1(m) -- Litigation Schedule 5.1(n) -- Customers and Suppliers Schedule 5.1(s) -- Labor Matters Schedule 5.1(t) -- Employee Plans Schedule 5.1(v) -- Required Consents Schedule 5.1(w) -- Absence Certain Changes Schedule 8.2(d) -- Assurances of Leased Real Property iv 5 EXHIBITS [Not Included in Filing] Exhibit 2.1 -- Form of Assignment and Assumption Agreement Exhibit 3.3 -- Net Current Asset Disclosure Exhibit 4.2(d) -- Form of Bill of Sale Exhibit 4.2(k) -- Patent and Trade Mark Assignments Exhibit 11.23 -- Temporary Services Agreement v 6 INDEX OF DEFINED TERMS Accounts Receivable............................................................2 Accounting Firm................................................................7 Acquired Assets................................................................2 Acquisition Proposal............................................Master Agreement Affiliate.......................................................Master Agreement Agreement......................................................................1 Application...................................................................33 Assumed Liabilities............................................................4 Assurance.....................................................................31 Benefit Arrangements..........................................................22 Books and Records..............................................................2 Business.......................................................................1 Buyer..........................................................................1 Buyer's Notice................................................................11 Chemical Substances...........................................................17 Closing.........................................................Master Agreement Closing Date....................................................Master Agreement Closing Date Assets............................................................6 Closing Date Net Current Asset Disclosure......................................6 Contracts......................................................................3 Debtor Relief Laws............................................................12 Environmental Laws............................................................17 7 Environmental Matters..........................................................5 February 6th Assets............................................................6 Financial Statements..........................................................18 Governmental Authorities.......................................................3 Intellectual Property..........................................................3 Inventory......................................................................2 Leased Assets.................................................................14 Leased Real Property...........................................................3 Leases.........................................................................3 Licenses and Permits...........................................................3 Liens..........................................................................2 Listed Contracts...............................................................3 Master Agreement...............................................................1 Material Adverse Change.......................................................10 National Conditions...........................................................30 Net Current Asset Disclosure...................................................6 OFT...........................................................................40 Order.........................................................................39 Pension Plan..................................................................22 Pensionable Employees.........................................................30 Permitted Encumbrances........................................................13 Person.........................................................................3 Prepaid Items..................................................................2 Required Consents.............................................................23 Retained Assets................................................................4 Retained Liabilities...........................................................5 8 RPTA..........................................................................40 Seller.........................................................................1 Seller Benefit Arrangements...................................................22 Seller's Notice...............................................................10 Tangible Assets................................................................2 Transfer of Undertakings Regulations..........................................21 UK Purchase Price..............................................................6 UK Purchase Price Adjustment...................................................6 VAT...........................................................................39 VATA..........................................................................39 9 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of March 10, 1998, is entered into by and between District Photo Inc, a District of Columbia corporation ("Buyer"), on the one hand, and Nashua Photo Limited, a company incorporated in England and Wales having its registered office at Brunel Road, Newton Abbot, Devon TQ12 4PB on the other hand, which is a wholly-owned subsidiary of Nashua Corporation ("Seller"). W I T N E S S E T H WHEREAS, Seller is engaged in the United Kingdom in the photofinishing business, including the marketing and sale of photo-related products (the "Business"); WHEREAS, Seller desires to sell the Acquired Assets (as defined in Section 1.1) to Buyer; WHEREAS, this Agreement is entered into between Buyer and Seller pursuant to that certain Master Asset Purchase Agreement of even date herewith entered into by and between Nashua Corporation and Buyer (the "Master Agreement"); WHEREAS, Buyer desires to purchase and acquire from Seller, upon the terms and subject to the conditions hereinafter set forth, the Acquired Assets, in consideration of the payment of the UK Purchase Price (as defined in Section 3.1) and the assumption by Buyer of the Assumed Liabilities (as defined in Section 2.1); NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, on the basis of, and in reliance upon, the representations, warranties, covenants, obligations and agreements set forth herein, and upon the terms and subject to the conditions contained herein, hereby agree as follows: 10 ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Purchase and Sale of Assets. Subject to the provisions of this Agreement, at the Closing (as defined in the Master Agreement), Seller shall convey, sell, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from Seller, the Business as a going concern comprising all of the assets, properties, rights, privileges, claims, contracts and interests of Seller on the Closing Date (as defined in the Master Agreement), of every kind and description, real, personal or mixed, tangible or intangible, absolute or contingent, wherever situated, whether or not carried or reflected on the books and records of Seller (other than the Retained Assets (as defined in Section 1.2)), free and clear of any and all liens, equities, claims, prior assignments, mortgages, charges, security interests, pledges, restrictions or encumbrances whatsoever (collectively, "Liens"), other than the Permitted Encumbrances (as defined in Section 5.1(d)) (such assets, properties, rights, privileges, claims, contracts and interests collectively referred to as the "Acquired Assets"). Without limiting the generality of the foregoing, the Acquired Assets shall include the following: (a) Prepaid Items. All of Seller's prepaid expenses, advance payments, deposits and prepaid items, including deposits with lessors, suppliers, or utilities (collectively, "Prepaid Items"), as described on Schedule 1.1(a); (b) Inventory. All of Seller's inventories, including all inventories of products, work-in-process, finished goods, raw materials, supplies, equipment, parts, labels and packaging (including all of Seller's rights and interests in goods in transit, consigned inventory, inventory sold on approval and rental inventory) and all returned products, samples and obsolete and nonsalable inventory (collectively, "Inventory"), as described on Schedule 1.1(b); (c) Accounts Receivable. All of Seller's accounts receivable, notes receivable and royalties receivable, any payments received by Seller with respect thereto after the Closing Date, unpaid interest accrued thereon, and any security or collateral relating thereto, including all past due, reserved and written off accounts receivable (collectively, "Accounts Receivable"), as described on Schedule 1.1(c) (including aging information with respect to the Accounts Receivable); (d) Tangible Assets. All of Seller's tangible assets (other than Leased Real Property and Inventory) including motor vehicles, machinery, equipment, office furniture, furnishings, tools, fixtures, office equipment, computer hardware and software, leasehold and other improvements 11 (collectively, "Tangible Assets"), as described on Schedule 1.1(d); (e) Books, Records and Written Materials. All of Seller's business records, including all financial books and records, sales order files, purchase order files, engineering order files, warranty and repair files, supplier lists, customer lists, dealer, representative and distributor lists, studies, surveys, analyses, strategies, plans, forms, designs, diagrams, drawings, specifications, technical data, production and quality control records, formulations, and any other information which has been reduced to writing (collectively, "Books and Records") (but excluding those books and records described in Section 1.2(a)); (f) Catalogs and Advertising Materials. All of Seller's promotional and advertising materials, including all catalogs, brochures, videos, plans, manuals and handbooks; (g) Intellectual Property Rights. All of Seller's trademarks, service marks, trade names, logos, copyrights or patents (and any applications for any of the foregoing and rights therein), together with all claims for damages against Persons by reason of past infringement and the right to sue for and collect such damages, licenses, shop rights, know-how, developments, research data, designs, specifications, drawings, blueprints, technology, ideas, compositions, manufacturing and production principles and techniques, test procedures, processes, formulas, know-how, file reports, certifications, customer and supplier lists, pricing and cost information, confidential information, inventions (whether or not patentable), discoveries, business methods, confidential or proprietary business information and trade secrets and all other intellectual and intangible property rights owned by Seller or to, or in, which Seller has any right or interest whatsoever (where there are multiple copies of such material in Seller's possession or control, all copies of such material) (collectively, the "Intellectual Property"), as described on Schedule 1.1(g) (as used herein, "Person" or "Persons" means a corporation, limited liability company, association, partnership, organization, trust, joint venture or other legal entity, an individual or a Governmental Authority); (h) Contracts. All of Seller's licenses, contracts, agreements, commitments and undertakings, whether oral or written, (including unfilled customer orders) relating to the Acquired Assets or Business to which Seller is a party or by which any of the Acquired Assets are bound excluding the leases for the Leased Real Property (collectively, "Contracts"), of which, only those Contracts that are reflected in Seller's Financial Statements that constitute obligations involving more than $10,000 annually or that are not cancelable by Buyer within thirty (30) days without incurring liability for such cancellation are described on Schedule 1.1(h) ("Listed Contracts"); 3 12 (i) Licenses and Permits. All licenses, permits, approvals, franchises, consents and other authorizations held by Seller or related to or used in connection with the Business or the Acquired Assets (collectively, "Licenses and Permits") issued to Seller by any foreign, United Kingdom or local governmental entity or municipality or subdivision thereof or any authority, department, commission, board, bureau, agency, court or instrumentality (collectively, "Governmental Authorities"), to the extent transferable to Buyer, which Licenses and Permits are described on Schedule 1.1(i); (j) Leased Real Property. All of Seller's leasehold interest in real property used in connection with the Business ("Leased Real Property"); (k) Leases. All of Seller's leases as described on Schedule 1.1(k) (the "Leases") excluding Leased Real Property; and (l) Other Assets. Excluding the Retained Assets described in Section 1.2, all of the other assets, properties, rights, privileges, claims, contracts and interests of every kind and description, real, personal or mixed, tangible or intangible, absolute or contingent, wherever situated, whether or not carried or reflected on the books and records of Seller, of Seller including such assets, properties, rights, privileges, claims, contracts and interests as are reflected on the Closing Date Net Current Asset Disclosure (as defined in Section 3.3(b)) or which are owned by Seller on the Closing Date, including those customer orders received (whether before, on or after Closing) relating to the Business, which customer orders have not been opened for processing. 1.2 Retained Assets. Notwithstanding anything in this Agreement to the contrary, Seller shall retain, and the Acquired Assets shall not include, any of the assets described on Schedule 1.2, assets disposed of since the date hereof in the ordinary course of business, such other assets as have been or are disposed of pursuant to this Agreement, and the following assets of Seller (collectively, the "Retained Assets"): (a) Corporate Records. Seller's corporate books, registers and records, including share certificates, share transfer records, corporate seals and minute books, and Seller's tax returns and tax supporting information, records constituting privileged and confidential attorney-client communications or work product related to the transactions contemplated hereby; (b) Seller Rights under this Agreement. All rights of Seller under this Agreement; 4 13 and (c) Prepaid Taxes and Tax Refunds. Prepaid foreign or United Kingdom taxes and any rights of Seller to any tax refunds or carry backs. ARTICLE II ASSUMPTION OF LIABILITIES 2.1 Assumed Liabilities. On the terms and subject to the conditions set forth in the Assignment and Assumption Agreement attached hereto as Exhibit 2.1, at the Closing, Buyer shall assume the following liabilities and obligations of Seller (collectively, the "Assumed Liabilities"): (a) Accounts Payable. All of Seller's trade and other accounts payable reflected on the Closing Date Net Current Asset Disclosure; (b) Accrued Liabilities. All of Seller's accrued liabilities reflected on the Closing Date Net Current Asset Disclosure; (c) Contracts. All liabilities and obligations of Seller arising under the Contracts which accrue after the Closing; provided, however, that Buyer shall not assume or be responsible for any such liabilities or obligations which arise from defaults thereunder or breaches thereof by Seller prior to or on the Closing Date (whether a claim for any such default or breach is made before or after the Closing); (d) Leases. All contractual liabilities and obligations of Seller under the Leases and the leases of the Leased Real Property for time periods after the Closing Date; provided, however, that (subject in the case of the Leased Real Property to the provisions of the relevant Assurance) Buyer shall not assume or be responsible for any such liabilities or obligations which arise from defaults thereunder or breaches thereof by Seller prior to the Closing Date or for any Environmental Matters (as defined in Section 2.2) related in any way to the Leases or the leases of the Leased Real Property prior to or on the Closing Date (whether a claim for any such default or 5 14 breach is made before or after the Closing); (e) Taxes. All taxes attributable to the sale of inventory, payroll taxes and employee withholding tax obligations and other taxes, relating to Buyer's operation of the Business after the Closing. 2.2 Retained Liabilities. Except for the Assumed Liabilities, Seller shall retain all, and Buyer shall have no responsibility for any, of Seller's liabilities and obligations, whether or not relating to the Business or Acquired Assets, whether fixed, contingent or otherwise, and whether known or unknown (collectively, the "Retained Liabilities"). Without limiting the foregoing, Buyer shall not assume or be liable for and Seller shall indemnify Buyer against and hold Buyer harmless from any of the following liabilities for (i) environmental matters ("Environmental Matters") arising under Environmental Laws (as defined in Section 5.1(f)) in connection with violations, disposal, events, occurrences or releases that occurred or are attributable to the period on or prior to the Closing Date; (ii) liabilities incurred by Seller in connection with this Agreement, the transactions provided for herein and any other agreements contemplated hereby, including, without limitation, attorneys' and accountants' fees, and expenses pertaining to the performance by Seller of its obligations hereunder; (iii) liabilities that relate to the Retained Assets; (iv) except for Assumed Liabilities, liabilities arising out of the operation of the Business on or before the Closing; (v) payments, if any, to be made as a result of the purchase and sale of the Business of Seller to certain management personnel of Seller under certain retention and other similar agreements and, in the case of Nigel Jeffers under his employment contract, solely in respect of those obligations resulting from the transactions contemplated by this Agreement; (vi) subject to Section 11.18 all tax liabilities of Seller, whether relating to periods before or after the transactions contemplated in this Agreement or incurred by Seller in connection with this Agreement and the transactions provided for herein, including any liability for such taxes arising out of the inclusion of Seller in any group filing consolidated, combined or unitary tax returns or arising out of any transferee liability; (vii) liabilities with respect to workers' compensation or other employee related claims, including, without limitation, with respect to discrimination, unfair dismissal, redundancy, wrongful termination and employee benefits of any kind arising from any acts or omissions occurring prior to or on the Closing Date; and (viii) any other liabilities of Seller not specifically assumed by Buyer hereunder. 2.3 Prorations. Except as otherwise provided in Section 2.1, general utility charges, rates, water rates, council tax, and assessments, and similar proratable items which are attributable to the Acquired Assets, shall be apportioned between Buyer and Seller as follows: any item which relates to the period prior to or on the Closing Date shall, to the extent not accrued on the Closing Date Net Current Asset Disclosure, be apportioned to and paid by Seller, and any such item which relates to the period on or after the Closing Date, whether or not accrued on the Closing Date Net Current Asset Disclosure, shall be apportioned to and paid by Buyer, provided, however, that any special 6 15 assessments or similar charges in effect or payable prior to the Closing Date shall be paid by Seller prior to the Closing. ARTICLE III PURCHASE PRICE 3.1 Payment. In full consideration for the conveyance, sale, transfer and assignment of the Acquired Assets, but subject to adjustment as provided in Section 3.3 and satisfaction of all of the conditions contained herein, Buyer shall deliver or cause to Nashua Corporation for the account of Seller a cash purchase price of Twenty Million US Dollars ($20,000,000) (the "UK Purchase Price"), payable at the Closing by wire transfer of immediately available funds to an account or accounts designated in writing by Seller. 3.2 Allocation of UK Purchase Price. Within 60 days after the Closing the parties shall use all reasonable endeavours to agree in good faith an allocation of the UK Purchase Price among the Acquired Assets to be set forth on Schedule 3.2. 3.3 Preparation of Closing Date Net Current Asset Disclosure. (a) Seller has delivered to Buyer an unaudited summary of the Accounts Receivable, Inventories and other current assets of the Business as of February 6, 1998 less accounts payable and accrued expenses and other Assumed Liabilities as of February 6, 1998 (the "Net Current Asset Disclosure") which are reflected in the books and records of Seller and are prepared consistently with US generally accepted accounting principles. A copy of the Net Current Asset Disclosure is attached hereto as Exhibit 3.3. The total net amount as set forth on the Net Current Asset Disclosure is referred to herein as the "February 6th Assets." (b) Within thirty (30) business days following the Closing, Seller shall prepare and deliver to Buyer an unaudited summary of those assets and liabilities specified in paragraph 3.3(a) as of the Closing (the "Closing Date Net Current Asset Disclosure"). The Closing Date Net Current Asset Disclosure shall accurately reflect all Inventories, Accounts Receivable, other current assets, accounts payable and accrued expenses and other Assumed Liabilities which are reflected on the books and records of Seller and shall in all respects be prepared consistently with and utilizing the same accounting policies and valuation procedures as set forth in the Net Current Asset Disclosure. 7 16 The total net amount as set forth on the Closing Date Net Current Asset Disclosure is referred to herein as the "Closing Date Assets." In the event that the Closing Date Assets have either increased or decreased by any amount from the February 6th Assets, the amount of the increase or decrease (the "UK Purchase Price Adjustment") shall be paid by Buyer to Seller (if the Closing Date Assets exceed the February 6th Assets) or by Seller to Buyer (if the February 6th Assets exceed the Closing Date Assets). The UK Purchase Price Adjustment shall be made by wire transfer not later than the close of business on the fifth business day immediately following the date on which the UK Purchase Price Adjustment is finally determined, and shall include simple interest on such amount at the rate of 3% plus the prime rate of interest publicly quoted by the Chase Manhattan Bank in New York as of and commencing on the Closing and continuing until the date of full payment hereunder. The Closing Date Net Current Asset Disclosure delivered by Seller and the calculation of the UK Purchase Price Adjustment shall be final and binding on the parties hereto, unless within forty-five (45) business days following Seller's delivery of the Closing Date Net Current Asset Disclosure to Buyer, Seller receives from Buyer a report setting forth in detail Buyer's objections to such calculation and any adjustments required. Buyer and Seller shall use reasonable efforts to resolve any dispute, and such resolution shall be in writing and shall be final and binding on the parties hereto. Until the earlier to occur of (i) the mutual agreement of Seller and Buyer as to the appropriate amount of the UK Purchase Price Adjustment, or (ii) the final determination of the UK Purchase Price Adjustment by the Accounting Firm as set forth below, Buyer and Seller shall allow each other reasonable access to each other's books, records and employees pertaining to the Business and cooperate with each other during normal business hours for purposes of computing and/or verifying the information set forth in the Closing Date Net Current Asset Disclosure. (c) If Seller and Buyer have not reached a final resolution with respect to any UK Purchase Price Adjustment within thirty (30) business days following Seller's receipt of Buyer's objections, such dispute shall be resolved by the New York City office of Ernst & Young (the "Accounting Firm"). (d) The Accounting Firm shall be instructed to render its decision resolving all matters presented to it within sixty (60) calendar days of receipt by it of Seller's Closing Date Net Current Asset Disclosure or Buyer's objections, whichever is the later. (e) Each party shall bear its own expenses. The determination of the UK Purchase Price Adjustment by Accounting Firm shall be final and binding upon the parties. ARTICLE IV 8 17 CLOSING AND CONDITIONS TO CLOSING 4.1 General. Subject to the conditions set forth in Sections 4.2, 4.3 and 4.4, the Closing as defined in the Master Agreement shall take place at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 at 10:00AM (Eastern Time) on the Closing Date as defined in the Master Agreement. Failure to close on such date shall not relieve either party hereto of its obligations under this Agreement. All transactions at the Closing shall be deemed to take place simultaneously at 12:01 a.m. Eastern Time on the Closing Date, and no transaction shall be deemed to have been completed and no document or certificate shall be deemed to have been delivered until all transactions are completed and all documents are delivered. 4.2 Documents Delivered by Seller. At the Closing, Seller shall deliver to Buyer the following, duly executed by the appropriate parties, subject to satisfaction of the conditions precedent to the obligations of Seller stated herein: (a) Secretary's Certificate. A certificate executed by the Secretary or a Director of Seller confirming the existence, incorporation and good standing of Seller on the Closing Date, attaching copies of the Certificate of Incorporation, Memorandum and Articles of Association of Seller, and resolutions authorizing and approving the execution, delivery and performance of this Agreement and all other documents and the taking of all action required thereunder or in connection therewith on behalf of Seller; (b) Opinion of Seller's Counsel. An opinion, dated as of the Closing Date, from Brobeck, Hale and Dorr International in a form reasonable and customary for similar transactions; (c) Assignment and Assumption of Contracts and Liabilities. An Assignment and Assumption Agreement in the form of Exhibit 2.1 (excluding the Leased Real Property); (d) Bill of Sale. A bill of sale and assignment conveying, selling, transferring and assigning the Acquired Assets (excluding the Leased Real Property) to Buyer, free and clear of any and all Liens, in the form of Exhibit 4.2(d); (e) Required Consents. All of the Required Consents (as defined in Section 9 18 5.1(v)) which are identified on Schedule 5.1(v) as being necessary for consummating the sale of the Acquired Assets (other than the Leased Real Property)and the transactions relating thereto; (f) Assignment of Leases. An assignment or transfer of each Leased Real Property and all other documents which Seller is obliged to deliver to Buyer at Closing in accordance with Article VIII; (g) Other Documents. Such other deeds, bills of sale, endorsements, assignments, affidavits, and other instruments of sale, assignment, conveyance and transfer, in form and substance reasonably satisfactory to Buyer and its counsel, as are required to effectively vest in Buyer all of Seller's right, title and interest in and to all of the Acquired Assets free and clear of any and all Liens (subject to landlord's consent being required in respect of the Leased Real Property); (h) Lien Releases. Such releases and termination statements as are necessary for the termination and release of any and all Liens (other than the Permitted Encumbrances (as defined in Section 5.1(d)) on the Acquired Assets (subject to landlord's consent being required in respect of the Leased Real Property); (i) Releases of Seller Employees from Confidentiality Agreements. Such releases from Seller as are necessary to permit employees of Seller who have signed confidentiality or secrecy agreements with Seller to disclose information to Buyer; (j) Officer's Certificate. A certificate dated the Closing Date and executed by a director of Seller to the effect that each of the conditions specified in Section 4.4(a) is satisfied; and (k) Patent and Trademarks. Patent and trademark assignments in form and substance substantially similar to the attached Exhibit 4.2(k). (k) Patent and Trademarks. Patent and trademark assignments in form and substance substantially similar to the attached Exhibit 4.2(k). 4.3 Documents Delivered by Buyer. At the Closing, Buyer shall deliver to Seller the following, duly executed by the appropriate parties, subject to satisfaction of the conditions precedent to the obligations of Buyer stated herein: (a) Secretary's Certificate. A certificate executed by the Secretary or a Director of Buyer, confirming the existence, incorporation and good standing of Buyer on the Closing Date, attaching copies of the Articles of Incorporation and By Laws of Buyer, and resolutions authorizing 10 19 and approving the execution, delivery and performance of this Agreement and all other documents and the taking of all action required thereunder or in connection therewith on behalf of Buyer; (b) Assignment and Assumption of Contracts and Liabilities. An Assignment and Assumption Agreement in the form of Exhibit 2.1 (except in relation to the Leased Real Property); (c) Assignment of Leases. A counterpart Assignment of each Leased Real Property in accordance with Article VIII; (d) Officer's Certificate. A certificate dated the Closing Date and executed by an executive officer of Buyer to the effect that each of the conditions specified in Section 4.4(b) is satisfied; (e) Payment of UK Purchase Price. Payment of the UK Purchase Price in the manner and the amount set forth in Article III; (f) Opinion of Buyer's Counsel. An opinion, dated as of the Closing Date, from Wilmer, Cutler and Pickering in a form reasonable and customary for similar transactions. 4.4 Conditions to Closing. (a) Conditions to Obligations of Buyer. The obligation of Buyer to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole discretion of Buyer, by a written instrument signed by Buyer. (i) Fulfillment of Seller's Covenants. Each of Nashua Corporation, Seller and the Asset Sellers shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by it prior to the Closing Date under this Agreement, the Master Agreement and the Asset Purchase Agreement. 11 20 (ii) Accuracy of Seller's Representations. The representations and warranties of Seller contained in this Agreement shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Seller has provided Buyer with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Seller in this Agreement not to be true and correct on the Closing Date (a "Seller's Notice"), then Buyer shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 4.4(a)(ii) to be satisfied, or (ii) elect to close the transactions contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 4.4(a)(ii) to be satisfied, in which event Buyer shall be deemed to have waived the condition to Closing specified in this Section 4.4(a)(ii) with respect to the matters specified in Seller's Notice and shall not seek or be entitled to indemnification under Article IX with respect to only the matters specified in Seller's Notice. (iii) Authorizations and Consents. Seller shall have obtained and made all governmental or other authorizations, approvals, consents (other than from the landlords of the Leased Real Property), permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Seller of the transactions contemplated by this Agreement. (iv) No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing from occurring shall be in effect (each party agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). (v) No Material Adverse Changes. Since December 31, 1997 there have been no material adverse changes in Seller's business operations, affairs, prospects, properties, assets, existing and potential liabilities, obligations, profits or condition (financial or otherwise) of the Business ("Material Adverse Change") or an adverse change to Seller which would have a material adverse effect on Seller's ability to perform its obligations under this Agreement, except as set forth on Schedule 4.4(a)(v). (b) Conditions to Obligations of Seller. The obligation of Seller to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole 12 21 discretion of Seller, by a written instrument signed by Seller. (i) Fulfillment of Buyer's Covenants. Buyer shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by it prior to the Closing Date under this Agreement. (ii) Accuracy of Buyer's Representations. The representations and warranties of Buyer contained in this Agreement shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Buyer has provided Seller with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Buyer in this Agreement not to be true and correct on the Closing Date (a "Buyer's Notice"), then Seller shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 4.4(b)(ii) to be satisfied, or (ii) elect to close the transactions contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 4.4(b)(ii) to be satisfied, in which event Seller shall be deemed to have waived the condition to Closing specified in this Section 4.4(b)(ii) with respect to the matters specified in Buyer's Notice and shall not seek or be entitled to indemnification under Article IX with respect to only the matters specified in Buyer's Notice. (iii) Authorizations and Consents. Buyer shall have obtained and made all governmental or other authorizations, approvals, consents, permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Buyer of the transactions contemplated by this Agreement. (iv) No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing is in effect (each party agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). 13 22 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties of Seller. Except as set forth in an appropriate Disclosure Schedule, Seller represents and warrants to Buyer that the statements contained in this Section 5.1 are on the date hereof true and correct, and on the Closing Date will be, true and correct as so made again: (a) Organization and Standing; Power and Authority. (i) Seller is a company duly organized, validly existing and in good standing under the laws of England and Wales, and has full corporate power and authority to operate the Business, to own or lease the Acquired Assets, to carry on the Business as now being conducted, and to make and perform this Agreement, and the transactions and other agreements and instruments contemplated by this Agreement. Seller is qualified to do business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect upon the Business or the Acquired Assets. (ii) This Agreement has been, and all other agreements and instruments to be executed and delivered by Seller in connection herewith have been, or as of the Closing Date will have been, duly executed and delivered by Seller. This Agreement constitutes, and the other agreements and instruments all executed or to be executed by Seller in connection with the transactions contemplated hereby constitute, or when executed and delivered by Seller will constitute, the valid and binding obligations of Seller, enforceable in accordance with their respective terms, except to the extent that enforceability may be limited by insolvency, bankruptcy, receivership, moratorium, conservatorship, reorganization or other laws of general application affecting the rights of creditors generally or by general principles of equity ("Debtor Relief Laws") or by public policy. (iii) The execution, delivery and performance of this Agreement and all other agreements and instruments to be executed and delivered by Seller have been approved by all necessary corporate action by Seller. (b) Certificate of Incorporation and Memorandum and Articles of Association. The copies of the Certificate of Incorporation and Memorandum and Articles of Association of 14 23 Seller, certified by its Secretary and delivered by Seller to Buyer, are true, correct and complete as of the date of this Agreement and have not been amended or modified in any respect. (c) Conflicts; Defaults. (i) Neither the execution and delivery of this Agreement and the other agreements and instruments executed in connection herewith by Seller, nor the performance by Seller of the transactions contemplated hereby or thereby, will (A) violate, conflict with, or constitute a default under, any of the terms of Seller's Certificate of Incorporation or Memorandum and Articles of Association, or any provisions thereof, or subject to obtaining any Required Consent (as defined in Section 5.1(v)), result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to the Business or the Acquired Assets or by which Seller or the Acquired Assets are bound, including the Contracts (save in each case as may result from the requirement to obtain the appropriate landlords' consent for the assignment of the Leased Real Property) (B) result in the creation or imposition of any Liens in favor of any third person or entity upon any of the Acquired Assets, (C) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority, or (D) constitute an event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration, or creation or imposition of Liens. (ii) Seller is not, as of the date of this Agreement, in violation of or in default under its Certificate of Incorporation or Memorandum and Articles of Association, or any provision of any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to the Business or the Acquired Assets or by which Seller or the Acquired Assets is bound including the Contracts (other than arising out of any requirement to obtain landlords' consent for the assignment of the Leased Real Property), or in the payment of any of Seller's monetary obligations or debts, and there exists no condition or event which, after notice or lapse of time or both, would result in any such violation or default. (d) Acquired Assets; Title; Required Consents. (i) The Acquired Assets and the Retained Assets are the only properties and assets owned by Seller and used in connection with the Business. The Acquired Assets being conveyed to Buyer under this Agreement constitute all of the assets used in or necessary to conduct 15 24 the Business in substantially the same manner currently as conducted by Seller. The Acquired Assets set forth in the February 6th Net Current Asset Disclosure are not stated in amounts in excess of their respective realizable values. (ii) Seller has good and indefeasible right, title and interest in and to all of the Acquired Assets, and Seller has the right to use and, subject to obtaining the landlords' consent in respect of the Leased Real Property, to transfer to Buyer all of the Acquired Assets. All of the Acquired Assets are free and clear of all Liens and claims of any kind or nature whatsoever, except for the Liens set forth on Schedule 5.1(d) (the "Permitted Encumbrances"). Except as disclosed on Schedule 5.1(d), all of the Acquired Assets are in the sole possession and under the sole control of Seller (save for any landlords' rights in respect of the Leased Real Property). The delivery to Buyer of the instruments of transfer of ownership contemplated by this Agreement will vest good and indefeasible title to the Acquired Assets in Buyer, free and clear of all Liens and claims of any kind or nature whatsoever, except the Permitted Encumbrances and any landlords' consent in respect of the Leased Real Property. (iii) Each leasehold interest of Seller in any of the Tangible Assets ("Leased Assets") excluding the Leased Real Property, which leasehold interest is part of the Acquired Assets, is in full force and effect and enforceable against Seller and the other parties thereto, in accordance with its terms, and there does not exist any material violation, breach or default by Seller or to Seller's knowledge by any other party thereto, thereof or thereunder. (iv) The Tangible Assets and the Leased Assets are in reasonably good operating condition and repair, reasonable wear and tear excepted, and adequate for the intended purposes thereof and no material maintenance, replacement or repair has been deferred or neglected. The Leased Assets are in a condition suitable for return to the lessor of such equipment, as required under the applicable lease therefor. (v) The conveyance, sale, transfer and assignment of the Acquired Assets does not require any consents or approvals of any entity, individual or Governmental Authority other than any landlords' consent in respect of the Leased Real Property and the Required Consents (as defined in Section 5.1(v)). (e) Real Property: (i) Seller owns no freehold real property that is used in the Business. Seller does not use or occupy any real property in connection with the Business other than the Leased 16 25 Real Property. (ii) The particulars of the Leased Real Property (and of any leases, underleases, tenancies, licences and other agreements subject to and with the benefit of which the Leased Real Property is held) set out in Schedule 5.1(e) are true, complete and accurate. Title. (iii) Seller is solely entitled at law and in equity to the Leased Real Property and has a good and marketable title to the Leased Real Property. (iv) Seller has disclosed to Buyer copies of all the title deeds and documents relating to the Leased Real Property of which Seller is aware and the documents of title to which Seller (or a predecessor in title under the relevant lease) was a party to be delivered to Buyer on completion of the Assurance will consist of original documents. (v) So far as Seller is aware, no right, easement, licence or informal arrangement, public or private, is enjoyed or is in the course of being acquired by or against the Leased Real Property and none has been proposed or is necessary for the present use and continued occupation of the Leased Real Property for the purpose of the business currently carried on at each Leased Real Property. Encumbrances. (vi) Save as specifically stated in Schedule 5.1(g), the Leased Real Property is free from any mortgage, debenture, charge, lien or other encumbrance of a financial nature. (vii) The Leased Real Property is not subject to any outgoings other than business rates, water rates, effluent charges, insurance premiums, rent and service charges. (viii) So far as Seller is aware, the Leased Real Property is not subject to 17 26 any restrictive covenants, restrictions, stipulations, easements, profits a prendre, wayleaves, licences, grants, reservations or other similar rights vested in third parties (other than as disclosed in Schedule 5.1(g)). (ix) So far as Seller is aware, no Leased Real Property is subject to any overriding interest as specified in Section 70 Land Registration Act 1925. Planning matters and Adverse Orders. (x) No development has been carried out in material breach of the "Planning Acts" (as defined in the UK Town and Country Planning Act 1990). (xi) The current use of the Leased Real Property is in all material respects authorised under the Planning Acts. (xii) There are no outstanding enforcement or other notices or proceedings or any proposals for compulsory acquisition or for any closing, demolition or clearance orders in each case issued or made by the local or other competent authority and relating to the Leased Real Property which have been served on Seller (or any Affiliate) nor is Seller aware of any circumstance which is likely to lead to any being made or issued. Statutory obligations. (xiii) Seller is complying in all material respects with all applicable statutory and by-law requirements with respect to the Leased Real Property. Condition of the properties. (xiv) Seller is not in dispute with any neighbouring owner with respect to boundary walls and fences or with respect to any easement or right over or means of access to the 18 27 Leased Real Property. (xv) All buildings and structures comprised in the Leased Real Property are in such state of repair and condition as enables them to be used for the purposes of the Business as currently carried on by Seller at the Leased Real Property. (xvi) Each of the Leased Real Property has the benefit of all rights necessary for the continued present use and enjoyment of the same such rights not being capable of withdrawal by any person. Compliance with Leases, etc. (xvii) Seller has paid the rent and has in all material respects observed and performed the covenants on the part of the tenant and the conditions contained in the Leased Real Property and the last demands (or receipts for rent if issued) were unqualified. (xviii) There are no rent reviews under the Leased Real Property in progress. (xix) There is not outstanding and unobserved or unperformed any obligation necessary to comply with any notice or other written requirement given by the landlord of the Leased Real Property. (xx) There is no obligation to reinstate any of the Leased Real Property by removing or dismantling any material alteration made to them by Seller or any predecessor-in-title to Seller. (xxi) Any of the leases of the Leased Real Property which was granted for more than 21 years and less than 40 years is either registered at HM Land Registry or not registered because the reversion to it was not registered at the time of grant. 19 28 Tenancies. (xxii) The Leased Real Property is not held subject to and with the benefit of the tenancies (which expression in this clause includes subtenancies) except as set out in Schedule 5.1(e). Seller is not aware of any material or persistent breaches of covenant (including the covenants to pay rent) by the tenants under any such tenancies. (f) Environmental and Safety Compliance. Except as disclosed on Schedule 5.1(f): (i) Neither (A) the operation of the Business by Seller or agents under the direction and control of Seller, (B) the ownership, use or operation of the Acquired Assets by Seller or agents under the direction and control of Seller, nor (C) the manufacture or sale by Seller or agents under the direction and control of Seller of the processes, results or products of Seller, has violated or violates any statute, law, common law, rule, regulation, ordinance or order relating to air, water or noise pollution, employee health and safety, or the production, storage, labeling, transportation or disposition of waste or hazardous or toxic substances ("Environmental Laws"), and Seller has not received notice of any violation of any of the Environmental Laws, which has not been or is not being corrected, provided that Seller makes no representation hereunder with respect to Buyer's operation of the Business or the Acquired Assets after the Closing. (ii) Seller has timely obtained all licenses and permits and timely filed all reports required to be filed under the Environmental Laws. (iii) Seller has not, and no other person has, stored any chemical substances or petroleum (including crude oil or any fraction thereof), all of which are collectively referred to as "Chemical Substances", on, beneath or about any of the properties to be transferred to Buyer in connection with Seller's operation of the Business, except for inventories of such Chemical Substances to be used, and wastes generated therefrom, in the ordinary course of the business of Seller (which inventories and wastes, if any, were stored and disposed of in compliance with the Environmental Laws, including storage so that there was no release of any Chemical Substance to the environment which violated, or created any liability or obligation under, the Environmental Laws). (iv) Seller has not, and no other person has, buried, dumped or otherwise disposed of, or permitted the intentional or accidental release of, any Chemical Substances, beneath or about any property to be transferred to Buyer in connection with Seller's operation of the Business. 20 29 (v) Seller has not, and no other Person has installed, used, owned or operated any underground storage tank on or beneath any property to be transferred to Buyer in connection with Seller's operation of the Business. (vi) There are no polychorinated biphenyls, asbestos-containing materials or radioactive substances on, beneath or about any property to be transferred to Buyer in connection with Seller's operation of the Business. (vii) To Seller's knowledge, no environmental approvals, clearances or consents are required under applicable law from any entity or authority in order for the parties to consummate the transactions contemplated by this Agreement other than such as correspond to Licenses and Permits or for Buyer to transact the Business after the Closing Date. (viii) Seller has disclosed, prior to the date of this Agreement, its waste practices, its use of Chemical Substances and all potentially material environmental matters and has disclosed all material reports, assessments, remedial action plans or other similar documents relating to the environmental condition of Seller's properties to be transferred to Buyer and operations. (g) Leases. Schedule 1.1(k) contains a description of all assets leased by Seller in the conduct of the Business and all Leases thereto. True, complete and accurate copies of all Leases, together with all amendments thereto, have previously been provided to Buyer. With respect to any Lease to which Seller is a party, Seller warrants that: (a) each such Lease has been duly authorized and executed by Seller, has not been modified, altered, terminated or revoked and is in full force and effect; and (b) Seller, as the present tenant under the Leases, is not in default under or in breach of any of the terms of such Leases. Seller knows of no existing fact or condition which could give rise to any such breach or default, or any claim against Seller, under the Leases. To the best of Seller's knowledge, the present lessors under the Leases are not in default thereunder, or in breach thereof, and Seller knows of no existing fact or condition which could give rise to any such breach or default, or any claim against such lessors under such leases. (h) Contracts. Each of the Listed Contracts as set forth on Schedule 1.1(h) is in full force and effect and is a legal, binding and enforceable obligation of Seller and, to Seller's knowledge, of the parties thereto or against the parties thereto, subject to the Debtor Relief Laws. Neither Seller nor, to Seller's knowledge, any other party to any Contract is currently in breach or has improperly terminated any such Contract, or is in default under any Contract by which it is bound, 21 30 and there exists no condition or event which, after notice or lapse of time or both, would constitute any such breach, termination or default. Except where third party consent to disclose has not been obtained, Seller has delivered to Buyer true, correct and complete copies of such Contracts, an accurate and complete description of each such oral Contract, if any, and all modifications and amendments thereto. (i) Financial Statements of Seller. (i) In respect to the Business, Seller has delivered to Buyer (A) its unaudited balance sheets and profit and loss accounts for the fiscal years ended December 31, 1995, 1996 and 1997, (collectively, the "Financial Statements"), copies of which are attached hereto as Schedule 5.1(i)). The Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles consistently followed throughout the periods covered by such statements, and, at the statement dates and for the periods of the income statements, present fairly, in all material respects, the assets, liabilities, financial position and results of operations of the Business. (ii) The Net Current Asset Disclosure has been prepared in accordance with US generally accepted accounting principles. (j) Liabilities. Seller has no liabilities or obligations (in excess of $50,000 individually or $100,000 in the aggregate) of any nature whatsoever, whether absolute, accrued, contingent or otherwise, except for those (i) reflected or reserved on the Net Current Asset Disclosure or Closing Date Net Current Asset Disclosure, (ii) incurred or accrued since February 6, 1998 in transactions involving the purchase or sale of goods and services in the ordinary course of business, and consistent with the representations, warranties, covenants, obligations and agreements contained herein, or (iii) under the Contracts (exclusive of any liabilities or obligations which arise from defaults thereunder or breaches thereof prior to the Closing). There exists no event or circumstance which, after notice or lapse of time or both, might create any other obligations or liabilities of Seller with respect to the Business. (k) Accounts Receivable. All Accounts Receivable reflected on the Net Current Asset Disclosure have arisen in the ordinary course of the Business and are collectible in accordance with their terms net of any respective reserves shown on Seller's books and records as of the date hereof. All Accounts Receivable represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. There is no contest, claim or right of 22 31 set-off, other than rebates and returns or exchanges in kind arisen in the ordinary course of business, under any contract with any obligor of an Account Receivable relating to the contract or validity of such Account Receivable. (l) Inventories. All of Seller's Inventory reflected on the Net Current Asset Disclosure or Closing Date Net Current Asset Disclosure are usable or salable in the ordinary and normal course of business, of which the value is carried at the lower of cost or market and reflects write-offs, write-downs or reserves for damaged, excess or obsolete items in accordance with the historical inventory policy and practices of Seller. (m) Pending Litigation. Except as set forth on Schedule 5.1(m), there is no litigation, claim, action, suit, proceeding, governmental investigation or inquiry pending or, to Seller's knowledge, threatened, against or in any manner involving Seller, relating to the Business, the Acquired Assets, the Assumed Liabilities or the transactions contemplated hereby. Seller is not subject to any judgment, decree, injunction, award or order outstanding relating to the Business or the Acquired Assets or the transactions contemplated hereby. (n) Customers and Suppliers Except for the employees of Seller, no parties or individuals other than those listed on Schedule 5.1(n) have had access to its customer lists, and Seller has maintained reasonably adequate measures to maintain the confidentiality of its customer lists. Since September 30, 1997, no substantial supplier has: (i) stopped, or indicated an intention to stop, trading with or supplying Seller, (ii) reduced, or indicated an intention to reduce, substantially its trading with or provision of goods or services to Seller, or (iii) changed, or indicated an intention to change, materially the terms and conditions on which it is prepared to trade with or supply Seller. No substantial supplier has informed Seller that as a result of the transactions contemplated by this Agreement that it intends to (i) not trade with or supply Buyer, (ii) reduce substantially its trading with or provision of goods or services to Buyer, or (iii) change the terms and conditions on which it is prepared to trade with or supply Buyer, as compared to Seller. Seller has no knowledge of any facts, conditions or events which might give rise to a claim by Seller against any of its suppliers or any claim by a supplier against Seller. Seller has not entered into any agreement or commitment with suppliers, except in the ordinary course, consistent with past practice. Except as set forth on Schedule 5.1(n), none of Seller's suppliers of materials to the Business is the sole source of such supply. (o) Regulatory Compliance. The Business has been conducted, and the Acquired Assets have been owned, used, operated and maintained, in full compliance with all applicable laws, regulations and other requirements of Governmental Authorities. Seller is not now in violation of any applicable laws, regulations or orders of any Governmental Authority, and no material expenditures 23 32 are or will be required in order for the conduct of the Business or the ownership, use, operation or maintenance of the Acquired Assets to comply with any applicable laws, regulations or orders of any Governmental Authorities. (p) Brokers, Finders and Agents. Except for BT Alex. Brown Incorporated, whose fees and expenses shall be the sole responsibility of Seller or its Affiliates, Seller is not directly or indirectly obligated to anyone acting as a broker, finder or in any other similar capacity in connection with this Agreement or the transactions contemplated hereby. (q) Intellectual Property. Except as set forth on Schedule 1.1(g), Seller owns or has the exclusive right to use, free and clear of any payment, restriction or encumbrance, all Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted. There is no claim or demand of any person pertaining to, or any proceedings which are pending or, to the best of Seller's knowledge, threatened, which relate to any Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted. No Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any Governmental Authority or infringes, violates or constitutes a misappropriation of the rights of others, or is being infringed, violated or misappropriated by others or used by others (whether or not such use constitutes infringement). The Business does not involve employment of any person in a manner which violates any non-competition or non-disclosure agreement which such person entered into in connection with any former employment. All statements of fact contained in any application for patents in any country, for trademark registration in any country or copyright registration in any country, that were filed by or on behalf of Seller are true, accurate, and complete in every material respect, and are in material compliance with applicable patent laws, and all pending patent applications, issued patents, pending trademark registration applications and copyright registration applications, and issued trademark and copyright registrations have been duly and properly filed. (r) Licenses and Permits. Set forth on Schedule 1.1(i) is a true and complete list of all Licenses and Permits. The Licenses and Permits include all licenses, permits and other authorizations from all Governmental Authorities (i) currently used by Seller in connection with the Business, or (ii) required to permit Seller to operate the Business in the manner in which it presently is conducted. (s) Labor Matters. Except as set forth in Schedule 5.1(s) with respect to employees of and service providers to Seller: 24 33 (i) Seller is and has been in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such laws respecting employment discrimination, workers' compensation, family and medical leave, and occupational safety and health requirements; and no sex, race or other discrimination claim has been made against Seller; (ii) there is not now, nor within the past three years has there been any labor strike, lock-out, slowdown or work stoppage actually pending or threatened against or directly affecting the Business; there are no agreements or arrangements (whether or not legally binding) between Seller and any trade union or other body representing employees and, to Seller's knowledge, no trade union or other labor representation organization is seeking to be formally recognized by Seller in relation to all or part of its workforce nor has there been any such activity within the past three (3) years; and no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims therefor exist or have been threatened; (iii) the employees of Seller are not represented by any trade union and no collective bargaining agreement is binding and in force against Seller or currently being negotiated by Seller; (iv) All individuals who are or were performing services and are or were classified as "independent contractors" for tax purposes qualify or qualified for such classification, and Seller has fully and accurately reported their compensation to the Inland Revenue when required to do so; (v) As at the Closing Date, subject to compliance by Buyer with its obligations to provide information thereunder (to the extent such compliance is required), Seller has complied with Regulation 10 of the UK Transfer of Undertakings (Protection of Employment) Regulations 1981 (as amended) (the "Transfer of Undertakings Regulations"); (vi) No employee of Seller (other than in accordance with Regulation 5(4A) of the Transfer of Undertakings Regulations) will be entitled to give notice terminating his or her employment as a result of the provisions or consummation of this Agreement; (vii) Within 15 business days from the date of this Agreement, and in any event before Closing, full particulars of the terms and conditions of employment (including current 25 34 levels of salary and benefits) of all the persons currently employed by Seller with respect to the Business will be provided to Buyer; and (vii) Since December 31, 1997, no change has been made in the rate of remuneration, emoluments, pension benefits or other terms of employment of any of the persons employed by Seller with respect to the Business, and no negotiations for any such change are current. (t) Employee Plans. (i) As used in this Section 5.1(t), the following terms have the meanings set forth below. (I) "Benefit Arrangement" means any benefit arrangement, obligation, custom, or practice, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, agents, or independent contractors other than the Pension Plan, including, without limitation, employment agreements, severance agreements, executive compensation arrangements, incentive programs or arrangements, company car arrangements, sick leave, vacation pay, severance pay policies, redundancy benefits, salary continuation for disability, consulting, or other compensation arrangements, workers' compensation, retirement, deferred compensation, bonus, share option or purchase, hospitalization, medical insurance, life insurance, tuition reimbursement or scholarship programs, and any plans providing benefits or payments in the event of a change of control, change in ownership, or sale of a substantial portion (including all or substantially all) of the assets of any business or portion thereof, in each case with respect to any present or former employees, directors, or their dependents. (II) "Pension Plan" means the Nashua Cash Balance Plan. (III) "Seller Benefit Arrangement" means any Benefit Arrangement administered, sponsored or maintained by Seller or any Affiliate of Seller or with respect to which Seller or any Affiliate of Seller has or may have any liability (whether actual, contingent, with respect to any of its assets or otherwise), in each case with respect to any present or former directors, or employees of Seller. (ii) Schedule 5.1(t) contains a complete and accurate list of all Seller 26 35 Benefit Arrangements. (iii) With respect to Seller Benefit Arrangements, true, correct and complete copies all of the following documents with respect to all Seller Benefit Arrangements have been delivered to Buyer: (A) all plan documents, including but not limited to trust agreements, insurance policies, service agreements and formal and informal amendments thereto, (B) summary plan descriptions and summaries of material modifications, (C) the written descriptions of all non-written agreements relating to any such plan or arrangement, and (D) employee manuals or handbooks containing personnel or employee relations policies; (iv) With respect to Seller Benefit Arrangements, Seller has not declared or paid any bonus or incentive compensation in contemplation of the transactions contemplated by this Agreement in respect to which Buyer shall be obligated.] (u) [Intentionally Omitted] (v) Required Consents. No consent, approval, order or authorization of or from, or registration, notification, declaration or filing with any individual, entity or Governmental Authority (collectively, "Required Consents") is required in connection with the execution, delivery or performance of this Agreement by Seller or (except for consent of any landlord of the Leased Real Property) the consummation by Seller of the transactions contemplated herein. (w) Absence of Certain Changes. Since December 31, 1997, except as set forth on Schedule 5.1(w) and Schedule 4.4(a)(v), there has not been: (i) any Material Adverse Change; (ii) any acquisition or disposition of any asset or property, or any agreement to do the same other than in the ordinary and regular course of business; (iii) created, incurred or permitted to exist any Lien on any of the Acquired Assets, except for Permitted Encumbrances; 27 36 (iv) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting, either in any case or in the aggregate, the financial condition, results of operations or properties of the Business; (v) any increase in salary, bonuses or other compensation of any officers, employees, agents or independent contracts employed by Seller, except in the ordinary course of business, consistent with past practice, or any increase in executive compensation nor has Seller entered into any employment, severance or other agreements, nor amended any Seller Plan or Seller Benefit Arrangement in a manner that increases liabilities; (vi) any individual capital expenditures in excess of $50,000 related to the Business; (vii) any non-cash dividend or non-cash distribution out of the Business; (viii) any change in accounting methods or practices, credit practices or collection policies used by Seller that would affect the Financial Statements; or (ix) any other event or condition experienced by Seller of any character which has materially adversely affected or could so materially adversely affect the assets, liabilities, financial position, results or operations, net worth or prospects of Seller. (x) Books and Records. The Books and Records are complete and correct in all material respects. Seller has made available to Buyer for examination the original or true and correct copies of all the Books and Records. (y) Affiliate Transactions. No director, officer or employee of any Affiliate of Seller, or member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is a party to any transaction with Seller. (z) Accuracy of Representations. None of the representations, warranties or statements of Seller contained in this Agreement, in the Schedules and Exhibits hereto or in any other 28 37 agreement or instrument executed or delivered by or on behalf of Seller at the Closing in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the representations, warranties or statements made, in the context in which made, not false or misleading. 5.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller that the statements contained in this Section 5.2 are on the date hereof true and correct, and on the Closing Date will be repeated true and correct as so made again: (a) Organization and Standing; Power and Authority. (i) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia, and has full corporate power and authority to make and perform this Agreement, and to perform the transactions contemplated by this Agreement. (ii) This Agreement has been, and all other agreements and instruments to be executed and delivered by Buyer in connection herewith have been, or as of the Closing Date will have been, duly executed and delivered by Buyer. This Agreement constitutes, and the other agreements and instruments all executed or to be executed by Buyer in connection with the transactions contemplated hereby constitute, or when executed and delivered by Buyer will constitute, the valid and binding obligations of Buyer, enforceable in accordance with their respective terms, except to the extent that enforceability may be limited by Debtor Relief Laws and public policy. (iii) The execution, delivery and performance of this Agreement and all other agreements and instruments to be executed and delivered by Buyer have been approved by all necessary corporate action by Buyer. (b) Articles of Incorporation and By-Laws. The copies of the Articles of Incorporation and By-Laws of Buyer, certified by its Secretary and delivered by Buyer to Seller, are true, correct and complete as of the date of this Agreement and have not been amended or modified in any respect. (c) Conflicts; Defaults. 29 38 (i) Neither the execution and delivery of this Agreement and the other agreements and instruments executed in connection herewith by Buyer, nor the performance by Buyer of the transactions contemplated hereby or thereby, will (A) violate, conflict with, or constitute a default under, any of the terms of Buyer's Articles of Incorporation or By Laws, or any provisions of, or result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree to which Buyer is party or subject, (B) result in the creation or imposition of any Liens in favor of any third person or entity upon any of the assets of Buyer, (C) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority, or (D) constitute an event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration, or creation or imposition of Liens. (ii) Buyer is not, as of the date of this Agreement, in violation of or in default under its Articles of Incorporation or By-Laws, or any provision of any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to its business, or by which Buyer is bound or in the payment of any of Buyer's monetary obligations or debts. (d) Brokers, Finders and Agents. Buyer is not directly or indirectly obligated to anyone as a broker, finder or in any other similar capacity in connection with this Agreement or the transactions contemplated hereby. (e) Required Consents. To the knowledge of Buyer, all Required Consents which must be obtained or satisfied by Buyer for the consummation of the transactions contemplated by this Agreement have been obtained and satisfied. (f) Pending Litigation. Except as set forth in Schedule 5.1(m), no action, suit, or proceeding is pending, or, to Buyer's knowledge, threatened against it before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge which would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (iii) affect adversely the right of Buyer to own the Acquired Assets and to operate the Business and no written notice of the initiation of any such action, suit or proceeding has been received. 30 39 (g) Accuracy of Representations. None of the representations, warranties or statements of Buyer contained in this Agreement or in any other agreement or instrument executed or delivered by or on behalf of Buyer at the Closing in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the representations, warranties or statements made, in the context in which made, not false or misleading. ARTICLE VI COVENANTS OF SELLER 6.1 Notice of Claims. Seller covenants and agrees with Buyer that for the first twelve (12) months after the Closing Date, it shall give Buyer ten (10) days' prior written notice of its intent to assert any claim against any former supplier of Seller which, at the time of the assertion, is a supplier of Buyer. 6.2 Maintenance of, and Access to, Records. After the Closing Date, Seller shall provide Buyer with reasonable access (with an opportunity to make copies at Buyer's expense), during normal business hours, and upon reasonable advance notice, to all books and records relating to the Business which are retained by it in accordance with this Agreement. Seller shall preserve and maintain the books and records relating to the Business retained by Seller for at least seven (7) years after the Closing Date or longer if required by any government agency. 6.3 Non-Solicitation. During the period commencing on the Closing Date and through and until the date five (5) years after the Closing Date, Seller and its Affiliates shall not, for any reason whatsoever, directly or indirectly, call upon or solicit any Covered Employee for the purpose or with the intent of enticing such employee away from or out of the employ of Buyer. As used herein, "Covered Employee" means an employee of Seller on the Closing Date who is transferred to Buyer on or promptly after the Closing Date. 6.4 Limitations on Assignability. To the extent that any of the contract rights of Seller to be sold, transferred or assigned hereunder (other than in respect of Leased Real Property) are not assignable without the consent of a third party, neither this Agreement, nor any of the instruments or documents executed and delivered in connection herewith or contemplated hereby, shall constitute an assignment or assumption thereof, or attempted assignment or attempted assumption thereof, if 31 40 such assignment or attempted assignment, or assumption or attempted assumption, would constitute a breach thereof. If Seller has not obtained a consent or approval necessary for the assignment of any contract right to be assigned hereunder other than in respect of Leased Real Property, then Seller shall use commercially reasonable efforts where required by Buyer to obtain such consents and approvals after the Closing, or, at Buyer's request, shall cooperate in any reasonable and mutually acceptable arrangement to provide to Buyer the benefits thereof subject to the performance by Buyer of Seller's obligations arising or to be performed after the Closing thereunder. Nothing contained in this Section 6.4 shall require Buyer to enter into, or to accept as a substitute for performance by Seller hereunder, any arrangement that would impose any additional cost, expense or liability on Buyer, or that would deprive Buyer of any benefits contemplated by this Agreement. In respect to any Contract that is not a Listed Contract nor is required to be a Listed Contract under Schedule 1.1(h), and provided Seller provides a list of such Contracts prior to Closing, Buyer shall have the option to assume or reject any such Contracts. In the event Buyer elects to assume such a Contract, Buyer shall assume its liabilities and obligations pursuant to Section 2.1(c). In the event Buyer elects to reject such a Contract, Seller shall retain all rights, obligations and liabilities associated therewith. In respect to any Contract that is not a Listed Contract nor is required to be a Listed Contract under Schedule 1.1(h) and of which Seller does not provide notice prior to Closing, Buyer shall assume any such Contracts, provided that if Buyer incurs any net loss by reason of any such assumption, Seller shall reimburse Buyer for Buyer's losses with respect to all such Contracts in excess of $25,000 in the aggregate. 6.5 Pre-Closing Operations of Seller. Except as contemplated by this Agreement or as otherwise approved in writing by Buyer, from the date hereof until the Closing Date, Seller will conduct the Business in the ordinary course consistent with past practice (including, but not limited to, payment of all accounts payable as they come due consistent with past practice). Buyer shall have no access to Seller's employees or facilities except pursuant to Section 6.6. Subject to the foregoing exceptions, from the date hereof until the Closing Date: (a) Mergers and Sales. Seller will not merge, consolidate, or enter into a share exchange with any other corporation or other business entity, acquire any material stock, shares or any material amount of assets of any other corporation or business entity, sell, lease, license, mortgage, pledge, or otherwise dispose of any material assets; (b) New Commitments; Non-Disclosure. Seller will not make any commitment or enter into any contract or agreement that is not in the ordinary course of business consistent with past practice and neither Seller, nor any officer, employee, agent or representative of Seller shall sell or disclose Seller's customer list to any third party except in the ordinary course of business consistent with past practice and to third parties as disclosed in Schedule 5.1(n); and 32 41 (c) Compensation Increase. Seller will not increase in any manner the compensation or fringe benefits of any of its directors or managers, pay any pension or retirement allowance to any directors or officers, or become a party to, amend, or commit itself to any pension, retirement, profit-sharing, welfare benefit plan, or employment agreement with or for the benefit of any director or manager or amend any Seller Plan or Seller Benefit Arrangement, other than general increases in the compensation of, and the payment of bonuses to, directors or managers in the ordinary course of business consistent with past practice. 6.6 Access to Records and Information. From the date hereof until the Closing Date, Seller will, upon reasonable advance notice, give Buyer's authorized representatives reasonable access during regular business hours to the offices, properties, books, and records of Seller, and will furnish to its authorized representatives such financial and operating data and other information as such persons may reasonably request, for the purpose of evaluating changes in the financial condition, results of operations, or business of Seller after the date of this Agreement except any information in respect to prices or other competitive practices of Seller and will instruct Seller's employees having custody of such data, counsel, and financial advisors to cooperate with Buyer in its evaluation. Buyer shall communicate with respect to obtaining such data only with such employees of Seller as Seller has designated to Buyer in advance. 6.7 No Solicitation of Offers. Except as permitted in the Master Agreement, Seller shall use its best efforts to ensure that it does not take, directly or indirectly, any of the following actions with any party other than Buyer or its designees: (i) solicit, initiate, or participate in any negotiations, inquiries or discussions with respect to any Acquisition Proposal (as defined in the Master Agreement); (ii) disclose, in connection with an Acquisition Proposal, any information with respect to, or otherwise cooperate in any way with, or assist or participate in, any effort or attempt by any other person to do or seek any of the foregoing; (iii) enter into or execute any agreement relating to an Acquisition Proposal; or (iv) make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal other than with respect to the transactions contemplated by this Agreement. 6.8 Notices of Certain Events. In addition to any notices required under the Master Agreement, Seller shall promptly notify Buyer of the following: (a) Notice of Third Party that Consent is Required. Any notice or other communication from any person alleging that the consent of any third party is or may be required in connection with the transactions contemplated by this Agreement; 33 42 (b) Notice from Governmental Authority. Any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) Legal Proceedings. Any actions, suits, claims, investigations, or proceedings commenced or threatened against, relating to, or involving or otherwise affecting Seller that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant hereto or that relate to the consummation of the transactions contemplated by this Agreement; and (d) Agreement Default. Any notice of, or other communication relating to, a default, or an event with notice or lapse of time or both would become a default, under any material agreement that is received by Seller subsequent to the date of this Agreement. 6.9 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, Seller will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable under applicable laws or regulations to consummate the transactions contemplated by this Agreement, and will use commercially reasonable efforts to obtain such approvals and take such actions as are necessary, including without limitation using its best efforts to obtain all consents of any Person, whether private or governmental, so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby. 6.10 Risk of Loss. Seller will bear the risk of loss or damage to the Acquired Assets resulting from fire, theft, or other casualty at all times prior to and on the Closing. If any such loss or damage is so substantial as to prevent normal operation of any material portion of Seller's Business or the replacement or restoration of the lost or damaged material Asset within thirty (30) days after the occurrence of the event resulting in such loss or damage, Seller will immediately notify Buyer and Buyer, at any time within ten (10) days after receipt of such notice, may elect by written notice to Seller either (a) to waive such defect and proceed toward consummation of the acquisition of the Acquired Assets in accordance with the terms hereof, or (b) terminate this Agreement. If Buyer elects to consummate the transactions contemplated by this Agreement, there will be no separate adjustment in the UK Purchase Price related to such loss or damage but all insurance proceeds payable as a result of the occurrence of the event resulting in such loss or damage will be delivered by Seller to Buyer, or the rights to such proceeds will be assigned by Seller to Buyer and Seller will pay to Buyer (or Buyer may withhold from the UK Purchase Price) an amount equal to any deductible amount charged to Seller against the proceeds due for such loss. 34 43 6.11 Transfer of Undertakings Regulations. Seller will comply with the provisions of Regulation 10 of the Transfer of Undertakings Regulations (as amended). Seller shall indemnify Buyer against any order to pay compensation made pursuant to Regulation 11 of such Regulations provided that the order is not made as a result of any act or omission of Buyer. ARTICLE VII COVENANTS OF BUYER 7.1 Maintenance of, and Access to, Records. Buyer shall provide Seller with reasonable access (with an opportunity to make copies at Seller's expense) during normal business hours, and upon reasonable advance notice, to all books and records turned over to Buyer in accordance with this Agreement. Buyer shall preserve and maintain such books and records for at least seven (7) years after the Closing Date or longer if required by guidelines of tax authorities. 7.2 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, Buyer will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement, and will use commercially reasonable efforts to obtain such approvals and take such actions as are necessary, including without limitation using its best efforts to obtain all consents of any Person, whether private or governmental, so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby. 7.3 Pension Plan. (a) Buyer undertakes to Seller that it will procure that those persons employed in the Business who immediately prior to Closing were members of the Nashua Cash Balance Plan (the "Pensionable Employees") will be provided with pension and life assurance benefits. (b) Buyer hereby agrees with Seller to indemnify Seller against all liabilities and costs and expenses reasonably incurred by Seller arising or which may arise directly or indirectly out of any failure by Buyer (i) to provide or procure to be provided life assurance benefits for the 35 44 Pensionable Employees and their dependants which are equivalent in value to those applicable to the Pensionable Employees immediately prior to Closing; or (ii) to establish or procure to be established for the Pensionable Employees pension arrangements to which employer contributions are made in respect of the Pensionable Employees which are equal to or higher than those employer contributions made to the Nashua Cash Balance Plan in respect of the Pensionable Employees immediately prior to Closing. ARTICLE VIII REAL PROPERTY The following provisions shall apply in relation to the sale of the Leased Real Property: 8.1 General. The National Conditions of Sale (Twentieth Edition) (the "National Conditions") as set out on pages 2 and 3 of the printed form of contract published by the Solicitors Law Stationery Society PLC shall apply to the sale and purchase of the Leased Real Property and are incorporated in this Agreement so far as they are applicable to a sale by private treaty and are not inconsistent with any condition or provision contained in this Agreement or with the following paragraphs of this Article save that National Conditions 1(1) to (5) (inclusive), 2, 4, 5, 6(1) to (3) (inclusive), 7, 8, 9(1), 9(3) to (6) (inclusive), 11(5), 15(2), 15(3), 15(4), 21 and 22(3) shall not so apply. 8.2 Conditions of Sale. (a) Vacant possession of the Leased Real Property shall be given on completion of the Assurance subject to the sub-lease referred to in Schedule 5.1(e) and rights of occupation of Buyer pursuant to the provisions of this Article VIII. (b) Seller shall sell the Leased Real Property with full title guarantee (within the meaning of the U.K. Law of Property (Miscellaneous Provisions) Act 1994) save as qualified in the transfer or assignment to Buyer of the Leased Real Property pursuant to this Agreement (the "Assurance"). 36 45 (c) Each Leased Real Property is sold subject to and with the benefit of all and any of the following existing on or prior to completion of the relevant Assurances: (i) all existing rights, privileges, easements, liabilities (and in particular but without prejudice to the generality of the foregoing, drainage and other service rights and easements) and quasi or reputed easements affecting any Leased Real Property. (ii) any local land charge or any matter capable of registration as a local land charge. (iii) any notice, order, demand, proposal or requirement made by any statutory undertaking or any local or other public authority (whether before or after the date of this Agreement). (iv) any actual or proposed charge, notice, order, restriction, agreement, condition, or other matter arising under any applicable UK Town and Country planning legislation. (v) any matters mentioned or referred to or in the documents mentioned or referred to in the Property Proprietorship and Charges Register of the title number(s) set out in relation to each Leased Real Property in Schedule 5.1(e) or in any Lease or in any document supplied to Buyer or its solicitors by Seller or its solicitors prior to the date hereof. (vi) any matter now recorded in registers open to public inspection and evident or ascertainable from the documents of title. (vii) any overriding interest (as defined in Section 70(1) of the UK Land Registration Act 1925). (d) The Assurances of the Leased Real Property to Buyer shall be: 37 46 (i) in the form set out in Schedule 8.2(d). (ii) Prepared in original and counterpart. The original will be executed by Seller and the counterpart will be executed by Buyer which will arrange for the counterpart Assurance to be stamped and denoted and returned with 21 days after completion of the relevant Assurance. 8.3. Assignment of Leased Real Property In this Section 8.3, "Lease" means the lease of the respective Leased Real Property as described in Schedule 5.1(e). (a) Subject to the provisions of Section 8.4, the sale of the Leased Real Property is for the unexpired residue of the term of the Lease and is at the rent reserved by and subject to the covenants on the part of the tenant and the conditions contained in the Lease. (b) The assignment of the Lease shall be completed on Closing (subject to Sections 8.3(f) and (g) and 8.4). (c) Seller shall promptly and (subject as hereinafter provided) at its own expense use all reasonable endeavours to obtain the grant of any reversioners' licences necessary to enable the Lease to be assigned and shall in so far as is required by any Lease enter into an Authorised Guarantee Agreement with the relevant reversioner. (d) Buyer shall promptly and at its own expense supply such information and references as may reasonably be required by the relevant reversioners and where reasonably required by the relevant reversioner (having regard to the provisions of the Leases and section 19(1) of the Landlord and Tenant Act 1927) Buyer will covenant direct with the reversioners to pay the rents reserved by and observe and perform the covenants contained in the Leases and will provide or cause to be provided all such guarantees and/or other financial security as may reasonably be required by the reversioner. 38 47 (e) (i) If the reversioner reasonably requires as a precondition of or condition to the grant of such licence the carrying out of any works to the Leased Real Property or the payment of any sums properly due under the lease, Seller shall, as soon as reasonably practicable (and subject as hereinafter provided), carry out or agree to have carried out or pay such sums as are so reasonably required in order to facilitate the grant of the licence. (ii) Buyer shall be liable in respect of any such works required or sums due under sub-clause (i) above which arise on or after the Closing Date (other than any such liabilities or obligations which arise from defaults under the relevant lease or breaches thereof by Seller prior to the Closing Date) and Buyer shall reimburse Seller for all costs properly incurred in carrying out such works and in respect of all such sums paid. (f) Where the reversioner's licence is required to enable the Lease to be assigned but such licence is not obtained on or before Closing the provisions of this paragraph shall apply: (i) Buyer may enter the Leased Real Property and occupy it as licensee of Seller and Seller shall hold the Leased Real Property upon trust for Buyer. (ii) Buyer will pay for and reimburse Seller in respect of all rates, water rates, insurance premiums, telephone, electricity and gas charges and other outgoings of an annual or recurring nature (apportioned on a day to day basis). (iii) Buyer will pay to Seller amounts equal to the rents reserved by the Lease (including any VAT chargeable thereon) as and when the rents fall due pursuant to the Lease and any other sum or sums payable thereunder and shall act or conduct itself in such a manner that the covenants, obligations, conditions and stipulations (other than for the payment of rents and any other sums which shall be paid to Seller as aforesaid) on the part of the tenant contained in the Lease are fully observed and performed and shall indemnify Seller against any breach, non-observance or non-performance of the covenants, obligations, conditions and stipulations in the relevant Lease (including for the avoidance of doubt as a result of its occupation of the Leased Real Property pursuant to this Section 8.3(f)) and all costs, claims, damages, liabilities, expenses or losses arising out of or in connection therewith and shall comply with any final court order issued following any proceedings by the reversioner. (iv) Buyer shall bear all third party, public liability and employer's liability 39 48 risks attached to the occupation and use of the Leased Real Property and shall indemnify Seller against them. (g) (i) Where a relevant reversioner's licence is required to enable the Lease to be assigned but such licence is not obtained by the date three months after the Closing Date or if at any time prior to that date the reversioner gives to Seller notice that the reversioner either refuses to grant the licence or proposes placing any pre-condition on its grant or any condition in it which Seller or Buyer, on reasonable grounds (which shall be stated in detail and in writing to the other party/ies as soon as practicable), finds unacceptable, then Seller may or Buyer may require Seller to, as soon as practicable after such notice from the reversioner, submit to a Queen's Counsel experienced in landlord and tenant matters as Seller shall reasonably select ("Counsel") instructions (in the joint names of Seller and Buyer, and otherwise in such form, setting out such details and requesting such advice as shall first be approved in writing by Buyer, such approval not to be unreasonably withheld or delayed) to advise in conference as to the reasonableness of any conditions imposed by the reversioner and/or the prospects of Seller succeeding in an application to the Court for a declaration that the reversioner is unreasonably withholding the licence (the "Application"). (ii) Seller shall procure: (1) that such conference takes place as soon as practicable after the submission of the instructions thereof; and (2) that Buyer and its representatives are permitted to attend at and participate in the conference; and (3) that Buyer is supplied with a copy of Counsel's written advice within two Working Days after it is issued. (iii) If Counsel advises in such conference that there is a reasonable prospect of success in the Application, Seller shall (at the joint cost of Seller and Buyer) make and pursue such Application with all due speed and diligence, and shall conduct Seller's part of the Application in a good and efficient manner, employing Counsel and such other professional advisers as shall be appropriate in the circumstances and the costs of the reference to Counsel shall be borne equally by the parties. 40 49 (iv) If Counsel advises that any precondition as to grant of the licence or any condition in it proposed by the reversioner is reasonable then: (1) (in the case of any such condition as relates to breach of any of the tenant's obligations in the Lease arising prior to the date of Closing and/or any obligation imposed by the Lease on any intending assignor) Seller; and (2) (in the case of any such condition as relates to the status of Buyer or to breach of any of the tenant's obligations in the Lease arising on or after the Closing Date (other than any such liabilities or obligations which arise from defaults under the relevant lease or breaches thereof by Seller prior to the Closing Date) and/or any obligation imposed by the Lease on any prospective assignee) Buyer, shall forthwith comply or agree to comply with such condition in so far as is required in order to procure the grant of the relevant licence and the party who is to comply with the condition in question shall bear all costs incurred in the reference to Counsel. (v) For the purposes of this Agreement, the licence to assign shall be deemed to be granted on the earlier of: (1) the grant thereof by the reversioner; and (2) if the Court issues a declaration that the reversioner is unreasonably withholding the licence, the date of the declaration, and the assignment of the Lease shall be completed within ten Working Days from the deemed date of the grant. (vi) Seller shall keep Buyer fully informed in writing from time to time of the progress of any application made by Seller under this Section and, in particular, within three 41 50 Working Days after receipt by Seller or Seller's Solicitors of: (1) any order made by the Court in connection with the Application; or (2) the licence to assign shall procure that an original or certified copy of it is sent to Buyer's Solicitors. (h) Buyer shall indemnify Seller in respect of any of the costs properly incurred by Seller (or the appropriate proportion thereof) where this Section 8.3 provides for such costs to be borne by Buyer. 8.4 (a) If Counsel has advised that the court is likely to reject an application for a declaration that the reversioner's consent is being unreasonably withheld or such application to the Court is rejected then Seller shall use its reasonable endeavours on the same basis as aforesaid to obtain in relation the relevant Leased Real Property a licence for the grant of a new underlease to Buyer and the provisions of Section 8.3(c) to (f) and (h) shall apply as if reference to assignment were to the grant of a new underlease and if the reversioners consent is obtained the transfer of the property from Seller to Buyer shall be effected by means of the grant of the new underlease. (b) The new underlease shall mean an underlease of the relevant Leased Real Property for a term commencing on the date of grant, expiring three days before the expiry of the relevant Lease, at the same rents as are from time to time payable under the Lease incorporating (fully or by reference to the Lease) the covenants on (in so far as applicable) the landlord's and on the tenant's respective parts as set out in the Lease, incorporating a covenant on the part of Seller to use reasonable endeavours to procure the observance by the reversioner of the landlord's covenants set out in the Lease and otherwise on such reasonable and proper terms and conditions as Seller and Buyer may agree (both acting reasonably). (c) In the absence of agreement as to the terms of such underlease any dispute shall be referred to Counsel admitted to the relevant Bar for a period of not less than 10 years and 42 51 nominated in the absence of agreement between the parties to this Agreement by the President or Dean of the relevant Bar or his nominee on the application of Seller or Buyer and the costs of such reference shall be paid by the party in whose favour the dispute is resolved. (d) The underlease shall be completed ten (10) Working Days after the grant of the licence referred to in Section 8.4(a). 8.5 On completion of the Assurance of the Leased Real Property at Telford Seller shall assign to Buyer such rights as it has under the Agreement dated 23 June 1989 between Dixons Colour Laboratories Ltd (1) Hedley Taylor plc (2) Dixons Group plc (3) and pending such transfer shall hold the benefit of such rights upon trust for Seller and Buyer according to their respective liability for dilapidations as referred to in clause 1 of that agreement. 8.6 This Article VIII shall not merge with any Assurance, but shall continue in full force and effect to the extent that anything remains to be performed or observed under it. ARTICLE IX INDEMNIFICATION The indemnification provisions of the Master Agreement shall apply to Buyer and Seller. ARTICLE X TERMINATION 10.1 Termination Events. Subject to the other provisions of this Article X, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned: 43 52 (a) By Buyer or Seller upon termination of the Master Agreement; (b By mutual written consent of Seller and Buyer; (c) By Buyer pursuant to Section 4.4(a); (d) By Seller pursuant to Section 4.4(b); (e) As otherwise provided in Section 12 of the Master Agreement; or (f) By Buyer pursuant to Section 6.10. 10.2 Effect of Termination. In the event this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties hereunder shall terminate, except as provided in Section 12.2 of the Master Agreement. No termination of this Agreement shall act to terminate or otherwise impair the obligations set forth in Section 13.4 of the Master Agreement. 44 53 ARTICLE XI MISCELLANEOUS 11.1 Survival of Representations and Warranties. All covenants and obligations to be performed after the Closing Date contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing and expire in accordance with their respective terms. All representations and warranties contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing for a period of eighteen (18) months; provided, however, that any representations and warranties contained herein related to tax, benefits and environmental matters shall survive Closing for a period of (6) months beyond the applicable statutory limitation period (including extensions thereof). The waiver of any condition, based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, reimbursement, or other remedy based upon such representations, warranties, covenants or obligations. 11.2 Amendments. This Agreement may be amended only by a written agreement signed by Seller and Buyer. 11.3 Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or sent in accordance with Section 13.3 of the Master Agreement. 11.4 [Intentionally Omitted] 11.5 Waiver. Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement. 11.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.7 Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, 45 54 constitutes the entire agreement, and supersedes all other prior agreements (except as identified in the Master Agreement) and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter thereof. 11.8 Assignment. This Agreement shall not be assigned by either Buyer or Seller or by operation of law or otherwise, except with the written consent of the other party; provided, however, that Buyer shall be permitted to assign this Agreement as set forth in Section 13.8 of the Master Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 11.9 Governing Law; Time of the Essence. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (excluding the conflict of laws provisions thereof). Time is of the essence in the performance of this Agreement. 11.10 Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement. 11.11 Publicity. No press releases or public disclosure, written or oral, of the transactions contemplated by this Agreement shall be made by Buyer or Seller except in accordance with Section 13.11 of the Master Agreement. 11.12 Jurisdiction. In the event that any dispute should arise between Buyer and Seller with respect to any matter covered by this Agreement, the parties hereto consent to the sole and exclusive jurisdiction of the state and federal courts of the United States and the State of Delaware located in Dover, Delaware in connection with the adjudication of any such dispute. 11.13 Legal Fees. In the event of any litigation between Seller and Buyer arising out of this Agreement, the party prevailing in such litigation shall be entitled to have its reasonable attorneys' fees and expenses reimbursed by the other party. 11.14 Actions. The parties will execute and deliver to the other, from time to time at or after the Closing, for no additional consideration and at no additional cost to the requesting party, 46 55 such further assignments, certificates, instruments, records, or other documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement. 11.15 Terms. All capitalized terms used herein shall have the meanings specified in this Agreement, or, if not so specified, the meanings specified in the Master Agreement. The word "include" and derivatives of that word are used in this Agreement in an illustrative sense rather than limiting sense. The term "Buyer's knowledge" or "Seller's knowledge" or words of similar import or limitation means the actual knowledge or conscious awareness, without independent investigation, of any executive officer of Buyer or any director of Seller, as the case may be. 11.16 Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against either party. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. 11.17 Third Parties. Nothing expressed or implied herein is intended, or shall be construed, to confer upon or give any person or entity, including any employee of Seller, other than Seller and Buyer any rights or remedies under or by reason of this Agreement. 11.18 Value Added Tax. (a) The parties acknowledge and agree that Section 49(1) of the Value Added Tax Act 1994 (the "VATA") and Article 5 of the Value Added Tax (Special Provisions) Order 1995 (the "Order") are intended to apply to the sale and purchase of the Acquired Assets and accordingly Buyer undertakes and warrants that it currently intends to use the Acquired Assets to carry on the same kind of business as the Business with effect from the Closing. Buyer shall on or before the Closing notify the Commissioners of Customs and Excise that it has acquired or agreed to acquire the Business on a going concern basis to the intent that, in accordance with the provisions of the Order, the transfer of the Business (including the Acquired Assets) shall be treated as neither a supply of goods nor a supply of services for the purposes of Value Added Tax ("VAT"). If, however, notwithstanding the intention of the parties expressed in this section the Commissioners of Customs and Excise issue a determination in writing that VAT is chargeable in respect of the Acquired Assets or any of them sold to Buyer, Buyer shall pay such VAT to Seller in cash against provision of a Value Added Tax invoice and shall indemnify Seller and keep it indemnified (on an after tax basis) against any claim by the Commissioners of Customs and Excise for penalties and/or interest arising in relation to such VAT to the extent that such claim has resulted from any specific action or inaction of Buyer. 47 56 Seller shall notify Buyer in writing: (i) no later than seven days before the Closing Date, whether Seller has exercised an election to waive exemption from VAT under VATA 1994, Section 10, Paragraph 2 in respect of any of the Leases Real Property; and (ii) within 28 days after Closing, whether any of the Acquired Assets are capital items within the meaning of Part XI of the Value Added Tax Regulations 1995. (b) Except as expressly provided otherwise, any sum payable under the terms of the Agreement shall be deemed to be exclusive of VAT and VAT calculated by reference to the appropriate rate of VAT prevailing at the time shall be payable in addition by Buyer (where appropriate). (c) Buyer and Seller each respectively declare that as at Closing (or within 30 days after) it will be a taxable person for the purposes of the VATA and will supply such evidence of this as the other party reasonably request. 11.19 Phase II Environmental Report. Seller agrees to undertake at its cost a Phase II environmental investigation at the Telford property of the Business. Seller agrees to undertake at its cost any remedial work required as a result of such report. 11.20 U.K. Statutes. In this Agreement, a reference to or citation of a statute or any legislative provisions that is preceded by the initials "U.K." means such statute or provision as enacted and applicable in the United Kingdom or any constituent part thereof. 11.21 Transfer of Employees. Seller and Buyer acknowledge and agree that pursuant to (and except as otherwise provided in) the Transfer of Undertakings Regulations the contracts of employment between Seller and the employees employed in the Business will have effect after the Closing Date as if originally made between Buyer and those employees. 11.22 Restrictive Trade Practices Act. Insofar as any of the restrictions contained in this 48 57 Agreement and the Master Agreement are registerable under the Restrictive Trade Practices Act 1976 (the "RTPA") such restrictions shall to such extent not come into force until the day following the day upon which such particulars relating thereto as are required to be filed with the Office of Fair Trading ("OFT") pursuant to the RTPA shall have been received by the OFT for filing. Buyer shall be responsible for making such filing and Seller agrees to provide reasonable cooperation and assistance in relation thereto. 11.23 Temporary Services Agreement . At Closing Buyer shall execute and deliver to Seller on behalf of Nashua Belmont Limited and Seller shall procure that Nashua Belmont Limited shall execute and deliver to Buyer the Temporary Services Agreement in the form set out in Exhibit 11.23. 49 58 IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this Agreement as of the date first above written. BUYER DISTRICT PHOTO INC. By:________________________________ Name: Title: SELLER NASHUA PHOTO LIMITED By:________________________________ Name: Title: 50 EX-10.19 16 CANADA ASSET PURCHASE AGREEMENT 1 Exhibit 10.19 EXECUTION COPY CANADA ASSET PURCHASE AGREEMENT By and Between DISTRICT PHOTO INC. as Buyer and NASHUA PHOTO LIMITED as Seller Dated as of March 10, 1998 2 TABLE OF CONTENTS
Page ---- ARTICLE I - PURCHASE AND SALE OF ASSETS......................................1 1.1 Purchase and Sale of Assets......................................1 1.2 Retained Assets..................................................4 ARTICLE II - ASSUMPTION OF LIABILITIES.......................................4 2.1 Assumed Liabilities..............................................4 2.2 Retained Liabilities.............................................5 2.3 Prorations.......................................................6 ARTICLE III - CANADIAN PURCHASE PRICE........................................6 3.1 Payment..........................................................6 3.2 Allocation of Canadian Purchase Price............................6 3.3 Preparation of Closing Date Net Current Asset Disclosure.......................................................6 ARTICLE IV - CLOSING AND CONDITIONS TO CLOSING...............................8 4.1 General..........................................................8 4.2 Documents Delivered by Seller....................................8 4.3 Documents Delivered by Buyer.....................................9 4.4 Conditions to Closing...........................................10 ARTICLE V - REPRESENTATIONS AND WARRANTIES..................................12 5.1 Representations and Warranties of Seller........................12 5.2 Representations and Warranties of Buyer.........................23 ARTICLE VI - COVENANTS OF SELLER............................................25
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Page ---- 6.1 Notice of Claims................................................25 6.2 Maintenance of, and Access to, Records..........................25 6.3 Non-Solicitation................................................25 6.4 Limitations on Assignability....................................26 6.5 Pre-Closing Operations of Seller................................26 6.6 Access to Records and Information...............................27 6.7 No Solicitation of Offers.......................................27 6.8 Notices of Certain Events.......................................27 6.9 Commercially Reasonable Efforts.................................28 6.10 Risk of Loss....................................................28 6.11 Employment of Employees; Benefits...............................29 6.12 Employee Benefits Plans.........................................29 ARTICLE VII - COVENANTS OF BUYER............................................29 7.1 Maintenance of, and Access to, Records..........................29 7.2 Commercially Reasonable Efforts.................................29 ARTICLE VIII - OTHER COVENANTS..............................................30 ARTICLE IX - INDEMNIFICATION................................................30 ARTICLE X - TERMINATION.....................................................30 10.1 Termination Events..............................................30 10.2 Effect of Termination...........................................31 ARTICLE XI - MISCELLANEOUS..................................................31 11.1 Survival of Representations and Warranties......................31 11.2 Amendments......................................................31 11.3 Notices.........................................................31 11.4 [INTENTIONALLY OMITTED].........................................31 11.5 Waiver..........................................................31 11.6 Headings........................................................32
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Page ---- 11.7 Entire Agreement................................................32 11.8 Assignment......................................................32 11.9 Governing Law; Time of the Essence..............................32 11.10 Counterparts....................................................32 11.11 Publicity.......................................................32 11.12 Jurisdiction....................................................32 11.13 Legal Fees......................................................32 11.14 Actions.........................................................32 11.15 Terms...........................................................33 11.16 Construction....................................................33 11.17 Third Parties...................................................33
iii 5 SCHEDULES [Not Included in Filing]
Schedule 1.1(a) -- Prepaid Items Schedule 1.1(b) -- Inventory Schedule 1.1(c) -- Accounts Receivable Schedule 1.1(d) -- Tangible Personal Property Schedule 1.1(g) -- Intellectual Property Schedule 1.1(h) -- Listed Contracts Schedule 1.1(i) -- Licenses and Permits Schedule 1.1(j) -- Leases Schedule 1.1(k) -- Real Property Schedule 1.2 -- Retained Assets Schedule 3.2 -- Allocation of Canadian Purchase Price Schedule 4.4(a)(v) -- Material Adverse Changes Schedule 5.1(d) -- Permitted Encumbrances Schedule 5.1(f) -- Environmental and Safety Compliance Schedule 5.1(g) -- Material Defects Schedule 5.1(i) -- Financial Statements Schedule 5.1(m) -- Litigation Schedule 5.1(n) -- Customers and Suppliers Schedule 5.1(s) -- Labor Matters Schedule 5.1(t) -- Employee Plans Schedule 5.1(u) -- Taxes Schedule 5.1(w) -- Required Consents Schedule 5.1(x) -- Absence of Certain Changes Schedule 5.2(f) -- Pending Litigation Schedule 6.11 -- Transferred Employees EXHIBITS [Not Included in Filing] Exhibit 2.1 -- Form of Instrument of Assumption of Liabilities Exhibit 3.3 -- Net Current Asset Disclosure Exhibit 4.2(d) -- Form of Bill of Sale Exhibit 4.2(k) -- Form of Patent and Trademark Assignment
iv 6 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of March 10, 1998, is entered into by and between District Photo Inc., a District of Columbia corporation ("Buyer"), on the one hand, and Nashua Photo Limited, a corporation organized under the laws of Canada ("Seller"), a wholly-owned subsidiary of Nashua Photo Inc. W I T N E S S E T H WHEREAS, Seller is engaged in Canada in the photofinishing business, including the marketing and sale of photo-related products (the "Business"); WHEREAS, Seller desires to sell the Acquired Assets (as defined in Section 1.1) to Buyer; WHEREAS, this Agreement is entered into between Buyer and Seller pursuant to that certain Master Asset Purchase Agreement of even date herewith entered into by and between Nashua Corporation and Buyer (the "Master Agreement"); WHEREAS, Buyer desires to purchase and acquire from Seller, upon the terms and subject to the conditions hereinafter set forth, the Acquired Assets, in consideration of the payment of the Canadian Purchase Price (as defined in Section 3.1) and the assumption by Buyer of the Assumed Liabilities (as defined in Section 2.1); NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, on the basis of, and in reliance upon, the representations, warranties, covenants, obligations and agreements set forth herein, and upon the terms and subject to the conditions contained herein, hereby agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Purchase and Sale of Assets. Subject to the provisions of this Agreement, at the Closing (as defined in Master Agreement), Seller shall convey, sell, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from Seller, the Business as a going concern comprising all of the assets, properties, rights, privileges, claims, contracts and interests of Seller on the Closing Date (as defined in Master Agreement), of every kind and description, real, personal or mixed, tangible or intangible, absolute or contingent, 7 wherever situated, whether or not carried or reflected on the books and records of Seller (other than the Retained Assets (as defined in Section 1.2)), free and clear of any and all liens, equities, claims, prior assignments, mortgages, charges, security interests, pledges, restrictions or encumbrances whatsoever (collectively, "Liens"), other than the Permitted Encumbrances (as defined in Section 5.1(d)) (such assets, properties, rights, privileges, claims, contracts and interests collectively referred to as the "Acquired Assets"). Without limiting the generality of the foregoing, the Acquired Assets shall include the following: (a) Prepaid Items. All of Seller's prepaid expenses, advance payments, deposits and prepaid items, including deposits with lessors, suppliers or utilities (collectively, "Prepaid Items"), as described on Schedule 1.1(a); (b) Inventory. All of Seller's inventories, including all inventories of products, work-in-process, finished goods, raw materials, supplies, equipment, parts, labels and packaging (including all of Seller's rights and interests in goods in transit, consigned inventory, inventory sold on approval and rental inventory) and all returned products, samples and obsolete and nonsalable inventory (collectively, "Inventory"), as described on Schedule 1.1(b); (c) Accounts Receivable. All of Seller's accounts receivable, notes receivable and royalties receivable, any payments received by Seller with respect thereto after the Closing Date, unpaid interest accrued thereon, and any security or collateral relating thereto, including all past due, reserved and written off accounts receivable (collectively, "Accounts Receivable"), as described on Schedule 1.1(c) (including aging information with respect to the Accounts Receivable); (d) Tangible Personal Property. All of Seller's motor vehicles, machinery, equipment, office furniture, furnishings, tools, fixtures, office equipment, computer hardware and software, leasehold and other improvements and other tangible personal property (collectively, "Tangible Personal Property"), as described on Schedule 1.1(d); (e) Books, Records and Written Materials. All of Seller's business records, including all financial books and records, sales order files, purchase order files, engineering order files, warranty and repair files, supplier lists, customer lists, dealer, representative and distributor lists, studies, surveys, analyses, strategies, plans, forms, designs, diagrams, drawings, specifications, technical data, production and quality control records, formulations, and any other information which has been reduced to writing (collectively, "Books and Records") (but excluding those books and records described in Section 1.2(a)); 2 8 (f) Catalogs and Advertising Materials. All of Seller's promotional and advertising materials, including all catalogs, brochures, videos, plans, manuals and handbooks; (g) Intellectual Property Rights. All of Seller's trademarks, service marks, trade names, logos, copyrights or patents (and any applications for any of the foregoing and rights therein), together with all claims for damages against Persons by reason of past infringement and the right to sue for and collect such damages, licenses, shop rights, know-how, developments, research data, designs, specifications, drawings, blueprints, technology, ideas, compositions, manufacturing and production principles and techniques, test procedures, processes, formulas, know-how, file reports, certifications, customer and supplier lists, pricing and cost information, confidential information, inventions (whether or not patentable), discoveries, business methods, confidential or proprietary business information and trade secrets and all other intellectual and intangible property rights owned by Seller or to, or in, which Seller has any right or interest whatsoever (where there are multiple copies of such material in Seller's possession or control, all copies of such material) (collectively, the "Intellectual Property"), as described on Schedule 1.1(g) (as used herein, "Person" means a corporation, limited liability company, association, partnership, organization, trust, joint venture or other legal entity, an individual or a Governmental Authority); (h) Contracts. All of Seller's licenses, contracts, agreements, commitments and undertakings, whether oral or written, (including unfilled customer orders) relating to the Acquired Assets or Business to which Seller is a party or by which any of the Acquired Assets are bound (collectively, "Contracts"), of which, only those Contracts that are reflected in Seller's Financial Statements that constitute obligations involving more than $10,000 annually or that are not cancelable within thirty (30) days without incurring liability for such cancellation, are described on Schedule 1.1(h) ("Listed Contracts"); (i) Licenses and Permits. All licenses, permits, approvals, franchises, consents and other authorizations held by Seller or related to or used in connection with the Business or the Acquired Assets (collectively, "Licenses and Permits") issued to Seller by any foreign, federal, provincial, state or local governmental entity or municipality or subdivision thereof or any authority, department, commission, board, bureau, agency, court or instrumentality (collectively, "Governmental Authorities"), to the extent transferable to Buyer, which Licenses and Permits are described on Schedule 1.1(i); (j) Leases. All of Seller's leases as described on Schedule 1.1(j) (the "Leases"); 3 9 (k) Real Property. All of Seller's real property located in Saskatoon, Saskatchewan and described on Schedule 1.1(k) (the "Real Property"); and (l) Other Assets. Excluding the Retained Assets described in Section 1.2, all of the other assets, properties, rights, privileges, claims, contracts and interests of every kind and description, real, personal or mixed, tangible or intangible, absolute or contingent, wherever situated, whether or not carried or reflected on the books and records of Seller, of Seller including such assets, properties, rights, privileges, claims, contracts and interests as are reflected on the Closing Date Net Current Asset Disclosure (as defined in Section 3.3(b)) or which are owned by Seller on the Closing Date, including those customer orders received (whether before, on or after Closing) relating to the Business, which customer orders have not been opened for processing. 1.2 Retained Assets. Notwithstanding anything in this Agreement to the contrary, Seller shall retain, and the Acquired Assets shall not include, any of the assets described on Schedule 1.2, assets disposed of since the date hereof in the ordinary course of business, such other assets as have been or are disposed of pursuant to this Agreement, and the following assets of Seller (collectively, the "Retained Assets"): (a) Corporate Records. Seller's corporate books and records, including stock certificates, treasury stock, stock transfer records, corporate seals and minute books, and Seller's tax returns and tax supporting information, records constituting privileged and confidential attorney-client communications or work product related to the transactions contemplated hereby; (b) Seller Rights under this Agreement. All rights of Seller under this Agreement; and (c) Prepaid Taxes and Tax Refunds. Prepaid foreign, federal, provincial or local taxes and any rights of Seller to any tax refunds or carry backs. ARTICLE II ASSUMPTION OF LIABILITIES 2.1 Assumed Liabilities. On the terms and subject to the conditions set forth in the Assignment and Assumption Agreement attached hereto as Exhibit 2.1, at the Closing, Buyer shall assume the following liabilities and obligations of Seller (collectively, the "Assumed Liabilities"): 4 10 (a) Accounts Payable. All of Seller's trade and other accounts payable reflected on the Closing Date Net Current Asset Disclosure; (b) Accrued Liabilities. All of Seller's accrued liabilities reflected on the Closing Date Net Current Asset Disclosure. (c) Contracts. All liabilities and obligations of Seller arising under the Contracts which accrue after the Closing; provided, however, that Buyer shall not assume or be responsible for any such liabilities or obligations which arise from defaults thereunder or breaches thereof by Seller prior to or on the Closing Date (whether a claim for any such default or breach is made before or after the Closing). (d) Leases. All contractual liabilities and obligations of Seller under the Leases for time periods after the Closing Date; provided, however, that Buyer shall not assume or be responsible for any such liabilities or obligations which arise from defaults thereunder or breaches thereof by Seller prior to or on the Closing Date or for any Environmental Matters (as defined in Section 2.2) related in any way to the Leases prior to or on the Closing Date (whether a claim for any such default or breach is made before or after the Closing); (e) Taxes. All real and personal property taxes, sales, goods and services and use taxes attributable to the sale of inventory, payroll taxes and employee withholding tax obligations and other taxes, relating to Buyer's operation of the Business after the Closing. 2.2 Retained Liabilities. Except for the Assumed Liabilities, Seller shall retain all, and Buyer shall have no responsibility for any, of Seller's liabilities and obligations, whether or not relating to the Business or Acquired Assets, whether fixed, contingent or otherwise, and whether known or unknown (collectively, the "Retained Liabilities"). Without limiting the foregoing, Buyer shall not assume or be liable for and Seller shall indemnify Buyer against and hold Buyer harmless from any of the following liabilities for (i) environmental matters ("Environmental Matters") arising under Environmental Laws (as defined in Section 5.1(f)) in connection with violations, disposal, events, occurrences or releases that occurred or are attributable to the period on or prior to the Closing Date; (ii) liabilities incurred by Seller in connection with this Agreement, the transactions provided for herein and any other agreements contemplated hereby, including, without limitation, attorneys' and accountants' fees, and expenses pertaining to the performance by Seller of its obligations hereunder; (iii) liabilities that relate to the Retained Assets; (iv) except for Assumed Liabilities, liabilities arising out of the operation of the Business on or before the Closing; (v) payments, if any, to be made as a result of the purchase and sale of the Business of Seller to certain management personnel of Seller under certain retention and other similar agreements solely in respect to those obligations resulting from 5 11 the transactions contemplated by this Agreement; (vi) all federal, provincial and local franchise and income taxes of Seller, whether relating to periods before or after the transactions contemplated in this Agreement or incurred by Seller in connection with this Agreement and the transactions provided for herein, including any liability for such taxes arising out of the inclusion of Seller in any group filing consolidated, combined or unitary tax returns or arising out of any transferee liability; (vii) liabilities with respect to workers' compensation or other employee related claims, including, without limitation, with respect to discrimination, wrongful termination and employee benefits of any kind arising from any facts or circumstances occurring prior to or on the Closing Date; (viii) the employment contracts of Richard Kennedy, Stanley Vaughan and Michael Jeans including, but not limited to, any and all of the employer's responsibilities under such contracts; and (ix) any other liabilities of Seller not specifically assumed by Buyer hereunder. 2.3 Prorations. Except as otherwise provided in Section 2.1, general utility charges, personal property taxes and assessments, and similar proratable items which are attributable to the Acquired Assets, shall be apportioned between Buyer and Seller as follows: any item which relates to the period prior to or on the Closing Date shall, to the extent not accrued on the Closing Date Net Current Asset Disclosure, be apportioned to and paid by Seller, and any such item which relates to the period on or after the Closing Date, whether or not accrued on the Closing Date Net Current Asset Disclosure, shall be apportioned to and paid by Buyer; provided, however, that any special assessments or similar charges in effect or payable prior to the Closing Date shall be paid by Seller prior to the Closing. ARTICLE III CANADIAN PURCHASE PRICE 3.1 Payment. In full consideration for the conveyance, sale, transfer and assignment of the Acquired Assets, but subject to adjustment as provided in Section 3.3 and satisfaction of all of the conditions contained herein, Buyer shall deliver or cause to be delivered to Nashua Corporation for the account of Seller a cash purchase price of Two Million Dollars ($2,000,000) (the "Canadian Purchase Price"), payable at the Closing by wire transfer of immediately available funds to an account or accounts designated in writing by Seller. 3.2 Allocation of Canadian Purchase Price. Within sixty days after the Closing, Buyer and Seller agree to allocate the Canadian Purchase Price among the Acquired Assets. Schedule 3.2 shall set forth the amount of the Canadian Purchase Price allocable to the various Acquired Assets. 6 12 3.3 Preparation of Closing Date Net Current Asset Disclosure. (a) Seller has delivered to Buyer an unaudited summary of the Accounts Receivable, Inventories and other current assets of the Business as of February 6, 1998 less accounts payable and accrued expenses and other Assumed Liabilities as of February 6, 1998 (the "Net Current Asset Disclosure") which are reflected on the books and records of Seller and are prepared consistently with U.S. generally accepted accounting principles. A copy of the Net Current Asset Disclosure is attached hereto as Exhibit 3.3. The total net amount as set forth on the Net Current Asset Disclosure is referred to herein as the "February 6th Assets." (b) (i) Within thirty (30) business days following the Closing, Seller shall prepare and deliver to Buyer an unaudited summary of those assets and liabilities specified in Section 3.3(a) as of the Closing (the "Closing Date Net Current Asset Disclosure"). The Closing Date Net Current Asset Disclosure shall accurately reflect all Inventories, Accounts Receivable, other current assets, accounts payable and accrued expenses and other Assumed Liabilities which are reflected on the books and records of Seller and shall in all respects be prepared consistently with and utilizing the same accounting policies and valuation procedures as set forth in the Net Current Asset Disclosure. The total net amount as set forth on the Closing Date Net Current Asset Disclosure is referred to herein as the "Closing Date Assets." In the event that the Closing Date Assets have either increased or decreased by any amount from the February 6th Assets, the amount of the increase or decrease (the "Canadian Purchase Price Adjustment") shall be paid by Buyer to Seller (if the Closing Date Assets exceed the February 6th Assets) or by Seller to Buyer (if the February 6th Assets exceed the Closing Date Assets). (ii) The Canadian Purchase Price Adjustment shall be made by wire transfer not later than the close of business on the fifth business day immediately following the date on which the Canadian Purchase Price Adjustment is finally determined, and shall include simple interest on such amount at the rate of 3% plus the prime rate of interest publicly quoted by the Chase Manhattan Bank in New York as of and commencing on the Closing and continuing until the date of full payment hereunder. The Closing Date Net Current Asset Disclosure delivered by Seller and the calculation of the Canadian Purchase Price Adjustment shall be final and binding on the parties hereto, unless within forty-five (45) business days following Seller's delivery of the Closing Date Net Current Asset Disclosure to Buyer, Seller receives from Buyer a report setting forth in detail Buyer's objections to such calculation and any adjustments required. Buyer and Seller shall use reasonable efforts to resolve any dispute, and such resolution shall be in writing and shall be final and binding on the parties hereto. Until the earlier to occur of (i) the mutual agreement of Seller and Buyer as to the appropriate amount of the Canadian Purchase Price Adjustment, or (ii) the final determination of the Canadian Purchase Price 7 13 Adjustment by the Accounting Firm as set forth below, Buyer and Seller shall allow each other reasonable access to each other's books, records and employees pertaining to the Business and cooperate with each other during normal business hours for purposes of computing and/or verifying the information set forth in the Closing Date Net Current Asset Disclosure. (c) If Seller and Buyer have not reached a final resolution with respect to any Canadian Purchase Price Adjustment within thirty (30) business days following Seller's receipt of Buyer's objections, such dispute shall be resolved by the New York City office of Ernst & Young LLP (the "Accounting Firm"). (d) The Accounting Firm shall be instructed to render its decision resolving all matters presented to it within sixty (60) calendar days of receipt by it of Seller's Closing Date Net Current Asset Disclosure or Buyer's objections, whichever is the later. (e) Each party shall bear its own expenses. The determination of the Canadian Purchase Price Adjustment by Accounting Firm shall be final and binding upon the parties. ARTICLE IV CLOSING AND CONDITIONS TO CLOSING 4.1 General. Subject to the conditions set forth in Sections 4.2, 4.3 and 4.4, the Closing as defined in the Master Agreement shall take place at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 at 10:00 AM (Eastern Time) on the Closing Date as defined in the Master Agreement. Failure to close on such date shall not relieve either party hereto of its obligations under this Agreement. All transactions at the Closing shall be deemed to take place simultaneously at 12:01 a.m. Eastern Time on the Closing Date, and no transaction shall be deemed to have been completed and no document or certificate shall be deemed to have been delivered until all transactions are completed and all documents are delivered. 4.2 Documents Delivered by Seller. At the Closing, Seller shall deliver to Buyer the following, duly executed by the appropriate parties, subject to satisfaction of the conditions precedent to the obligations of Seller stated herein: (a) Secretary's Certificate. A certificate executed by the Secretary of Seller confirming the existence, incorporation and good standing under the laws of Canada and Saskatchewan of Seller on the Closing Date, attaching copies of the certificate of 8 14 incorporation and by-laws of Seller, and resolutions authorizing and approving the execution, delivery and performance of this Agreement and all other documents and the taking of all action required thereunder or in connection therewith on behalf of Seller, together with an incumbency certificate for Seller; (b) Opinion of Seller's Counsel. An opinion, dated as of the Closing Date, from Hale and Dorr LLP in a form reasonable and customary for similar transactions; (c) Assignment and Assumption of Contracts and Liabilities. An Instrument of Assumption of Liabilities in the form of Exhibit 2.1; (d) Bill of Sale. A bill of sale and assignment conveying, selling, transferring and assigning the Acquired Assets to Buyer, free and clear of any and all Liens, in the form of Exhibit 4.2(d); (e) Required Consents. All of the Required Consents (as defined in Section 5.1(w)) which are identified on Schedule 5.1(w) as being necessary for consummating the sale of the Acquired Assets and the transactions relating thereto; (f) Assignment and Assumption of Leases. An Assignment and Assumption of each of the Leases in form and substance substantially similar to the attached Exhibit 4.2(f); (g) Other Documents. Such other deeds, bills of sale, endorsements, assignments, affidavits, and other instruments of sale, assignment, conveyance and transfer, in form and substance reasonably satisfactory to Buyer and its counsel, as are required to effectively vest in Buyer all of Seller's right, title and interest in and to all of the Acquired Assets, free and clear of any and all Liens; (h) Lien Releases. Such releases and termination statements as are necessary for the termination and release of any and all Liens (other than the Permitted Encumbrances (as defined in Section 5.1(d)) on the Acquired Assets; (i) Releases of Seller Employees from Confidentiality Agreements. Such releases from Seller as are necessary to permit employees of Seller who have signed confidentiality or secrecy agreements with Seller to disclose information to Buyer; (j) Officer's Certificate. A certificate dated the Closing Date and executed by an executive officer of Seller to the effect that each of the conditions specified in Section 4.4(a) is satisfied; 9 15 (k) Patent and Trademarks. Patent and trademark assignments in form and substance substantially similar to the attached Exhibit 4.2(k); and (l) Real Property. A registrable transfer of title, in favor of Buyer, and the duplicate certificate of title for, the Real Property, together with a real property report (otherwise referred to as a surveyor's certificate) showing that the improvements on the Real Property do not encroach on any other property and there are no encroachments on the Real Property. 4.3 Documents Delivered by Buyer. At the Closing, Buyer shall deliver to Seller the following, duly executed by the appropriate parties, subject to satisfaction of the conditions precedent to the obligations of Buyer stated herein: (a) Secretary's Certificate. A certificate executed by the Secretary of Buyer, confirming the existence, incorporation and good standing of Buyer on the Closing Date, attaching copies of the articles of incorporation and by-laws of Buyer, and resolutions authorizing and approving the execution, delivery and performance of this Agreement and all other documents and the taking of all action required thereunder or in connection therewith on behalf of Buyer, together with an incumbency certificate for Buyer; (b) Assignment and Assumption of Contracts and Liabilities. An Assignment and Assumption Agreement in the form of Exhibit 2.1; (c) Assignment and Assumption of Leases. An Assignment and Assumption of each of the Leases in form and substance substantially similar to the attached Exhibit 4.2(f); (d) Officer's Certificate. A certificate dated the Closing Date and executed by an executive officer of Buyer to the effect that each of the conditions specified in Section 4.4(b) is satisfied; (e) Payment of Canadian Purchase Price. Payment of the Canadian Purchase Price in the manner and the amount set forth in Article III; (f) Opinion of Buyer's Counsel. An opinion, dated as of the Closing Date, from Wilmer, Cutler & Pickering in a form reasonable and customary for similar transactions; and (g) GST Registration. Evidence that Buyer is registered for the purposes of Part IX of the Excise Tax Act (Canada) (the "GST Legislation"). 10 16 4.4 Conditions to Closing. (a) Conditions to Obligations of Buyer. Subject to Section 9.3 of the Master Agreement, the obligation of Buyer to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole discretion of Buyer, by a written instrument signed by Buyer. (i) Fulfillment of Seller's Covenants. Each of Nashua Corporation, Seller and the Asset Sellers shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by it prior to the Closing Date under this Agreement, the Master Agreement and the Asset Purchase Agreements. (ii) Accuracy of Seller's Representations. The representations and warranties of Seller contained in this Agreement shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Seller has provided Buyer with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Seller in this Agreement not to be true and correct on the Closing Date (a "Seller's Notice"), then Buyer shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 4.4(a)(ii) to be satisfied, or (ii) elect to close the transactions contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 4.4(a)(ii) to be satisfied, in which event Buyer shall be deemed to have waived the condition to Closing specified in this Section 4.4(a)(ii) with respect to the matters specified in Seller's Notice and shall not seek or be entitled to indemnification under Article IX with respect to only the matters specified in Seller's Notice. (iii) Authorizations and Consents. Seller shall have obtained and made all governmental or other authorizations, approvals, consents, permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Seller of the transactions contemplated by this Agreement. (iv) No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing from occurring shall be in effect (each party 11 17 agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). (v) No Material Adverse Changes. Since December 31, 1997, there shall have been no material adverse changes in Seller's business operations, affairs, prospects, properties, assets existing and potential liabilities, obligations, profits or condition (financial or otherwise) of the Business ("Material Adverse Change") or an adverse change in Seller which would have a material adverse effect on Seller's ability to perform its obligations under this Agreement except as set forth on Schedule 4.4(a)(v). (b) Conditions to Obligations of Seller. The obligation of Seller to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions precedent, each of which may be waived, in whole or in part, in the sole discretion of Seller, by a written instrument signed by Seller. (i) Fulfillment of Buyer's Covenants. Buyer shall have fulfilled or complied with each covenant, obligation and agreement required to be fulfilled or complied with by it prior to the Closing Date under this Agreement. (ii) Accuracy of Buyer's Representations. The representations and warranties of Buyer contained in this Agreement shall be true and correct on the date when made and shall be repeated at and as of the Closing Date and shall be true and correct as so made again (unless a representation is made as of a specific date, and in such event it shall be true and correct as of such date); provided, however, that in the event Buyer has provided Seller with written notice prior to the Closing Date of an event or development arising after the date hereof and prior to the Closing Date that causes any representation or warranty of Buyer in this Agreement not to be true and correct on the Closing Date (a "Buyer's Notice"), then Seller shall, in its sole discretion, either (i) elect not to close the transactions contemplated by this Agreement by reason of the failure of the condition to Closing specified in this Section 4.4(b)(ii) to be satisfied, or (ii) elect to close the transactions contemplated by this Agreement, notwithstanding the failure of the condition to Closing specified in this Section 4.4(b)(ii) to be satisfied, in which event Seller shall be deemed to have waived the condition to Closing specified in this Section 4.4(b)(ii) with respect to the matters specified in Buyer's Notice and shall not seek or be entitled to indemnification under Article IX with respect to only the matters specified in Buyer's Notice. (iii) Authorizations and Consents. Buyer shall have obtained and made all governmental or other authorizations, approvals, consents, permits, waivers and filings which are necessary under all applicable laws and regulations for the consummation by Buyer of the transactions contemplated by this Agreement. 12 18 (iv) No Litigation. No injunction shall be outstanding which would prevent consummation of the transactions contemplated by this Agreement. No provision of any applicable domestic law or regulation, and no judgment, injunction, order or decree of a governmental authority that has the effect of making the Closing illegal or otherwise restrains or prohibits the Closing is in effect (each party agreeing to use commercially reasonable efforts, including appeals to higher courts, to have any such judgment, injunction, order or decree lifted). ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties of Seller. Except as set forth on an appropriate Disclosure Schedule, Seller represents and warrants to Buyer that the statements contained in this Section 5.1 are on the date hereof true and correct and on the Closing Date will be, repeated true and correct as so made again: (a) Organization and Standing; Power and Authority. (i) Seller is a corporation duly organized, validly existing and in good standing under the laws of Canada, and has full corporate power and authority to operate the Business, to own or lease the Acquired Assets, to carry on the Business as now being conducted, and to make and perform this Agreement, and the transactions and other agreements and instruments contemplated by this Agreement. Seller is qualified to do business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect upon the Business or the Acquired Assets. (ii) This Agreement has been, and all other agreements and instruments to be executed and delivered by Seller in connection herewith have been, or as of the Closing Date will have been, duly executed and delivered by Seller. This Agreement constitutes, and the other agreements and instruments all executed or to be executed by Seller in connection with the transactions contemplated hereby constitute, or when executed and delivered by Seller will constitute, the valid and binding obligations of Seller, enforceable in accordance with their respective terms, except to the extent that enforceability may be limited by bankruptcy, receivership, moratorium, conservatorship, reorganization or other laws of general application affecting the rights of creditors generally or by general principles of equity ("Debtor Relief Laws"). (iii) The execution, delivery and performance of this Agreement and all other agreements and instruments to be executed and delivered by Seller have been approved by all necessary corporate action by Seller. 13 19 (b) Articles of Incorporation and By-Laws. The copies of the Articles of Incorporation and By-Laws of Seller, certified by its Secretary and delivered by Seller to Buyer, are true, correct and complete as of the date of this Agreement and have not been amended or modified in any respect. (c) Conflicts; Defaults. (i) Neither the execution and delivery of this Agreement and the other agreements and instruments executed in connection herewith by Seller, nor the performance by Seller of the transactions contemplated hereby or thereby, will (A) violate, conflict with, or constitute a default under, any of the terms of Seller's Articles of Incorporation or By-Laws, or any provisions thereof, or, subject to obtaining the Required Consents (as defined in Section 5.1(w)), result in the acceleration of any obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to the Business or the Acquired Assets, or by which Seller or the Acquired Assets are bound, including the Contracts, (B) result in the creation or imposition of any Liens in favor of any third person or entity upon any of the Acquired Assets, (C) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority, or (D) constitute an event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration, or creation or imposition of Liens. (ii) Seller is not, as of the date of this Agreement, in violation of or in default under its Articles of Incorporation or By-Laws, or any provision of any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to the Business or the Acquired Assets, or by which Seller or the Acquired Assets is bound, including the Contracts, or in the payment of any of Seller's monetary obligations or debts, and there exists no condition or event which, after notice or lapse of time or both, would result in any such violation or default. (d) Acquired Assets; Title; Required Consents. (i) The Acquired Assets and the Retained Assets are the only properties and assets owned by Seller. The Acquired Assets being conveyed to Buyer under this Agreement constitute all of the assets used in or necessary to conduct the Business in substantially the same manner as currently conducted by Seller. The Acquired Assets set forth in the Net Current Asset Disclosure are not stated in amounts in excess of their respective realizable values. 14 20 (ii) Seller has good and indefeasible right, title and interest in and to all of the Acquired Assets, and Seller has the right to use and, subject to obtaining the Required Consents, to transfer to Buyer all of the Acquired Assets. All of the Acquired Assets are free and clear of all Liens and claims of any kind or nature whatsoever, except for the Liens set forth on Schedule 5.1(d) (the "Permitted Encumbrances"). Except as disclosed on Schedule 5.1(d), all of the Acquired Assets are in the sole possession and under the sole control of Seller. The delivery to Buyer of the instruments of transfer of ownership contemplated by this Agreement will vest good and indefeasible title to the Acquired Assets in Buyer, free and clear of all Liens and claims of any kind or nature whatsoever, except the Permitted Encumbrances. (iii) Each leasehold interest in any personal property ("Leased Personal Property") or any real property ("Leased Real Property"), which leasehold interest is part of the Acquired Assets, is in full force and effect and enforceable against Seller and the other parties thereto, in accordance with its terms, and there does not exist any material violation, breach or default by Seller or to Seller's knowledge by any other party thereto, thereof or thereunder. (iv) The Tangible Personal Property and the Leased Personal Property are in reasonably good operating condition and repair, reasonable wear and tear excepted, and adequate for the intended purposes thereof and no material maintenance, replacement or repair has been deferred or neglected. The Leased Personal Property is in a condition suitable for return to the lessor of such equipment, as required under the applicable lease therefor. (v) The conveyance, sale, transfer and assignment of the Acquired Assets does not require any consents or approvals of any entity, individual or Governmental Authority other than the Required Consents (as defined in Section 5.1(w)); (e) Real Property. Seller is the registered owner of an estate in fee simple of and in the Real Property subject to: (i) the Permitted Encumbrances registered against title to the Real Property, which Permitted Encumbrances will not interfere with the use of the Real Property in the Business as presently conducted by Seller; (ii) the exceptions and reservations contained in the original grant of the Real Property from the Crown; 15 21 (iii) any exceptions, qualifications, reservations, liens, estates or interests contained in, or implied by, The Land Titles Act (Saskatchewan) with respect to Real Property; and (iv) all applicable building and zoning by-law restrictions and regulations set forth by any relevant governmental or municipal authority having jurisdiction. (f) Environmental and Safety Compliance. Except as disclosed on Schedule 5.1(f): (i) Neither (A) the operation of the Business by Seller or agents under the direction and control of Seller, (B) the ownership, use or operation of the Acquired Assets by Seller or agents under the direction and control of Seller, nor (C) the manufacture or sale by Seller or agents under the direction and control of Seller of the processes, results or products of Seller, has violated or violates any foreign, federal, provincial or local statute, law, common law, rule, regulation, ordinance or order relating to air, water or noise pollution, employee health and safety, or the production, storage, labeling, transportation or disposition of waste or hazardous or toxic substances, (collectively, the "Environmental Laws"). Notwithstanding the foregoing, Seller's operation of the Business complies only in all material respects with any federal, provincial or local occupational, safety or health related laws or regulations. Seller has not received notice of any violation of any of the Environmental Laws, which has not been or is not being corrected, provided that Seller makes no representation hereunder with respect to Buyer's operation of the Business or the Acquired Assets after the Closing. (ii) Seller has timely obtained all licenses and permits and timely filed all reports required to be filed under the Environmental Laws. (iii) Seller has not, and no other person has, stored any chemical substances, including any hazardous substances, pollutants or contaminants, or petroleum (including crude oil or any fraction thereof), all of which are collectively referred to as "Chemical Substances", on, beneath or about any of the properties to be transferred to Buyer in connection with Seller's operations of the Business, except for inventories of such Chemical Substances to be used, and wastes generated therefrom, in the ordinary course of the business of Seller (which inventories and wastes, if any, were stored and disposed of in compliance with the Environmental Laws, including storage so that there was no release of any Chemical Substance to the environment which violated, or created any liability or obligation under, the Environmental Laws). 16 22 (iv) Seller has not, and no other person has, buried, dumped or otherwise disposed of, or permitted the intentional or accidental release of, any Chemical Substances, on, beneath or about the properties to be transferred to Buyer in connection with Seller's operation of the Business. (v) Seller has not received any notice from any Governmental Authority or private or public entity advising Seller that it is potentially responsible for response costs with respect to a release or threatened release of hazardous substances, pollutants or contaminants in respect to the properties to be transferred to Buyer. (vi) Seller has not, and no other person has installed, used, owned or operated any underground storage tank on or beneath the properties to be transferred to Buyer in connection with Seller's operation of the Business. (vii) There are no polychlorinated biphenyls, asbestos-containing materials or radioactive substances on, beneath or about the properties to be transferred to Buyer in connection with Seller's operation of the Business. (viii) To Seller's knowledge, no environmental approvals, clearances or consents are required under applicable law from any entity or authority in order for the parties to consummate the transactions contemplated by this Agreement (other than such as correspond to Licenses and Permits) or for Buyer to transact the Business after the Closing Date. (ix) Seller has disclosed, prior to the date of this Agreement, its waste practices, its use of Chemical Substances and all potentially material environmental matters and has disclosed all material reports, assessments, remedial action plans or other similar documents relating to the environmental condition of Seller's properties to be transferred to Buyer and operations. (g) Leases. Schedule 1.1(j) contains a description of all real and personal property leased by Seller in the conduct of the Business and all Leases thereto. (i) True, complete and accurate copies of all Leases, together with all amendments thereto, have previously been provided to Buyer. With respect to any Lease to which Seller is a party, Seller warrants that: (a) each such Lease has been duly authorized and executed by Seller, has not been modified, altered, terminated or revoked and is in full force and effect; and (b) Seller, as the present tenant under the Leases, is not in default under or in breach of any of such Leases. Seller knows of no existing fact or condition which could give rise to any such breach or default, or any claim against Seller, under the Leases. To the best of Seller's knowledge, the present lessors under the Leases 17 23 are not in default thereunder, or in breach thereof, and Seller knows of no existing fact or condition which could give rise to any such breach or default, or any claim against such lessors under such leases. (ii) Taxes. To Seller's knowledge, there are no taxes or local improvement levies payable by Seller other than ordinary property taxes pending, business and occupation tax payable against the Real Property. (iii) Utilities. All water, sewer, gas, electric, telephone, drainage and other utility equipment required by law or necessary for the current operation of the Real Property are installed and connected to the Real Property and such utilities are available in sufficient quantities and such connections are adequate to service the Real Property as it is currently used and operated. (iv) Conditions Except as set forth on Schedule 5.1(g), to Seller's knowledge, there are no material defects in the physical condition of any improvements constituting a part of the Real Property. (v) Compliance with Law; Government Approvals. Seller has received no notice from any governmental authority of any violation of any law, ordinance, regulation, license, permit or authorization issued with respect to any of the Real Property that has not been corrected heretofore and no such violation exists which could have a material adverse effect. (h) Contracts. Each of the Listed Contracts as set forth on Schedule 1.1(h) is in full force and effect, and is a legal, binding and enforceable obligation of Seller and, to Seller's knowledge, of the other parties thereto or against the parties thereto, subject to the Debtor Relief Laws. Neither Seller nor, to Seller's knowledge, any other party to any Contract is currently in breach or has improperly terminated any such Contract, or is in default under any Contract by which it is bound, and there exists no condition or event which, after notice or lapse of time or both, would constitute any such breach, termination or default. Except where third party consent to disclose has not been obtained, Seller has delivered to Buyer true, correct and complete copies of such Contracts, an accurate and complete description of such oral Contracts, if any, and all modifications and amendments thereto. (i) Financial Statements of Seller. 18 24 (i) In respect to the Business, Seller has delivered to Buyer its unaudited financial statements including: (i) Balance Sheets, (ii) Statements of Income and (iii) Statements of Cash Flow for the fiscal years ended 1995, 1996 and 1997 (collectively, the "Financial Statements", copies of which are attached hereto as Schedule 5.1(i)). The Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles consistently followed throughout the periods covered by such statements, and, at the statement dates and for the periods of the income statements, present fairly, in all material respects, the assets, liabilities, financial position and results of operations of the Business. (ii) The Net Current Asset Disclosure has been prepared in accordance with U.S. generally accepted accounting principles. (j) Liabilities. Seller has no liabilities or obligations (in excess of $50,000 individually or $100,000 in the aggregate) of any nature whatsoever, whether absolute, accrued, contingent or otherwise, except for those (i) reflected or reserved on the Net Current Asset Disclosure or Closing Date Net Current Asset Disclosure (ii) incurred or accrued since February 6, 1998 in transactions involving the purchase or sale of goods and services in the ordinary course of business, and consistent with the representations, warranties, covenants, obligations and agreements contained herein, or (iii) under the Contracts (exclusive of any liabilities or obligations which arise from defaults thereunder or breaches thereof prior to the Closing). There exists no event or circumstance which, after notice or lapse of time or both, might create any other obligations or liabilities of Seller with respect to the Business. (k) Accounts Receivable. All Accounts Receivable reflected on the Net Current Asset Disclosure have arisen in the ordinary course of the Business and are collectible in accordance with their terms net of any respective reserves shown on the Seller's books and records as of the date hereof. All Accounts Receivable represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. There is no contest, claim or right of set-off, other than rebates and returns or exchanges in kind arisen in the ordinary course of business, under any contract with any obligor of an Account Receivable relating to the contract or validity of such Account Receivable. (l) Inventories. All of Seller's Inventory reflected on the Net Current Asset Disclosure or Closing Date Net Current Asset Disclosure are usable or salable in the ordinary and normal course of business, of which the value is carried at the lower of cost or market and reflects write-offs, write-downs or reserves for damaged, excess or obsolete items in accordance with the historical inventory policy and practices of Seller. 19 25 (m) Pending Litigation. Except as set forth on Schedule 5.1(m), there is no litigation, claim, action, suit, proceeding, governmental investigation or inquiry pending or, to Seller's knowledge, threatened, against or in any manner involving Seller, relating to the Business, the Acquired Assets, the Assumed Liabilities or the transactions contemplated hereby. Seller is not subject to any judgment, decree, injunction, award or order outstanding relating to the Business or the Acquired Assets or the transactions contemplated hereby. (n) Customers and Suppliers. Except for employees of Seller, no parties or individuals other than those listed on Schedule 5.1(n) have had access to its customer lists, and Seller has maintained reasonably adequate measures to maintain the confidentiality of its customer lists. Since September 30, 1997, no substantial supplier has: (i) stopped, or indicated an intention to stop, trading with or supplying Seller, (ii) reduced, or indicated an intention to reduce, substantially its trading with or provision of goods or services to Seller, or (iii) changed, or indicated an intention to change, materially the terms and conditions on which it is prepared to trade with or supply Seller. No substantial supplier has informed Seller that, as a result of the transactions contemplated by this Agreement, that it intends to (i) not trade with or supply Buyer, (ii) reduce substantially its trading with or provision of goods or services to Buyer, or (iii) change the terms and conditions on which it is prepared to trade with or supply Buyer, as compared to Seller. Seller has no knowledge of any facts, conditions or events which might give rise to a claim by Seller against any of its suppliers or any claim by a supplier against Seller. Seller has not entered into any agreement or commitment with suppliers, except in the ordinary course, consistent with past practice. Except as set forth on Schedule 5.1(n), none of Seller's suppliers of materials to the Business is the sole source of such supply. (o) Regulatory Compliance. The Business has been conducted, and the Acquired Assets have been owned, used, operated and maintained, in full compliance with all applicable laws, regulations and other requirements of Governmental Authorities. Seller is not now in violation of any applicable laws, regulations or orders of any Governmental Authority, and no material expenditures are or will be required in order for the conduct of the Business or the ownership, use, operation or maintenance of the Acquired Assets to comply with any applicable laws, regulations or orders of any Governmental Authorities. (p) Brokers, Finders and Agents. Except for BT Alex. Brown Incorporated, whose fees and expenses shall be the sole responsibility of Seller or its Affiliates, Seller is not directly or indirectly obligated to anyone acting as a broker, finder or in any other similar capacity in connection with this Agreement or the transactions contemplated hereby. 20 26 (q) Intellectual Property. Except as set forth on Schedule 1.1(g), Seller owns or has the exclusive right to use, free and clear of any payment, restriction or encumbrance, all Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted. There is no claim or demand of any person pertaining to, or any proceedings which are pending or, to the best of Seller's knowledge, threatened, which relate to any Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted. No Intellectual Property owned by Seller or used in the conduct of the Business as presently conducted is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any Governmental Authority or infringes, violates or constitutes a misappropriation of the rights of others, or is being infringed, violated or misappropriated by others or used by others (whether or not such use constitutes infringement). The Business does not involve employment of any person in a manner which violates any non-competition or non-disclosure agreement which such person entered into in connection with any former employment. All statements of fact contained in any application for patents in any country, for trademark registration in any country or copyright registration in any country, that were filed by or on behalf of Seller are true, accurate, and complete in every material respect, and are in material compliance with applicable patent laws, and all pending patent applications, issued patents, pending trademark registration applications and copyright registration applications, and issued trademark and copyright registrations have been duly and properly filed. (r) Licenses and Permits. Set forth on Schedule 1.1(i) is a true and complete list of all Licenses and Permits. The Licenses and Permits include all licenses, permits and other authorizations from all Governmental Authorities (i) currently used by Seller in connection with the Business, or (ii) required to permit Seller to operate the Business in the manner in which it presently is conducted. (s) Labor Matters. Except as set forth on Schedule 5.1(s), with respect to employees of and service providers to Seller: (i) Seller is and has been in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such laws respecting employment discrimination, workers' compensation, family and medical leave, the Saskatchewan Human Rights Code and occupational safety and health requirements, and has not and is not engaged in any unfair labor practice; and no sex, age, disability, gender, race or religious discrimination claim has been made against Seller; (ii) there is not now, nor within the past three years has there been any unfair labor practice complaint against Seller pending or threatened before the Saskatchewan Labor Relations Board or any other comparable authority; there is not now, 21 27 nor within the past three years has there been any labor strike, lock-out, slowdown or work stoppage actually pending or threatened against or directly affecting the Business; no labor representation organization effort exists nor has there been any such activity within the past three years; and no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims therefor exist or have been threatened; (iii) except those employees subject to the Collective Agreement (as defined in Section 6.12(a)), all employees of Seller are employed on an at-will basis and may be terminated without cause and without penalty or liability to Seller; and (iv) All individuals who are or were performing services and are or were classified as "independent contractors" for tax purposes qualify or qualified for such classification, and Seller has fully and accurately reported their compensation on the applicable tax form. (t) Employee Plans. (i) Disclosure. Schedule 5.1(t) contains a list of all pension, bonus, profit sharing, retirement, employee share option, deferred compensation, welfare, insurance, disability, salary continuation and other similar plans, programs and agreements, currently maintained by Seller for the benefit of employees of Seller employed in the conduct of the Business ("Employee Benefit Plans"). The pension plans included in the Employee Benefit Plans are registered under and are in material compliance with all applicable federal and provincial legislation, and all reports, returns and filings required to be made thereunder have been made except where the failure to do so would not have a material adverse effect. Such pension plans have been administered in material compliance with their terms and the provisions of applicable law. Each such pension plan has been funded in accordance with the requirements of such plans and based on actuarial assumptions which are appropriate to the employees of the Business. Based on such assumptions, to the knowledge of Seller, there is no unfunded liability under any such pension plan. No funds have been withdrawn by Seller from any such pension plan or other Employee Benefit Plan. No Employee Benefit Plan is the subject of any law suit, arbitration or other proceeding concerning any benefit claim, breach of fiduciary duty or other matter, whether brought by or against a participant, a beneficiary, a trustee, a plan administrator, Seller or any officer, employee or director thereof. (ii) Claims and Litigation. Except as set forth on Schedule 5.1(t), there are no pending or, to Seller's knowledge, threatened claims, suits or other proceedings by present or former employees of Seller employed by Seller in the conduct of the Business, plan participants, beneficiaries or spouses of any of the above with respect 22 28 to or involving any of Seller's Employee Benefit Plans, or any rights or benefits thereunder, other than claims by participants or beneficiaries of such Plans for ordinary and usual benefits to which such beneficiaries of participants are entitled under the terms of such Plans. (u) Taxes. Seller has timely filed or received an appropriate time extension for the filing of all federal, provincial, local and foreign income, personal property, withholding, excise, unemployment, sales, goods and services and franchise tax returns and reports relating to Seller and the Business due as of the date hereof, and has fully paid and discharged all taxes due as indicated on such returns. Except as set forth in Schedule 5.1(u), no deficiencies for any taxes, assessment or other governmental charges have been asserted in writing or assessed against Seller which remain unpaid. Seller is not under audit with respect to any sales or income taxes related to the Business. (v) [INTENTIONALLY OMITTED] (w) Required Consents. Except as described on Schedule 5.1(w), no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with any individual, entity or Governmental Authority (collectively, "Required Consents") is required in connection with the execution, delivery or performance of this Agreement by Seller or the consummation by Seller of the transactions contemplated herein. (x) Absence of Certain Changes. Since December 31, 1997, except as set forth on Schedule 5.1(x) and Schedule 4.4(a)(v), there has not been: (i) any Material Adverse Change; (ii) any acquisition or disposition of any asset or property, or any agreement to do the same other than in the ordinary and regular course of business; (iii) created, incurred or permitted to exist any Lien on any of the Acquired Assets, except for Permitted Encumbrances; (iv) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting, either in any case or in the aggregate, the financial condition, results of operations or properties of the Business; (v) any increase in salary, bonuses or other compensation of any officers, employees, agents or independent contracts employed by Seller, except in the ordinary course of business, consistent with past practice, or any increase in executive 23 29 compensation nor has Seller entered into any employment, severance or other agreements, in a manner that increases liabilities; (vi) any individual capital expenditures in excess of $50,000 related to the Business; (vii) any non-cash dividend or non-cash distribution out of the Business; (viii) any change in accounting methods or practices, credit practices or collection policies used by Seller that would affect the Financial Statements; or (ix) any other event or condition experienced by Seller of any character which has materially adversely affected or could so materially adversely affect the assets, liabilities, financial position, results or operations, net worth or prospects of Seller. (y) Books and Records. The Books and Records are complete and correct in all material respects. Seller has made available to Buyer for examination the original or true and correct copies of all the Books and Records. (z) Affiliate Transactions. No director, officer or employee of any Affiliate of Seller, or member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is a party to any transaction with Seller. (aa) Accuracy of Representations. None of the representations, warranties or statements of Seller contained in this Agreement, in the Schedules and Exhibits hereto or in any other agreement or instrument executed or delivered by or on behalf of Seller at the Closing in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the representations, warranties or statements made, in the context in which made, not false or misleading. (bb) Goods and Services Exemption. Seller is registered for purposes of the GST Legislation, and the Acquired Assets comprise all or substantially all of the property used in the Business. 24 30 (cc) Zoning and Building Restrictions. The improvements on the Real Property comply with all applicable building and zoning restrictions and regulations. The Real Property is zoned in a manner which permits its present use. There are no outstanding work orders by any governmental authority respecting the Real Property or the improvements located thereon. 5.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller that the statements contained in this Section 5.2 are on the date hereof true and correct and on the Closing Date will be repeated true and correct as so made again: (a) Organization and Standing; Power and Authority. (i) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia, and has full corporate power and authority to make and perform this Agreement, and to perform the transactions contemplated by this Agreement. (ii) This Agreement has been, and all other agreements and instruments to be executed and delivered by Buyer in connection herewith have been, or as of the Closing Date will have been, duly executed and delivered by Buyer. This Agreement constitutes, and the other agreements and instruments all executed or to be executed by Buyer in connection with the transactions contemplated hereby constitute, or when executed and delivered by Buyer will constitute, the valid and binding obligations of Buyer, enforceable in accordance with their respective terms, except to the extent that enforceability may be limited by Debtor Relief Laws. (iii) The execution, delivery and performance of this Agreement and all other agreements and instruments to be executed and delivered by Buyer have been approved by all necessary corporate action by Buyer. (b) Articles of Incorporation and By-Laws. The copies of the Articles of Incorporation and By-Laws of Buyer, certified by its Secretary and delivered by Buyer to Seller, are true, correct and complete as of the date of this Agreement and have not been amended or modified in any respect. (c) Conflicts; Defaults. (i) Neither the execution and delivery of this Agreement and the other agreements and instruments executed in connection herewith by Buyer, nor the performance by Buyer of the transactions contemplated hereby or thereby, will (A) violate, conflict with, or constitute a default under, any of the terms of Buyer's Articles of Incorporation or By-Laws, or any provisions of, or result in the acceleration of any 25 31 obligation under, any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree to which Buyer is party or subject, (B) result in the creation or imposition of any Liens in favor of any third person or entity upon any of the assets of Buyer, (C) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority, or (D) constitute an event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration, or creation or imposition of Liens. (ii) Buyer is not, as of the date of this Agreement, in violation of or in default under its Articles of Incorporation or By-Laws, or any provision of any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree relating to its business, or by which Buyer is bound or in the payment of any of Buyer's monetary obligations or debts. (d) Brokers, Finders and Agents. Buyer is not directly or indirectly obligated to anyone as a broker, finder or in any other similar capacity in connection with this Agreement or the transactions contemplated hereby. (e) Required Consents. To the knowledge of Buyer, all Required Consents, which must be obtained or satisfied by Buyer for the consummation of the transactions contemplated by this Agreement have been obtained and satisfied. (f) Pending Litigation. Except as set forth on Schedule 5.2(f), no action, suit, or proceeding is pending or, to Buyer's knowledge, threatened against it before any court or quasi-judicial or administrative agency of any federal, provincial, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge which would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (iii) affect adversely the right of Buyer to own the Acquired Assets and to operate the Business and no written notice of the initiation of any such action, suit or proceeding has been received. (g) Accuracy of Representations. None of the representations, warranties or statements of Buyer contained in this Agreement or in any other agreement or instrument executed or delivered by or on behalf of Buyer at the Closing in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the representations, warranties or statements made, in the context in which made, not false or misleading. 26 32 ARTICLE VI COVENANTS OF SELLER 6.1 Notice of Claims. Seller covenants and agrees with Buyer that for the first twelve (12) months after the Closing Date, it shall give Buyer ten (10) days' prior written notice of its intent to assert any claim against any former supplier of Seller which, at the time of the assertion, is a supplier of Buyer. 6.2 Maintenance of, and Access to, Records. After the Closing Date, Seller shall provide Buyer with reasonable access (with an opportunity to make copies at Buyer's expense), during normal business hours, and upon reasonable advance notice, to all books records relating to the Business which are retained by it in accordance with this Agreement. Seller shall preserve and maintain the books and records relating to the Business retained by Seller for at least seven (7) years after the Closing Date or longer if required by any governmental agency. 6.3 Non-Solicitation. During the period commencing on the Closing Date and through and until the date five (5) years after the Closing Date, Seller and its Affiliates shall not, for any reason whatsoever, directly or indirectly, call upon or solicit any Covered Employee for the purpose or with the intent of enticing such employee away from or out of the employ of Buyer. As used herein, "Covered Employee" means an employee of Seller on the Closing Date who accepts employment with Buyer on or promptly after the Closing Date. 6.4 Limitations on Assignability. To the extent that any of the contract rights of Seller to be sold, transferred or assigned hereunder are not assignable without the consent of a third party, neither this Agreement, nor any of the instruments or documents executed and delivered in connection herewith or contemplated hereby, shall constitute an assignment or assumption thereof, or attempted assignment or attempted assumption thereof, if such assignment or attempted assignment, or assumption or attempted assumption, would constitute a breach thereof. If Seller has not obtained a consent or approval necessary for the assignment of any contract right to be assigned hereunder, then Seller shall use commercially reasonable efforts where required by Buyer to obtain such consents and approvals after the Closing, or, at Buyer's request, shall cooperate in any reasonable and mutually acceptable arrangement to provide to Buyer the benefits thereof subject to the performance by Buyer of Seller's obligations arising or to be performed after the Closing thereunder. Nothing contained in this Section 6.4 shall require Buyer to enter into, or to accept as a substitute for performance by Seller hereunder, any arrangement that would impose any additional cost, expense or liability on Buyer, or that would deprive Buyer of any benefits contemplated by this Agreement. In respect to any Contract that is not a Listed Contract nor is required to be a Listed Contract under Schedule 1.1(h), and 27 33 provided Seller provides a list of such Contracts prior to Closing, Buyer shall have the option to assume or reject any such Contracts. In the event Buyer elects to assume such a Contract, Buyer shall assume its liabilities and obligations pursuant to Section 2.1(c). In the event Buyer elects to reject such a Contract, Seller shall retain all rights, obligations and liabilities associated therewith. In respect to any Contract that is not a Listed Contract nor is required to be a Listed Contract under Schedule 1.1(h) of which Seller does not provide notice prior to Closing, Buyer shall assume any such Contracts, provided that if Buyer incurs any net loss by reason of any such assumption Seller shall reimburse Buyer for Buyer's losses with respect to all such Contracts in excess of $25,000 in the aggregate. 6.5 Pre-Closing Operations of Seller. Except as contemplated by this Agreement or as otherwise approved in writing by Buyer, from the date hereof until the Closing Date, Seller will conduct the Business in the ordinary course consistent with past practice (including, but not limited to, payment of all accounts payable as they come due consistent with past practice). Buyer shall have no access to Seller's employees or facilities except pursuant to Section 6.6. Subject to the foregoing exceptions, from the date hereof until the Closing Date: (a) Mergers and Sales. Seller will not merge, consolidate, or enter into a share exchange with any other corporation or other business entity, acquire any material stock or any material amount of assets of any other corporation or business entity, sell, lease, license, mortgage, pledge, or otherwise dispose of any material assets; (b) New Commitments; Non-Disclosure. Seller will not make any commitment or enter into any contract or agreement that is not in the ordinary course of business consistent with past practice, and neither Seller, nor any officer, employee, agent or representative of Seller shall sell or disclose Seller's customer lists to any third party except in the ordinary course of business consistent with past practice and to third parties as disclosed in Schedule 5.1(n); and (c) Compensation Increase. Seller will not increase in any manner the compensation or fringe benefits of any of its directors or officers, pay any pension or retirement allowance to any directors or officers, or become a party to, amend, or commit itself to any pension, retirement, profit-sharing, welfare benefit plan, or employment agreement with or for the benefit of any director or officer or amend any Seller Plan or Seller Benefit Arrangement, other than general increases in the compensation of, and the payment of bonuses to, officers in the ordinary course of business consistent with past practice. 6.6 Access to Records and Information. From the date hereof until the Closing Date, Seller will, upon reasonable advance notice, give Buyer's authorized representatives reasonable access during regular business hours to the offices, properties, books, and 28 34 records of Seller, and will furnish to its authorized representatives such financial and operating data and other information as such persons may reasonably request, for the purpose of evaluating changes in the financial condition, results of operations, or business of Seller after the date of this Agreement except any information in respect to prices or other competitive practices of Seller and will instruct Seller's employees having custody of such data, counsel, and financial advisors to cooperate with Buyer in its evaluation. Buyer shall communicate with respect to obtaining such data only with such employees of Seller as Seller has designated to Buyer in advance. 6.7 No Solicitation of Offers. Except as permitted in the Master Agreement, Seller shall use its best efforts to ensure that it does not take, directly or indirectly, any of the following actions with any party other than Buyer or its designees: (i) solicit, initiate, or participate in any negotiations, inquiries or discussions with respect to any Acquisition Proposal (as defined in the Master Agreement); (ii) disclose, in connection with an Acquisition Proposal, any information with respect to, or otherwise cooperate in any way with, or assist or participate in, any effort or attempt by any other person to do or seek any of the foregoing; (iii) enter into or execute any agreement relating to an Acquisition Proposal; or (iv) make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal other than with respect to the transactions contemplated by this Agreement. 6.8 Notices of Certain Events. In addition to any notices required under the Master Agreement, Seller shall promptly notify Buyer of the following: (a) Notice of Third Party that Consent is Required. Any notice or other communication from any person alleging that the consent of any third party is or may be required in connection with the transactions contemplated by this Agreement; (b) Notice from Governmental Authority. Any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) Legal Proceedings. Any actions, suits, claims, investigations, or proceedings commenced or threatened against, relating to, or involving or otherwise affecting Seller that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant hereto or that relate to the consummation of the transactions contemplated by this Agreement; and (d) Agreement Default. Any notice of, or other communication relating to, a default, or an event with notice or lapse of time or both would become a default, 29 35 under any material agreement that is received by Seller subsequent to the date of this Agreement. 6.9 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, Seller will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable under applicable laws or regulations to consummate the transactions contemplated by this Agreement, and will use commercially reasonable efforts to obtain such approvals and take such actions as are necessary, including without limitation using its best efforts to obtain all consents of any Person, whether private or governmental, so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby. 6.10 Risk of Loss. Seller will bear the risk of loss or damage to the Acquired Assets resulting from fire, theft, or other casualty at all times prior to and on the Closing. If any such loss or damage is so substantial as to prevent normal operation of any material portion of Seller's Business or the replacement or restoration of the lost or damaged material Asset within thirty (30) days after the occurrence of the event resulting in such loss or damage, Seller will immediately notify Buyer and Buyer, at any time within ten (10) days after receipt of such notice, may elect by written notice to Seller either (a) to waive such defect and proceed toward consummation of the acquisition of the Acquired Assets in accordance with the terms hereof, or (b) terminate this Agreement. If Buyer elects to consummate the transactions contemplated by this Agreement, there will be no separate adjustment in the Canadian Purchase Price related to such loss or damage but all insurance proceeds payable as a result of the occurrence of the event resulting in such loss or damage will be delivered by Seller to Buyer, or the rights to such proceeds will be assigned by Seller to Buyer and Seller will pay to Buyer (or Buyer may withhold from the Canadian Purchase Price) an amount equal to any deductible amount charged to Seller against the proceeds due for such loss. 6.11 Employment of Employees; Benefits. At or prior to the Closing, Buyer shall offer employment as of the Closing Date to all employees of Seller employed by Seller in the conduct of the Business to whom it would be legal for Buyer to offer employment at Seller's facility located in Saskatoon, Saskatchewan (the "Transferred Employees"). The Transferred Employees shall be listed on Schedule 6.11 to be provided at Closing. Schedule 6.11 shall also set forth each Transferred Employee's salary level, years of uninterrupted employment and years of service for benefit plan purposes. Buyer shall offer employment to each Transferred Employee at the same or substantially equivalent cash compensation as that provided by Seller to Transferred Employee immediately prior to the Closing Date. 30 36 6.12 Employee Benefits Plans. (a) For purposes hereof, "Collective Agreement" means the collective bargaining agreement respecting the unionized employees of the Business. Buyer agrees that, as of the Closing Date, it shall become the successor employer under the terms of the Collective Agreement and Buyer agrees that it shall advise the Transferred Employees who are subject to the Collective Agreement that they will be employed by Buyer as of and from the Closing Date, subject to the terms of the Collective Agreement. Buyer and Seller shall jointly give notice to the Transferred Employees in respect of the purchase and sale of the Acquired Assets pursuant to this Agreement and the consequential change of employer from Seller to Buyer. (b) If Buyer terminates the employment of any employee of the Business after Closing, Buyer shall be responsible for all obligations incurred after Closing and in connection with such termination. ARTICLE VII COVENANTS OF BUYER 7.1 Maintenance of, and Access to, Records. Buyer shall provide Seller with reasonable access (with an opportunity to make copies at Seller's expense) during normal business hours, and upon reasonable advance notice, to all books and records turned over to Buyer in accordance with this Agreement. Buyer shall preserve and maintain such books and records for at least seven (7) years after the Closing Date or longer if required by guidelines of any governmental authority. 7.2 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, Buyer will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement, and will use commercially reasonable efforts to obtain such approvals and take such actions as are necessary, including without limitation using its best efforts to obtain all consents of any Person, whether private or governmental, so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby. 31 37 ARTICLE VIII OTHER COVENANTS Seller and Buyer will jointly execute in prescribed form, and Buyer will file within the required time, an election under subsection 167(1) of the Excise Tax Act (Canada) that no tax be payable pursuant to the GST Legislation with respect to the purchase and sale of the Acquired Assets hereunder. ARTICLE IX INDEMNIFICATION The indemnification provisions of the Master Agreement shall apply to Buyer and Seller, and in addition, in the event the sale of the Acquired Assets pursuant to the terms of this Agreement is not eligible for the joint election or Revenue Canada, Customs & Excise, does not accept such an election by Seller and Buyer, Buyer shall indemnify and save harmless Seller from any goods and services tax, penalties, interest or other amounts which may be payable by or assessed against Seller under the Excise Tax Act (Canada). ARTICLE X TERMINATION 10.1 Termination Events. Subject to the other provisions of this Article X, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned: (a) By Buyer or Seller upon termination of the Master Agreement; (b) By mutual written consent of Seller and Buyer; (c) By Buyer pursuant to Section 4.4(a); (d) By Seller pursuant to Section 4.4(b); (e) As otherwise provided in Article 12 of the Master Agreement; or (f) By Buyer pursuant to Section 6.10. 32 38 10.2 Effect of Termination. In the event this Agreement is terminated pursuant to Section 10.1, all further obligations of the parties hereunder shall terminate, except as provided in Section 12.2 of the Master Agreement. No termination of this Agreement shall act to terminate or otherwise impair the obligations set forth in Section 13.4 of the Master Agreement (Expenses). ARTICLE XI MISCELLANEOUS 11.1 Survival of Representations and Warranties. All covenants and obligations to be performed after the Closing Date contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing and expire in accordance with their respective terms. All representations and warranties contained in this Agreement or in any other certificate or document delivered pursuant to this Agreement shall survive the Closing for a period of eighteen (18) months; provided, however, that any representations and warranties contained herein related to tax, benefits and environmental matters, and the indemnification obligation under Article IX of this Agreement shall survive the Closing for a period of six (6) months beyond the applicable federal or provincial statute of limitations (including extensions thereto). The waiver of any condition, based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, reimbursement, or other remedy based upon such representations, warranties, covenants or obligations. 11.2 Amendments. This Agreement may be amended only by a written agreement signed by Seller and Buyer. 11.3 Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or sent in accordance with Section 13.3 of the Master Agreement. 11.4 [INTENTIONALLY OMITTED] 11.5 Waiver. Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement. 33 39 11.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.7 Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, constitutes the entire agreement, and supersedes all other prior agreements (except as identified in the Master Agreement) and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter thereof. 11.8 Assignment. This Agreement shall not be assigned by either Buyer or Seller or by operation of law or otherwise, except with the written consent of the other party; provided, however, that Buyer shall be permitted to assign this Agreement as set forth in Section 13.8 of the Master Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 11.9 Governing Law; Time of the Essence. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (excluding the conflict of laws provisions thereof). Time is of the essence in the performance of this Agreement. 11.10 Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement. 11.11 Publicity. No press releases or public disclosure, written or oral, of the transactions contemplated by this Agreement shall be made by Buyer or Seller except in accordance with Section 13.11 of the Master Agreement. 11.12 Jurisdiction. In the event that any dispute should arise between Buyer and Seller with respect to any matter covered by this Agreement (other than disputes described in Section 3.3(c)), the parties hereto consent to the sole and exclusive jurisdiction of the state and federal courts of the United States and the State of Delaware located in Dover, Delaware in connection with the adjudication of any such dispute. 11.13 Legal Fees. In the event of any litigation between Seller and Buyer arising out of this Agreement, the party prevailing in such litigation shall be entitled to have its reasonable attorneys' fees and expenses reimbursed by the other party. 11.14 Actions. The parties will execute and deliver to the other, from time to time at or after the Closing, for no additional consideration and at no additional cost to the requesting party, such further assignments, certificates, instruments, records, or other 34 40 documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement. 11.15 Terms. All capitalized terms used herein shall have the meanings specified in this Agreement, or, if not so specified, the meanings specified in the Master Agreement. The word "include" and derivatives of that word are used in this Agreement in an illustrative sense rather than limiting sense. The term "Buyer's knowledge" or "Seller's knowledge" or words of similar import or limitation means the actual knowledge or conscious awareness, without independent investigation, of any executive officer of Buyer or Seller, as the case may be. 11.16 Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against either party. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. 11.17 Third Parties. Nothing expressed or implied herein is intended, or shall be construed, to confer upon or give any person or entity, including any employee of Seller, other than Seller and Buyer any rights or remedies under or by reason of this Agreement. [Signature Page Following] 35 41 IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this Agreement as of the date first above written. BUYER DISTRICT PHOTO INC. By:________________________________ Name: Title: SELLER NASHUA PHOTO LIMITED By:________________________________ Name: Title: 36 EX-11 17 COMPUTATION OF EARNINGS PER COMMON 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, ------------------------------------- 1997 1996 1995 ------- -------- -------- Income (loss) from continuing operations $(6,006) $ 19,575 $(20,878) Income (loss) from discontinued operations, net of taxes (2,816) (2,558) 6,147 Gain on sale of discontinued operation, net of taxes -- 8,434 -- ------- -------- -------- Income (loss) before extraordinary loss (8,822) 25,451 (14,731) Extraordinary loss on extinguishment of debt, net of tax benefit -- (1,257) -- ------- -------- -------- Net income (loss) $(8,822) $ 24,194 $(14,731) ======== ======== ========= Shares: Weighted average common shares outstanding during the period 6,385 6,378 6,374 Common equivalent shares -- 24 -- ------- -------- -------- 6,385 6,402 6,374 ======= ======== ======== Earnings (loss) per common share(1): Income (loss) from continuing operations $ (.94) $ 3.07 $ (3.28) Income (loss) from discontinued operations (.44) (.40) .97 Gain on sale of discontinued operation -- 1.32 -- ------- -------- -------- Income (loss) before extraordinary loss (1.38) 3.99 (2.31) Extraordinary loss on extinguishment of debt -- (.20) -- ------- -------- -------- Net income (loss) $ (1.38) $ 3.79 $ (2.31) ======== ======== =========
(1) The computation of earnings (loss) per common share on a fully diluted basis for the years ended December 31, 1997 and 1995 results in no change to the earnings per common share amounts indicated above. For the year ended December 31, 1996, income from continuing operations per common share assuming dilution was $3.06 and net income per common share assuming dilution was $3.78. -16- EX-13 18 1997 ANNUAL REPORT 1 Nashua Corporation and Subsidiaries FIVE YEAR FINANCIAL REVIEW
(In thousands, except per share data, number of employees and percentages) 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Operations Net sales $ 173,202 $ 218,310 $ 273,062 $ 273,447 $ 278,825 Gross margin percentage 23.1% 22.2% 15.7% 17.5% 19.2% Selling, distribution and administrative expenses as a percentage of sales 22.3% 20.7% 15.3% 17.7% 17.8% Income (loss) before interest expense and taxes as a percentage of sales(1) (5.7)% 16.3% (8.6)% (4.2)% (5.2)% Income (loss) before taxes as a percentage of sales(1) (5.8)% 15.1% (10.6)% (5.1)% (6.0)% Income (loss) as a percentage of sales(1) (3.5)% 9.0% (7.6)% (13.1)% (3.7)% Effective tax rate (39.9)% 40.5% (28.0)% (38.7)% (39.4)% Income (loss) before income taxes(1) $ (9,994) $ 32,922 $ (28,996) $ (13,850) $ (16,815) Income (loss) after taxes(1) (6,006) 19,575 (20,878) (8,486) (10,194) Income (loss) from discontinued operations (2,816) (2,558) 6,147 10,633 (8,975) Gain on disposal of discontinued operation -- 8,434 -- -- -- Extraordinary loss -- (1,257) -- -- -- Net income (loss) (8,822) 24,194 (14,731) 2,147 (19,169) Earnings (loss) per common share(2) Continuing operations(1) $ (.94) $ 3.07 $ (3.28) $ (1.33) $ (1.61) Discontinued operations (.44) (.40) .97 1.67 (1.41) Gain on disposal of discontinued operation -- 1.32 -- -- -- Extraordinary loss -- (.20) -- -- -- Net income (loss) (1.38) 3.79 (2.31) .34 (3.02) Financial Position Working capital $ 18,892 $ 21,173 $ 31,787 $ 46,789 $ 23,728 Total assets 146,762 176,689 231,372 227,825 219,065 Long-term debt 3,489 2,044 68,350 49,166 20,342 Total debt 4,000 2,855 68,850 49,816 25,742 Total capital employed 99,022 104,772 143,725 142,512 118,865 Total debt as a percentage of capital employed 4.0% 2.7% 47.9% 35.0% 21.7% Shareholders' equity $ 95,022 $ 101,917 $ 74,875 $ 92,696 $ 93,123 Shareholders' equity per common share 14.76 15.90 11.75 14.55 14.74 Other Selected Data Investment in plant and equipment $ 4,418 $ 8,977 $ 11,144 $ 12,306 $ 11,470 Depreciation and amortization 7,554 9,845 10,572 8,888 8,422 Dividends per common share -- -- .54 .72 .72 Return on average shareholders' equity (9.0)% 27.4% (17.6)% 2.3% (18.2)% Common stock price range: High $ 14 3/4 $ 19 5/8 $ 21 $ 30 3/4 $ 31 3/4 Low 9 1/2 9 1/8 12 1/4 19 3/4 25 1/4 Year-end closing price 11 5/8 12 13 5/8 20 1/2 27 1/2 Number of employees 2,041 2,398 3,447 3,054 4,011 Average common and potential common shares 6,433 6,402 6,374 6,360 6,343
See Business Changes Note to Consolidated Financial Statements for a description of certain matters relevant to this data. (1)Income (loss) is from continuing operations and includes restructuring and other unusual charges/(income) of $4.3 million for 1997 (2.5% of sales), $(1.7) million for 1996 (0.8% of sales), $16.2 million for 1995 (5.9% of sales), $2.6 million for 1994 (1.0% of sales) and $11.8 million for 1993 (4.2% of sales). Also, 1996 includes gains from the disposition of Cerion stock and Cerion's public stock offering of $32 million and $7.3 million, respectively. (2)For the year ended December 31, 1996, net income per common share assuming dilution and net income per common share from continuing operations assuming dilution were $3.78 and $3.06, respectively. For the year ended December 31, 1994, net income per common share assuming dilution and net loss per common share from continuing operations assuming dilution were $.33 and $1.33, respectively. 9 2 Nashua Corporation and Subsidiaries MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Corporate Matters In the fourth quarter of 1997, the Company announced its intention to sell its Specialty Coated Products Division and its international photofinishing businesses in Canada, Northern Ireland and the United Kingdom. In February 1998, the Company received an unsolicited offer to buy its photofinishing operations in the U.S., U.K. and Canada. On March 10, 1998, the Company reached an agreement to sell these operations for consideration of approximately $52.5 million in cash and the assumption of certain liabilities. Management anticipates that this sale will be consummated in the first half of 1998 and is also continuing discussions for the sale of its photofinishing business in Northern Ireland. As a result, the Company is exiting all of its photofinishing operations and has reported this segment as a discontinued operation in the accompanying consolidated financial statements. The Company has also decided to retain the Specialty Coated Products Division in light of its improved operating performance and prospects. During the second quarter of 1996, Cerion Technologies, Inc. ("Cerion") completed its initial public offering of common stock, which included the sale of shares of its stock owned by the Company, reducing the Company's ownership of Cerion to 37.1 percent. Accordingly, the Company no longer consolidates the results of Cerion and has accounted for its remaining interest under the equity method of accounting since the completion of the initial public stock offering. Results of Continuing Operations - 1997 Compared to 1996 Net sales from continuing operations for 1997 were $173.2 million, a 21 percent decrease compared to 1996. Excluding the net sales related to Cerion and to the liquid toner and the organic photoconductor ("OPC") drum product lines, which the Company exited during 1997, sales decreased 8 percent. Sales declines in the Imaging Supplies Division and Specialty Coated Products Division were partially offset by higher sales in the Label Products Division. The sales decrease was primarily due to lower volumes and pricing in the toner and developer, laser cartridge and paper product lines of the Imaging Supplies Division and in the carbonless and facsimile paper product lines of the Specialty Coated Products Division. Higher sales in the Label Products Division resulted from increased volume of higher margin products. In 1997, the Company recorded a net loss from continuing operations of $6 million, compared to net income from continuing operations of $19.6 million in 1996. The 1997 results included restructuring and other unusual charges of $4.3 million. The 1996 results included restructuring and other unusual income of $1.7 million, a $32 million pretax gain on the disposition of a portion of the Company's ownership in Cerion and a $7.3 million pretax gain from the Company's interest in the shares sold by Cerion. The Company's pretax operating results before all gains from dispositions and restructuring and other unusual charges improved from a loss of $8.1 million in 1996 to a loss of $5.7 million in 1997 due to improved profitability in the Commercial Products Group of $3.6 million and a $3.6 million decrease in Corporate expenses, including interest, partially offset by lower operating income from Cerion of $4.8 million. The increase in operating income in the Commercial Products Group resulted from improved productivity and a reduction in the group's manufacturing and operating expenses, partially offset by a reduction in sales volumes within the Imaging Supplies Division. Corporate expenses decreased in 1997 compared to 1996 primarily due to $2.3 million lower net interest expense and reduced incentive compensation expense. Operating income from Cerion declined in 1997 due to the Company's reduced ownership and Cerion's decrease in profitability in 1997 compared to 1996. The restructuring and other unusual charges of $4.3 million in 1997 included charges in the fourth quarter of $.6 million related to restructuring the corporate organization, a charge in the third quarter of $.9 million related to the sale of excess real estate in Nashua, NH, and a second quarter charge of $2.8 million for costs associated with restructuring certain distribution channels and aligning the workforce with levels of demand in the Commercial Products Group. The Company expects the actions being taken in the Commercial Products Group to be completed in the first half of 1998 and to result in an annualized benefit of approximately $5 million. The Company expects the actions being taken to reduce corporate expenses will be substantially completed by the end of 1998 and result in annualized savings in excess of $1 million. Details of the charges related to continuing operations and the activity recorded during 1997 are as follows: 10 3
Balance Current Current Balance Dec. 31, Year Year Dec. 31, (In thousands) 1996 Provision Charges 1997 - --------------------------------------------------------------------------------------------------------------------------- 1997 Activity: Provisions for severance related to workforce reductions $ 475 $2,604 $1,166 $1,913 Provisions for assets to be sold or discarded 1,178 1,650 2,078 750 Other 841 - 476 365 ------ ------ ------ ------ Total $2,494 $4,254 $3,720 $3,028 ====== ====== ====== ======
The 1997 provision for workforce reductions included amounts for salary and benefit continuation for 116 employees as part of the Commercial Products Group and Corporate reorganizations. The restructuring activities provided for in the balance at December 31, 1996 were substantially completed in 1997. Amounts incurred did not change materially from the reserve balance of $2.5 million at December 31, 1996. Administrative expenses were relatively unchanged from the prior year. Selling and distribution expenses decreased by 12 percent from 1996 as lower sales volume in the Commercial Products Group resulted in lower distribution costs, and lower sales commissions and bonuses reduced selling expense. Research and development expenses decreased by 15 percent year over year primarily due to the spin-off of Cerion and the reduction in spending in the Commercial Products Group. The effective tax rate for continuing operations was a benefit of 39.9 percent in 1997 compared to a charge of 40.5 percent in 1996. The 1997 tax benefit was greater than the U.S. statutory rate primarily due to state and local income taxes. The 1996 effective tax rate was greater than the U.S. statutory rate primarily due to state and local income taxes and the write-off of certain tax assets. Results of Continuing Operations - 1996 Compared to 1995 Net sales of $218.3 million decreased 20 percent from 1995, primarily due to lower volumes in the Commercial Products Group. The Company recorded net income from continuing operations of $19.6 million in 1996, compared to a net loss from continuing operations of $20.9 million in 1995. The 1996 results included restructuring and other unusual income of $1.7 million, a $32 million pretax gain on the disposition of a portion of the Company's ownership in Cerion and a $7.3 million pretax gain from the Company's interest in the shares sold by Cerion. The 1995 results included restructuring and other unusual charges of $16.2 million and the recognition of a $3.3 million valuation allowance against tax assets due to the probability that such assets would not be realized. The Company's pretax operating results before all gains from dispositions and restructuring and other unusual charges improved from a loss of $12.7 million in 1995 to a loss of $8.1 million in 1996, due to improved operating results in the Commercial Products Group and lower interest expense. This was partially offset by decreases in operating income in Cerion, including recognition of losses from the Company's continuing investment in Cerion. During 1996, the Company completed the sale of its Tape Products Division. The Company received $28 million for the net assets of the business resulting in an after-tax gain of $8.4 million. The results of the Tape Products Division's operations and the gain on the sale are reported as a discontinued operation. Also during 1996, the Company recorded an extraordinary after-tax charge of $1.3 million associated with the extinguishment of debt. Net restructuring and other unusual income of $1.7 million in 1996 included charges of $1.1 million for the cost of divesting the OPC drum product line and $1.4 million for functional realignments in Corporate, offset by income of $4.2 million associated with reassessment in 1996 of certain charges recorded in 1995 for product and channel rationalizations in the Commercial Products Group. Details of the charges related to continuing operations and the activity recorded during 1996 are as follows:
Balance Current Current Balance Dec. 31, Year Year Dec. 31, (In thousands) 1995 Provision Charges 1996 - ---------------------------------------------------------------------------------------------------------------------------- 1996 Activity: Provisions for severance related to workforce reductions $2,600 $ - $2,125 $ 475 Provisions for assets to be sold or discarded - 2,178 1,000 1,178 Other 2,200 401 1,760 841 ------ ------ ------ ------ Total $4,800 $2,579 $4,885 $2,494 ====== ====== ====== ======
The provision for assets to be sold or discarded relates primarily to the net assets of the OPC drum product line. All charges, excluding asset write-downs, are principally cash in nature and are expected to be funded from operations. Disposal of the assets was completed in 1997. The restructuring activities provided for in the balance at December 31, 1995 were substantially completed at December 31, 1996 and resulted in annualized savings of approximately $5 million. Net sales for the Commercial Products Group decreased $46.5 million, or 18.9 percent, due to lower volume across several product lines and the disposal of the office catalog supplies business in December 1995. Volume 11 4 declines were experienced in facsimile, carbonless and copy papers, label rollstock, toner, remanufactured laser printer cartridges and diskettes. Volumes increased slightly in certain converted label, dry gum and thermal facesheet products. The operating loss before restructuring and other unusual charges (income) decreased $4.6 million compared to 1995, primarily due to lower raw material costs, improved manufacturing productivity and reduced selling, distribution and administrative expenses. During the second quarter of 1996, Cerion completed the initial public offering of its common stock at a price of $13.00 per share. A total of 4,416,000 shares were sold, of which 1,615,000 were sold by Cerion and 2,801,000 were sold by the Company. The Company received net proceeds of $33.1 million and recorded a $32 million pretax gain on its sale of Cerion shares and a $7.3 million pretax gain from the Company's interest in the shares sold by Cerion. As a result of the sale, the Company's ownership of Cerion was reduced to 37.1 percent, and accordingly, the Company no longer consolidates the results of Cerion and has accounted for its remaining interest under the equity method of accounting since the completion of the initial public stock offering. On March 1, 1996, Cerion distributed a dividend to the Company in the form of a promissory note payable in the principal sum of $10 million bearing interest at the rate of 7.32 percent per annum from March 1, 1996 to September 30, 1996. The promissory note was repaid on May 31, 1996. Net sales recorded by the Company in 1996 related to Cerion were $19.3 million, compared to $27.5 million for 1995. The 1996 net sales were through May 23, 1996, the date immediately prior to the initial public offering of Cerion common stock. In 1996, the Company recorded $5.1 million of operating income from its equity interest in Cerion, compared to operating income on a consolidated basis of $6 million for 1995. Administrative expenses increased 3 percent as a result of increases in non-recurring legal expenses and increases in performance incentives. Selling and distribution expenses decreased 11 percent due to lower volumes in the Commercial Products Group. Research and development expenses increased 3 percent due to increased spending on Corporate projects and at Cerion prior to the transaction described above. The effective tax rate for continuing operations was 40.5 percent in 1996 compared to a benefit of 28 percent in 1995. The 1996 effective rate was greater than the U.S. statutory rate primarily due to state and local income taxes and the write-off of certain tax assets. The 1995 effective tax benefit was less than the U.S. statutory rate primarily due to the establishment of a valuation allowance against long-term tax assets. 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 $2.3 million from December 31, 1996, primarily due to a reduction in cash offset to a large extent by an increase in other current assets and decreases in accounts payable and accrued expenses, net of the effects of the reclassification of assets and liabilities to discontinued operations. Cash was used to fund operating losses and reduce accounts payable and accrued expenses. Other current assets increased due to tax benefits related to the operating losses. At December 31, 1997, the total debt as a percentage of equity increased to 4.2 percent from 2.8 percent at December 31, 1996. The Company suspended its quarterly dividend in 1995 and intends to review this 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 1997 were approximately $4.4 million. During 1997, the Company renegotiated a new secured $18 million line of credit of which $5 million is available exclusively for letters of credit. Borrowings under this facility are collateralized by a security interest in the Company's receivables and inventory. Interest on amounts outstanding under the line of credit is payable at 2 percent above the LIBOR rate. The maturity of this line of credit is April 3, 1999. The agreement contains certain financial covenants with respect to tangible net worth, liquidity and other ratios. In addition, without prior consent of the lenders, the agreement does not allow the payment of dividends and restricts, among other things, the incurrence of additional debt, guarantees, lease arrangements or the sale of certain assets. As of December 31, 1997, the Company was in compliance with these covenants. At December 31, 1997, borrowings of $2 million were outstanding under this secured revolving credit facility. On December 26, 1996, the Company entered into a note agreement under which the Company borrowed $2.6 million. The note is to be paid back in sixty equal monthly payments, starting in January 1997. The note bears interest per annum equal to 2.5 percent above the LIBOR rate which was 6 percent at December 31, 1997. The note is collateralized by a security interest in certain equipment. At December 31, 1997, the Company had $5.8 million and $2.3 million of net operating loss carryforward benefits and tax credit carryforwards, respectively, which are primarily available to offset certain future domestic taxable earnings. The net operating loss carryforward benefits expire as follows: $.5 million in 1999; $2.6 million in 12 5 2000; and $2.7 million thereafter. The tax credit carryforwards expire as follows: $.1 million in 1998; $.1 million in 1999; $.2 million in 2000; and $1.9 million thereafter. Management believes that the Company will generate sufficient future taxable income to realize deferred tax assets prior to the expiration of any net operating loss carryforwards or tax credit carryforwards and that realization of the net deferred tax assets is more likely than not. In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh") brought a lawsuit in the United States District Court of New Hampshire, alleging the Company's infringement of the U.S. patents 4,611,730 and 4,878,603 relating to certain toner cartridges for Ricoh copiers. In March 1997, the District Court enjoined Nashua from manufacturing, using or selling its NT-50 and NT-6750 toner cartridges. Sales of these products in 1996 amounted to one percent of Nashua's total sales. The Court left the subject of damages, if any, to subsequent proceedings. The Company disagrees with the Court's decision and has appealed to the United States Court of Appeals for the Federal Circuit. At the trial, Ricoh alleged that its damages would be approximately $10 million as of the date of the trial, and the Company alleged that such damages should be in the range of $.1 million to $.4 million. Ricoh is also seeking treble damages and attorneys' fees for willful infringement, but the Company believes an award for such damages is unlikely. The Company is awaiting the District Court's decision on damages and the Court of Appeals' decision. In August and September 1996, two individual plaintiffs initiated lawsuits in the Circuit Court of Cook County, Illinois against the Company, Cerion, certain directors and officers of Cerion, and the Company's underwriter, on behalf of classes consisting of all persons who purchased the common stock of Cerion between May 24, 1996 and July 9, 1996. These two complaints were consolidated. In March 1997, the same individual plaintiffs joined by a third plaintiff filed a Consolidated Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated Complaint alleged that, in connection with Cerion's initial public offering, the defendants issued materially false and misleading statements and omitted the disclosure of material facts regarding, in particular, certain significant customer relationships. In October 1997, the Court on motion by the defendants, dismissed the Consolidated Complaint. The plaintiffs filed a Second Amended Consolidated Complaint alleging substantially similar claims as the Consolidated Complaint seeking damages and injunctive relief. The Company believes this lawsuit is without merit, has substantial defenses and intends to vigorously defend against these allegations. 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, 1997, 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 $1.3 million to $1.5 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 PRPs are unable to bear their allocated share. At December 31, 1997, 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 the Company's 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. The Company is in the process of addressing the Year 2000 issue and expects to substantially complete the necessary conversions and implementations in 1998 and to be primarily testing changes in 1999. The Company does not expect the cost of this project to be material to the Company's business, operations or financial condition. Matters Affecting Future Results This Annual Report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. When used in this Annual Report, the words "expects," "anticipates," "believes," "can," "will" or similar expressions are intended to identify such forward-looking statements. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, completion of the sales of the Company's photofinishing businesses, the possibility of a final award of material damages in the patent litigation brought against the Company by Ricoh Company, Ltd. and the Cerion Litigation, fluctuations in customer demand, intensity of competition from other vendors, timing and acceptance of new product introductions, and general economic and industry conditions. The Company assumes no obligation to update the information contained in this Annual Report. 13 6 Nashua Corporation and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year Ended December 31, --------------------------------------------- (In thousands, except per share data) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Net sales $ 173,202 $ 218,310 $ 273,062 Cost of products sold 133,175 169,933 230,178 Selling, distribution and administrative expenses 38,557 45,123 41,699 Research and development expense 7,749 9,159 8,924 Restructuring and other unusual charges (income) 4,254 (1,733) 16,247 Equity in net (income) loss of Cerion Technologies (306) 135 -- Gain on disposition of Cerion Technologies stock -- (31,962) -- Gain on Cerion Technologies public stock offering -- (7,353) -- Interest expense 129 2,604 5,500 Interest income (362) (518) (490) --------- --------- --------- Total costs and expenses, net of Cerion Technologies gains 183,196 185,388 302,058 --------- --------- --------- Income (loss) from continuing operations before income taxes (9,994) 32,922 (28,996) Income taxes (benefit) (3,988) 13,347 (8,118) --------- --------- --------- Income (loss) from continuing operations (6,006) 19,575 (20,878) Income (loss) from discontinued operations, net of taxes (2,816) (2,558) 6,147 Gain on disposal of discontinued operation, net of taxes -- 8,434 -- --------- --------- --------- Income (loss) before extraordinary loss (8,822) 25,451 (14,731) Extraordinary loss on extinguishment of debt, net of taxes -- (1,257) -- --------- --------- --------- Net income (loss) (8,822) 24,194 (14,731) Retained earnings, beginning of period 85,757 61,563 79,744 Dividends -- -- (3,450) --------- --------- --------- Retained earnings, end of period $ 76,935 $ 85,757 $ 61,563 ========= ========= ========= Earnings per share Income (loss) from continuing operations per common share $ (.94) $ 3.07 $ (3.28) Income (loss) from discontinued operations per common share (.44) (.40) .97 Gain on disposal of discontinued operation -- 1.32 -- Extraordinary loss on extinguishment of debt -- (.20) -- --------- --------- --------- Net income (loss) per common share $ (1.38) $ 3.79 $ (2.31) --------- --------- --------- Income (loss) from continuing operations per common share assuming dilution $ (.94) $ 3.06 $ (3.28) Income (loss) from discontinued operations per common share assuming dilution (.44) (.40) .97 Gain on disposal of discontinued operation -- 1.32 -- Extraordinary loss on extinguishment of debt -- (.20) -- --------- --------- --------- Net income (loss) per common share assuming dilution $ (1.38) $ 3.78 $ (2.31) ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 14 7 Nashua Corporation and Subsidiaries CONSOLIDATED BALANCE SHEET
December 31, December 31, --------------------------- (In thousands, except share data) 1997 1996 - ----------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 3,736 $ 20,018 Accounts receivable 14,915 20,112 Inventories Materials and supplies 6,196 6,676 Work in process 3,650 2,498 Finished goods 4,791 7,494 --------- --------- 14,637 16,668 Other current assets 12,362 15,367 Net current assets of discontinued operations 120 -- --------- --------- 45,770 72,165 --------- --------- Plant and equipment Land 789 1,137 Buildings and improvements 27,371 35,754 Machinery and equipment 50,654 77,063 Construction in progress 2,206 4,623 --------- --------- 81,020 118,577 Accumulated depreciation (40,605) (58,459) --------- --------- 40,415 60,118 --------- --------- Investment in unconsolidated affiliate 7,524 7,218 Other assets 11,859 37,188 Net non-current assets of discontinued operations 41,194 -- --------- --------- Total assets $ 146,762 $ 176,689 ========= ========= Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt $ 511 $ 811 Accounts payable 12,595 22,678 Accrued expenses 13,772 24,880 Income taxes payable -- 2,623 --------- --------- 26,878 50,992 --------- --------- Long-term debt 3,489 2,044 Other long-term liabilities 21,373 21,736 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 6,715,495 shares in 1997 and 6,647,255 shares in 1996 6,716 6,647 Additional capital 12,129 12,107 Retained earnings 76,935 85,757 Cumulative translation adjustment -- (1,837) Treasury stock, at cost (758) (757) --------- --------- 95,022 101,917 --------- --------- Commitments and contingencies Total liabilities and shareholders' equity $ 146,762 $ 176,689 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 15 8 Nashua Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, ------------------------------------------ (In thousands) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities of Continuing Operations Net income (loss) $ (8,822) $ 24,194 $(14,731) Adjustments to reconcile net income (loss) to cash provided by (used in) continuing operating activities: Depreciation and amortization 7,554 9,845 10,572 Deferred income taxes (3,988) 8,622 (8,118) Write-down of long-lived assets to net realizable value -- 990 509 Loss on sale of excess real estate 900 -- -- (Income) loss from discontinued operations 2,816 2,558 (6,147) Gain on disposal of discontinued operation -- (8,434) -- Extraordinary loss on extinguishment of debt -- 1,257 -- Equity in net (income) loss of Cerion Technologies (306) 135 -- Gain on disposition of Cerion Technologies stock -- (31,962) -- Gain on Cerion Technologies public stock offering -- (7,353) -- Change in operating assets and liabilities, net of effects from acquisition and disposal of businesses: Accounts receivable 1,045 1,344 7,477 Inventories (370) 2,785 9,631 Other assets (1,481) 3,728 9,871 Accounts payable (4,624) 2,214 (6,280) Accrued expenses (4,375) (6,322) 9,692 Other long-term liabilities (61) 643 (3,848) Income taxes payable (149) 4,725 639 -------- -------- -------- Cash provided by (used in) operating activities (11,861) 8,969 9,267 Cash Flows from Investing Activities of Continuing Operations Investment in plant and equipment (4,418) (8,977) (11,144) Proceeds from sale of plant and equipment 825 -- -- Proceeds from repayment of Cerion Technologies notes -- 11,142 -- Proceeds from sale of Cerion Technologies stock, net -- 33,080 -- -------- -------- -------- Cash provided by (used in) investing activities (3,593) 35,245 (11,144) Cash Flows from Financing Activities of Continuing Operations Proceeds from borrowings 2,000 3,434 32,800 Repayment of borrowings (855) (69,429) (13,766) Dividends paid -- -- (3,450) Proceeds and tax benefits from shares issued under stock option plans 91 73 14 Extinguishment of debt -- (952) -- Purchase and reissuance of treasury stock (1) (6) 36 -------- -------- -------- Cash provided by (used in) financing activities 1,235 (66,880) 15,634 Proceeds from sale of discontinued operations -- 35,174 6,950 Cash applied to activities of discontinued operations (2,025) (1,289) (22,546) Effect of exchange rate changes on cash (38) 409 10 -------- -------- -------- Increase (decrease) in cash and cash equivalents (16,282) 11,628 (1,829) Cash and cash equivalents at beginning of year 20,018 8,390 10,219 -------- -------- -------- Cash and cash equivalents at end of year $ 3,736 $ 20,018 $ 8,390 ======== ======== ======== Interest paid $ 92 $ 3,387 $ 7,532 ======== ======== ======== Income taxes paid $ 2,428 $ 4,476 $ 6,580 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 16 9 Nashua Corporation and Subsidiaries 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 wholly-owned subsidiaries ("the Company"). Revenue Recognition: Sales are recognized at the time the goods are shipped or when title passes. Sale of Stock by a Subsidiary: The Company recognizes gains and losses on its subsidiary's direct sale of shares of stock in which the selling price of the subsidiary's shares is greater than or less than the Company's carrying value. 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, postretirement 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 remaining maturity of three months or less to be cash equivalents. The Company held no cash equivalents at December 31, 1997. At December 31, 1996, the Company held $13.9 million of various money market instruments carried at cost, which approximated market. Accounts Receivable: The consolidated balance is net of allowance for doubtful accounts of $1.2 million at December 31, 1997 and $1.8 million at December 31, 1996. Inventories: Inventories are carried at the lower of cost or market. Cost is determined by the first-in, first-out ("FIFO") method for approximately 61 percent and 66 percent of the inventories at December 31, 1997 and 1996, 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 $2.8 million and $2.9 million higher at December 31, 1997 and 1996, respectively. 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
The Company reviews the value of its plant and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill: Included in "Other Assets" and in "Net Non-current Assets of Discontinued Operations" 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 40 years. Goodwill amounted to $19.5 million and $22 million at December 31, 1997 and 1996, respectively, which is net of accumulated amortization of $10.4 million and $9 million, respectively. Goodwill included in "Net Non-current Assets of Discontinued Operations" amounted to $19.3 million at December 31, 1997. Goodwill included in "Other Assets" was $.2 million at December 31, 1997 and $22 million at December 31, 1996. The Company reviews the value of its goodwill whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. See the Business Changes note. Research and Development: Research and development costs are expensed as incurred. 17 10 Stock Compensation: The Company's employee stock option plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company follows disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." 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 and other tax credits. 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 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. 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. The Company places its temporary cash investments with high credit quality financial institutions and in high quality commercial paper 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 ongoing 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 commitments 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 ongoing 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 Potential Common Shares: In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Earnings per share for the years ended December 31, 1996 and 1995 have been restated accordingly. 18 11 Fair Value of Financial Instruments: The recorded amounts for cash and cash equivalents, other current assets, accounts receivable and accounts payable and other current liabilities approximate fair value due to the short-term nature of these financial instruments. The fair values of amounts outstanding under the Company's debt instruments approximates their book values in all material respects due to the variable nature of the interest rate provisions associated with such instruments. Reclassification: Certain amounts from the prior year have been reclassified to conform to the present year presentation. BUSINESS CHANGES During the second quarter of 1996, the Company and Cerion completed the initial public offering of common stock of Cerion at a price of $13.00 per share. A total of 4,416,000 shares were sold, of which 1,615,000 were sold by Cerion and 2,801,000 were sold by the Company. The Company received net proceeds of $33.1 million and recorded a $32 million pretax gain on its sale of Cerion shares and a $7.3 million pretax gain from the Company's interest in the shares sold by Cerion. As a result of the sale, the Company's ownership of Cerion was reduced to 37.1 percent, and accordingly, the Company now uses the equity method of accounting for its investment in Cerion common stock. During the fourth quarter of 1996, the Company completed the sale of its mainland European photo business. The Company received proceeds of approximately $7 million and recorded a net pretax loss of $1.7 million. During the second quarter of 1996, the Company recorded a $7 million charge in the mainland European photo business to write-down the value of its goodwill. In 1995, the Company acquired the mainland European photo business, along with a wholesale film processing business in Northern Ireland from Nexus Photo Ltd. 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, of which $12.7 million related to the mainland European photo business. Discontinued Operations: On March 10, 1998, the Company reached an agreement to sell the photofinishing businesses in the United States, the United Kingdom and Canada for consideration of approximately $52.5 million in cash and the assumption of certain liabilities. Management anticipates that the sale will be consummated in the first half of 1998. The Company is in discussions for the sale of its photofinishing business in Northern Ireland. The photofinishing businesses' results of operations are reported as discontinued operations for all periods presented. During the second quarter of 1996, the Company sold its Tape Products Division for approximately $28 million and, as a result, recorded an after tax gain of $8.4 million. The Tape Products Division results for 1996 and 1995, as well as the Photo Group's results for 1997, 1996 and 1995 are summarized as follows:
(In millions) 1997 1996 1995 - ----------------------------------------------------------------------------------------- Net sales $ 143.5 $ 195.0 $ 237.6 Income (loss) before income taxes (3.1) (3.4) 10.0 Income taxes (benefit) (.3) (.8) 3.9 ------- ------- ------- Income (loss) from discontinued operations $ (2.8) $ (2.6) $ 6.1 ======= ======= =======
The net assets of the discontinued operations in the December 31, 1997 consolidated balance sheet include:
(In thousands) - ----------------------------------------------------------------- Accounts receivable $ 2,874 Inventories 2,846 Accounts payable (6,028) Accrued payroll and other expenses (5,449) Other, net 5,877 -------- Net current assets of discontinued operations $ 120 -------- Plant and equipment, net $ 13,420 Long-term liabilities (863) Other, net 28,637 -------- Net non-current assets of discontinued operations $ 41,194 ========
19 12 Restructuring and Other Unusual Charges: The restructuring and other unusual charges from continuing operations of $4.3 million in 1997 included charges in the fourth quarter of $.6 million related to restructuring corporate activities, a charge in the third quarter of $.9 million related to the sale of excess real estate in Nashua, NH and a second quarter charge of $2.8 million for costs associated with restructuring certain distribution channels and aligning the workforce with levels of demand in the Commercial Products Group. The Company expects the actions being taken in the Commercial Products Group to be completed in the first half of 1998 and to result in an annualized benefit of approximately $5 million. The Company expects the actions being taken to reduce corporate expenses will be substantially completed by the end of 1998 and result in annualized savings in excess of $1 million. Details of the charges related to continuing operations and the activity recorded during 1997 are as follows:
Balance Current Current Balance Dec. 31, Year Year Dec. 31, (In thousands) 1996 Provision Charges 1997 - --------------------------------------------------------------------------------------------------------------------------- 1997 Activity: Provisions for severance related to workforce reductions $ 475 $2,604 $1,166 $1,913 Provisions for assets to be sold or discarded 1,178 1,650 2,078 750 Other 841 - 476 365 ------ ------ ------ ------ Total $2,494 $4,254 $3,720 $3,028 ====== ====== ====== ======
The 1997 provision for workforce reductions included amounts for salary and benefit continuation for 116 employees as part of the Commercial Products Group and Corporate reorganizations. The restructuring activities provided for in the balance at December 31, 1996 were substantially completed in 1997. Amounts incurred did not change materially from the reserve balance of $2.5 million at December 31, 1996. Net restructuring and other unusual income of $1.7 million in 1996 included charges of $1.1 million for the cost of divesting the OPC drum product line, $1.4 million for functional realignments in Corporate, offset by income of $4.2 million associated with reassessment in 1996 of certain charges recorded in 1995 for product and channel rationalizations in the Commercial Products Group. Details of the charges related to continuing operations and the activity recorded during 1996 are as follows:
Balance Balance Dec. 31, 1996 1996 Dec. 31, (In thousands) 1995 Provision Charges 1996 - --------------------------------------------------------------------------------------------------------------------------- 1996 Activity: Provisions for severance related to workforce reductions $2,600 $ - $2,125 $ 475 Provisions for assets to be sold or discarded - 2,178 1,000 1,178 Other 2,200 401 1,760 841 ------ ------ ------ ------ Total $4,800 $2,579 $4,885 $2,494 ====== ====== ====== ======
The provision for assets to be sold or discarded related primarily to the net assets of the OPC drum product line. All charges, excluding asset write-downs, were principally cash in nature. The restructuring activities provided for in the balance at December 31, 1995 were substantially completed at December 31, 1996 and resulted in an annualized savings of approximately $5 million. Restructuring and other unusual charges from continuing operations 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 included charges of $8.2 million and $8 million in the third and fourth quarters, respectively. The 1995 provision for workforce reductions included amounts for salary and benefit continuation for approximately 110 employees as part of the Commercial Products Group reorganization and product rationalization. The 1995 provision for assets to be sold or discarded included approximately $5.6 million related to cartridge inventory write-downs, as well as other asset write-downs resulting from product and channel rationalization within the Commercial Products Group. The cartridge inventory charges related primarily to excess empty cartridges received in 1995 under rebate programs and contractual obligations, most of which had been terminated by the end of 1995. 20 13 INDEBTEDNESS During 1997, the Company negotiated a new secured $18 million line of credit of which $5 million is available exclusively for letters of credit. Borrowings under this facility are collateralized by a security interest in the Company's receivables and inventory. Interest on amounts outstanding under the line of credit is payable at 2 percent above the LIBOR rate which was 6 percent at December 31, 1997. The maturity of this line of credit is April 3, 1999. The agreement contains certain financial covenants with respect to tangible net worth, liquidity and other ratios. In addition, without prior consent of the lenders, the agreement does not allow the payment of dividends and restricts, among other things, the incurrence of additional debt, guarantees, lease arrangements or sale of certain assets. As of December 31, 1997, the Company was in compliance with these covenants. At December 31, 1997, borrowings of $2 million were outstanding under the secured revolving credit facility. On December 26, 1996, the Company entered into a note agreement under which the Company borrowed $2.6 million. The note is to be paid back in sixty equal monthly payments, starting in January 1997. The note bears interest per annum equal to 2.5 percent above the LIBOR rate which was 6 percent at December 31, 1997. The note is collateralized by a security interest in certain equipment. At December 31, 1997, borrowings of $2 million were outstanding under this note agreement. During 1996, the Company renegotiated its unsecured $75 million revolving credit facility and its senior note agreement. Since September 29, 1995, the Company had not been in compliance with certain financial covenants and the lenders provided the Company with a forbearance during which time the parties negotiated amendments to the lending agreements in order to allow the Company to remain in compliance. As a result of the 1996 negotiations, the revolving credit facility was replaced by a bank facility (the "Bank Facility"). The Bank Facility designated $48 million that was outstanding under the previous revolving credit facility as a term loan with the remainder as outstanding under a new revolving credit facility. The Bank Facility had a total of $10 million of credit available under its revolving credit facility, of which $5 million was available exclusively for letters of credit. At December 31, 1996, the Company was obligated under approximately $3.7 million in standby letters of credit. Interest on amounts outstanding under the Bank Facility was payable at prime rate plus .5 percent. At December 31, 1996, there were no borrowings outstanding under the revolving credit facility portion of the Bank Facility. The revised senior note agreement increased the interest rate from 9.67 percent to 11.85 percent per annum. The Bank Facility required a commitment fee of .5 percent per annum on unused amounts, as well as a 2 percent per annum fee on letters of credit. INCOME TAXES The domestic and foreign components of income (loss) from continuing operations before income taxes are as follows:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------ Domestic $(8,359) $ 33,711 $(28,371) Foreign (1,635) (789) (625) ------- -------- -------- Consolidated $(9,994) $ 32,922 $(28,996) ======= ======== ========
Income tax expense (benefit) charged to continuing operations consists of the following:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------- Current: United States $ -- $ 4,180 $ -- State and local -- 545 -- ------- -------- -------- Total current -- 4,725 -- Deferred: United States (2,821) 7,206 (5,699) Foreign (502) (260) (205) State and local (665) 1,676 (2,214) ------- -------- -------- Total deferred (3,988) 8,622 (8,118) ------- -------- -------- Income tax expense (benefit) $(3,988) $ 13,347 $ (8,118) ======= ======== ========
21 14 Deferred tax liabilities (assets) from continuing operations are comprised of the following:
(In thousands) 1997 1996 - ------------------------------------------------------------------------ Depreciation $ 3,033 $ 3,249 Basis in Cerion stock 3,022 2,893 Other 2,238 1,027 -------- -------- Gross deferred tax liabilities 8,293 7,169 -------- -------- Restructuring (4,418) (2,663) Pension and postretirement benefits (8,718) (9,461) Loss and credit carryforwards (8,100) (7,004) Workers compensation accrual (474) (903) Inventory reserve (2,247) (1,139) Bad debt reserve (338) (811) Other (3,085) (1,893) -------- -------- Gross deferred tax asset (27,380) (23,874) Deferred tax assets valuation allowance 300 328 -------- -------- $(18,787) $(16,377) ======== ========
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:
1997 1996 1995 - ----------------------------------------------------------------------------------------------------- United States statutory rate (benefit) (35.0)% 35.0% (35.0)% State and local income taxes, net of federal tax benefit (4.3) 4.4 (5.0) Tax asset valuation 1.5 .7 11.4 Rate difference-foreign subsidiaries .7 .1 -- Other, net (2.8) .3 .6 ----- ---- ----- Effective tax rate (benefit) (39.9)% 40.5% (28.0)% ===== ==== =====
At December 31, 1997, $11.6 million and $11.9 million of net tax assets were included in "Other Current Assets" and "Other Assets," respectively. At December 31, 1996, $7.7 million and $8.7 million of net tax assets were included in "Other Current Assets" and "Other Assets," respectively. At December 31, 1997, the Company had $5.8 million and $2.3 million of net operating loss carryforward benefits and tax credit carryforwards, respectively, which are primarily available 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 $2.7 million thereafter. The tax credit carryforwards expire as follows: $.1 million in 1998; $.1 million in 1999; $.2 million in 2000; and $1.9 million thereafter. Management believes that the Company will generate sufficient future taxable income to realize deferred tax assets prior to the expiration of any net operating loss carryforwards or tax credit carryforwards and that realization of the net deferred tax assets is more likely than not. During 1997, the Company settled the dispute in connection with interest assessed as part of the 1990 and 1991 tax settlement. SHAREHOLDERS' EQUITY On July 19, 1996, the Company's Board of Directors adopted a Shareholder Rights Plan in which preferred stock purchase rights ("Rights") were distributed on September 2, 1996 to holders of record on August 15, 1996 ("Record Date") as a dividend at the rate of one Right for each share of the Company's common stock outstanding as of the close of business on the Record Date. These Rights replaced the rights outstanding under the Company's August 22, 1986 Rights Agreement, which expired on September 2, 1996. Rights will also attach to shares of common stock issued after the Record Date. Each Right will entitle the holders of common stock of the Company to purchase one one-hundredth of a share of Series B Junior Participating Preferred Stock of the Company ("Series B Stock") at an exercise price of $75.00 (subject to adjustment). Each share of Series B Stock would entitle its holder to a quarterly dividend of $1.00 per share, an aggregate dividend of 100 times any dividend declared on common stock and, in the event of liquidation of the Company, each such share would entitle its holder to a payment of $1.00 plus 100 times the payment made per share of common stock. Initially, the Rights will be attached to all certificates representing outstanding shares of common stock. The Rights will detach and become exercisable only after a person or group 22 15 acquires beneficial ownership of 10 percent or more of the common stock of the Company or announces a tender or exchange offer that would result in such person or group owning 10 percent or more of the common stock of the Company. After a person becomes the beneficial owner of 10 percent or more of the shares of common stock of the Company, except pursuant to a tender or exchange offer for all shares at a fair price as determined by the outside Board members, each Right not owned by the 10 percent or more shareholder will enable its holder to purchase that number of shares of the Company's common stock which equals the exercise price of the Right divided by one-half of the current market price of such common stock at the date of the occurrence of the event ("Triggering Event"). After the occurrence of a Triggering Event, the Company's Board of Directors may, at their option, exchange one share of common stock or one one-hundredth of a share of Series B Stock for each Right (other than Rights held by the 10 percent or more shareholder). In addition, if the Company is involved in a merger or other business combination transaction with another person or group in which it is not the surviving corporation or in connection with which its common stock is changed or converted, or it sells or transfers 50 percent or more of its assets or earning power to another person, each Right that has not previously been exercised will entitle its holder (other than the 10 percent or more shareholder) to purchase that number of shares of common stock of such other person which equals the exercise price of the Right divided by one-half of the current market price of such common stock at the date of the occurrence of the event. The Company will generally be entitled to redeem the Rights at $.01 per Right at any time until the 10th day following public announcement that a 10 percent stock position has been acquired and in certain other circumstances. The Rights will expire on September 2, 2006, unless earlier redeemed or exchanged. 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, 1997, the Company had purchased 435,659 shares under this authorization. The following summarizes the changes in selected shareholders' equity accounts for each of the three years in the period ended December 31, 1997:
Common Stock Cumulative Treasury Stock ------------------------ Additional Translation ------------------- (In thousands, except share data) Shares Par Value Capital Adjustment Shares Cost - ----------------------------------------------------------------------------------------------------------------------------------- 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) -- -- -- Purchase of treasury shares -- -- -- -- (110) (2) Reissuance of treasury shares -- -- -- -- 1,140 38 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 6,502,570 6,503 12,178 (4,618) (23,620) (751) Stock issued for Director compensation 4,685 4 69 -- -- -- Translation adjustments and gains and losses from certain inter-company balances -- -- -- 2,781 -- -- Restricted stock issuances 145,000 145 1,873 -- -- -- Deferred compensation -- -- (1,951) -- -- -- Restricted stock forfeiture (5,000) (5) (62) -- -- -- Purchase of treasury shares -- -- -- -- (410) (6) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 6,647,255 6,647 12,107 (1,837) (24,030) (757) Stock issued for Director compensation 7,740 8 82 -- -- -- Translation adjustments and gains and losses from certain inter-company balances -- -- -- (1,445) -- -- Restricted stock issuances 85,500 86 1,077 -- -- -- Deferred compensation -- -- (1,162) -- -- -- Restricted stock forfeiture (25,000) (25) (275) -- -- -- Deferred compensation forfeiture -- -- 300 -- -- -- Purchase of treasury shares -- -- -- -- (34) (1) Discontinuance of photofinishing segment -- -- -- 3,282 -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 6,715,495 $ 6,716 $ 12,129 $ -- (24,064) $(758) ========= ======= ======== ======= ======= =====
23 16 STOCK OPTION AND STOCK AWARD PLANS The Company has three stock compensation plans at December 31, 1997: the 1987 Stock Option Plan (1987 plan), the 1993 Stock Incentive Plan (1993 plan), and the 1996 Stock Incentive Plan (1996 plan). Awards may no longer be granted under the 1987 plan and the 1993 plan. Awards under the 1996 plan are made at the discretion of the Leadership and Compensation Committee of the Board of Directors (the "Committee"). Under the 1987 plan, nonqualified stock options and incentive stock options have been awarded and 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 Committee. Certain options may become exercisable immediately in the event of a change of control as defined under this plan. 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. Nonstatutory stock options, incentive stock options and shares of performance based restricted stock have been awarded under the 1993 plan and may be awarded under the 1996 plan. Stock options under both plans generally 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 Committee. Certain options may become exercisable immediately in the event of a change in control as defined under these plans. Nonstatutory stock options under both plans expire 10 years and one day from the date of grant, and incentive stock options expire 10 years from the date of grant. Performance based restricted stock awards under both plans have been 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 1997, the Company granted 85,500 shares of performance based restricted stock under the 1996 plan. Restrictions on such shares lapse either (i) in equal amounts when the average closing price of the Company's common stock reaches $20 and $25 for a consecutive 10 trading day period; (ii) in equal amounts when the average closing price of the Company's common stock reaches $18 and $20 for a consecutive 10 trading day period; or (iii) 100% upon the occurrence of certain significant events. Shares issued under the plans are initially recorded at their fair market value on the date of grant with a corresponding charge to additional capital representing the unearned portion of the award. Shares of performance based restricted stock are forfeited if the specified average closing prices of the Company's common stock are not met within five years of grant, the executive leaves the Company or if the said events do not take place within one year. In the event of a change in control, as defined in the 1987 plan, certain option holders 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. A summary of the status of the Company's fixed stock option plans as of December 31, 1997, 1996 and 1995 and changes during the years ended on those dates is presented below:
1997 1996 1995 ---------------------- ---------------------- ---------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - -------------------------------------------------------------------------------------------------------------------------- Outstanding beginning of year 469,714 $ 18.12 505,909 $ 22.88 385,834 $ 29.06 Granted 465,500 12.33 150,000 11.86 298,500 17.24 Exercised -- -- -- -- (1,000) 13.75 Forfeited - non-vested (33,950) 13.65 (35,775) 17.39 (88,775) 23.22 Forfeited - exercisable (42,060) 24.86 (147,520) 28.22 (88,650) 30.56 Expired (5,284) 28.75 (2,900) 19.38 -- -- - -------------------------------------------------------------------------------------------------------------------------- Outstanding end of year 853,920 $ 14.75 469,714 $ 18.12 505,909 $ 22.88 Options exercisable at end of year 402,420 $ 17.66 251,214 $ 22.04 239,459 $ 28.80 Weighted average fair value of options granted during the year (exercise price equals market price) $ 5.11 $ 4.88 $ 4.92
24 17 The following table summarizes information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable ------------------------------------------------------ -------------------------------- Weighted Number Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price - ----------------------------------------------------------------------------------------------------------------------------- $ 9.63 - $12.75 561,850 9.1 years $11.97 120,350 $11.59 13.38 - $19.75 209,800 7.9 years 16.63 199,800 16.69 22.63 - $27.00 42,570 6.0 years 25.74 42,570 25.74 28.13 - $34.63 39,700 2.2 years 32.26 39,700 32.26 --------------------------------------------------------------------------------------------------------------------- $ 9.63 - $34.63 853,920 8.3 years $14.75 402,420 $17.66
The number and weighted average fair value per share of restricted stock granted during 1997, 1996 and 1995 are as follows:
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Restricted Stock: Number of shares 85,500 145,000 105,000 Weighted average fair value per restricted share $ 5.56 $ 2.06 $ 2.56 Weighted average share price at grant date $ 13.59 $ 13.91 $ 13.38
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation." The Company continues to measure compensation cost using the intrinsic value based method of accounting prescribed by APB Opinion 25. If the Company had elected to recognize compensation cost based on the fair value of the options and restricted stock granted at grant date as prescribed by SFAS No. 123, net income and earnings per share would have been reduced to the pro forma amounts indicated below:
(In thousands, except per share amounts) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) - as reported $ (8,822) $ 24,194 $ (14,731) Net income (loss) - pro forma $ (10,675) $ 23,445 $ (15,188) Earnings (loss) per common share - as reported $ (1.38) $ 3.79 $ (2.31) Earnings (loss) per common share assuming dilution - as reported $ (1.38) $ 3.78 $ (2.31) Earnings (loss) per share - pro forma $ (1.67) $ 3.66 $ (2.38) Earnings (loss) per share - pro forma assuming dilution $ (1.67) $ 3.66 $ (2.38)
The assumptions and methods used in estimating the fair value at the grant date of options and restricted shares granted are listed below:
Grant Year -------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------- Volatility of share price: Options 33.0% 31.0% 28.0% Restricted stock 11.0% 6.0% 6.0% Dividend yield: Options -- -- 2.9% Restricted stock -- -- -- Interest rate: Options 6.3% 6.2% 6.4% Restricted stock 5.9% 5.6% 5.7% Expected life of options 5.3 years 5.6 years 5.9 years Valuation methodology: Options Black-Scholes Option Pricing Model Restricted stock Binomial Pricing Model
Because the determination of the fair value of all options granted includes vesting periods over several years and additional option grants are expected to be made each year, the above pro forma disclosures are not representative of pro forma effects of reported net income for future periods. 25 18 EARNINGS PER SHARE In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." As such, reconciliations of the numerators and denominators used in the earnings per share ("EPS") calculations are presented below:
Year Ended December 31, 1996 ----------------------------------------- Income Shares Per Share (In thousands, except per share data) (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations $19,575 Basic EPS ------------------------------------ Income available to common stockholders $19,575 6,376 $3.07 Effect of dilutive securities Stock options -- 26 ------------------------------------ Diluted EPS Income available to common stockholders plus assumed conversions $19,575 6,402 $3.06 ====================================
Since the effect of stock options of 49,542 shares in 1997 and 21,294 shares in 1995 would be antidilutive to loss per share computations, Basic EPS and Diluted EPS are identical for the years ended December 31, 1997 and 1995. The computations of EPS for 1997 and 1995 include shares (denominator) of 6,385 and 6,374, respectively. Performance based restricted stock of 305,500, 245,000 and 105,000 shares for the years ended December 31, 1997, 1996 and 1995, respectively, were not included in the above computations. Such shares may be issued in the future subject to the occurrence of certain events as described in the "Stock Option and Stock Award Plans" note. COMMITMENTS AND CONTINGENCIES Rent expense for office equipment, facilities and vehicles was $.8 million, $1 million and $1.1 million for 1997, 1996 and 1995, respectively. At December 31, 1997, the Company was committed, under non-cancelable operating leases, to minimum annual rentals as follows: 1998 - $.6 million; 1999 - $.3 million; 2000 - - $.3 million; 2001 - $.2 million; thereafter - $.5 million. At December 31, 1997, the Company was obligated under approximately $1.5 million in standby letters of credit. In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh") brought a lawsuit in the United States District Court, District of New Hampshire, alleging the Company's infringement of the U.S. patents 4,611,730 and 4,878,603 relating to certain toner cartridges for Ricoh copiers. In March 1997, the District Court decided to enjoin Nashua from manufacturing, using or selling its NT-50 and NT-6750 toner cartridges. Sales of these products in 1996 amounted to one percent of Nashua's total sales. The Court left the subject of damages, if any, to subsequent proceedings. The Company disagrees with the Court's decision and has appealed to the United States Court of Appeals for the Federal Circuit. At the trial, Ricoh alleged that its damages would be approximately $10 million as of the date of the trial, and the Company alleged that such damages should be in the range of $.1 million to $.4 million. Ricoh also is seeking treble damages and attorneys' fees for willful infringement, but the Company believes an award for such damages is unlikely. The Company is awaiting the District Court's decision on damages and the Court of Appeals' decision. In August and September 1996, two individual plaintiffs initiated lawsuits in the Circuit Court of Cook County, Illinois against the Company, Cerion, certain directors and officers of Cerion, and the Company's underwriter, on behalf of classes consisting of all persons who purchased the common stock of Cerion between May 24, 1996 and July 9, 1996. These two complaints were consolidated. In March 1997, the same individual plaintiffs joined by a third plaintiff filed a Consolidated Amended Class Action Complaint (the "Consolidated Complaint"). The Consolidated Complaint alleged that, in connection with Cerion's initial public offering, the defendants issued materially false and misleading statements and omitted the disclosure of material facts regarding, in particular, certain significant customer relationships. In October 1997, the Court on motion by the defendants, dismissed the Consolidated Complaint. The plaintiffs filed a Second Amended Consolidated Complaint alleging substantially similar claims as the Consolidated Complaint seeking damages and injunctive relief. The Company believes this lawsuit is without merit, has substantial defenses and intends to vigorously defend against these allegations. 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 26 19 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, 1997, 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 $1.3 million to $1.5 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 PRPs are unable to bear their allocated share. At December 31, 1997, 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 the Company's 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. 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 common stocks, fixed-income securities and interest-bearing cash equivalent instruments. 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) 1997 1996 1995 - ------------------------------------------------------------------------------------------------- Service cost-benefits earned during the period $ 1,669 $ 2,360 $ 2,005 Interest cost on projected benefit obligation 8,219 7,997 7,927 Actual return on plan assets (15,619) (14,691) (22,000) Net amortization and deferral 6,462 6,350 14,541 -------- -------- -------- Net periodic pension cost $ 731 $ 2,016 $ 2,473 ======== ======== ========
In 1996, the Company recognized a curtailment expense of $.3 million relating to the Tape Products Division sale. The following sets forth the funded status of the plans and the amounts recognized in the Company's consolidated balance sheet at December 31, 1997:
Accumulated Benefit Obligation ---------------------------------------- (In thousands) Less Than Assets Exceeds Assets - ------------------------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $ 111,630 $ 2,798 --------- ------- Accumulated benefit obligation $ 111,868 $ 2,802 --------- ------- Projected benefit obligation $ 113,742 $ 2,929 --------- ------- Market value of plan assets $ 125,011 $ -- --------- ------- Plan assets in excess of (less than) projected benefit obligation $ 11,269 $(2,929) Unrecognized transition obligation 484 44 Unrecognized prior service costs 3,977 501 Unrecognized net gain (22,862) (83) Additional liability -- (335) --------- ------- Accrued pension cost $ (7,132) $(2,802) ========= =======
27 20 The following sets forth the funded status of the plans and the amounts recognized in the Company's consolidated balance sheet at December 31, 1996:
Accumulated Benefit Obligation ----------------------------------------- (In thousands) Less Than Assets Exceeds Assets - -------------------------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $ 113,000 $ 2,682 --------- ------- Accumulated benefit obligation $ 113,460 $ 2,682 --------- ------- Projected benefit obligation $ 115,990 $ 2,695 --------- ------- Market value of plan assets $ 126,687 $ -- --------- ------- Plan assets in excess of (less than) projected benefit obligation $ 10,697 $(2,695) Unrecognized transition (asset) obligation (249) 55 Unrecognized prior service costs 4,342 600 Unrecognized net gain (20,811) (338) Additional liability -- (304) --------- ------- Accrued pension cost $ (6,021) $(2,682) ========= =======
Approximately $9.9 million and $10.3 million of the accrued pension cost for 1997 and 1996, respectively, are included in "Other Long-Term Liabilities" in the accompanying consolidated balance sheet. The significant actuarial assumptions used for the plans' valuations were:
1997 1996 - --------------------------------------------------------------------------------------------- Average discount rate 7.25% 7.1% Expected long-term rate of return on plan assets 9.70% 8.9% Rate of increase in future compensation levels 5.00% 4.6%
Retiree Health Care and Other Benefits: The Company provides certain health care and other benefits to eligible retired employees and their 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 are fully insured managed care plans. 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. 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) 1997 1996 - ----------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 7,045 $ 6,505 Fully eligible active plan participants 309 1,039 Other active participants 1,173 675 -------- -------- Market value of plan assets -- -- Accumulated postretirement benefit obligation in excess of plan assets (8,527) (8,219) Unrecognized prior service benefit (758) (818) Unrecognized net gain (2,285) (2,762) -------- -------- Accrued postretirement benefit cost $(11,570) $(11,799) ======== ========
Approximately $10.8 million and $11.1 million of accrued postretirement benefits for 1997 and 1996, 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 costs, included the following components:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- Service cost of benefits earned $ 59 $ 81 $ 85 Interest cost on accumulated postretirement benefit obligation 606 620 768 Amortization of prior service benefit (177) (370) (724) ----- ----- ----- Net periodic postretirement benefit cost $ 488 $ 331 $ 129 ===== ===== =====
28 21 For measurement purposes, a 5.5 percent annual rate of increase in the cost of medical benefits was assumed for the various plans in 1997. 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, 1997 would have increased by 1 percent. The effect of this assumed change on the aggregate of service and interest cost for 1997 would have been an increase of 3.5 percent. INFORMATION ABOUT OPERATIONS The Company conducts business in two segments: Commercial Products Group and Cerion. The Commercial Products Group produces and sells facsimile and thermal papers, pressure-sensitive labels, specialty papers, and copier and laser printer supplies primarily to domestic converters and resellers, original equipment manufacturers, end users and private label distributors. Cerion manufactures precision metallic parts primarily for the domestic computer industry. As previously discussed in the Business Changes note, the Company and Cerion completed an initial public offering of common stock in May 1996. As a result of the public offering, the Company's ownership of Cerion was reduced to 37.1 percent, and accordingly, the Company now uses the equity method of accounting for its investment in Cerion common stock. Net sales, operating income and identifiable assets of the Company's two 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) 1997 1996 1995 1997(a) 1996(b) 1995(c) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- By Business Commercial Products $ 173.2 $ 199.0 $ 245.5 $ (.6) $ 1.7 $ (20.4) $ 67.2 $ 77.5 $ 84.3 Cerion Technologies -- 19.3 27.5 .3 44.4 6.0 -- 7.2 12.4 Corporate expenses and assets -- -- -- (9.7) (13.2) (14.6) 38.3 16.3 37.1 Discontinued operations -- -- -- -- -- -- 41.3 75.7 97.6 - ----------------------------------------------------------------------------------------------------------------------------------- Consolidated $ 173.2 $ 218.3 $ 273.0 $ (10.0) $ 32.9 $ (29.0) $ 146.8 $ 176.7 $ 231.4 - ----------------------------------------------------------------------------------------------------------------------------------- By Geographic Area United States $ 172.4 $ 217.8 $ 272.7 $ 1.3 $ 46.9 $ (13.8) $ 66.9 $ 84.4 $ 96.7 Europe .8 .5 .3 (1.6) (.8) (.6) .8 .8 .8 Corporate expenses and assets -- -- -- (9.7) (13.2) (14.6) 37.8 15.8 36.3 Discontinued operations -- -- -- -- -- -- 41.3 75.7 97.6 - ----------------------------------------------------------------------------------------------------------------------------------- Consolidated $ 173.2 $ 218.3 $ 273.0 $ (10.0) $ 32.9 $ (29.0) $ 146.8 $ 176.7 $ 231.4 - -----------------------------------------------------------------------------------------------------------------------------------
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 $2.8 million and $1.5 million for Commercial Products Group and Corporate, respectively. (b)Includes restructuring and other unusual income (charges) of $3.1 million and $(1.4) million for Commercial Products Group and Corporate, respectively. Also includes gains of $32 million from the sale of Cerion stock and $7.3 million from the Company's interest in shares sold by Cerion. (c)Includes restructuring and other unusual charges of $14.3 million and $1.9 million for Commercial Products Group and Corporate, respectively. Capital expenditures and depreciation and amortization by business segment are set forth below:
Capital Expenditures Depreciation and Amortization ------------------------------ ------------------------------ 1997 1996 1995 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Commercial Products Group $4.4 $5.9 $ 9.0 $7.6 $9.0 $ 9.8 Cerion Technologies - 3.1 2.1 - .8 .8 ---- ---- ------ ---- ---- ------ Consolidated $4.4 $9.0 $11.1 $7.6 $9.8 $10.6 ---- ---- ------ ---- ---- ------
29 22 QUARTERLY OPERATING RESULTS AND COMMON STOCK INFORMATION (UNAUDITED)
1st 2nd 3rd 4th (In millions, except per share data) Quarter Quarter Quarter Quarter Year - ----------------------------------------------------------------------------------------------------------------------------------- 1997 Net sales $ 44.4 $ 43.2 $ 42.6 $ 43.0 $ 173.2 Gross profit 10.2 10.3 9.6 9.9 40.0 Loss from continuing operations(1), net of income taxes (.8) (2.9) (1.1) (1.2) (6.0) Income (loss) from discontinued operations (.6) .9 (2.0) (1.2) (2.8) Net loss(1) (1.4) (2.0) (3.1) (2.4) (8.8) Earnings (loss) per common share: Continuing operations(1) (.13) (.45) (.17) (.19) (.94) Discontinued operations (.09) .15 (.31) (.19) (.44) Net loss(1) (.22) (.30) (.48) (.38) (1.38) Market price: High 13 12 5/8 12 7/16 14 3/4 14 3/4 Low 11 7/8 10 1/2 9 1/2 11 1/4 9 1/2 1996 Net sales $ 64.5 $ 60.6 $ 45.3 $ 47.9 $ 218.3 Gross profit 12.9 13.9 9.8 11.8 48.4 Income (loss) from continuing operations(2) (1.3) 24.1 (3.7) .5 19.6 Income (loss) from discontinued operations (.7) (5.1) 4.3 (1.0) (2.5) Gain on disposal of discontinued operation -- 8.4 -- -- 8.4 Income (loss) before extraordinary loss (2.0) 27.5 .5 (.5) 25.5 Extraordinary loss on extinguishment of debt -- (1.3) -- -- (1.3) Net income (loss)(2) (2.0) 26.2 .5 (.5) 24.2 Earnings (loss) per common share: Continuing operations(2)(3) (.21) 3.79 (.59) .08 3.07 Discontinued operations (.11) (.81) .67 (.15) (.40) Gain on disposal of discontinued operation -- 1.32 -- -- 1.32 Income (loss) before extraordinary loss (.32) 4.30 .08 (.07) 3.99 Extraordinary loss on extinguishment of debt -- (.20) -- -- (.20) Net income (loss)(2)(3) (.32) 4.10 .08 (.07) 3.79 Market price: High 14 3/4 19 5/8 15 16 1/8 19 5/8 Low 9 1/8 12 3/8 12 5/8 11 7/8 9 1/8
(1)The second quarter includes restructuring and unusual charges of $2.8 million. The third quarter loss includes a pretax charge of $.9 million related to the sale of excess real estate. The fourth quarter includes restructuring and unusual charges of $.6 million. (2)The second quarter included gains of $32 million from the sale of Cerion stock, and $7.3 million from the Company's interest in the shares sold by Cerion. The fourth quarter includes restructuring and other unusual charges of $.2 million. (3)For the second and fourth quarters of 1996 and the year ended December 31, 1996, income from continuing operations per common share assuming dilution was $3.78, $.08 and $3.06, respectively. For the second and third quarters of 1996 and the year ended December 31, 1996, net income per common share assuming dilution was $4.09, $.07 and $3.78, respectively. The Company's stock is traded on the New York Stock Exchange. At December 31, 1997, there were 1,358 record holders of the Company's common stock. 30 23 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NASHUA CORPORATION: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and retained earnings and of cash flows present fairly, in all material respects, the financial position of Nashua Corporation and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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. /s/ Price Waterhouse LLP Price Waterhouse LLP Boston, Massachusetts February 4, 1998, except as to the Business Changes Note which is as of March 10, 1998. 31 24
Officers Gerald G. Garbacz Joseph R. Matson Commercial Products Group Chairman, President and Corporate Controller Chief Executive Officer Joseph I. Gonzalez-Rivas Vice President, General Manager William J. Manning Paul Buffum Assistant Treasurer John J. Ireland Vice President, General Vice President, General Manager Counsel and Secretary John L. Patenaude Assistant Treasurer Gene P. Pache Daniel M. Junius Vice President, General Manager Vice President-Finance, Peter C. Anastos Chief Financial Officer Associate General Counsel and Treasurer Daniel F. Lyman Bruce T. Wright Associate General Counsel Vice President Human Resources Suzanne L. Ansara Assistant Secretary Michael D. Jeans Vice President Group President
DIRECTORS Sheldon A. Buckler John M. Kucharski James F. Orr III Chairman Chairman and Chairman, President and Commonwealth Energy System Chief Executive Officer Chief Executive Officer EG&G, Inc. UNUM Corporation Gerald G. Garbacz (Technical and Scientific (Insurance) Chairman, President and Products and Services) Chief Executive Officer Nashua Corporation David C. Miller, Jr. Peter J. Murphy President and Chief President and Chief Charles S. Hoppin Executive Officer Executive Officer Partner ParEx Inc. Parlex Corporation Davis Polk & Wardwell (Investment Company) (Electrical Components) (Law Firm)
COMMITTEES Audit/Finance and Leadership and Investment Committee Compensation Committee Governance Committee John M. Kucharski, Chairman James F. Orr III, Chairman Sheldon A. Buckler, Chairman Sheldon A. Buckler John M. Kucharski Charles S. Hoppin Charles S. Hoppin David C. Miller, Jr. David C. Miller, Jr. Peter J. Murphy Peter J. Murphy James F. Orr III
32 EX-21 19 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 - -------- --------------- Nashua Belmont Limited(2) Delaware Nashua International, Inc.(1) Delaware Nashua Commercial Products Corporation(1) Delaware Nashua Photo European Investments, Inc.(2) Delaware Nashua Photo Inc.(1) Delaware Nashua Photo International Investments, Inc.(2) Delaware Nashua P.R., Inc.(1) Delaware Nippon Nashua Incorporated(1) Delaware Promolink Corporation(1) Delaware Jurisdiction of Foreign Incorporation - ------- --------------- 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 Postal Film Services (Country-Wide) Limited(4) England - ---------- All of the above listed subsidiaries are included in Nashua's consolidated financial statements. (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 Nashua Photo Limited (England) -17- EX-23 20 CONSENT OF PRICE WATERHOUSE 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, No. 33-72438 and No. 333-06025) of Nashua Corporation of our report dated February 4, 1998, except as to the Business Changes Note which is as of March 10, 1998, appearing in 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 in this Form 10-K. Price Waterhouse LLP Boston, Massachusetts March 24, 1998 -18- EX-24 21 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 - --------- ----- ---- /s/ Sheldon A. Buckler Director March 20, 1998 - ------------------------ -------------- Sheldon A. Buckler /s/ Charles S. Hoppin Director March 25, 1998 - ------------------------- -------------- Charles S. Hoppin /s/ John M. Kucharski Director March 20, 1998 - ------------------------ -------------- John M. Kucharski /s/ David C. Miller, Jr. Director March 20, 1998 - ------------------------ -------------- David C. Miller, Jr. /s/ Peter J. Murphy Director March 20, 1998 - ------------------------ -------------- Peter J. Murphy /s/ James F. Orr III Director March 25, 1998 - ------------------------- -------------- James F. Orr III -19- EX-27 22 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS, THE CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K FILING. 1,000 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 3,736 0 16,108 1,193 14,637 45,770 81,020 40,605 146,762 26,878 0 0 0 6,716 88,306 146,762 173,202 173,202 133,175 46,306 4,254 79 129 (9,994) (3,988) (6,006) (2,816) 0 0 (8,822) (1.38) (1.38)
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